ANALYSIS: the Airbus A340-500 aircraft

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Airbus’s focus was on the ultra long-range market when it launched the four-engine A340-500 variant in the 1990s.

The aircraft, which first flew in February 2002 and was certified in December that year, was delivered to Emirates Airline, for use on its first US route from Dubai.

With a range of up to 9,000 nautical miles with maximum payload capacity, the A340-500 is operating on some of the world’s longest non-stop routes, including direct Singapore-Los Angeles flights with durations of nearly 19 hours.

Powered by four Rolls-Royce Trent 553 engines, it can fly 313 passengers in a three-class configuration and a maximum of 375 passengers.

Compared with the A340-300, the -500 features a 14.1ft fuselage stretch, an enlarged wing area, significant increase in fuel capacity, a larger horizontal stabilizer and a smaller vertical tailplane. To handle additional weights, Airbus changed the centerline main landing gear to a four-wheel boogie.

Airbus launched an increased gross weight version of the -500 in 2006, which was certified a year later.

The A340-500 model was briefly the world's longest-range commercial airliner until the introduction of its rival, the Boeing 777-200LR in 2006, which is subject to ETOPs restrictions having only two engines.

While the -600 version was the next logical step in the 1990s as the market looked to move up to 350 seats, the -500 with ultra-long range never really developed, as it was “killed off by higher fuel prices and limited premium demand for 18h nonstop flights”, according to Chris Seymour of Ascend.

Market

Airbus recorded 131 deliveries for its A340-500/600 programme.

There are 19 A340-500 aircraft in passenger service with five airlines and 10 units in storage, according to Flightglobal’s Ascend Online database. Airbus sold several A340-500s as government transports.

Advances in long-range twinjet operations over the years, particularly with the A330 and Boeing 777, reduced the appeal of four-engined aircraft.

Airbus said the A340 became a "build to order" programme in January 2010 and sales in the market since have been exclusively for the twin-engined A330s, which could serve most medium demand routes, and A350 variants that can handle the A340-500/600 markets. In November 2011, Airbus announced the end of its A340 production line, following years of dwindling sales. Orders for the A340 family reached 377 units.

The A340-200 and -300 logged 246 sales, since the programme's launch in 1987, but the later variants - the -500 and -600 - managed only 34 and 97 respectively, said Airbus.

Emirates is the largest A340-500 operator, with a 10-aircraft fleet. Singapore Airlines has five aircraft of the type, while Etihad Airways and Thai Airways International operate four aircraft each.

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Other operators include Arik Air, Azerbaijan Airlines and TAM Linhas Aereas with two aircraft each.

Thai Airways received its first A340-500 in 2005. At the time, it said the aircraft will open up a completely new market as the carrier was able to offer direct non-stop services between Thailand and the USA. The Thai carrier briefly used its A340-500 fleet for five-times weekly non-stop services from Bangkok to Los Angeles and New York. It switched to a one-stop service in 2007, due to high fuel costs.

Singapore Airlines first operated its non-stop flights between Singapore and Los Angeles and New York in two 181-seat classes, executive economy and business. It later switched to an all-business 100-seat class configuration on the routes, as the ultra long-haul flights primarily targeted business class travellers.

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Kingfisher Airlines also selected the A340-500 model to open up new markets in 2006. It placed a five-aircraft order to operate North America destinations from India. The Indian carrier never took delivery of the variant. Two delivery positions were transferred to Arik Air in 2008, another aircraft was sold to the Tunisian government in 2010 while the last two A340-500s were sold in 2012 to AJW Capital for further sale to Azerbaijan Airlines.

Nigeria’s Arik Air placed its A340-500s in service on the Lagos-London route and Lagos-Johannesburg route in 2008, with a non-stop route to New York added in January 2010.

Etihad Airways recently launched Sao Paulo and Washington destinations from Abu Dhabi with the A340-500 model.

Last month Emirates announced plans to part out its A340-500s. The Middle East carrier said it retired two units, and is breaking one for spares, to support the remaining eight in service.

The Dubai-based carrier introduced the ultra long-haul aircraft in 2003, meaning that its oldest unit is only 10 years old. But the high cost of fuel makes the aircraft uneconomic to fly now, according to Emirates Airline president Tim Clark.

“We’ve taken a big hit to retire them, but [their poor economics means] there’s no point in flying them,” said Clark. “They were designed in the late 1990s with fuel at $25-30. They fell over at $60 and at $120 they haven’t got a hope in hell.”

Clark says that Emirates is looking to accelerate the phase-out of its remaining eight A340-500s, and if it cannot find any buyers, “they’re going to the knacker’s yard”.

One aircraft was ferried to Ras al-Khaimah last month for parting out, while a second is stored in Dubai, where it may be retained as a back-up aircraft.

“When we bought it, it was the only aeroplane that could fly nonstop to the west coast of the USA or the east coast of Australia,” says Clark. “Unfortunately for Airbus, nobody foresaw fuel doing what it did.”


VVIP market

Out of production with a small fleet, the A340-500 faces question marks over its secondary market. And given the lack of appetite in the commercial aircraft market, Airbus has also turned to VVIP applications.

Last year the European airframer entered talks with potential customers in the Middle East forthe Singapore Airlines fleet, which is being purchased as part of the SIA’s additional A350-900 and A380 aircraft order.

"The A340-500s are being targeted for the VVIP market," said Francois Chazelle, vice-president for Airbus Corporate Jets in late 2012. "They are large and have a long range, and are perfect for this. In the VVIP configuration, they can go even further than the flights between Singapore and New York that SIA operated.

Thai has been trying to offload its fleet, and the sale to a private buyer for VVIP application appeared to be in limbo last month over a disagreement on the price of the aircraft.

Thai Airways’ president Sorajak Kasemsuvan said that UK-based aviation consulting firm, AvCon Worldwide, had proposed to buy one of the four A340-500s that were decommissioned in November 2012.

AvCon initially offered the airline $35 million for the aircraft and made a $2.5 million security deposit. Following an inspection, however, the offer was reduced to $23.5 million as the aircraft was due for heavy maintenance and two of its engines were “in an imperfect condition,” according to Kasemsuvan.

As the sale had not been approved by the carrier’s board of directors, it has since instructed Thai’s management to reconsider if the aircraft should be sold or re-enter operations.

Values and lease rates

The lack of market penetration, since its introduction 10 years ago, has not favoured the -500 series; however, some aircraft are currently moving.

Ascend’s head of market analysis Chris Seymour says the phasing out of the type by SIA and other leading operators, plus the parting-out of some aircraft, highlight the difficulties of remarketing the long-haul unit.

“The A340-500 suffers from having a small population and four engines. The higher fuel prices really impacted its seat-mile cost and the ultra long-range market, for which it was designed, has failed to develop the necessary demand and yields to make it an economic proposition. Singapore Airlines’ decision to end its nonstop New York services using 100-seat premium class -500s is evidence of this,” he says.

Seymour has a $35 million current market value for a 2003- and 2005-vintage aircraft with typical lease rates at $360,000.

Collateral Verifications’ Gueric Dechavanne is less optimistic about the type with a value of $28.5 million for a 10-year-old aircraft and $34 million for a 2005-vintage.

MBA’s Tom Burke says a 2003-vintage aircraft has a current market value of $39 million. A 2005-vintage is valued at $48 million with a base value of $54 million.

He says values are dropping “rapidly��.

Dechavanne agrees. “In the last 12 months, values and lease rates have dropped by about 10-15% depending on the vintage. We see this trend continuing during the next 12-18 months, especially with the introduction of the A350 in the not so distant future, which will most likely be used to replace the A340 on many routes,” he says.

ICF SH&E Angus Mackay says any concern with respect to values should be ascribed to residuals as the Trent 500 series engine and associated life limited parts may only be used on the A340-500 and -600.

“As a result, limited value may be realised in a part-out scenario, as a significant portion of the high value, saleable material is in the engine and associated parts. Residual value concerns also stem from the perceived lack of a viable independent engine aftermarket market engendered by OEM control through total care maintenance agreements and restrictive joint venture MRO arrangements. Roll-Royce, however, now appears to be actively engaged in ameliorating these concerns,” he says.

SH&E values a 2003-vintage aircraft at $37.9 million while a 2005-delivery is estimated at $42.7 million. IBA Group appraises the aircraft at $36 million and $41 million, respectively.

“In truth, neither the A340-500 nor A340-600 have been easy aircraft to appraise. This is because the models feature rather small fleets and narrow operator profiles, with little evidence of a secondary market activity. With this comes few transaction data points, unlike Airbus A340-200s/300s, where there are ample,” says Jonathan McDonald of IBA Group.

He says that with the parting out of one or two units by Emirates, a considerable proportion of the value should lie in the four Rolls-Royce Trent 553 engines. “This again poses a problem given Rolls-Royce heavy control of the Trent 500 aftermarket. Recent distressed trading activity of both the -500 and -600 has clouded the situation further and added a new level to the distress value for the A340 family,” he comments.

Dechavanne says some operators are replacing their A340s with some A330s, which could mean a larger supply of available aircraft in the near term. “There is some demand from the part-out market for this aircraft to support the existing fleet but this will only be the case for a small number of aircraft and should not have any significant impact on the existing supply of available aircraft. We have also seen some interest in the VIP conversion market but again, this will only be the case for a very small number of aircraft.”

A 2008-vintage aircraft has a $37 million current market value according to Ascend. Collateral Verifications says $43.2 million, while ICF SH&E and IBA Group value the aircraft in the $53 million range.

MBA is the highest of the five appraisers with a $63.9 million current market value.

Lease rates are $400,000 a month says Ascend for a 5-year-old aircraft. ICF SH&E says between $430,000-510,000 a month, while IBA believes lease rates range from $410,000-480,000 for a 2009-vintage aircraft.

Collateral Verifications has a rental rate of $525,000 a month and MBA says rates range from $575,000 to 650,000.

Lease rates for a 10-year-old aircraft are $400,000 a month says Collateral Verifications, while IBA says between $280,000 and $350,000. ICF SH&E says monthly lease rentals are between $270,000-$350,000 while MBA has a $400,000-450,000 range.