August's Aircraft Report: the Airbus A318

London
Source: Flightglobal.com
This story is sourced from Flightglobal.com

The Airbus A318 celebrated its fifth year of service in July.

Airbus initial efforts to develop a 100-seat aircraft were focused on a new A31X programme, which included the baseline 95-seat A316 model and the 115 to 125-seat A317 variant.

Airbus and Alenia were planning the development in conjunction with AVIC of China and Singapore technologies. However the European manufacturer terminated an agreement in 1998 and independently studied the A319 market to launch a model called A319M5, meaning 'minus five frames'.

Airbus announced the industrial launch of the A318 in April 1999 based on 109 orders and commitments.

The principal changes from the A319 is the deletion of one and a half fuselage frame forward of the wing and three frames aft of the wing. With development of this aircraft, new systems such as liquid crystal displays were introduced in the cockpit. The aircraft also benefitted an improved air conditioning systems and electric alternate braking systems. The A318, which seats 107 passengers in a two class-configuration, retains the proven features of the other A320 family aircraft member while a high level of commonality with the A319 is maintained.

Maximum take off weight ranges from 130,050 lbs for the basic version to 150,800 lbs.

Of the 58 passenger aircraft fleet, the CFM56-5B8/P engine equips 43 aircraft while the 15 LAN Group aircraft are powered by the PW6122A engine.

Market

The A318 allowed Airbus to enter the 100-seat market and target the MD95 aircraft, which subsequent to the McDonnell Douglas' takeover by Boeing, was later renamed the Boeing 717-200.

The 717-200 has 155 aircraft in service. But the A318 can also be compared with the 737-500 and the 737-600s. Airbus claims its highest maximum take off weight version can fly 107 passengers to more than 3,100 nautical miles (nm), compared with 3,050 nm for the 737-600 version.

The A318 fleet currently includes 72 aircraft with 58 of them being passenger aircraft.

Air France is the largest operator of the type with 18 aircraft. Other operators include British Airways (two aircraft), Frontier Airlines (nine aircraft), LAN Airlines (13 aircraft), LAN Ecuador (two aircraft), Mexicana (10 aircraft) and TAROM (four aircraft).

The only backlog, estimated at 10 aircraft is for the 'Elite' corporate version.

The A318 programme reached as many as 161 aircraft sales at the end of 2000, but suffered sales setbacks as a result of the PW6000 engine delay. The first major blow was the loss of a 25-aircraft order from TWA after it was acquired by American Airlines. America West Airlines cancelled its 15 A318s after deferring its order by three years to 2006/07.

British Airways cancelled its entire 12-aircraft order but later switched two A320 slots for the A318 model for premium use application between London-City Airport and New York.

Air China originally committed to taking eight firm-ordered 107-seat A318s plus two options for delivery from 2003 but it eventually dropped its firm order and switched to the A319 model.

Egyptair also cancelled orders for five aircraft.

The lessor community represented 76 firm orders at some point. GATX had commitments ofr 12 aircraft, ILFC for 30, GECAS for 30 while CIT had an order for four aircraft. In the end only GECAS took delivery of the A318, albeit 12 of the original 30 order.

Air France became the first carrier in October 2003 to operate the four aircraft of the A320 Family with the delivery of its first A318. It introduced the type on European and domestic dense routes as a 737-300/500 replacement.

Mexicana leased its 10 A318 fleet from GECAS in 2003 and introduced the type the following year along with the A319/A320 models.

TAROM deployed its 100-seat A318s on European medium-haul network from its Bucharest base. The carrier also operates a mix of 737-300s and 737-700/800s and has reduced its Classic fleet.

Frontier Airlines introduced the A318 as a replacement for the 737-200 model on shorter routes to intermediate cities. At the time, Frontier was looking for a better range aircraft out of Denver and said direct operating costs were 20% lower than the 737-200 model.

The Frontier A318 fleet was the first to be affected by the carrier's restructuring plans. Two aircraft were sold last year to Q Aviation, which in turn sold it for part out. The aircraft were built in 2007.

Frontier's parent company Republic Airways Holdings announced last month plans to 'purchase or acquire on lease' a total of 14 A320 aircraft that have scheduled delivery dates beginning between January 2011 and November 2014. Republic will remove four A318s out of the Frontier Airlines' operation in September 2010. CAO understands that two 2004-vintage A318 aircraft will be returned to GECAS while the other two, believed to be 2007-vintage aircraft, will be sold to Q Aviation.

The news follows LAN Group's announcement at the July Farnborough air show to sell its entire A318 fleet as part of a fleet modernisation, which includes dozens more A320-family aircraft. The group announced earlier this year plans to sell five A318s. LAN strategic fleet renewal now involves the sale of the 15 A318s between 2011 and 2013.

Mexicana, which filed for bankruptcy early this month, operates 10 A318s on lease from GECAS.

The Frontier, Mexicana and LAN potential disposals means 29 aircraft involved in remarketing, or 50% of the current passenger fleet. CAO understands that some campaigns are underway, but while Airbus would have the resources to place some aircraft to other operators, placing an A318 is challenging.

Martin O'Hanrahan, Avitas' director asset valuation says the market for the A318 is very soft with little chance of any significant recovery. "Like the 737-600, it suffers from being a shrink of a larger design and is considered heavy for its size class."

Morten Beyer & Agnew (mba) says high operating costs per seat, low production and operator numbers make this a niche aircraft. "As the economy improves and operators look to add capacity, it is mba's opinion that mainline carriers will continue to look at larger A319/A320 sized assets which give greater capacity, lower seat costs and a more certain residual future," it comments.

IBA's senior analyst Alice Gondry says the A318 is the poor seller of the A320 family. "With an operating fleet of 58 aircraft amongst seven operators, the aircraft is very much a niche aircraft and consequently it demonstrates some marginalised value behaviour. The recent part-out of two 2007 vintage ex-Frontier aircraft highlights the disappointing market prospect of the type, but the high commonality of the parts makes it a viable option."

Gueric Dechavanne of Collateral Verifications says the current market for this aircraft has continued to be soft. "Demand for the type never really materialized, even during the peak of the last recovery which shows the requirement from operators just is not there. With such a small fleet and operator base, we expect this aircraft type to be phased out of most fleets over the foreseeable future."

The passenger market is limited. And the A318's future could be in the VIP/Corporate market, as its interior will be an advantage, but there it would face competition from the 'Elite' product.

"There might be a market for those who wish to convert some of these to an executive or VIP configuration as this market seems to have shown some interest in the type," he comments.

Dechavanne also expects more aircraft to be parted out. "We might see a few more aircraft being parted out as, in our opinion; the passenger market will continue to be limited for this aircraft."

CMVs and lease rates

IBA says lease rates for a 2003-vintage aircraft are between $155,000 and $175,000 a month, while Avitas' lease rates for the same vintage range from $145,000 and $165,000 a month. Collateral Verification says lease rates are $145,000 while mba estimates the lease rates at $140,000 a month.

A 2005-vintage aircraft would have lease rates in the $170,000 to $190,000 region for IBA, while Avitas' lease rates for the same vintage range from $160,000 and $180,000 a month. Collateral Verification says lease rates are $165,000 while mba estimates the lease rates at $170,000 a month.

A 2007-vintage monthly lease rates is at $195,000 a month for mba, Collateral Verification has a lease rates of $185,000. Avitas says the lease rates range from from $175,000 and $195,000 a month, while IBA's range is $185,000 to $205,000.

Current market values (CMV) are estimated by the four appraisers between $14.8 million and $29.2 million.

mba says that due to the lack of transactions, it has not made value differences between engine types in the past as it is difficult to ascertain the extent of any difference. "The CFM has the advantage of fleet commonality amongst the different A320 family variants however Air France, Frontier and Mexicana are the only major carriers that operate the A318 and either the A319 and/or A320. After overcoming the delays that plagued the introduction of the PW6000, the Pratt & Whitney engine is reportedly lighter and less expensive to maintain than its CFM counterpart. Once LAN, the only PW6000 operator, and Frontier start divesting their fleet we will be able to get a better understanding of value difference between the two airframe/engine combinations."

IBA also values the A318 aircraft identically whether PW or CFM engines powered with a maximum take off weight of 64,000 kg. It says a 2003-vintage has a CMV of $18.5 million. Collateral Verification says the CMV of a seven-year old aircraft is $14.8 million, while mba and Avitas' CMV are $15.3 million and $15.6 million, respectively.

A five-year old aircraft has a CMV of $16.3 million for Collateral Verification, $18 million for Avitas, $18.3 million for mba and $20.5 million for IBA.

A 2007-vintage aircraft has a CMV of $19.5 million for Collateral Verification, $21 million for Avitas, $21.9 million for mba and $22.8 million for IBA.

A 2009-delivery is valued at $23.3 million for Collateral Verification, $26.3 million for Avitas, $26.2 million for mba and $25.7 million for IBA.

"Looking forward, as the market continues to recover; Collateral Verification does not feel that this aircraft will rebound in value greatly, if at all," Dechavanne.