After many months of exploring options, German asset manager Dr Peters on 5 June disclosed plans to part out two ex-Singapore Airlines Airbus A380s, as talks with several carriers had failed to produce any agreement to lease the aircraft.
Speaking to FlightGlobal, Dr Peters chief executive Anselm Gehling estimates that the company can achieve a residual value of about $80 million per aircraft, consisting of $45 million from parting out the airframe, about $4 million from leasing the engines over the next 18 months, and $32-$33 million from selling the engines in 2020.
Flight Ascend Consultancy suggests a half-life base value of $78.4 million (assuming 2% inflation) for a 2008-vintage A380 in 2020.
Dr Peters will put its plan to investors on 28 June and hopes to start selling airframe components in mid-July.
The A380 has been something of a misadventure for financiers who invested in the type when it first started rolling off the production line. During its early days, the aircraft attracted orders from many top-tier airlines in Europe, Asia and the Middle East. It never gained traction with any US carriers, however, and momentum in finding new customers slowed to a stop, while repeat orders were incoming from only a handful of carriers.
Airbus had not booked an A380 order since December 2015 when it was earlier this year thrown a lifeline by Emirates, which signed a follow-on deal covering another 36 of the double-deck aircraft.
The European manufacturer – which has 105 still-to-be-delivered A380s in its orderbook, Flight Fleets Analyzer shows – has scaled back the type's production rate, to one aircraft per month in 2018 and eight across 2019 as a whole.
Original forecasts suggested a 220% return to KG fund investors, but Dr Peters has revised that to 145-155%, in addition to reducing the period of the fund by five years. It now matures in 2020.
"This is the only solution we have for these first two aircraft," says Gehling. "For first type of a new series, parting-out carries a very attractive return."
With no spare parts in the market, Dr Peters views its pole position as a bonus. "For these two aircraft, there is zero competition," says Gehling. "We can more or less dictate the price of these components."
Michael Lapson, a senior valuation analyst at Flight Ascend Consultancy, says Dr Peters "will have first-mover advantage because, prior to this first part-out, the main alternative supply of parts is from the manufacturers, at full price", but he adds: "The A380 part-out market is likely to be very finite, however, given the relatively small installed base and limited engine market because of TotalCare control by Rolls-Royce."
Dr Peters says the two aircraft it is parting out have returned between 3.8-4.2% per year since it established the funds in 2008. Given prevailing interest rates, Gehling sees a 4% return as "a very good result". For instance, German 10-year bonds have yielded less than 1% over the past four years, according to Bloomberg data.
"The commercial results we expect is a fantastic result," the chief executive Gehling says of the plan to part out the first two Singapore aircraft. "It's a much better option than a long-term lease at a low rate. That's why we couldn't make it work with [Portugeuse carrier] Hi Fly and BA."
Hi Fly confirms that it is still preparing to receive its first A380 this summer, and identifies the aircraft as MSN 006, of which Flight Fleets Analyzer lists Doric as owner. Doric did not immediately respond to requests for comment.
Flight Ascend Values Analyzer suggest a monthly lease rental of $929,000 in 2018 for a 2008-vintage A380.
And, while Dr Peters is hoping to have its part-out strategy approved by investors later this month, the company has not ruled out the secondary market for future A380s. It has an additional two A380s on lease to Singapore and five with Air France, and will consider its options for these aircraft as they come back.
However, consider the following fact: of the nearly 500 747-400s sold by Boeing, only 50 found homes in the secondary market, and only 25 of those went to new customers.
So, while Hi Fly is paving the way as the first secondary operator of the A380, it remains questionable whether there is a scalable secondary-user base sufficient to give this aircraft a second life.
Source: Cirium Dashboard