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Could The Entire A380 Program Be In Jeopardy  
User currently offlineUPS Pilot From United States of America, joined May 1999, 871 posts, RR: 3
Posted (7 years 11 months 3 weeks 5 hours ago) and read 5669 times:

Fed Ex cancelled. Rumours around UPS are that next week the A380 order will be converted to A330 freighters. Virgin postponed their order. Airbus only has listed on their website 159 aircraft on order. They need 470 on the books to break even. What are the chances of going on with the program?

[Edited 2006-11-10 01:48:32]

[Edited 2006-11-10 01:49:07]

25 replies: All unread, showing first 25:
 
User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Reply 1, posted (7 years 11 months 3 weeks 4 hours ago) and read 5596 times:

I think they have too much invested in the program to abandon it at this point. It may or may not garner more orders down the road, but I doubt that it will be scrapped before it enters service.

User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Reply 2, posted (7 years 11 months 3 weeks 4 hours ago) and read 5577 times:

Quoting UPS Pilot (Thread starter):
They need 470 on the books to break even. What are the chances of going on with the program?

IIRC the break even number is 420.



"When all is said and done, more will be said than done".
User currently offlineArcano From Chile, joined Mar 2004, 2409 posts, RR: 23
Reply 3, posted (7 years 11 months 3 weeks 4 hours ago) and read 5548 times:

Quoting Matt D (Reply 1):
I think they have too much invested in the program to abandon it at this point

Even harsher, It's a common mistake in business to keep running a division for all the money invested so far. It's called "Strategic commitment".

What it means? You refuse to end a project hoping somehow you'll return the investment, and worse, keep investing, when the more correct thing to do was to end it for avoiding more loses.

Regards )( Arcano



in order: 721,146,732,763,722,343,733,320,772,319,752,321,88,83,744,332,100,738, 333, 318, 77W, 78, 773 and 380
User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 4, posted (7 years 11 months 3 weeks 4 hours ago) and read 5534 times:
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Quoting UPS Pilot (Thread starter):
What are the chances of going on with the program?

110%. At worse, 5X and ILFC cancel the freighter and Airbus puts the program in suspension.

Even with VS's "cancellation", SQ and QF have committed to more. And I am sure Airbus is working miracles to get LH and AF to take more instead of the 748I - (http://www.airliners.net/discussions/general_aviation/read.main/3089699/). And as much as EK carps about the plane, they still have 45 on order.

Airlines like TG and MH and perhaps KE (if they take 748F as rumored) could walk, as they have six or less. EY is getting the test frames, so chances are the price is nice enough plus, like QR, they need them just to keep up with EK. Kingfisher and China Southern will probably keep theirs, as well.


User currently offlineDvautier From United States of America, joined Oct 2006, 46 posts, RR: 3
Reply 5, posted (7 years 11 months 3 weeks 4 hours ago) and read 5490 times:

I recently read that there were problems with the tail section of the airplane (I can’t find the link anymore—it’s gone). I also have not heard much about the RTO tests that are a big part of certification. RTO is refuse takeoff. And it is that point where you are rotating and have to stop because of engine failure or something. There was talk that the A380 may damage its tail section during an RTO test. Could this be a serious showstopper with a plane this big?

User currently offlineDLPMMM From United States of America, joined Apr 2005, 3594 posts, RR: 10
Reply 6, posted (7 years 11 months 3 weeks 3 hours ago) and read 5434 times:

The A380 program will continue.

It would be stupid for Airbus to cancel the program now (and this is from someone who remains sceptical about the A380 business case).

The future revenue streams and marginal profit per unit far outweigh the additional development costs to be incurred.

Anyone saying anything to the contrary is making an emotional outburst not based on finance and economics.

The question to be asked is whether Airbus can and should develop an A380-800R or an A380-900. Does the additional investment in these derivitives make any financial sense?


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 7, posted (7 years 11 months 3 weeks 3 hours ago) and read 5344 times:

Quoting DLPMMM (Reply 6):
The future revenue streams and marginal profit per unit far outweigh the additional development costs to be incurred.

DLPMMM, with respect, I don't know where the idea of 'marginal profit' comes from. EADS' October 3 Statement was commendably honest (possibly due to Streiff's influence) and it made it clear that the A380 programme will make an actual revenue LOSS until at least 2010.

"From an Income Statement perspective, the management estimates that the A380 series production will generate a cumulative programme EBIT* loss of around € 2.8 billion for the years 2006 to 2010, of which approximately € 1.1 billion is anticipated in 2006 and approximately € 0.7 billion in 2007. The A380 programme shall deliver a first positive EBIT* contribution in 2010. The management estimates that the A380 programme contributions will be substantial beyond 2010."

What's more, even that forecast depends on them achieving no less that 45 deliveries in 2010. I think we can all make a judgment, based on Airbus' current performance, as to what their chances are of working up to producing an A380 every eight DAYS, even by 2010?

"Following a detailed joint EADS / Airbus review of the A380 programme, Airbus has revised the A380 delivery schedule for the period 2007 to 2010. The first Airbus A380 series aircraft will be delivered in the second half of 2007. In 2008 Airbus plans to deliver 13 aircraft. In 2009, 25 A380s shall leave the final assembly line followed by 45 A380s in 2010, ."

What's more, looking at the last few words - "....with that year’s total including the first freighters." - and bearing in mind the recent freighter cancellations, even that forecast may already be out-of-date?

http://www.eads.com/web/lang/en/1024...F00000000400004/6/03/31000036.html



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineDLPMMM From United States of America, joined Apr 2005, 3594 posts, RR: 10
Reply 8, posted (7 years 11 months 3 weeks 2 hours ago) and read 5210 times:

Quoting NAV20 (Reply 7):
DLPMMM, with respect, I don't know where the idea of 'marginal profit' comes from. EADS' October 3 Statement was commendably honest (possibly due to Streiff's influence) and it made it clear that the A380 programme will make an actual revenue LOSS until at least 2010.

NAV20, Quite simple my friend, Take the additional investment required to bring the A380 to market plus any financing costs on the additional investment and then subtract that number from the contribution margin from each plane on order times the number of planes ordered (the gross profit on all outstanding orders)

I'm not claiming that the program will be profitable in the long run. The sunk costs must be disregarded when making a decision on going forward. Airbus will spend an additional $1-2 Billion, but the gross profit on the outstanding orders is in the tens of billions. It is a no brainer to go forward.

Good question though.

Cheers


User currently offlineDZ09 From United States of America, joined Sep 2006, 491 posts, RR: 1
Reply 9, posted (7 years 11 months 3 weeks 2 hours ago) and read 5197 times:

Where does the 420 break even number come from. What's the profit margin per plane?

User currently offlineDLPMMM From United States of America, joined Apr 2005, 3594 posts, RR: 10
Reply 10, posted (7 years 11 months 3 weeks 2 hours ago) and read 5172 times:

Quoting DZ09 (Reply 9):
Where does the 420 break even number come from. What's the profit margin per plane?

That number came from Airbus in a press conference last week. They did not disclose and profit margin per plane. Even the 420 number should be taken with a grain of salt in my opnion. I think it is optimistic.

Cheers


User currently offlineDZ09 From United States of America, joined Sep 2006, 491 posts, RR: 1
Reply 11, posted (7 years 11 months 3 weeks 2 hours ago) and read 5112 times:

W

Quoting DLPMMM (Reply 10):
That number came from Airbus in a press conference last week. They did not disclose and profit margin per plane. Even the 420 number should be taken with a grain of salt in my opnion. I think it is optimistic.

All these announcements don't make sense. They're scaring potential buyers away and worse jeopardizing orders and commitments made. I doubt very much that they need to sell 420 of these giants to break even. Who would want to make a commitment based on that information. 420 is tough number to achieve in such a tight market....


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 12, posted (7 years 11 months 3 weeks 2 hours ago) and read 5092 times:

Quoting DLPMMM (Reply 8):
subtract that number from the contribution margin from each plane on order times the number of planes ordered (the gross profit on all outstanding orders)

My point was that, according to EADS, the result of any such subtraction will be a minus number, DLPMMM.

Admittedly, the phrasing is a bit obscure, but "..the A380 series production will generate a cumulative programme EBIT* loss of around € 2.8 billion for the years 2006 to 2010, of which approximately € 1.1 billion is anticipated in 2006 and approximately € 0.7 billion in 2007" means that, on top of not recouping any of the development cost, Airbus expects to make a loss on the actual PRODUCTION of all frames up to 2010.

Worth remembering that production up to 2010, on EADS' own figures, is predicted to be 84 aircraft - more than half of the orders they have left. So, to summarise, besides losing out on all the development costs for the foreseeable future, they are actually proposing to PRODUCE most of the things at a loss, too.

Quoting DZ09 (Reply 9):
Where does the 420 break even number come from. What's the profit margin per plane?

DZ09, 420 deliveries is the point at which they would hope to have recouped both the production costs and the accumulated development costs, plus accrued interest. IMO a purely theoretical calculation at this time, and for many years to come.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineDLPMMM From United States of America, joined Apr 2005, 3594 posts, RR: 10
Reply 13, posted (7 years 11 months 3 weeks 2 hours ago) and read 5026 times:

Quoting NAV20 (Reply 12):
Admittedly, the phrasing is a bit obscure, but "..the A380 series production will generate a cumulative programme EBIT* loss of around € 2.8 billion for the years 2006 to 2010, of which approximately € 1.1 billion is anticipated in 2006 and approximately € 0.7 billion in 2007" means that, on top of not recouping any of the development cost, Airbus expects to make a loss on the actual PRODUCTION of all frames up to 2010.

The 1.1B euro loss for 2006 is essentially a sunk cost at this point as 2006 is essentially over and must be ignored when looking at a decision on going forward. The .7 Billion Euro loss for 2007 is no suprise as Airbus has built and must maintain a production line but is only planning to deliver 1 A380 in 2007 due to the wiring screw-ups.. That leave 1 B euros of costs (primarily in 2008 and tapering down to 2010 as production is ramped up to 45 planes per year. At full production, the production line should be producing some $12 to $15 Billion per year in revenue, and of this some 20%+ should be free cash flow (or some $3 billion per year).

That is the reason they must go forward now.


User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 14, posted (7 years 11 months 3 weeks 1 hour ago) and read 5018 times:

Quoting UPS Pilot (Thread starter):
What are the chances of going on with the program?

The one way I forsee Airbus cancelling the program is if EK walks out. Without their 40+ orders the program is nothing and should be ended.


User currently offlineEMBQA From United States of America, joined Oct 2003, 9364 posts, RR: 11
Reply 15, posted (7 years 11 months 3 weeks 1 hour ago) and read 5018 times:

Think of it this way, 1/3 of all the orders placed over the last 3 years were cancelled with FedX. If UPS follows... that will 100% for the freighter version....!! and a large chunk of the total order.


"It's not the size of the dog in the fight, but the size of the fight in the dog"
User currently offlineDZ09 From United States of America, joined Sep 2006, 491 posts, RR: 1
Reply 16, posted (7 years 11 months 3 weeks 1 hour ago) and read 5006 times:

What's the operating cost of an A380 vs a 777, and what the list price of each?

User currently offlineUnited787 From United States of America, joined May 2005, 2730 posts, RR: 2
Reply 17, posted (7 years 11 months 3 weeks 1 hour ago) and read 4981 times:

Quoting Futurecaptain (Reply 14):
The one way I forsee Airbus cancelling the program is if EK walks out. Without their 40+ orders the program is nothing and should be ended.

What people don't realize is that even with the delays, most of the money has already been spent. There would be nothing to gain if the program was cancelled now, several planes have already been built and once the wiring gets figured out, they will be ready to be sold.


User currently offlineN754PR From , joined Dec 1969, posts, RR:
Reply 18, posted (7 years 11 months 3 weeks 1 hour ago) and read 4852 times:

How many times are people going to ask the same questions on the A380? Unless Airbus Cancel the project there is not going to be an answer from anyone on this forum!

The aircraft has not flown in service, once it does and if it can do what they promised there is no reason why more airlines will not order them, INCL Fedex in the future. Its clear they cancelled the A380 for operations reasons and not the delay. If they wanted other big aircraft then why not order the 748F?

Anyway people can post A380 this that and the other every day of the year (and they do) but there are NO answers yet.


User currently offlineFlyDreamliner From United States of America, joined Jan 2006, 2759 posts, RR: 15
Reply 19, posted (7 years 11 months 3 weeks ago) and read 4846 times:

Quoting Stitch (Reply 4):

Even with VS's "cancellation", SQ and QF have committed to more. And I am sure Airbus is working miracles to get LH and AF to take more instead of the 748I -

Airbus isn't really working miracles for A380 at this point. At this point, they are all but handing out additional frames for free to keep orders secured. With Boeing's recent success, they have the cash to offer some pretty unbeatable deals to launch the 748I. Airbus needs to prove something with A380 in a big hurry.

I don't think airlines want more A380s that haven't taken them. It's a very niche aircraft. It just doesn't have the versatility of smaller jets.

Quoting DZ09 (Reply 16):
What's the operating cost of an A380 vs a 777, and what the list price of each?

It's all but impossible to compare the two apples to apples.



"Let the world change you, and you can change the world"
User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 20, posted (7 years 11 months 3 weeks ago) and read 4773 times:

Quoting United787 (Reply 17):

I'm just thinking outload here. IF EK were to cancel (hypothetically) then there vanishes a good 1/3 of the order book and theoretically EVERY plane on order would be delivered at a loss. Thereby inducing a reason to end the program and write off the loss and work on a narrowbody replacement.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 21, posted (7 years 11 months 3 weeks ago) and read 4759 times:

Quoting Futurecaptain (Reply 20):
IF EK were to cancel (hypothetically) then there vanishes a good 1/3 of the order book and theoretically EVERY plane on order would be delivered at a loss.

VERY good point, Futurecaptain.

And if you add in the fact that EK = Dubai = a possible share-buying 'virtual takeover' of EADS by Russian/Arab interests acting in combination, you can get a rough idea of the high-stakes game which I suspect is being played out in Paris, Berlin, Moscow, and the Emirates at the present time.

"You ain't seen nuthin' yet......."  Smile

[Edited 2006-11-10 06:30:06]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineSJCRRPAX From , joined Dec 1969, posts, RR:
Reply 22, posted (7 years 11 months 2 weeks 6 days 23 hours ago) and read 4657 times:

I think you guys got to step back and take a deep breath.... The A380 will be a great aircraft a couple of years late in delivery but will be around for many more. Think A320 only larger.

User currently offlineWingedMigrator From United States of America, joined Oct 2005, 2218 posts, RR: 56
Reply 23, posted (7 years 11 months 2 weeks 6 days 22 hours ago) and read 4601 times:

Quoting Futurecaptain (Reply 20):
IF EK were to cancel (hypothetically)

This seems a rather far-fetched scenario given that Tim Clark has ruled out cancellation following the current delay situation.

Of course, ne jamais dire jamais... stranger things have come to pass recently.


User currently offlineWingedMigrator From United States of America, joined Oct 2005, 2218 posts, RR: 56
Reply 24, posted (7 years 11 months 2 weeks 6 days 22 hours ago) and read 4580 times:

Quoting NAV20 (Reply 12):
Admittedly, the phrasing is a bit obscure, but "..the A380 series production will generate a cumulative programme EBIT* loss of around € 2.8 billion for the years 2006 to 2010, of which approximately € 1.1 billion is anticipated in 2006 and approximately € 0.7 billion in 2007" means that, on top of not recouping any of the development cost, Airbus expects to make a loss on the actual PRODUCTION of all frames up to 2010.

Nav, please bear in mind that the loss is with respect to the original business plan, and is not to be confused with a net loss (unless the original business plan called for zero earnings, which you are free to assume  Wink )


User currently offlineCurmudgeon From Australia, joined exactly 8 years ago today! , 695 posts, RR: 22
Reply 25, posted (7 years 11 months 2 weeks 6 days 22 hours ago) and read 4533 times:

The discussion thus far on the merits of cancellation and the break even number haven't emphasised a few other salient points:

The 420 figure is from Airbus, nearly a month ago. It did not address rate of construction/delivery, and seemed to hinge on an optimistic build rate.

The revenue stream was based on contract prices as of then. Since that time, Further deep discounts have apparently been offered to prevent any more cancellations. (See link below for news story on this.)

The revenue stream was based on an exchange rate of $1.12 : 1 Euro. I can't find any analyst who thinks that a likely figure, and most think that long term values will be in the $1.25-$1.30 range. That's a whopping 11% less revenue on contracts written in u.s. dollars. (As they almost all are)

If you believe some news stories, Airbus will be making a further loss on every A380 on the order books. Again, I'm not sure that I believe that's the case, but the story is out there. Based on that, I guess that Airbus is still predicting that they can go on to sell another 400-500 airframes and recover costs, or at least get close enough to justify the project based on "completeness of product range" and some random number of orders for other types riding on the A380's coattails. (I know of at least 14 A-330's in this category)

Here's that link:http://msnbc.msn.com/id/15642210/



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