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A380 And The Gellman Report - A Critique  
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10075 posts, RR: 97
Posted (9 years 1 week 6 days 1 hour ago) and read 5821 times:
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Having been prompted by the "Airbus A380 falls short of billing" thread, I had a good look at this report (which states that the A380 programme will lose $8.1Bn by 2025).
My "look" follows an extensive review of EADS/Airbus accounts/reports for the last few years, and an attempted analysis of the discrepancy between list prices and selling prices.

So I had a good read of the report, many times, and followed up some of the points with my own investigations. Here's what I found.

MARKETING

The report starts off with a projection (from its marketing data) that 496 A380's will be sold in the 2006 - 2025 period, and then qualifies this by saying the review team think 350 is a more realistic number.

I'm no great marketeer, I'm a (very) senior production engineer in a major Capital manufacturing environment, so I was inclined to take this element (the bulk of the report), as read, until I noticed two obvious things.

After much analysis, the report develops an A380 delivery curve that shows 15 aircraft a year being delivered up to and including 2011 ( a total of 78 aircraft up to end 2011 - remember the number..), and increasing thereafter. This was based on a global replacement market analysis.
The analysis is a well done, and comprehensive analysis.
Unfortunately, Airbus haven't taken any notice, and gone and sold some 160 aircraft to date, the vast majority of which it will be delivering before 2011, and are ramping up production to hit 40/year by 2008.
The overall number may be right, who knows, but to me the market analysis seemed a bit irrelevent given how different the reality of the current delivery curve is from their conclusion.

So I had a closer look, and sure enough, therewas a huge analysis of the fragmentation of the civil airliner market.
In amongst the analysis, in appendix 3, Exhibit 3-8 showed how "non-hubs" were linked to far more (US) DESTINATIONS in 2000 than in 1990, e.g. LGW linked to 17 US destinations in 1990, and 24 in 2000, BRU 4 US destinations in 1990, 8 in 2000.
By contrast, LHR was linked to 12 US destinations in 1990 and 11 in 2000 (although CDG "slipped the net, with 13 US destinations in 1990 and 17 in 2000).
Clearly big hubs are "declining" and there was a written paragraph to prove it.

Exhibits 3-9 and 3-10 show the same airports, but this time expressed in numbers of DEPARTURES, and numbers of SEATS.
Guess what, LGW declined from 12.4% departures to US destinations in 1990 to 10.7% in 2000
Whilst LHR increased from 16.7% in 1990 to 19.7% of departures in 2000
And guess what, LHR also increased from 19% of seats to US destinations in 1990 to 21.4% in 2000.

What the data clearly shows is that, although the number of point-to-point routes are increasing, the biggest increase in the bulk of the TRAFFIC, measured by departures and seats, was through hubs.
I was surprised that this was not commented on in the report. I can only assume that it didn't "fit the answer".

My view is that Gellman and team actually analysed the point-to-point market, rather than giving a very good summary of the hub-hub market, which would have been a lot more relevant for the A380, and avoided commenting on data that "didn't fit".

As I said, I'm not a marketeer, so I won't attempt to give my view on the overall market for the A380.

PRODUCTION COSTS

Obviously in order to do a financial projection, you need both costs and revenue. I've started with production costs because it's what I'm best at.

Here's the critique.

The report (after spending a huge amount of time talking about GLARE), basically splits out the engines, landing gear and systems from the OEW, and leaves you with an "airframe" weight.
A "norm" is then applied to each pound of weight for each material, in this case $275 per lb aluminium, $500 per lb CFComposite, and $825 per lb for GLARE, to give a total (2001) cost of $199M US (let's call it $200M).
So the heavier the plane, the more the cost (obviously..)

Well, maybe not. I've been doing this sort of parametric estimating on big products since before the pharaohs were in the pyramids.
The methodology is very, very seriously flawed - in fact it's downright wrong.

These guys may know a lot about what planes fly where, but they know absolutely bugger all about what makes it cost what it does. Here's why.

* The bigger a product gets, the lower (for its weight) the cost is. We deliberately asked for the Astute nuclear submarine to be made 7000 tonnes instead of the 5000 tonnes of the preceding Trafalgar class because it was CHEAPER - we could production engineer it properly. And despite the additonal material costs, the boats are 25% cheaper in real terms than their predecessors.
*If you compare the airframe weight of an A320 to its (list) price, and then do the same to an A333, and an A346, you find that $1M gets you 1600 lb of A320 airframe, 1750 lb of A333, and nearly 2000lb of A346.
The reason for this is that a component twice the weight is not always twice as hard to install. In addition, most of the major cost drivers of the price of an aircraft (the engines, landing gear, systems (for god's sake..) and in particular all of the expensive electronics, were excluded. If the airframe represents 50% of the cost of an aircraft, I'll be astonished.
And by the way, most of the expensive bits, (radars, conrols, FADEC, FBW, whatever, will cost pretty much the same in a smaller plane as they do in a big one.

This "weight" approach to estimating is what completely buggered up UK MOD Naval Architecture in the '70's and '80's, and it is no longer used - guaranteed.

In addition, how do you justify the cost, even by weight. The accounts clearly show that Airbus screw a plane together cheaper than Boeing (no criticism intended - there are lots of good reasons...), and other manufacturers will have different costs again.

If the report methodology is right, then the 787 will cost far more to produce than it will sell for (which I don't believe, for one minute.)

No, I utterly reject the methodolgy and therefore its conclusion.
So what does an A380 cost?
I'll come back to that.

REVENUE

This I found really interesting.

Discounting is normal practice in the industry (no shit..).

The report states a number of sources.

Based on data, a typical discount is 20% off list (Aircraft Value news).

Airline monitor weekly states discounts can be "up to" 30% of list for strategic customers or launch customers.

I had no problem with either of those comments, which were based on data, as you will see later.

All other reports "speculated" that A380's were sold at huge discounts - speculations which were converted into fact by the Authors (the Fedex contract was "speculated" upon).

In fact the speculation was converted into the first 100 aircraft being sold at $145M to $150M , with a prediction of a MAXIMUM price throughout the programme of $200M. In other words, EVERY SINGLE PLANE (OF 496) WOULD BE SOLD AT COST OR BELOW. This is obviously entirely irrational, and will clearly not be the case.
There was no factual data to back any of this up in the report, only "speculation".

So here's some factual information.

Analysis of Airbus's 2003, 2004, and 2005 accounts show that they indeed sell planes at a discount. In 2004, $31Bn of planes at list price were delivered for revenue of $25.2Bn, a 20% reduction, confirming that 19% was the AVERAGE discount offered by airbus at order placement. However, Airbus Operating profit was 9.5% or $2.5Bn, showing that Airbus operating costs were some 30% below the list price of planes sold. 2003 and 2005 are similar.
THIS IS KEY TO THE WHOLE ISSUE.

This seems entirely consistent with the discounting statements above - 20% norm, 30% extreme strategic. You could even argue that, if you had a strategic customer (big) at launch, discounts could be up to 40%

The report states the A320 contracts of 2001 were sold below cost - patently untrue, given the above.

Back to the A380. If List was £250M, then 40% discount gives $150M, 30% $175M and 20% $200M.

It's entirely possible the first 50 planes were sold at $150M, certainly the EK ones. I suspect that smaller customers (QS, SQ) received somewhat smaller discounts (say 35% for $167.5M).

Certainly by 2001, A380's were selling for up tp $225m - 10 for Air France and 5 (pax) for ILFC were priced at $3.4Bn in July 2001 ($225M each or 10% discount).

The whole ILFC package of 100 planes sold for 20% below list ($8.7Bn vs $10.8Bn)

The EK contract in 2003 was reported as $7Bn for 41 planes ($170m each), but 20 of those were A346's (List price of $9Bn, for a discount of 25%).
Presumably these A380's sold at $187.5M (whereas the first tranche were £150M).

Altogether, it owuld seem that the first 50 planes indeed sold for $150M - $160M, but the second 50 sold for between $187M and $225M.

As to the 3rd 50, I would guess the would follow the pattern of averaging 20% discount, or be valued at $200M.

It would seem reasonable therefore to assume an average price for planes sold to date of c. $185 - $190M

PROFIT/LOSS

Which brings us back to the profit issue.

The report states an A380 cost of $200M based on a flawed analysis.

Taking a more holistic approach, if Airbus policy is to price such that cost is 70% of list, then a $250M A380 at list will cost $175M to build.
Can't see why it would be any different. Giving Airbus a modest $10M - $15M over cost for the first 150 planes

I suspect that's a lot more realistic. It gives me a model that I can associate with rational behaviour. Others will disagree.

On a parting note, the Report states that Alenia were offered 5% of Airbus but turned it down because they didn't like the A380 programme numbers. Instead they opted for....... 8% of the A380 programme. Backwards or what!

On the whole I thought there was absolutely no substance to either the marketing (which had been overtaken by reality as far as deliveries were concerned). The data didn't support the conclusions.
The costing model was flawed (wrong, basically, and the pricing conclusions were based entirely on "speculation", no facts.

If I'd given my MD this as a contract appraisal, I'd have been put on procedure, and told they were looking for my replacement.

Must go, bed-time.
Enjoy.

24 replies: All unread, jump to last
 
User currently offlineBreiz From France, joined Mar 2005, 1917 posts, RR: 2
Reply 1, posted (9 years 1 week 6 days ago) and read 5688 times:

Quite an interesting piece of document review!
As suspected, the Gellman report had its conclusion written first.
I'm not surprised in any way that Boeing and supporters paint a gloomy picture of the A380's future, while Airbus and supporters see it in rosy colours.
The same applies, in the opposite way, for the B787.
That's basic marketing strategy.
We should wait and see, and stick to facts.
Bed time here as well.


User currently offlineMarshalN From Hong Kong, joined Sep 2005, 1521 posts, RR: 0
Reply 2, posted (9 years 1 week 5 days 23 hours ago) and read 5627 times:

Thank you Astuteman, for your informative analysis. I would like to ask (anybody) where I can get a hold of the Gellman report? I'd like to take a look as well.

If the Gellman report indeed uses the weight * cost of raw material as the basis for what an airplane costs, then it does seem very flawed indeed. A lot of the production costs are fixed, and the marginal costs of making a bigger/longer airplane would not translate into a 1 to 1 cost increase. A sort of economies of scale here.

I also agree that given the current number of orders for the plane, the analysis of the total market for the Whalejet seems off -- by a lot.

Anyway, I'd like to see the report. If someone can point me to it, that'll be great.


User currently offlineGemuser From Australia, joined Nov 2003, 5682 posts, RR: 6
Reply 3, posted (9 years 1 week 5 days 23 hours ago) and read 5569 times:

Quoting Astuteman (Thread starter):
Having been prompted by the "Airbus A380 falls short of billing" thread, I had a good look at this report (which states that the A380 programme will lose $8.1Bn by 2025).

So I had a good read of the report, many times, and followed up some of the points with my own investigations. Here's what I found.

Thank you, at last a rational and informed review of the A380 program. And its as "informed" as we are going to get until the EADS acounts are presented each year until 2025!

Gemuser



DC23468910;B72172273373G73873H74374475275376377L77W;A319 320321332333343;BAe146;C402;DHC6;F27;L188;MD80MD85
User currently offlineBirdbrainz From United States of America, joined May 2005, 465 posts, RR: 0
Reply 4, posted (9 years 1 week 5 days 23 hours ago) and read 5491 times:

Astuteman,

Thanks very much for sharing your insights on the A380, and I'm still digesting them. While I admit to having a bias for Boeing (although I love the A310), I really hope that the Airbus' analysis isn't as screwed up as it appears. I'm sure that a lot of fine engineering talent has toiled over this bird, and it would be nice to see it rewarded.

Then again, it wouldn't be the first time that a company gets a vision to build a technological "Tour de Force," only to have botched the bottom line analysis. I've seen it many times in other industries, and we know that the US aviation industry is full of them. Time will tell.



A good landing is one you can walk away from. A great landing is if the aircraft can be flown again.
User currently offlineBoeingBus From United States of America, joined May 2004, 1596 posts, RR: 18
Reply 5, posted (9 years 1 week 5 days 22 hours ago) and read 5460 times:

Maybe I am just tired of reading these posts that the A380 is going to be a colussus failure. dunno... I think many will agree. It just gets tiring and boring... what else can pundits speculate that they havent thus far???

I could have opted to not respond and ignore this thread... But I don't think that helps the cause to end the A380 bad press fatigue here on A.Net.

Everyone has the right to post but I have the right to piss on it... right?

OK now... I may sound like a broken record... but here it is again... Airbus built the A380 not to make tons money and anticipation to sell thousand copies. But more importantly to have a full range of products for ALL airlines, smal medium and large. I don't think Airbus can admit they created the A380 to lose money for a product line sake. BUT I think that is what they have done this time around. From the baby jet 318 to the whale jet A380.

Kudos to Airbus for standing up to Boeing...



Airbus or Boeing - it's all good to me!
User currently offlineJaysit From , joined Dec 1969, posts, RR:
Reply 6, posted (9 years 1 week 5 days 22 hours ago) and read 5434 times:

Quoting Astuteman (Thread starter):
What the data clearly shows is that, although the number of point-to-point routes are increasing, the biggest increase in the bulk of the TRAFFIC, measured by departures and seats, was through hubs.

Exactly.
The Gellman report was full of discrepancies.
While back in 1990, BA for instance had 4 daily departures to the NYC area, today it has 9. And this is bound to grow when T5 opens - both in volume of traffic carried per flight as well as frequencies. Another reason, LHR didn't grow in frequencies is because of Fortress Heathrow. If NW and CO were allowed to fly into LHR and dump LGW, they would.
I have flown into LHR last year on 4 different carriers and they were full - at all times of the year -in every class.
Gellman is on crack.


User currently offlineRichard28 From United Kingdom, joined Aug 2003, 1621 posts, RR: 6
Reply 7, posted (9 years 1 week 5 days 22 hours ago) and read 5426 times:

excellent post astuteman - very interesting read.

I too would like to be pointed to where this report is, if what you say is true, then there are indeed some very whacky assumptions in it.....


User currently offlineDougloid From , joined Dec 1969, posts, RR:
Reply 8, posted (9 years 1 week 5 days 22 hours ago) and read 5402 times:

Quoting Richard28 (Reply 7):
too would like to be pointed to where this report is, if what you say is true, then there are indeed some very whacky assumptions in it.....

Mister, here's your mule.

http://www.speednews.com/A380-CPA.pdf


User currently offlineAirFrnt From United States of America, joined Jul 2004, 2826 posts, RR: 42
Reply 9, posted (9 years 1 week 5 days 22 hours ago) and read 5398 times:

Quoting Astuteman (Thread starter):
I suspect that's a lot more realistic. It gives me a model that I can associate with rational behaviour. Others will disagree.

Your different point of view is good, although I think the authors of the Gellman report would disagree with it. That’s simply due to your speculation being different then theirs much as they do, but obviously in a different issue.

Central to your assumptions is your disbelief that Airbus would discount a plane as heavily as was widely reported at the time. But remember that Airbus gave the production okay many years ago. In fact it was before the .COM bubble in the states, SARS in Asia, telecon bubble in America, 9/11 around the world and Iraq. Compare and contrast the boom cycle in the 90s with the current environment.

It made sense to discount the first planes significantly. Large prestigious carriers coming onboard early to a new plane gives it creditability. How many carriers were wiped out of existence because they bought 747s for no other reason then Pan Am bought them? Likewise UA's early approval and involvement in the 777 sealed that program.

In terms of technical issues I would take immediate issue with is the weight issue. I also had the experience of working on a naval ship (computer systems) and in my mind there are things that are absolutely critically different between Naval Ships and airplanes. On a plane weight is absolutely everything.

Weight being cheaper holds in the Naval world. Weight has all sorts of negative effects on the sea, but the sea is fairly buoyant. Build a large enough hull and you will float. Build a bigger tank, and the sub will still sink. The reverse is true with Aircraft. Almost every system on a aircraft is dedicated to keeping the plane up and the hull pressurized. Engines must have good thrust to weight ratios, hulls must be as thin and as strong as the environment allows. Adding more weight may make the production cheaper but it also makes operations of those components and of the plane in service worse. The price of construction may go down, the operations cost may go up but in general it is not a victory to bring in a plane that weighs more. To keep that weight down you do all sorts of interesting (but expensive) tricks like Glare.

So let's work with your numbers. Let's assume that Airbus is making 185 million and a manufacturing cost of $150 million.


The A380 development program is at least 16% (if not more) over budget currently.

$12,000,000,000 (original cost)
$1,600,000,000 (over budget)
$13,600,000,000 (cost of development)

This represents the cost to bring this program into the world. It is money that Airbus must repay or default on. (I don't care what exactly it does, if it subsidizes particular planes or what not, it just has to be repaid).

In addition they also have cost of capital requirements. Airbus acts as a bank for the investors money in the project. The investors choose to invest on a project based on a rate of return, that is how much money in addition to the original amount will they get back in addition to. Airbus promised investors a 20 percent rate of return. This means that Airbus must make at least
$16,320,000,000 US.

$13,600,000,000 (cost of development)
$2,720,000,000(additional rate of return)
$16,320,000,000(airbus wins!)

One last factor to rule in. The dollar (in which Airbus is paid) has fallen significantly. Let's assume Airbus has done some hedging and they are only exposed to 1/3 of the total fall in the dollar.

$16,320,000,000
$1,632,000,000
$17,952,000,000(assuming stable currencies).

Using your charitable numbers above let's assume that airbus is making $35,000,000 a pop. Airbus has to sell 513 planes to make their goals.

Not surprisingly this is pretty close to Boeing's analysis of the market. They looked at these numbers and came to the conclusion that while there might be room for one player in this market space, there certainly was not room for two.

Quoting Astuteman (Thread starter):
So I had a closer look, and sure enough, therewas a huge analysis of the fragmentation of the civil airliner market.
In amongst the analysis, in appendix 3, Exhibit 3-8 showed how "non-hubs" were linked to far more (US) DESTINATIONS in 2000 than in 1990, e.g. LGW linked to 17 US destinations in 1990, and 24 in 2000, BRU 4 US destinations in 1990, 8 in 2000.
By contrast, LHR was linked to 12 US destinations in 1990 and 11 in 2000 (although CDG "slipped the net, with 13 US destinations in 1990 and 17 in 2000).
Clearly big hubs are "declining" and there was a written paragraph to prove it.

Exhibits 3-9 and 3-10 show the same airports, but this time expressed in numbers of DEPARTURES, and numbers of SEATS.
Guess what, LGW declined from 12.4% departures to US destinations in 1990 to 10.7% in 2000
Whilst LHR increased from 16.7% in 1990 to 19.7% of departures in 2000
And guess what, LHR also increased from 19% of seats to US destinations in 1990 to 21.4% in 2000.

There are two issues with this analysis. The first being that looking at LGW and LHR (which are artificially constrained markets) would not (imho) be good statistically evidence (they are outliers of the overall global market). Thats why you see different behavior at CDG then LHR/LGW. That's not really suprising. LHR is the most artifically constrained international airport. Outside of Bermuda no US carrier can fly to/from LHR, and even carriers that have the rights to fly there can't fly any route there.

But assuming that LHR and LGW arn't statistical outliers, let's dig into the numbers a bit more. LHR grew. Not surprising. This is LHR, poster child for the oversized A380 right?

747 flights at LHR are down. This despite the success of VS and despite the revitilization of BA.

Almost all of the growth in per seat per plane growth is in 767s and 777s. Not in the VLA market.

(And before anyone pulls out the US market isn't important, at least 35% of the world airlift capacity is in the US. That's a large market to write off)

Quoting Astuteman (Thread starter):

After much analysis, the report develops an A380 delivery curve that shows 15 aircraft a year being delivered up to and including 2011 ( a total of 78 aircraft up to end 2011 - remember the number..), and increasing thereafter. This was based on a global replacement market analysis.
The analysis is a well done, and comprehensive analysis.
Unfortunately, Airbus haven't taken any notice, and gone and sold some 160 aircraft to date, the vast majority of which it will be delivering before 2011, and are ramping up production to hit 40/year by 2008.
The overall number may be right, who knows, but to me the market analysis seemed a bit irrelevent given how different the reality of the current delivery curve is from their conclusion.

It may not be. Airbus may get trapped in the same hole that Boeing constantly is. More orders for the 767 may come, but you may run into stalls in the pipeline getting there.

Thanks for the writeup, it's better then the usual AvB wars.


User currently offlineAirFrnt From United States of America, joined Jul 2004, 2826 posts, RR: 42
Reply 10, posted (9 years 1 week 5 days 22 hours ago) and read 5372 times:

Quoting Jaysit (Reply 6):
While back in 1990, BA for instance had 4 daily departures to the NYC area, today it has 9.

Some of which are 777s instead of 747.

Quoting Jaysit (Reply 6):
Another reason, LHR didn't grow in frequencies is because of Fortress Heathrow. If NW and CO were allowed to fly into LHR and dump LGW, they would.

That's called fragmentation.

Quoting Jaysit (Reply 6):
Gellman is on crack.

C'mon. We have a great discussion going here. This doesn't help.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 11, posted (9 years 1 week 5 days 18 hours ago) and read 5228 times:

Thanks for your analysis, Astuteman; continuing our discussion on another thread.

Quoting Astuteman (Thread starter):
It's entirely possible the first 50 planes were sold at $150M, certainly the EK ones. I suspect that smaller customers (QS, SQ) received somewhat smaller discounts (say 35% for $167.5M).

From that, we appear to agree that the first batch of A380s will be sold at a loss. You estimate it at a lower figure than me, though, because I took Gellman’s figures (price $US150M., cost $US200M.) and you (by working ‘from price to cost’) estimated cost at only $US175M.

I may take issue with you on the cost point later – but to keep this post short, I should point out that there is a huge ‘hole’ in all your reasoning, because you have forgotten to allow for the appreciation of the Euro.

Working in Euros, had production and sale taken place in 2001 (with the Euro at say $US0.85c.), each airframe (using your cost estimate) would have cost Euro206M. and the sale price would have been Euro176M.; a loss to Airbus per airframe of Euro30M..

When the first sales in fact occur (late 2006?), even assuming that costs remain at 2001 levels (which, of course, is a huge assumption) the corresponding figures (the Euro being at about $US1.20 at the present time) are that each airframe will again cost Euro206m. – but the income from the sale (US150M./1.20) will be only Euro125M. A loss per airframe of Euro81M. ($US97M.).

Assuming 40 airframes built and sold, I make that a loss of Euro3.24B. (SUS3.89B.) in Year 1. Losses will of course continue into subsequent years, though possibly at somewhat lower levels. Probably Airbus have been able to reduce their exposure somewhat (at a price) by currency hedging; but there doesn’t seem to be any reasonable doubt that the A380 project is going to land them in deep trouble?

[Edited 2005-09-21 05:52:25]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineAirFrnt From United States of America, joined Jul 2004, 2826 posts, RR: 42
Reply 12, posted (9 years 1 week 5 days 18 hours ago) and read 5201 times:

Quoting NAV20 (Reply 11):
Probably Airbus have been able to reduce their exposure somewhat (at a price) by currency hedging; but there doesn’t seem to be any reasonable doubt that the A380 project is going to land them in deep trouble?

Without any knowledge of what Hedges Airbus has/had in place, that's mostly speculation. (To people who point at Airbu's quarterly numbers, I point you at Enron's. It's quite possible to keep large money loosing projects off the books for a long period of time). Likewise they could be just fine.

And that's really the bottom line on the A380. It may be the biggest plane (hah! word play) since the 747. It's commercial success may finally give Airbus the prestige and history that Boeing enjoys.

But the decision to launch the A3XX is iffy. Boeing and Airbus both looked at the Market. Boeing walked away saying they were not sure if a single plane could be sustained, to say nothing of two. Airbus took advantage of that and made a gamble.

The situation since has cast much more doubt on that gamble. Airbus's own numbers projected 168 planes to service the top 10 markets. They are now floating around that number of planes ordered, with no large orders visable on the horizon. SARS, 9/11, Iraq, and most recently the high price of oil have all reminded airlines why it is better to use smaller planes and "right-size" for demand then get stuck with empty 747s and 777s on the ground.


User currently offlineIkramerica From United States of America, joined May 2005, 21534 posts, RR: 59
Reply 13, posted (9 years 1 week 5 days 18 hours ago) and read 5191 times:

I think this is a very good analysis, but does have a problem.

It assumes a fixed cost per airframe, in that the first A380 will cost $175million to build as will the 400th. But this isn't the case. Amortizing development and tooling costs aside, the first planes will cost more until Airbus can figure out how to make them not cost so much. And thus the break even point, much like a mortgage or car finance pay off, is a backloaded figure, as each plane sold and delivered in the 200-400 airframe area brings them closer to, then past the breakeven faster than the first 200, which will likely only bring them to a net zero sum. And if those first 200 don't prove themselves as well, or the 747Advanced becomes popular, or B roll out a 773/747 replacement, or if A has to spend even more cash to do the A380Advanced with better engines and more composites because of fuel costs, then that break even gets further and further away.

I have no doubt that A can make money on the A380, but I'm not convinced they are going to make the "10%" that most planes make, which means as a ROI, the A380 money would have been better spent on an A343-6/A333/747 class replacement project. either way, I will be among the first to run out to LAX when the A380 comes here, and will love to fly on one, and am sure people will like it, and as a proving plane, it's worth it, but as an investment, maybe not so much.



Of all the things to worry about... the Wookie has no pants.
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 14, posted (9 years 1 week 5 days 18 hours ago) and read 5171 times:

Airbus' figures will probably look quite good this financial year (i.e. in December), Airfrnt - especially if they get launch aid to finance development work on the A350.

But if (as we must assume) they go into full A380 production in early 2006, the books could look pretty sick by December of that year; certainly by December 2007.

As a matter of fact, Gellman assumed that Airbus would have the VLA market to itself, and would sell 496 A380s over 20 years; though Gellman also said that because of the high upfront costs, and price inelasticity, they wouldn't make any money on it.

Gellman was assuming that there would be no 747ADV, though. If (when?) that goes ahead, it won't do the A380's prospects any good at all.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineLightsaber From United States of America, joined Jan 2005, 13161 posts, RR: 100
Reply 15, posted (9 years 1 week 5 days 18 hours ago) and read 5154 times:
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AStuteman,

Take a bow! wow. I enjoyed reading your post as much as a well written analysis of the market.  praise   praise   praise 

Quoting Astuteman (Thread starter):

Well, maybe not. I've been doing this sort of parametric estimating on big products since before the pharaohs were in the pyramids.

 rotfl  How did the Coliseum budget go?  duck  ok, on topic...

Quoting Astuteman (Thread starter):
Airbus operating costs were some 30% below the list price of planes sold.

Interesting tidbit and probably very correct. However, you note something else that the initial A380 production is *above* initial estimates. Obviously consultant to the pharoes you know that unit cost goes down with increased production rate (until diseconomies of overtime are hit, etc.). So in fact, even with the Euro/dollar imbalance, you might be quoting numbers that are not as favorable to airbus as they might be.

Now, the development cost are overbudget. There are two ways to account for this:
1. Higher amortization per each of the initial 250 units (unlikely)
2. Amortization of the development costs ver more units (most likely)

Quoting AirFrnt (Reply 9):
Thanks for the writeup, it's better then the usual AvB wars.

Hear hear!

Now, to expand on the discussion. The A388 is overbuilt quite a bit due to the planning for the A389. I forgot who here on a.net noted this is like launching the A319 before offering the A320. I'll state again that I think its when the A380 enters an "uncontested space" where it is sufficiently larger than the 744 or 747adv that interest and profits for the A380 will increase. For like most airframes, I expect the follow on development versions to be the best sellers.
(e.g., 744, 777B&C series, etc.)

The cost to develop an "Increased gross weight" A388LR will be low. Just a few hundred nm more range would open up SIN-LAX or SIN-JFK and other very long range routes. Need I mention to this audience how interested EK would be in a A389? The extra ~100 PAX into slot limited airports are what's truely needed.

While I'd like to digress onto other topics, I'm keeping my post to the A380 and its economics and prospects as I'm really appreciating how this isn't A vs. B. I will note that most of what I've read states that the market for VLA wasn't expected to develop until > 2010. I might have to change my opinion of the VLA market size (now to say 2025).

Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlineThumper3181 From , joined Dec 1969, posts, RR:
Reply 16, posted (9 years 1 week 5 days 17 hours ago) and read 5101 times:

A well thought out reply to Gellman. I take issue with several of your assertions.

Quoting Astuteman
"After much analysis, the report develops an A380 delivery curve that shows 15 aircraft a year being delivered up to and including 2011 ( a total of 78 aircraft up to end 2011 - remember the number..), and increasing thereafter. This was based on a global replacement market analysis.
The analysis is a well done, and comprehensive analysis.
Unfortunately, Airbus haven't taken any notice, and gone and sold some 160 aircraft to date, the vast majority of which it will be delivering before 2011, and are ramping up production to hit 40/year by 2008.”

By all accounts except Airbus PR many of these 160 planes are far from firm orders. It is widely known and can be cited that Airbus has given extremely liberal terms to prospective customers. An airline can cancel their order up to 12 months before the scheduled delivery date with no penalty. Should they cancel it after that they lose their $500,000 deposit. Any honest salesman will tell you that there is a big difference between an order (especially one with an easy buyout) and a paid invoice.

You may recall that 35 years ago there was a similar situation with the Concorde. Over 100 orders and then 1973 comes around and everyone cancelled their order.

Even if these order materialize in to sales will Airbus be able to deliver them before 2011? The facts to date seem to indicate they cannot. Consider that the plane is already at least six months behind schedule I find it doubtful that they will be able to ramp up production of such a complicated airplane in just 2 ½ years.

Quoting Astuteman "So I had a closer look, and sure enough, there was a huge analysis of the fragmentation of the civil airliner market.
In amongst the analysis, in appendix 3, Exhibit 3-8 showed how "non-hubs" were linked to far more (US) DESTINATIONS in 2000 than in 1990, e.g. LGW linked to 17 US destinations in 1990, and 24 in 2000, BRU 4 US destinations in 1990, 8 in 2000.
By contrast, LHR was linked to 12 US destinations in 1990 and 11 in 2000 (although CDG "slipped the net, with 13 US destinations in 1990 and 17 in 2000).
Clearly big hubs are "declining" and there was a written paragraph to prove it.

Exhibits 3-9 and 3-10 show the same airports, but this time expressed in numbers of DEPARTURES, and numbers of SEATS.
Guess what, LGW declined from 12.4% departures to US destinations in 1990 to 10.7% in 2000
Whilst LHR increased from 16.7% in 1990 to 19.7% of departures in 2000
And guess what, LHR also increased from 19% of seats to US destinations in 1990 to 21.4% in 2000."

You missed the point. Sure LHR had an increase in seats. It is a slot constrained hub airport. While this indicates that LHR can get around the slot issue by using larger aircraft up to a certain point, It does not contraindicate the fact that the other destinations are now served by non stop service and it is no longer necessarily use an intermediate destination. As smaller long-range aircraft become more cost competitive this trend will accelerate.

My view is that Gellman and team actually analyzed the point-to-point market, rather than giving a very good summary of the hub-hub market, which would have been a lot more relevant for the A380, and avoided commenting on data that "didn't fit".

But they did, you just did not like their conclusion that as more smaller fuel efficient long range aircraft come in to service it becomes more economical (and preferential) to fly point to point.

Quoting Astuteman "These guys may know a lot about what planes fly where, but they know absolutely bugger all about what makes it cost what it does. Here's why.


* The bigger a product gets, the lower (for its weight) the cost is. We deliberately asked for the Astute nuclear submarine to be made 7000 tonnes instead of the 5000 tonnes of the preceding Trafalgar class because it was CHEAPER - we could production engineer it properly. And despite the additonal material costs, the boats are 25% cheaper in real terms than their predecessors.
*If you compare the airframe weight of an A320 to its (list) price, and then do the same to an A333, and an A346, you find that $1M gets you 1600 lb of A320 airframe, 1750 lb of A333, and nearly 2000lb of A346.
The reason for this is that a component twice the weight is not always twice as hard to install. In addition, most of the major cost drivers of the price of an aircraft (the engines, landing gear, systems (for god's sake..) and in particular all of the expensive electronics, were excluded. If the airframe represents 50% of the cost of an aircraft, I'll be astonished.
And by the way, most of the expensive bits, (radars, conrols, FADEC, FBW, whatever, will cost pretty much the same in a smaller plane as they do in a big one."

Perhaps it is you who is full of horse manure here. You may know a bit about shipbuilding but I don’t think you know much about plane building, further if you really think making a ship bigger makes it cheaper I am not so sure you know much about shipbuilding.

First off the Astute class is the size it is so that it can accommodate the additional torpedo tubes, larger sonar array, and increased warload. Unlike aircraft where weight is at a premium it is sometimes easier and cheaper in shipbuilding to build bigger so that the engineering challenges of fitting everything in to the platform are minimized.

Secondly it may well be cheaper to build the Astute but not all of the savings are from increasing its size. I would venture that the bulk of the savings is from using mature technology in some areas. Modular building techniques, Increased meteorological expertise and extensive use of CAD during the design phase.

With airplanes weight is cost.

Quoting Astuteman "This "weight" approach to estimating is what completely buggered up UK MOD Naval Architecture in the '70's and '80's, and it is no longer used - guaranteed."

The UK MOD still has its share of cost overruns too. It may not be perfect but using weight (cost of raw materials/pound) together with labor estimates is the best way to date of predicting cost of a product.

Quoting Astuteman "In addition, how do you justify the cost, even by weight. The accounts clearly show that Airbus screw a plane together cheaper than Boeing (no criticism intended - there are lots of good reasons...), and other manufacturers will have different costs again."

Irrelevant.

REVENUE
I think Airfrnt took your argument apart rather well and I won’t go in to it here.

My conclusion (for what it’s worth.

Geller is a recognized expert in the field. While you may disagree with some of his conclusions his methodology is sound. Boeing did not spend $50,000 for a yes man. If Geller’s report was not what Boeing wanted to hear perhaps it would not have been publicized. I don’t believe for one minute that Geller just wrote something to please his paymaster. They wanted a hard analysis of the situation.


User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10075 posts, RR: 97
Reply 17, posted (9 years 1 week 5 days 14 hours ago) and read 4939 times:
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Thanks for the replies, guys, (and the good nature - I expected a flaming for challenging a "sacred cow").

Airfrnt.

Quoting AirFrnt (Reply 9):
Central to your assumptions is your disbelief that Airbus would discount a plane as heavily as was widely reported at the time

I don't actually disbelieve it, and said so. I challenge the sweeping statement that, because the first year's contracts were so heavily discounted, suddenly the all were, with no documented evidence to back it up other than "speculation". Luxurios thing, speculation.

Quoting AirFrnt (Reply 9):
On a plane weight is absolutely everything.

Don't disagree, but just doing a cost analysis on planes of differing sizes clearly shows that there ARE economies of scale, and large ones at that.
FWIW weight is ABSOLUTELY everything on a sub in EXACTLY the same way as for aircraft, but for different reasons.

Also their argument focusses on the cheapest bits, the strucutre, without regard to expensive engines, systems, hydraulics etc, avionics, landing gear.

Quoting AirFrnt (Reply 9):
So let's work with your numbers. Let's assume that Airbus is making 185 million and a manufacturing cost of $150 million.

More specifically, I quoted a cost of $175M, not $150M. Ave $185M was for the first 150 frames. My argument was that the average beyond that (assuming widely accepted norms for discounting) would be substantially higher..

Quoting AirFrnt (Reply 9):
Let's assume Airbus has done some hedging and they are only exposed to 1/3 of the total fall in the dollar.

Airbus have actually profited from their hedging activities in the last 2 years. They have NO exposure (currently)....

Quoting AirFrnt (Reply 9):
It may not be. Airbus may get trapped in the same hole that Boeing constantly is. More orders for the 767 may come, but you may run into stalls in the pipeline getting there.

Don't disagree, however, my point (late at night) was that Gellman argues that the upswing in orders doesn't come until about 2015 or so, and based his forecast accordingly.
Me, I reckon that approaching 1400 orders in 2005 is a bit of an upswing, and blows his forecasts wide open. Airbus WILL be delivering a lot more than 15 A380's per year in the immediate future.

Thanks for the response, and the financials - I'll have a slower look, and get back

NAV20,

Quoting NAV20 (Reply 11):
I should point out that there is a huge ‘hole’ in all your reasoning, because you have forgotten to allow for the appreciation of the Euro.



Quoting AirFrnt (Reply 12):
Without any knowledge of what Hedges Airbus has/had in place, that's mostly speculation

That knowledge is clearly available. Shenzen posted on it on the other thread. See above,Airbus were FULLY hedged.

Quoting NAV20 (Reply 14):
Airbus' figures will probably look quite good this financial year (i.e. in December), Airfrnt - especially if they get launch aid to finance development work on the A350.

But if (as we must assume) they go into full A380 production in early 2006, the books could look pretty sick by December of that year; certainly by December 2007.

They look extraordinarily good, and hold a few points that surprised even me.
Because it's relevant, I plan to start up another thread on those accounts to widen the information and encourage debate. An accounting thread on A-net? Whatever next?

I'm sure I'll get more back from you, NAV 20. look forward to it.

Ikramerica

Quoting Ikramerica (Reply 13):
It assumes a fixed cost per airframe, in that the first A380 will cost $175million to build as will the 400th. But this isn't the case

Thanks very much!
I tried to keep my analysis as simple as possible for the wider audience - you've seen how big the post got.
As a Production Engineer, you'll know that I not only agree with you, but that continually improving product cost is my holy grail.

I think it was Joni asked on another thread why the 100th frame was important - it's a benchmark position related to the learning curve on the product. found it hard to argue with anything much that you said.

Lightsaber

Quoting Lightsaber (Reply 15):
Take a bow! wow. I enjoyed reading your post as much as a well written analysis of the market

If it wasn't for the fact you're already on my RU list, I'd put you on just for that...... Superb

Quoting Lightsaber (Reply 15):
So in fact, even with the Euro/dollar imbalance, you might be quoting numbers that are not as favorable to airbus as they might be.

If the production rate drops, those fixed costs ceetainly hit home....

Thanks.

Thumper

Quoting Thumper3181 (Reply 16):
By all accounts except Airbus PR many of these 160 planes are far from firm orders. It is widely known and can be cited that Airbus has given extremely liberal terms to prospective customers. An airline can cancel their order up to 12 months before the scheduled delivery date with no penalty. Should they cancel it after that they lose their $500,000 deposit. Any honest salesman will tell you that there is a big difference between an order (especially one with an easy buyout) and a paid invoice.

Don't see much cancellation action yet - despite HUGE bad press. Time will tell. Personal view is you're whistling.

Quoting Thumper3181 (Reply 16):
Perhaps it is you who is full of horse manure here. You may know a bit about shipbuilding but I don’t think you know much about plane building, further if you really think making a ship bigger makes it cheaper I am not so sure you know much about shipbuilding.

I've worked in warshipbuilding all my life, mostly submarines. I have been THE Senior Production Engineer on the Astute submarine programme for 7 years now. As part of BAE, we persistently, and regularly benchmark Military Aircraft at Warton, Regional aircraft at Woodford, and the Airbus wing site at Broughton.
You'd be astonished by what I know about the Submarine industry, and quite surprised what I know about aircraft building, too.

Quoting Thumper3181 (Reply 16):
The UK MOD still has its share of cost overruns too.

I guess you'll know more than me about that, too?

Quoting Thumper3181 (Reply 16):
Secondly it may well be cheaper to build the Astute but not all of the savings are from increasing its size. I would venture that the bulk of the savings is from using mature technology in some areas. Modular building techniques, Increased meteorological expertise and extensive use of CAD during the design phase.

Your venture would be wrong on virtually all counts, and please don't tell me you know more about the cost drivers on Astute than I do.......

Other than this, thanks for the responses.


User currently offlineShenzhen From United States of America, joined Jun 2003, 1710 posts, RR: 2
Reply 18, posted (9 years 1 week 5 days 13 hours ago) and read 4844 times:

Quoting AirFrnt (Reply 9):
One last factor to rule in. The dollar (in which Airbus is paid) has fallen significantly. Let's assume Airbus has done some hedging and they are only exposed to 1/3 of the total fall in the dollar.

Probably half of Airbus' costs are in USD, not Euros.

Quoting AirFrnt (Reply 9):
Airbus promised investors a 20 percent rate of return. This means that Airbus must make at least
$16,320,000,000 US.

20 percent over 25 years isn't a very good return on any investment.

Quoting Astuteman (Thread starter):
After much analysis, the report develops an A380 delivery curve that shows 15 aircraft a year being delivered up to and including 2011 ( a total of 78 aircraft up to end 2011 - remember the number..), and increasing thereafter.

If Airbus delivers 2 per month for 4 years (07 -11) then that is 96 add another 12 for one of the years, then it equals 108. What are the projections, and will a 70 dollar a barrel economy support more then 2 per month (cost of oil not having anything to do with airplane fuel burns, but how higher energy costs slow economic growth, and fuel inflation).

Quoting Astuteman (Thread starter):
Whilst LHR increased from 16.7% in 1990 to 19.7% of departures in 2000
And guess what, LHR also increased from 19% of seats to US destinations in 1990 to 21.4% in 2000.

as was said above, LHR is an outlier, and isn't statistically significant.

Quoting Astuteman (Thread starter):
Analysis of Airbus's 2003, 2004, and 2005 accounts show that they indeed sell planes at a discount. In 2004, $31Bn of planes at list price were delivered for revenue of $25.2Bn, a 20% reduction, confirming that 19% was the AVERAGE discount offered by airbus at order placement. However, Airbus Operating profit was 9.5% or $2.5Bn, showing that Airbus operating costs were some 30% below the list price of planes sold. 2003 and 2005 are similar.

Most of these airplanes that were delivered would have been ordered before the huge discounting that ocurred post 9/11. In addition, was the revenue reported (where ever you found it) just for airplanes, or were spares, investments and services included.

Quoting Astuteman (Thread starter):
Certainly by 2001, A380's were selling for up tp $225m - 10 for Air France and 5 (pax) for ILFC were priced at $3.4Bn in July 2001 ($225M each or 10% discount).

Wasn't 225 list price back then


Anyway.. thanks for the appraisal

[Edited 2005-09-21 11:46:39]

User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 19, posted (9 years 1 week 5 days 12 hours ago) and read 4824 times:

Quoting Astuteman (Thread starter):
Taking a more holistic approach, if Airbus policy is to price such that cost is 70% of list, then a $250M A380 at list will cost $175M to build.
Can't see why it would be any different. Giving Airbus a modest $10M - $15M over cost for the first 150 planes

The impression I have is that the margins are different such that margins are smaller for smaller, "bulk" planes and larger for widebodies. When the 747 had no competition, for example, it apparently made 30% profit from the contract (not list) price.

Quoting NAV20 (Reply 11):
I may take issue with you on the cost point later � but to keep this post short, I should point out that there is a huge �hole� in all your reasoning, because you have forgotten to allow for the appreciation of the Euro.

This has been discussed already quite a few times.. look at Reply 133 in the "380 misses big billing" thread.


User currently offlineJush From Germany, joined Apr 2005, 1636 posts, RR: 3
Reply 20, posted (9 years 1 week 5 days 12 hours ago) and read 4819 times:

Quoting Astuteman (Thread starter):
Enjoy.

I certainly did. Thanks very much indeed. This was one of the best threads to read for me in a while. Your review on that was great and thanks to the others who added their thoughts to that.
Shame that i read it all already .

Regards
jush

Oh and you certainly added yourself to my RR list. Welcome



There is one problem with airbus. Though their products are engineering marvels they lack passion, completely.
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10075 posts, RR: 97
Reply 21, posted (9 years 1 week 5 days 11 hours ago) and read 4712 times:
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Thanks for the replies, Shenzen.

Quoting Shenzhen (Reply 18):
Most of these airplanes that were delivered would have been ordered before the huge discounting that ocurred post 9/11. In addition, was the revenue reported (where ever you found it) just for airplanes, or were spares, investments and services included.

The revenue reported was lifted straight from Airbus accouts (via EADS accounts..).
FWIW, 2005 first half figures show a big jump in revenue, and an even bigger jump in margin. I struggle to understand how so many Airbus planes can be sold "below cost" when their operating margin is persistently rising (12.8% in 1st 1/2 2005).

I can't believe that many of the planes being delivered in 2005 weren't ordered AFTER 9/11.
Spares and services are probably included in the revenue, (but also in the costs......)
Investments are dealt with separately in the EADS accounts.

Quoting Shenzhen (Reply 18):
What are the projections, and will a 70 dollar a barrel economy support more then 2 per month

Oil prices are already showing signs of softening. I also benchmark the offshore industry. The guys I deal with tell me they think we're seeing the top of oil prices, and also (more relevantly) refinery prices.

Quoting Joni (Reply 19):
The impression I have is that the margins are different such that margins are smaller for smaller, "bulk" planes and larger for widebodies. When the 747 had no competition, for example, it apparently made 30% profit from the contract (not list) price.

Could well be, although the Gellman report cites evidence that discounting is also greater on Widebodies (probably for that reason, i.e. it's possible to do...)


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 22, posted (9 years 1 week 5 days 8 hours ago) and read 4546 times:

Good for you, Astuteman - looking forward to 'comparing notes' (over the next couple of years)  Smile

Not sure how far you can compare ship design with aircraft design, though. As far as I know ships are designed to float 'naturally'; there's no practical limit to their weight, a heavy ship will float as well as a lighter one so long as you get the displacement right. It doesn't even have to go slower; given the nuclear option, there's no limit to engine power either.

By contrast, an aeroplane doesn't fly 'naturally'. It only flies at all if the wings generate enough lift, which in turn depends on the engines pushing it along fast enough. So weight/available engine power can be finite limits with aeroplanes; which doesn't happen with ships, as far as I know.

Mind you, in terms of applying the techniques of one profession to the problems of another, I'm just as bad. My professional field was mainly property developments; planning them, funding them, working out the cash flows, organising and coordinating them, and finally on-selling them. And buildings (especially fifty-storey ones) don't fly like aeroplanes - or sink, like your current products  Smile

Mind you - I can truthfully claim that, in many years of practice, I never had a 'failure'. The reason being that, in that field, you always started by valueing the end-product. Having established the end-value, you then calculated the costs of site purchase, design, permits, construction, leasing, and all the rest of it (including financing costs); and did a cash flow analysis of the whole thing. Often enough the cash flow stretched over five years or so, which raised the issue of 'exposure'.

If the value of the end-product didn't amount to AT LEAST 120% of the cost, or the cash flow exposure wasn't within the client's capacity, you re-planned the project so that the figures worked out properly. Or, if that wasn't possible, you advised the client to drop the whole thing like a hot brick.

The golden rule was, 'Get it right from the start - any later than that is TOO bloody late'. It remains to be seen whether Airbus planned the A380 project that way. And, indeed, whether they are planning the A350 project that way.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineAirFrnt From United States of America, joined Jul 2004, 2826 posts, RR: 42
Reply 23, posted (9 years 1 week 5 days 8 hours ago) and read 4489 times:

Quoting Astuteman (Reply 17):
More specifically, I quoted a cost of $175M, not $150M. Ave $185M was for the first 150 frames. My argument was that the average beyond that (assuming widely accepted norms for discounting) would be substantially higher..

I was trying to give your numbers the most charitable spin for the break even analysis.

Quoting Astuteman (Reply 17):
Airbus have actually profited from their hedging activities in the last 2 years. They have NO exposure (currently)....

Airbus's own statements (in particular thoose of the Chairman) contradict this in terms of the A380 program. He said that the weakness in the dollar had had a significantly impact (raising) the number of frames required for break even.

Quoting Astuteman (Reply 17):
hat knowledge is clearly available. Shenzen posted on it on the other thread. See above,Airbus were FULLY hedged.

I will go look for it, because it certainly is at odds with what the company has said about the A380 program.

Quoting Shenzhen (Reply 18):
20 percent over 25 years isn't a very good return on any investment.

It certainly isn't. The numbers are what Airbus has promised publically, but their own expectations were certainly higher. It seemed a reasonable benchmark to get at the point that I was making, which all boils down to:

"The A380 is a niche aircraft that has considerable non-niche costs."

Quoting Astuteman (Reply 21):
Oil prices are already showing signs of softening. I also benchmark the offshore industry. The guys I deal with tell me they think we're seeing the top of oil prices, and also (more relevantly) refinery prices.

I don't doubt that the market is overheated here. I still am unsure if we simply hit a supply crunch, are in a true peak oil situation (not really, because of the huge oil shale reserves in the united states if it ever came to that), or someone is enronizing the market. However you look at it, because of hedges, long term contracts, etc, I doubt the average cost per sweet barrel or refined will decline as much as it once did. There is simply to much paper committing to higher prices in the future.


User currently offlineThumper3181 From , joined Dec 1969, posts, RR:
Reply 24, posted (9 years 1 week 5 days 7 hours ago) and read 4446 times:

Quoting Astute - Don't see much cancellation action yet - despite HUGE bad press. Time will tell. Personal view is you're whistling.

Give it a year. Lets see how much longer the plane is delayed. Lets see how few airports decide not to accommodate it on cost grounds. Lets see what happens when airlines actually have to commit real money to actually building the plane.

Quoting Astute - I've worked in warshipbuilding all my life, mostly submarines. I have been THE Senior Production Engineer on the Astute submarine programme for 7 years now. As part of BAE, we persistently, and regularly benchmark Military Aircraft at Warton, Regional aircraft at Woodford, and the Airbus wing site at Broughton.
You'd be astonished by what I know about the Submarine industry, and quite surprised what I know about aircraft building, too.

I too walk on water. Size in itself does not make a ship cheaper to build. Further building planes is very different (as others have also pointed out to you) than building ships. In aircraft building size/weight=cost.

Quoting Astute - Your venture would be wrong on virtually all counts, and please don't tell me you know more about the cost drivers on Astute than I do.......

Then you are either incompetent or full of it. I have listed some of the more common reasons why building Astute in constant dollar terms may be less expensive to build than Trafalgar but other than just telling us that it is cheaper to build bigger you have not provided the logic to back it up. I would love to take this one up in the non aviation forum.


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