Leelaw From , joined Dec 1969, posts, RR: Posted (7 years 4 months 4 weeks 1 day 8 hours ago) and read 17459 times:
The electronic edition of this week's Flight International is reporting:
FI 24-January-2006 "Airbus to offer cash back on A340 as 777 stretches lead" (fair use)
"Airbus executives [John Leahy is quoted in the article] say they will not be panicked into a "rash" decision to reinvigorate the 340-500/600 family and believe they can compensate for the higher operating costs of the four-engined aircraft over the rival Boeing 777 by offering cashback deals to potential customers rather than investing in a costly redesign..."
Hopefully the full article will be online by the end of today.
Lumberton From United States of America, joined Jul 2005, 4708 posts, RR: 21 Reply 9, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 17187 times:
Quoting TheSonntag (Reply 5): McDD was paying (or, better said, compensating) customers for years because the MD11 didn't do what it was promised to do.
That would be somewhat different. The MD-11 didn't make its performance guarantees. I believe that McDD wasn't paying the operators as an incentive to purchase. Mir is right in that this is what car dealers to--provide incentives to buy the product in the first place.
"When all is said and done, more will be said than done".
Leelaw From , joined Dec 1969, posts, RR: Reply 10, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 17169 times:
Quoting NAV20 (Reply 2): So they'll effectively be PAYING people to fly their aeroplanes?
From FI Article:
"Is it a good investment [for Airbus] to spend a couple of billion dollars to get a better aircraft, when you can solve the fuel burn problem with money?" asks Leahy...."I can agree a figure with a customer that reflects a fuel burn delta and run that out over 12 years and pay it to them."
Airways45 From United Kingdom, joined May 2000, 299 posts, RR: 0 Reply 11, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 17161 times:
In 2005 there were 12 A340-500/600s sold compared to 154 777s.
The 777-300ER has, according to Airbus a single digit fuel burn advantage over the A340-5/600.
Airbus COO John Leahy stated:
"Is it a good investment [for Airbus] to spend a couple of billion dollars to get a better aircraft when you can solve the fuel burn problem with money".
From Flight International:
The A340-600 and 777 have "comparable ranges and seat counts and Rolls-Royce guarantees that maintenance costs for four engines are the same as the twin".
John Leahy continues:
"I can agree a figure with a customer that reflects the fuel burn dela and run taht out over 12 years and pay it to them... but if the 777's fuel burn advantage was to give it greater range, then we'd have to look at [improving the A340]."
Lumberton From United States of America, joined Jul 2005, 4708 posts, RR: 21 Reply 14, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 17078 times:
Just my opinion, but I am surprised to see this out in the public domain. A company as public relations sensitive as Airbus usually opts to incentivize customers privately. (and I am only referring to "above board" business here; not insinuating anything untoward!) Again, just my opinion, but there is a solid cadre of A340 operators around the world that have too much invested in this aircraft to change horses: SAA, LH, VS, PR, Sri Lankan, Air Tahiti Nui, IB, and others. Would the current operators eligible for the fuel burn discount, as well?
[Edited 2006-01-23 12:30:56]
"When all is said and done, more will be said than done".
RichardPrice From , joined Dec 1969, posts, RR: Reply 15, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 17069 times:
Quoting Vfw614 (Reply 13): Why don't they simply lower the sales price accordingly ? Would only look half as stupid as this pay-back stuff and cannot be rocket science to calculate....
Because a cashback means you GET the money to start with, and can start earning interest on it. It doesnt say if the customer gets all the money at the start, or over the period the delta is agreed on. If its the latter, then Airbus continue to earn interest until the money is paid each year.
If Airbus can do this, then it means they can put off developing a replacement aircraft for a few years and benefit from the advance in technology that happens in the meantime, which means a better aircraft.
OyKIE From Norway, joined Jan 2006, 2577 posts, RR: 4 Reply 20, posted (7 years 4 months 4 weeks 1 day 7 hours ago) and read 16945 times:
I don't think this is a dumb Idea. If you can sell the A340-600 at a price that makes the capital investment so much lower than the 777 that it makes up for the increase of fuel burn over a period of 12 years then Leahy has something to sell to airlines. And I think Airbus is able to sell the A340 at a low price and still make money. If they can get the sales to keep the A340 going until the A340-600 enhanced is available it might not be such a bad idea after all.
Dream no small dream; it lacks magic. Dream large, then go make that dream real - Donald Douglas
Sabenapilot From Belgium, joined Feb 2000, 2698 posts, RR: 48 Reply 21, posted (7 years 4 months 4 weeks 1 day 6 hours ago) and read 16892 times:
I think this is in fact a very good and sound business strategy!
It has been used with much success by Airbus in the past, notably to offset the higher cost of:
increased maintenance investments (spare parts)
extra facilities (containers, loaders, trolleys)
and all other expected investments new Airbus operators are looking at when switching from B to A, so why not use the same financial mechanism to take away the only disadvantage the A340 has developed vs the 777 only recently, that of the higher fuel bills?
As RichardPrice pointed out, a cashback operation would give airlines back all the financial benefits of the A340, namely the already relatively lower acquisition price as well as a traditionally similar operating cost than the 777.
These kind of deals are quite common for Airbus really (see above), so I think Mr Leahy is just signaling that A has done their calculations and decided it can come up with similar mechanisms to offset the higher fuel bills too. Expect a much more in-depth explanation of the mechanism to be handed over to several key customers and I think many airlines will be seduced to at least evaluate the A340 somewhat closer again in the future....
Quoting Lumberton (Reply 14): Would the current operators be eligible for the fuel burn discount as well?
Of course, but because of other financial savings through commonality too, don't expect the 'cash back' for an all Airbus operator like IB to be the same than for a new A340-600 operator, which is why Airbus has always prefered to work with compensating mechanisms (taylor made for each case) rather than with a price cuts on the list price.
Shenzhen From United States of America, joined Jun 2003, 1701 posts, RR: 2 Reply 23, posted (7 years 4 months 4 weeks 1 day 6 hours ago) and read 16746 times:
However.......................... As with any contract, this would end as soon as the airplane is sold, meaning the re-sale value of the airplane is unaffected, therefore the purchase price is still to high.
If Airbus are at the point of stating this in public, then it is quite obvious that it hasn't worked in the recent past, so is now being used as some sort of PR gimick. Remeber when he said, "I'll just drop the price of the A330-200, because I don't have any development cost" ?
Tifoso From United States of America, joined Jan 2006, 440 posts, RR: 0 Reply 24, posted (7 years 4 months 4 weeks 1 day 6 hours ago) and read 16683 times:
Quoting Sabenapilot (Reply 21): as well as a traditionally similar operating cost than the 777.
Quoting Leelaw (Thread starter): Airbus executives [John Leahy is quoted in the article] say they will not be panicked into a "rash" decision to reinvigorate the 340-500/600 family and believe they can compensate for the higher operating costs
A little contradictory there, Sabenapilot? After all, Airbus is coming up with this scheme to offset the higher costs associated with using the A340.
[Edited 2006-01-23 13:46:19]
25 Leelaw: IMO, it's a wise policy to take most of the sales puffing that Baseler and Leahy spout with a grain of salt, this seems like a more substantive polic
26 Kangar: I would say it's a throwaway comment myself, remember, he's a salesman, he doesn't run the show.....
27 NAV20: Tell you the truth, Kangar, IMO he does run the show. If he doesn't run the sales side properly, in the end nobody eats........ I must admit that I f
28 Leelaw: I disagree with your assessment, I think the likelihood of an uncoordinated and/or unsanctioned Leahy pop-off on any subject is low at this point in
29 N79969: You believe anything Airbus says or does to be good and sound. ************ This does not inspire confidence in the A340. Unless the A340 has suddenl
30 Shenzhen: One has to wonder what Rolls Royce has to think about these comments. If an airline is to be offered a 777NG performance gurantee, then one could ass
31 NAV20: Shenzhen, I think you meant 'an A340NG performance guarantee'. Still time to edit.
32 Shenzhen: I may not have worded it perfectly, but I meant 777NG gurantee, as that is what the A340 will be guaranteed against. Cheers
33 AKelley728: Or the way Airbus sounded in their Easyjet deal? [Edited 2006-01-23 15:20:05]
34 WhiteHatter: Rolls Royce delivered the Trent 500 to Airbus specifications. Their part of the deal has been delivered on. You cannot expect a company to compensate
35 Keesje: Indeed, they gained market share for the last 5 years & probably will continue to do so in 2006 and 2007. Personally I don't think the heralded new a
36 Shenzhen: Ahhh.... what is in it for them.... well how about four engines per airframe. If Rolls Royce wants to sell any more of those engines that "work" on t
37 N79969: This is just completely and abjectly absurd. Airbus is an aerospace manufacturer and supplier of aircraft to airlines. That it now must consider assu
38 Tifoso: NAV20, there is no denying the fact that the A340 is a quality product. It may not be as good as it's competitor when it comes to fuel burn and opera
39 Jaysit: I agree. Especially as the much ballyhooed A380 is about to start passenger service this year. By publicly acknowledging that the A340 is an inferior
40 Shenzhen: Not going to dig through any numbers, but would be willing to bet that any A340 market share gain over the past 5 years was negated in 2005. Certainl
41 OldAeroGuy: The problem is that the single digit is an exponent to ten in scientific notation. The 773ER burns about 10% less fuel per trip compared to the A346H
42 NYC777: This is a very telling statement from Airbus. Instead of investing money to improve a product which would take years and require cash outlays in the f
43 NAV20: Tifoso, I was reacting to Leahy saying, "Is it a good investment to spend a couple of billion dollars to get a better aircraft....." I wasn't implying
44 OldAeroGuy: On second thought, maybe the subdizidation plan is an admission that Airbus thinks the future market of the A345/6 is 100 airplanes or less.
45 Killjoy: I find this a bit strange. While I understand the reasoning, I can't figure out why it should be a simple all or nothing decision. Spending huge amoun
46 Trex8: if its good enough for Daimler Chrysler, GM, Ford,(ok so those two are going down the tubes!) even Honda and Toyota why isn't it good enough for an ai
47 Max999: This cash back is similar to what Ford and General Motors are doing recently... offering heavy discounts on products they know are selling very poorly
48 PlaneDane: Wouldn't the best solution be for Airbus to simply let the A340 program die? The current A350 design and perhaps a further stretch could take the pla
49 Killjoy: Bill Ford is live on TV right now discussing job cuts of up to 30 000 people .
50 WINGS: What problems? From what Im aware they are just running late with A380. Maybe you will be kind enough to point out all the problems with the A380 and
51 OldAeroGuy: This option is out of Airbus control. It puts all the risk on RR and they may be unwilling to make the investment, given the size of the market. The
52 Widebody: It's easy to understand the above when you know how sales campaigns work. Airlines today use the total life-time cost of the aircraft in order to push
53 Atmx2000: I doubt the HGW is costing very much. The question is why did they think it was a good idea anyway? Well, maybe they are in the position that Boeing
54 STT757: This is a doubled edged sword for any airline that would take Airbus (Leahey) up on the cash back offer, the problem is that through these comments th
55 N79969: I do not think that is an easy option either. Since the A330/340 share the same assembly line, costs are amortized across the two products. A complet
56 OldAeroGuy: The HGW was committed to development back in 2002 when Airbus was still in denial about the fuel burn differences between the A346 and the 773ER. The
57 Atmx2000: But guarantees on the maintenance only exposes you to labor and parts costs. Fuel guarantees exposes you to a volatile commodity's price. Hedging to
58 Widebody: You're not guaranteeing the fuel price, only the cost of operating the engine when the fuel passes through it. It's a comparison process, you don't ge
59 787engineer: I don't see your point with this post. Do you like to hear about people losing their jobs? Are you trying to draw the ridiculous analogy to Ford offe
60 Dw747400: I think these are two very important points. First, the cost of the cash back depends on the projected cost of fuel and the number of aircraft sold.
61 Francoflier: And now, introducing Airbus 'employee discount' on some of Airbus' greatest products! Visit your local Airbus dealership for more information.
62 Max999: I'm not sure who you're trying to quote, but I didn't mention anything about job losses. I was trying to make the analogy that Airbus is recognizing
63 OldAeroGuy: The HGW change was primarily structural in nature. The airframe was strengthened to increase MTOW and MZFW. The MZFW increase was necessary to match
64 Boeing767-300: What a load of rubbish and even if they did they are woefully short of the GE perfomance (Economy) Aircraft should never designed or engines for that
65 Jacobin777: well...we'll see how accurate their predictions have been.....they obviously coudn't have predicted that fuel would be so expensive, and I wouldn't b
66 Atmx2000: Which might be what they are considering this. Airbus has been able to acquire a number of all-Airbus operators or airlines who haven't purchased fro
67 787engineer: I was actually quoting Killjoy (reply #49). I didn't think his by the fact that Ford is laying off 30,000 employees was very appropriate. I also thin
68 Killjoy: I think he was quoting me. Like jumping to conclusions, do you? It's just rather amusing that the Ford news hit the air at the exact same time Max999
69 Kangar: Folks, Can we just put one myth to bed here. At no time in the last 30 years has fuel efficiency been anything less than a primary concern in the desi
70 Leelaw: The full text of FI article is now available online: http://flightinternational.com/Artic...on+A340+as+777+stretches+lead.html
71 N79969: The distinction you attempt to draw is not meaningful. Think about variable has changed dramatically since the A340-600 was launched? As you know, it
72 GARPD: This whole thing strikes me as desperation.... Ok, perhaps desperation isn't the best word to use, about about the phrase "grasping at straws". I am i
73 Tifoso: Any rough estimates on what Airbus is going to be paying per frame assuming an ownership period of 12 years, as per Leahy's comment? The A346 list pri
74 Kangar: Folks, This all originated from one throwaway comment from Leahy, since when has everything he says been taken for gospel? I'd personally be very con
75 GARPD: I should very well hope so. But now that the suggestion is out in the press. Surely the WTO will be taking a long hard look at the sales transactions
76 Kangar: Correction, one offhand comment has been turned into an entire article in FI, you will notice, that Humbert, the man who counts at Airbus has said no
77 GARPD: I still see that even the suggestion of these "pay offs" to airlines by Leahy could cause some scrunity that would otherwise probably not have happene