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Embraer CEO Questions A380 ROI - Article  
User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Posted (7 years 2 months 1 week 4 days 15 hours ago) and read 4712 times:

Yet, he likes the A350! IMO, this ain't the way to endear oneself to EADS in their backyard.
http://www.iht.com/articles/ap/2007/...s/EU-FIN-France-Embraer-Airbus.php

Quote:
But Frederico Fleury Curado expressed interest in investing in another Airbus project, the A350 XWB.
Curado, whose company's jets are aimed at the regional market and seat up to 122 passengers, said the market for mass hub-to-hub transit is limited, as congestion at big hubs such as London Heathrow or Frankfurt turns passengers toward smaller airports.
"The flying experience through major hubs is becoming more and more difficult," he said in an interview in Paris, location of Embraer's European headquarters.
"How many A380s can you sell? Can you sell 200, can you sell 1,000? We see a few hundreds of airplanes so the question might be the return on investment."

He goes on to say:

Quote:
"We believe the 350 will be a successful program," Curado said. "The orders are kind of stating that."

Hard to dismiss an opinion from a respected insider like Mr. Curado.

[Edited 2007-07-13 21:53:15]


"When all is said and done, more will be said than done".
26 replies: All unread, showing first 25:
 
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 1, posted (7 years 2 months 1 week 3 days 21 hours ago) and read 4367 times:

"Airbus may struggle to make money from its troubled superjumbo A380, the chief executive of Brazilian planemaker Embraer said Friday."

What does he mean by 'may'? EADS have already said they'll be making a loss on production, leave alone development costs, until 2010 - by which time they reckon they'll already have delivered half the orders.

There's really not a great deal more to be said about the A380. IMO, as any sort of money-making proposition, it's already 'history.'



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineWsp From Germany, joined May 2007, 458 posts, RR: 0
Reply 2, posted (7 years 2 months 1 week 3 days 16 hours ago) and read 4135 times:

Here is the more detailed statement on the delays:
http://www.eads.com/1024/en/investor..._ir/2006/20061003_eads_airbus.html

Quoting NAV20 (Reply 1):
What does he mean by 'may'? EADS have already said they'll be making a loss on production, leave alone development costs, until 2010 - by which time they reckon they'll already have delivered half the orders.

The aircraft they deliver until 2010 are also part of the break-even figures they mentioned (before they stopped mentioning them). So your statement, while interesting from the EBIT point of view, doesn't add much insight to the ROI debate.


User currently offlineXT6Wagon From United States of America, joined Feb 2007, 3409 posts, RR: 4
Reply 3, posted (7 years 2 months 1 week 3 days 16 hours ago) and read 4098 times:

Quoting Wsp (Reply 2):
So your statement, while interesting from the EBIT point of view, doesn't add much insight to the ROI debate.

No, its interesting that they make a combined $0 on producing the planes till sometime 2010, So for many of those planes, Airbus lost money putting hardware out the door. Thats NOT accounting for overhead, R&D, facilities, etc. Just the plane itself with production costs and compensation is more than the check they pick up on delivery. Which is fine for the flight test frames, as you have to break a few eggs to make an omelette, but to lose money on the first 30 or 40?

Or that some Airlines total contracts will be a LOSS for Airbus?

Not signs of a project with the hope of any economic success.


User currently offlinePPVRA From Brazil, joined Nov 2004, 8964 posts, RR: 39
Reply 4, posted (7 years 2 months 1 week 3 days 16 hours ago) and read 4072 times:

Splitting hairs, people. . . maybe he was just trying to be diplomatic instead of bringing up negative views?? He does have an interest to partner with Airbus, much easier if Airbus and Embraer are in the friendly side.


"If goods do not cross borders, soldiers will" - Frederic Bastiat
User currently offlineWingedMigrator From United States of America, joined Oct 2005, 2213 posts, RR: 56
Reply 5, posted (7 years 2 months 1 week 3 days 16 hours ago) and read 4059 times:

Quoting NAV20 (Reply 1):
There's really not a great deal more to be said about the A380. IMO, as any sort of money-making proposition, it's already 'history.'

Yes. The CEO's statement is not new or controversial and I doubt Airbus would be offended.


User currently offlineWsp From Germany, joined May 2007, 458 posts, RR: 0
Reply 6, posted (7 years 2 months 1 week 3 days 15 hours ago) and read 3932 times:

Quoting XT6Wagon (Reply 3):
No, its interesting that they make a combined $0 on producing the planes till sometime 2010, So for many of those planes, Airbus lost money putting hardware out the door. Thats NOT accounting for overhead, R&D, facilities, etc. Just the plane itself with production costs and compensation is more than the check they pick up on delivery.

They list 0.6bn EUR from loss-making contracts. One would assume that this relates to rework costs etc. The overall 2.8bn EUR in program overruns that they cite as the reason for negative EBIT contributions till 2010 is not necessarily (and not likely) entirely related to these particular aircraft that happen to be delivered in that time frame.

For example the engineering costs of the redesign of the wiring should be included in that money and they are not attributable to the production of the first 30-40 copies.


User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Reply 7, posted (7 years 2 months 1 week 3 days 15 hours ago) and read 3902 times:

Would it be too much of a stretch to interpret Mr. Curado's comments as someone questioning the business case itself of the A380?

[Edited 2007-07-14 22:31:55]


"When all is said and done, more will be said than done".
User currently offlineWingedMigrator From United States of America, joined Oct 2005, 2213 posts, RR: 56
Reply 8, posted (7 years 2 months 1 week 3 days 14 hours ago) and read 3877 times:

Quoting Lumberton (Reply 7):
Would it be too much of a stretch to interpret Mr. Curado's comments as someone questioning the business case itself of the A380?

Yes, it would be reading into his words. The business case was fine (if marginal) before Airbus shot themselves in the foot with the production ramp-up. After Airbus shot themselves in the foot, the business case fell apart, but it was too late to turn back.


User currently onlineMaverickM11 From United States of America, joined Apr 2000, 17510 posts, RR: 45
Reply 9, posted (7 years 2 months 1 week 3 days 13 hours ago) and read 3787 times:

Quoting Lumberton (Thread starter):
Embraer CEO Questions A380 ROI

*What* ROI?



E pur si muove -Galileo
User currently offlineIkramerica From United States of America, joined May 2005, 21532 posts, RR: 59
Reply 10, posted (7 years 2 months 1 week 3 days 13 hours ago) and read 3725 times:

Quoting Lumberton (Thread starter):
Hard to dismiss an opinion from a respected insider like Mr. Curado.

Some people will question half of his opinion, others will question the other half. I think he's right about both. A few hundred A380s (a few being more than a couple, meaning 300-500) is all Airbus can hope for, which means somewhere between a moderate loss and a 1-2% ROI.

This is why he does say the A380 has potential ROI. But at 1-2%, investors would be better off buying government bonds...



Of all the things to worry about... the Wookie has no pants.
User currently offlineGlareskin From Netherlands, joined Jun 2005, 1305 posts, RR: 1
Reply 11, posted (7 years 2 months 1 week 3 days 11 hours ago) and read 3631 times:

I.M.O the A380 wasn't meant to be a big cash-cow in the first place. It should underline the position of Airbus as the no. 1 aircraft manufacturer in the world. R.O.I. was estimated to be modest. But now, because of the delays it is questionable if and when the A380 will generate profits. Also I think that the profits where not thought to come from the aircraft itself, but bigger deals that could be closed by the ability to offer the A380. But by choosing this strategy Airbus forgot to take care of the smaller widebody segment which was generating profits already. Now Airbus will have to put in all the resources to catch up here and hopefully will not make the same mistake by forgetting the on-time development of the crucial narrowbody segment.


There's still a long way to go before all the alliances deserve a star...
User currently offlineIkramerica From United States of America, joined May 2005, 21532 posts, RR: 59
Reply 12, posted (7 years 2 months 1 week 3 days 11 hours ago) and read 3602 times:

Quoting Glareskin (Reply 11):
R.O.I. was estimated to be modest. But now, because of the delays it is questionable if and when the A380 will generate profits.

Just not true. ROI was projected by Airbus to be 19% based on 750 sales including F, and that is how they convinced the governments and lenders to buy into it. They didn't say "you won't make any money but we want to make a big plane, so why not just give us the money."

That ROI was revised to 13% based on 750 sales due to delay costs, as break even increased by 150 planes.

Without the F, 750 sales is basically out of the question. The 750 sales projection was never really a solid statistic, but Airbus sold it hard and people wanted to believe for the reasons you state, to be "Number 1."

But from a business perspective, the A380 will be studied for years to come as a lesson in hubris. And despite all that, it's a great plane and I want to fly it!



Of all the things to worry about... the Wookie has no pants.
User currently offlineBoomBoom From , joined Dec 1969, posts, RR:
Reply 13, posted (7 years 2 months 1 week 3 days 9 hours ago) and read 3464 times:

Quoting Glareskin (Reply 11):
It should underline the position of Airbus as the no. 1 aircraft manufacturer in the world.

It will probably cost them that position.

Ironic, isn't it?


User currently offlineGlareskin From Netherlands, joined Jun 2005, 1305 posts, RR: 1
Reply 14, posted (7 years 2 months 1 week 3 days 8 hours ago) and read 3407 times:

Quoting Ikramerica (Reply 12):
Without the F, 750 sales is basically out of the question.

I thought the F was still open for later development. Didn't they just need the engineers for the pax version with all the delays? I wouldn't even rule out UPS and FedEx to order again. 750 is still optimistic though. But wasn't the new break-even number now on fourhunderdsomething?



There's still a long way to go before all the alliances deserve a star...
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 15, posted (7 years 2 months 1 week 3 days 8 hours ago) and read 3371 times:

Worth remembering that failure to recoup A380 development costs will have serious consequences for shareholders in the medium term. Under the 1992 Agreement 'launch aid' plus accumulated compound interest is repayable either in the form of royalties on sales or as a lump sum at the end of 17 years.

EADS accounts aren't clear on this subject, but they currently show a figure of about E5B. as owing to governments, most of which is probably the A380 launch aid plus accumulated interest up to now. Presumably, the way things are going, most of that will remain outstanding and have to be repaid as a lump sum about 2017?

Even though the interest rates are low (at or just above the borrowing rates of the governments concerned) the current figure of E5B.-plus is likely to compound up close to E10B.by then. Yet another 'cash flow problem' for EADS......



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineWsp From Germany, joined May 2007, 458 posts, RR: 0
Reply 16, posted (7 years 2 months 1 week 3 days 7 hours ago) and read 3324 times:

Quoting NAV20 (Reply 15):
Worth remembering that failure to recoup A380 development costs will have serious consequences for shareholders in the medium term. Under the 1992 Agreement 'launch aid' plus accumulated compound interest is repayable either in the form of royalties on sales or as a lump sum at the end of 17 years.

My reading of the treaty is that the 17 years is merely the basis for the calculation of the royalty payments. I couldn't find any reference to a lump sum payment.

http://www.ita.doc.gov/td/aerospace/agreements/usaeulca.pdf

Nevertheless it is of course possible that the actual contracts with the national governments have stricter conditions and may include a lump sum.


User currently offlineJacobin777 From United States of America, joined Sep 2004, 14968 posts, RR: 59
Reply 17, posted (7 years 2 months 1 week 3 days 7 hours ago) and read 3309 times:

What I find interesting is even after the massive amount of orders at the Paris Air Show, EADS/Airbus stock didn't do too much...In fact, Boeing's stock has well outperformed EADS/Airbus stock the past few months...





"Up the Irons!"
User currently offlineIkramerica From United States of America, joined May 2005, 21532 posts, RR: 59
Reply 18, posted (7 years 2 months 1 week 3 days 6 hours ago) and read 3246 times:

Quoting Jacobin777 (Reply 17):
What I find interesting is even after the massive amount of orders at the Paris Air Show, EADS/Airbus stock didn't do too much...

It's because the market is not happy about the discounting taking place, concerned about the A380 and the delays to the A350X program, and knows that history is littered with companies who sold, sold, sold their way into red ink.



Of all the things to worry about... the Wookie has no pants.
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 19, posted (7 years 2 months 1 week 3 days 6 hours ago) and read 3229 times:

Quoting Wsp (Reply 16):
My reading of the treaty is that the 17 years is merely the basis for the calculation of the royalty payments. I couldn't find any reference to a lump sum payment.

You could be right, Wsp, the required 'critical project appraisal' was never prepared and the terms of the advances, as far as I know, were never published. The 'best guesses' as to the repayment ternms are contained in the 'Gellman Report.' But it would be incredible to me if the governments concerned did not impose some sort of 'final solution' clauses in the detailed documentation; certainly clauses that made provision for the programme ending prematurely or 'dying' for lack of orders.

Otherwise any un-refunded launch aid will remain on EADS' books for ever, mounting up, with no obligation either to repay it or to pay interest. Interesting if that is indeed the case - talk about, "Heads I win, tails you lose!"  Smile But, as I said, I can't imagine ANY government agreeing to absurd, 'open-ended,' terms like that.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineN174UA From United States of America, joined Jun 2006, 994 posts, RR: 0
Reply 20, posted (7 years 2 months 1 week 3 days 6 hours ago) and read 3226 times:

Quoting Jacobin777 (Reply 17):
What I find interesting is even after the massive amount of orders at the Paris Air Show, EADS/Airbus stock didn't do too much...

This ties in with what I've been learning in my Corporate Financial Management class...your "interest" is based on the "semi-strong" view of the Efficient Market Hypothesis, in that security prices (in this case, the price of EADS stock) reflects all publicly available information. So, since industry analysts were publicly confident enough in predicting who would likely order during the Paris Airshow before the Paris Airshow even began, the stock price adjusted accordingly, and that's why you see the EADS stock price remaining relatively unchanged.

Another very reasonable answer is:

Quoting Ikramerica (Reply 18):
It's because the market is not happy about the discounting taking place, concerned about the A380 and the delays to the A350X program, and knows that history is littered with companies who sold, sold, sold their way into red ink.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 21, posted (7 years 2 months 1 week 3 days 6 hours ago) and read 3219 times:

Quoting Jacobin777 (Reply 17):
EADS/Airbus stock didn't do too much...

Investors are unlikely to be much impressed by things like orders. They'll be much more influenced by EADS' current forecast of another effectively zero-profit year for 2007. And awaiting the outcome of the Sarkozy/Merkel meeting tomorrow, and EADS' publication of its half-year results later this month.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10036 posts, RR: 96
Reply 22, posted (7 years 2 months 1 week 3 days 3 hours ago) and read 3123 times:
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Quoting XT6Wagon (Reply 3):
So for many of those planes, Airbus lost money putting hardware out the door. Thats NOT accounting for overhead, R&D, facilities

That's your interpretation. The "cost" of an aircraft usually has to amortise its share of these burdens, otherwise how would they be funded?

Regards


User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 23, posted (7 years 2 months 1 week 3 days 1 hour ago) and read 3054 times:

Quoting NAV20 (Reply 1):
There's really not a great deal more to be said about the A380. IMO, as any sort of money-making proposition, it's already 'history.'

That's quite a far-reaching statement, considering we're still some months from EIS.

Quoting Glareskin (Reply 11):
Also I think that the profits where not thought to come from the aircraft itself, but bigger deals that could be closed by the ability to offer the A380.

This is certainly true, they figured they'd be at a disadvantage if they couldn't offer airlines a complete range of planes (which they likely would have been).

Quoting Ikramerica (Reply 12):
The 750 sales projection was never really a solid statistic

This has been dicussed a "few" times already.

Quoting Glareskin (Reply 14):
I thought the F was still open for later development.

It is.


User currently offlineF27Friendship From Netherlands, joined Jul 2007, 1125 posts, RR: 5
Reply 24, posted (7 years 2 months 1 week 3 days 1 hour ago) and read 3043 times:

let's not forget that Boeing was on the verge of bankrupcy in the early days of the 747, and it ended up a great succes.
Airbus is in some troubles because of the A380 now, but nothing that can't be handled. This is an aircraft that will be built over the next 30 years, and it is only normal you don't earn money the first few years.

Succes is determined in the long term


25 Post contains images Jacobin777 : I figured its easier to throw a chart up there rather than making an attempt at an explanation which probably wouldn't be believed anyway... ..as the
26 Post contains images Wsp : Lol @ chart magicians and stock market worshippers Try this chart: Black: EADS (Paris) Blue: BOEING (Frankfurt) in EUR Green: DJ Euro Stoxx 50 Timefr
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