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leelaw
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Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 8:17 pm

LONDON (Dow Jones)--Airbus now needs to sell around 420 A380 aircraft to break even on the delayed program, according to a presentation given at an investor meeting of parent company, European Aeronautic Defence & Space Co. NV Thursday.

The break-even outlook is updated for 2006 and updates the 2005 business case, which was based on 270 A380 orders, according to a presentation by Airbus Chief Financial Officer Andreas Sperl.


http://online.wsj.com/article/BT-CO-20061019-704403.html
Lex Ancilla Justitiae
 
kappel
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 8:36 pm

Wow, less than I expected. So if the forecasts hold true, it might still be possible for the project to break even. Not really what they might have hoped, but who knows. They may yet sell 500 of them. It's a shame really. The airlines seem to be very pleased with the test results, as execs have mentioned a couple of times. Who knows how many orders Airbus has missed because of these delays??
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sebolino
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 8:36 pm

Actually, this a rather good news.
420 A380 sold is really possible in the next 20 years, the program might even become very profitable. Time will tell ...
 
nudelhirsch
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 8:53 pm

420 is far less than the projected demand. This is indeed good stuff.

But our friend Leelaw thinks differently...

It is great news because it finally gives the ambitious a new shape.
Putana da Seatbeltz!
 
cobra27
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 8:56 pm

It depends on the real price and discounts. I think around 1000 A380 could be made in 20 years and the plane should really made profit. Instead of 30 hops with 787 from New York to London, it would be a lot cheaper to use 10 A380 (even though 787 is more advanced).

But the air travel trends are unpredictable, the A380 is something like building new nuclear power plants. Time for both will come
 
jasond
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:03 pm

Quoting Nudelhirsch (Reply 3):
420 is far less than the projected demand. This is indeed good stuff.

What is the projected demand incidently? By far less implies what, 2-3 times that figure or maybe more. I seriously doubt they will sell twice that many. Not good stuff, simply based on the corporate damage to the product and the ever increasing number of frames required to turn a profit. 270 from 2005 to 420 a year later is a 50% + increase in the number frames that now need to be sold. What is possibly good about it? Were you expecting worse?
 
NAV20
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:07 pm

Thanks for the info., Leelaw - does the artilcle give any indication of the timescale the analysts were working on?

The reason being that in any cash flow analysis, everything depends on the length of the payback period. A short quick sales period means that revenue eventually overtakes the mounting interest burden on the initial development cost; a slow rate of sales means that accumulated interest goes on mounting more quickly than revenue can pay it off.

As to:-

Quoting Sebolino (Reply 2):
420 A380 sold is really possible in the next 20 years, the program might even become very profitable.

Maybe the analysts did indeed work on a 20-year period. But I doubt it. If I'd been doing the analysis I'd have been very conscious of the 2018 point, which is where Airbus will have to pay back EU launch aid plus accumulated interest. So that is the date I'd have worked to.

Further, it looks as if the analysis merely calculated how many A380s Airbus would HAVE to sell (presumably at full list prices) to break even by the payback point. That would be easy enough to calculate.

Whether Leahy and Co. are reporting that there are in fact ANY reasonable prospects for selling another 300 or so A380s by 2018 is another matter entirely.  

[Edited 2006-10-19 14:31:05]
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
leelaw
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RE: Break-even Outlook For A380 Now At 420 Aircraf

Thu Oct 19, 2006 9:24 pm

Quoting NAV20 (Reply 6):
Leelaw does the artivlcle give any indication of the timescale the analysts were working on

No. However, the WSJ article reports that Mr. Sperl projects: "notional" break-even is 150 units, IRR has decreased to 13% from the 19% in the 2005 forecast, and long-term deliveries remain at 751 units. The WSJ also reports that Mr. Sperl's presentation is available on the EADS website, but I've been unable to locate it as yet.

[Edited 2006-10-19 14:26:16]
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NYC777
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:25 pm

Ok, let's see, reduced cashflow from the A380 program, lost opportunity cost, and increase in breakeven units to be sold by 150, over a 55% increase, and addd to that the A380 has not been selling well. They are 6 year into the program.

Not good news. This does not take into account any customer cancellations nor reduced sales prospects because of the delays, competiton from the 747-8I or any further delays to the program.
That which does not kill me makes me stronger.
 
jasond
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:25 pm

Quoting NAV20 (Reply 6):
Whether Leahy and Co. are reporting that there are in fact ANY reasonable prospects for selling another 300 or so A380s by 2018 is another matter entirely.

NAV20 - About 27 per year until that point in time you quoted. Given some large carriers have cherry picked the first of the production slots where in fact do orders come from consistently at that rate one may ask.
 
brendows
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:29 pm

Thanks for the article Leelaw  wave 

Quoting Cobra27 (Reply 4):
I think around 1000 A380 could be made in 20 years

That would be 50 A380s each year that Airbus would have to produce and sell. Sorry to say this, but I doubt that will happen. In my opinion, Airbus should be quite happy if they are able to sell more than 400 frames over the next 20 years.

Quoting Cobra27 (Reply 4):
Instead of 30 hops with 787 from New York to London, it would be a lot cheaper to use 10 A380 (even though 787 is more advanced).

Would it be cheaper? First: 10 A380 @ 500 seats will carry less pax than 30 788s @ 220-250 seats.
Second: The A380 will burn more fuel per seat than the 787 will burn per seat.
Third: flying more flights, provided that they can do so, will probably be more favourable from a passenger point of view (due to a wider range of flight to chose between) -> increasing demand -> the possibility for the airline to increase its revenue.

Quoting Nudelhirsch (Reply 3):
420 is far less than the projected demand. This is indeed good stuff.

But our friend Leelaw thinks differently...

There is a reason why he, and quite a lot of others, thinks differently, and there is a very good reason to why they are doing so.
 
Coelacanth
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:29 pm

 chat 

Hello from the Coelacanth,

For those of you who think this is a good thing , I beg to differ . The A380 is closing in on a project that is close to being 7 years old . And at this time there is still only speculation on the validity of this project ,with only 159 firm orders to date [many of which were sold well below cost & the reason airlines may be holding on to them ]. Currently , the A380 is killing Airbus not helping it . Boeing's 787 program is helping them zoom past Airbus at Mach 10 ! Can one see the difference in the trajectorys of the programs ?

One should not have to wait a generation [20 years] to learn if a project will be successful or not !

Still the question at this time is : Not when the A380 project will break even , but if !

Coelacanth

 old 
 
CHIFLYGUY
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:33 pm

Breakeven is still loss making. It doesn't account for the time value of money or earning a required return on invested capital.
 
katekebo
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:36 pm

Quoting Sebolino (Reply 2):
420 A380 sold is really possible in the next 20 years

The number to reach break-even is a function of time. This is because the sunken costs already expended accumulate interests over time, and getting to positive cashflow fast is key to achieve break-even. 420 sold over 20 years will not deliver the same ROI as 420 sold in 10 years. I'm sure that the 420 is based on a much more aggresive timing than 20 years, most likely something like 7 years from today, 5 years after reaching steady production. This would be consistent with Airbus original plan to deliver approx. 45 A380s per year. If it will take 20 years to sell 420 A380s, the program will be a net loss.

It is still a very good number, by the way.
 
phollingsworth
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:36 pm

Quoting Leelaw (Reply 7):
No. However, the WSJ article reports that Mr. Sperl projects: "notional" break-even is 150 units, IRR has decreased to 13% from the 19% in the 2005 forecast, and long-term deliveries remain at 751 units. The WSJ also reports that Mr. Sperl's presentation is available on the EADS website, but I've been unable to locate it as yet.

I hope that you can find the report. I am interested in taking a look at it. I would like to see the cashflow projections that get them to the 13% IRR. The reason for this is that the volititlity on annual sales will have a large effect on the IRR.
 
Thorben
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:38 pm

420 is a reasonable number to reach. They have already 249 orders plus options. There are also many potential A380 customers and potential orders. Those will come when the A380 has proven itself in service, which it will, because all problems this far are based on producing it, not on the plane itself.
France 1789; Eastern Germany 1989; Tunisia 2011; Egypt 2011
 
nudelhirsch
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:38 pm

Quoting CHIFLYGUY (Reply 12):
Breakeven is still loss making. It doesn't account for the time value of money or earning a required return on invested capital.

What else is breakeven supposed to mean then???
Putana da Seatbeltz!
 
NAV20
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:55 pm

Quoting Thorben (Reply 15):
They have already 249 orders plus options.

As far as I know they only have 159 signed orders, of which about 20 are for the freighter version?

It seems highly unlikely that the freighter version will proceed. Not only will it cost a lot of money to design, all the evidence is that the 748 freighter (with around 40 orders already) has out-flanked it.

Also worth remembering that the A380 wing was supposed to be strong enough for the freighter version as well. Given that the present (passenger version) wing failed at less than the mandatory '150% of load' criterion, a wing strong enough for the freighter version would presumably require considerable extra strengthening (at yet more 'extra-over' cost)?

Whatever else Airbus do about the troubled A380, deferring/cancelling the freighter version would appear to be a sensible and non-controversial step?
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
Rj111
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 9:57 pm

Quoting NAV20 (Reply 17):
It seems highly unlikely that the freighter version will proceed.

 laughing 

Nav, give it a rest.
 
jasond
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:04 pm

Quoting Thorben (Reply 15):
when the A380 has proven itself in service, which it will, because all problems this far are based on producing it, not on the plane itself.

True to a certain degree, however an aircraft with such a troubled production and delivery history makes prospective customers apprehensive to any potential post delivery issues. Its only when you fill it with 550+ pax day in and day out will it really prove its worth. Producing it IS actually about the plane itself. There is always the possibility that if producing it is difficult so might be operating it.
 
DAYflyer
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:08 pm

This is bad news. 420 frames is much higher than originally projected, and it will take a long time to reach that number. With no new orders in sight, it could be 5 years before that many are in service.

WAS IT WORTH IT?
One Nation Under God
 
leelaw
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RE: Break-even Outlook For A380 Now At 420 Aircraf

Thu Oct 19, 2006 10:08 pm

Quoting NAV20 (Reply 17):
Whatever else Airbus do about the troubled A380, deferring/cancelling the freighter version would appear to be a sensible and non-controversial step?

Not sure about the validity of your hypothesis Nav. Nevertheless, it's interesting to note that barring any delays to the 748F program, projected deliveries of 748Fs (4th Qtr. 2009) will commence before the A388F.



http://www.flightglobal.com/Articles...+crisis+Clients+reveal+dismay.html

[Edited 2006-10-19 15:09:56]

[Edited 2006-10-19 15:16:20]
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soundtrack
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:23 pm

I'm sorry - I have to join the naysayers on this one...

NYC777 is exacto - this is not good news especially when in just a year and a half it has gone from 270 to 420 is serious. This is also not implying 'very' possible cancellations and more delays.

This is serious as I have doubts this plane will ever make money with the 777-3, 787, and 747adv creeping away at potential customers. Emirates now sending a team to INVESTIGATE the reality of Airbus' delay, etc

I see this program as in serious FURTHER jeopardy of inflicting harm on all of Airbus for over a decade. All it takes is one cancellation by an airline and some might follow through - I hope not for Airbus sake as this will be a very good plane having seen it numerous time already. It is unfortunate the delays may really damper and endanger a very nice airplane.

Airbus wanted to create the biggest airliner in the world - and has done so...

...but be careful what you wish for, you might get it and then some...
 
mptpa
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:24 pm

Quoting Nudelhirsch (Reply 3):
420 is far less than the projected demand. This is indeed good stuff.

Projected by who? Airbus. It is a looooong cycle project and we really do not know the conomics and market emand in the next downturn and cyclic effects. Basically, it will take a long time to make an economic profit as opposed to accounting profits. We really need to calculate the opportunity cost of the sunk investment.
 
NAV20
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:39 pm

Quoting Leelaw (Reply 21):
Not sure about the validity of your hypothesis Nav.

Not sure myself, Leelaw. But there doesn't seem to be any doubt that (possibly by accident) Boeing have produced a freighter jumbo that out-performs the A380 equivalent in all but the most highly-specialised (package-based) freight areas.

Personally I think that the A380 project as a whole is 'blown' and that every further dollar (or Euro) spent on it is just another dollar wasted.

I'd agree that there is room for doubt (not much, but a little  Smile) where the passenger version is concerned. But looking at the low number of orders for the A380F compared to the 748F, plus the delivery dates that you posit, plus the wing problem..................I can't see how spending yet more billions on developing the A380 freighter against only 20 firm orders can possibly turn out to be anything but an (expensive) 'lead balloon.'
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
DLPMMM
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:49 pm

Quoting Leelaw (Reply 7):
No. However, the WSJ article reports that Mr. Sperl projects: "notional" break-even is 150 units, IRR has decreased to 13% from the 19% in the 2005 forecast, and long-term deliveries remain at 751 units. The WSJ also reports that Mr. Sperl's presentation is available on the EADS website, but I've been unable to locate it as yet.

The decrease in the IRR from 19% to 13% used in the new calculation is a very critical point in the analysis, as the decrease in the required IRR will decrease the resultant breakeven number.

This means that if the calculation was done in a consistant manner (using the same IRR, as interest rates have not dropped significantly over the last year) the breakeven would be more in the range of 600 to 800 planes.

This is truly fudging the books, and would be criminal if they did not disclose the change in the underlying IRR assumption. As it is, this is simply misleading and disingeneous to the public at large.

What possible logic could they have used to decrease the IRR, other than to make the A-380 financial breakeven look more promising?

I am amazed that the European financial regulators will let this kind of public hocus pocus go unchecked.

Very fishy, and I am not Hallibut!

[Edited 2006-10-19 16:10:00]
 
Joni
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 10:54 pm

Quoting NAV20 (Reply 6):


Further, it looks as if the analysis merely calculated how many A380s Airbus would HAVE to sell (presumably at full list prices) to break even by the payback point. That would be easy enough to calculate.



Quoting NAV20 (Reply 6):

Whether Leahy and Co. are reporting that there are in fact ANY reasonable prospects for selling another 300 or so A380s by 2018 is another matter entirely.

I thought the A380 bashers were "calculating" a breakeven point of 800-1000 units? Come on guys, smile a bit - the program isn't in nearly as much trouble as you thought!
 
sebolino
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:01 pm

Quoting NAV20 (Reply 24):
Personally I think that the A380 project as a whole is 'blown' and that every further dollar (or Euro) spent on it is just another dollar wasted.

It's much too late to say that.
Now that a few billions have been spent, and that the program has receives numerous orders, every euro spent help the program to go in the right direction. The problem is that these extra euros were not predicted, but they are necessary now, contrary to what you say.
 
Rj111
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:06 pm

The A380F is not a lot more than an -800IGW. Most of the cost are probably already sunk, and i imagine at worse would barely exceed 1bill.

FX said they'd like a fleet of 200 A380 over the next 20 year. Many of those will be conversions, but i'm willing to bet that'll be less than 190.

Quoting NAV20 (Reply 24):
Personally I think that the A380 project as a whole is 'blown' and that every further dollar (or Euro) spent on it is just another dollar wasted.

Why? If theres a case for spending more but getting a better return why ignore it. The A380 is here now, you may as well make as much money out of it as possible, even if it doesn't ultimately break even.
 
TeamAmerica
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:08 pm

This is nothing less than an admission by Airbus that the current program will do little better than to break even on cash cost. They started off saying that 270 sales would be break-even. They have sold 159, and now are saying break-even is 270+150 = 420.

That's a curious coincidence, which leads me to suspect that this figure is not based on much new analysis. It assumes that the future profit per order will be essentially the same as expected in the original business case, perhaps with upward adjustment for inflation and wishful thinking to account for the time value of money.

Break-even is not a number fixed to a number of aircraft sold. Consider a case where no A380 were sold for 10 years, followed by 261 sales in the next 10. You don't need to be an accountant to realize that an idle factory represents a huge cost that must be considered. A total of 420 in 20 years is not break-even. They would have to hit that number in 10 years to be believable, and the clock is already running.
Failure is not an option; it's an outcome.
 
sebolino
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:10 pm

Quoting TeamAmerica (Reply 29):
This is nothing less than an admission by Airbus that the current program will do little better than to break even on cash cost.

And ?

The sun will not disappear if they don't break even. They will just have another plane to compete with Boeing.
 
DLPMMM
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:13 pm

Quoting Joni (Reply 26):
I thought the A380 bashers were "calculating" a breakeven point of 800-1000 units? Come on guys, smile a bit - the program isn't in nearly as much trouble as you thought!

I am not an A-380 basher, but from the looks of it and using consistant calculation methods from year to year, it looks to me like your "bashers" were quite right at around 600-800 units, and the A-380 is indeed in deep financial trouble as a program overall.
 
boeing767-300
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:14 pm

I doubt this project will ever break even. I would be very careful about what information EADS/Airbus release because the securities commission may investigate them later.

The key thing here is what it really costs to produce one A380. I bet it is not cheap looking at the barges the ships the convoys through French towns in the middle of the night. A logistical success maybe but most definately a political disaster and obviously at a much higher cost than Airbus will ever admit.

How about 12 billion to develop and probably about 4 billion more in compensation/lost orders and options not taken up and huge amounts of interest accrued through the first delivery nearly two years late and production evedn then is at a 'trickle' of what was originally projected.

I don't think its fair to rubbish NAV20, Leelaw for stating the obvious. The blind faith of some of the predominately Europeans on this thread is admerable.

But I am neither American or European and when I divide 16 Billion by 420 I get 38 Million profit required from each and every Aircraft. The fact is after 6 years there are only 159 A380 sold and some of those are A380F which will require more development money.

What does is really cost to produce A380 and what were the launch discounts required to get the project of the ground. SQ EK and QF are reported to have received huge discounts and this is why they won't cancel.. why would you but I'd bet you if they had paid full list price they would very seriously consider dumping their orders.

Last but not least if you took 6 years to sell 159 with launch discounts how many more years to hit 420, the mounting interest bill must be crippling because I can't see how they could break even after 10 years with 0% interest.

I'm sorry its time to stop dreaming and hoping that A380 will break even it won't. Economics 101 fellas thats just the way it is and unfortunately Airbus is way too far down the track to back out.

If they had their time again I'm sure they wouldn't do the A380 as the 747 was in decline and it looks like the market is not there. Maybe the best thing Stoneciper of Boeing did was decline to do the VLA because the return on investment was simply not there.

As we all know the interest in in the large Widebody long range (not ULR) twin and Boeing has caught Airbus with their pants well and truly down.

A380 is/will be a financial disaster and didn't BAE see it coming... scratchchin 
 
Joni
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:18 pm

Quoting TeamAmerica (Reply 29):

270+150 = 420.
That's a curious coincidence, which leads me to suspect that this figure is not based on much new analysis. It assumes that the future profit per order will be essentially the same as expected in the original business case, perhaps with upward adjustment for inflation and wishful thinking to account for the time value of money.

That 270+150=420 is not a coincidence. And what is the relevance to this discussion? 410+10 is also 420. As you correctly note, the A380 has 159 orders and not 150. Could you provide a source for the claim that the presented figure assumes the things you say?

Quoting DLPMMM (Reply 31):

I am not an A-380 basher, but from the looks of it and using consistant calculation methods from year to year, it looks to me like your "bashers" were quite right at around 600-800 units, and the A-380 is indeed in deep financial trouble as a program overall.

EADS is a listed company and they can't flat out lie, as would be the case if you're correct, there.
 
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USAF336TFS
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:23 pm

Quoting Joni (Reply 26):
I thought the A380 bashers were "calculating" a breakeven point of 800-1000 units? Come on guys, smile a bit - the program isn't in nearly as much trouble as you thought!

That's true Joni, on the other hand, it's not as rosey of a picture as you would like to believe it is. Reality is that it's somewhere in the middle.
336th Tactical Fighter Squadron, 4th Fighter Wing, Seymour Johnson AFB
 
NAV20
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:24 pm

Quoting RJ111 (Reply 28):
The A380 is here now, you may as well make as much money out of it as possible

RJ111, on EADS own figures (spelled out in their most recent profit warning) they are going to lose money just on the PRODUCTION of the first 90 A380s, up to 2010 - that is, what they cost to build over and above the sale prices received, leaving aside any question of retrieving any development costs.

I'm afraid that, in face of disastrous figures like that, I simply cannot see how you can perceive that as 'making money' in any sense.

For the foreseeable future (certainly for next four years minimum) Airbus THEMSELVES expect to lose FURTHER large amounts of money on every A380 they build and deliver - amounting to over half the current passenger order backlog. I don't see how I can put it more simply than that.

Nor can I explain it further in business terms - it's inexplicable, it simply doesn't make any business sense at ALL.........
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
cobra27
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:33 pm

Quoting Brendows (Reply 10):
Would it be cheaper? First: 10 A380 @ 500 seats

Does 555 ring a bell? And I am not sure if 787 burns less per seat, I am sure than extended A380-900 with around 700 seats in 3-class would be unbeatable, and would carry much more cargo on the lower hold.
 
Poitin
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:35 pm

Quoting Leelaw (Thread starter):
LONDON (Dow Jones)--Airbus now needs to sell around 420 A380 aircraft to break even on the delayed program, according to a presentation given at an investor meeting of parent company, European Aeronautic Defence & Space Co. NV Thursday.

The break-even outlook is updated for 2006 and updates the 2005 business case, which was based on 270 A380 orders, according to a presentation by Airbus Chief Financial Officer Andreas Sperl.

Ah, yes, an honest statement from a company that denies everything until after it is obvious to everyone. And from a company with complete financial transparency -- or should I say stealth?  no 

I think I would accept this as pure BS from Air Bus. The A380 line is going to be static for a full 16 months with NO deliveries and a whole lot of people standing around. In addition, they have a massive amount of money needed to retrain their engineers on Catia V, not to mention rewire a number of of airframes.

I would need to see audited numbers on costs, contracts, overhead and such from a independent accounting firm to believe anything from the mouths of Airbus.  yes 
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TeamAmerica
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:43 pm

Quoting Joni (Reply 33):
That 270+150=420 is not a coincidence. And what is the relevance to this discussion? 410+10 is also 420. As you correctly note, the A380 has 159 orders and not 150. Could you provide a source for the claim that the presented figure assumes the things you say?

Duh! I'm saying that Airbus is not showing any profit on A380 sales so far, so the calculation is being reset to the current condition + the original assumptions. I can't make it any clearer.

As for source, it's me. I think it, and I wrote it. Can YOU provide any source for the factual analysis that arrived at the figure of 420? Of course not. Airbus would be foolish to share such information, thus we are left to speculate.
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N328KF
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:44 pm

Quoting USAF336TFS (Reply 34):
That's true Joni, on the other hand, it's not as rosey of a picture as you would like to believe it is. Reality is that it's somewhere in the middle.

Well, as others have said, there is an opportunity cost to the invested money. The "break even" also doesn't factor in inflation. Furthermore, if break-even is a 420 units, what happens if Boeing brings out a composite tube Y3, or if the A380 business model doesn't work out? Either the A380 will flounder, or Airbus will have to make additional investment to make competitive. The latter would push overall breakeven further out.
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DLPMMM
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:46 pm

Quoting Joni (Reply 33):
EADS is a listed company and they can't flat out lie, as would be the case if you're correct, there

Indeed they cannot and did not. They are merely misleading in a legal fashion by telling to precisely how they are screwing with the numbers (Reducing the required Internal Rate of Return from the 2005 rate of 19% to a 2006 rate of 13%).

Since they have disclose their calculation methods, they cant be accused of lying, however, most people without a finance or accounting degree will just gloss over this critical change in the underlying assumptions (such as yourself).

Have you seen your interest rates drop by 1/3 over the last year?

I personally feel that this is terribly misleading to the general public almost to the point of being criminal.

I have no bones to pick about Euro verses USA companies, as I do international business every day, and over 1/3 of my income comes from Europe. I do have a problem with any business (USA, Euro, or from anywhere else) that exhibits less than honest informational disclosures with shareholders.

A plane is a plane, and will take you from A to B. I don't care who made the plane I am on.

The large investors read the fine print of these releases and understand the real meaning.

Screwing the small investor by misleading him is unforgivable.
 
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:52 pm

Quoting DLPMMM (Reply 25):
The decrease in the IRR from 19% to 13% used in the new calculation is a very critical point in the analysis, as the decrease in the required IRR will decrease the resultant breakeven number.

This means that if the calculation was done in a consistant manner (using the same IRR, as interest rates have not dropped significantly over the last year) the breakeven would be more in the range of 600 to 800 planes.

This is truly fudging the books, and would be criminal if they did not disclose the change in the underlying IRR assumption. As it is, this is simply misleading and disingeneous to the public at large.

Very good point. Thanks for highlighting it. While it is not illegal, it is certainly quite dissapointing from the investors standpoint. 13% IRR is not good and will reflect on the share price.
 
Lumberton
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Thu Oct 19, 2006 11:57 pm

Does anyone remember the BEP cited in the Gellman Report?
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:02 am

Quoting DLPMMM (Reply 40):
Screwing the small investor by misleading him is unforgivable.

Well said, DLPMMM. I've met racecourse bookies that treated their 'clients' with more honesty than the likes of Forgeard have displayed.

I much preferred 'straight-line' cash flow analysis myself - and distrusted IRR because it involved making assumptions about rates of inflation. I actually used to charge an extra fee if I was asked to produce IRR figures, and always put half-a-page of disclaimers underneath them anyway  .

[Edited 2006-10-19 17:04:31]
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USAF336TFS
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:09 am

Quoting N328KF (Reply 39):
Either the A380 will flounder, or Airbus will have to make additional investment to make competitive. The latter would push overall breakeven further out.

With the events of the past year in mind, even the most ardent Airbus supporters must admit that whenever we talk about this particular project, what we all are presented with, isn't always accurate.

I do not know what the break even point is for this aircraft... Neither does anyone else on a.net. We can all speculate. Okay for the sake of argument, let's say it is 420 aircraft over 20 years.
But if another production delay is announced, and some early adopters begin to bail, it'll be interesting to hear the spin then. We're not there yet, and I personally hope the program has hit it's last snag, but let's face facts here.

The mere fact that this issue is constantly being debated should be cause for alarm by it's supporters. My own concern is it's effect on the A350XWB program, which I believe is much more important for Airbus' long term viability.
But that's another issue...

[Edited 2006-10-19 17:14:31]
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TeamAmerica
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:21 am

Quoting Lumberton (Reply 42):
Does anyone remember the BEP cited in the Gellman Report?

http://www.leeham.net/filelib/050416-shadow.pdf
Gellman predicted a loss on the program, so there is no BEP. His team projected total sales of 496 units over 20 years with most of that total in the second decade. The most telling part of the analysis given what we know today:

Quote:
To meet its break-even targets, Airbus says it expects to deliver 250 superjumbos by
2011. But to offset the deep discounts and raise working capital, it will have to demand bigger up-front payments from future customers and charge them close to list prices— $218 to $235 million, says aerospace analyst Paul H. Nisbet, of Newport (R.I.)-based JSA Research. Cost-conscious airlines won’t readily agree to pay 40% more than their competitors did, say industry watchers.

The above is cited Source: Business Week, March 5, 2001 pages 52-53

I think Airbus is indeed making assumptions that future sales will command much higher prices. Wishful thinking.
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Stitch
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:27 am

Quoting NAV20 (Reply 17):
Also worth remembering that the A380 wing was supposed to be strong enough for the freighter version as well. Given that the present (passenger version) wing failed at less than the mandatory '150% of load' criterion, a wing strong enough for the freighter version would presumably require considerable extra strengthening (at yet more 'extra-over' cost)?

I'm not sure how well the A380F is going to sell on her max payload (150 tons?) or her range (since most of the world's heavy cargo facilities are designed around the 747F's range). so if the worst-case happens and the wing can't meet spec at that MTOW, if they can get it down to a point that still allows FX and 5X to fill them up with packages, it could still work in that role, though I will freely admit Airbus expected to sell the plane to more then just those two companies.

Quoting Cobra27 (Reply 36):
Does 555 ring a bell? And I am not sure if 787 burns less per seat, I am sure than extended A380-900 with around 700 seats in 3-class would be unbeatable, and would carry much more cargo on the lower hold.

While 555 seats is "Airbus Configuration", none of the carriers for that plane will be flying it in that config. Even 500 seats is high for some of them. That being said, the 787-8 will also likely carry less seats as well, at least in a three-class config (two-class might very well be at the seat count quoted).
 
airfrnt
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:33 am

Quoting Sebolino (Reply 2):
Actually, this a rather good news.

That's a impressive amount of Spin.

Quoting Cobra27 (Reply 4):
It depends on the real price and discounts. I think around 1000 A380 could be made in 20 years and the plane should really made profit.

Airbus's own sales projections call for 20 a year. That means 12 years before break even is reached. That means that if there really is a demand for this aircraft, Boeing can step in with a all new Y3 and make the A380 pretty irrelevant.

Also, have you looked at the sales numbers for Aircraft. Do you truly believe that there is more demand now then there was for the 757 and 767 over it's entire lifetime?
 
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:36 am

Quoting AirFrnt (Reply 47):
Airbus's own sales projections call for 20 a year.

Is that really what they're projecting for annual sales? If that's the case, then how do they intend to make that fit in with their production rate (after ramp-up) of 43 per year?
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' -Theodore Roosevelt
 
Rj111
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RE: Break-even Outlook For A380 Now At 420 Aircraft

Fri Oct 20, 2006 12:41 am

Quoting NAV20 (Reply 35):
RJ111, on EADS own figures (spelled out in their most recent profit warning) they are going to lose money just on the PRODUCTION of the first 90 A380s, up to 2010 - that is, what they cost to build over and above the sale prices received, leaving aside any question of retrieving any development costs.

I'm afraid that, in face of disastrous figures like that, I simply cannot see how you can perceive that as 'making money' in any sense.

For the foreseeable future (certainly for next four years minimum) Airbus THEMSELVES expect to lose FURTHER large amounts of money on every A380 they build and deliver - amounting to over half the current passenger order backlog. I don't see how I can put it more simply than that.

Nor can I explain it further in business terms - it's inexplicable, it simply doesn't make any business sense at ALL.........

That's nice but it has little relevance to my point which you've chosen to quote.

Quoting Boeing767-300 (Reply 32):
I bet it is not cheap looking at the barges the ships the convoys through French towns in the middle of the night.

Transport by land/sea is inheritantly cheaper than transport by air, especially heavy freight.
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