bigbird
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New A380 Break Eeven Numbers?

Mon May 07, 2012 5:29 pm

It has been awhile since I have seen this discussed. At one point a couple of years ago the projected break even number was approximately 440 orders. Is this still correct or is the number higher or lower now. Also when would be the approximate time that this airframe would be completed? Also what is the current number of firm orders?
bigbird from georgia
 
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Stitch
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 7:43 pm

Quoting bigbird (Thread starter):
At one point a couple of years ago the projected break even number was approximately 440 orders. Is this still correct or is the number higher or lower now.

It should be higher because the delivery price of current frames does not yet appear to equal the cost of producing them - and that was before Airbus had to fix every wing built to date, which will add another nine figures to the total program costs.

That being said, as I have often said, break-even really doesn't mean anything in terms of the financial health of Airbus, or the A380 program, for that matter. Airbus' financials are very strong and look to remain so. The A380 program is moving towards that critical point of delivery momentum (around 36-40 a year) that will get enough planes into existing customer's hands that they can start to order more as well as encourage new customers to place orders as they will have a reasonably reliable sense of when the planes would arrive.

And every A380 delivered is going to generate tens - if not scores - of millions of ancillary sales at very nice profit margins.

[Edited 2012-05-07 13:14:54]
 
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moo
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 7:54 pm

Stitch, nine figures? That is $100,000,000. Surely that's over the program, not per plane?
 
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Stitch
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 8:15 pm

Quoting moo (Reply 2):
Stitch, nine figures? That is $100,000,000. Surely that's over the program, not per plane?

Yes, that is for all the fixes to all the planes.
 
glbltrvlr
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 8:26 pm

If you factor in the cost of money over time, the A380 is never going to "break even" or earn a profit if you define those terms as recovering the investment made in development and early production. That said, it's very likely that Airbus will be able to sell A380s significantly above the cost of production at some point, which means they will generate enough funds to be cash flow positive. That's not the same as profitable, but it does mean that they won't kill production anytime soon. Where that actually happens is only known within the Airbus leadership.

And as Stitch mentioned, there will be upgrades, spares and training sales generated by each one of those frames, that will presumably generate revenue if only going forward. That assumes that Airbus wasn't forced to throw a big chunk of those in as compensation for late deliveries.
 
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lightsaber
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 8:38 pm

I've stopped worrying about A380 sunk costs. They're spent. Airbus has three faults:
1. Delay into service
2. Slow production ramp
3. The wing crack issue

All the above will make the program unlikely to make a profit.    Now is the time to maximize future profit (or minimize losses). To do that, Airbus should:

1. Improve the A380 (e.g., wing twist, MTOW increase that is immanent).
2. Lower the cost of production (tough will the slow rate)

I have no doubt A380s are shipped at revenue above production costs (without the sunk costs).

Quoting bigbird (Thread starter):
At one point a couple of years ago the projected break even number was approximately 440 orders.

It could be far higher. That break even number is a function of production rate. The faster the production rate, the lower the number. First Airbus needs to produce 35+ A380s per year to bring down that production rate.

Quoting Stitch (Reply 1):
break-even really doesn't mean anything in terms of the financial health of Airbus, or the A380 program, for that matter. Airbus' financials are very strong and look to remain so. The A380 program is moving towards that critical point of delivery momentum (around 36-40 a year) that will get enough planes into existing customer's hands that they can start to order more as well as encourage new customers to place orders as they will have a reasonably reliable sense of when the planes would arrive.

   Nor does break-even matter in terms of A380 sales or improvement programs. It is time to ignore the sunk costs and move forward with the best business plan for where Airbus is.

Quoting glbltrvlr (Reply 4):
If you factor in the cost of money over time, the A380 is never going to "break even" or earn a profit

  

Time to get more out.

And convince the engine makers to accelerate PIPs!

My news on GP7200 improvements is pretty dry. I know they are going on... But my information isn't... dramatic.

Lightsaber
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Gingersnap
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RE: New A380 Break Eeven Numbers?

Mon May 07, 2012 9:18 pm

Maybe it's just me, but I see the A380 pulling in many more orders down the line.

That being said, I guess we'll need to wait and see how much the development costs of the -900 series will come to. I could see EK putting down a lot more cash for these birds, as well as other operators especially as the global economy begins the pick up.
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