Guest

Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 11:46 am

Bank leak questions jumbo bid

By Geoffrey Thomas

http://www.thewest.com.au/20001115/business/tw-business-home-sto10723.html

A QANTAS board meeting tomorrow to decide on an order for up to 18 A3XX mega jumbos worth $7.98 billion is being held against the backdrop of a leading bank casting doubts on the viability of the jumbo program - the biggest financial undertaking ever by European industry.

A Credit Suisse First Boston (CFSB) confidential report, obtained by The West Australian from sources in Europe, questions whether consortium Airbus Industrie will sell enough A3XXs to make a profit. It also raises concerns about the discounts being offered and the overall business case.

Qantas is expected to order up to 18 A3XXs after arch-rival Singapore Airlines bought 25 last month.

CSFB considers it likely that Airbus will achieve the 50 to 60 orders required to allow production to start but says the question really is: what airlines will be in the second wave of aircraft buyers to maintain production schedules after the initial sales?

"Airbus"20-year A3XX sales forecast appears to be quite aggressive," says the report.

John Leahy, Airbus vice-president of commercial operations, concedes there will be an order gap after launch as the launch discounts are discontinued.

But CSFB questions how big that gap will be and who else will buy the giant jet. British Airways and United Airlines have already said no to the A3XX and only United Airlines and Northwest Airlines in the United States operate the 400-seat 747-400s.

Giants such as American, Delta and Continental have all bought big fleets of 300-seat 777s, preferring to offer non-stop high frequency service. Another major target airline, Hong Kong-based Cathay Pacific, said last month it would not order the A3XX or 747X Stretch until next year at the earliest.

Japan Airlines, the world's biggest 747 operator, has turned its back on the new European aircraft. Italy's Alitalia has announced it will swap five 747s on order for 12 777s.

The CSFB report says the market over 20 years for aircraft of 400 seats and above is estimated to be between 1000 and 1500 aircraft, with the Airbus business case based on selling 768 A3XXs.

Boeing's 747-400 seats up to 426 and its 747X Stretch offering will seat 522. The Stretch will cost $8 billion to bring into production and will be lighter, faster and cheaper to buy and operate than the A3XX, says the report.

CSFB has no problem with Airbus selling 250 A3XXs, which are identified as being needed for major routes such as Tokyo to London or Sydney-Los Angeles, but says the business case for the rest is too speculative. One key route, Tokyo to Los Angeles, has only grown at 0.9 per cent since 1990 and the actual size of aircraft on the route has reduced from 395 to 351 seats.

"The current A3XX business case assumptions appear to be extremely optimistic," says the report.

Airbus counters the arguments, saying that the A3XX will bring fares down and thus encourage more people to fly.

But British Airways is finding that it is better to invest in smaller aircraft that are cheaper to buy and target high-yield passengers. BA has swapped a number of 747 orders for the smaller 777s.

Development costs of the A3XX are put at $20 billion and CSFB has major concerns with the cash flow for the project.

Discount pricing is another concern for CSFB. The catalogue price is set at $423 million against $362 million for the 747. Though launch customers obtained discounts of 30 per cent, Airbus believes it obtained better prices than budgeted for, says the CSFB report.

However, CSFB says that Airbus"business case for a $335 billion market for 768 aircraft suggests a price needed of $435 million per aircraft. "This does not work," the report warns.

Other analysts cite Boeing's near brush with bankruptcy when building the 747, despite there being no competition to the aircraft.
 
DeltaSFO
Posts: 2407
Joined: Fri Nov 03, 2000 11:22 am

RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 11:55 am

Very good article. Very true. I'm glad someone has finally seen the light.

Brissie_Lions... I have a feeling you're about to get flamed.

DeltaSFO
It's a new day. Every moment matters. Now, more than ever.
 
flashmeister
Posts: 2671
Joined: Fri Apr 28, 2000 4:32 am

RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 12:18 pm

Fascinating... maybe things aren't as rosy in Toulouse as everyone says.

If the fundamentals of the A3XX project are unsound, then I can see the banks' concern. On the other hand, these analysts are trained in contingencies and radiate pessimism.

It is true that the numbers are fuzzy, but such is life I suppose... but over 1000 aircraft in that segment over 20 years? That seems _way_ high...
 
Carioca Canuck
Posts: 632
Joined: Sun Apr 23, 2000 4:03 pm

RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 12:30 pm

Well for starters, I'll open by saying that I prefer Airbus products, but feel that this one won't make it as a commercial success, on the scale that's expected by Airbus.







 
Guest

RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 1:13 pm

Credit Suisse First Boston is a premiere firm. Listen to whatever they say. They're no propaganda machine.
 
Republic
Posts: 541
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RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 1:33 pm

Bank opinions certainly matter in this instance. With development costs projected by Airbus at $20 billion, the favor of the banking establishment to provide capital for the A3XX is fundamental. It would be interesting to see the views of other banks. If they concur, then who will loan Airbus the $ to develop the A3XX? Or will the governments of France, Germany, and UK provide the needed funds for this venture?

Joe
 
Fly-by-pilot
Posts: 180
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RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 2:27 pm

I am glad somebody other than Boeing is also stating the obvious.
 
astrojet
Posts: 553
Joined: Thu Aug 31, 2000 9:11 pm

RE: Bank Leak Questions Jumbo Bid

Wed Nov 15, 2000 2:40 pm

Yesterday they said on german TV that Airbus is thinking about delaying the launch one more time again because the don´t see the need of such plane yet.

One more thing that shows nothing is for sure yet.
 
DeltaSFO
Posts: 2407
Joined: Fri Nov 03, 2000 11:22 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 5:12 am

This is a leak on purpose, as is the other one in Stern magazine. This is a PR ploy intended to soften the shock when it is announced in the near future that the A3XX program is cancelled.

You can count on it.

DeltaSFO
It's a new day. Every moment matters. Now, more than ever.
 
JumboClassic
Posts: 314
Joined: Thu Jun 29, 2000 4:37 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 5:32 am

Do you guys think that the lack of commitment from a US carrier might be a reason for the project to be cancelled? I bet the AI people hoped to get at least BA and LH(together with UA) to jump in. Will be sad if we don't see the doubledecker in the skies.
 
Joni
Posts: 2613
Joined: Thu Aug 10, 2000 11:05 pm

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 5:34 am


This USD 20bn figure has been seen before, but afaik it includes an assumption the costs will be considerably overrun. Airbus puts the development cost at USD 10.7bn for the two initial variants.

A bank doesn't believe in A3xx -so what? IIRC this Swiss one was one of the institutions unconvinced by Airbus's recent presentation of A3xx project economics. Several other banks were convinced, however. How unsurprising they haven't been quoted in this thread.
 
DeltaSFO
Posts: 2407
Joined: Fri Nov 03, 2000 11:22 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 5:45 am

I think that no US carrier is a major reason.

Not surprisingly, Continental, American, and Northwest don't want it. United was a bit of a surprise to me. I thought they'd at least look at it. Everybody knows of course that Delta will have nothing to do with Airbus, so no surprise there.

They projected 50 orders by 1 November, and I'm sure they were counting on at UA, LH, BA, and AF for firm orders by now.

DeltaSFO
It's a new day. Every moment matters. Now, more than ever.
 
avion
Posts: 2126
Joined: Tue May 18, 1999 1:28 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 5:49 am

Credit Suisse First Boston is a swiss firm!! They must be right.

Avion
 
teahan
Posts: 4993
Joined: Sun Nov 21, 1999 11:18 pm

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 6:21 am

This is an old article. It was discussed on the Orders Egroup in October!

Swiss Firms are not allways right. LOL  

Tomorow is QF's 80th Anniversary (+ a board meeting) which is also the perfect opportunity to announce an A3XX order!

Jeremiah Teahan
Goodbye SR-LX MD-11 / 6th of March 1991 to the 31st of October 2004
 
Guest

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 6:26 am

HAHA NO THEY'RE NOT!

CS First Boston is an American firm based in.....New York. The company is an American securities and investment banking known as First Boston for many years untill it was bought by Credit Suisse over 10 years ago. Now CS' primary investment banking and securities operations rest with the Park Avenue South outfit. So, while CS First Boston is owned by the Swiss, the principals, culture, and analysts are American.
 
Guest

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 6:27 am

HAHA NO THEY'RE NOT!

CS First Boston is an American firm based in.....New York. The company is an American securities and investment banking known as First Boston for many years untill it was bought by Credit Suisse over 10 years ago. Now CS' primary investment banking and securities operations rest with the Park Avenue South outfit. So, while CS First Boston is owned by the Swiss, the principals, culture, and analysts are American.
 
SInGAPORE_AIR
Posts: 11619
Joined: Mon Nov 13, 2000 4:06 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 6:32 am

If this is true (which I hope not) then Singapore Airlines will be totally gutted and gutted and gutted.

Credit Suisse is a great firm so something is going on.

It looks like so far that a black cloud is approaching Toulouse.
Anyone can fly, only the best Soar.
 
avion
Posts: 2126
Joined: Tue May 18, 1999 1:28 am

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 8:33 am

Hey c'mon. That wasnt supposed to be taken so serious.

That was just a bit of national pride! Credit Suisse is now a swiss company. They are 100% owned by Credit Suisse.

That had to be said!!

Avion
 
Kangar
Posts: 362
Joined: Fri Feb 04, 2000 8:11 pm

RE: Bank Leak Questions Jumbo Bid

Thu Nov 16, 2000 9:01 pm

Guys,
We're going to tread this path god knows how many times over the next few years. For every article arguing against the A3XX, you can get one arguing for it, from an equally reputable institution. Credit Suisse are not the be all and end all, nor are any other firms, they are offering their opinions. Admittedly the article takes a slight pro Boeing slant, re: 747 etc, etc., but It's not exactly anything to take too seriously. The other point is that AI are not so foolish as to rely on US carriers for a market, most of them are in Boeing's pocket and will remain so, you can't expect one plane to change that. United are their only real prospect there. The final thing is that fragmentation is all weel and good for a vast country such as the US, but in Europe, you can't afford the Luxury of a fight to everywhere every 30 minutes, we're much more constrained here, fragmentation will only have limited effect on Europe. Finally, everyone seems to think passenger numbers have peaked globally. They haven't, and as they increase it makes more sense to have A3XX's run on a less frequent basis, than double that number of 777's, and clog the airspace.

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