iowaman
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Leeham.net Discusses Possible A380 Improvements 2

Sat Feb 08, 2014 6:41 pm

The first thread became quite lengthy, so here is part two.

First part: Leeham.net Discusses Possible A380 Improvements (by Stitch Feb 3 2014 in Civil Aviation)
 
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Stitch
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sat Feb 08, 2014 6:45 pm

Just a refresher:

Leeham.net's European division has posted a thesis on possible improvements to the A380-800 - including a New Engine Option - to keep it fully competitive with the A350-1000 and 777-9 beyond it's sheer capacity.

The link is at http://leehamnews.com/2014/02/03/upd...-a-neo-version-and-whats-involved/
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sat Feb 08, 2014 8:46 pm

From the previous thread:

Quote:
More than half 160 frames are going to the ME3 who have never been big B747 operators. So counting the by the A380 replaced B747 does not paint the right picture.
I believe no USA airline will take one A380. But IMO they will be downsizing and I do not see a big market there for the B777-9/8 there either. I see the B787 and A350 taking that field.

I still believe that some of the operators using the A380 now will buy additional and/or later replacement frames, with Qantas becoming the most unlikely one and I agree perhaps a candidate for cancelling the rest of there order. I am not so sure that HX will cancel, one point is for HU getting the permission from the Chinese Government, but it would be a way to be different to take those birds if they want to challenge CX .
But IMO operators like TK perhaps have to buy the A380 to compete with the ME3. Who will fly on a B777 if you get for a comparable price a seat on the A380?

I agree that the 777x and the A380 will not sell well in the US.

Hong Kong Airlines has said they want to swap:
http://www.bloomberg.com/news/2012-1...der-swap-for-smaller-aircraft.html

I don't see TK as big buyers for the A380 any time soon. I think they are structuring their business model on smaller aircraft and providing better frequency. Once the technology matures I see them becoming big buyers of A350s and 787s. They seem to like their 77Ws so I wouldn't be surprised to see 777xs as well.

I agree that the A380 has an advantage from a customer choice perspective. This could change slightly with 11 abreast which I think is inevitable.

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mjoelnir
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 12:05 am

Quoting tortugamon (Reply 2):
Hong Kong Airlines has said they want to swap:
http://www.bloomberg.com/news/2012-1...der-swap-for-smaller-aircraft.html

That is over a year past, they do not seem to have acted on that.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 12:28 am

Quoting mjoelnir (Reply 3):
That is over a year past, they do not seem to have acted on that.

I can't see an airline saying last year that they don't want long range aircraft and prefer smaller, regional aircraft, and that just a year later they have changed their business model and their minds? They only have 17 aircraft in operation. In my mind, 10 A380s is optimistic.

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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 12:51 am

Quoting tortugamon (Reply 4):
I can't see an airline saying last year that they don't want long range aircraft and prefer smaller, regional aircraft, and that just a year later they have changed their business model and their minds?

Well, it only took 18 months to go from ordering them to, apparently, not needing them.
Down with that sort of thing!
 
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Stitch
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 1:23 am

For a time Hong Kong Airlines was having issues expanding their fleet due to the Hong Kong Civil Aviation Authority requiring them to meet more stringent conditions for their Air Operator's Certificate, but that freeze apparently was lifted in late 2012.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 2:40 am

Quoting BaconButty (Reply 5):
Well, it only took 18 months to go from ordering them to, apparently, not needing them.
Quoting Stitch (Reply 6):
For a time Hong Kong Airlines was having issues expanding their fleet due to the Hong Kong Civil Aviation Authority requiring them to meet more stringent conditions for their Air Operator's Certificate, but that freeze apparently was lifted in late 2012.

So can I put you guys both down as saying that Hong Kong Air will take delivery of these 10 A380s? There is a lot on the line if you are wrong  

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Stitch
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 5:47 am

Quoting tortugamon (Reply 7):
So can I put you guys both down as saying that Hong Kong Air will take delivery of these 10 A380s?

If I was betting, I;'d bet on "no" for the moment. Looking at their current route structure, I don't know where they would use 1, much less 10.

And to think they also considered 15 747-8.  scared 

[Edited 2014-02-08 22:11:46]
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 6:15 am

Anyone happen to know what the (financial) consequences of an order cancellation are?

My guess is that some sort of deposit has to be forfeited - but that, in all probability, any such penalty can be avoided if the customer substitutes an order for another type? So that HKA can just order say 15X A350-1000s (for delivery in say six years' time  ) and avoid any immediate penalty for ditching its current 10 A380 orders?

But I'd be grateful if someone who knows the field better could shed more light on the 'cancellation' process?
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 9:34 am

The A380.Can't live with it - for most airlines ,yet can't live without it for one airline!

The great 'Jumbo' was many things over it's long life.Brilliant cargo plane (or combi).Launched as a luxury aircraft by Pan Am.Then it was it's huge (then) range that opened up a huge number of important non stop routes - especially from Europe.It's (then) unmatched pax capacity for the super high density routes that kept it selling.

Over a sequential 40 year period it can give a very false picture of the real merits today of these leviathans.

The EK model is yet another new use of such aircraft.Yjis Globally centered World hub is nothing like anyone has seen before.The A380 is the perfect aircraft to make it work.But outside this model it clearly has a limited role.
I think the question is exactly how limited.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 11:18 am

A A380NEO would be the next 748. Too little to win against large and more modern twins.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 11:56 am

Quoting mjoelnir (Reply 3):
That is over a year past, they do not seem to have acted on that.

Still, last year even John Leahy kept the possibility of Hong Kong Airlines not taking their A380s in mind: http://www.aviationweek.com/Article....l/avd_10_08_2013_p03-02-624427.xml

Quoting Stitch (Reply 8):
And to think they also considered 15 747-8.

Let's call them a tad optimistic  
Quoting tortugamon (Reply 2):
I don't see TK as big buyers for the A380 any time soon. I think they are structuring their business model on smaller aircraft and providing better frequency. Once the technology matures I see them becoming big buyers of A350s and 787s. They seem to like their 77Ws so I wouldn't be surprised to see 777xs as well.

I'm convinced TK will eventually order the A380. I have the impression they run their airline very well. Most destinations of all airlines in the world, so laying down a very good structure for future growth a la EK, good service, and they have a good fleet planning. Right now they focus on the A333 and 77W for their WB aircraft (which you can't say are a bad choice at all), and although they have both A32x and 737 in their fleet, they seem to know exactly which different roles they can concentrate them on.

What they miss is a home airport capable of the growth they want. That may take some time to fix, most likely not before 2020. But I can see them ordering A380s for delivery immediately after they have the airport for it. The 777X will definitely be in their fleet as well, A350s too, not sure about 787s, TK has indicated they are too small. However, this was before the launch of the 787-10, which could serve them well IMO.
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 2:48 pm

Quoting Stitch (Reply 1):
The link is at

Thank you.

Quoting frigatebird (Reply 12):
I'm convinced TK will eventually order the A380.

If there is enough efficiency. TK, with the new IST, will have the option of CX like frequency. It is all going to depend on the relative efficiency of the A380. If it is enough better, TK has enough destinations to fill the plane and will do so. But will it have enough for a large enough subfleet for efficiencies?

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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 2:48 pm

Quoting Stitch (Reply 8):
If I was betting, I;'d bet on "no" for the moment. Looking at their current route structure, I don't know where they would use 1, much less 10.

That would be my guess to. Its surprising that HKG may not have a home airline with an A380.

Quoting Nav20 (Reply 9):
My guess is that some sort of deposit has to be forfeited - but that, in all probability, any such penalty can be avoided if the customer substitutes an order for another type?

That is my understanding as well Nav. I think they are more open to allow switching between models if they are in the same family then they are going from A380 (where they need sales) to the A350 (where they don't) so I suspect there would be a penalty but they don't want to lose the customer to Boeing so I think they will work something out.

Quoting frigatebird (Reply 12):
I'm convinced TK will eventually order the A380.
Quoting frigatebird (Reply 12):
What they miss is a home airport capable of the growth they want.

You raise some good points and you could be right, of course. It just seems like TK is more conservative and risk averse and the frequency model hasn't run into barriers yet. I think we will see more A330s and 77Ws and when those aren't enough we will see A350s and 777xs and when those are not enough then A380s. At least that seems to be the way they are working.

Quoting frigatebird (Reply 12):
However, this was before the launch of the 787-10, which could serve them well IMO.

They seem to make excellent use of their A330s. Even flying them TATL I believe. Adding range without excess and seats and the significant drop in fuel could be appealing to them when they replace those A330s down the road. Too early to tell as I think we will see more A330 and 77W orders before we see anything else.

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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 6:39 pm

Quoting Nav20 (Reply 9):
Anyone happen to know what the (financial) consequences of an order cancellation are?

It probably depends on the size of the customer and their past relationship with the OEM how the cancellation clause is written into the sales contract. QF, for example, incurred no penalties for canceling their 787s because their contract had a clause that allowed them to do so once Boeing failed to meet the delivery targets. AA's MoU also allowed them to cancel each 787 delivery slot as it came up for "final confirmation" without penalty.

For Hong Kong Airlines, I am of the opinion they would look at A320neo and A330neo as a conversion option for their A380s.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 7:46 pm

Quoting tortugamon (Reply 4):
I can't see an airline saying last year that they don't want long range aircraft and prefer smaller, regional aircraft, and that just a year later they have changed their business model and their minds? They only have 17 aircraft in operation. In my mind, 10 A380s is optimistic.

Hong Kong Airlines is part of the Hinan Airlines group, the largest private airline, and 4th largest airline in fleet size in China (with a group fleets size of around 380 aircraft). It is very possible that Hong Kong Airlines will take all of the VA orders A380/747-8s and they all end up in mainland China. Using Hong Kong Airlines to purchase the aircraft gets around the central goverment controlling the order.
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 8:04 pm

Quoting zeke (Reply 16):

Also opens up far more funding and tax options.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 8:12 pm

Quoting Stitch (Reply 15):
Quoting Nav20 (Reply 9):
Anyone happen to know what the (financial) consequences of an order cancellation are?

It probably depends on the size of the customer and their past relationship with the OEM how the cancellation clause is written into the sales contract. QF, for example, incurred no penalties for canceling their 787s because their contract had a clause that allowed them to do so once Boeing failed to meet the delivery targets. AA's MoU also allowed them to cancel each 787 delivery slot as it came up for "final confirmation" without penalty.

For Hong Kong Airlines, I am of the opinion they would look at A320neo and A330neo as a conversion option for their A380s.

As Stitch points out, the contract terms play a role, typically as the starting point for negotiations. The outcome is determined by basic economic and game theory factors like scarcity, cost, and benefits, where existing contract terms are merely one variable. If I can threaten to cancel and forfeit 200M (random number) but we all know I'll need 2B worth of NBs in 5 years' time, Airbus would be foolish to take my 200M and let me take my business to Boeing. Game theory will tell you more about the outcome than the contracts will.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 9:48 pm

Quoting LH707330 (Reply 18):
Game theory will tell you more about the outcome than the contracts will.

As well as Adam Smith (not the bogus invisible hand Smith), who was explicit that when we bargain we best appeal to the self-interest of the other party.

Boeing famously addressed this some years ago, when it said that the costs of planes to airlines had to come down, too many airlines were going broke. I don't doubt that Airbus agreed.
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RE: Leeham.net Discusses Possible A380 Improvements 2

Sun Feb 09, 2014 11:26 pm

Looking at Hong Kong Airlines and at an order of 10 A380 looks a little strange, smallish airline big order.
But than one does look at Hainan Airline and the scope gets bigger and than HNA Group and one looks at 15 airlines with together 376 airplanes (excluding the corporate aircraft), most of them narrow bodies.

But HU and HX have also long haul operations and operate together, 16 A330-200, 10 A330-300, 3 A340-600, 3 B767-300 and 6 B787-8.
They have 4 787-8 still on order, 2 A330-300, 15 A350-900 and than the 10 A 380.

I now that are the numbers for the whole group, but is it really unthinkable that they will operate the A380?
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 12:12 am

Quoting mjoelnir (Reply 20):
I now that are the numbers for the whole group, but is it really unthinkable that they will operate the A380?

You could be right. Most A380 operators have a much larger wide body fleet but Skymark is ordering and they have just narrow bodies. There long range business isn't exactly mature even if they have slots in HKG. You would think they would like to see how their A350 experiment goes and it won't be that many years before second hand A380s or the A380neo shows up. The A380 experiment has not worked well for CZ and the airline has outright said they are interested in changing. Just too many things adding up. It could happen but I would be surprised thats all.

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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 12:14 am

Quoting mjoelnir (Reply 20):
I now that are the numbers for the whole group, but is it really unthinkable that they will operate the A380?


Not at all. But considering Hainan Airlines is the one with the long-distance network, you think maybe they would have been the ones to operate it (as most of the other carriers of the HNA Group all operate narrowbodies).

[Edited 2014-02-09 16:17:35]
 
mjoelnir
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 12:35 am

Quoting Stitch (Reply 22):
Not at all. But considering Hainan Airlines is the one with the long-distance network, you think maybe they would have been the ones to operate it (as most of the other carriers of the HNA Group all operate narrowbodies).

HX is 100% owned by HU. Perhaps there is a reason ordering rather through a Hong Kong subsidiary, the 15 A350-900 are also ordered by HX. And HX has more wide body's than narrow body's.
My main point was, that it is quite a big operation.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 3:27 am

Quoting mjoelnir (Reply 23):
My main point was, that it is quite a big operation.

It is, but it's route network is almost all regional. They have only two long-haul runs at the moment - Moscow and London (Gatwick). Hainan's long-haul operations, while not very big in and of themselves, are a fair bit larger than HKA with service to six cities in Russia, four cities in Europe (Berlin, Brussels, Budapest, Zurich), three in the US (Boston, Chicago, Seattle) and one in Canada (Toronto). Admittedly, none of those seem like A380 destinations to me, either.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 4:34 am

Quoting seahawk (Reply 11):
A A380NEO would be the next 748. Too little to win against large and more modern twins.

The 748 was also competing against the A380. The A380 has a niche all to itself, it is yet to be seen how that niche works out.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:08 am

Quoting RickNRoll (Reply 25):
The A380 has a niche all to itself, it is yet to be seen how that niche works out.


Agree, RickNRoll - not much doubt that the B748 is on its way out, leaving the A380 in a monopoly position. Not sure that the A380 will survive for much longer either, though.............. At present the only people who are buying it are EK, with their recent 50-frame order. Which makes EK the largest customer by far.

I did a bit of 'reading around' about Emirates' most recent order. The important thing is that, as far as I can tell, they aren't actually buying the aeroplanes - they've done a deal with a leasing firm (Doric, as far as I know), which will buy the aeroplanes, and lease them to EK for 12 years.

The leasing firm will buy the aeroplanes using money subscribed by investors. They will pay the investors a pretty good rate on the funds provided (about 8.5% p.a., as far as I can tell).

But the 'crunch' will come at the end of the 12-year lease period. At that point Emirates will hand the aeroplanes back. The investors will be entitled to share the 'resale value' of the surrendered aeroplanes.

All very well, as far as I can tell, and perfectly legal. But the question arises of what happens if the (much-used, knowing Emirates!) 'handed-back' aeroplanes DON'T sell - and instead just have to be sold for their scrap value? The investors will surely lose most of their money?

I used to be involved in city centre office development. In those days the conventional 'leasing period' - in Commonwealth countries, anyway - was a minimum of 21 years. Mere 12-year leases would never even have been considered - there'd have been next to no chance of the investors getting their capital back over such a short period, leave alone making a profit.

So, even though there seems to be no shortage of investors 'signing up,' I see a grave danger of the investors not getting their money back. It's not as if there is (or has ever been) a 'mass second-hand market' in A380s, especially 'well-used' ones?

[Edited 2014-02-09 21:18:47]
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mjoelnir
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:10 am

Quoting Stitch (Reply 24):
Quoting mjoelnir (Reply 23):
My main point was, that it is quite a big operation.

It is, but it's route network is almost all regional. They have only two long-haul runs at the moment - Moscow and London (Gatwick). Hainan's long-haul operations, while not very big in and of themselves, are a fair bit larger than HKA with service to six cities in Russia, four cities in Europe (Berlin, Brussels, Budapest, Zurich), three in the US (Boston, Chicago, Seattle) and one in Canada (Toronto). Admittedly, none of those seem like A380 destinations to me, either.

With big operation I meant the Hainan group.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:14 am

Quoting Nav20 (Reply 26):
Quoting RickNRoll (Reply 25):
The A380 has a niche all to itself, it is yet to be seen how that niche works out.


Agree, RickNRoll - not much doubt that the B748 is on its way out, leaving the A380 in a monopoly position. Not sure that the A380 will survive for much longer either, though.............. At present the only people who are buying it are EK, with their recent 50-frame order. Which makes EK the largest customer by far.

I did a bit of 'reading around' about Emirates' most recent order. The important thing is that, as far as I can tell, they aren't actually buying the aeroplanes - they've done a deal with a leasing firm (Doric, as far as I know), which will buy the aeroplanes, and lease them to EK for 12 years.

The leasing firm will buy the aeroplanes using money subscribed by investors. They will pay the investors a pretty good rate on the funds provided (about 8.5% p.a., as far as I can tell).

But the 'crunch' will come at the end of the 12-year lease period. At that point Emirates will hand the aeroplanes back. The investors will be entitled to share the 'resale value' of the surrendered aeroplanes.

All very well, as far as I can tell, and perfectly legal. But the question arises of what happens if the (much-used, knowing Emirates!) 'handed-back' aeroplanes DON'T sell - and instead just have to be sold for their scrap value? The investors will surely lose most of their money?

I used to be involved in city centre office development. In those days the conventional 'leasing period' - in Commonwealth countries, anyway - was a minimum of 21 years. Mere 12-year leases would never even have been considered - there'd have been next to no chance of the investors getting their money back over such a short period, leave alone making a profit.

So, even though there seems to be no shortage of investors 'signing up,' I see a grave danger of the investors not getting their money back. It's not as if there is (or has ever been) a 'mass second-hand market' in A380s, especially 'well-used' ones?

Nice comment, and what is the difference to the B777 EK buys?
And the difference to the bigger part of all the Commercial airframes that are bought?
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:37 am

Quoting Nav20 (Reply 26):
Agree, RickNRoll - not much doubt that the B748 is on its way out, leaving the A380 in a monopoly position. Not sure that the A380 will survive for much longer either, though.............. At present the only people who are buying it are EK, with their recent 50-frame order. Which makes EK the largest customer by far.

The biggest customer for the 777x by far is also Emirates.  
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 7:31 am

New aircraft leasing is only a little bit like leasing property, and nothing like leasing a vehicle when it comes to dollars, repetition potential, tax mobility, accounting and legal creativity, etc.

A syndicate composition can change during the life of the lease. Are EK and/or associated parties/nominees amongst A380 syndicate investors?

Disclosed prices, be they sale, purchase or lease, are but part of the equation. For example, there are front and/or rear (nose and tail) payments. What these are called, and what they cover is largely tax driven. And there can be end of lease payments to customers as well

The ROR mentioned is meaningless, unless you know the tax effective cost of funds supplied by each syndicate investor, and their tax position annually and at the end of the lease, whats included / excluded in the lease, the hours formula and how overs and unders are shared, etc, etc.
 
tommy1808
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 10:34 am

Quoting Nav20 (Reply 26):
The leasing firm will buy the aeroplanes using money subscribed by investors. They will pay the investors a pretty good rate on the funds provided (about 8.5% p.a., as far as I can tell).

Well, for SKY CLOUD IV, a 510 ton MTOW (i didn´t know EK had those) A380 for EK, they pay:

8 % p. a 2012 - 2022
14 % p. a. 2023 - 2024
16 % p. a. 2025 - 2027
and an estimated 106% of the invested capital back in 2027.

Doric bought the aircraft for 234 million US$, EK pays:

24.00 million US$ downpayment
18.79 million US$ p.a. in Leasing rates for at least 10 years plus
07,44 million US$ p.a. in EUR leasing rates (exchange rate of today) for at least 10 years and
12.47 million US$ US$ balloon payment and
15.36 million US$ EUR balloon payment and (exchange rate of today)
________________
314,12 Million US$

If they extend to 12 or 13 years, total payments will be a little higher. On the other hand Doric has only a 145 million US$ loan at US$ base interest rate plus 2.85% to buy the aircraft.
The only risk to the inventors seems to be EK biting the dust.

best regards
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....the 15 within a couple of days is going to be down to close to zero
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 11:04 am

Quoting mjoelnir (Reply 28):
Nice comment, and what is the difference to the B777 EK buys?

There is no difference. But many airlines lease their aircraft instead of buying of them, so that is also nothing new under the sun.

But with the lack of further news there is not much debating anymore on the possible redevelopments and improvement s the A380 will no doubt see around the EIS of the B777-X. It is the perfect time to them and the airframe still has so much unused potential which Airbus can bring to the market. I look very much forward to those developments.   .
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 12:58 pm

Quoting mjoelnir (Reply 28):
Nice comment, and what is the difference to the B777 EK buys?
And the difference to the bigger part of all the Commercial airframes that are bought?

Maybe the difference is two more engines and an A319's worth of seats? Great if you can fill the seats, if not, all dead weight, which means, of course, not as many enterprises are going to be looking to buy/re-lease them.
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mjoelnir
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 4:55 pm

Quoting Revelation (Reply 33):
Quoting mjoelnir (Reply 28):
Nice comment, and what is the difference to the B777 EK buys?
And the difference to the bigger part of all the Commercial airframes that are bought?

Maybe the difference is two more engines and an A319's worth of seats? Great if you can fill the seats, if not, all dead weight, which means, of course, not as many enterprises are going to be looking to buy/re-lease them.

He was talking about the leasing.

Regarding the B777 versus the A380 we know already that the B777 is the king and the A380 will bite the dust.
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Stitch
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:37 pm

Quoting mjoelnir (Reply 28):
Nice comment, (Nav20), and what is the difference to the B777 EK buys?
Quoting Revelation (Reply 33):
Maybe the difference is two more engines and an A319's worth of seats? Great if you can fill the seats, if not, all dead weight, which means, of course, not as many enterprises are going to be looking to buy/re-lease them.

Even if that does end up to be the case, does that really mean anything to the A380 program or Doric?

As tommy1808 noted, Doric will see almost $100 million more in revenues from EK then they paid Airbus for the frame, so they may be able to literally afford to fly each airframe from DXB to VCV as they come off lease.

And as for Airbus, no leasing company appears interested in the type (for whatever reasons), so even if every A380 returned to Doric goes immediately to storage in a desert somewhere (maybe Doric can just buy some property at DXB and tow the planes from the gate to storage and save the fuel costs flying them to VCV.   ) all that will do is tell the leasing companies they made the right call in either not ordering it (everyone but ILFC) or canceling their orders (ILFC).

Yes, it sucks for the carriers who didn't do a sale-and-lease back though Doric as they may end up with an asset they can't re-sell, but many of them have that problem now with their 747-400s and A340s. So they'll just fly the wings off them to get as much out of the asset as they can - and an A380 should be airworthy for decades.

The most likely outcome, IMO, is not that airlines stop ordering A380s due to risk, but instead when they do order an A380, they finance it via a sale and lease-back with Doric.
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 5:51 pm

Quoting Stitch (Reply 35):
so even if every A380 returned to Doric goes immediately to storage in a desert somewhere (maybe Doric can just buy some property at DXB and tow the planes from the gate to storage and save the fuel costs flying them to VCV.   )

I think we will see EK hold on to their aircraft an extra couple of years if we see the resale value drop too dramatically. We could even see Doric re-leasing them back to EK after maintenance checks if they are in good shape. At least for the first couple years of lease returns I think EK will operate the aircraft before they will sit. That being said, if the neo improvements are that dramatic, EK may be ready to move on as well.

Quoting Stitch (Reply 35):
The most likely outcome, IMO, is not that airlines stop ordering A380s due to risk, but instead when they do order an A380, they finance it via a sale and lease-back with Doric.

Which will increase the lease rates and eliminate the excellent A380 aircraft price per seat advantage it has over other wide bodies.

tortugamon
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 6:05 pm

Quoting tortugamon (Reply 36):

Which will increase the lease rates and eliminate the excellent A380 aircraft price per seat advantage it has over other wide bodies.

That will only be a superficial trend as it instantaneous will make the business interesting to other lessors quite quick. And after all the aircraft is so cheap that EK can basically pay it in whole and then some in just 10 years of operation. If Airbus keeps a constant product improvement program running, they probably will only need a fleet of ~450 A380 in operation to sustain a 30 pcs/year production rate with replacements only more or less indefinitely.

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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 6:28 pm

I do think that the novelty factor of the A380 will help it since I do not see

Quoting Stitch (Reply 35):
The most likely outcome, IMO, is not that airlines stop ordering A380s due to risk, but instead when they do order an A380, they finance it via a sale and lease-back with Doric.

But it still would cost less money to buy it outright, even if the residual value is essentially scrap value after 12 years.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Mon Feb 10, 2014 8:34 pm

Quoting tortugamon (Reply 36):
I think we will see EK hold on to their aircraft an extra couple of years if we see the resale value drop too dramatically. We could even see Doric re-leasing them back to EK after maintenance checks if they are in good shape.

EK has to pay for all maintenance, so unless Doric is willing to cut them a significant discount on a lease extension I would expect EK would prefer to return the plane and lease a brand new delivery from Airbus.


Quoting Stitch (Reply 35):
The most likely outcome, IMO, is not that airlines stop ordering A380s due to risk, but instead when they do order an A380, they finance it via a sale and lease-back with Doric.
Quoting tortugamon (Reply 36):
Which will increase the lease rates and eliminate the excellent A380 aircraft price per seat advantage it has over other wide bodies.

If Doric is making a nice return on the A380 at current rates, I would expect them to maintain said rates to generate continued interest in airlines buying the model and financing it through them rather then reducing interest by raising rates too sharply.

Quoting SEPilot (Reply 38):
But it still would cost less money to buy it outright, even if the residual value is essentially scrap value after 12 years.

Yes, but that requires the airline to either reduce it's capital by hundreds of millions to pay cash or add to it's debt load by taking out a loan - both of which have negative financial impact on the stock price and credit rating.
 
tommy1808
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 7:34 am

Quoting Stitch (Reply 39):
EK has to pay for all maintenance, so unless Doric is willing to cut them a significant discount on a lease extension

The extension for 2 or 3 years is already agreed upon. Beyond that it gets interesting.

bet regards
Thomas
....the 15 within a couple of days is going to be down to close to zero
 
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 8:08 am

Quoting Stitch (Reply 39):

Yes, but that requires the airline to either reduce it's capital by hundreds of millions to pay cash or add to it's debt load by taking out a loan - both of which have negative financial impact on the stock price and credit rating.

I know that, and it makes little sense to me. Why does it look better to have lease payment obligations that total quite a bit more than loan payments for the same asset? Both are firm obligations, but that is the way the financial world looks at it. Getting out of either one is difficult.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
thegeek
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 8:14 am

Quoting SEPilot (Reply 41):
Why does it look better to have lease payment obligations that total quite a bit more than loan payments for the same asset?

Perhaps it looks different in bankruptcy? Seems a thin reason though.
 
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Ncfc99
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 8:16 am

Quoting tommy1808 (Reply 40):
The extension for 2 or 3 years is already agreed upon. Beyond that it gets interesting.

Are you saying its an initial 12 year lease term with an optional 2-3 years on top? If so, do you have a source so I can read further?
 
RickNRoll
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 10:54 am

Quoting Revelation (Reply 33):
A319
Quoting Revelation (Reply 33):
Maybe the difference is two more engines and an A319's worth of seats? Great if you can fill the seats, if not, all dead weight, which means, of course, not as many enterprises are going to be looking to buy/re-lease them.

Those seats are not going to be the same seats and comfort. Airlines sell a product as well as transportation from point A to point B.
 
tommy1808
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 11:15 am

Quoting ncfc99 (Reply 43):
Are you saying its an initial 12 year lease term with an optional 2-3 years on top? If so, do you have a source so I can read further?

10+2 or 3 years. -> http://www.swissinvestgroup.ch/filea...Cloud_IV/SKY_CLOUD_IV_Prospekt.pdf only in German though, no idea how much sense it will make with google translate or such.

best regards
Thomas
....the 15 within a couple of days is going to be down to close to zero
 
NAV20
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 11:18 am

Quoting SEPilot (Reply 41):
Why does it look better to have lease payment obligations that total quite a bit more than loan payments for the same asset?

As I understand it, SEPilot, if you just take a lease, sure you pay out more per annum. But at the end of the lease you can just 'walk away.' If, instead, you borrow money to actually buy the aeroplane, sure, you'll pay less in annual interest - but at the end of the service period you'll have to repay the loan? And very possibly the aeroplane will be pretty well worn out by that time, so you won't be able to sell it for any sort of decent price?

'Swings and roundabouts,' really. But I personally would tend to favour the 'pay as you go and then walk away' leasing route?
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
tommy1808
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 12:14 pm

Quoting Nav20 (Reply 46):
As I understand it, SEPilot, if you just take a lease, sure you pay out more per annum. But at the end of the lease you can just 'walk away.' If, instead, you borrow money to actually buy the aeroplane, sure, you'll pay less in annual interest - but at the end of the service period you'll have to repay the loan? And very possibly the aeroplane will be pretty well worn out by that time, so you won't be able to sell it for any sort of decent price?

All good points, if the A380 wasn´t well and truly paid of by the time the lease ends anyways.

best regards
Thomas
....the 15 within a couple of days is going to be down to close to zero
 
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SEPilot
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 12:31 pm

Quoting Nav20 (Reply 46):
But at the end of the lease you can just 'walk away.' If, instead, you borrow money to actually buy the aeroplane, sure, you'll pay less in annual interest - but at the end of the service period you'll have to repay the loan?

If you borrow money to buy the airplane, you will pay less per year AND at the end of the same period you should own the airplane free and clear. So instead of walking away you can keep flying it, sell it for scrap, park it in the desert as a home for lizards, or put it on a lot as a restaurant. You have a lot more options. So it makes no sense to me whatsoever that the financial community looks more favorably on a lease. Perhaps it is because too many of them are making money themselves off the leasing business.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
tommy1808
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RE: Leeham.net Discusses Possible A380 Improvements 2

Tue Feb 11, 2014 12:43 pm

Quoting SEPilot (Reply 48):
So it makes no sense to me whatsoever that the financial community looks more favorably on a lease. Perhaps it is because too many of them are making money themselves off the leasing business.

Exactly, someone that borrows 234 million US$ for 8+ % interest and in the end doesn´t even own the plane is much more interesting to the whole financial industry than someone that saves up 234 million US$, buys, pays and owns the aircraft. A Credit rating doesn´t tell how good you are in handling your money, it much more reflects how much money vs. risk can be made of you.

best regards
Thomas
....the 15 within a couple of days is going to be down to close to zero

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