Jetrader - Autumn 2016 - 63

appraisal

Airbus A380

Anthony Brooks
Certified ISTAT Appraiser &
Civil Expert Witness
Flight Ascend Consultancy

Korean Air is one of several Asian carriers that uses the A380 as the backbone of its long-haul fleet.

Background
There is a total of 193 Airbus A380 aircraft
in passenger service, with 13 operators and
126 on order with 12 customers (programme
total 319). Two RR-powered aircraft originally due for Skymark, which are currently
parked, have now been ordered by Emirates.
The in-service fleet consists of 78
RR-powered aircraft and 115 aircraft with
Engine Alliance (GE/P&W) powerplants.
The on-order fleet includes 20 Engine
Alliance-powered aircraft, 76 with RR
engines (including 50 for Emirates placed
at the beginning of Q2 2015) and 30 with
an engine choice yet to be announced.
Currently there are 286 A380 aircraft in
service/on order with airline operators,
including 162 aircraft with three carriers
in the Middle East, 80 aircraft with eight
carriers in Asia-Pacific and 44 aircraft with
four carriers in Europe.
The top A380 carriers and operating
lessors in terms of aircraft in service
and on order include Emirates Airlines
(142), Amedeo (30), Singapore Airlines
(24), QANTAS (20) and Doric (18). Others
include Lufthansa, Air France, BBAM, Novus
Aviation and ALM - Aircraft Leasing &
Management.

Market Outlook
Market values for all vintages last fell
by 6 to 9 percent at the start of 2016 in
line with annual depreciation. Lease rates
also came down by 7-18 percent, with the
oldest aircraft experiencing the greatest
drop. Airbus announced a production rate

cut from 27 aircraft per year to 12 per year
from 2018, a figure below the previously
declared breakeven rate of 20 per year. This
cut was driven by a lack of recent orders and
the wish to bridge production until a time
when market demand picks up or when an
enhanced version of the A380 is developed.
The A380 programme had received a
boost at the end of Q4 2015 when it secured
an order for three aircraft from ANA. This
made the Japanese carrier the 14th confirmed airline customer. RR engines were
chosen and the aircraft will operate to
Hawaii. Iran Air has a letter of intent for
12 aircraft as part of a large Airbus deal
announced in January 2016.
IAG chief executive Willie Walsh very
recently announced interest in acquiring
"five or six" second-hand A380s, giving
hope for the as-of-yet untested secondary
market for the aircraft type. Walsh also
stated that British Airways would likely
not convert its nine A380 options, saying
they are "too expensive." The A380 is a
possibility for Iberia.
The previous debate about a potential new engine option variant has now
cooled as lower oil prices and continued
weak demand challenge the business case.
Timing for any next generation A380 is now
more likely in the mid-2020s.
There is backlog uncertainty for over a
third of the 126 on order; it is unlikely Virgin
Atlantic will ever take delivery of its A380s.
Hong Kong Airlines noted in 2012 that it
might cancel its 10 A380 orders or swap
them for a smaller widebody type to focus

Year of
Build

Current
Market
Value

2006

$109.70m

$110.8m

$102.4m

$94.5m

$87.1m

$80.2m

$73.8m

2015

$201.20m

$200.3m

$183.5m

$167.9m

$153.4m

$139.9m

$127.5m

on short-haul routes; its order is now listed
as undisclosed. Qantas deferred eight and
Air France is expected to cancel its last two.
Following Transaero's cessation of operations, one of its four orders was cancelled
in Q4 2015 and the remaining three are now
listed under an entity named "Air Accord."
Amedeo, rebranded from Doric, set up
as an A380 operating lessor and an order
for 20 was confirmed in February 2014.
However, no lessees have been announced
and deliveries have moved further out, with
slots taken by others (e.g. Emirates with
four in 2016). Given the reducing production rate of 12/year and much of the next
five years backlog for Emirates, there is
uncertainty about when the Amedeo aircraft may be delivered. Amedeo is targeting
large network carriers that do not fly the
A380 at present and will feature a simple,
higher density cabin configuration (baseline 573 seats) to reduce reconfiguration
costs. The main deck will be all-economy
seating in 2016 and 2017 while the upper
deck will have a three-class layout. They
have been openly marketing the aircraft to
mainline carriers that either currently or
previously operated 747s; however, most
have opted for large twins instead.
Financing the A380 has not proven difficult despite the high asset cost largely
because of the customer base with tier one
airlines. However, uncertainty over a secondary market and residual values are now
seeing questions as the first five aircraft
delivered to Singapore Airlines are returned
and re-marketed in 2016 and 2017.

Base Values at 2.0 percent annual inflation rate, U.S. Dollars
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

$67.7m

$62.1m

$56.9m

$52.0m

$47.5m

$116.0m

$105.4m

$95.7m

$86.7m

$78.4m

Aircraft Specification: Engine Rolls-Royce Trent 970-84, Max Takeoff Weight 1,234,600 lb

Jetrader * Autumn 2016 63

Jetrader - Autumn 2016

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