Airbus Working With Emirates on New Order for Flagship A380

N14AZ · Wed Nov 15, 2017 9:03 am

anfromme wrote:
Don't think there's any actual rescuing required to finalise the deal, just some more negotiations.

That’s how I see it as well. Never understood why they wanted to finalise the deal now: EK still has A380s on order and future production slots shouldn’t be a problem...

KarelXWB · Wed Nov 15, 2017 9:24 am

N14AZ wrote:
That’s how I see it as well. Never understood why they wanted to finalise the deal now

Because air shows are all about getting more media attention.

piedmontf284000 · Wed Nov 15, 2017 9:27 am

KarelXWB wrote:
N14AZ wrote:
That’s how I see it as well. Never understood why they wanted to finalise the deal now

Because air shows is all about getting more media attention.

And hitting a grand slam in front of the home crowd, which would have been the case had Airbus gotten EK to sign on the dotted line for more double deckers.

mjoelnir · Wed Nov 15, 2017 10:38 am

rheinwaldner wrote:
How can an airline demand an aircraft to be produced by any number of years?

If Airbus has enough sales, they will build it.

But if the sales would not support production in X years, how could anybody expect Airbus to still build them at that time?

Does EK expect, that Airbus would just continue to build white tail A380s?

To make contracts about the availability of certain products for a certain time into the future, is quite normal in different industries. Airbus would not have to build white tails, but would have to keep up the ability to build the A380.
It does not seem to be that strange. If EK would have ordered the advertised 38 frames, there would have been a backlog of 80 frames just for EK and added to that is a safe backlog of 10 frames for Qatar, ANA and Singapore. So at a rate of 8 frames a year the 10 years should be a safe, if we take the 10 frames for the ramp down period.
What Airbus would than not be able to do, would be churning out the 80 frames at 20 frames a year and close down the line in four years time.

WIederling · Wed Nov 15, 2017 10:57 am

N212R wrote:
In the same way that many of the loyal Airbus posters haven't been tripping over their feet to emphasize that critical issue.

Together with Enders asking for political sales help from the EU in news recently
I'd attribute this more to enemy action than incompetence on Airbus side.

If actors appear irrational there is in some way force applied backstage.

Bricktop · Wed Nov 15, 2017 11:23 am

WIederling wrote:
N212R wrote:
In the same way that many of the loyal Airbus posters haven't been tripping over their feet to emphasize that critical issue.

Together with Enders asking for political sales help from the EU in news recently
I'd attribute this more to enemy action than incompetence on Airbus side.

If actors appear irrational there is in some way force applied backstage.

Of course. There has to be an invisible (Great Satan no doubt) hand to make the conspiracy theory work. It doesn't make it coherent though. Think Occam's razor.

Revelation · Wed Nov 15, 2017 12:21 pm

rheinwaldner wrote:
How can an airline demand an aircraft to be produced by any number of years?

If Airbus has enough sales, they will build it.

But if the sales would not support production in X years, how could anybody expect Airbus to still build them at that time?

Does EK expect, that Airbus would just continue to build white tail A380s?

The real issue is why does Enders say he's convinced Airbus will produce A380s for a decade and not expect the customer to ask for that in writing?

He's put himself and his company in a bad position.

Of course white tails would not be produced. Instead the contract would have various forms of compensation in case of early shutdown.

anfromme wrote:
Revelation wrote:
Now we know why Leahy was sticking around, although you never do know if he could also rescue the A380 deal.

...well, even EK always said they hoped they'd get the deal done in time for the show.

True in a literal sense, but the person expressing that hope was His Higness Shiekh Ahmed bin Saeed Al Maktoum, CEO of Emirates and Host of the Dubai Air Show, whose personal wealth is said to be $30B, and such people's hopes usually come true. Also Airbus thought the deal was done, to the point of being seated in the room where the deal was about to be announced.

KarelXWB · Wed Nov 15, 2017 12:27 pm

Revelation wrote:
The real issue is why does Enders say he's convinced Airbus will produce A380s for a decade and not expect the customer to ask for that in writing?

I suspect the writing would need approval from the Board. Also, as Enders' term ends in 2019, another CEO can still choose to end A380 production.

ap305 · Wed Nov 15, 2017 12:33 pm

I guess closing this deal will be on the shoulders of either Christian Scherer or Eric Shulz who are reported in the media as the choices to succeed Leahy.

Revelation · Wed Nov 15, 2017 12:42 pm

KarelXWB wrote:
Revelation wrote:
The real issue is why does Enders say he's convinced Airbus will produce A380s for a decade and not expect the customer to ask for that in writing?

I suspect the writing would need approval from the Board.

I suspect Enders was making a public relations statement of intent based on knowledge of the number of frames EK was considering signing for (hurray, we'll be making A380s for another decade!), and he got caught with his pants down when the customer asked him to back up his jubilant yet inconsequential words with a written commitment.

Also, as Enders' term ends in 2019, another CEO can still choose to end A380 production.

This is one reason why EK wants a written commitment.

KarelXWB · Wed Nov 15, 2017 12:47 pm

Revelation wrote:
I suspect Enders was making a public relations statement of intent based on knowledge of the number of frames EK was considering signing for (hurray, we'll be making A380s for another decade!), and he got caught with his pants down when the customer asked him to back up his jubilant yet inconsequential words with a written commitment.

I'm not sure. Enders made that statement months ago, long before the air show.

Revelation · Wed Nov 15, 2017 12:54 pm

KarelXWB wrote:
Revelation wrote:
I suspect Enders was making a public relations statement of intent based on knowledge of the number of frames EK was considering signing for (hurray, we'll be making A380s for another decade!), and he got caught with his pants down when the customer asked him to back up his jubilant yet inconsequential words with a written commitment.

I'm not sure. Enders made that statement months ago, long before the air show.

The statement I'm referring to was made two weeks ago at the ceremony for the 100th EK A380. I'm not aware of any earlier statement from Enders. I had heard a similar statement from Bregier a year or so ago but it seemed to be inconsequential boasting because they didn't have anything like enough orders to support another decade of production. EK must have felt the same way because it's clear their demand for written commitment is recent, and it's consequential because they are putting enough business on the table to keep the production line limping along at rate 6/year or so.

SomebodyInTLS · Wed Nov 15, 2017 12:56 pm

Slug71 wrote:
Sourcing what ever parts they can from the A350 supply chain, might lower costs for both aircraft. The A350 windows, composite doors and door frames should all be able to be used on the A380. I'm sure there are numerous brackets and components that can also be used from the A350.

This is the second time you've said this. I believe that people who worked hard on the GLARE door surrounds and GLARE bonded window belt would have a two-word answer to that suggestion...

Generic components and systems is a different matter, but the structural stuff you mention is already highly advanced on the A380.

Richard28 · Wed Nov 15, 2017 1:21 pm

ap305 wrote:
I sure hope that is the case... With FlyDubai ordering more Boeings and EK going with the 787 one gets the impression that the Airbus/Dubai relationship has taken a downturn.

I think the FlyDubai order was nearly always going to the 737Max, based on existing fleet and order book, so wouldn't read much in to that one.

Agreed the 787 order is not a good result for airbus and perhaps a sign of what is going on behind the scenes - but of course it's the A380 where the relationship is (currently) strained.

frmrCapCadet · Wed Nov 15, 2017 3:25 pm

rheinwaldner wrote:
How can an airline demand an aircraft to be produced by any number of years?

If Airbus has enough sales, they will build it.

But if the sales would not support production in X years, how could anybody expect Airbus to still build them at that time?

Does EK expect, that Airbus would just continue to build white tail A380s?

This restates the problem and why Airbus does not see their way clearly to 10-15 years of production. EK, in order to get leasing on the terms they need, seem to have heard from their leasing agents that they need that guarantee from airbus in order to provide acceptable leasing costs. Hence the impasse. Some say crunch time for the 380.

Slug71 · Wed Nov 15, 2017 5:01 pm

SomebodyInTLS wrote:
Slug71 wrote:
Sourcing what ever parts they can from the A350 supply chain, might lower costs for both aircraft. The A350 windows, composite doors and door frames should all be able to be used on the A380. I'm sure there are numerous brackets and components that can also be used from the A350.

This is the second time you've said this. I believe that people who worked hard on the GLARE door surrounds and GLARE bonded window belt would have a two-word answer to that suggestion...

Generic components and systems is a different matter, but the structural stuff you mention is already highly advanced on the A380.

And they could be switched to the A350 (& A380) supply chain for the shared parts. I'm sure they would rather have work than no work (which is where the A380 is currently headed). Wasn't trying to imply the current suppliers should be dropped.

astuteman · Wed Nov 15, 2017 5:22 pm

Couprace wrote:
astuteman wrote:
bigjku wrote:
The issue has been Airbus having a unsteady performance recently over he last 5 years or so. From 2012 to 2016 it drove free cash flow of $1.59 billion. Boeing drove $33.1 billion. The gap is getting worse as in 2017 Airbus has negative free cash of $4.2 billion thru 9 months and Boeing has a positive number of $9 billion.

That is really the biggest thing for Airbus to overcome and what would see their stock take off the most. If they can start to efficiently drive revenue into cash they should be almost self financing. Hell thats why many investors were big on them going into 2017 after the Boeing run up. The expectation is at some point they will generate cash in large amounts. It just keeps not happening and people are noticing.

https://www.fool.com/investing/2017/11/ ... again.aspx

A couple of points.

Firstly Airbus has been investing heavily in inventory to support heavy ramp-ups across the range.
That hits cash flow.

But what really hits cash flow is that every model in the Airbus line-up has had issues in ramp-up/delivery.
Most especially of course the A320NEO. But the A350 too has had serious issues, and the A330NEO has been delayed 9 months or so.
There isn't a programme where Airbus haven't had expensive aircraft stood around either waiting for engines or cabin equipment.

I don't believe A-net has really fully comprehended the issues Airbus have had with production in the last couple of years.

In terms of the comparison with Boeing it must also be noted that Boeing will print far more cash with their defence contracts that Airbus ever will - that is the nature of how the US DOD does its business with major defence contractors (this one is my field)

None of that changes any of the numbers you quote.

But Airbus should go strongly cash positive once it gets its ramp-ups under control.

As a final point, free cash flow by definition is AFTER R+D expense is taken into account

Rgds

AS a counter point Boeing has weathered major expensive snafus it self. The 748i, 787 and Tanker programs all ate up cash. I believe part of the difference is, Boeing is a much more efficient organization, and Airbus has done too many low price high volume sales for the PR. Airbus inability to generate cash is going to plague them for years to come. Continuation of the A380 program is not helpful.

LOL, Boeing are just better and that's the way it is eh?
We get it.

You say yourself, Boeing are out the other side of their SNAFU's and have cleared all that inventory.
Airbus have not, and that has to be killing free cashflow.
That and the Boeing US DOD gravy train which has added countless billions to Boeing's cash over the period, of course.
(The tanker programme may be the first sign of a shift in Pentagon policy, but its still too early to call IMO)

There is no evidence to suggest that Airbus have priced fundamentally different to Boeing across the range.
There's equally no evidence to suggest that Boeing are "a much more efficient organisation" than Airbus.
That's fanboyism in my book

Rgds

CRHoward · Wed Nov 15, 2017 5:48 pm

I will stay with my first thought. There was no need for either EK or Airbus to come to an agreement this year. Two years from now the order book will still have 3 years worth of orders. How EK can demand assurance of 10 to 15 years of production is ridiculous. EK is the only customer so they are the reason for producing the a380. If they give assurance to Airbus in writing that they will buy 8 aircraft per year for 15 years then Airbus can give them written assurance that Airbus will produce the a380 for 15 years. Obvious and simple. As for buying back a380s. No.

Still I hope that EK and Airbus can settle this and in two years launch the a380NEO along with a bridge order of a380CEOs.

Slug71 · Wed Nov 15, 2017 6:57 pm

CRHoward wrote:
I will stay with my first thought. There was no need for either EK or Airbus to come to an agreement this year. Two years from now the order book will still have 3 years worth of orders. How EK can demand assurance of 10 to 15 years of production is ridiculous. EK is the only customer so they are the reason for producing the a380. If they give assurance to Airbus in writing that they will buy 8 aircraft per year for 15 years then Airbus can give them written assurance that Airbus will produce the a380 for 15 years. Obvious and simple. As for buying back a380s. No.

Still I hope that EK and Airbus can settle this and in two years launch the a380NEO along with a bridge order of a380CEOs.

That's pretty much my thoughts. But since they want commitments from other carriers, they probably want to see that in the next 10-15 years production. 8 aircraft for 15 years also adds up to 120 frames (far larger than the current deal), which EK have also stated they want an upgraded A380 before any large order is placed. But the ball seems to be in Airbus's court. I have no doubts an order will happen. Before Dubai, they said they HOPED to get the deal done in time. Might have been a little embarrassing with the conferences scheduled, but in no way does this imply the discussions are over.

redcap1962 · Wed Nov 15, 2017 7:10 pm

Sometime in the end of the 1960's PanAm founder Juan Trippe said to Boeing CEO Bill Allen regarding the 747: "If you build it, we buy it".
And Allen replied: "If you buy it, we build it!"
Oh yeah - the good old times when things like this were way simpler than now... :old:

airfrnt · Wed Nov 15, 2017 7:24 pm

redcap1962 wrote:
Sometime in the end of the 1960's PanAm founder Juan Trippe said to Boeing CEO Bill Allen regarding the 747: "If you build it, we buy it".
And Allen replied: "If you buy it, we build it!"
Oh yeah - the good old times when things like this were way simpler than now...

To be fair, it's probably not fair to compare the two most influential people in the history of consumer aviation with anyone else. This deal is exactly why they were influential. EK, as much as it might wish for it, has nowhere near as much power as Pan Am did when they pretty much specified the 707 and the 747, the planes that basically defined, to the present day, the narrow body and wide body plane markets.

Strato2 · Wed Nov 15, 2017 7:38 pm

I don't think Airbus is too unhappy. They just sold over ten times as much A320neo's than this order would have been and in the process stole the headlines from Flydubai(EK) order.

Revelation · Wed Nov 15, 2017 9:04 pm

CRHoward wrote:
I will stay with my first thought. There was no need for either EK or Airbus to come to an agreement this year. Two years from now the order book will still have 3 years worth of orders.

The timing of the orders is important, not just the total. Airbus has open production slots in 2019 and 2020 that need to be filled by end of 2017, and pretty much only one customer that could potentially be taking the product in that time frame.

CRHoward wrote:
How EK can demand assurance of 10 to 15 years of production is ridiculous. EK is the only customer so they are the reason for producing the a380. If they give assurance to Airbus in writing that they will buy 8 aircraft per year for 15 years then Airbus can give them written assurance that Airbus will produce the a380 for 15 years. Obvious and simple. As for buying back a380s. No.

It's easy if you do the math. First EK is really aiming for 10 years of guarantees because when you say 10-15 you say you'd like 15 but will settle for 10. Second they have ~42 frames already ordered and are willing to add ~38 more. Third: 42+38 frame / 10 years = 8 frame per year. Fourth: It seems obvious to me all EK is asking for is a written guarantee if they order the additional 38 frames they will get built else Airbus shares the pain.

It doesn't seem to me to be a big ask, coming from the one customer who has been carrying this program on its back for years now. Simply sign on the dotted line that you will actually build the aircraft.

CRHoward wrote:
Still I hope that EK and Airbus can settle this and in two years launch the a380NEO along with a bridge order of a380CEOs.

That's a different struggle all together. Many billions will be spent by Airbus + engine vendor and it's going to be a challenge to ever earn back that money unless things really change in a way that favors the A380.

DWC · Wed Nov 15, 2017 9:33 pm

Revelation wrote:
"At Airbus, we believe in our flagship A380 and we believe the future is bright. I am convinced we will still produce A380s 10 years from now. Passengers like it and are willing to pay the premium," he said.

I don't blame EK for saying "put it in writing", that is indeed their next logical step, because that is surely the kind of commitment they'd love to have.
When I first read Enders' statement I did feel he was indeed leaving himself open to the demand that he back up his statement with words.

I think the gripe is that EK apparently waited till very late in the process to ask for it in writing.

The used A380 valuation problem (crisis?) is no longer a hypothetical thing.

1. Airbus have more data than we have or analyze them differently. The more I look into this, the more I see their rationale for the current line-up & again, from a LT strategic & economics POV, not just finance : Enders & Brégier know what they are doing & mean their words.
Granted, the situation has changed dramatically whatever the efforts, even recently, consider the A319neo & A358 downfall : had they known, Airbus could have gone directly for a family optimized on the A35K with dire consequences for the 777X ( and who knows, a Neo-ed family based on the A321 with a A320,5 shrink & a A322 )

2. It is strange how private companies have grown "averse to risk" these days & "externalize" "risk management" to suppliers ( or to the Gov like the US3 bailouts ). Airbus may just as well demand EK commit to whatever is needed, in writing & in cash.

3. By going so vocal, EK have de facto officialized the raise of A380 leases & with a "crawling peg" : standard Game Theory with "symmetric information". No lessor will now go for less & speaking up at the DAS was a very bad idea in terms of image. EK probably think they are smart by pulling the "draw", but forget that human "intelligence" is always further in the league & that they have given Airbus considerable economic & political leverage :
- EK now look like Rich McDuck, self-centered insolent behemoth
- With the 2 orders by EK & FZ, Airbus can legitimately ask for EU political support, particularly from F. & D. ( bilaterals )
- if Airbus indeed have more intelligence on a future market, they may well decide to go solo "sans EK", as they did for the A350 specs.
EK have Jokers of their own, but in this game, I don't see them earning any new, while giving Airbus an additional 3. Time will tell.

Disclaimer : all I say is standard Game Theory with what little information I possess - next to nihil.
But it shows the formalized logic behind these kind of negociations, published in restricted academic economic publications - so no links, sorry.

Egerton · Wed Nov 15, 2017 11:01 pm

I wonder if posters on A.net understand that DWC has just provided us all with a Master Class on Game Theory. Well done Sir, and thank you.

frmrCapCadet · Wed Nov 15, 2017 11:52 pm

While game theory almost always plays a role I suspect that the financial fundamentals are governing most of this. Airbus will do well without the 380, EK will do OK without the 380. It is essential to neither. I suspect that EK would like more 380s more than the board of Airbus wants to sell them.

Revelation · Thu Nov 16, 2017 12:24 am

frmrCapCadet wrote:
While game theory almost always plays a role I suspect that the financial fundamentals are governing most of this. Airbus will do well without the 380, EK will do OK without the 380. It is essential to neither. I suspect that EK would like more 380s more than the board of Airbus wants to sell them.

I don't think it's that simple. If all it was were financial fundamentals, both A380 and 747-8 would probably have already announced end-of-life dates by now and Airbus would be discouraging rather than encouraging EK to order more. Instead we see both programs continue to make frames at uneconomic rates with no end date in place.

scbriml · Thu Nov 16, 2017 12:38 am

Revelation wrote:
Instead we see both programs continue to make frames at uneconomic rates with no end date in place.

I think this is because of the usually significant cost impact of closing down a production line. Neither Airbus nor Boeing want to close a production line unless they absolutely have to.

DWC · Thu Nov 16, 2017 12:46 am

Thank you Egerton :spin:

frmrCapCadet wrote:
While game theory almost always plays a role I suspect that the financial fundamentals are governing most of this. Airbus will do well without the 380, EK will do OK without the 380. It is essential to neither

Absolutely not.
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).
Even on the surface, the very fact that they are in negociations & the DAS shebang tell you they badly need it, or EK wouldn't be pushing conditions to this extreme & Airbus would be announcing some A350-1100 - actually officially discarded recently.
So as it stands, the money is on the A380 on both sides. Perhaps 3 with China. And I am sure there is much intel no one here knows ( or hushes ).

PerfectGriffin · Thu Nov 16, 2017 5:26 am

DWC wrote:
Thank you Egerton

frmrCapCadet wrote:
While game theory almost always plays a role I suspect that the financial fundamentals are governing most of this. Airbus will do well without the 380, EK will do OK without the 380. It is essential to neither

Absolutely not.
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).
Even on the surface, the very fact that they are in negociations & the DAS shebang tell you they badly need it, or EK wouldn't be pushing conditions to this extreme & Airbus would be announcing some A350-1100 - actually officially discarded recently.
So as it stands, the money is on the A380 on both sides. Perhaps 3 with China. And I am sure there is much intel no one here knows ( or hushes ).

EK management is very well aware of the importance of keeping their fleet balanced between Airbus and Boeing. They know its key to obtaining more flights around the world, and have been doing it successfully for many years.
EK will order more A380's in the future - they need the A380 just as much as the A380 needs EK. The order just wasn't ready in time for this airshow but I'm confident it will be announced, probably at Farnborough next year.

Slash787 · Thu Nov 16, 2017 5:35 am

The thing is that there is no 2nd hand market for the plane, the first A380 of Singapore has been put in storage, its just been 10 years, thats nothing. If Dr. Peters can't lease it, they will tear it apart and sell the parts. http://www.telegraph.co.uk/travel/news/ ... -airlines/

If I am leasing my A380 then I need to make some money on it too, putting such a big bird in storage is expensive, tearing up for parts is also not easy, it takes time.

mariner · Thu Nov 16, 2017 6:25 am

PerfectGriffin wrote:
EK management is very well aware of the importance of keeping their fleet balanced between Airbus and Boeing.

Right now they're doing a p*ss poor job of it.

PerfectGriffin wrote:
EK will order more A380's in the future - they need the A380 just as much as the A380 needs EK. The order just wasn't ready in time for this airshow but I'm confident it will be announced, probably at Farnborough next year.

They probably will order more, but I wouldn't bet money on it and (I think) what they did in Dubai sucks. Or - what we're told they did in Dubai.

mariner

SomebodyInTLS · Thu Nov 16, 2017 7:24 am

Slug71 wrote:
SomebodyInTLS wrote:
Slug71 wrote:
Sourcing what ever parts they can from the A350 supply chain, might lower costs for both aircraft. The A350 windows, composite doors and door frames should all be able to be used on the A380. I'm sure there are numerous brackets and components that can also be used from the A350.

This is the second time you've said this. I believe that people who worked hard on the GLARE door surrounds and GLARE bonded window belt would have a two-word answer to that suggestion...

Generic components and systems is a different matter, but the structural stuff you mention is already highly advanced on the A380.

And they could be switched to the A350 (& A380) supply chain for the shared parts. I'm sure they would rather have work than no work (which is where the A380 is currently headed). Wasn't trying to imply the current suppliers should be dropped.

I was talking about designers and engineers, not suppliers. The A380 structure you mention is highly optimised and composites would be no improvement at all.

Matt6461 · Thu Nov 16, 2017 8:11 am

DWC wrote:
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).

One of the things that I appreciate about your field - the reason I always enjoyed my classes in it - is that economics requires some numerical argumentation to make a point. One can criticize certain assumptions used in economic models, but their assumptions are transparent and folks are disciplined by numbers within the models.

That said, I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

oslmgm · Thu Nov 16, 2017 8:36 am

Matt6461 wrote:
DWC wrote:
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).

One of the things that I appreciate about your field - the reason I always enjoyed my classes in it - is that economics requires some numerical argumentation to make a point. One can criticize certain assumptions used in economic models, but their assumptions are transparent and folks are disciplined by numbers within the models.

That said, I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

Money already lost is sad, but he's not talking about the past when he says they both need the A380.

parapente · Thu Nov 16, 2017 10:25 am

Applying logic.
If Emirates do not order an additional 40 aircraft then we know production of the A380 must cease in about 5 years time.But this is the very thing Emirates appear to be desperate to avoid.If it did cease they would have to renegotiate their existing 380 leases -holding no cards at all.
I guess they would also have to go cap in hand to Boeing asking for a less than optimal 777-10 and pay whatever Boeing chooses to ask ( there would be nothing else available).
So in effect they must order these 40 aircraft.One assumes they would be Rr900 powered .Perhaps with a rumoured additional pip.By that time (10 years ar future production rates) they would have circa 85 RR powered 380's.Thats less than their current fleet by quite a margin and no doubt the (and their) market will continue to expand.
So at that time they would perhaps be looking for a further 40 maybe more depending on replacement strategy.

This is why thet appear to be so concerned about future production.But I don't think it's as simple as that.
The timing (10 years) coincides exactly where a new 70-80klbs thrust engine is needed.(787/350).
They have strongly asked for the present 'new' gen (T7000) but were told no.They cannot accept that a second time in 10 years time.

The problem for Airbus is they have already rejected the idea of a NEO for an order of 40.So would do so again in the future.

It is not an issue of promising to keep the line open for 10 years .The maths tell us that this would happen anyrate with the additional 40 order.
It is not a problem promising to keep the line open for 15 years actually.EK orders AB manufacturers-easy.
No it is 'what' they (and RR) are being asked to manufacture in 10 years time.

Now that timing does coincide with the 'classic' replacement cycle of 20 years for planes such as this.So it's more about all the other existing A380 operators than Emirates (we know they want a NEO already).In theory there should easily be another 100 aircraft.In theory only.

I guess the final answer might be a highly complicated (secret) legal agreement with plenty of get out clauses,but overlaying a promise to NEO ( at the very least) if the other orders/numbers are fourth coming at the time.(well that's my guess anyway)!

Brixerl · Thu Nov 16, 2017 11:23 am

parapente wrote:
Applying logic.
I guess the final answer might be a highly complicated (secret) legal agreement with plenty of get out clauses,but overlaying a promise to NEO ( at the very least) if the other orders/numbers are fourth coming at the time.(well that's my guess anyway)!

After reading your thoughts, I can only say - now everything what happened the last days makes sense. Another of your very qualified comments, parapente.

The car is stuck now, how can it be moved out of the mud? It's clear, that EK and AB will find a way. Lots of people critizised EK for their unusual harsh words in Airbus's direction at the beginning of the week. My guess - arabs are proud people, the reaction was for me a sign, that they feeled offended, that the deal didn't come to fruition. After cooling down, they will realize that something happened, that they didn't have on their radar screen. A "no" from Airbus. Probably even the presentation of the LOI for the 787 at exactly this day was a kind of childish revenge. I won't say, that it wouldn't have happened otherwise, but...

Will Boeing be the victim of this poker game?

How does EK get back into the game? I think EK has to move. John Leahys words yesterday ("Ask EK, not Airbus...") seem to be a signal, that Airbus does not make the next step in this poker-game. Might we see the last big victory for Leahy, before he leaves? Is there something very special in the pipeline? What I mean: EK has canceled a big A350-deal. They are not shy in doing such things. Maybe a gesture? Canceling now the 787-order, ordering the 359 instead, and everyone is again best friends? EK gets the 380 NEOed on the other hand and their guarantee... And: The former balance between Dubai-based-airlines (EK, FZ) and orders at Boeing and Airbus is repaired. Cause now the two airlines are very Boeing-centric, and I think it is an argument, what a lot of users stated in these threads - that the EU tolerates EK in europe in todays form, cause on the other hand europe sells tons of Airbuses to Dubai. But what will happen, when those orders die down...

DWC · Thu Nov 16, 2017 11:25 am

frmrCapCadet wrote:
While game theory almost always plays a role I suspect that the financial fundamentals are governing most of this

In the end, it's all about the bottom line yes.
But there are many more factors that go into the "decision tree" before the Airbus Group bottom line, thus way beyond the mere costs of producing the A380 & that includes all the benefits reaped in the long term and throughout all the other family programmes.

parapente wrote:
If Emirates do not order an additional 40 aircraft then we know production of the A380 must cease in about 5 years time. But this is the very thing Emirates appear to be desperate to avoid. If it did cease they would have to renegotiate their existing 380 leases -holding no cards at all. I guess they would also have to go cap in hand to Boeing asking for a less than optimal 777-10 and pay whatever Boeing chooses to ask ( there would be nothing else available ).
The timing (10 years) coincides exactly where a new 70-80klbs thrust engine is needed.(787/350).
They have strongly asked for the present 'new' gen (T7000) but were told no.They cannot accept that a second time in 10 years time.
The problem for Airbus is they have already rejected the idea of a NEO for an order of 40.So would do so again in the future.

Yes. EK need the A380 & lease new frames at the lowest cost, so want Airbus to commit enough so that lessors be convinced & do not raise prices. As the second-hand market has not yet materialized, even the 1-2 Hifly & the 4 prospective BA frames will not be enough, EK want Airbus to internalize that risk at a cost I don't quite see how they can digest.

Ironically, one sexy alternative in Game Theory that would work for lessors is that EK commit to use their frames for some 20 years : after all SQ own their last 19 A380 & are keeping them longer : "SIA will likely keep its owned A380s for more than 15 years due to the lack of resale options. SIA could end up operating the 14 aircraft that were initially delivered in 2008 to 2012 for approximately 20 years, enabling SIA to fully write down the fleet and investment in new product without needing to find a second-hand buyer."
https://centreforaviation.com/insights/analysis/singapore-airlines-a380-seat-density-increase-new-cabin-products-to-improve-fleet-profitability-381490

Which highlights how the current A380 EK problem is one about lessors-lessee & not on the frame itself as it works "fantastically" for them - dixit STC. Indeed: if EK behaved like a traditional airline like British, Delta, Lufthansa or Pan Am ( worth mentionning because without them there wouldn't be a 747 ) by owing their fleet, we wouldn't be having this discussion. There are enough banks ready to fund EK or the UAE for this investment at commercial interests.

This also means Airbus is better off offering the A380 as it is, or the A380+ if there are enough orders, until a new VLA comes into the market, no need of a Neo.

DWC · Thu Nov 16, 2017 11:25 am

Matt6461 wrote:
I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

I remember well your 2-holer A380 presentation, extremely well argumented. Whether engineeringly sound or not is not the question, as the point is you must have realized that few members could follow you on all your calculus without formal training in aerodynamics, structural analysis or engine technology.
The same here, you need strong experience with the industry to even fathom how much is at stake for the OEMs & how much Economics information this needs, which I have not seen much described is the past 6 years here. In my early posts, I identified such 15 "non-profit based arguments" & in another 8 "economic based" arguments ( capital management, cost to Boeing, etc.) which you cannot in your right mind expect anyone here to "quantify" as they are either confidential or need a full team of financial analysts with good Game theory calculus training. The very nature of Game Theory decision making is that they are "iterative", meaning that the "quantified results" change & are re-run with every new information, plus the Jokers - as they are sometimes called, that take the Game to the next level.
And that information - I repeat - I do not have, let alone quantified.

If you want to have a look at the maths behind, here is a free PDF of the classic manual of Game Theory. I also invite you to check on amazon all the titles by Jean Tirole et al. just to see how Game Theory is behind much of public regulations & international agreements. http://www.library.fa.ru/files/Tirole-Game.pdf

But none of these are necessary to the discussion here & to the conclusion that EK & Airbus are both way better off with the A380.
If you don't see why, as many here do & not because of fan-boyism, then I suggest you reread the past 2 threads to get the "rationality" behind Game Theory, which indeed are always quantified in the end, but this only Boeing, Airbus, EK, and some universities or think tanks with access to massive & sensible information, can do it.

Arion640 · Thu Nov 16, 2017 12:06 pm

Matt6461 wrote:
DWC wrote:
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).

One of the things that I appreciate about your field - the reason I always enjoyed my classes in it - is that economics requires some numerical argumentation to make a point. One can criticize certain assumptions used in economic models, but their assumptions are transparent and folks are disciplined by numbers within the models.

That said, I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

I've studied both economics and business and you're always going to get marketing value that you aren't always going to be able to calculate. The A380 for EK is a prime example. It's the face of the airline. I keep saying this but nobody seems to get it - people fly Emirates for the A380. TC said this himself.

Now for Airbus it's obvious they have lost money here. But the sunk costs are written off/paid so if the line can tickover at Breakeven they may aswell squeeze some more frames out.

Revelation · Thu Nov 16, 2017 12:27 pm

scbriml wrote:
Revelation wrote:
Instead we see both programs continue to make frames at uneconomic rates with no end date in place.

I think this is because of the usually significant cost impact of closing down a production line. Neither Airbus nor Boeing want to close a production line unless they absolutely have to.

Yes, it's a good point that there are big bills due at the end of production that most executives know are going to become due regardless, but would prefer to push them into their successor's watch. However I do think there's a lot reasons why these lines are kept open, and those are more operative. Those reasons are what DWC calls strategic and economic reasons, and others less charitable (who, me?) call prestige and ego reasons.

mariner wrote:
They probably will order more, but I wouldn't bet money on it and (I think) what they did in Dubai sucks. Or - what we're told they did in Dubai.

There's not much doubt about what happened in Dubai. A room full of reporters were told there would be an EK announcement regarding both A and B, but at the last minute the A team left the room and it was the B team who was taking the stage. It was a slap across the face if not a kick to the nuts for the A team.

As for the suckage, I do agree EK treated the A team harshly.

Since we all agree STC is no idiot, the question then becomes, why the harsh treatment?

With perfect hindsight we could see that what STC said at the Dubai Air Show is the same as what he said at the Paris Air Show: I'm not interested in A380 Plus, I'm concerned about the longevity of the A380 production line.

He voiced concerns about the longevity of the A380 production line at PAS in June ( https://www.seattletimes.com/business/b ... s-clouded/ ) and a bit of googling shows the same concerns being voiced in 2016 ( https://www.thenational.ae/business/emi ... 0-1.180872 ) and 2014 ( http://onemileatatime.boardingarea.com/ ... es-pissed/ ).

Here's what he said in 2016 from the above link:

“I can’t force Toulouse to do anything,” Emirates president Tim Clark told reporters at a briefing in Dublin, referring to Airbus’s home base in southern France. “My main concern is that they stop producing the plane.”

Here's what he said in 2014 from the above link:

“We are on the hook for this plane,” said Emirates President Tim Clark. “I get pretty miffed when we have put so much at stake,” he told Reuters.

In retrospect, there sure is a pattern of concern he's voicing, going back three years now.

It makes me think that the reason he dished out such harsh treatment is that he probably feels his concerns about the longevity of the A380 production line have not been taken seriously enough for over three years now.

I think the concern does come from the fact that the lessors are seeing the first A380 being put into storage and are pressing for higher leasing fees. The lease agreements are not made years in advance, they are made at delivery time ( ref: https://www.flightglobal.com/news/artic ... 80-443054/ ) so the pressure gets applied as each delivery happens, and they've been taking deliveries by the dozen over the last few years. Then we do have the strategic concerns because A380 is such a large part of his business plan. And there definitely could be an element of brinkmanship: the aviation world's eyes were on DAS17 and he knew it. Maybe he overplayed his hand, or maybe it will turn out to be the shock to the system that Airbus needed to get its act together and make a firm decision on the future of the A380 production line.

SomebodyInTLS · Thu Nov 16, 2017 12:28 pm

Matt6461 wrote:
DWC wrote:
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).

One of the things that I appreciate about your field - the reason I always enjoyed my classes in it - is that economics requires some numerical argumentation to make a point. One can criticize certain assumptions used in economic models, but their assumptions are transparent and folks are disciplined by numbers within the models.

Ah... so that explains your fixation with reducing everything to simplified models which seem to prove something yet actually miss most of the important details - rendering them meaningless (and often wrong).

Matt6461 wrote:
That said, I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

Case in point.

Revelation · Thu Nov 16, 2017 12:36 pm

SomebodyInTLS wrote:
Matt6461 wrote:
DWC wrote:
If you care to read my several posts on the A380, I show that both Airbus & EK need the A380 from an Economics point of view ( not financial ).

One of the things that I appreciate about your field - the reason I always enjoyed my classes in it - is that economics requires some numerical argumentation to make a point. One can criticize certain assumptions used in economic models, but their assumptions are transparent and folks are disciplined by numbers within the models.

Ah... so that explains your fixation with reducing everything to simplified models which seem to prove something yet actually miss most of the important details - rendering them meaningless (and often wrong).

Matt6461 wrote:
That said, I haven't seen you present a full cost-benefit analysis to back up your assertions that the A380 has been worth the $20-30 billion Airbus has so far lost on it. You've presented many non-profit-based arguments, most of which I agree with and many of which I have made in the past, but you haven't integrated those "side" benefits against the cost.

Case in point.

Someone call the police, there's been a drive-by shooting.

SomebodyInTLS · Thu Nov 16, 2017 12:57 pm

Revelation wrote:
Someone call the police, there's been a drive-by shooting.

Yeah that probably came off harsher than I meant it.

speedbored · Thu Nov 16, 2017 1:12 pm

I really don't understand the obsession that some people have with over-analysing the A380 program launch decision, the amounts of money spent on its development, the development troubles, and whether or not the program will ever make a profit.

The decision was made, and the money spent, over 10 years ago now. It can't be undecided or unspent. I doubt Airbus even have any lessons left to be learnt from it. It is completely irrelevant now to discussions and decisions about what should happen to the program in future.

All very reminiscent of Trump and his obsession with Hillary Clinton more than a year after the election was over.

DWC · Thu Nov 16, 2017 1:21 pm

Exactly. Such shows lack of experience in financial & corporate management. To say nothing of Economics & strategy planning...

Arion640 wrote:
I've studied both economics and business and you're always going to get marketing value that you aren't always going to be able to calculate. The A380 for EK is a prime example. It's the face of the airline. I keep saying this but nobody seems to get it - people fly Emirates for the A380. TC said this himself.

Agreed & I have been saying it too : the sheer amount of free publicity in articles, blogs, youtube & adds is worth billions in free publicity.
Add to that how the A380 enables EK to
- grasp market-share fast
- take advantage of slots at restricted airports
- thereby leap-frog most competitors & all that do not operate a A380
- plus the incredidable cabin & silence experience, to say nothing of the food & IFE : they got it right & are benchmarks. :bigthumbsup:

As much as I criticize EK's behaviour at the DAS, I go out of my way to fly any A380s - particularly the ME3s & even at a premium, plus am studying them closely. Perhaps I should open a new thread on them, one focused on their LT Vision, strategy & Economics, and not on pop-journalism. Anyone interested ?

Revelation · Thu Nov 16, 2017 1:25 pm

SomebodyInTLS wrote:
Yeah that probably came off harsher than I meant it.

I understand the tension. You work in the profession, have the training and the tools to do deep analysis and are surrounded by colleagues who do this work all day and support your work. We're amateurs here and are using spreadsheets based on academic levels of knowledge and very basic information/data. I for one appreciate the effort, and understand that the models are basic, and every attempt is made to calibrate them against known data, but still can totally miss important effects. I think it'd be more useful to be more specific on what you think is being missed, especially when making such a broad claim as "most of the important details" are being missed.

Channex757 · Thu Nov 16, 2017 1:42 pm

parapente wrote:
Applying logic.
If Emirates do not order an additional 40 aircraft then we know production of the A380 must cease in about 5 years time.But this is the very thing Emirates appear to be desperate to avoid.If it did cease they would have to renegotiate their existing 380 leases -holding no cards at all.
I guess they would also have to go cap in hand to Boeing asking for a less than optimal 777-10 and pay whatever Boeing chooses to ask ( there would be nothing else available).
So in effect they must order these 40 aircraft.One assumes they would be Rr900 powered .Perhaps with a rumoured additional pip.By that time (10 years ar future production rates) they would have circa 85 RR powered 380's.Thats less than their current fleet by quite a margin and no doubt the (and their) market will continue to expand.
So at that time they would perhaps be looking for a further 40 maybe more depending on replacement strategy.

This is why thet appear to be so concerned about future production.But I don't think it's as simple as that.
The timing (10 years) coincides exactly where a new 70-80klbs thrust engine is needed.(787/350).
They have strongly asked for the present 'new' gen (T7000) but were told no.They cannot accept that a second time in 10 years time.

The problem for Airbus is they have already rejected the idea of a NEO for an order of 40.So would do so again in the future.

It is not an issue of promising to keep the line open for 10 years .The maths tell us that this would happen anyrate with the additional 40 order.
It is not a problem promising to keep the line open for 15 years actually.EK orders AB manufacturers-easy.
No it is 'what' they (and RR) are being asked to manufacture in 10 years time.

Now that timing does coincide with the 'classic' replacement cycle of 20 years for planes such as this.So it's more about all the other existing A380 operators than Emirates (we know they want a NEO already).In theory there should easily be another 100 aircraft.In theory only.

I guess the final answer might be a highly complicated (secret) legal agreement with plenty of get out clauses,but overlaying a promise to NEO ( at the very least) if the other orders/numbers are fourth coming at the time.(well that's my guess anyway)!

Just to put the cat among the pigeons, Emirates wants to go back to EA motors for this order.

All the work done on the wing and pylons by Airbus would need redoing. Their analysis for the A380plus was done using data for RR engined aircraft.

Source: http://www.latribune.fr/entreprises-fin ... 57663.html

Revelation · Thu Nov 16, 2017 1:54 pm

Channex757 wrote:
Just to put the cat among the pigeons, Emirates wants to go back to EA motors for this order.

All the work done on the wing and pylons by Airbus would need redoing. Their analysis for the A380plus was done using data for RR engined aircraft.

Source: http://www.latribune.fr/entreprises-fin ... 57663.html

Amazing, because it would really be stabbing RR in the back at a very bad time for them after they've done so much work on PIPing the T900.

End of article from Google Translate:

If Emirates returned to Engine Alliance, the decision would not be neutral on a possible evolution of the A380 to a reengineering of the aircraft as has always desired Emirates. In 2015, the Dubai company decided to move to Rolls Royce because it was the most inclined to want to develop an A380neo.

It seems then that by going back to EA they would be making not only A380 Plus but also A380neo less likely.

It's hard to fathom that they are so dissatisfied with T900 that they'd make such a move.

mjoelnir · Thu Nov 16, 2017 2:19 pm

Channex757 wrote:
parapente wrote:
Applying logic.
If Emirates do not order an additional 40 aircraft then we know production of the A380 must cease in about 5 years time.But this is the very thing Emirates appear to be desperate to avoid.If it did cease they would have to renegotiate their existing 380 leases -holding no cards at all.
I guess they would also have to go cap in hand to Boeing asking for a less than optimal 777-10 and pay whatever Boeing chooses to ask ( there would be nothing else available).
So in effect they must order these 40 aircraft.One assumes they would be Rr900 powered .Perhaps with a rumoured additional pip.By that time (10 years ar future production rates) they would have circa 85 RR powered 380's.Thats less than their current fleet by quite a margin and no doubt the (and their) market will continue to expand.
So at that time they would perhaps be looking for a further 40 maybe more depending on replacement strategy.

This is why thet appear to be so concerned about future production.But I don't think it's as simple as that.
The timing (10 years) coincides exactly where a new 70-80klbs thrust engine is needed.(787/350).
They have strongly asked for the present 'new' gen (T7000) but were told no.They cannot accept that a second time in 10 years time.

The problem for Airbus is they have already rejected the idea of a NEO for an order of 40.So would do so again in the future.

It is not an issue of promising to keep the line open for 10 years .The maths tell us that this would happen anyrate with the additional 40 order.
It is not a problem promising to keep the line open for 15 years actually.EK orders AB manufacturers-easy.
No it is 'what' they (and RR) are being asked to manufacture in 10 years time.

Now that timing does coincide with the 'classic' replacement cycle of 20 years for planes such as this.So it's more about all the other existing A380 operators than Emirates (we know they want a NEO already).In theory there should easily be another 100 aircraft.In theory only.

I guess the final answer might be a highly complicated (secret) legal agreement with plenty of get out clauses,but overlaying a promise to NEO ( at the very least) if the other orders/numbers are fourth coming at the time.(well that's my guess anyway)!

Just to put the cat among the pigeons, Emirates wants to go back to EA motors for this order.

All the work done on the wing and pylons by Airbus would need redoing. Their analysis for the A380plus was done using data for RR engined aircraft.

Source: http://www.latribune.fr/entreprises-fin ... 57663.html

So putting pressure both on RR and Airbus for the neo.

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