Whither The A380?

Severe turbulence struck a Malaysia Airlines A380 yesterday (June 5), and while there where no serious injuries the aircraft is still causing a headache inside and outside the cabin.

Severe turbulence struck a Malaysia Airlines A380 yesterday (June 5), and while there where no serious injuries the aircraft is still causing a headache inside and outside the cabin.

Speaking to Aviation Week recently, CEO Christoph Mueller revealed that MAS will phase out all six of its A380s by June 2018, and fly smaller A350s instead.

MAS has found the superjumbo too large even on long, thick routes, like Kuala Lumpur-London, for which the A380 was designed.

No doubt Tim Clark at Emirates would dispute this, having long argued that other airlines don’t correctly exploit the A380’s potential, but even he is now downbeat about the aircraft’s future outside his operation.

“My main concern is that they stop producing the plane,” Clark told reporters over the weekend, having conceded that Airbus is unlikely to produce an upgrade of the double-decker.

Clark’s other worry should be what MAS’ travails say about the A380’s residual value.

The Malaysian carrier tried to sell two of its A380s last year but couldn’t find a buyer, so what chance does Emirates have of selling on any of the many A380s on its balance sheet?

Speaking at the IATA summit in Dublin, Clark indicated that Emirates’ first A380 will be retired in five years’ time, with others to “drop out” as they also reach 13 years of service with the Abu Dhabi-based carrier.

If “dropping out” doesn’t mean “selling on”, that equates to a capital cost per aircraft of around $30m each year at list prices.

Naturally, Emirates will have secured significant discounts across its commitments for 140 A380s, but even half that capital cost is eye-watering.

Emirates net profit was $1.9bn last year. By available capacity, its A380s could be said to account for about $900m of that, which equates to roughly $11m million per A380.

Granted, many of the Emirates’ A380s are leased, not owned, but one can see how their value proposition suffers in the absence of a secondary market.

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