Airbus A380

Peter WenhamLessor EVP - Technical

Ahead of its time?

Novus Aviation Capital - Dubai

Introduction

• Short introduction

• Growth of travelling public

• What do operators need & how do they fund - Leasing – growth in popularity & types of lease

• A380 – how it fits today

• What happens tomorrow?

World Traffic Growth

Traffic doubles approximately every 15 years

Rise of the middle classes

2013• 7.1billion• 33%

2023• 7.9billion• 49%

2033• 8.5billion• 64%

Forecast from 2013 t0 2033 – forecast middle class % of population

Demand for Aircraft

Forecast deliveries

Changing constraints

• Increasing numbers of aircraft

• Increasing number of airports at, or close to, capacity

• Convenience demanded by passengers (arrival/departure times

• Longer routes (anything over around 10hours +) = constraint on number of rotations possible in 24 hours

Aviation Megacities 2013

Lease or buy?

If the costs of leasing increase the cost of ownership, why would anyone Lease?

- aircraft are expensive and eat significantly into cash reserve

- aircraft are not brought into or out of a fleet quickly – with such a quick moving industry can hamper a quick response

- affects the balance sheet and therefore operator value

- operators have the ability to purchase at favourable rates from manufacturer then sell to Lessor at ‘market rate’

- no residual value risk at the end of life

- A mix of owned/leased fleet gives maximum lift flexibility

Growth of Leasing businesses

Lease or buy?

Commercial Bank

debt

• Operator equity and/or junior debt

ECA• Either funding or guarantee

Operating Lease

• 100% ownership rests with lessor

Finance Lease

• Ownership with lessee once paid

Others• KG, EETC, JOLCO & Islamic financing

Which one works best

Growth of Leasing

Lessors by Fleet - 2014

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Operator Aircraft selection

Selection Criteria

•Routes – range performance & available seats•Technical – fuel and maintenance costs

Comparison – similar typesAircraft type A380-800 B747-8I B747-400 B777-300ER

MTOW-lbs 1,235,000 987,000 870,000 775,000

Tri-class seats OEM 525 515 400 370

Tr-class seats (airline av) 407-547 287-464 246-364

Airline average 484 440 363 316

Range with av airline seats (nm) 8,250 7,900 7,200 8,000

ULD type LD3 LD1 LD1 LD3

Belly freight 38 36 32 44

Fuel Performance USG/seat mile 0.0197 0.0211 0.0181

Aircraft Commerce – issue 79

A380 Operators As of December 14

Current Routes

Aviation Megacities - 2033

So………..

Travelling population growthSlot constrained airports

Crowding in the skiesFinance available

If there are so many positives………….why have A380

sales slowed so much?

And what happens to it next?

Operator/Lessor ownership

• Lessor owned fleet is circa 45% of the world fleet

• There are no conventionally leased A380s presently

• One or two ‘KG’ financed and those recently ordered/deferred by Amadeo

• None of the big Lessors involved

Headwinds

For the operator• Point to point travel vs Megacity hubs• Current fuel prices don’t help the A380• Ability to operate at minimum load factor year

round or have alternative routes to deploy to

For the Lessor• Transition costs• 2nd market options

Disincentives to increase the A380 fleet

Classic layout of Aircraft

Configurations

• Number of seats certified (538 main deck + 315 upper deck = 853 total)

• Average configuration at < 500 total (484)• Maximum layout to date Air France 538• This year Emirates partial fleet planning to

go to 615• So far – no ‘all economy’ operators because

yield on mixed class operation is more attractive on long haul operations

Transition challenges

• the upper deck is similar to reconfiguring an A330 and costs do not take into account any refurbishment of the lower deck

• one further difficulty – only Lufthansa, Thai, Emirates & Etihad have an all-economy lower deck and mixed configuration upper deck

• all remaining operators have mixed configuration upper and main decks, which adds complexity and cost

Transition Costs

• Around $1.2m per aircraft

Light Modification:Carpet and seat covers replacement, Airline logo, interior placards and other airline branding

• Around $5.8m plus $2.5 - 3m / AC on the basis of 3 AC

Medium modification: Removal of F/C and bar area, relocation of B/C seats to the front and installation of Economy Seats and rebranding (as per light modification).

• around $8,3 + $3.5 $5m per AC on the basis of 3 AC

Heavy modification: Removal of all F/C, B/C and bar area and installation of full Economy Seats on the full upper deck. Including re-branding (as per light modification)

Comparison with the competition

Airbus view of 2nd market

Future operators – 2nd market options?

Legacy operators for replacement and expansion? If this is a market – why no more recent orders?

Dependent upon? the rate of increase of the number of Megacities the rate of increase of slot constrained airports maintenance costs do not escalate too much

LCC or ULCC for long range cheap tourist or religious travel? rate of rise of middle classes for increased tourism already pressure on access to religious locations

The ‘neo’ optionWill a new engine change things?

• Emirates pushing for re-engined model to further reduce per seat operating costs

• Offering Airbus the possibility of a further very large order of 50 or more aircraft

• But will other operators follow and ‘up’ their orders?

• Will the improved economics be enough of an incentive to overcome the current slack sales situation other than for Emirates?

Conclusions•New aircraft – rate of increase in aviation

Megacities

• 2nd market – rate of increase of tourist activity & possibly also religious tourism

• Secondary considerations• fuel prices • possibility of re-engine option• ability to keep a control of maintenance costs• absence of a large scale crisis

For More Information and discussionPeter Wenham

Novus Aviation Capital – Dubai

peter.wenham@novus.aero