Singapore Airlines’ opting not to extend the lease for its first Airbus A380Back to Forum
A number of the airline industry trade website are today reporting that Singapore Airlines has decided not to renew the lease on its first A380 after only ten years of operations. This from the respected Aviation News.
It is a facet-rich and complex move, but the bottom line remains: It is terrible news for Airbus and the lessors that own the aircraft. Singapore Airlines (SIA) has four other leased A380s which are coming up for possible contract extension between now and April 2017 and are likely to be returned.
The first few SIA A380s are of an early-build standard with some flaws and extra weight; they are not as good as aircraft that came off the production line later. One might therefore argue that it is a wise decision to replace them with more mature and lighter aircraft. So why all the excitement?
Several reasons. While it is somewhat understandable that SIA would want to get rid of the early aircraft, the airline will have to spend a substantial amount of money before doing so in order to restore the aircraft to “full life” condition, according to the agreements with their owners.
Returning the aircraft essentially to new condition in terms of systems, engine maintenance and cabins will be a very expensive proposition—and the first of its kind for the global A380 fleet. The incentive not to fly them further must be high, unless increasingly desperate lessors are willing to accept reduced terms based on the current and foreseeable market conditions. In short, the less-than-optimal build standard is only a small part of the explanation.
A bigger issue is simply that the airline does not want to expand its A380 fleet beyond the 19 aircraft it now operates and the five more on firm order. In addition, there are reasons specific to SIA and more general industry aspects that are influencing the decision. SIA no longer plays the dominant role in Asian long-haul travel. Other carriers are growing at its expense: Emirates, Qatar Airways and Etihad Airways to the northwest of its hub and the Chinese carriers to the north. The number of routes on which even SIA can operate an A380 profitably is limited, particularly if as many as 142 are flying for a competitor.
What is more, now is not the time to add significant long-haul capacity. Analysts and industry observers have been concerned about the overcapacity that the widebody market is facing based on current orders.
To be fair, the A380 is not the only long-haul aircraft that is not generating many new orders; the entire market is slowing to a crawl.
Boeing has already announced a cut in the 777 production rate ahead of the transition to the 777X and may lower the output further if demand does not resume soon. The manufacturer also is not going to increase 787 production to 14 per month from 12. Boeing recently indicated that for the first time it may end 747-8 production if it does not see a reversal of that program’s fortunes.
The timing for a buoyant widebody market to stagnate could not be worse for Airbus. A380 production is already being reduced to 12 aircraft a year in 2018 for risk containment, but ultimately the European manufacturer needs the market to return. It cannot wait another five years.
But for new orders, Airbus is also competing with the availability of 11 used Malaysia Airlines and SIA aircraft, some of which are only a few years old. The capital expenditure needed for the A380 is one of two hurdles airlines must overcome when buying such large aircraft. The other is the fear of being unable to fill all those seats. If one of these hurdles becomes lower, some carriers such as British Airways or Iberia might give the A380 a try. But those possibilities will only represent a handful of aircraft. It is difficult to see how secondary airlines would want to broaden the A380 customer base.
Decisions such as the SIA return are particularly damaging to the airframers because of the signal they send to other airlines. And SIA is not the first to alter its A380 plans:
▪ Air France is not taking the final two A380s it has on order.
▪ Lufthansa has reduced its commitment by one aircraft.
▪ Qantas Airways does not want to take the eight in the backlog.
▪ Virgin Atlantic does not want the six it bought a decade and a half ago.
The market is speaking, and it is sending a painful message: We are no longer interested.
You must be logged in to access attached files.21 Sep 2016
Maybe they have reached some kind of deal with the lessors, which makes it more financically attractive to dispose of the aircraft for ‘parting out’?
This has happened to some relatively young wide body aircraft in recent years and the engines may be particularly valuable.
Added: The whole world market is becoming fragmented (in segment terms) and airliners are no different – the A380 is good in it’s niche, but the mass market days of the 747 (1970s/80s) have long gone.
Can Airbus turn a profit on the A380 programme? I don’t know, but no doubt someone will.
Also, the world economy is not exactly in the rudest of health, is it? Some airline execs may prefer caution/pragmatism at present.
Final thought – the 737 programme was nearly cancelled after about 10 years due to lack of sales – now it’s the most successful airliner ever, so times can change.21 Sep 2016
Its logical for SQ to return their old A380 when they have their latest ones on order. Their market is still there,they just have to make a commercial decision on the aircraft they need and reaĺly they are in a different market to the ME3. Airbus will have competition for new aircraft though few airlines can keep an old aircraft to the standard of the latest A380. Airbus however needs to extend the market for the A380 and there are many new markets, what about an LCC A380, nothing can compete on most medium and long haul routes if the capacity can be filled.21 Sep 2016
SIA have been clear for many years that they would return the original A380s when the lease was up as the newer ones perform better. I’m just surprised that now that it is happening it is news worthy.22 Sep 2016
SIA have been clear for many years that they would return the original A380s when the lease was up as the newer ones perform better. I’m just surprised that now that it is happening it is news worthy.
Equally SIA pride themselves on having an up to date fleet, it’s been their way for many years. Bear in mind they had one of the newest 744 fleets and it’s now almost ten years since they got rid of them.22 Sep 2016
It is bad news for the Airbus A380 but also for Singapore Air which might suffer from competition from the Middle East carriers. On another note, the Emirates A380 is half full/half empty to San Francisco and EK is considering pulling it from there. Etihad already flies there, Qatar was thinking about it and Turkish is killing it with the lowest fares on its 777ER.
I think the best chance the A380 has is with the Chinese market.25 Sep 2016
‘jjasne – It is interesting you mention China because Air China has finalised a partnership agreement with Lufthansa during a ceremony held in Beijing last week. The venture, which was first announced as a Memorandum of Understanding (MOU) back in July 2014, will start with the 2017 summer flight timetable.
The joint venture aims to significantly expand the two Star Alliance members’ mutual code-sharing connections. It also extends to Austrian Airlines and Swiss subsidiaries. Under the expanded codeshare cooperation agreement, Air China’s customers will have access to more code-sharing routes to/from various destinations in Austria, Belgium, Germany and Switzerland via the Lufthansa Group’s Frankfurt Int’l, Munich, Zurich, and Vienna hubs. In turn, Lufthansa, Swiss and Austrian Airlines will gain access, through Air China, to additional routes in China, the second-biggest aviation market in the world. Further destinations are set to be added soon as part of code-sharing.
Lufthansa Group and Air China also plan to better coordinate their respective flight schedules, to offer common fares, to modify their corporate programmes to improve the products available to corporate customers, and to improve frequent-flyer cross functionality.
As part of its push into the Asian market, the Lufthansa Group currently has similar ventures in place with ANA – All Nippon Airways and Singapore Airlines.26 Sep 2016