Singapore Airlines Succumbs To Reality By Deferring A380s

2010 hasn’t even arrived yet and A380 production is giving Airbus a headache that no magic pills can cure.

Almost two months to the day I detailed how Singapore Airlines was struggling to make the Airbus A380 work.

 

 

Now we have nine out of the sixteen A380 customers electing to defer deliveries consisting of Air France, China Southern, Kingfisher, Lufthansa, Qantas, Thai Airways, Virgin Atlantic, British Airways and now Singapore Airlines.

 

Being the biggest commercial airplane (as well as the most inflexible) does come with a hefty price and one that even John Leahy’s oft-cited “you can break-even at 65%” cant cut.

 

British Airways today announced a 13% drop in traffic in the Asia-Pacific region alone, wrapped neatly in the bubble that says its yield dropped by almost 12%.

 

I’ve lost count of how many consecutive months British Airways has been showing us such horrific traffic figures – it was inevitable that Singapore Airlines would have no choice but to defer deliveries of the unwanted big babe of Toulouse.

 

The premium-based model is dead.

 

British Airways’ Willie Walsh has been one of just a handful of CEO’s to acknowledge it – largely because the premium traffic dependency model is never coming back and airlines have to reshape to survive. Period.

 

That Singapore Airlines deferred isn’t the real surprise – it’s that they’ve chosen to delay deliveries by up to a year.

 

Airbus had once touted producing 45 A380s a year – but the spate of deferrals, coupled with the length of deferrals has absolutely obliterated whatever planned production regime Airbus may have planned on its chalkboard for the next five years – if not more.

 

Having just delivered 5 A380s so far this year after revising its 2009 target, Airbus probably hadn’t even had time to let the ink dry on its planned production rate for 2010 when this bombshell landed their way – because it is nothing short of an apocalyptic disaster for them.

 

Costs on the A380 are now growing at a faster rate than they are in contrast to the A350XWB – the latter airplane may indeed recoup costs to possibly break-even, but in the absence of new customers, a shrinking niche market and no derivative models to share the burden of the pain, the A380 is fast approaching a critical point from which there is no return.

 

EADS cannot afford to carry the mass of the A380 forever – particularly when the scope for its existence diminishes as each day passes.

 

Just look at the humungous void in Airbus’ portfolio between the A350XWB and A380.

 

The A350XWB is already a stretch too far and the A380 is grossly overweight that it cannot be shrunk. Airbus doesn’t have the money or resources to fill that gap.

 

Initially, costs on the A350XWB had been just $5bn with the A380 having been a proposed $9bn adventure. Today, the A350XWB sits atop a $17bn bill with the A380 cost estimates rising above $21bn (not including penalty payments). Then there is the added woe of the A400M to factor in on EADS’ group-wide resources.

 

All in all, if Airbus thought 2009 was a tough year for the A380, 2010 will be the beginning of the end – particularly because there’s just 16 weeks before the end of the year to deliver another 8 or 9 A380s.

 

Considering its taken 8 months to deliver just a handful to date…go figure.