Singapore Airlines shocked the commercial aviation market yesterday by confirming that it will not be extending the ten-year lease on its first A380 aircraft, which expires in October next year. The announcement came as a surprise to many since the general market consensus was that the airline would likely extend the leases on its A380s and refresh the interiors, specifically to revitalize the business class section with new lighter seats and also add the much belated premium economy option. Market sources suggest a deal was on the table as much as a few weeks ago but with this news it appears that deal was rejected by the airline. The more cynical observers have suggested that this announcement not to extend the first lease is a negotiating tactic to push for more attractive terms for the four remaining A380s taken on lease, which are expiring soon after this one. SIA was keen to stress that the decision on the other four aircraft "will be made later". SIA plan their fleet management strategies much further out than 12-18 months so it is likely that deals are already on the table. This is all conjecture for now but the real story should emerge in the coming days and weeks. As of today, the lessors will need to focus on remarketing the first second-hand A380 – a heavy one at that.
This early A380 will not be easy to remarket since as the first aircraft to come into service it is overweight and has other issues but it is absolutely possible if Airbus will be assisting to remarket the aircraft and if Airbus will be assisting with aftermarket agreements at favorable rates.
This A380 has been used on routes between Singapore and London, stretching the limits of its mission range, but on longer haul routes like this with longer turnaround times, the aircraft will be in good shape. Of course, as a ten-year old aircraft, it will have maintenance requirements so any new operator would need to benefit from a flight hour services agreement for airframe support and maintenance with Airbus for it to be a viable option – this is the crux of everything.
There are some obvious candidates out there for this aircraft. Willie Walsh, CEO of International Consolidated Airlines Group (IAG), at our Growth Frontiers conference in January earlier this year, confirmed that he was considering leasing several more used A380s with Rolls-Royce engines as converting the seven options he has for new aircraft would be “too expensive”. He said at the time however that there was currently no rush to acquire more A380s since the low oil price means British Airways 747-400s are economical to operate, for now. The aircraft will be well suited to a transatlantic route, which BA could benefit from taking a lower price used A380, while there are potential Pacific routes that carriers from the Americas, particularly Hawaiian could capitalize on the customer-friendly A380 aircraft, for the right lease price.
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Singapore Airlines A380[/caption]
Reconfiguration costs might be a killer, we shall see, but as things stand the right A380 does have a market niche – at airports where slots are a premium such as London and Tokyo the A380 should be a perfect fit.
Everyone knew that remarketing the A380 would be hard at first, everyone knew that the first A380s would be hardest of all. So right now as things stand, are we in worrying territory? Of course not – we are right where we knew we would be. The telling time will come over the next 12 to 24 months. Companies such as Dr Peters and Doric have their work cut out but they might just make it all work well yet. Watch this space.
Aviation 100 Asia & Pacific 2016 Awards Survey:
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Philip Tozer-Pennington
philipt@aviationnews-online.com