Thursday, October 19, 2006

Reality Check 1.0 at Airbus-UPDATE


Folks have started running the numbers re the recently announced 'break even' point that Airbus announced the other day for the A380 program. The Australian, usually a reasonably good source of information suggests that the company will have to turn $78 billion in A380 sales before the red ink stops.,20867,20616429-23349,00.html

That viewpoint is premised on Airbus getting the list price of $300 million USD for each and every one sold from here on in. That is not the way the business operates, though, and such an outcome is far from being a sure thing. The airlines place an order, they put down a deposit, and as the aircraft makers cut metal and move the airplane down the line they get progress payments until delivery day when the check and the keys are exchanged. Along the line there are refunds and such for not making milestones, such as Airbus is now having to pay.

The A380 program in the beginning probably looked a lot like the Canadair Challenger program, where every Tom Dick and Harry with $5,000 could get a delivery slot back when Canadair was trying to launch the project.

If I had to take a very unscientific wild assed guess I'd say the odds are that the future looks like this.

One of the big customers will cancel its orders in the near future. This could be Emirates, it could be Singapore Airlines. When that happens, it will trigger a wave of cancellations that will cause Airbus to cancel the entire program. If A380 production ever gets past the 13 or so half built ones in the factory and a handful more, I'll be mightily surprised.

It's reported today that The Emerald City has announced that the 'break even' point on the A380-you know, the number of frames when the negative cash flow starts reversing itself-where was I? Oh yes. The breakeven point is now 420 frames, up from a previously bandied about figure of 270.

Why is this important? Because I was having this discussion a year and a half ago with someone and when I told them that the breakeven point on the MD11 was 450 and that I figured the A380 was going to be about the same, they more or less told me I was full of ze merde.

Well about them pommes?


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