Purchase price of SQ's A380s

[Melburnian1]

This is an extract from an article on 'The Age'/ 'SMH' websites on Friday 17 June 2016 about Airbus A380s set to become available from a German leasing company in 2017.

The article has this to say, which confirms that (at least around 2007), Airbus A380s were being sold at about a 35 per cent discount to 'list price':

Dr. Peters owns the first A380 that may become available. The asset manager paid $US197.3 million for the plane in 2007 - versus a list price of $US304 million to $US314 million -- as part of a 10-year sale-and-leaseback deal involving Singapore Air, which rented the jet for $US1.71 million a month, according to an investor prospectus

Read more: Used Airbus A380s available for rent - at a steep discount
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This also discloses that (at least in 2007), SQ was paying about $60,000 a day to lease an A380, or (based on an average of one lengthy sector a day, although often it might be 1.5) roughly $130 a seat.

 

[jb747]

Interesting in that it implies that Singair will start getting out of 380s from next year.

 

[Melburnian1]

Yes, jb747, it is almost presented as a 'fact', as otherwise the leasing company would lack anything (of this model of aircraft) to lease.

There are media suggestions that of the airlines operating A380s, only EK regards them as a 'success.' The (not $64 million) question is whether other airlines will follow suit, and if some did whether it would lead to a collapse in residual values of other A380s - would EK, for instance, have to show higher depreciation in its accounts?

These fleet considerations must take much time and brainpower, because for an airline like SQ it ideally ought have as uniform a longhaul fleet as possible to try to lower maintenance, crewing and spare parts costs, while unless it decides to cancel routes that are unprofitable it cannot often replace withdrawn aircraft the next day.

 

[jb747]

There are media suggestions that of the airlines operating A380s, only EK regards them as a 'success.' The (not $64 million) question is whether other airlines will follow suit, and if some did whether it would lead to a collapse in residual values of other A380s - would EK, for instance, have to show higher depreciation in its accounts?

Singapore has been affected quite badly by the rise of the Middle Eastern airlines...

I think you'll find that EK actually unloaded their 380s onto leasing companies a couple of years ago, anticipating exactly this problem. I think it's fair to say that it won't have the longevity of the 747.

 

[dajop]

Interesting in that it implies that Singair will start getting out of 380s from next year.

They still have another 5 on order (replacements?) that they have declared will get new product on board when they are delivered from 2018(?).

 

[docjames]

They also in that article suggest SQ have option to extend leases on existing terms for 2 years

 

[travelislife]

Interesting in that it implies that Singair will start getting out of 380s from next year.

Pretty sure they have some new ones coming in. But I think their long term strategy is to fade them out.

 

[NM]

SQ has a history of turning aircraft over a lot quicker than many airlines, and certainly a lot quicker than QF. Historically, QF has retained its fleet assets for long periods, disposing of them when their value is low and costs to retain/maintain are high. The QF 767 and 747 fleets are good examples. SQ seems to retain their aircraft for shorter terms, disposing of them before they incur significant maintenance cycle costs, even if they replace them with similar new aircraft.

There are many theories about these different asset retention strategies. Some suggest that the long-term retention that QF has historically applied meant they invested in a strong maintenance program knowing they intended to retain them for (often) 20+ years, while other airlines turn them over much more quickly (say 7 years) and hence do not implement a maintenance regime that looks to ensure long-term serviceability.

Another theory is around tax write-off or depreciation costs. Some countries allow aircraft assets to be depreciated over shorter lifespans than other countries. This is probably less of an issue in current economic climates where more airlines are leasing aircraft than owning them outright. But it may have been a more significant influence in the past when airlines were more likely to take on the ownership and depreciate rather than lease.

 

[NZflygirl]

Singapore has been affected quite badly by the rise of the Middle Eastern airlines...

I've been thinking about this because flying from NZ to Europe or the UK my thoughts go to the ME3, not SQ (although who doesn't love Changi), but I feel sorry for SQ who I do think provide a good product and service, but I don't think they can compete with the money the ME countries have behind them. I will probably use them into Asia but can't see myself using them to other destinations. Qatar has some good sale prices over SQ also.

 

[travelislife]

SQ has a history of turning aircraft over a lot quicker than many airlines, and certainly a lot quicker than QF. Historically, QF has retained its fleet assets for long periods, disposing of them when their value is low and costs to retain/maintain are high. The QF 767 and 747 fleets are good examples. SQ seems to retain their aircraft for shorter terms, disposing of them before they incur significant maintenance cycle costs, even if they replace them with similar new aircraft.

There are many theories about these different asset retention strategies. Some suggest that the long-term retention that QF has historically applied meant they invested in a strong maintenance program knowing they intended to retain them for (often) 20+ years, while other airlines turn them over much more quickly (say 7 years) and hence do not implement a maintenance regime that looks to ensure long-term serviceability.

Another theory is around tax write-off or depreciation costs. Some countries allow aircraft assets to be depreciated over shorter lifespans than other countries. This is probably less of an issue in current economic climates where more airlines are leasing aircraft than owning them outright. But it may have been a more significant influence in the past when airlines were more likely to take on the ownership and depreciate rather than lease.

If they are leasing them though does depreciation even come in to it?

At the end of the day at the lease rate the leasing company has got its $200 million initial capital outlay covered (not taking in to account annual discount rates, etc.). I assume on dry leases the airlines are responsible for all maintenance?

So I would expect SQ would want a cheaper lease rate if they take up the 2 year option. Otherwise for the owner they have had there capital paid for and are just looking for cashflow and to keep the aircraft serviceable.

 

[Jeffrey O'Neill]

You really need a big BIG hub based network to make the A380 economics stack up. There's not as big a hit to the bottom line fr a 65% load on an A330 or 787 as if you had an A380. Not sure if you'd get as good crew to pax ratio on an a380???

must admit i like the a380. great way to fly, even in economy, though the new 11 abreast seating may make it as bad as the 787 in future.

boeing was right in the sense airlines are going direct on thinner routes. airbus is lucky they botched the delivery of the 787 program as much as they did. a few years earlier arrival would have seriously hurt the a350 program, and likely brought forward the 777x for a very weakened airbus to try and combat.

will be interesting to see what happens as the a380s hit their heavy maintenance and how many airlines decide to walk away.

 

[JohnK]

....must admit i like the a380. great way to fly, even in economy, though the new 11 abreast seating may make it as bad as the 787 in future.

I flew the RJ 787 in economy HKG-BKK last week. I had pre-allocated 6D but there was hardly anyone on board and only about 5-6 people in the first 10 rows so I sat in 5D bulkhead.

For a big person I was surprisingly comfortable. Don't know if I would feel the same in a non-bulkhead seat.

 

[moa999]

It certainly is interesting..

I mean MH hasn't found a sales/ lease option for its aircraft.
And then you have a bunch of EK/SQ aircraft sloshing around...

Suspect the leasing companies will take a bit of a loss, and may cause QF to have to take some balance sheet hits as I believe the A380s are on-books.

Saw an article some months ago that suggests IAG (BA/Iberia) were looking at some 2nd hand frames

Only other interesting point is that the engines for the A380s are generally under a power by hour arrangement, rather than a straight out purchase -- I wonder if this introduced some incentive for RR / EA to introduce in-service engine modifications to keep these aircraft flying -- as otherwise they will also be facing a loss on the predicted life of the engine pool