Yesterday the news was all about the cancellation of an Emirates order for 36 A380s and the termination of A380 production in 2021. It marked the end of a high-stakes game. Both sides had reasons to carry on with the A380, but either party also had grounds to cut their losses and walk away.
What remains is that Airbus has just abandoned the A380 and orders for 39 aircraft worth billions of dollars have been cancelled. Which side blinked first - Airbus or Emirates? It may be that a consensus was reached, but equally one party could have led the other. Now the dust has started to settle, its consider where the drivers might have come from.
Airbus' A380 dream is over - but was it Emirates or Airbus that drove the decision? (John5199)
Was it Emirates?
Just a year ago, Middle Eastern airline and A380 cheerleader Emirates threw Airbus a lifeline when it ordered and optioned 36 additional examples of the double-deck aircraft. The commitment was crucial for the manufacturer, enabling it to stretch production through to the middle of the next decade when upgrades - with more efficient engines, a stretch or both - might have been better received by potential customers.
Since then though a few things have changed:
Its become even clearer that there is little appetite for A380s from anywhere other that Emirates .
There has been almost no interest in the first few A380 airframes that have come onto the second hand market.
The lack of new orders and a secondary market have reduced residual values and increased lease rates, making the acquisition of new A380s less attractive.
There are issues with the Rolls-Royce Trent 900 engines powering Emirates' recent A380s. They are being removed more frequently than expected due to erosion of the fan blades caused by sand. Rolls-Royce is paying the airline compensation. Due to the limited market and opportunity to recover investment, RR has not proceeded with a forth upgrade (EP3+) to the powerplant.
Emirates relies on its hub in Dubai to channel passengers between cities across the globe. Its business model is coming under increasing pressure from airlines flying point-to-point markets with 787s - A321LRs will soon enter the equation too.
Alternative hubs - particularly Addis Ababa and Istanbul - and other airlines including Ethiopian and Turkish are offering increasingly attractive alternatives to Emirates and Dubai.
Emirates' load factor is around 80% and its traffic isn't growing particularly rapidly so it does not need to increase capacity substantially.
An increasing realisation within Emirates that the acquisition of yet more A380s would be difficult to sustain could have driven the airline to cancel some of its outstanding orders.
Emirates will take only 123 A380s instead of 162 . (Simon_sees)
However, Airbus undoubtedly held deposits - some of them non-refundable - for the A380s Emirates had on order. Airbus was between a rock and a hard place - it was losing money on each A380 it built and needed Emirates' order to sustain production.
Airbus could have played hard ball, telling Emirates that the A380s program would have to be cancelled and given the consequences, that the deposits would need to be transferred to other orders. Emirates might then have decided that a combination of 40 A330neos and 30 A350-900s could work alongside its Boeing 777s and the A380s it is already operating in an increasingly challenging market.
Or was it Airbus?
The European manufacturer has been struggling to sell A380s to airlines during the second half of the decade. It was well known that Airbus takes a loss on every A380 it produces, and would never recover the development costs of the project. Aside from Emirates, the only A380s that have been ordered since 2014 are three for All Nippon Airways (ANA) of Japan. Airbus was forced to cut production to six airframes a year, taking what were called "digestible losses" to keep the line running until the mid 2020s.
However, some of the backlog Airbus held for the A380 wasn't very robust:
Some of the backlog on the books - Qantas for eight, Amadeo for 20, and Air Accord for three - have been widely acknowledged as being shaky for some time.
Existing customers including Air France, Lufthansa and Singapore Airlines declined to take additional examples. British Airways seemingly wanted more, but did not want to pay a price Airbus could agree to.
Virgin's commitment for six, and Hong Kong Airlines for ten, fell by the wayside at the end of last year.
Since the start of 2019, Qantas has cancelled (or been allowed to cancel) its outstanding commitment for eight A380s, leaving only Emirates (approx 50) and ANA (3) as viable customers.
Emirates had not selected engines for its latest 36 A380s and the time when that decision had to be made had passed, putting aircraft production and delivery dates at risk.
Airbus would have been well aware of the challenges it faced continuing to produce A380s.
Did Airbus terminate the A380 program to stem losses? (ERIC SALARD)
Significant managerial changes are taking place at the top of the conglomerate, and the incoming team are believed to have a different view to those that are retiring. The formal cancellation of the Hong Kong Airlines, Virgin and Qantas orders pointed to Airbus starting to put its house in order ahead of the departure of the last of the old guard.
With the A380's long term future in doubt, Airbus could have told Emirates that it wanted to close down the A380 production line. However, that would have left the manufacturer with a big hole where the A380 deposits sat, and could also have driven Emirates back to Boeing for more 777-9s and to firm a Memorandum of Understanding for 40 787-10s. Airbus might then have offered 40 A330-900neos and 30 A350-900s to Emirates at prices it could not ignore - partly as a sweetener to drop commitments for A380s, but also to ensure the carrier remained a customer. Emirate's decision might have been eased by the engine performance issues and challenging market.
What's been said formally?
As part of its 2018 earnings announcement, Airbus said: "Following a review of its operations, and in light of developments in aircraft and engine technologies, Emirates is reducing its A380 order book from 162 to 123 aircraft... As a consequence and given the lack of order backlog with other airlines, Airbus will cease deliveries of the A380 in 2021."
That seems to suggest that Emirates decided to cut its orders and as a consequence Airbus had to shut down the A380 program. However...
His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group, said: "After many months of discussions, we have come to an agreement with Airbus and Rolls-Royce. Emirates has been a staunch supporter of the A380 since its very inception. While we are disappointed to have to give up our order, and sad that the program could not be sustained, we accept that this is the reality of the situation."
That seems to suggest Airbus made a decision to close the production line and Emirates had to accept the cancellation of its orders.
So the answer seems far from clear. Did Emirates walk away, given an increasingly challenging business environment and a shortfall in performance from the A380's engines? Or did Airbus drive the process, acknowledging that the market had no appetite for the current airframe or an upgrade in the middle of the next decade?
Whatever the origin of the deal it seems like a win-win for both sides: Emirates gets to optimise and right-size its fleet for the market it now operates in, and Airbus gets to remove a millstone from round its neck that will allow it to focus on other more lucrative projects. Although the decisions were indelibly intertwined, its unlikely we will know where the driver really came from for quite some time - if ever.
Text © The Aviation Oracle