The introduction of the Airbus A380 was a moment that changed the airline industry forever. Designed for long-range hub-to-hub route operations, the aircraft enabled full-service carriers such as Emirates, Etihad and Singapore Airlines to develop and redefine the luxury on-board passenger experience. From an appraiser and analysts' perspective, IBA examines how Airbus' decision to end production of the A380 just twelve years after service entry will impact on its value, and considers what the future might hold for airlines and investors.

According to the aircraft's order book, the Airbus A380 has struggled to sustain a stable order stream over the past several years says Lewis Leslie, Aviation Analyst at IBA. "This is due to many factors including the fixed and variable costs associated with the aircraft, availability of more efficient twin-engine aircraft, airport infrastructure investment, and over-capacity risk. The price of jet fuel has shown volatility since the aircraft's entry into service so, coupled with increasing labour and maintenance costs, the cost-per-seat-mile makes it difficult to justify operating the Airbus A380 on many airline route networks. Consequently, there has been an appetite for smaller twin-engine widebody aircraft such as the Airbus A330neo, Airbus A350, Boeing 787 and Boeing 777 families."

Overall, the total active A380 fleet stands at 232 aircraft - 218 active, 11 parked and 3 stored. Emirates operates the largest number with 109 in its current fleet - 66 aircraft owned and 43 leased. Singapore Airlines has 19 aircraft in its fleet - 16 aircraft owned and 3 leased. 47% of the global fleet are operated by Emirates, and the majority of carriers that operate the Airbus A380 (excluding Hi Fly and the proposed 'Project Amal') are full-service flag carriers.

38% of the global fleet of Airbus A380 aircraft are leased to airlines and IBA's online intelligence platform, IBA.iQ, shows that a significant number of these leases are set to expire between 2023 and 2029.

David Archer, Senior Analyst at IBA, remarks that this presents questions for lessors and airlines alike. "Do they extend the leases, redeliver and remarket the aircraft, or embark upon a part-out scenario? An aspect to consider in any remarketing situation is the high cost of transition that would be necessary in order to place it into service with an alternative carrier" he says. "Hypothetically, even going from one full-service operator to another, the differentiation in product and BFE (Buyer Furnished Equipment) offered is vast. The transition scenario and cost alone present numerous obstacles to low-cost carrier business models."

Two engine options are available for the Airbus A380 platform capable of providing 70-80,000lb thrust - the GP7000 designed by the Engine Alliance joint venture between General Electric and Pratt & Whitney and the Trent 900 designed by Rolls-Royce. So with Airbus now ending production and Emirates cancelling a substantial proportion of its order book, the future of these engines is also now in question.

IBA also stresses that it is important to consider the operational aspects of the A380. The wingspan of 80 metres and a maximum take-off weight of up to 575,000kg impact the airports that the aircraft can service. Airports must adhere to a range of safety regulations including wider runways and gate enhancements but although the costs for these stipulations can be high, a large number of international airports have complied and the necessary investment has been generally reported worthwhile.

Lewis says that those airlines with aircraft on lease also have to consider the impact on their network, scheduling, slots and overall operation, as well as appropriate replacement aircraft if they decide not to extend the lease of their Airbus A380s. "Emirates has recently ordered 40 Airbus A330-900 neo and 30 Airbus A350-900 aircraft whilst simultaneously cancelling 39 of its 53 Airbus A380 orders. Qatar Airways has indicated a willingness to retire its Airbus A380 fleet once the aircraft have reached ten years of age and replace them with Boeing 777Xs. Conversely, Willie Walsh - CEO of International Airlines Group (IAG), has indicated he would consider taking more Airbus A380s if the price was right."

Ultimately, the events in recent days will have implications on aircraft values says IBA. The ramifications will not be instantaneous and will be spread over the long-term operation of this aircraft. As the average

age of the fleet (currently 5.9 years) increases and the market supply/demand fluctuates, the aircraft value performance is expected to be unpredictable, but this is unlikely to significantly affect the value until after production finishes in 2021. "It is uncertain what the future of the value and operation of the Airbus A380 will be in the long-term. We believe that niche operations such as Hi Fly or "Project Amal" will become more prevalent, and there will be an increase in part-out operations to serve the remaining operating fleet" adds Archer.

Crucial questions remain. Will a low-cost operator ever introduce one? Will there be any aftermarket modifications made? What will the secondary market look like by 2030?

The value performance of the Airbus A380 will continue to exhibit similar trends as seen in recent years predicts IBA. A number of current carriers are committed to the Airbus A380 for the foreseeable future and will extend the leases when they reach expiry point. The termination of the production programme is likely to produce further volatility for years to come, however the value outlook for this aircraft will be largely dependent on future fleet planning decisions and external macroeconomic factors.

Contributed by IBA