The debate about the A380 rages on
Singapore Airlines will not extend lease on first A380
The A380 programme has taken another blow with the news that Singapore Airlines (SIA) – the aircraft’s first buyer and currently its second largest customer - will not renew the lease for its first A380. My 19 July blog ‘The end of the road for the A380’ highlighted that the future of the aircraft looks uncertain, with one of the issues being the unknown shape of the market for second hand A380s. The end of this first lease marks a new chapter for the aircraft and so far the outlook does not look that positive.
Singapore Airlines’ first five A380s, delivered in 2007 – 2008, are on ten-year leases. The decision not to keep the first has just been made and the future for the others should be decided by April 2017. The A380 in question was the first one ever delivered to an airline and it will be returned to its owner, German investment fund Dr Peters Group, in October 2017.
Opinion is divided over what this means for the A380 programme as a whole. SIA’s airlines decision may well be based on some very specific factors and may not set a trend. Early model aircraft are significantly less mature than those built later on in production. They are notoriously high maintenance and more unpredictable. Therefore it is fair to assume that this first A380 SIA has chosen to get rid of is the most unattractive aircraft in the fleet. Notably the airline has another five A380s on order that are due for delivery from September 2017, so it clearly believes in the programme and may just want a more modern and reliable fleet.
The other side of the argument though is that if other airlines follow suit in not renewing leases then there will be a glut of second A380s which will have limited value because only a small number of airlines who fly routes which are viable for such a large aircraft. Qantas, the fourth largest A380 customer, currently has twelve aircraft in service which are on twelve year leases, the first of which is due to end in 2020. However, Airbus has always said it is confident in the second hand market believing that the aircraft will be leased or acquired at attractive rates. Interestingly IAG CEO Willie Walsh has previously said British Airways would be “interested in leasing second-hand A380s” (Jan 2016). The lower initial capital cost of second hand aircraft could also make the aircraft’s economics more attractive to operators currently put off by the huge capital cost of new A380s, meaning that we see new airlines operating the aircraft on new routes.
The outcome of this debate won’t really be known until the next decade when more and more A380s come to the end of their first lease. However, in the mean time we will be watching SIA’s decision about its other four aircraft which come to the end of their leases in 2017 and 2018. If they too are not renewed then it will be interesting to see which airline ends up flying them.
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