Skyfall: An A380 Story.

     In the 1970s, when Boeing awed the world of aviation with its giant, the 747, it was the beginning of a revolution in the skies. The Boeing 747, billed the ‘Jumbo Jet’ with its swollen head design, became an instant celebrity and media darling and Boeing’s order book began to fill up. Despite its massive size, high operating cost and below average fuel efficiency, airlines lapped it up as it could carry as many as double the passengers as some of the smaller aircraft in their fleets. The 747, at that time, could access only a handful of airports around the globe but more and more airports were expanding their infrastructure, even as they recognized the aircraft’s popularity with airlines from different parts of the globe. In fact, one of the many reasons behind Singapore Airlines’ popularity was the large number of 747s or ‘Megatops’ in its fleet. Over the course of the 1970s, 1980s and 1990s, oil prices began an upward trend following the Yom Kippur War and with the Cold War and the Gulf Wars on the horizon. As price wars broke out in the skies, airlines began to veer towards smaller and more fuel efficient aircraft such as the 727, 737 and the 777 from Boeing’s hangers. But even after two decades of dominance in the global skies, despite the fact that its time was slowly but surely coming, the 747 continued to fly.

     Meanwhile, over the next two decades, Airbus, Boeing’s rival across the Pond, stuck to its single – decker A300s and A320s, while launching long – haul jets such as the A330 and the A340. Though the larger jets in its offering were rivals to the 747, Airbus, as early as the 1980s, intended to launch its own behemoth, one that could take on and dethrone the 747. It was a multibillion Euro gamble that could either catapult Airbus to the numero uno position or clip the aviation giant’s wings. In a project that took over two decades to fructify, delayed by the market downturns following the Gulf Wars, the East Asian Financial Crisis, the Dotcom Bubble, 9/11 and several budget overruns, the A3XX finally took shape even as Airbus began touting its ambitious project to airlines across the globe, in the hope of garnering sales and filling up its order books. 

     Airbus followed a dual strategy of marketing its new superjumbo to the aviation world. On one hand, the A380 was billed as the most luxurious aircraft that could take to the skies, with ample room for a 3 – class cabin configuration, as well as frills such as suites, showers, bars and casinos onboard. On the other hand, Airbus also pitched its A380 as a behemoth that could carry over 800 passengers in an all – economy configuration, which seemed perfect to consolidate two or more flights into one and serve high density and high frequency routes such as those in Japan. To Airbus’ credit, it managed to secure both firm orders and options from several leading airlines globally, even before the first A380 was built.

     The development of the A380 saw several hitches, from design flaws to cost overruns to technological snags to over a decade of delays, pushing its breakeven point up several hundreds of billions of Euros and back several years. The aircraft was finally unveiled by Airbus in 2005 at its Toulouse headquarters and the whole world tuned in when it took to the skies for its maiden flight. By then, several airlines such as the likes of Singapore Airlines, Emirates, Etihad, Qatar Airways, British Airways, Air France, Lufthansa, Malaysia Airlines, Asiana Airlines, Qantas and Thai had bought in to the A380 story and unveiled ambitious plans on how their A380s would look from the inside and the routes that they would be deployed on. The aviation world too fell for the giant, with many declaring that the A380 would dot airports and fleets around the world. Airbus too was optimistic on the projected success of its A380 project, even as its plants across Europe and component suppliers around the world began cranking in unison to get their A380s off their order books and into the skies. 

     In 2007, amid much fanfare, Singapore Airlines received its first superjumbo and became the first airline to fly the A380, from Singapore to Sydney. And while it may have been the first, it certainly wasn’t the A380’s biggest customer. That distinction went to Emirates, which had placed a massive order for over 70 jets. While other customers for the A380 had orders that were dwarfed in comparison, it was apparent at that point to Airbus that the success of its A380 rode almost entirely on Emirates. While 2007 was a fantastic year for most airlines around the globe, Airbus though had chosen a terrible time to begin rolling out its A380s from its plants. Its A380 gamble had already arrived a decade late and soon, it was about to fly into some serious headwinds.

     In late 2007, oil prices began a massive rally and more than tripled from $47 to $147 per barrel. For most airlines around the world, oil constituted and constitutes anywhere between 15% to 40% of their cost structures and most were blindsided by the sudden surge in oil. The A380, being quadruple – engined, wasn’t exactly the most fuel – efficient airliner in the skies and most airlines, with their deliveries scheduled over the following three to five years, began rethinking their plans. If oil wasn’t a headache and a cash drainer in itself, the economic recession that set in towards the end of 2008 hit both Airbus and its customers where it hurt. With air travel on the slump, the A380’s customers who had committed to several billions of dollars’ worth of orders began deferring their A380s and turned their focus towards keeping their operations in the black and conserving cash. With the aviation world in financial turmoil, most airlines began to worry about filling their planes and surviving to fly another day. Inducting a fleet of superjumbos was the least of their priorities.

     Airbus too, despite being funded by its Eurozone member nations’ governments, began to hit several air pockets. With several airlines around the world filing for bankruptcy and others putting their new aircraft on hold, it had a large number of cancellations for all its aircraft – the A320, the A330, the A340 and even a few A380s. If that wasn’t worse, several of its suppliers ran into financial trouble and it had to slow down aircraft production, announcing delays in deliveries. Some airlines though made hay while the sun shone and began claiming compensation from Airbus for their delayed deliveries, even though they knew perfectly well that they were in no position to induct their ordered aircraft anytime soon. And while Airbus had to pay up millions of Euros’ worth of penalties, even as the airline industry continued its downward trajectory, some opportunistic airline managements had pulled a fast one on Airbus and were dancing behind closed doors.

     With 2009 and 2010 seeing some revival for the airline industry, Airbus began witnessing orders trickling in for its A320s and A330s, which most airlines deployed for their short – haul and long – haul routes respectively. The A380 though, with its steep price tag of nearly $400mn and over 500 seats to fill, coupled with its high operating cost and below average fuel efficiency didn’t share the same luck as its smaller siblings. Air France and Malaysia Airlines deferred their orders even further while Virgin Atlantic began rethinking its order. Both UPS and FedEx cancelled their orders for the freighter version of the A380. By then, Airbus had only secured around 200 orders for the A380 and its breakeven was a long and turbulent flight away.

     In 2011, Airbus took another hit when the Eurozone crisis spiralled out of control. With the Euro depreciating against the US Dollar and Airbus having to pay most of its suppliers in Dollar terms, its A380 breakeven point flew even further away. While the Euro depreciating may have been a positive from its revenue standpoint, the only dampener was that most airlines had paid an advance much earlier while booking their A380s and were required to pay the remaining amount only upon taking delivery of their aircraft. Most of Airbus’ customers were still deferring deliveries or cancelling them. Raising the A380’s price tag was not an option for Airbus, with its order pipeline looking bleak at best. If the skies weren’t turbulent enough, they were about to get a lot worse and this time, Airbus' arch rival was about to take the wind out from under its wings.

     It can be argued that the A380 was one of the main reasons for the downfall of the Boeing 747. Boeing, however, was not about to sit the battle out and watch from the ground. With the A380 faltering, Boeing began to aggressively push its 777, a dual – engined long – haul jet that was already a workhorse of several airline fleets. If that wasn’t enough, its newest bird, the 787 Dreamliner, with its carbon – fibre body and supreme fuel efficiency soon began to pull in orders for the American aerospace giant. Even as far as Airbus was concerned, most airlines opted for the A330 and the A320 from its stables, while turning their noses up at the quadrupled – engined and cost – inefficient A340 and A380. In a way, Airbus too committed hara – kiri by launching its A350 as a competitor to the 777 and the 787. While Airbus did need a new aircraft on its catalogue to replace its struggling A340, it is apparent that several airlines saw it as an alternate to the A380 as well and soon enough, the A350’s order book had outstripped that of its bigger brother by a wide margin. With most airlines still focused on keeping their costs low, the 777 and the 787 from Boeing’s hangers and the A330 and the A350 from Airbus seemed to be cheaper and more fuel – efficient alternatives to the pricey, fuel – guzzling and oversized A380. 

     Over the next few years, Airbus failed to secure any sizeable orders for its superjumbo, barring Emirates’ gargantuan order for 70 more aircraft. Several orders and options from carriers such as Air Austral, UPS and FedEx were cancelled, while Skymark, Kingfisher Airlines and Transaero filed for bankruptcy. With the A380F Freighter version staring at a blank order book, Airbus pulled the plug on it and began to focus on the passenger version. Deliveries began to trickle through to most airlines but new orders were not forthcoming. Qantas and Etihad inducted some of their A380s and then declared that they had had their fill. The sole order for the A380 as a private jet for the Saudi royal family’s billionaire prince and head of the Kingdom Holding Corporation, Al Waleed Bin Talal, was cancelled. In retrospect, that was probably a wise move on the part of the Saudi royal family, given the subsequent crash in oil prices and Saudi Arabia embracing a path of cutbacks and austerity. Having a prince of the royal family splurge $400mn on a king – sized toy would have surely triggered a sequel to the Arab Spring. In late 2015 and early 2016, Airbus managed to secure sizeable orders of 3 aircraft from All Nippon Airlines, 20 jets from leasing giant Amedeo and 12 aircraft from Iran Air. However, all these orders came in at the time of a falling oil price regime, with oil having been under $40 per barrel. In fact, ANA's and Iran Air’s orders came at a time when oil was under $30 a barrel. Now, with oil nearing $50 and likely to head higher, airlines don’t seem to be too optimistic on the A380’s prospects. Sure enough, ever since early 2016, when oil hit a low of around $26 per barrel and began its climb, not a single A380 order has been signed by Airbus.

     As far as the A380 goes, Emirates has been by far the biggest runaway success. With over 80 aircraft in its fleet and close to 70 more on their way, the airline has carved out a success story where almost every other airline has failed. Despite its list price of over $400mn, carriers such as Emirates, Singapore Airlines and Air France secured huge discounts on their bulk orders, even to the tune of around 40%. Emirates’ success stems from its ability to pull transit passenger traffic out of Europe and redirect the same via its home base in Dubai by offering flyers a superior quality of service at a lower fare, which has rankled most American and European airlines. The A380 has only helped Emirates in increasing passenger traffic via Dubai. While the aircraft does enjoy a cult status of sorts, Emirates has consolidated its erstwhile multiple flights into fewer A380 flights, thus streamlining its operations and cutting its costs, while managing to drive passenger traffic. And while most airlines complain about the A380’s massive size and excess capacity, Emirates, to its credit, does manage to fill its A380s beyond the 80% load factor on most of its flights. While the Middle – East giant follows a unique strategy of having a wide bodied fleet comprising solely of Airbus A380s and Boeing 777s, its rising profitability does seem to suggest that its multibillion Dirham gamble on the A380 has paid off. That is, of course, if you choose to ignore the allegations that Emirates enjoys lower ground handling and airport charges at its dedicated Terminal 3 and more importantly, receives subsidized fuel at its base at Dubai International Airport, a privilege that its western counterparts do not enjoy and a hornet’s nest that continues to be stirred up by American Airlines, Delta and British Airways when it comes to competition concerns in the international skies. 

     One of the major drawbacks of the A380 is that several airports in the world still haven’t upgraded their infrastructure to handle and service it. Most airports, however, can easily cater to a 777 or a 787. This has limited the A380 to airlines that have strong passenger traffic to these hubs. Boeing still banks on most airlines flying point to point, while the A380 is a gamble on a hub to hub strategy and up until now, the former seems to be winning. Of course, Airbus still contends that with airport congestion around the world only worsening, airlines will have to place orders for larger and larger aircraft and eventually upgrade to the A380. However, going by the A380’s current position of distress and with the 777’s and 787’s order books brimming, that scenario seems well and truly in the distant future.

     Airbus declared in 2015 that its A380 project, which churned out 18 aircraft in that calendar year, had made its maiden profit. However, it soon announced in 2015 that a stagnant order book and production delays would force it to reduce production to one aircraft per month. It goes without saying that the A380 project would fly back into the red in 2017, even as new orders don’t seem to be anywhere on the horizon. Recent developments too don’t seem to bode well for the A380. Singapore Airlines has decided not to renew the lease on its first A380 and Malaysia Airlines is already seeking buyers for some of its A380s. So where does the A380 fly from here? Well, there are rumours of the A380 project being eventually wound down and dismantled, even as its breakeven sale point of close to 430 aircraft is over a hundred aircraft away for now.

     

     Airbus though continues to negotiate with carriers such as Hawaiian Airlines and some East Asian carriers for potential orders. Oddly, not a single American carrier has signed on for an A380, which is something that Airbus has been desperately trying to change. However, with West Asia still being a growth hotspot and an expanding transit hub, new A380 orders could emanate from the Middle East. Some airlines are also considering the viability of deploying the A380 on routes to Saudi Arabia for Muslim pilgrims on their Hajj. Emirates, which has already turned Dubai into A380 Central, has indicated that it would sign a jaw – dropping order for more jets, if Airbus introduces a more fuel efficient version of the A380. Needless to say, the Emirati airline seems to be the A380’s constant and saving grace, be it past, present or future. Following the lifting of sanctions on Iran by the West, Iran Air recently announced plans to replace its decades - old ageing and rickety fleet with over 100 new Airbus aircaft, including 12 superjumbos. It has already indicated ordering more aircraft in future, while Saudi, Turkish Airlines and Gulf Air are other potential A380 customers.

     With the A380 still being a financially unviable project from Airbus’ standpoint and with the freighter version already in the aircraft junkyard, it remains to be seen whether Airbus would bow to the demands of its customers and greenlight the development of a more fuel efficient version. The A380neo or ‘New Engine Option’ is expected to further impact the project’s breakeven. Moreover, if and when the A380neo does roll out of Airbus' hangers, it is only expected to take to the skies sometime between 2020 and 2025. If the worst does indeed happen and the A380 does suffer the same fate as its American rival, the Boeing 747, it would truly be the end of an era and the descent of a global icon, as far as the world of aviation goes. There’s an old saying that what goes up must eventually come down. In the case of the Airbus A380, while it did soar into the blue in its heyday, its long and turbulent flight may just end with a fall from the skies and a hard crash landing.