Richard Aboulafia Speaks

RC20 · Post by **RC20** » 20 Oct 2007, 01:57

One of the aviation analysts predicts a 20% failure to take delivery rate. I would not be too surprised at cancellations.

Airbus and Boeing are so booked up though, it would not hurt anyone. Airbus far more than Boeing if it was the A350.

A380 can take small hits, and I don’t see the big guys canceling any of them, not with those kind of discounts.

RC20 · Post by **RC20** » 20 Oct 2007, 02:23

achace wrote:Sorry RC20, but you sound like a Boeing wet dream.

Just face reality. as I said in another topic AIRBUS WILL SURVIVE!!!!!.

cHEERS
aCHACE

Frankly I find that a bit insulting. I make no bones that I root for Boeing.

I also try to maintain a balance in my assessments. I did not make 3 huge screw ups to put the Airbus entity in the position they are in.

When Boeing screws up as they did on the 787 I say so, and I don't believe I pulled any punches.

You do seem to totally ignore the incredible (and likely insurmountable) difficulty Airbus is in. They have 3 programs in serious trouble (A380, A350 and A400M).

They have only one that is making money (A320 series).

The A330 is not be making any, as they are making a number of those as A380 compensation aircraft. (not to mention re-tool from A300/310 as well as the A330F program).

Airbus is in serious trouble. They have a one shot program that will not make money for a long time, maybe never (A350).

They have a program that will never make money (A380).

They have a program that is fixed cost that will never make money (A400M).

If the European governments try to bail them out, its another WTA case they will loose. The only way that can happen is a negotiated settlement (and there is a pending WTA case they are going to loose).

What’s not to be optimistic about? Yep, McDonald Douglas survived, it was bought out by Boeing. Of course there was Enron, where it was smoke and mirrors, and they have been broken up and sold off.

I am sure they will survive, and the certification label will say “Made in China”. (unless the Russians pay more for it).

achace · Post by **achace** » 20 Oct 2007, 03:58

Sorry RC20, it seemed amusing at the time.

I cannot agree with your assetion that the A330 is not making money.

It may have been discounted, but the A380 costs are a stand alone issue, and using the discounted A330 to defer penalty payments is a smart piece of accounting.

The only crutch in the A330 programme is that it has been used to some extent to support the A340, which everyone knows is a bit of a lame duck.

The A400M is truly a bit of a mess, but most of this is down to the engine consortium, who will have to foot the bill. It will cot Airbus, but probably not life threatening.

Cheers
Achace

smokejumper · Post by **smokejumper** » 21 Oct 2007, 02:11

achace wrote:If, as some anticipate, the sales now accelerate, then the break-even point reduces, if they can get them through the door quickly enough.

The 420 figure was established based on rate of sales at the time, so if they for instance sell another 250 over five years, the programme will be profitable, BUT, not a very commercial margin.

I believe it will end up reasonably healthy, but a few years to go.

Cheers
Achace

Breakeven point never reduces; breakeven is basically when the fixed costs (as opposed to the variable costs) are recovered.

Fixed costs are those costs that do not vary with the number of goods produced. Included in these fixed costs are the costs of facilities; the labor that is used for engineering, design and testing; administrative and marketing costs; flight tests and certification tests; documentation; spare parts inventories; support services; financing and; time-value-of-money costs; etc.

For any product, you take the total fixed costs and divide them by the number of units you plan (or hope) to produce and you arrive at the fixed cost allocaton per unit. To this number, you need to add the variable costs which include all materials, assembly and assembly-labor costs, assembly fixtures, etc. Or, you can take the fixed costs and divide them by the cost allocation per unit that you will include in the customer price and arrive at the number of units you need to produce to get to breakeven. In the A380's case, I understand the development costs alone are above $12 billion Euros; add the other costs to this and the number is higher.

In short, the fixed costs will not reduce as you produce additional units; in the A380's case, they have just keep going on and getting higher. Airbus has said the A380's breakeven point is 420 units. It will not get any lower and I suspect that it is considerably higher.

chunk · Post by **chunk** » 22 Oct 2007, 14:32

The A330 doesn't make money? Compensation sales? yes, a few are. What about all the others. provide the evidence 'cos I haven;t seen any. Good to see all the Boeing cheerleaders on the defensive though. I maintain we should change the title of the thread by adding the word 'shite' to the end of it.

David747 · Post by **David747** » 22 Oct 2007, 18:04

chunk wrote:The A330 doesn't make money? Compensation sales? yes, a few are. What about all the others. provide the evidence 'cos I haven;t seen any. Good to see all the Boeing cheerleaders on the defensive though. I maintain we should change the title of the thread by adding the word 'shite' to the end of it.

:laugh:

Some of the comments here are so ridiculous regarding the A330, I didn't even bother responding..

smokejumper · Post by **smokejumper** » 22 Oct 2007, 18:15

Unless someone knows the actual costs of the A330 and the prices being contracted, we can not say that Airbus is loosing money on sales. However, I do think it is safe to say that the company is discounting the plane more than they'd like to - BUT, they are getting sales and keeping the production lines humming.

smokejumper · Post by **smokejumper** » 22 Oct 2007, 18:49

ElcoB wrote:As you can read here International Team Facts, a large chunk of the boeing dreamliner is build outside the USA. They too will face a changing break-even point due to the lower value of the dollar: today we had a new altime low against the Euro.

In the same time oil prices rose to an altime high and predictions are the worst is yet to come.

This means all oil-dependent operations (production and exploitation) will have a higher costs but more for those paying in dollars(because of the ongoing devaluation).

A provocative prediction : both the 787 and the 380 will see cancelling of orders within three months.

We are entering a global economic slowdown and that will affect some decisions in the near term. Such periodic slowdowns generally last about 18-24 months and are followed by global business expansion. Airlines make purchase decisions with a 5-10 year horizon so I do not think they will cancel orders due to the economic slowdown.

Crude oil prices are currently in the $55-60 range; they are predicted to raise to $90-95 by year's end, however Kuwait announced today that it will increase production 500,000 barrels by November 1 in an effort to stabilize prices. Regardless of what future oil prices become, we can all agree that they are high and adversely affect airline costs (and profits). The acquisition and operation of new, more fuel effficient planes becomes all the more important to airlines. For the above mentioned reasons, I can not forsee any cancellations

chunk · Post by **chunk** » 22 Oct 2007, 21:31

Yes we are entering an economic slow down but that slow down shouldn't be as severe as in the past as though so I agree with smokejumper on this one. The US is still the most powerful economy but the impact of a downturn should be lessened globally thanks to the increased economic power of Russia, China and India to name but three. There could therefore be some cancellations but I don't see it nearly as severe for the plane manufacturers. A huge number of planes are in areas that are either oil economies (the gulf states) or the far east. Cancellations are most likely in the US and European sector in my view.

As for oil....any pro-active actions of the OPEC countries are having increasingly less effect on oil markets. It is more political issues that are affecting the oil markets and thats where the rises are coming. See the Turkish issue for last weeks rise...it is not really a demand driven rise so the 500,000 barrels from Kuwait may have little impact. Any trouble in Saudi, Nigeria, Venezuela, Iran etc. will have a far bigger impact on the oil markets than an increase in Kuwaiti production. The suspected truth regarding middle east oil reserves (ie, they are not even remotely as big as is claimed!) ever coming out will have a far bigger impact on the markets for example.