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Analysis: The Dubai Air Show Wraps-up – Numbers and Prospects

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Analysis: The Dubai Air Show Wraps-up – Numbers and Prospects

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Analysis: The Dubai Air Show Wraps-up – Numbers and Prospects
November 19
15:37 2017

DUBAI — The 2017 Dubai Air Show is in the books, and despite the tens of billions of dollars of purchase activity, the biggest story from the show may well be a purchase that didn’t happen.

In years to come, we may well look back at Dubai 2017 as the moment the Airbus A380 program truly became ‘a dead man walking’ after Emirates declined to order the superjumbo without a massive, 10-year production commitment from Airbus.

Beyond that, Airbus and Boeing each received more than $40 billion of orders and commitments, and even secondary manufacturers like Bombardier and Sukhoi found success in Dubai, which is not necessarily a common occurrence.

*Note: We only present new orders, not confirmations of previous orders.

Airbus – The A380 is dead


  • Wataniya Airways – 25 x A320neo (LoI)
  • Indigo Partners – 274x A320neo, 156 A321neo (MoU)
  • Frontier – 100x A320neo, 34x A321neo
  • JetSMART – 56x A320neo, 14x A321neo
  • Volaris – 46x A320neo, 34x A321neo
  • Wizz Air – 72x A320neo, 74x A321neo
  • Air Senegal – 2x A330neo
  • TOTAL: 457 commitments (455x A320neo family, 2x A330neo family)

The big win for Airbus at the show was, of course, the massive order from Indigo Partners, which owns stakes in low cost (LCCs) and ultra-low-cost carriers (ULCCs) around the world.

In one fell swoop, Airbus won commitments equivalent to ~8% of the outstanding Airbus A320neo family firm orders. The orders themselves are varied, ranging in quality from no-brainers (Wizz Air) to entirely up in the air (JetSMART).

We view roughly 75-125 of the total order book as having some risk, particularly with JetSMART. South America simply is not a hospitable market for ULCCs given its present structure. And Frontier Airlines has been moderately successful in its transition to become a ULCC, but its network has gone through massive upheaval.

 

It is unclear as to whether Frontier can grow to 3x its current size which is what this order would require. At the same time, there is upside from Volaris and Wizz Air, who could easily need 50 more aircraft apiece than were acquired in this order.

All in all, it was a great closing for outgoing Airbus salesman John Leahy, who closed yet another blockbuster deal.

But the bigger news surrounded the A380. Airbus had been counting on an order for ~40 A380 superjumbos from the Dubai-based airline to boost flagging sales of its flagship plane but talks reportedly stalled over a requirement from the Dubai government that the A380 maintain production for ten additional years.

At the planned 2019 production rate of eight aircraft per year, the backlog required to meet that criteria is reasonably manageable, at 84 frames.

As of September 30, 2017, the A380 had a backlog of 101 frames, which would more than exceed the required number, especially after adding in the 40 or so that Emirates would have ordered.

Unfortunately for Airbus, the math isn’t quite that simple. Of those 101 orders, 13 of them come from orders that have effectively been canceled (three from Transaero and ten from Hong Kong Airlines).

Lessor Amedeo has been struggling mightily to find a buyer for its 20 ordered frames, though Japanese carrier ANA could be a home for a few additional frames if its initial test with three A380s inherited from Skymark goes well.

Industry observers have long considered the eight remaining frames in order at Qantas and the six on order at Virgin Atlantic to be deadweight as well, an assessment that we echo.

So after pulling out those 47 frames, you’re left with a “true” order book closer to 54 jets (+/- 10). Still adding 40 orders in from Emirates gets you to ~95 frames, which would theoretically be enough if Airbus could profitably run the A380 production line at eight frames per year.

But it can’t. Our intelligence suggests that Airbus hasn’t even been able to break even at 2018’s production rate of 12 (pegging the true breakeven closer to 13-14 frames per year).

Even if they could get to breakeven at 12 frames per year, that would still require Airbus to sell an additional 30 A380 jets.

Airbus hasn’t won a net new order for the A380 since Amedeo ordered 25 back in 2014 and as entry into service (EIS) approaches for the Boeing 777X and Airbus A350-1000, the attractiveness of the A380 only further diminishes.

Boeing validated by Emirates


  • Emirates – 40x 787-10
  • Azerbaijan Airlines – 5x 787-8s
  • Ethiopian Airlines – 2x 777F
  • flydubai – 175x + 50x options 737 MAX family
  • SCAT Airlines – 5x 737 MAX 8
  • TOTAL – 227 (180x 737 MAX family, 2x 777 family, 45x 787 family)

Boeing meanwhile won approximately 227 more firm orders than Airbus did at the show, largely winning a ton of validation from Emirates, who directly bought 40 Boeing 787-10 jets and indirectly (through flydubai) committed to the 737 MAX. At the same time, it may have dealt a death blow to rival Airbus’ A380 superjumbo as noted above.

The 787 makes a ton of sense in Emirates’ network, as it has long missed out because it didn’t have an effective medium haul plane.

 

We eventually expect Emirates to buy the Boeing 787-9 as well, and the carrier could eventually grow its 787 sub-fleet to 150-200 frames.

The 737 MAX order for flydubai is also a major step, as it represents a massive bet on regional economic growth in the Middle East, Eastern Europe, North Africa, and South Asia (the major population centers within 737 MAX range from Dubai.

In particular, Emirates will need better bilateral rights access to India to truly be able to sustain an order of this size.

Bombardier – Airbus partnership is already paying dividends


  • EgyptAir – 12x CS300 + 12x (options) (LOI)

For Bombardier, the order by EgyptAir is an almost immediate validation of the decision to tie up with Airbus.

EgyptAir is exactly the kind of customer that had been choosing Airbus or Boeing before that is now willing to commit to Bombardier. In fact, EgyptAir also placed an order for A320neo family jets, which validates the notion of a CS300, A320neo, A321neo combination for carriers.

As a result, we expect to see accelerated business from Bombardier at air shows moving forward.

 

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Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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