Thai Wants to Cancel A380 Orders-Airbus Says No, Says A380 to Costly and Cant Fill Up Rating Options

[rhapsody]

Thai Air Asks Airbus to Delay A380 Delivery

Dow Jones

BANGKOK -(Dow Jones)- Thai Airways International PCL (THAI.TH) Thursday said it has asked Airbus to delay the delivery of six A380 aircraft or allow a change to other models after Airbus rebuffed its efforts to cancel the order.

The airline has sought to revise its order after finding that the super jumbo jets are too costly and may be hard to fill sufficiently to return a profit at a time when it is burdened with liquidity constraints.

In a proposal sent to Airbus, the national carrier sought to change to other models such as the A350-1000, with delivery expected to start in 2018, or to delay delivery of the first A380 to late 2012 from 2011, Executive Chairman Wallop Bhukkanasut told reporters.

"Thai Airways should get a positive response as Airbus itself is also facing its own problems," said Wallop.

"In 2012, the global economic conditions should be in much better shape, so will traffic volume. By then, Thai Airways' cash flow problem should have been resolved."

The company's board will in September consider its 10-year strategic plan, which will include details of its plane procurement program. The airline needs to find new planes to replace eight aircraft, which are due to be retired within the next two years after 20 years of service, said Wallop.

Among the models being considered for the new order include the Boeing 737-800, Boeing 737-900, and Airbus A321-200.

The airline has been suffering tight liquidity as its operations have been severely affected by the global economic slowdown and recent domestic political upheaval.

-By Bangkok Bureau, Dow Jones Newswires; 662-266-0744; djnews.bangkok@dowjones.com

(END) Dow Jones Newswires

07-09-09 0640ET

Copyright © 2009 Dow Jones & Company, Inc.

[Aurora]

Thai tried to cancel the Whalejet? First time I've actually seen this in print. I wonder if EADS will let them do the deal to convert to A350s? Probably some hefty deposits at stake here.

[ConcordeBoy]

Probably some hefty deposits at stake here.

...nothing a lil' cocktail sauce couldn't fix.

[rhapsody]

You would think some EU taxpayers would be looking at the A380 costs they funded that will never be repaid and looking at the large A350 bill they are now being asked to pay and going No Dammed Way in these economic times. The idea that these EU government costs will be repaid are about as real as Chrysler/GM loans ever being repaid.

[robertkc]

You would think some EU taxpayers would be looking at the A380 costs they funded that will never be repaid and looking at the large A350 bill they are now being asked to pay and going No Dammed Way in these economic times.

Not really. I pay huge taxes every year and live in the EU, and believe me, there are a million other things that my taxes go towards that are a bigger waste of money than Airbus.

This concept that everything on earth has to acheive an "ROI" is just utter bullsh!t. You've fallen in love with capitalism way too much my friend... Besides, do you think NASA achieves a quantifiable ROI?

The idea that these EU government costs will be repaid are about as real as Chrysler/GM loans ever being repaid.

So what. If you want to keep GM/Chrysler going for some longer term reason, then good luck to you.

As for Thai Airlines,

I'm sure that they'll find a way to deal with Airbus...

[Bill Clark]

You would think some EU taxpayers would be looking at the A380 costs they funded that will never be repaid and looking at the large A350 bill they are now being asked to pay and going No Dammed Way in these economic times.

Not really. I pay huge taxes every year and live in the EU, and believe me, there are a million other things that my taxes go towards that are a bigger waste of money than Airbus.

This concept that everything on earth has to acheive an "ROI" is just utter bullsh!t. You've fallen in love with capitalism way too much my friend... Besides, do you think NASA achieves a quantifiable ROI?

The idea that these EU government costs will be repaid are about as real as Chrysler/GM loans ever being repaid.

So what. If you want to keep GM/Chrysler going for some longer term reason, then good luck to you.

As for Thai Airlines,

I'm sure that they'll find a way to deal with Airbus...



Your reasoning is the ticket to the poor house.

GM & Chrysler are huge cluster f$cks that Obama will wish he never heard of.

If it has no ROI, it should not be made.

[Jacobin777]

TG has been hinting The Big Beast would be too much plane for them. The A350-1000 would be the best plane for them...

[Stitch]

TG has been hinting The Big Beast would be too much plane for them. The A350-1000 would be the best plane for them...

Actually the 737-700ER might be the best plane for them, so they can finally charge a fare that covers the cost of providing the service.

The only other option would be a ~750 seat A380-1000 with a CASM so low that even with TG's loss-leader fares they could still somehow eke out a profit.

[DfwRevolution]

You would think some EU taxpayers would be looking at the A380 costs they funded that will never be repaid and looking at the large A350 bill they are now being asked to pay and going No Dammed Way in these economic times.

This concept that everything on earth has to acheive an "ROI" is just utter bullsh!t. You've fallen in love with capitalism way too much my friend... Besides, do you think NASA achieves a quantifiable ROI?

Sure, there are such things in life. But there is nothing in the world of commerce that should be exempt from providing a ROI, and that is the world in which Airbus lives. You're comparison to NASA is desperate because NASA is not a business.

I think you've fallen in love with socialism if you think it's acceptable that a manufacturing firm can't sell its goods for profit.

[ConcordeBoy]

Besides, do you think NASA achieves a quantifiable ROI?

What manner of ridiculous/fallacious comparison is that?!

NASA is a government (read that: "public") research foundation which doesn't even pretend like it isn't holistically supported by government coffers, or as we like to call them: taxes.

Despite being a subsidiary of EADS, Airbus is still a Societe par Actions Simplifiee organization-- essentially an LLC. The primary function of such incorporation is the creation of an entity independent of its shareholders which in turn provides a return on those shareholders' investments. Or if you'd like to shorten that: just say R.O.I.

...where were you during Econ101 again, asleep?

[Stitch]

Well Airbus has forced TG to take their A380s, so there will be no cancellation. TG is now seeking deferrals until 2013 as a consequence to allow traffic to recover to a point they won't lose money operating the model.

Airbus refused to allow TG to switch their order to the A350-1000XWB and if TG canceled, they would lose $700 million in pre-payments for airframes ($300 million) and contracts already issued ($400 million).

Bangkok Post Article

[DfwRevolution]

Well Airbus has forced TG to take their A380s, so there will be no cancellation. TG is now seeking deferrals until 2013 as a consequence to allow traffic to recover to a point they won't lose money operating the model.

Airbus refused to allow TG to switch their order to the A350-1000XWB and if TG canceled, they would lose $700 million in pre-payments for airframes ($300 million) and contracts already issued ($400 million).

Bangkok Post Article

I wonder if we will see TG try to sell them to an existing or prospective A380 customer before or soon after delivery...

[Aurora]

Good for Airbus on this one. They drove a hard bargain and are forcing the customer to live up to the contract. That said, Thai has been a loyal Airbus customer going back to the A300. I guess it's "what-have-you-done-for-me-lately"?

[BOEING777]

TG's saving grace will be Airbus itself.

Expect the A380 rate to be adjusted very quickly next year to around ~18, thanks to BA becoming the eigthth customer to defer deliveries and scupper Airbus' plans to increase production.

TG may not be able to get out of its contract, but to suggest this deferral means they'll get their first (unwanted) A380 in 2012 is a hollow promise by any measure.

[Jacobin777]

The bottom line is again, this plane is proving to be too big and too inflexible for many carriers.

How many carriers have either deferred or canceled?

Lets see what IT and KF do as well.

[robertkc]

I think you've fallen in love with socialism if you think it's acceptable that a manufacturing firm can't sell its goods for profit.

I certainly haven't even come close to liking socialism! However, unbridled capitalism is just as bad.

Interesting question/issue though: Aircraft manufacturers, according to some on this forum when it suits their own arguments, should be accountable to some form of ROI (despite the fact that none of us on here have no clue how it's calculated nor will we ever know whether a certain hurdle level has been met or not - but that's not my point). These aircraft are being produced for the sake of commercial airlines, and there are not more than a small handfull around the entire globe who even close to earning a profit margin over the long term that equals their cost of capital.

So why should the suppliers have to reach a certain ROI when their customers (airlines) never do?

Discuss... (perhaps this should be in another thread!)

This post has been edited by robertkc: Jul 13 2009, 11:45 PM

[knowhar]

So why should the suppliers have to reach a certain ROI when their customers (airlines) never do?

To make a profit on their investment maybe?

[Jacobin777]

So why should the suppliers have to reach a certain ROI when their customers (airlines) never do?

To make a profit on their investment maybe?

..exactly!


http://www.marketwatch.com/investing/stock...amp;view=detail

http://uk.finance.yahoo.com/echarts?s=EAD....ource=undefined

[LGB787]

Trading Markets

THAI stuck with A380s: Cancellation penalties could reach $700m

Jul 11, 2009 (Bangkok Post - McClatchy-Tribune Information Services via COMTEX) -- Thai Airways International (THAI) has no other options but to keep its order for six Airbus 380 megajets it wanted to cancel, as doing so would lead to huge adverse consequences.
"The best option available for us is to delay taking delivery of those A380s," Wallop Bhukkanasut, the chairman of THAI's executive board, said last night.

The flag carrier had earlier sought to terminate the A380 contract or change to another future Airbus model, the A350-1000, as it had come to believe the world's largest commercial aircraft would not be economical to operate.

In the recent negotiations with the European planemaker, Airbus has ruled out those changes and THAI itself has come to realise that the cancellation will result in a legal battle that would have a significant impact on THAI and the image of the country as a whole, something the airline wants to avoid, according to Mr Wallop.

The cancellation would expose the airline to US$700 million in penalty costs -- $300 million in pre-payment for airframes and $400 million for contracts already committed.

"Several contracts involved in the A380s are restricted with absolutely no room for change," Mr Wallop told reporters after the airline's board meeting.

THAI is now proposing that the delivery of its first three A380s, each costing $300 million, be put off to 2012 and the remaining three in 2013.

The airline has been contracted to take delivery of the jets in two lots, in October 2010 and June 2011.

"In 2012, global economic conditions should be in much better shape, and so will traffic volume. By then, THAI's cash flow problem should have been resolved and the economic environment improved," he said.

THAI will continue to negotiate with Airbus on details of the new proposal but it wants the company to cap the cost escalation in order to minimise the financial impact, he added. The airline will also reconsider how the aircraft could be deployed, he noted.

THAI had earlier planned to fly the A380s on its long-haul routes, such as Bangkok to London, Paris and Frankfurt.

Airbus has scaled back production of the A380 this year as customers resist taking large planes because of the global travel slump.

THAI is seeking to cut costs after posting a net loss of 21.3 billion baht, its first in its history, in 2008. It earned 7.8 billion in profit in the first quarter this year, mainly on currency gains.

Mr Wallop acknowledged that the chance of getting the A350-1000 early in the event of a change from the A380 was slim as there was a huge order backlog for the aircraft, for which deliveries are not expected until 2018.

THAI shares closed yesterday on the Stock Exchange of Thailand at 13.20 baht, down 90 satang, in trade worth 77.88 million baht.

[robertkc]

To make a profit on their investment maybe?

It was a holistic question, smart arse.

Why is the onus on the customers of aircraft manufacturers, airlines, almost non existent? Why is there a seeming double standard? As societies, governments and tax payers around the world, we're supporting loss making airlines in their hundreds (if not thousands) through various direct and covert means... thereby implying that it's 'OK' to subsidise air travel. Why does this not move further back through the supply chain? Seems a bit hypocritical to me.

That said, my personal view is that airlines should be forced to earn a return equal to or above their cost of capital, and if they don't, should be closed down and 'outsourced' to the LCCs and other business models that have emerged that actually do come close or exceed their cost of capital.

[knowhar]

To make a profit on their investment maybe?

It was a holistic question, smart arse.

Why is the onus on the customers of aircraft manufacturers, airlines, almost non existent? Why is there a seeming double standard? As societies, governments and tax payers around the world, we're supporting loss making airlines in their hundreds (if not thousands) through various direct and covert means... thereby implying that it's 'OK' to subsidise air travel. Why does this not move further back through the supply chain? Seems a bit hypocritical to me.

That said, my personal view is that airlines should be forced to earn a return equal to or above their cost of capital, and if they don't, should be closed down and 'outsourced' to the LCCs and other business models that have emerged that actually do come close or exceed their cost of capital.

I apoligize for not reading carefully enough. My background is from manufacting and I am maybe too sensitive to criticism of that sector.

Your "personal view" shows that you have a basic understanding of capitalism. On the other hand, I have no understanding of the concept of socialism, even though I pay my union dues biweekly.

This post has been edited by knowhar: Jul 14 2009, 02:30 AM

[kimshep]

That said, my personal view is that airlines should be forced to earn a return equal to or above their cost of capital, and if they don't, should be closed down and 'outsourced' to the LCCs and other business models that have emerged that actually do come close or exceed their cost of capital.

Ouch !! That would leave maybe 5 or 6 carriers standing. Could the world aviation marrket stand that many 'outsourced' airlines sold off to/as LCC's ? Somehow, I think not.

However, in principle, I agree that the industry needs to push it's members to approach a more stable and realistic ROI level.

BA is a perfect case in point. 2 years ago it was on a management push to achieve a return of 10% .. and damned near achieved it. But fluctuating economic conditions would seem to indicate that it will be extremely lucky to achieve a third of that, this year.

[LGB787]

Source

Thai Air Delays A380 Deliveries To Dec 2012
July 23, 2009Thai Airways said Thursday it had negotiated with Airbus to delay the delivery of six A380 superjumbos to December 2012 from late 2010 to reflect weak airline business.

"We want to postpone the delivery as far as possible to reflect the current market conditions," Chairman Ampon Kittiampon told reporters after its board meeting.

"We have agreed with Airbus for the delay," he said adding the first A380 would replace a Boeing 747, which would be decommissioned in 2012.

The airline, majority owned by the state, is among several in Asia struggling to cope with reduced air travel because of the economic crisis and the latest flu outbreak. It was also hit by political instability in Thailand that cut tourist numbers.

The airline has also ordered eight A330 aircraft, six of them to be delivered this year, and the delivery of the six was on schedule, Ampon said.

The percentage of seats sold in the first half was below its target of 70 percent, and Thai Airways planned to boost the number to at least 72 percent in the second half, he said.

The airline is in the process of restructuring after reporting a record net loss for the fourth quarter of 2008. But it reported a net profit of THB7.87 billion baht (USD$232 million) in the first quarter, boosted by a foreign exchange gain and lower costs.

(Reuters)

[BOEING777]

Airbus' shoddy production rates for the A380 will change next year anyway (and for 2011) so TG's delivery date will probably slip beyond Dec 2012 anyway.

Still, a shame that TG cant cancel/swap the order

[Aurora]

http://www.aviationweek.com/aw/blogs/comme...mentId=blogDest

A380: The Thais that Bind Airbus
Posted by Robert Wall at 7/24/2009 3:00 AM CDT
One of the main objectives for Airbus in setting annual production targets, even in the current crisis, has been to ensure rates go up, even if slowly, to sustain some sort of learning curve in building the airplane. That’s key for the aircraft maker. Although Airbus has stopped talking about A380 profitability, every time it has to scale back plans it delays getting to efficient production levels, effectively deferring when the aircraft will make money. As it is, the break even point likely is at least another decade away.


Now that Thai Airways has gotten Airbus’s okay to delay first A380 deliveries from 2010 to late 2012, as the airlines chairman Ampon Kittiampon confirmed to reporters yesterday, it looks increasingly difficult for Airbus to pull off a meaningful increase in deliveries in 2010 form the 18 planned this year. That will be another hit to the financial viability of the program.

[kimshep]

However, with TG's current (let alone somewhat abysmal historic forecasting) record, my bet is that in three years time - when things have primarily recovered and growth once again becomes endemic to the economy and in particular, airlines .. that TG will be screaming to advance the delivery of these frames, in order to keep pace with the other 'Kangaroo' route carriers.

Said it before .. and will say it again. Having a military Government dictate the motions of a commercial carrier is no recipe for a stable - or profitable - efficient environment.

[BeauNG]

I wonder why Thai can't get out from under this order given the delays to the original delivery schedule?

It appears that Airbus simply can't allow Thai to cancel for fear of setting off an avalanche of cancellations.

[kimshep]

Perhaps, because like many of their airline compatriots who have ordered the A380-800, they've already been paid generous "delivery delay" compensation payments ??

Lets face it : the current economic downturn is globally patchy and has virtually every airline 'edgy' about recovery, potential loads, capacity, expansion, costs and fleet acquistion plans .. that looked assured 12-15 months ago.

Even the staid and profitable carriers are seeking to adjust their forecasts .. and their purchasing programs. If you were Airbus / Boeing / Bombardier or Embraer (let alone Sukhoi etc), wouldn't you wish to protect your orders and market position ?

Hard times are not coming, for the manufacturers. They're already here. But few seem to believe that.

[Stitch]

I wonder why Thai can't get out from under this order given the delays to the original delivery schedule?

They've most likely signed new delivery contracts (with or without compensation) and Airbus is holding them to those contracts because their position is far stronger than TG's at the moment (if TG walks, Airbus makes $700 million. If TG stays and eventually accepts delivery, they make many more times that).

[BeauNG]

They've most likely signed new delivery contracts (with or without compensation) and Airbus is holding them to those contracts because their position is far stronger than TG's at the moment (if TG walks, Airbus makes $700 million. If TG stays and eventually accepts delivery, they make many more times that).

Well TG management is not very bright, IMHO. First they order a jet that's too big for them to operate profitably. Then when presented with a opportunity to walk away from the contract, they accept compensation instead. That compensation should have included a clause to allow them to substitute other Airbus planes (A350) for the A380.

[Stitch]

Not sure it's a case of TG's management not being "bright".

As has been explained to me, TG exists to shovel tourists into Thailand. And you can shovel people into an A380. And when TG was working with Airbus to renegotiate the deals, their traffic and tourist numbers were stronger than they are now. And based on the financial reports (trick accounting aside), it appears that no airline presciently predicted the crash in air traffic that has occurred these past 12 months.

[Jacobin777]

What's interesting is even with the global downturn,

from this website:

http://www.centreforaviation.com/news/2009...rbus-a380/page1

one can see that the "Roo' Route" is already starting to see a lot of A380 competition.....as I've been saying all along, doesn't bode well for yields (looks like BA might have already been a casualty of this)...