A380 owners target US, China role for surplus Singapore planes

[FRANKFURT] The owners of five Airbus Group SE A380s leased to Singapore Airlines have begun touting the superjumbos around potential future operators while the Asian carrier evaluates whether to retain them.

Singapore Air must reach a decision by next September, though a clause requiring it to refurbish the jets at a total cost of as much as US$125 million provides a strong incentive to extend 10-year leases that expire from 2017, according to Dr Peters Group, which owns four of the double-deckers.

Dr Peters and Doric, which controls the other plane and manages all five, has teamed with Airbus and former Doric partner Mark Lapidus to drum up interest in the A380s while Singapore Air mulls its options. Carriers in the US, Turkey and China, as well as top European leisure operators, could be in the running.

"No airline wants to pay US$125 million without having an aircraft," Dr Peters chief executive officer Anselm Gehling said in an interview. If the planes do become free, Turkish Airlines is a potential user, he said, though hasn't decided if it wants new or old aircraft, while US carriers will decide whether they see a role for second-hand superjumbos "in one or two years." Denser Layout Airlines from China and other parts of Asia may also look at used A380s, with a fleet of four to five examples required to make the model viable, according to Gehling. New operators may want denser seating arrangements than current customers, which generally view the A380 as a fleet flagship, so that capacity could grow to 700 or 800 people in a single class, he said.

Turkish Air, or Turk Hava Yollari AO, has already been looking at second-hand double-deckers, though said in June that it had decided against leasing relatively young A380s deemed surplus to requirements by Malaysian Airlines.

Efforts to secure customers for the Singapore A380s are in full swing even as Airbus struggles to find buyers for new superjumbos. Among announced purchasers, Transaero Airlines of Russia is now defunct and Skymark Airlines Inc. of Japan is in bankruptcy protection, while Hong Kong Airlines canceled orders and Virgin Atlantic Airways Ltd. and Indian Ocean carrier Air Austral seem unlikely to take planes.

The last new order was placed in 2014 by Lapidus, who has yet to find users for the 20 double-deckers he's due to take. Second-hand A380s are valued at between US$90 million and US$110 million by experts, Gehling said, though none have yet been sold. That compares with a current list price of US$428 million.

Singapore Air ordered the A380s in 2000, when the model sold for US$235 million, though as an early customer would most likely have received a significant discount. Dr. Peters took over its four planes from 2007, the year deliveriesto the Asian carrier began, at a cost of about US$200 million apiece.

Singapore is paying Dr Peters US$1.71 million per month per aircraft, or about US$205 million over the life of the lease, based on fees for the first plane, according to publicly available documents.

The airline is obliged to return the A380s in "full life" condition - meaning that their cabins, engines and other elements must be like new - or make a payment of up to US$25 million for each plane handed back without being refurbished, Gehling said.

While that clause also holds if Singapore invokes a two- year lease extension, Dr. Peters might be prepared to cut the carrier a deal if terms were lengthened somewhat further, encouraging it to keep the planes, the CEO said.

Airbus, which has said Asian low-cost airlines or carriers ferrying pilgrims to Mecca may also help establish a second-hand A380 market, is probably not willing to shoulder the risk of buying back superjumbos itself, but will provide marketing assistance and customer contacts, Gehling said.

Singapore spokesman Nicholas Ionides said the carrier will decide whether to extend the leases next year. He declined to comment on contract details.

Airbus reiterated that the emergence of new business models for high-density, long-haul planes will favor the A380, with used superjumbos more productive than other second-hand options such as Boeing Co's smaller 777-300ER.

BLOOMBERG