SINGY Singapore Airlines Ltd (PK)

By Gaurav Raghuvanshi 

Airbus Group SE's flagship jetliner, the A380 superjumbo, has been dealt another setback as Singapore Airlines Ltd. decided not to renew its lease on the first of the planes and suggested it may walk away from more of the double-decker jets.

Singapore Airlines operates the world's second-largest fleet of A380s and was the first to fly the plane when it took delivery of the jet in October 2007. The lease on the first A380 expires in October next year and "we have decided not to extend it," Singapore Airlines told The Wall Street Journal.

The Singapore flag carrier currently operates 19 of the double-decker jets. The first five were taken on a 10-year lease deal with Airbus. "Decisions will be made on the four others later," a Singapore Airlines spokesman said.

Singapore Airlines also has five of the jets on order. It is sticking to plans to take delivery of those starting in the second half of next year.

Initial production jets are generally less popular with airlines as they are heavier and often come with teething problems as manufacturers work out kinks. But Singapore Airlines' decision to give up its lease will put at least one secondhand plane on the market, potentially weakening already softened demand for new A380s.

Brendan Sobie, an analyst at CAPA Center for Aviation, expects Singapore Airlines to return all five of the early A380 jets in its fleet. "Their fleet plan and strategy has always been to replace those aircraft. Early model airplanes come with limitations and Singapore Airlines never wanted to be stuck with remarketing these five airplanes," Mr. Sobie said.

Airbus in July announced it would slash production of the A380 to 12 planes a year in 2018 from 27 last year. The backlog of A380s to be delivered has eroded during years of no or few orders.

The A380's size has become its disadvantage as airlines prefer relatively smaller planes such as the Airbus A350 and rival Boeing Co.'s 787 Dreamliner that can fly nonstop to their ultimate destinations, bypassing major hubs such as London and Singapore. The demand for point-to-point connectivity has grown faster than the traffic at major hub airports in recent years.

Airbus will again start losing money building A380 planes at the lower production rate, the Toulouse, France-based plane maker has said. It only last year delivered A380s that were no longer losing money, a decade after the plane first flew. Airbus for years struggled with development and production of the jetliner.

Bad news has continued to pile up for the A380. Airbus this year announced that French carrier Air Austral had canceled an order for two A380s, the latest in a raft of voided purchases of the plane. Air France-KLM SA this year said it had dropped plans to take the last two A380s it had ordered.

Previously, the India-based Kingfisher Airlines Ltd., founded by Vijay Mallya, ordered the plane before the carrier controversially folded in 2012. Russia's No. 2 carrier Transero also was a buyer before it closed last year. Japan's Skymark Airlines Inc. had ordered the A380 before the contract was voided over payment issues.

There are also doubts about some A380s in the Airbus order backlog. Virgin Atlantic Airways Ltd., the British airline founded by Richard Branson, has ordered six of the planes but has no plans to introduce them into service. The carrier this year also announced plans to buy Airbus's A350-1000 long-haul plane, a more modern, twin-engine widebody. Ireland-based lessor Amedeo has ordered 20 of the planes, but so far failed to place them with airline customers.

The Singapore Airlines A380s are owned by German leasing company Doric GmbH, which will need to find a customer for the returning plane in the next 12 months. The leasing firm had no immediate comment.

Airbus wouldn't comment on the Singapore Airlines decision, saying it doesn't discuss individual airline fleet plans.

"We are confident in the market for secondhand A380s, which can be leased or acquired at attractive rates. This will offer a great opportunity for new entrants with new business models to start operating the A380," a company spokesman said by email.

Despite years of trying, Airbus has struggled to win new orders for the A380, which costs $432.6 million each at list price. Airlines have shied away from the superjumbo jet that can seat more than 600 people, worried about how to fill all its seats.

Malaysia Airlines has decided to replace its A380 jets with the smaller A350 jets and is trying looking for customers to buy or lease its six jets, the airline's chief Peter Bellew told The Wall Street Journal in a recent interview.

International Consolidated Airlines Group SA chief executive Willie Walsh this year said he would consider taking some used A380s to augment the 12 now in service with British Airways. Mr. Walsh has said taking secondhand planes would make more sense than exercising more expensive options for new A380s.

The biggest success for the A380 is Emirates Airline, by far the largest customer. The Dubai-based carrier, the world's largest by international traffic, operates a fleet of more than 80 of the four-engine planes and has placed orders for 142 of the jets.

The A380 program received a rare boost when Japan's All Nippon Airways Co. in December ordered three of the planes. Iran Air also has announced plans to take 12 of the Airbus flagship plane as part of a $27 billion deal with the European plane maker. The deal remains to be completed, absent U.S. export approvals and financing.

Write to Gaurav Raghuvanshi at gaurav.raghuvanshi@wsj.com

(END) Dow Jones Newswires

September 14, 2016 07:14 ET (11:14 GMT)

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