Bloomberg News

Airbus Pitches A380 in New York After Snub by Emirates

June 11, 2014

A day after its biggest order cancellation ever, Airbus is back out pitching for new customers (DAL:US).

The planemaker is showing its Airbus A380 flagship to analysts and investors in New York today, including a promotional flight over the city, with the goal of enticing U.S. airlines that so far have shunned the world’s biggest commercial jet. Joining Airbus is Mark Lapidus, a Russian-born financier who wants to lease 20 A380s to airlines. The number of customers he has won since his pledge last year to buy the plane: zero.

Airbus suffered a blow yesterday when Emirates canceled its entire order for 70 A350 wide-body aircraft valued at $16 billion. While Emirates is also the biggest buyer of the A380, that aircraft has failed to attract a new airline customer in two years, raising pressure on both Lapidus and Airbus to show their leasing model, so far unique to the A380, will pay off.

“Airbus has been trying to sell the A380 for 14 years now, with minimal success outside Emirates,” said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based advisory group. He has faulted Airbus for including the Lapidus order in its books, calling it a “speculative” deal that doesn’t belong on the company’s firm order book.

Free Ride

Today’s event in New York, organized by Lapidus and his team at the leasing company he recently renamed Amedeo, will feature Airbus Chief Operating Officer John Leahy as well a senior executive from Emirates to pitch the operating economics of the plane. Participants get a free 75-minute ride in an Emirates A380 above Manhattan skies.

The idea, according to Lapidus, is to warm analysts and financiers to the aircraft’s prospects, in a bet that once the investment community better understands the plane, airlines, too, will embrace the double-decker.

“Is this plane really something that you can lease?” said Zafar Khan, an analyst with Societe Generale (GLE) in London. “The original concept for the A380 was this kind of bespoke flagship, highly customized cabins for each and every airline. They’re trying now to make it all things to all men. It remains to be seen whether this works.”

The A380, which typically seats about 525 people on two decks, has won orders in Europe, the Middle East, Australia and Asia, though the aircraft is absent from the fleets of carriers in the U.S., the world’s biggest aviation market. Lapidus had said his leasing plan would attract airlines that previously had shied away from the high purchase costs of the airliner.

Lion’s Den

“This is the hardest place to make the case, and we are keen to address it here,” Lapidus said in e-mailed comments to describe his pitch to Wall Street.

Airbus needs to broaden the customer base of the A380 if it wants to avoid unsold slots for the aircraft as early as 2015. While the plane is popular with customers, some airlines -- including Deutsche Lufthansa and Air France-KLM (AF) Group -- have deferred some orders. Purchase plans of carriers including Virgin Atlantic Airways Ltd. remain in limbo.

Emirates’ cancellation, announced yesterday, revealed a preference for Boeing Co. (BA:US)’s planned 777X, for which the carrier has committed to buy at least 150. Still, the Dubai-based airline remains the biggest cheerleader for the bigger A380, with contracts for 140 of the 304 total ordered.

Russian Order

Leahy’s last new airline for the A380 was Russia’s Transaero Airlines (TAER) in 2012 for four planes. Pressed by management to sell at least 30 A380s annually, he fulfilled two-thirds of that mandate in February when Lapidus signed the order. Leahy called the Emirates cancellation yesterday “not great news,” and that he’s trying to change their minds.

Not a single other lessor has committed to the A380, partly because of the slim customer base that makes it harder to establish a second-hand market. The space and corresponding comfort that let airlines customize the cabin has also made it less attractive to resell because the aircraft would require a major interior overhaul before moving to the next user.

Lapidus is on the hook to take his first A380 by 2016. Still, Airbus would not force “white tails” on him, Leahy said in an interview yesterday, referring to industry parlance that describes an aircraft without livery. If need be, Airbus will reschedule the deliveries, Leahy said.

Amedeo’s road show for the A380 remains unusual, said Jon Bogaard, a Chicago-based attorney who specializes in aircraft financing. Carriers occasionally offer investors a sneak peek at a new model after they’ve already committed to the deal, he said.

“The financing market for those needs to be very, very deep,” Bogaard, who is a shareholder at law firm Vedder Price PC., said of Amedeo, Airbus and Emirates’ efforts to spur interest in the A380. “They’re trying to deepen the market by making the sale to people on Wall Street that this is an investable asset.”

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Ed Dufner at edufner@bloomberg.net Ed Dufner


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