A380 Booster Wages Lonely Crusade for Airbus as Jumbo Shunned

Jun 13, 2014 4:17 am ET

June 13 (Bloomberg) -- One of the biggest boosters of Airbus Group NV’s A380 jet is pitching it as the superjumbo that will allow airlines never to miss a last-minute premium passenger.

In a presentation in New York, Mark Lapidus, a Russian-born financier who wants to lease 20 A380s to airlines, said U.S. carriers’ obsession with capacity discipline and flight frequency overlooks a key metric: spill, or when high-paying, passengers go to competitors because they can’t find an available seat when they want to depart.

Lapidus joined Airbus and Emirates Airlines executives in presenting the A380 flagship to analysts and investors yesterday, with the goal of enticing U.S. airlines that so far have shunned the world’s biggest commercial jet.

“Passengers like to fly on the A380,” Lapidus said, speaking in an Emirates lounge at John F. Kennedy International Airport’s terminal 4, with a Singapore Airlines A380 parked in the distance. “When airlines put the A380 on routes, if they put it at the peak time, departures are going to capture the largest percentage of yield.”

So far Lapidus is waging a lonely crusade. He hasn’t won any customers since his pledge last year to buy the $414 million plane. And Airbus suffered a blow two days ago when Emirates canceled its entire order for 70 A350 wide-body aircraft valued at $16 billion.

The event, organized by Lapidus and his team at his leasing company Amedeo, included a promotional flight over the city and was intended to warm analysts and financiers to the aircraft’s prospects. He’s betting that once the investment community better understands the plane, airlines, too, will embrace the double-decker.

Speaking Bluntly

Lapidus proved a willingness to speak bluntly about what he thinks Airbus needs to do to make the plane more palatable to customers and his view of the jumbo’s place in the market. He criticized Airbus and Boeing Co. for not doing a better job of convincing airlines of the need for a four-engine aircraft in the current environment, which favors smaller, more fuel- efficient planes.

For U.S. airlines, the “methodology is to restrain capacity or you will die,” Lapidus said. “That philosophy is a deadly one when you have competitors in the world around you growing 6 percent, 10 percent a year.”

He argues that carriers can lower operating costs by offering fewer flights and flying A380s during peak hours. An A380 configured to seat 590 people in a four-class layout and flying a 5,000 nautical mile route can make $75.8 million annually compared with $43 million in a Boeing 777-9X with a similar configuration, he said.

“You’re not trying to create a big fleet, you’re creating a small fleet,” Lapidus said.

Tough Sell

It’s a tough sell to carriers, especially in the U.S., still fixated on unit costs after a decade in which bankruptcies left the industry smaller and determined to avoid excess capacity that can drive ticket prices below costs.

In order to make the A380 more desirable, Lapidus said Airbus should take its time and overhaul the model to achieve a 15 percent gain in operating efficiency, pushing beyond the new engines sought by Emirates, the biggest operator of the jet. With new technology, a redesign of the wings and a stretched fuselage the A380 would dominate the 777x from Boeing, he said.

“I have quite strong views on this and I know they will be different from Tim Clark’s view,” he said, referring to the president of Emirates.

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 Group -- have deferred some orders. Purchase plans of carriers including Virgin Atlantic Airways Ltd. remain in limbo.

777X Preference

Emirates’ cancellation of the A350 revealed a preference for Boeing’s planned twin-engine 777X, of 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.

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 cost of the airliner.

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.

--With assistance from Andrea Rothman in Toulouse.