Boeing, Airbus’ Super Jumbos Are Failing To Take-Off In Adverse Economy

Sales for the largest airplanes in the world, the Airbus A380 and Boeing‘s (NYSE:BA) 747-8 are struggling to take-off in the current weak global economic environment. ^[1] Total orders for the Boeing 747-8 stand at a mere 5 in 2012 so far, ^[2] while those for A380 stand at 4. ^[3] These super jumbos, which fly long distances, seat more than 450 passengers and command a price tag in excess of $350 million a unit, have seen such low sales figures as airlines are finding it near impossible to fill 450 seats in every departure on a given route. And, in the current economic environment with slowdown in Europe, weak macro economic environment in the U.S. and slowing growth in emerging economies of China and India, many in the airline industry anticipate low sales for these super jumbos to continue over the near term.

We currently have a stock price estimate of $75 for Boeing, approximately 5% above its current market price.

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The super jumbos

The Boeing 747-8 seats 467 passengers in a three class configuration and has a list price of $352 million. While the Airbus A380, its larger competitor, seats 525 passengers in a three class configuration and has a price tag of nearly $390 million.

These super jumbos were designed with the anticipation that rapid and sustained economic growth, coupled with constraints in airport infrastructure will force airlines to increase airplane capacities on several routes. However, over the past few years with the financial crises of 2009, the European sovereign debt crises and now slowing growth in emerging economies, the assumption in the launch of these airplanes has been overturned. Airlines have found it very challenging to fill 450 passengers in these flights.

Sales of super jumbos not taking-off

In July earlier this year, Virgin Atlantic Airways again delayed its order for six A380 on account of weak global economic conditions, and Turkish Airlines reduced its estimated order number for the A380 to six from the earlier indicated fifteen.

In total, Boeing’s 747-8 has received 111 orders since its launch in 2005, and against these 27 deliveries have been made so far. While, Airbus’ A380 has received a total of 251 orders since its launch in 2001 and 81 deliveries have been made against these so far.

Mid-size and small-medium range airplanes fare better

On the other hand, the mid-size, long range Boeing 787 Dreamliner, which seats 210 to 290 passengers, depending on the variant has received more than 800 net orders since its launch in 2004. And the small-to-medium range, single-aisle Boeing 737 series has received 667 net orders in 2012 itself.

All in all, the lower than expected sales performance of these super jumbos over the last few years has impacted profitability under their respective programs, and with the recovery of global economic growth not in sight, sales for these super jumbos are not expected to pick up in the near term. However, one can also not write-off these airplanes completely as success of a model is determined over decades and not just 5-6 years.

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1. Airbus, Boeing jumbos are struggling for sales, September 15, www.kansas.com [↩]
2. Order and Deliveries for Boeing, http://www.boeing.com [↩]
3. Airbus A380, http://www.wikipedia.com [↩]