Tuesday, May 5, 2015

Malaysia Airlines Might Be Downsizing. Big Time. Where Will Their Planes Go?

An Emirates A380 landing at Los Angeles Airport. Photo - Bernie Leighton | AirlineReporter

An Emirates A380 landing at Los Angeles Airport – Photo: Bernie Leighton | AirlineReporter

It’s no secret that Malaysia Airlines had a terrible 2014. So terrible that the fate of the airline hangs in the balance. The government, tired of writing blank checks to keep the airline afloat, has demanded restructuring. Hiring Christoph Mueller (of Aer Lingus hatchet-man fame), they were, finally, not going to pull any punches.

Part of this is an impressive (rumored) fleet disposition. Winding down of the entire 777 fleet by the end of next year, complete dissolving of MASkargo, and the biggest elephant in the room of all; removal of their A380s.

Can becoming a regional airline centered around the A330 save Malaysia Airlines? I’m not hopeful, but that’s not what I am here to talk about today.

I want to discuss where the planes are likely to go.

A Malaysian Airlines 777-2H6/ER landing in Sydney. Photo - Bernie Leighton | AirlineReporter

A Malaysia Airlines 777-2H6/ER landing in Sydney – Photo: Bernie Leighton | AirlineReporter

Let’s start with the 777-2H6/ER fleet, the oldest of which was assembled in 2001. Fourteen years used to be only middle-aged for a 777, or any aircraft, but in the era of today’s market-shortened life-cycles, it is ancient. There are two ways this can go. If the aircraft are in great shape, with relatively low-cycle counts, they may find another operator.

If the Rouble was as high as it was two years ago, and Russian tourism demand was still strong internationally, Transaero would be an obvious candidate to take them. The economic climate in Russia is improving from the depths the West drove it to late last year. Thing is, Transaero has brand-new wide-bodies destined for their fleet within the next few quarters. While I look forward to flying on their new equipment to Simferopol, it does not bode well for any second-hand wide-body acquisitions within the next year.

There is a bizarre internet myth that Delta loves to buy second-hand aircraft from anyone. While they have done this with the MD-90 and the 717s, other than the wide-bodies acquired through the Northwest merger (which doesn’t really count), the last used wide-body deal was to acquire some Gulf Air 767s. Even though Malaysia’s 777s carry Trent 892s (similar to Delta’s), the 777 is way too big for Delta these days. Not going to happen.

Delta does buy second-hand aircraft, but 777s are too big for them these days. Photo - Bernie Leighton | AirlineReporter

Delta does buy second-hand aircraft, but 777s are too big for them these days – Photo: Bernie Leighton | AirlineReporter

The real hope for these airliners are with ACMI (wet lease) operators like HiFly or EuroAtlantic. Even then, it’s unlikely as they have plenty of wide-bodies already. They are also rumored to be perpetually teetering on the edge of a financial abyss.

Realistically, these aircraft are bound for the American desert or Bruntingthorpe, UK. I almost guarantee you that they are worth more as parts than extant.

On to the 747-4H6F/SCD. These are only around nine years old. Freighters traditionally have a lower cycle count than their passenger peers, and these ones have spent most of their careers moving animals. Air cargo is booming right now due to a series of longshoreman and other port worker strikes. No American cargo airline is likely to pick them up. Atlas would, likely, consider it if they could place the aircraft in a long-term wet-lease right away, but I do not know who they are speaking to, so I can’t tell you if they will.

Either way, these aircraft have a bright future moving cargo for someone as they will be cheaper to place back into service, even if short-term, than raiding the desert for a frame stored whilst air cargo demand was negative a few years back.

The A330-223Fs are a strange case. They are the only A330-200Fs that have Pratt & Whitney engines. The A330-200F has always been an odd aircraft – its timing of market entry made it a relatively poor-selling entity, and it’s more expensive than grabbing something idled in the desert. It has a lot of pros, but pros that only pay off long-term. These aircraft are too new to scrap, but also are not going to be attractive to the majority of current A330-200F cargo operators. The only existing A330 freighter operator I can think of showing interest in them is Turkish. After all, they have operated A330s of every available engine type.

 

QANTAS is an A380 operator, but will unlikely acquire more. Photo - Bernie Leighton AirlineReporter

Qantas is an A380 operator, but is unlikely to acquire more – Photo: Bernie Leighton | AirlineReporter

Too many people are not supporters of the A380. It’s the weirdest thing, as it’s a great aircraft. Many would like to see the failure of Airbus and have these frames parked in the desert, never be sold again, representing the superiority of the Boeing 747-8I. I love the A380 and actively seek it out when I fly.

But where will Malaysian’s go?

The awkward fact is that these aircraft have Rolls Royce engines. Emirates, while switching to Rolls Royce for a tranche of A380s down the road, only has Engine Alliance-powered frames. Qantas hasn’t the finances or the need to sustain any additional A380s, despite their Trent 900s. Qatar Airways has a reputation to keep up; they would never take second-hand aircraft.

Lufthansa, while in possession of a Rolls Royce fleet, is done with quad widebodies. The 777-9 order more or less confirmed this.

British Airways, in my opinion, needs more A380s. Do they agree with me? Unclear. One thing is certain, however; Dublin is more likely to become Heathrow’s third runway than for there ever to be a third runway at Heathrow proper. London will never stop being an overcrowded mess with demand ever-increasing. Any airline that calls London home really ought to look into the A380 for its highest performing routes.

Thai Airways International. Well, no. Just no.

Asiana would be an airline that may take some, but not all, of the Malaysian disposition. They have engine commonality, they have a home airport that can easily accommodate A380s, and they also have a few extremely high-density routes that can warrant A380 upgauging on top of their existing frequencies and operation with the type. However, Asiana is happy to be a small airline – they have no aspirations other than being a competent, quality Korean airline.

A Delta Air Lines Regional Jet landing at JFK.

Korean Air uses A380s on its highest-density and highest-yielding routes – Photo: Bernie Leighton | AirlineReporter

Korean Air just doesn’t have the right engine type. Korean also has a fleet of 747-8Is destined to arrive. Incheon may be a great hub, but it is a great hub for China, Japan, and some of Southeast Asia. None of these connection opportunities scream the need for more A380s.

Both Korean airlines have a great business model, but their business model is not based off being a super hub with nothing other than A380s.

An Emirates A380-861 on approach into London Heathrow Airport. Photo - Bernie Leighton | AirlineReporter

An Emirates A380-861 on approach into London Heathrow Airport – Photo: Bernie Leighton | AirlineReporter

But wait. Does the engine type really matter? One of the A380 test frames was powered by Rolls Royce Trent 900s. Where did that frame end up? Emirates! How? While it is not as easy as on the 787, you can change engine manufacturer on the A380, if absolutely needed. This is a case where six A380s might not be enough to motivate Airbus to change out the engines. It is not outside the realm of possibility that Airbus would eat the cost of engine transition to find these aircraft a new home.

If the engine swap were to happen, this opens up two potential operators. Emirates, because they can’t get A380s fast enough and would happily reconfigure them into a high-density two-class configuration. Or, perhaps, Etihad.

An Etihad Airbus A380 - Photo: Airbus

An Etihad Airbus A380 – Photo: Airbus

 

Etihad is almost infinitely less likely. Not because they dislike the A380, but because the current Abu Dhabi airport can’t handle any more. When the new one opens, I am sure more A380s will appear, but these birds would be a massive public relations albatross if they were stored in Lourdes until the new airport opened. Airbus will accept this, if they have to, but I do not think they need to.

Everyone used to think that Turkish Airlines was a logical A380 customer. I still think they are, but their CEO keeps throwing cold water on the argument. He, of course, knows more than me. He has a point, too. The current Istanbul airport could barely handle one A380, let alone a fleet. The new Istanbul super hub that is about to commence construction will be A380 heaven, but that doesn’t place the used frames short-term. Turkish knows they need a Very Large Aircraft, and they will decide on one. I still think what the CEO is saying is posturing to establish preferential pricing and we’ll see Turkish A380s by the end of the decade. Having said that, Turkish taking A380s – effectively tomorrow – would be a massive financial and logistical undertaking that I am not sure they want.

So, solving absolutely nothing there, it’s time for me to put on my crazy hat and tell you where I think these A380s should end up!

Cathay Pacific loves the 777, but might need something larger. Photo - Bernie Leighton | AirlineReporter.

Cathay Pacific loves the 777, but might need something larger – Photo: Bernie Leighton | AirlineReporter

First candidate airline of “if Bernie was their CEO” would be Cathay Pacific. This is an airline that has always been on the fence about very large aircraft, and going forward is maxing out with the 777-9. Thing is, Hong Kong is not going to get any less important economically. Favoring frequency over capacity is a great strategy; it does allow for maximal price discrimination and yield. Unfortunately, it’s not like Southeast Asia’s air market is going to get less competitive.

The customers that spill away from Cathay Pacific are no longer not flying because of their own cost-preferences – chances are, they’re taking the competition on a similarly-timed flight because their first choice was full. They didn’t wait to fly the later Cathay Pacific flight because they had to be in Point Y by X o’clock to close a deal. They flew another airline with more seats.

Now, I know that Cathay cannot sustain an A380 on all of their long-haul routes, and that six is a very small subfleet for them. Especially when these are older A380s that may not be capable of flying HKG-LAX nonstop all year. That doesn’t mean that the correct incentives from Airbus would not allow them to work excellently on Cathay’s more lucrative, highest-demand frequencies into major European and Asian centers. Admittedly, the A380 is not as much of a freight train as the 777s are proportionally, but I am not privy to Cathay’s cargo vs. pax figures so I can’t decide if that’s a make-or-break factor.

The first 777-300ER for China Airlines – Photo Kris Hull | Hull AeroImages

The first 777-300ER for China Airlines – Photo Kris Hull | Hull AeroImages

The other potential candidate in my crazy speculation is one of the airlines operating out of the Republic of China. Not Eva, obviously – Eva will never operate something larger than the 777 again.

Government-owned China Airlines, however, not only likes to play politics, but is going through a very public transformation to become more than just “Taiwan’s airline.” There are some routes where the A380 makes sense into Taipei. Don’t believe me? Taipei’s airport authority is going to have their international airport A380-ready by the end of this month. For whom? They have not said. Usually that means an endemic customer, but it could also mean future-proofing. That area of the world is only scheduled to grow.

No matter what happens, these A380s will be placed – it is Airbus’ imperative, and necessary for the health of the program.  What do you think?

 Bernie Leighton – Managing Correspondent 

Bernie has traveled around the world to learn about, experience & photograph different types of planes. Bernie will go anywhere to fly on anything. He spent four years in Australia learning about how to run an airline, while putting his learning into practice by mileage running around the world. You can usually find Bernie in his natural habitat: an airport.

 @PowerToTheThird | Flickr | bernie@airlinereporter.com

 

 

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