In This Issue: AVN's Semi-Annual Turboprop Value Listing

Airbus List Prices Accelerate While Values Ease

Material Costs & Weak Dollar See Jump In List Prices

Airbus list prices have jumped by nearly five percent, representing a significant rise and increasing the already high differential between list and net prices even further.

The 4.9 percent rise in list price ranges from "only" 4.1 percent for the A380 to 6.3 percent for the beleaguered A318. The rise attributable to the normal arithmetical adjustment to list prices, derived from labor, material and energy costs, amounted to only 2.7 percent, in line with expectations and previous year on year increases. However, Airbus cite other factors that have warranted adding a further $2 million to the list price of narrowbodies and $4 million to widebodies. Specifically, the weakness of the dollar has made the market increasingly intolerable for Airbus. The dollar/euro exchange rate has moved from 1.35 to almost 1.60 which equates to an almost 15 percent decline in dollar based revenue. Material costs have also increased by 6.5 percent with respect to metal-based products.

The question for Airbus is whether the near five percent increase can be passed onto customers and whether it will have the desired effect on Airbus finances in the short term. Despite the raft of corporate failures in recent weeks, the orderbooks of the manufacturers continue to overflow, even if at least 25 percent of those that are on order are vulnerable. This should place the manufacturers in a strong position when airlines seek to place orders. The competition between Airbus and Boeing remains strong such that Airbus cannot simply impose a price rise without potentially affecting orders. Similarly, because of the extensive backlog any rise in the price of orders placed as of the 1^st May will not have any impact on revenues for years to come except perhaps by a modest increase in the level of deposits. Aircraft being delivered today are the result of orders placed a number of years ago at much lower net base prices. To take account of inflationary pressures between the time an aircraft is ordered and then delivered, escalation to the agreed base price is applied. Given the stringent documentation, the formula for such escalation will likely be fixed such that the additional $2-4 million being imposed on list prices, cannot be applied to existing orders.

With $2 million, rather than a percentage, being applied to narrowbodies the smaller variants will see the greatest rise. The list prices of the A318 have therefore increased the most even though the market conditions for the type are among the worst. The differential between list and current value of the A318 is now the greatest for any Airbus product, amounting to approximately 50 percent, excluding quantity discounts. The difference between values and list prices starts are around 40 percent such that larger orders will be able to secure discounting that equates to more than 50 percent. However, in buying aircraft, the base price may be low compared to the list price but by the time options and buyer furnished equipment is added, the actual net price can be surprisingly high even if not all such additional equipment can be reflected in the value. For the A380 this is particularly relevant. The interior alone can cost $15-20 million, not all of which can be applied to the value. Business class seats can cost $100,000 each but a subsequent operator will need to replace these with a design of their own.

Surprisingly a price for the A340-300 is still listed. There have been very few orders placed for the type in recent years and some of those that have been ordered have been switched to the A330. The four engined configuration for a medium to large sized widebody in the current climate, indeed in perhaps most climates, is something of limited utility. At a price of over $215 million, values are now nearly 50 percent less with customers able to secure sizeable discounts from even this level. The demand for twin engined widebodies remains very strong and Airbus should be able to apply at least some of the $4 million surcharge to the A330-200 in particular. The delay in the service entry of the B787 is increasingly forcing operators to consider acquiring an alternative. With lease rentals of the B787 exceeding $1 million per month versus perhaps $725,000 a month for the A330-200, even the greater fuel efficiency of the former may not cover the higher lease cost. The lack of orders for the B777-200ER seems to suggest that Airbus has the medium sized widebody market to itself, at least until Boeing starts to deliver B787s in quantity and with the right build quality. Notably, prices for the A350 have continued to climb even though net prices have been extremely competitive such that 50 percent discounting may be have been the starting point.

The issuance of list prices continues to be largely an irrelevance. Such prices continue to rise whatever the state of the market. In the late 1980s there was a measure of relevance between list and net but in the intervening years the difference between values and list prices has increased to nearly 50 percent for some aircraft types. With another downturn comes the prospect of the margin increasing even further.