Two years after ending production of its A340 jet, Airbus is scrambling to persuade customers who bought the $200 million aircraft that they aren’t stuck with a gas-guzzling lemon.
Airbus marketing executives have scheduled a Dec. 4 meeting in London with representatives of airlines and leasing companies who purchased the A340. The goal, according to analysts briefed on the event, is to reassure customers that they can still resell or lease their A340s, even though the plane was discontinued in part because it can’t match the fuel efficiency of two-engine models that are increasingly popular among airlines.
An Airbus spokeswoman confirmed that the company will hold an A340 marketing event in London this week but said she did not have additional details.
More than customer relations is at stake here. Airbus sold many A340s with so-called asset-value guarantees, in which it pledged to compensate buyers if the plane’s resale value fell below a specified level. Analyst Douglas S. Harned of Bernstein Research estimates that 40 percent of the 119 A340-500 and A340-600 models now in service have asset-value guarantees of $60 million to $70 million.
“Based on discussions with airlines, lessors, and appraisers, we doubt these airplanes can be sold for even $20 million today,” Harned writes in a research note published today. “Cash exposure from the asset-value guarantees could be in the $1 billion to $2 billion range.”
When the most-recent model of the A340 was introduced in 2002, oil was below $30 a barrel. It’s now at $110. “The airplane has become so unattractive on a fuel burn basis that airlines want out,” Harned writes.
Nevertheless, Airbus is expected to tell customers at the meeting that demand for secondhand A340s remains strong. For example, some airlines in the Southern Hemisphere prefer to use a four-engine jet on their longest routes, says Scott Hamilton of the Leeham Co. aviation consultancy. The A340 also is better-suited than two-engine planes for landing at high-altitude, high-temperature airports such as Mexico City, Hamilton says.
Airbus also has brokered deals with some customers, such as Singapore Airlines, to resell A340s in exchange for orders for the newer, more fuel-efficient A350.
Some carriers, such as Norwegian Air, have leased A340s while awaiting delivery of other planes, or as a stopgap while they grapple with technical problems on the Boeing 787 Dreamliner.
John Leahy, Airbus’s top salesman, is scheduled to speak at the meeting along with representatives of Rolls Royce and CFM International, which make the A340 engines, analysts say. The presence of Leahy and other high-ranking executives shows that “A340 remarketing and investment is being taken very seriously,” Harned writes.
Unlike airlines, leasing companies that bought A340s generally didn’t get asset-value guarantees from Airbus. International Lease Finance Corp. recently took a $1.1 billion non-cash impairment charge on four-engine jets in its fleet, which includes 30 A340s, according to Fitch Ratings.
Airbus’s challenge, Hamilton says, is “to pump up the value and change the perception that this airplane is just a real dog.”
