Global Airlines acquires used A380 for transatlantic passenger operations

A new entrant to the airline world, Global Airlines, has taken the unusual step of purchasing rather than leasing its first aircraft, opting for an A380 as launch platform for its passenger operations.

The landmark deal will see the start-up airline initially acquire four A380 aircraft from Doric Aviation, with more mooted to follow. Global Airlines plans to operate the A380 on transatlantic routes with services starting in early 2024.

Global Airlines reports that it has access to significant backing from investors and parent company Holiday Swap. It has chosen to acquire its first aircraft from Doric Aviation rather than opting for the traditional leasing route. The three additional A380 acquisitions are expected to follow in the coming months.

The UK based carrier is the first airline to express meaningful interest in a new A380 fleet since its production ceased in 2021. The acquisition of the A380 by Global Airlines is unusual as most passenger operators have been gravitating away from legacy four engine types that include the A340/A380/747 types.

For the A380 to make economic sense for a start-up airline the initial capital investment must be as low as possible to offset its high direct operating cost (DOC), including fuel and engine maintenance.

In 2019 Airbus priced brand new A380s at $445.6 million before customer discount. The list price of a brand new A350-1000 was $366.6 million in 2022 before discount. More recent A380 assessments have underwritten a maximum 40% deficit in base values. The current market value (CMV) for early examples in half-life condition now range between $22 million and $30 million.

The attractive initial acquisition cost for a remarketed A380 means Global Airlines should be less vulnerable to interest rate hikes, affording substantial savings in borrowing costs associated with a brand new aircraft. Yet the carrier will be more susceptible to fluctuations in fuel price rises that has seen an overall increase since the beginning of the Ukraine conflict. Engine maintenance cost will also be relatively high as four engines are de facto more costly to maintain than two.

Even before the pandemic, twin-engine types with improved fuel burn characteristics and lower passenger seat mile cost have become more favourable than the Airbus double-decker. In part this has resulted in a lacklustre A380 secondary market that has seen only a few transactions since the type made its debut with Singapore Airlines in 2007.

Global Airlines A380

Global Airlines completes its first Airbus A380 purchase from Doric Aviation.

The first remarketed A380 was redelivered to Maltese charter airline HiFly after it brokered a lease deal with Doric Asset Finance. HiFly Malta operated the ten-year-old ex-Singapore Airlines A380 for three years before parking it late in 2020. Other notable A380 deals have been made solely for the purpose of part-out and teardown.

Depressed passenger traffic during the pandemic and increasing fuel costs afterwards have seen the A380’s fleet numbers weaken. By 2023 and after 256 A380 deliveries, 62% and 160 examples remain in active passenger service. To date 88 are currently in long term storage, while seven have been scrapped. Increasing output in new widebody aircraft deliveries will mean many of these aircraft could remain stored indefinitely.

According to James Asquith, CEO and founder of Global Airlines: “The next step is to overhaul and refit the aircraft to our high specification, providing our customers with the best experience in the sky today. Acquiring our aircraft rather than leasing showcases our commitment to financial security and resilience from day one.”

The large investment needed for a widebody passenger cabin retrofit and refresh can put off investors. The comparatively short remaining economic service life for older assets, combined with falling lease rates, mean investors may not see a suitable return on investment (RoI) post cabin refit. Moreover, the risk of airline insolvency increases as the ageing aircraft gets passed down to second, and third tier operators. Cabin retrofits for single-decker 777-300 series of aircraft can cost between $12 and $16 million. Few 777s have exchanged operational owners as a result of this investment.

The London – US sector is one of a number of routes that has sufficient passenger demand, and slot restricted airports increasing its feasibility in this market. Passenger demand remains buoyant after the pandemic. Fares remain high as capacity remains tight as airline recoup losses generated during the pandemic and return to profitability. Inflation, cost of living and rescission fears that will influence passenger demand moving forward and could ultimately decide the future of the A380.

Images accredited to Global Airlines

Author: FTN Editor

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