Emirates throws A380 a lifeline with $16bn order at eleventh hour

Emirates Chairman Sheikh Ahmed bin Saeed Al-Maktoum pictured with the Airbus Chief Operating Officer John Leahy at the signing of a $16 billion order for 36 A380 aircraft. (Photo courtesy of Emirates)
Updated 18 January 2018
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Emirates throws A380 a lifeline with $16bn order at eleventh hour

LONDON: Emirates has secured the future of the Airbus A380 — at least for now — with an order for 36 of the superjumbos, it emerged on Thursday.
But only 20 are firm orders and the European aircraft maker will likely get “significantly” less than the list price of $16 billion, analysts told Arab News.
Tim Coombs, airlines specialist at Aviation Economics, said Airbus “had been quite clear that the production line would have closed without an order from Emirates.”
That in itself would have markedly increased the Gulf carrier’s bargaining position.
When asked if the discount could have been struck at or below 40 percent, Chris Tarry, airlines analyst at CTAIRA, told Arab News: “I wouldn’t disabuse you of that.”
Discounts for orders from Airbus and Boeing are not uncommon, but the size of concessions are rarely disclosed.
Tarry said: “I am sure Emirates was able to secure a particularly attractive price for the additional aircraft.”
A dearth of orders had cast doubts on the future of the A380 program with Chief Operating Officer John Leahy saying a few days ago that production would have ceased without a further commitment from Emirates. The airline is by far Airbus’s largest customer for A380s, with 101 deliveries in the past 10 years.
With the latest deal, the A380 could continue now for “at least another 10 years,” said Leahy in an Airbus statement on Thursday.
A major issue for the future of the four-engined A380 has been that twin-engined aircraft have been getting bigger and flying further. Instead of airlines flying to hubs such as Dubai, there is a greater choice of jets to carry travelers direct to their destinations, said Coombs.
Chris Bryant, Berlin-based columnist for Bloomberg, wrote on the news organization’s website that the A380 had always seemed the ideal solution to the problem of increasingly congested airports.
“Yet, in reality, airlines are increasingly shunning the big hubs and flying point-to-point instead, thanks in part to a new generation of fuel-efficient jets,” said Bryant.
The latest Emirates/A380 contract comes in the form of a memorandum of understanding that allows a buyer to pull out under certain conditions, and is often not legally binding.
Some of the new A380s, which will begin to be delivered from 2020, will be replacements for the oldest of the wide-bodied aircraft, Emirates said in a statement.
It is not known if these new orders will encompass an upgraded version of the superjumbo — dubbed the A380plus — which adds fuel-saving winglets and room for 80 more passengers.
“I’m personally convinced more orders will follow Emirates’ example and that this great aircraft will be built well into the 2030s,” said Leahy.
Already by far the biggest A380 customer, Emirates has repeatedly stalled on a deal, putting the aircraft’s future in doubt after Airbus failed to win new orders for two years.
There were gasps at the Dubai Air Show in November when Emirates unveiled a provisional $15.1 billion order for 40 of Boeing’s mid-sized wide-body 787-10 jetliners instead of announcing an expected deal with Airbus for more A380s.
Airbus had warned in 2016 that 10 years after entering service, its A380 production line would have dwindled to 12 a year in 2018, and eight in 2019.
After Thursday’s deal, continued production is secured for the time being, but analysts cautioned that further big orders were unlikely. Tarry commented: “Should we expect lots more orders in the near term? Certainly not,” he said.
Emirates Chairman Sheikh Ahmed bin Saeed Al-Maktoum said: “Some of the new A380s we’ve just ordered will be used as fleet replacements. This order will provide stability to the A380 production line.”
He added: “We will continue to work closely with Airbus to further enhance the aircraft and onboard product, so as to offer our passengers the best possible experience. The beauty of this aircraft is that the technology and real estate on board gives us plenty of room to do something different with the interiors.”
Emirates said the A380 is an essential part of the solution to sustainable growth, alleviating traffic congestion at busy airports by transporting more passengers with fewer flights. The carrier was said to be the best way to capture growing world air traffic, which doubles every 15 years. The A380 flies 8,200 nautical miles (15,200 kilometers) non-stop and can accommodate 575 passengers in four classes.
Leahy said: “This aircraft has contributed enormously to Emirates’ growth and success since 2008 and we are delighted that it will continue to do so.”


INTERVIEW: Dan Balmer on steering Aston Martin beyond Bond in the Middle East

Dan Balmer
Updated 5 min 3 sec ago
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INTERVIEW: Dan Balmer on steering Aston Martin beyond Bond in the Middle East

  • The Middle East will be a key market for the iconic UK car maker’s second century, says regional chief Dan Balmer
  • Aston has been around for more than 100 years, but has embarked on an ambitious “second-century strategy” under group CEO Andy Palmer

The name is Balmer. Dan Balmer.

The new president of Middle East business for Aston Martin Lagonda, the iconic British car maker beloved by James Bond, is grateful for the glamorous legacy of the fictional super-spy, but also conscious of the need to move on.

“We’ve been with Bond for 50 years, and he has been a real asset for us. But we have a team internally called ‘Beyond Bond.’ If we want to grow the brand audience, into the family and female markets, we have to look beyond the cars that Bond drives,” said Balmer.

That move away from some aspects of Aston’s heritage is reflected across the whole company. Aston has been around for more than 100 years, but has embarked on an ambitious “second-century strategy” under group CEO Andy Palmer.

The company that is emerging will be different, a luxury brand rather than a mere maker of fast boys’ toys; it will be increasingly global, with the Middle East playing a central role; and it will — hopefully — be sustainable, in both a financial and environmental sense.

British actor Roger Moore stands beside an Aston Martin car during a 'James Bond photocall' at Bletchley Park in Milton Keynes, on October 17, 2008. (AFP)

Palmer’s strategy is to steer the group away from the boom-and-bust cycle — it went bankrupt seven times in its first century. He pulled off an essential part of that strategy with an initial public offering (IPO) on the London Stock Exchange last month, which valued the company at $5.6 billion.

Aston will continue to make fast cars, but they will increasingly be more fuel efficient and even electric; and it will put its name to other luxury merchandise — plans for apartments and speed boats are well advanced. Next on the luxury list of Aston-branded items are submarines and vertical take-off aircraft.

Bond, with his love of both the high life and high-tech gadgetry, would probably approve of the strategy. “We’re not hawking the brand around — you won’t see us doing aftershaves and umbrellas. But customers want to buy our cars because they want to buy into beauty, and we’re stretching that now into other areas,” Balmer said.

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BIO: 

BORN 

1976 Southampton, UK.

EDUCATION

Design technician apprentice, Rover Group.


CAREER

•BMW design engineer.

•Rolls-Royce Motor Cars, general manager in Asia-Pacific. 

•Aston Martin Lagonda, president for the UK and
South Africa.

•Aston Martin Lagonda, president for the Middle East, North Africa and Turkey.

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He knows a thing or two about luxury marketing and car design, having previously worked for Rolls-Royce in Asia, based out of Singapore. But now the challenge is to extend the Aston business in the Middle East in a new division within the global set up — covering the Middle East, North Africa and Turkey (MENAT).

Reflecting Aston’s traditional regional business hub in the region, he will be based in the UAE, but the headquarters has been moved from Dubai to Abu Dhabi, where the MENAT HQ was officially inaugurated last week.

Balmer feels that Dubai’s reputation for flash glamor is “a thing of the past,” but also believes that the UAE capital is more in tune with the Aston image. “Aston has an understated elegance and that is also how we feel about Abu Dhabi. It is the capital, recognized as the center of the financial scene, the big decisions are made here, and with Yas Island (the venue for the big Formula 1 Grand Prix later this month) it is a great location for motor sports.”

The Aston Martin DB10, built exclusively for the James Bond film "Spectre," is displayed at the 2015 Los Angeles Auto Show in Los Angeles, California, November 19, 2015. (AFP)

Track racing is still a big thing for Aston, not least because many of its cars are too fast to be driven flat out on roads, but also because it helps the company maintain its high-speed image against competitors such as Ferrari and Lamborghini, the UAE’s sports cars of choice.

Under the second-century strategy, Aston can offer the DB11, the DBS (“a boot in a suit” says Balmer), the Vantage and the Valkyrie as its “overtly aggressive” cars to rival the Italians, and will also soon begin to produce a range of mid-engined cars to take on the likes of Porsche and Mercedes.

Saudi Arabia is big on collectors’ cars, like our Vulcan. But we need to grow the brand.

 

“We are breaking out of our conservative shell. These are track-based products, but meant to be driven on the road, true sports cars,” Balmer said.

But the really radical product is yet to come, and will figure prominently on Middle East roads when it arrives, some time in 2020. Aston has hitherto held off entering the SUV market, which is the fastest-growing sector in the world’s biggest markets, like the US and China.

The DBX is a luxury SUV, a bit bigger than most on the roads now, with five doors and elegant lines. It is aimed at the upmarket family market, and seems a natural fit for the Middle East, which has been SUV-crazy for decades. 

Balmer thinks it will become Aston’s biggest seller in the region. “We just have not had the offering in that segment before, but in the Middle East a majority of luxury car buyers would be SUV, with sports cars a weekend plaything,” he said.

In this file photo, an Aston Martin DB5 is displayed as part of an exhibition dedicated to James Bond at the main hall of La Vilette in Paris. (AFP)

He is relishing the prospect of unleashing the DBX on Saudi Arabia. Aston has been in the Kingdom a long time, with a long-standing partner the Hajji Husein Alireza group and showrooms in Jeddah and (more recently) Riyadh, to be followed by an outlet in Alkhobar.

But Saudi Arabia has not lived up to the potential of its big wealthy population. It ranks behind the UAE, Kuwait and Qatar, roughly alongside Turkey in Aston’s regional sales rankings.

“Saudi Arabia has more opportunity for us. Because of the sheer weight of wealthy individuals it means there are more people who will buy our cars there. Saudi Arabia is big on collectors’ cars, like our Vulcan, and the other beautiful cars we produce like Vanquish and DBS. But we need to grow the brand,” Balmer said.

 

 

“We need to do an education job in Saudi Arabia, both in terms of what Aston stands for in the market and the new products as well. I think Saudis will go for the idea of DBX, and that’s where the key focus will be for us.”

He believes the Saudi market is perhaps more conservative than the UAE in terms of colors and models, but there is potentially a far bigger market among Saudi nationals than Emiratis.

Saudis buy Rolls-Royce cars in big numbers, and having worked for the leader in motoring luxury Balmer appreciates the difference between marketing Rolls and Aston. “They differ in the customer type. Aston buyers tend to be really into their cars. They are ‘petrol heads’ but also discerning.

“Rolls customers know their cars too, and might have an Aston in the garage as well, but they’re buying a Rolls-Royce as more a statement purpose — for business use, or a reward in life. An Aston is more a purchase of emotion and desire,” he said. Whether as a reward or out of emotion, buying an Aston is a considerable outlay. The average price ticket is around $175,000, and such an impulse purchase could easily be put off if personal economic circumstances took a downturn.

In the Middle East, where economies are tied to the oil price, that makes Aston subject to the vagaries of the global crude market. “What’s happening in the region is that governments are diversifying away from oil. (Saudi Arabia’s reform program) Vision 2030, for example, is a big change and good news for us. It will eventually take the volatility away from the macro economic environment. But we will always be dependent to some degree on global economic forces. China now drives the rest of the world in many respects,” Balmer said.

The IPO was an opportunity for Aston’s long-term backers — financial institutions from Italy and Kuwait — to realize some profits on their investments. The share sale raised no new money for expensive research and development, which some analysts criticized.

“There was no massive cash injection because all our new projects were already invested. And we’re making profits. But the IPO secures the long-term future of the company,” Balmer said.

In difficult global markets, the shares have been trading below the issue price since day one, but recently two big investment institutions — Merrill Lynch and Goldman Sachs — put them on the “buy” list. If they achieve sufficient value to be included in the main FTSE 100 list, Aston will be the first car company for 30 years to be on the UK’s main trading board.

That would be something of a triumph for Palmer and the second-century strategy, but Aston has another finishing line in sight before that: The Abu Dhabi Grand Prix. “We’ve got a number of things planned around the race, not least winning it,” Balmer said.