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A340-600 Values Represent Disaster for Owners

August 20, 2018

The market for the A340-600 continues to deteriorate not aided by the increase in the price of fuel.

With only some 15 years since service entry, the orders for the A340-600 before cessation of production represented a disappointment and has long since lost its attraction due to the popularity of the B777-300ER, which itself has been a considerable success after a slow start. Values of the A340-600 have experienced considerable fluctuation. The introduction of higher weights left earliest examples somewhat exposed and all variants are vulnerable to the sustained transition to new twin engined types.

The A340-600 offered much when proposed. The four engines offered reliability and safety. The interior flexibility provided opportunities for operators and passengers. The aircraft fulfils a much needed role in the market, providing an alternative to the B747 as well as allowing existing A340-300 operators an upgrade path. The use of four engines also alleviated any concern over ETOPs which places additional burdens on the operator, pilot and aircraft. The versatility of the aircraft is therefore a considerable advantage.

However, the problems with not effecting a mature product on service entry, the failure to appreciate the significant economy of twin engines, a smaller fuselage diameter to the B777, the continual need to increase the MTOW of the aircraft to compensate for a higher empty weight, the inability of operators to match brochure capacity have all combined to make for difficult market conditions for the type. The B777-300ER has also proved to be a formidable competitor not only in terms of offering twin engined economics but also in meeting original design requirements and being a mature product on service entry.

The seating capacities of the A340-600 and B777-300ER cited by the manufacturers are 380 and 365 respectively based on a three-class configuration. However, in reality customers select fewer seats, with Airbus operators in particular failing to meet the capacities suggested. The use of a lesser number of seats has a considerable impact on seat mile costs. With Airbus basing its fuel efficiency on a seat count of 380 versus the 365 of the -300ER, the -600 would seem to be the more efficient. However, with a real world average seat count of only 323 seats for the -600 versus the 332 (excludes the peculiar ANA configuration) for the -300ER, the reason for the disparity in lesser fuel efficiency of the Airbus aircraft becomes more apparent.

The development of a replacement in the form of the B777-9 and the existence of a worthy competitor with the existing B777-300ER has accelerated the demise of the A340-600. With the development of the A350-1000 the appetite for four engines is even less apparent. The previous moves being made by Airbus and Rolls-Royce to revitalize the A340-500 and -600 and change both operator and investor perceptions, was long overdue and vital to ensure that the two variants continue to have a future beyond the original customer base. While some movement in the secondary market is evident, the time needed to dispose of the aircraft and the level of discounting, represents a concern that will be difficult to overcome. Airbus could further improve the marketability of the aircraft by offering reconfiguration at a fixed price. The A340-600 continues to be a marginalized rather than a niche aircraft.

The values of the A340-600 have experienced a notable fall in recent years and a collapse in recent months as the fuel economy of the type has been affected by the arrival of newer twin engined aircraft types. The potential for short to medium term leasing is also likely to reduce in the context of lower fuel prices. As the aircraft increasingly filters down to second tier carriers, there will be increased emphasis on capacity as a means of further reducing the seat mile costs. Airbus is making progress in increasing the seating capacity of the A340-600.

As aircraft are transitioned to second tier operators, the combination of weaker credit and shorter term may allow lease rentals to improve on a comparative basis. The possibility of parting out increases as the cost of maintenance rises. Within the long term, the values of the aircraft are expected to be vulnerable to the greater availability of used B777-300ERs.

The OEMs are not only seeking to show that the current market is different but that they are also committed to undertaking changes that will strive for parity with the twin engined aircraft. The very problem for the A340 – the loss of value and fall in lease rentals – is the very reason that the type has become economical once more, at least for some operators. Airbus also increased its commitment to supporting those operators which have lesser resources to operate a larger aircraft in terms of product support and flight operations. Flying long haul, with such high capacity aircraft and a limited fleet, creates all sorts of logistical issues in terms of technical support, crew rosters, AOG situations etc. A smaller airline will gain from the absence of ETOPs on the A340 but will in turn need to rely on the manufacturer given the absence of in-house capabilities. There is sometimes an assumption that if the price is low enough then there will be demand but this has not been borne out by experience. The lease rentals and capital cost of the MD80 fell in the last decade to negligible levels but there was little interest in the type even with a record backlog for new aircraft. This was perhaps a consequence of perception.

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