Investment firms have to be agile to get adequate returns for their clients. In some cases, this may mean employing sophisticated algorithms to beat the market. In other cases, a junkyard strategy may have to do.
The German investment firm Dr. Peters Group is adopting the latter with two A380 superjumbo airliners it just got back from Singapore Airlines after the 10-year leases expired. The investment firm was unable to re-lease the jets to airlines including British Airways and Iran Air but there were no takers.
Now Dr. Peters wants to break up the planes and sell the parts. The four jet engines alone could bring in an estimated $70 million to $80 million and could be sold quickly. Investors could expect an overall return of 145 percent to 155 percent, including currency gains already realized.
Singapore Airlines pioneered use of the double-deck superjumbo in 2007, but, like most other airlines, now prefers smaller planes, such as the A350 long-range jet. Airbus was on the verge of shutting down production of the A380 earlier this year, but a last-minute order of 20 planes from Emirates and an option for 16 more rescued the airliner. Emirates is the largest operator of the superjumbo, with 102 planes in operation out of 162 ordered.
“The market for the A380-800 aircraft type has not developed positively in recent years,” said Anselm Gehling, head of Dr. Peters Group, with some understatement. And yet, there are 223 in operation, offering a potential market for replacement parts. No market for used planes has developed because demand for the superjumbos has virtually ceased – except for Emirates.
The usual market for used planes, the discount airlines, have avoided the A380, in part because its amenities such as bars and showers lodge it firmly in the premium category. Also, it can be prohibitively expensive to reconfigure the cabin for discount airline or cargo use. On top of everything else, very few airports have upgraded facilities to accommodate the superjumbo.
Against this background, a plan that brings in revenues of $80 million per unit looks pretty good. Investors will vote on the plan later this month.
Jens Koenen heads up Handelsblatt’s aviation coverage. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: [email protected].com.