Airbus to Give Billions in Fuel Rebates?

Last month, Enplaned was all over the plan by Airbus to offer its customers a fuel rebate so that the operating cost of the A340 will match that of the more fuel efficient Boeing 777. Says Customer COO of Airbus:

“I can agree a figure with a customer that reflects the fuel burn delta and run that out over 12 years and pay it to them,” he adds. “But if the 777’s fuel burn advantage was to give it greater range, then we’d have to look at [improving the A340].”
Enplaned makes some respectable back-of-the-envelope calculations:
Well, OK, it's probably wrong maybe it's $15mm, maybe it's $30mm, we just want to get an order of magnitude estimate. But it's big. Maybe it's smaller for the A340-600 vs the 777-300ER than the A340-500 vs 777-200LR, who knows.

Even on an aircraft with a list price of $200-250mm that's a lot to spot your competitor. Leahy has just offered this to the world. Every customer from now on is going to be insulted if bargaining on the A340-500/600 doesn't start from a similar premise. Not to mention those who already have the airplane knocking on Airbus's door asking for some money back. If Airbus is planning to sell, say, another 200 of the A340-500/600 we're talking $25mm times 200 = $5bn. Big bickies, as they say downunder.

Airbus is willing to spend billions on rebates instead of billions more on a redesign of its current A340. Enplaned notes the preferences many European people and company boards have for limiting environmenal impact:
So very seriously environmentally-concerned Lufthansa is polluting the earth something like 10-20% more than it needs to by running A340-600s? How will that look to the deep green German public? Sure, you can make up the cost of the kerosene with money from Airbus, but what about the damage to the earth? Who's going to pay for that? At the very least, Airbus ought to plant a few trees to make amends.
It's basically impossible to forbid Airbus from giving cash back to repeat customers, but if it were, would that intervention be the closest anybody has ever come to calculating a Pigovian tax?

H/T: Randy's Journal. The Randy being Randy Baseler-- Vice President of marketing for Boeing Commercial Airplanes in Seattle.


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This page contains a single entry by Kevin published on February 17, 2006 3:33 PM.

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