Boeing's Setbacks Could Extend the Life of Airbus' A380

The Airbus Corporation has seen a decrease in its stock value of 0.07%.

The Airbus A380, which has been seen as a burden in the aviation industry, may be getting a second chance. One of its advantages is that it is different from the Boeing BA 0.84%.

The 777X aircraft is already in existence.

In 2022, one of the most successful stocks in London saw its value more than double. This small company owned a single asset - an Airbus A380 in the Emirates Airline fleet. The majority of the gains occurred in July when the Dubai-based carrier agreed to purchase the plane for around £25 million, which is equivalent to $30 million. The transaction was finalized the week before Christmas and significantly increased the expected liquidation value of the investment company, Doric Nimrod Air One DNA 0.00%.

The stock symbol for the company DNA is DNA.

The agreement also raised expectations for two related vehicles, the Doric Nimrod Air Two DNA2 0.00%.

The Doric Nimrod Air Three DNA3 has a 0.00% rate.

Two companies, DNA2 and DNA3, have taken advantage of a potential opportunity by owning 11 Airbus A380s that are leased to Emirates. Elliott Management has revealed their ownership of 11% and 14% of DNA2 and DNA3 respectively, as well as 6% of Amedeo Air Four Plus, which holds A380s and other aircrafts leased to Thai Airways. These contracts are set to expire in October.

Two years ago, the A380 seemed to be on its way out. Airbus announced in 2019 that it would no longer produce the four-engined plane, which had not been as successful as anticipated due to the competition from Boeing's 787 Dreamliner and Airbus's own A350 - smaller but more efficient twin-engine jets. Airlines began to remove the A380 from their fleet plans. The pandemic then hit, drastically reducing travel and causing many airlines to go bankrupt.

The stocks of the Doric Nimrod family experienced a decline in value due to the original DNA being launched twelve years ago with the intention of purchasing an A380 from Emirates and leasing it back. Subsequent years saw the launch of other similar aircraft-leasing companies, however, they were hesitant to get involved with the double-decker due to doubts about its use case and residual value - worries that were later proven to be accurate.

In 2020, international travel began to resume, and Emirates, the A380's most prominent supporter, has seen the most success. The airline reported a record-breaking $1.2 billion in profit for the first half of the year, which may have been aided by the influx of wealthy Russians to Dubai. Emirates has been gradually bringing its A380s out of storage and announced at a Dubai travel conference in November that it hopes to have all of them back in service by the end of 2021, allowing the airline to return to pre-Covid levels.

The recovery of the travel industry could be hindered by a recession, but that is not the only issue Boeing is facing. The MAX and Dreamliner have caused delays in the arrival of the 777X, an extended version of the 777 wide-body franchise that Emirates was relying on to replace the A380. The plane is now predicted to arrive no earlier than 2025.

The companies that Emirates leases its A380s from should be given more credit. Even after the deal with DNA, the sister companies' stock prices suggest that each A380 is worth around $15 million. This is not a lot when you consider that they will receive $12 million for each plane if they are returned in used condition instead of being fully refurbished, as stated in the terms of the lease.

If Emirates returns the jets, the scrap value should be enough to cover the $3 million per plane that is at risk. It is more likely that Emirates will negotiate with the plane owners to extend the leases or purchase the planes, which could result in better returns. Richard Evans, co-founder of Mara River Capital, a hedge fund based in Texas that owns shares in DNA3, has noted the positive outlook of an investment with a minimum loss and a potential for gains.

The challenge is that it is difficult to determine how much of a benefit could be achieved. DNA1's roughly $30 million is a reassuring indication, but this is not a typical market: Emirates is the only airline that truly depends on the plane, giving it considerable "monopsony" negotiating power. What happens when a wealthy purchaser needs a used product, but no one else does? Likely more than scrap - but the potential may not be limitless.