Breaking down the worth of SAA’s old Airbuses

Everybody has had the experience of a car dealer looking at an used car, shaking his head and muttering a long list of reasons why the car is not worth as much as the owner was thinking. The value usually ends up far lower than the original purchase price.

Why would it be different for aircraft?

News reports that SAA is inviting bids for nine of its Airbus A340 aircraft immediately resulted in speculation on what the aircraft are worth. The most popular figure was that all the aircraft bought new would cost R37 billion, excluding the 15 spare engines and some other specialised equipment. Even half of that would go a long way to solve SAA’s financial woes, and by extension a lot of the problems that SA is facing too.

Unfortunately, it is highly unlikely that the aircraft are worth even half the amount mentioned, even including the 15 spare engines and four auxiliary power units (the mobile units used to power an aircraft’s systems while waiting on the tarmac).

The Airbus A340 aircraft was and is not popular. It was designed as a long-range intercontinental airliner, starting production in the early 1990s. It was eclipsed by the Boeing 777 which had the advantage of delivering the same speed, range and payload with only two engines, compared with the four engines bolted onto the wings of the Airbus.

Thus, Boeing offered the same operating performance with less complexity and lower maintenance. Even the accountants at major airlines agreed and are still willing to pay nearly $100 million more for the Boeing 777 than for the Airbus A340. The Boeing sells at $350 million to $372 million, compared with the last selling price of $275 million for the Airbus.

Airbus produced the A380 in different variants, sold 377 and stopped production of the A340 in 2011. The Boeing 777 is still in production. Boeing has delivered 1 677 to date with around another 400 on order.

The SAA aircraft are quite old, even considering that aircraft can survive for ages. A quick look at the tender documents published by National Treasury shows that the aircraft have been in service since the early 2000s and some have clocked up nearly 80 000 hours.

Bids for SAA’s fleet of A340 aircraft might be low, considering technological advances, better aircraft available from the main competitor and the fact that everybody knows that SAA is desperate for cash.

It is interesting that Airbus is not that popular among SA airlines. SAA is the biggest operator of Airbus, with private charter company Global Aviation also a prominent owner of Airbus aircraft. Safair and Comair both exclusively use Boeing aircraft.

The aged financial statements from SAA also show that as at March 2017, SAA valued all of its aircraft and simulators at R11.3 billion.

It would have increased due to the depreciation in the currency from R12.60 to the US dollar to the current R14.43 as aircraft are valued in dollars, but by how much?

Calls to every possible aviation expert to get an idea of the value of the aircraft went unanswered on Thursday night, while SAA did not respond to questions either.

Several international aircraft dealers had Airbus A340s for sale, with one offering a A340-600 for $40 million. The advertisement did not give specifications such as total airframe and engine hours.

Another dealer had several A340s for sale with about half the hours of the SAA aircraft, but did not advertise the prices.

An aircraft scrapyard, AELS from the Netherlands, advertises that it “buys ageing aircraft which our skilled engineers carefully disassemble”. The parts are then sold to maintain planes that use similar parts.

The tender for SAA’s Airbuses closes on January 20. It would be interesting to see if it gets R10 billion for the lot.

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