COLLATERAL DAMAGE

The delays in Airbus A380 deliveries are forcing airlines to continue operating higher fuel-burn aircraft and carry the cost of unused infrastructure. Some are even still scrambling to fill capacity demands.

The freighter conversion business is also falling victim to the A380 postponement. Companies that have taken slots at cargo conversion facilities now are struggling to find the airplanes to be modified since a number of 747-400 passenger aircraft are being forced into prolonged service life, industry officials say.

One 747 conversion site, Israel Aircraft Industries' Bedek facility, is bracing for a fallout. Company officials say "there is no doubt" there is an impact, although they add, "at this point, it is too early to get into any conclusions."

Many airlines, too, are still searching for a solution to their looming capacity shortfall brought on by the A380 arriving as much as two years late. There are not enough widebody aircraft of the type a carrier would need in the leasing world that will be available during that time period, notes an official for one leasing company. Instead, carriers will have to look for other methods, he says, such as deferring airplane retirements or their conversion into freighters, or even buying aircraft from financially strapped airlines.

The A380 turmoil has had a "significant effect" on the lease and cargo conversion market, says Tony Whitty, chief executive of Cabot Aviation, a U.K.-based aircraft remarketing firm.

Long-haul aircraft that were scheduled to come off lease in 2006 and subsequent years are already being renewed by major carriers, so those aircraft aren't becoming available until 2010 or 2011. Lease rates may also see some increases, although Whitty indicates that rather than prices being set very high, lease providers may opt for longer-term leases, rather than just 2-3-year deals.

For instance, Singapore Airlines says it's been talking to its lessors about 747-400 extensions, exercising preferential options on those contracts. Details are closely guarded. The airline owns the bulk of its 747-400 fleet, so deferred retirements and aircraft sales are being looked at, too.

Singapore Airlines also signaled that A380 customers are no longer willing to put business plans on hold while waiting for the mega-transport. The airline last week unveiled a new business class offering. But rather than introducing it on the A380, it will roll out on its Boeing 777-300ERs.

New purchases only provide a limited option, since slots are scarce. "For intercontinental-capable aircraft, there are few used aircraft available and few delivery slots for future generation aircraft," states a recent Morgan Stanley market overview. Airbus and Boeing refused to address availability of their respective offerings, the 777 and A330/340, during that period. However, airlines and the aircraft maker are in talks about taking up the available slots.