Airbus’ long range widebody A350XWB has reached break even point. This means that the costs of setting up the program have been paid back, and the aircraft can now start making the manufacturer money. As it’s only been flying since 2015, a break even within five years is an impressive feat for the European manufacturer.
The A350 breaks even
Airbus announced in its full year earnings release that the A350 program had reached the break even point. The A350 remains a key product for Airbus, and has become a popular choice for long-haul, dense routes that require a modern, efficient solution.
Over the course of 2019, Airbus received orders for 32 A350 aircraft. Right now, the A350 makes up 8% of the Airbus order backlog. A staggering 81% is the ever-popular A320 family of narrowbodies. During the year, Airbus delivered 112 A350s to customers all over the world, including many who were receiving their first of the type.
Airbus stated that one of its priorities going forward was to stabilize the profitability of the A350 program. It also estimated that, going forward, the A350 would achieve a monthly delivery rate of nine to 10 aircraft, around what it achieved in 2019.
What does this mean?
While most people understand that break even means the point where income and cost on a product are in line with each other, the terminology in aviation can be a little trickier to get our heads around. After all, selling airframes at a loss is never a good move, so why does it take time for the program to reach this point?
The projected cost to Airbus to manufacture an A350-900, as an example, is $110m. The list price of each aircraft is $317.4m for the -900, and $366.5m for the larger -1000. If Airbus was selling A350s at list price, then it would be making around $200m on each aircraft sold. With the research, development and certification of the A350 program estimated to have cost Airbus €11bn ($12bn), Airbus could have broken even on the overall project with the sale of just 60 aircraft.
However, that’s not the whole story. As the A350 is a relatively new aircraft, having entered service in 2015, airlines placing early orders would have received a substantial discount on the purchase price. Bulk orders too would have attracted a discount, as would early orders of the larger -1000 which only entered service in 2018.
Over the course of the program, 349 A350s have been delivered in total, a fair few more than our original 60 aircraft break even point. This just goes to show the substantial discounts applied to commercial aircraft orders, that have meant Airbus only just broke even on the program.
Do all aircraft break even?
In the majority of cases, an aircraft program will not be sustainable unless it does break even within the first decade or so. Boeing predicted a break even on the 787 after 10 years back in 2011, and is still a way off that point now. Even if it hits 1,000 aircraft delivered in 2020, the break even point keeps being pushed out (the latest estimate was at 1,600 aircraft) so despite its success, the 787 is yet to make Boeing any money.
Airbus’ own white elephant, the Airbus A380, never did break even. With the program coming to an end next year, it never will either. The fact that the A350 has broken even so early in its career is testament to Airbus driving operational efficiencies and sticking to a solid pricing strategy on this aircraft.
Overall, the A350 reaching break even point in 2019 is a very good sign for the program. The sales figures aren’t huge, so Airbus is clearly making good money on every aircraft it sells in order to achieve this. It’s a great sign for the program going forward, as every A350 Airbus sells from here on in is pure profit for the company once the manufacturing costs have been covered.
What do you think about the A350? Flown it yet? Let us know in the comments.