The Airbus A380 is a large wide-body airliner designed for long-distance carriers such as BA, Emirates, Qantas etc.  The A380 has four engines in contrast to most commercial airliners with only two engines.  The A380 first entered service in 2007 and was launched to compete with the Boeing 747 which dominated the long-haul market prior to the introduction of the A380.

To date, Airbus has delivered 251 A380s, 123 of which are operated by Emirates.  To date, the A380 has struggled to break into the American market. To operate an A380, the infrastructure needed is significant and the smaller airlines/airports simply do not have the required funds or need to set this up.

The A380 has a useful life in excess of 20 years. In a typical leasing transaction, a new A380 is leased to a carrier for an initial 10 to 12 years.  At the end of this lease term, the carrier may decide to terminate rather than extend the lease.  If the lessor cannot lease the A380 to another carrier and are required to sell it, they risk suffering a significant loss.  To reduce this residual value risk, a lessor may seek to purchase residual value insurance (RVI).

When writing RVI on any asset, underwriters need to have a clear path in mind as to how the asset will perform in the secondary market – in this case the market for 10- to 12-year old A380s. Most used aircraft are sold to emerging market carriers based in Africa, Asia and South America or to charter operators. Unfortunately, due to the infrastructure and operational requirements of the A380, there is a very limited demand for A380s in the secondary market. Over the past few years, airlines such a Singapore have also decided to retire some of its A380s.

Given the lack of secondary market for A380s, underwriters would be very cautious in providing any cover. To the best of my knowledge, RVI has only ever been offered on a handful of A380s and with very low limits.

Commercial aircraft more attractive to RVI underwriters include Airbus A350, Airbus A321, Airbus A320 NEO, Airbus A330 NEO, Airbus A220, Boeing 737 Max, Boeing 737-800, Boeing 787 and Embraer E195.

This post was authored by Nick Hester, Partner, Asset RVI.  Nick has been providing Residual Value Insurance solutions for nearly 30 years.