Yesterday Doric issued their quarterly updates for
DNA,
DNA2 and
DNA3.
Emirates Airlines
Annual Report LinkFrom the commentary it appears that Emirates President, Sir Tim Clark has decided not to scrap any further A380's (they have scrapped five to date) largely because Boeing and Airbus have royally screwed up with the B777X, B787 and A350 leaving Emirates with no alternative for high capacity aircraft.
Thus "...With a looming aircraft shortage in Emirates’ fleet in 2024/25, Clark wants to extend aircraft lives: “Life extension will affect about 120
aircraft, 80 of them A380s, plus about 40 or 50 Boeing 777-300ERs." and "...Today, if we had 118 [A380s] they’d all be full..."
Despite significant fuel price increases the biggest challenge appears to be getting an extra "...8,000 to 10,000 crew members".
So it appears Emirates A380's operational future is secured.
The leasing arrangement between DNA3 and Emirates provides a lease arrangement is to 2023 (the initial Lease is for 10 years) with an extension period of two years ending 2025, in which rental payments reduce. Contractually the present value of the remaining rentals in the extension period at the end of the initial 10 year Lease term must be paid even if the option is not taken. Shareholders have not been informed what the two year option lease payment value is and I'm not sure if the 31p income distribution mentioned in the quarterly report includes this option. It should, but am not convinced it is!
Up to this point I was thinking the aircraft would be coming off lease in 2025 but given Emirates demand for the A380's it is not entirely unreasonable to think the two year operating option may actually occur (not really in the best interests of DNA3 shareholders). This would to some extent go against the ethos of Emirates in maintaining a young fleet; remember Emirates took delivery of three new A380's last year.
Yesterdays quarterly report maintained an aircraft residual valuation of $50.8m each but that valuation is still based on a March 2021 valuation. Clearly that is optimistic to say the lease; even taking into consideration current inflation rates. Interestingly DNA1 which comes off lease end of this year values an A380 at $43.6m but again that is based on March 2021 valuations. My personal view is that a figure of $3.0m/aircraft is nearer the mark; that equates to about 5-6p/share.
However, as mentioned earlier, DNA lease return conditions are being re-negotiated to a 'half life' equating to about 17p for the fleet.
Even today, if you add up income distributions, residuals and lease return conditions a buyer today would still make a reasonable profit. And if I am severely under-estimating residuals then significant profits remain to be had.