Airbus offer not viable financially, Biman evaluation finds

European aviation giant Airbus' offer to sell two A350-900 passenger aircraft is not financially viable for Biman Bangladesh Airlines as its net cash flow is found negative for the next 25 years compared to the cost of capital investment, according to a report.

The report, prepared by the techno-financial evaluation committee of the national flag carrier, projects that Biman will have to pay a total of $900 million for the two aircraft by June 2027, which is 18.6% higher than the base price of $763.75 million offered by Airbus based on 1 January 2023.

The price escalation is significant due to a high-interest cost at a 5.50% SOFR rate, compounded by the current cost of capital and an escalation factor based on a formula provided by Airbus.

Besides, Biman will need to pay a $10 million non-refundable commitment fee upon signing the memorandum of understanding. Also, an initial investment of $126 million is projected for spare engines, parts, tools, equipment provisioning, and crew training due to the different equipment.

Therefore, the total investment for the two aircraft will exceed $1 billion, equivalent to Tk12,000 crore at the current exchange rate.

This substantial capital investment will generate negative cash flow over the next 25 years based on Biman's operating plan, as revenue generation is low due to poor yield, the evaluation committee finds.

"As the project is not financially viable, Biman may not consider purchasing the two new A350-900 passenger aircraft from Airbus," according to the committee's report obtained by The Business Standard.

However, an alternate source of funding with less than 1% interest and changes to routes, frequency, and fleet size may make the project viable, said the report.

Though the A350 is popular among renowned airlines worldwide, Biman will face challenges in crew management, engineering training, logistics, pre-flight inspections, and provisioning spares and tools when introducing the aircraft into its fleet, according to the evaluation report.

The report further says, "The management needs to consider very carefully before finalising its decision."

To evaluate the Airbus proposal, Biman management formed the techno-financial committee through an office order on 31 July last year, comprising internal and external officials.

The committee submitted a comprehensive evaluation report on 30 January 2024, based on Biman's ground rules and considering commercial, technical, operational, maintenance, and financial aspects.

Meanwhile, Biman has also an offer from Boeing in hand, which has yet to be evaluated.

In a recent visit to Dhaka, Ryan Weir, vice president of India and South Asia Commercial Sales and Marketing at Boeing, demanded fair evaluation of their proposal. 

He said Boeing had proposed selling four 787 Dreamliner passenger planes and two 777 freighters a year ago, but Biman has yet to begin evaluating their products.

He urged for a fair evaluation before making a final decision on procuring new aircraft.

The two aircraft

Airbus has proposed two A350-900 aircraft with Rolls-Royce engines to be delivered between the second half of 2027 and the first half of 2028. Each plane will have 346 seats.

Airbus quoted the aircraft price based on the 1 January 2023 rate, despite delivery scheduled for January and July 2028. The price will increase on the delivery date based on a set formula provided by Airbus.

Hence, Biman estimated the increased price of the aircraft at delivery by considering a 3.50% annual escalation factor.

Biman currently operates 21 aircraft, with 16 made by Boeing, US, and five Dash 8-400 Turbo-prop aircraft made by De Havilland, Canada.

Biman's "Network and Fleet Plan for FY2024-25 to FY2033-34" indicates a need for 47 aircraft by FY35, including one with over 400 seats, eight with 300 seats, seven with 270 seats, ten with 170 seats, and six with 70 seats.

As per the projection, Biman would require a 400+ seat capacity aircraft by FY29 and two 300+ seat capacity wide-body aircraft by FY26.

Challenges in crew

The report also mentioned several challenges of procuring the two Airbus aircraft. 

It said Biman faces a significant crew shortage across its fleet. Introducing the A350 requires a separate team of trained pilots. The existing crew must undergo training to operate Airbus planes. 

Switching crews between Airbus and Boeing is complex. With current crew shortages, deploying them on A350s poses challenges. Recruiting new crew will not quickly resolve the issue, as "experience" is crucial in aviation. Acquiring the necessary experience for advanced planes takes time, said the report.

The evaluation committee also noted that operating the A350 on existing routes would require more than double the cockpit crew compared to the B787. This is because Biman's B787 flights have lower crew requirements due to established flight patterns, crew rotations, and rest periods.

Currently, there is a shortage of available A350 cockpit crew in the international market. Biman may need to recruit cadet pilots locally and provide them with subsequent training to address this shortage. 

Challenges in maintenance

Currently, Biman operates Boeing 787-8/9, 777-300ER, 737-800, and DHC-400 aircraft. Introducing the A350-900 will add a new aircraft type to its fleet, leading to a mixed wide-body fleet. 

This brings several challenges in airworthiness management, maintenance, certification, training, logistics, and pre-flight inspection, said the report. 

These challenges can affect various aspects of airworthiness management, line and base maintenance, certification, training, logistics, and pre-flight inspection, etc.

The dissimilar equipment compared to Biman's existing fleet will require spare engines, parts, and tools. Based on discussions with the Airbus team, approximately $61.77 million will be needed for spare parts, tools, equipment, and spare engine.

Challenges in engineering section 

A significant number of Biman's engineering and maintenance personnel will be retiring within the next five years, creating challenges in maintaining the current fleet, according to the report. 

It typically takes seven to eight years to train skilled personnel eligible to certify aircraft, so immediate and large-scale recruitment is necessary, it said.

Meanwhile, Airbus offers 1,000 trainee-days support for engineers for the two aircraft, but 2,000 trainee-days are needed to train engineering and maintenance personnel fully. 

Besides, Airbus' proposal does not include training for software development, modification, configuration control, electronic delivery, or safety and security programs for the Performance Engineers Program (PEP). Airbus could not confirm whether the PEP is part of the offer. 

Also, the Engine Maintenance (Total Care) Program is exclusively offered by Rolls Royce, while the Component Repair/Overhaul Service programme is available from Airbus and other vendors on a Flight Hour payment basis.