Emirates' Tim Clark Shares Hidden A380 Backstories

0:00Tim Clark: When one delay impacts multiple systems, DXC is there to connect airport platforms so the whole operation can respond as one for smoother journeys. Find out more at dxc.com. slash travel.

0:25Hello, everyone, and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm Air Transport World Europe and Africa Bureau Chief, Victoria Moors, and I am delighted to welcome you on board. This week, I'm joined by Emirates Airline President, Sir Tim Clark. Now, under your leadership, Emirates has grown to become one of the world's largest and most iconic airlines, establishing Dubai as a leading global hub. Now, you've been in this industry for 54 years with British Caledonian, Gulf Air, Emirates and Sri Lankan. In amongst that, 41 of those years has been with Emirates, including 23 as the airline's president.

1:04So obviously, that's an awful lot of experience of the various ups and downs of the industry. And we find ourselves in one of the supposedly relative downs at the moment. Obviously, we'll explore that during the conversation. So what we're going to look at is how Emirates is adapting its network strategy in the face of the geopolitical unrest that we're experiencing now. aircraft program delays and also your desire for extra large aircraft to continue feeding the Dubai hub. So welcome, Satim. Thank you. Let's start with the political environment right now. Obviously, in the Middle East, we've gone through a period of unrest.

1:45How is that impacting your model? It's not nearly as bad as a lot of people would have thought. Today we are operating 91 % of our fleet and our production. We have only about seven of our global points which are not operable, such as Iran and Iraq and one or two others. The income streams, both passenger and cargo, are very strong. In fact, better than they were this time last year. This is a strange paradox. Nobody would have thought, given what's going on, that is the case. But we kept our operations intact. We've done our best to make sure that we are meeting the requirements of the markets.

2:26Obviously, the fact that it's still coming to us, irrespective of what may be a perception issue, the government saying don't travel across this region or whatever, it doesn't seem to have stopped people wanting to fly. In the early weeks, when it started to be a little bit more focused on the UAE, for instance, uh there was there was you know we didn't operate and a lot of people weren't traveling but after a period of time certainly by june july it started to move again and and cargo has excelled obviously because there are some maritime choke points at the moment which is distorting the uh maritime channels traditional channels so a lot of the cargo that is based on just in time or or things like pharmaceuticals or some of the production things uh in automotive whatever we're carrying lot of those.

3:14So Cargo is a really good story taken together, but not doing badly. So in actual fact, what you're saying is that demand is remaining very buoyant. What about the cost side? Obviously, fuel costs have increased. Has that impacted your network or what you're able to do at all? You know, we kind of, we, one, with the fuel costs as it is today, we are already hedged well. A good chunk of our fuel is hedged at much lower levels than they are today. We're dealing with what's happened with the remainder of where the fuel has gone up today at$111. Irrespective of that, the airline is still quite profitable, not as good as it was this time last year, only because of the fuel.

3:56So had that fuel been back at where we were, we would be ahead in the first half year. Two cash on the balance sheet is as strong as it ever was. the forward sales that that sit on our balance sheet is also unchanged in its percentage of that total income that we over the cash income that we have that's on the balance sheet so this month compared to the same month last year we are ahead of where we were on our income streams the cost of course has changed because the movement of fuel in that unhedged element of our fuel uplift so we're dealing with that but then in may 209 fuel was 140 dollars and the world was going to implode and we all thought that's the end of the airline industry within a month it went down to 30 so i'm not saying that's going to happen but i i we we've all got to deal with this whether it be the the low cost uh elements the budget carriers whether it be some of the carriers like ourselves who go on ultra-long-range missions carrying a lot of fuel to make those missions.

5:07But I don't see, can I trade the business at these levels? Yes. Can I trade the business profitably? Yes. Can I trade the business with cash positivity? Yes. So it's going to take a lot more than that and knock us out of the water than this kind of thing, because we're kind of always on it, Victoria. There's not a minute that goes by without all of us sitting, that C-suite that I've got working with me. We're always on it. Yeah. And your Dubai hub plays such a central part in your model. Do you think that what's happened recently has exposed a vulnerability in that dependence on one central hub when that central hub could be impacted by whatever the crisis is.

6:00Well, one must ask if it was London or Paris or Frankfurt, what would they do? I mean, would you transplant Air France into Marseille? Would you transfer, transplant Heathrow into Glasgow? I don't know. But when you look at those examples, say for Air France KLM group, they've got a multiple hub, multiple airline strategy. possibly cope with if you knocked out one you think the other one would take the slack not a hope in hell sorry and i i you know we are where we are we are what we are we have to deal with whatever is being thrown at us and that has been part of our growth since for 41 years so So Dubai today is not the city of old.

6:45Because the government there, a lot of people say it's very cosmetic. It's very glitzy, glamorous. What they don't see is the degree of infrastructure, the tens of billions that they've spent on, whether it be transport, whether it be sewage, whether it be power, water, schools, roads, etc., etc. So it has enormous resilience, both physical as well as the qualitative element of the resilience, i.e. businesses there, the workforce there, etc. So it is at the moment standing in a very, very, let's say precarious position because of this geography. I don't think the government looks at it like that.

7:34They just say, well, tough it out. We've always toughed it out. in the end we've always gone on move along that's part of our ethos as well if i was to be a person i'm giving up this is this is then we're gonna work well while you're talking to the wrong person but it comes from the belief that dubai will deal with this and in the belief that it'll come to an end and then we will just move on not as if nothing's happened there will be some changes as to how people regard the politics not in my pay scale of what goes on in the region but do i think they'll be it'll retard no it won't so the notion that we would be under threat or have to move no that that doesn't uh you know it'd take a severe amount of damage to stop us even thinking about not operating but don't get me wrong this isn't maverick this isn't reckless this is safety of operation is is absolutely you know as the accountable manager for the airline for safety I take that very seriously because it'll be on me if something happens as a result of recklessness.

8:38Yeah, it sounds as though from everything that you've shared that your focus is very much on quality of service and safety, not necessarily in that order, and also toughing it out and getting through any crisis that might come your way. While we're on that subject, you have had an impact to the business from aircraft delivery delays and you're also not expecting to take the early production 777-9s, the 777Xs that are scheduled to come into the fleet. How much is that impacting you? Well these aircraft were built in 2018-2019. They have been standing on their wheels for all that period of time and as I said earlier we made it absolutely clear to Boeing some years ago that we won't be taking those.

9:30And that's both verbal and written to them. So the notion that we would ever be taking those is one thing. Even if they were under production, including production, I don't know when the engines are going to be delivered for them. Here we are, coming up to the end of the year. I still do not know, from Boeing and Airbus, apart from the first three or four, when these aircraft are going to be delivered. Boeing haven't given us a ramp up rate although they're probably the better position to do it than GE but to meet the ramp up which is their own one a month two a month seven a month 12 a month etc they have nearly 700 sold large chunks of those were sold for delivery between 2020 and 2029 now here we are coming up to the end of the year of 26 and not one has been delivered so the compression in the contracted delivery period is is horrendous frankly but on top of all of that as if they didn't know what that was and gee the sole engine part didn't know what that was they can't provide engines i say guys you knew that these aircraft were going to be delivered at some point and you knew that it was the largest single airline order in history when we signed for it in 2013 with GATA and Lufthansa did it just before Asenity had we sold nearly 300 of those aircraft we bought for those in terms of value it was unheard of so you knew then and you've known all along what it is that you were going to have to step up to why at this stage are we having to wait even now at the end of this year I don't know what's going to happen it's it's totally unacceptable what dates have you been given even as a guideline we were we were told that you know it's it's a moving moving goalpost quite honestly we we were going back to 2020 it was going to be october 21 it was going to be 23 it was going to be october 25 uh here we are at the end of 26 and we still don't have a firm picture what we do know is that the airframes are under production all the interior design work that we've done the bi-furnace equipment the seats galleys toilets whatever else is coming is there in boeing and they're being put on the aeroplane so job done now we just have to wait until certification e-tops ticketing after that the airframes are coming along but then when there are no engines it slows the whole airframe production down so boeing have got to build the interiors luftans's interior sqs whatever all the way they can't put engines on set take them out of sequence and wait for the engines to come on so they can release it's a nightmare for them i admit but between boeing and ge the two of them should have got together and said so at farnborough i had the famous baked bean can thing but at that point i had separate meetings with both boeing and general actions i need to know exactly what's going on here i mean we're not talking about cessna 150s we're talking about these 300 350 million dollar airplanes and we got 170 and you still can't tell me when they're going to come that is totally delinquent it's not acceptable and that was three months ago so here we are proceeding to the end of the year and i still don't know i think probably we put so much pressure on them that they will give us a delivery stream which will be heavily caveated or so restricted because they really don't want to contract for those particular dates.

13:27So as my friend Carsten Spohr said, I'll take them when they come, as if to say I'll wait for when they're ready to deliver them to me. In the meantime, like everybody, we're all scrabbling around trying to meet the demands with the old aircraft. Shifting to the opposite end of the spectrum, so the A380, which has obviously been a very iconic aircraft for Emirates. what's your latest on the timeline for taking those out of service? 2041. So it has stretched to the back end of the bandwidth that you gave for the creating service. Of course, the aircraft was originally scheduled under its design for 100 ,000 hours or 20 years.

14:13It came for a certain amount of cycles. So that's, of course, as we've gone through its life, that has been extended to about 24 years. We might get 25 years. So on the basis of inputting that and having to ground them because, well, they're still flyable, they are beyond their certifiable or certified lifespan. They will have to come out unless something else changes. But they are so popular. And last year, the 380 was the most profitable asset in our fleet. And that was the most profitable year we've ever had in the industry today. So it tells you how successful, how popular that aeroplane is.

14:49Now that we have it in four classes and we've revamped the whole aircraft, it's a piece of work, actually. It really looks beautiful inside. And our passengers absolutely love it, as you can see. I mean, it's the party animal of the sky. And yet you have seven of them on the ground at the moment. Most frustratingly, yes. With no engines. Well, we have engines, but they need overhauling. We can't fly them, although the engines are OK, but they've run out. And, you know, you can't fly them once they run out, so that's it. So we have to wait to our friends in GE and practically get them sorted out.

15:29Another frustration. Yeah. Do you have any timelines for when those seven might come back into service? No. No. I do not know. It's driven by the turnaround time. Contracted at 85 days, coming at over 350 days. so an engine goes in instead of taking 85 takes so you can see why it's taking them so long to take the backlog because it's nearly four times the the time to turn an engine around don't forget when you overhaul an engine it's not just change the oil you're basically replacing it comes out as a new engine and it costs an awful lot of money to do that but despite that they still can't seem to get the materials in to do it to the level they contract for.

16:17How important are very large aircraft to your models? So clearly the Emirates model is about shifting huge volumes of passengers over Dubai to whereabouts they want to go to. It doesn't look as though the manufacturers at this point in time are going to develop any new ultra-large aircraft. What does that mean for Emirates? well i think one that is a fact the 380 will go uh today we have it in forecasted 484 seats in some luxury um the the aircraft that are coming behind them the 7779 are going to be very nice but they won't have that luxurious space particularly the economy cabins uh they'll be nice though don't go me wrong we've done a lot of work to push sidewalls up bigger windows make it look as best we can but when you get onto a 380 in economy the walls do this they go out you've got these big window reveals windows are not but they look voluminous ceilings are much higher so and there's spaces in those huge doorways which we can't use for anything i wish i could but we can't because they're for exit reasons so people are wandering around in the premium economy on the main deck that we've put there you've got that between the l1 and the l2 doors behind the flight you've got three toilets you've got the galleys behind you're completely enclosed cabin oh here right down there i mean the number of parties that go on down there and then people they come up i'm on the upper deck in one of the first guys you want to come and see this oh my god christmas huh this is just fantastic they love it absolutely love it 242 seating you know 36 inch pitch sleeperettes etc i've now put in electrical premium economy plus these electrical dividers give them a bit of privacy as well up the food up the staff well that's really gone well so the point i'm making is that we with that 56 on the main deck in a premium economy plus what we've done in business it was the lounge at the back upgraded the first class done a lot of changes in it in economy that is going to be a very difficult one to to replace the 7779 is a very it's the largest we could get obviously um as i said we've done all those things to make it look and it will have some very nice features like i'm not going to tell you what they are but they will be very nice features and the 350 is already out there the 900 is in three classes that's proving very popular but is it the same as getting on a 777 7th um with the space that the 7 7 probably not but it's best we can do they call it the xwb um it's obviously it's it's the widest they could do in terms of the economics they were planning so you're left with what we're doing on the 350 the 350 1000 is out there so that's a clone of that except on the 350 1000 if we bought it we'd have a first class and i've already worked with airbus on the designs of that and what it would look like if they stretch it again to what they possibly call the 2000 i'm not sure that they've made the decision that but if they do it'll be more of the same just give us more seats and more gizmos and gadgets to put in it and if i can get boeing to to make the 10 a stretch of the nine and we've told them where we we think the frame should go and how many frames that gives us quite a break in whichever segment of the configuration economy business premium etc so that's it that is it what you see is what you get and i'll say to the heads of these companies is that it guys is that it and you're going nowhere remember the 747 came to market in 1969 68 still flying the 737 62 and need i go on yet you still have the 737 flying the new ones you've brought to market you've got the 787 you've got the 777 but your job is to take the industry on your job is to look in the next 50 years of what's going to be happening.

20:35Not say that's it. I wouldn't do that, excuse me. Did Airbus not do that bold, brave move with the A380? And yet, perhaps there aren't as many A380s in the market, ignoring Emirates as Airbus would like. I think in some respects, the demise of the A380 was driven by the, dare I say, the inability of many carriers to make it work. It is a beast that you cannot offer 10 or 15 of them profitably you've got to have at least 50 to 70 of those to get the economies of the the the scale of production where you integrate it into something we do in dubai if you've got them flitting around strange places it's never going to work so the we could see that's why we bought 125 of them because we knew that we could scale on that basis but the the if airbus when they were in the mix we had a load more on order and we were talking to them and the east west trade the first trump administration remember they were fighting each other cutting that the mexican because of the free trade agreements oh my god everything started to go south the 380 was a problem for that for a lot of the carriers i hadn't couldn't wait in the work so there was no more coming down the line john lee he bless him created the neo that didn't get traction at that stage of the game i can't i was not comfortable that they were believing that there was a business model to be able to take it on and go further so it kind of reached the point where they said we're not selling anymore tim if you were to buy 200 we keep it going i was thinking it's a bit of an ask even for emirates can't even fit them in to our thing so it what happened happened but the covid resurgence and the maths that went into that resurgence you heard what i said about people traveling twice as regularly paying almost double the price where does that take you what it told us that for decades we've been underselling our products and they must have been laughing themselves to the bank say well that's great give me that no problem i would pay double for that and they did and they still traveled more so that suggested the demand was increasing at a pace that perhaps we should bring back the 380 into the mix but of course when i look at united delta air france ben smith or whoever was running british airways at the time there was no appetite for it so we were as usual the voice in the wilderness i think there are a number of believers in airbus as i've said to them many times with a drop-in ultrafan technology into the xwb engine with the new wing a much reduced fin tail with um a greater use of composite but not totally because the titanium aluminium composite has actually become very very almost as light as the others but it has qualities that composite doesn't have so you improve the aerodynamics of the thing uh you change out all the systems because don't forget the aircraft was designed in the 90s now if you take 350 technology or 87 technology cross fertilize those into the new 380 my view 25 reduction in costs to operate 25 shock horror so instead of burning um 12 tons an hour i'm burning nine now you're not far ahead of some of the twins on that basis so it was all part of but then what was going to what were they going to sell it at where would it operate i know where i'd operate and if they did i would replace all of the ones we've got and by the extra hundred with that field come out no problem if they did and uh they at one point they said i tell you what we'll build it but you pay for it plant production etc etc i said no you've got to recertify it and then you as a manufacturer i'm telling you we would buy them there's a minimum of 100 they said no that's not going to cover the break even actually we need 250 to make it work so if you sign 250 then we we've got to wash on the costs um but if we were to buy a hundred there will be a lot of gasp and startling stock shock horror choking going on in the boardrooms of all the major carriers because if eminence is allowed to have all the ones that it's got plus another hundred you've got 220 wide bodies in that mega hub be careful guys so what we need to do we either run screaming to our governments to protect ourselves which happens here or we buy and compete and the beauty about it is to the point i was making earlier the global demand is growing people seem to think the cake is staying like this it really isn't if you look at africa 350 400 i'll forget what the cost they're going nowhere You can't even fly between some of the big cities.

25:50And their reliance on the mobile phone is legion. Without that, the place would be. And yet they scream, look at the size of Lagos. Lagos is 20, 30 million people. It's a powerhouse. Although it's, you know, all the things that look at Accra, look at some of the other cities growing. Now look at South America as well. Oh, well, need I go on? She had on the map Santiago. Okay. So you've got a... Chile is powerful in earths, rare earths, in ore, minerals. It's a very wealthy country. So it goes on. And I'm thinking, if I had a 380, I already can get it to Los Angeles and Houston nonstop. Now, imagine if we had all those things I talked about.

26:39I could get into places like Santiago nonstop. Think about that. It would scoop up South America. I could reach Sao Paulo. I do anywhere every day with the street. But all the other places, Buenos Aires had our eyes, and goes up and down with the politics of the place. But it's a hugely powerful, Panama. I mean, we don't need to go on, it's huge. You mentioned in amongst that about the potential competitive response to Emirates gaining more ground and more size. One of the challenges that is going to be coming up for the next six months, I would say, is we have a new EU emissions trading system proposal that would bring your Dubai hub within the EU ETS.

27:34What are your thoughts on that? Well, again, I'm concerned, unsure, about where the 5 ,000 kilometres came from. Actually, I do know where it came from and why the EU was put up to do that. Basically, it embraces the hub carriers that present the greatest threat to the European carriers. Let's be quite honest about that. It's the only reason they're doing it. The EU can do what it likes with regard to how it deals with emissions. It's up to them. I am not 100 % sure that the 27 members of the project are fully on board with it and whether it's a commission-driven thing. I think that has to be sorted out.

28:13When it comes to execution, they need to look at the reciprocity angle of all of this. And I think they got such a pushback after the last one, which failed, because certain countries in the mix said, they ain't going to happen if you do, there'll be a problem for you because we'll reciprocate. That's unfortunately all we've got time for for today. But I'd like to thank you for taking the time to join us on Window Seat today and for sharing your thoughts and experience. Thank you, Victoria. Always a pleasure. And before I sign off, I'd also like to say thank you to our producer, Natalia Pileo.

28:50And of course, a huge thank you to you, our listeners, for following Window Seat. Make sure you don't miss us each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. This is Victoria Moore's disembarking from Window Seat.

29:15Tim Clark: When one delay impacts multiple systems, DXC is there to connect airport platforms so the whole operation can respond as one for smoother journeys. Find out more at dxc.com slash travel.