Singapore Airlines and Airbus have agreed on a revised delivery schedule for eight A380 aircraft on firm order, impacting SIA’s 12th to 19th A380s. Under the new schedule, deliveries will take place between six to 12 months later than originally planned. The 12th aircraft will now be delivered in October 2010 rather than April 2010, while the 19th aircraft will be delivered in January 2012 rather than January 2011.

At present, SIA has nine A380s in operation and will take delivery of two more in the current financial year. SIA has said that it is satisfied with the operational and commercial performance of its A380s, which have proved to be popular with customers.

The delivery deferment is in line with our capacity forecasts, where we are projecting a 14% reduction in capacity in the current financial year, followed by a further 5% contraction in FY11. Similarly, we expect passenger traffic to fall by 15% in FY10, and by 3% in FY11.

SIA’s capacity cuts instituted over the past six months have shown load factors flattening out in the mid-to-high 70s. The erosion in traffic has also stabilized, but remains soft. The key question therefore remains yields, which remains at risk, where SIA has been discounting fares and loads on its premium classes are still weak.

Currently, our passenger yield assumption stands at 11.2 cts per km, which implies a net profit of S$451m in FY10, and is subject to further revision if yields do not recover from 1Q10’s 10.2 cts. Breakeven yield stands at 10.4 cts, by our calculations. SIA’s management has been warning that continued adverse business conditions could potentially cause a full year loss. However, we reiterate that FY10’s weak earnings are already expected and priced in by the market. We maintain our BUY call with target of S$14.70 based on 1.2x PBR.