AirAsia to boost record Airbus deal to 300 planes

By @ibtimes on

AirAsia Bhd will buy an extra 100 Airbus A320neo jets, taking its record-breaking order to 300 planes, a source said, a deal which would make the Malaysia-based budget airline one of the world's largest carriers.

The two sides announced an $18.2 billion deal for 200 planes at the Paris Air show last month, shattering aviation records for the largest ever airline order. The additional order takes the list price of the contract to a staggering $27 billion.

The bumper order highlights Airbus' growing lead over Boeing and throws the spotlight on AirAsia's aggressive growth plans at a time when high oil prices and an uncertain global economy are clouding the outlook for travel demand.

Analysts expect the extended order to drive AirAsia's expansion as it competes with carriers such as India's IndiGo, Singapore's Tiger Airways and Australia's Jetstar.

AirAsia had the first-mover advantage and it continues to stay ahead of the game by ordering fuel-efficient planes and keeping the size growing, said an aviation analyst with a Malaysian investment bank who declined to be identified due to company policy.

But the key risk is if expansion plans do not succeed. The Malaysian base is fairly saturated so if the other markets do not grow or cannot take off because of protectionism or other factors, then they will find themselves having to manage a lot of aircraft, the analyst said.

Like the previous order, the additional 100 planes would also carry CFM International engines, the source with direct knowledge of the deal said, declining to be identified because the deal is not public yet.

The source said AirAsia would receive a discount for the entire order, but did not give further details.

The schedule for deliveries of the latest batch of the A320neo planes will be at the discretion of AirAsia, the source added, without giving a timeline.

AirAsia was not immediately available for comment.

GROWTH PLANS

The initial order of 200 planes will be delivered from 2016, as Air-Asia seeks to reap the benefits of being based near the two fastest-growing aviation markets in the world -- India and China.

The A320neo is a version of Airbus's best-selling 150-seat passenger jet offering fuel savings with new engines from 2015.

Asian budget airlines placed a record $42 billion in plane orders during the Paris Airshow, signaling their high expectations for travel in the world's fastest growing market and also triggering worries some may not survive.

Many of the no-frills carries such as AirAsia and Indigo aim to more than double their fleets to power rapid growth, partly at the expense of full-service airlines such as Cathay Pacific and Singapore Airlines.

AirAsia chief Tony Fernandes told Reuters earlier this week he saw the company as a 500-plane airline, which would make it second only to America's Southwest Airlines.

AirAsia, which flies to 63 destinations in more than 20 countries, has 90 planes currently, almost all single-aisle Airbus A320s. Besides the 300 Airbus A320neo deal, it has another 75 Airbus aircraft already in the pipeline.

The group has a 6 percent market share in intra-Asia routes, ex-domestic, higher than Malaysian Airlines' 4 percent, but lower than Singapore Airlines' 9 percent, Goldman Sachs said in a recent research report.

AirAsia, which has a market value of $3.2 billion, plans to list its Thai and Indonesian units this year and its long-haul unit AirAsia X in 2011 or 2012. It is also looking to build a hub in Singapore.

Fernandes has said AirAsia will fund the Airbus purchase through a mix of debt and cashflow.

Obviously we're a much, much bigger company than when we bought a hundred planes so we're taking the same number of planes a year but now our cashflow is much, much stronger than it was before, said the 47-year old Malaysian entrepreneur who also owns the Team Lotus Formula One squad.

Worldwide passenger demand is expected to rise 4.4 percent over the next year with the Asia-Pacific region growing faster at 6.4 percent, according to the International Air Transport Association (IATA), which represents the majority of airlines operating in the $598 billion industry.

The Center for Asia Pacific Aviation, an independent aviation market research provider, said low-cost carriers accounted for 16 percent of the market in terms of seats within Asia Pacific last year, up from 6 percent in 2005.

Their market share is set to rise 2 percentage points annually to about 26 percent in 2015, it said.

(Editing by Vinu Pilakkot)

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