AirAsia will buy an extra 100 Airbus A320neo jets, taking its record-breaking order to 300 planes, a source said, a deal that would make the Malaysia-based low-cost airline one of the world's largest carriers. AirAsia and Airbus announced an USD$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 USD$27 billion. The bumper order highlights Airbus's 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 short-haul carriers such as India's IndiGo, Singapore's Tiger Airways and Australia's Jetstar in the Asia-Pacific region, the fastest growing in the world. "AirAsia's last replacement order was in 2007/2008. These new orders are long overdue so it's not an aggressive order," said Kunal Sinha, an aerospace expert with the Frost & Sullivan consultancy. "AirAsia's new fleet is to be used mostly to link Southeast Asia to India and China. By 2015, Southeast Asia will have open skies so you have to have a growth plan."
Boeing on Wednesday said it expected 33,500 new planes to be delivered by 2030, driven by growth in India and elsewhere in Asia. AirAsia plans to list its operations in Thailand and Indonesia this year as it expands in those markets and is in talks to open a hub in Singapore, its chief executive Tony Fernandes has said. Like the previous order, the additional 100 planes would also use 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. AirAsia's regional head for corporate finance and treasury Aireen Omar said, "We ordered 200 and so far there are no changes." An Airbus spokesman said the manufacturer would not comment on commercial discussions with customers that were confidential. 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 on order. "Though we look aggressive, we have expanded very cautiously," Fernandes said this week. "But I have always said this airline is worth at least 500 aircraft."
According to International Air Transport Association (IATA) data, United Continental had the largest passenger fleet of 737 planes at the end of 2010, followed by Delta Air Lines with 722, American Airlines with 618 and Lufthansa with 427. Non-IATA member Southwest Airlines, the only low-cost carrier currently in the top five, has around 550 planes. "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.
Fernandes said the A320neo purchases would be funded by debt and cash flow as staggered deliveries begin in 2016. "We're buying the planes now, we don't pay for it all now. They become due in 2016 so we're just paying some deposits now which is not erroneous at all to our balance sheet." The A320neo is a version of Airbus's best-selling 150-seat passenger jet offering fuel savings with new engines from 2015. The huge orders for the single-aisle plane at the Paris Air Show have piled pressure on rival Boeing to come up with a newer version of its 737 workhorse. Fernandes said his airline's growth was closely twinned with Airbus. "We have a fantastic relationship with Airbus," he said. "They are much more than just suppliers to us. I credit them tremendously with our growth and I want to be more than just a customer of theirs."
It is now part of aviation industry lore that Fernandes asked Airbus chief salesman Joe Leahy to come on to the dance floor of a Paris nightclub before signing the A320neo deal. "As part of a family we do some crazy things together," the 47-year-old Malaysian millionaire said. Asian budget airlines placed a record USD$42 billion in plane orders during the Paris Air Show, illustrating 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 carriers 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. 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 IATA, which represents the majority of airlines operating in the USD$598 billion industry. The Centre 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.
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