AirAsia X’s additional 100 A330neo aircraft a strategic purchase

0

AirAsia X will be the firth airline in Asia to operate the A330neo, with deliveries of the aircraft on order with Airbus scheduled to start in the fourth quarter of 2019.

KUCHING: AirAsia X Bhd (AirAsia X) recently announced that it has placed an order for an additional 34 units of A330neo widebody aircraft on top of its previously announced 66 aircraft, bringing it to a total of 100 A330neo widebody aircraft orders with Airbus.

According to its press statement, AirAsia X will be the firth airline in Asia to operate the A330neo, with deliveries of the aircraft on order with Airbus scheduled to start in the fourth quarter of 2019 (4Q19).

The A330neo is expected to be operated by AirAsia X out of its bases in Malaysia, Thailand, and Indonesia.

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) viewed this development as a ‘strategic move’.

It said: “Given the long-haul business model adopted by AirAsia X, we believe the deployment of new generation A330 aircrafts as strategic.

“This is taking into account its ability to induce higher cost-saving in comparison with the older AirAsia X’s A330-300 models.”

While it noted that there are few advances seen in the A330neo, which includes the incorporation of new generation Rolls-Royce Trent 7000 engines, a new optimised wing, and increase use of lighter composite materials; altogether, the model is able to bring significant reduction in fuel consumption by 25 per cent than the older generation aircrafts of similar size.

“Coupled with five per cent saving in maintenance cost, A320neo is able to reduce cost by 11 to 12 per cent,” it added.

On the cost of the entire order, according to AirAsia X, the A330neo is listed as US$296.4 million per unit.

MIDF Research noted that the deal is worth US$30 billion for 100 units of A330neo (which is the larger A330-900 models).

“Considering that airlines usually benefit from discounts to list prices, we opine AirAsia X likely benefitted from hefty mark down due its large orders,” it opined.

Nevertheless, MIDF Research pointed out that the financing arrangement for the aircrafts purchases lacks details.

“Notably, possible routes could take in the form of internal cash flow, debt, or sale-and-leaseback agreement. According to the management, all the options are equally possible. We believe more clarity will be given moving forward, once they were able to confirm on aircraft deliveries.

“Accordingly, the contract period for aircraft deliveries is set to conclude in the next ten years. We noted that some of the new generation will be replacing the older models, A330-300,” it explained.

Overall, given the potential economic benefit, the research team viewed new opportunities emerging for an ultra-long-haul flight by AirAsia X with one could potentially be the Kuala Lumpur-London Gatwick route.

“While the introduction of European route is possible, we incline to believe that ultra-long flight is likely to be shelved at this juncture.

“This is stemming from the unfavourable oil price trend this year which has averaged at US$68.81 per barrel, an increase of 25.7 per cent since the beginning of the year,” the research team added.

“We believe that AirAsia X’s commitment to expand its fleet size sends a positive signal to investors, on its confidence for the value based long-haul model.

“While the company had to weather some bumpy rides previously, the management is optimistic that it will be able to find the right tune in the long-haul market.

“With more new generation aircrafts expected to fill up its fleet, we expect further reduction on cost per available seat per kilometre across the group,” MIDF Research said.