Malaysia's AirAsia to Order 25 More Airbus A320s, People Say

July 2 (Bloomberg) -- AirAsia Bhd., Southeast Asia's largest budget carrier, plans to place an order for 25 single- aisle planes, valued at $1.8 billion from Airbus SAS, two people with direct knowledge of the deal said.

AirAsia is converting options for A320 planes that were part of an order placed in January, said the people, who declined to be identified before details are made public.

The deal will raise AirAsia's total orders for A320s to 175, as Chief Executive Officer Tony Fernandes bets that regional governments will agree to allow airlines to add more routes by 2008. Economic growth is also boosting air travel in Southeast Asia, home to more than 500 million people.

``There isn't any low-cost carrier in the region that's in the same position as AirAsia in terms of fleet size and ability to tap the rising demand,'' said Raymond Yap, a Kuala Lumpur- based analyst at CIMB Bhd., who has an ``outperform'' rating for the stock. ``If you are betting that restrictions are lifted between countries, then those planes aren't too many.''

AirAsia's spokeswoman Janet Leow declined to comment when reached by telephone in Kuala Lumpur.

The Association of Southeast Asian Nations is seeking to loosen air restrictions in the region by the end of 2008 to spur tourism and business travel. Asean, as the 10-member grouping is called, plans to turn to the heads of governments to accelerate what it calls ``slow progress'' in achieving its goal, Secretary General Ong Keng Yong said in an interview on June 24.

More Routes

Greater access would allow AirAsia to start flights between the Malaysian capital of Kuala Lumpur and neighboring Singapore. The route is currently dominated by Singapore Airlines Ltd. and Malaysian Airline System Bhd.

Air travel demand between Asian cities in a fully liberalized market could generate as many as 1,600 low-cost routes by 2015, according to estimates by Airbus. Asia's budget airlines will have a combined fleet of 1,300 single-aisle aircraft by 2025 compared with 236 planes currently, Airbus said.

Fernandes, 43, has boosted AirAsia's profit fivefold since 2003. The latest contract will bring the total value of his A320 orders to almost $13 billion. The Sepang, Malaysia-based carrier will also take new options for another 25 aircraft of the same type, taking the total to 50. The single-aisle aircraft costs an average of $72.9 million each at list prices. Airlines typically receive discounts on large orders.

The carrier operates a fleet of 20 Airbus A320 and 34 Boeing aircraft as at the end of May, its Web site said.

Economic Growth

AirAsia and other low-cost carriers in the region are buying planes to expand as economic growth and rising incomes spur demand for air travel. Southeast Asian economies will probably expand 5.6 percent this year, faster than an earlier projection, and growth may accelerate in 2008, the Asian Development Bank estimated in March.

Tiger Airways Pte, a low-cost carrier part-owned by Singapore Airlines, in June pledged to buy 30 A320s as it adds destinations in the region. PT Lion Mentari Airlines, Indonesia's biggest budget carrier, last month ordered 40 Boeing Co. 737-900 planes to expand routes.

``Southeast Asia is coming back into play,'' said Derek Sadubin, chief operating officer of the Sydney-based Centre for Asia-Pacific Aviation, an industry consultant. ``The low-cost fleet in Asia will grow by threefold over the next five years to 780 aircraft by 2012.''

The Airbus A320 family competes with Boeing's 737s in the market for single-aisle aircraft. Toulouse, France based Airbus this year won 152 orders for the A320 family of planes as at the end of May, Chicago-based Boeing has 174 orders for the 737, their Web sites said.

Majority owned by Tune Air Sdn., AirAsia was set up in December 2001, the first discount carrier in the Asia-Pacific region. Fernandes and AirAsia Deputy Group Chief Executive Kamarudin Meranun control Tune Air.

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