Jun 16, 2013

Malaysia - AirAsia to sign US$1bil engine purchase in Paris

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Malaysian low-cost carrier AirAsia is expected to sign a major deal for the purchase of about 60 engines worth over US$1bil at the Paris Air Show next week, sources said.

AirAsia will sign the deal with CFM International, which is a 50:50 joint venture between General Electric Co (GE) and Snecma.

The engine supplier is the same party for 80 engines the airline had bought last year for its A320 aircraft in a deal which was worth US$1.6bil.

A maintenance, overhaul and repair contract is also likely to be signed for the 60-odd aircraft, according to the sources.

These 60 are part of the 100 additional A320 aircraft the low cost airline had ordered last December, but then it did not pick an engine supplier.

The ordering of the 100 Airbus A320s was part of the airline's strategy to add routes and increase flight frequencies to maintain profitability against intense competition.

With that order AirAsia has a record 475 narrow body aircraft on its order list with Airbus.

The airline earlier said the extra aircraft will give it ample capacity to build on its market leadership and dominance especially in Malaysian and Thai markets.

AirAsia has operations in Malaysia, Thailand, Indonesia, the Philippines and Japan.

However, its joint venture in Japan is facing problems where management tension is threatening to derail the JV. AirAsia has a JV with Japan's All Nippon Airways and the venture has been unprofitable since it started flying in August.

Both parties are going to explore if they can still work together or else dissolve the JV.

Japan aside, AirAsia is awaiting for the air operator’s licence to begin operations in India. There it has a joint venture with one of India's biggest conglomerates, Tata Sons and property tycoon, Arun Bhatia.

AirAsia has a 49:30:21 equity in the joint venture with Tata Sons and Arun holding the balance respectively.

If all goes as planned, AirAsia India should take to the skies sometime in September from its headquarters in Chennai and for that it would need aircraft.

Since AirAsia has ordered many aircraft it can easily take deliveries and allocate them for the Indian operations.

AirAsia is also hoping to set up a low cost airline in Myanmar, a market which is warming up to foreign investors.

B.K. Sidhu

The Star

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