PENERBANGAN Malaysia Bhd (PMB), the holding company for Malaysia Airlines, is in negotiations with Airbus Industrie to buy at least six units of A380, the world's largest passenger jetliner.
Delivery of the first four A380s is expected to begin in 2006, with PMB having an option to buy two more at a later date.
The aircraft will be leased to MAS, which is expected to use them for long-haul, high-demand routes.
Sources familiar with the deal said the tally for six A380s could be US$1bil to US$1.5bil, depending on how PMB and MAS want the aircraft furnished, based on each A380 costing US$170mil to US$250mil. It is not clear how PMB would fund the purchase but sources reckon it would be via the issuance of debt instruments.
It is a good arrangement Airbus has offered PMB and MAS. It is even willing to offer PMB launch prices,'' said a source.
The prime minister had in October indicated that the government was seriously considering acquiring new aircraft for MAS. He had said: We will acquire some aircraft, for instance the Airbus A380, or some other models of Airbus for our airline to further enhance its performance.''
Airbus launched the A380 in the middle of last year, and orders have been stacking up since. It has 97 orders from nine customers, with the first delivery expected in early 2006.
The A380 is a 555-seater, and is expected to use 13% less fuel per seat than a Boeing 747, and also capable of flying 10,000 miles non-stop 2,600 miles beyond existing long-range jets.
With its bigger seating capacity, and operational cost about 40% less than that for a B747, the A380 is a very economical plane. With lower operational costs, the potential for reducing airfares is there,'' said a source.
MAS competitors in the region, such as Singapore Airlines (SIA) and Qantas Airways, were among the early birds to place orders for the A380. Cathay Pacific is also keen, but has yet to firm up its order.
Thus far, SIA has ordered 10 of the A380 series; Qantas 12; Virgin Atlantic six; Emirates Airlines 22; Federal Express 10; Air France 10; Lufthansa 15; International Lease Finance Corp 10; and Qatar Airways two.
If MAS does not equip itself with the latest range it may find itself left out of the competition when the A380 is in commercial operation. It may be perhaps tough for the national carrier to have to make a decision so soon after a major restructuring, but if a decision is not made now, MAS may not get the planes on time.
Technically, it would also not make economic sense for PMB to buy just one or two aircraft as the investment cost for training; equipment maintenance and inventory of spare parts can be costly.
Experts say economies of scale dictate six to seven aircraft to justify the investment in training, maintenance and others.
It is believed that MAS is likely to fly the A380 on such lucrative sectors as the KL-London and Melbourne/Sydney-KL-London routes; and possibly the Spice and Orient routes, which are also doing well.
Judging by the seat capacity of the A380, MAS could do with about 20 such aircraft, considering the growing demand for air travel in Asia.
MAS currently operates a fleet of 101 aircraft, comprising 40 Boeing 737s; 23 B747s (including four freighters); 13 B777s; nine A330-300s; ten Fokker 50s and six DHC6 Twin Otters.
All decisions on aircraft purchases fall within PMB's purview, but there is consultation with MAS on aircraft requirements as it expands into newer markets and grows.
This followed the airline's massive restructuring exercise last year which saw PMB (a government investment vehicle) taking over the liabilities and assets of MAS.
MAS manages and operates the international routes by leasing aircraft from PMB. It also operates the domestic sector for the government for a fee. PMB has 69% stake in MAS.