MALAYSIA Airlines (MAS) says it would be interested in adding more of the large-capacity Airbus A380s to service its busiest routes to Europe, Asia and Australia once the technical capabilities and economics of the six aircraft slated for delivery in 2007–2008 are proven.
But the national flag carrier has no plans to obtain the ultra-long range aircraft ordered by some of its major regional competitors for non-stop 15,000km hops across the Pacific.
MAS managing director Datuk Mohd Nor Yusof said the 555-seat A380-800 series, with a list price of some US$270mil each, would fit well into the airline's plans to “focus on the mass market”.
On the other hand, the smaller ultra-long range aircraft like the A340-500, which could fly non-stop between Kuala Lumpur and New York or Los Angeles, were not on its shopping list.
“They are not in our business plans?those transpacific routes have thin margins,” he said. By contrast, he said, the so-called “Kangaroo Route” between Europe and Australia should continue to be lucrative for the airline and, come 2007, for its new A380s.
Mohd Nor was speaking to StarBiz after the signing in Putrajaya yesterday of the purchase agreement between MAS's parent company, Penerbangan Malaysia Bhd (PMB), and Airbus for six A380s.
The long-awaited deal first announced in January is potentially worth US$1.6bil based on the aircraft’s list price, although the final figure is likely to be lower as aircraft manufacturers are known to offer hefty discounts to early customers, of which PMB is one.
Airbus vice-president (sales) Dr Kiran Rao declined to say how much of a discount would be given but said PMB had been “negotiating hard with us”.
So far, 11 customers have ordered a total of 129 of the double-deck “super jumbo”, which will be the world’s largest commercial aircraft, eclipsing the Boeing 747-400 by a third in capacity, when it enters service in 2006. Airbus has claimed that “the most advanced design features” of the A380 would provide an operational cost savings of between 15% and 20% and fly 15% farther than the largest offering of its US rival.
MAS, which will be leasing the A380s from PMB, will take delivery of the first two in early 2007 and a third later that year. The remaining three aircraft on order will be delivered in the second half 2008.
A decision on the engines that would power the aircraft will be made within one year. Rolls Royce plc and a General Electric-Pratt & Whitney joint venture known as The Engine Alliance are the contenders for this deal.
Second Finance Minister Datuk Dr Jamaludin Jarjis, who witnessed the agreement signing, said the choice of funding for the massive purchase would be decided in due time.
“There is ample time?no need to decide on funding right now. Let PMB look at all possible options,” he said, pointing to the fact that payment of the bulk of the purchase consideration would only be made on delivery when the interest rate regime could be very different.
He said PMB could choose to raise funds either domestically or in the overseas markets while the issuance of Islamic instruments was also a distinct possibility. “But we leave it to them (PMB) – they are professionals. I don’t think the government should impose,” he said, adding that as there was ample liquidity in the local market, that option should be considered first.
PMB managing director Datuk Gumuri Hussain said the company had paid “earnest money” equivalent to 8% of the list price, amounting to some US$22mil per aircraft or US$130mil in total.
A further 25%–30% of the purchase consideration, amounting up to US$486mil in total, would be payable on a progressive basis before delivery of the planes.
Mohd Nor explained it was crucial that the delivery positions were secured early as growing orders for the A380 meant that the Airbus factory would be operating at full capacity till at least 2009.
“This means we should have a two-year headstart over any other airline that orders now,” Mohd Nor said.
Acknowledging that the six A380s could be “fully occupied” plying the Australia-Malaysia-Europe sector, particularly to slot-constrained airports like London's Heathrow, he said there were definite possibilities of future orders.
Major competitors on the route like Singapore Airlines and Qantas Airways, with orders of 10 and 12 A380s respectively, have already booked delivery positions in 2006, ahead of the target delivery date for MAS's first three aircraft the next year.
“The introduction of the A380 will allow us to maintain our position as an airline in the premier league,” Mohd Nor added.
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