The Boeing Company (BA): Asian Budget Carrier Wars Intensify

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Rumors abound that one of Asia’s biggest low cost carriers, the Indonesia based privately held PT Lion Mentari Airlines (Lion Air), a traditional The Boeing Company (NYSE:BA) customer, is planning to place another massive order of more than 200 jets, this time however, with Airbus.  In late November, Lion Air’s Commercial Director Edward Sirait said, “We are studying every possibility to fulfill our target for the planes from every manufacturer, including with Airbus.” The order, according to the French newspaper Dépêche du Midi, is now expected to be for 220 Airbus A320 Neos and will be officially announced on Jan. 17 when Airbus releases its annual sales figure.

The Boeing Company (NYSE:BA)

About a year ago, Lion Air placed the biggest order in Boeing’s history for 201 737 Maxs and 29 737-900 ERs for $21.7 billion. This could be a huge blow for Boeing but an extraordinary achievement for EADS NV (EPA:EAD)’s Airbus, which is looking to bag Boeing’s biggest customer.  The current problems with the 787 Dreamliner are not helping anyone in Boeing’s corner right now.  Airbus is already a primary supplier of aircrafts to Lion Air’s rival Air Asia. With the new order, the company will significantly enhance its foothold in Asia Pacific. Boeing recorded a total of 1,200 orders in 2012 while Airbus is expected to touch 900 orders in the same period. You can expect a number of those orders to get canceled in the coming months.  This misstep by Boeing will be Airbus’s gain.

The Kuala Lumpur-based AirAsia Bhd is the largest low cost airliner of Asia operating in the booming budget carrier industry of the continent. Like Lion Air, AirAsia had also placed a massive order for 200 Airbus A320 Neos last year for $18 billion, which was the biggest commercial order ever received by Airbus. More recently, in December, AirAsia placed another order for 100 single-aisle Airbus A320 jets at undisclosed terms, but industry experts have given an estimate order size of around $9.37 billion. As has always been the tradition, large aircraft orders almost always involve leading political figures from the U.S. (for Boeing) or from Europe (for Airbus). When Tony Fernandes , AirAsia’s boss, was signing the new order at Airbus’s facility in the UK, he was flanked by none other than the British Prime Minister himself, Mr. David Cameron. AirAsia has become Airbus’s biggest customer and has so far ordered 475 aircrafts.

Airbus and Boeing have a long history of rivalry, but a new battle for the Asia Pacific market is now brewing up between AirAsia and Lion Air. Indonesia’s Lion Air has already taken the battle to AirAsia by establishing ‘Malindo Airways’ for Malaysia, to compete directly in AirAsia’s backyard. Of course, AirAsia already operates through its associate company ‘Indonesia AirAsia’ in Lion Air’s territory.

Indonesia AirAsia is 49% owned by AirAsia Bhd. The unit reported spectacular performance in the previous quarter with its revenues increasing by 12% as the company swung from a loss of $2.66 million (IDR 25.7 billion) in Q3-2011 to a profit of $7.71 million (IDR 74.5 billion). Overall, AirAsia’s revenues in the first nine months of 2012 went up by 11.53% from last year to $1.18 billion. This translated into a 7.1% increase in net operating income from $155.27 million in the first nine months of 2011 to $166.30 million in 2012. For the third quarter, the company reported a 9% increase in the number of passengers carried and a 10% increase in capacity from the same quarter last year.

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