Farnborough Airshow - Tuesday Wrap

July 12, 2016

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Airbus signed deals worth USD$20 billion at a rain-soaked Farnborough Airshow on Tuesday, but industry executives said the quieter event confirmed a recent boom in aircraft orders was finally fizzling out.

AirAsia chief executive Tony Fernandes flew into the UK to complete an order for 100 Airbus A321neos to support the low-cost airline's expansion, confident of getting a bargain as plane makers brace for a slowdown.

The 185-seat A321neo is worth USD$125.7 million at list prices, but AirAsia is expected to get a significant discount after placing orders for hundreds of aircraft and establishing itself as one of Airbus's largest customers.

Fernandes told a news conference the A321neos were in addition to the A320neos, and not replacements. Some of the new jets would be for the Malaysian-based airline's leasing business, he added.

"With this aircraft we believe we will hit 100 million passengers in the not-too-distant future," Fernandes said, adding negotiations started over a meal in an Iranian restaurant in London last year, for which he said he paid the bill.

AirAsia was reported to be studying a dual listing in Hong Kong and moving towards setting up a joint venture in China as part of plans to become a pan-Asian player.

But the company said in a statement that it was not currently pursuing any new joint venture proposals and was not formally considering a dual-listing.

Fernandes told reporters, however, that if AirAsia had an opportunity to be in China, "we will 100 percent be there."

The A321neo order triggered last-minute negotiations for the contract to supply engines, with papers spread out in the corner of an airline award ceremony, but AirAsia was not expected to drop usual supplier CFM for rival Pratt & Whitney.

Separately, India's GoAir said it had signed a preliminary agreement to buy 72 A320neos, worth around USD$7.7 billion at current list prices and doubling an existing order.

STRONG GROWTH

Airbus and Boeing have enjoyed years of strong growth thanks to rising air travel and demand for new fuel-efficient models.

On Monday, they both increased their forecasts for aircraft demand over the next 20 years, betting rising wealth in Asia would continue to boost airline passenger numbers.

But analysts are concerned that growing risks to the global economy, from slowing growth in China to Britain's decision to leave the European Union, could dry up orders or even lead to some cancellations.

Indeed, air show participants report a lower level of dealmaking than in recent years.

Airbus sales chief John Leahy expressed confidence that record production plans would be upheld, thanks in part to a strategy of building up spare orders, but some airlines that have dominated previous events are widely said to be quietly rescheduling their orders for Airbus or Boeing jets.

"For both Boeing and Airbus, the question still isn't whether or not all the aircraft they produce will have a taker, but who this taker will be and at what price," said Bertrand Grabowski, managing director at Germany's DVB Bank.

Fernandes said AirAsia, which now has ordered a total of 575 Airbus aircraft, saw brisk growth across the region and could have bought even more. The airline had come through recent share price turbulence and "stuck to its guns," he added.

QATAR BUYS INTO LATAM

Underscoring the growing clout of Asia and the Middle East in the industry, Qatar Airways meanwhile announced a deal to buy up to 10 percent of Latin America's largest airline LATAM Airlines in a USD$613 million deal.

That follows the Gulf carrier's purchase last year of 15 percent of British Airways and Iberia owner IAG, which like Qatar and LATAM is a member of the oneworld airline alliance.

Boeing said an undisclosed Chinese customer had signed a commitment for 30 of its 737 family of planes, in a deal worth more than USD$3 billion at list prices, while European travel firm TUI agreed an order for 10 737 MAX 8s and one 787-9, worth USD$1.4 billion at list prices.

Airbus confirmed an order from Germania for 25 A320neos, worth USD$2.6 billion.

(Reuters)