Top Financial News
Fri, 29 Sep 2000, 5:23am EDT
Singapore to Buy Up to 25 Airbus Superjumbos, Boosting Project
By Claire Leow
Singapore, Sept. 29 (Bloomberg) -- Singapore Airlines Ltd. said it would buy 10 Airbus A3XX superjumbo jetliners and take options for 15 more, a victory for the European planemaker over Boeing Co. as it seeks enough orders to begin building the world's largest passenger plane.
The order from SIA, Asia's most profitable carrier and a bellwether for fleet purchases, helps vindicate Airbus' bet the plane will be commercially viable, as it commits $12 billion to develop it to be ready in late 2005.
SIA decided on the 550-seat Airbus aircraft, worth $235 million at list prices, over a rival offer from Boeing for a planned 516-seat ``stretch'' version of its 747. Designed in part to fly to congested airports such as Heathrow and Narita, the A3XX could now be chosen by other airlines if they want to match SIA in service, analysts say.
``The impact of this order will be felt east and west,'' said Doug McVitie, managing director of Arran Aerospace, an aviation forecasting company based in Scotland. ``Virgin, (British Airways), Qantas, Cathay and a few lesser carriers will all see the potential here to be left behind.''
The engine suppliers will be announced within 30 days. All up the purchase could total $8 billion by the time the aircraft are delivered. Rolls-Royce is competing against an alliance between GE Aircraft Engines and Pratt & Whitney, a unit of United Technologies Corp.
Deliveries of the firm orders will begin in early 2006 and be completed by 2007. Options can be exercised for passenger and freighter versions of the plane.
The announcement came after the Singapore market close. SIA shares traded recently at S$16.70, rising 3 percent for the day.
Seal of Approval
With SIA's order, Airbus now has four customers and 32 firm orders for the A3XX, closer to a goal of 50 before it commits to a $12 billion development program. It earlier won 22 orders from Emirates Airlines, Air France SA and the Los Angeles-based leasing company International Lease Finance Corp. pending a decision to eventually build it.
SIA's decision `` gives the plane the good-housekeeping seal of approval,'' said Daniel Solon, an analyst at Avmark International, an aviation consulting firm in London. Solon commented prior to today's announcement.
Airbus has said it hopes to commit by year's end building the all-new, double-deck plane that would be the first airliner larger than the 747-400, which now flies 400 people long-distance.
``This clearly is a strong endorsement for the program and moves us very close to the full industrial launch,'' said John Leahy, senior vice president, commercial at Airbus.
Boeing has said it could invest between $3 billion and $4 billion to develop a new 747 with larger wings and a longer fuselage, stretching its capacity by about 100 passengers. The Seattle maker hasn't yet won any commitments for the project, however.
Richard Aboulafia, director of aviation at the Teal Group, a Fairfax, Virginia-based aviation consultancy, said that Boeing's 747x project can survive without a Singapore order, however.
``The 747X can survive without Singapore,'' he said. ``It just makes their word a little harder, especially in that part of the world.''
The Airbus A3xx will be ready for service in 2005. Airbus argues large jets are needed for congested airport hubs. Boeing disagrees. As a result, both makers have varying forecasts on potential demand for planes in the next two decades. Airbus expects demand for 19,200 new planes by 2019 while Boeing has forecast 28,600.
The order is the second largest in SIA history. The airline in 1995 placed an order with Boeing for as many as 77 jetliners worth as much as $12.7 billion.
Singapore has a fleet of 92 planes, two-thirds of which are Boeing aircraft. It has a separate tender to replace half of its existing Airbus fleet, to be announced in the next few months.
It's building on its international ambitions, buying a 49 percent stake in Virgin Atlantic Airways and a 25 percent stake in Air New Zealand Ltd. in the past year. The latter gives SIA indirect control of Ansett Holdings Ltd., Australia's No. 2 carrier.
The battle for Singapore's order was one of the industry's most closely watched and hard-fought contests over the past decade.
Airbus had said in May that Singapore Air wanted as many as 16 A3XXs. Boeing dispatched a senior management team to Singapore and enlisted the original designer of the 747, retired Boeing executive Joe Sutter, to help sway the carrier. It hosted a meeting of carriers in June to argue that the stretched 747s would be just as cheap to fly as the new A3XXs.
Boeing is preparing to issue a statement later in the day.