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AirAsia Unveils 100-Jet Order for Airbus to Drive Expansion

AirAsia Bhd., the region’s biggest discount airline, unveiled an order for 100 additional Airbus A320 jets as the carrier expands to fend off rising competition.

The order includes 36 current-generation A320s and 64 fuel-efficient A320neos, Airbus said in a statement yesterday. U.K. Prime Minister David Cameron joined AirAsia Group Chief Executive Officer Tony Fernandes at Airbus’s wing-manufacturing facility in Broughton, Wales, for the announcement of the contract, valued at $9.4 billion at list price.

AirAsia, which has fallen 29 percent in Kuala Lumpur this year, is Airbus’s biggest customer for single-aisle aircraft worldwide. The airline ordered 200 Airbus A320neo aircraft valued at $18 billion at the Paris Air Show last year. Airbus had already booked the latest order in its tally last month, without disclosing the customer.

“This order is primarily about expansion,” Fernandes said in a Bloomberg Television interview yesterday. “Business has been very strong in Southeast Asia, especially Thailand, Indonesia and Malaysia, coupled with very robust demand out of China and India.”

The airline should have no trouble implementing the new order amid the growth in the regions it serves, said Arnaud Bouchet, a Singapore-based analyst for BNP Paribas SA. Pan-Asian low-cost carriers also have fewer planes than U.S. and European counterparts, despite Asia’s higher population and increasingly affluent middle classes, he said.

‘Not Worried’

“I’m not worried about overcapacity,” Bouchet said. “Asia can comfortably absorb additional aircraft in the next 10 years, particularly if these airlines start replacing their current fleet.”

AirAsia fell 0.7 percent to 2.69 ringgit at 3:53 p.m. in Kuala Lumpur trading. It’s one of two stocks that will be removed from the benchmark FTSE Bursa Malaysia KLCI Index from Dec. 24 after seeing its market capitalization fall this year, the country’s exchange operator said yesterday.

The carrier has slumped 18 percent since Sept. 10, erasing more than 1.5 billion ringgit ($491 million) from its market value, amid concern competition may intensify after Indonesia’s PT Lion Mentari Airlines said it would help set up a rival low-cost carrier in Malaysia named Malindo Airways.

“I think we’re trading at a ridiculously low level,” said Fernandes, who bought back shares last month. “There’s been a massive over-reaction on some of the impending competition. We’re very cash positive. We’re going into a have a fantastic fourth quarter. 2013 looks very good.”

Keeping Momentum

The AirAsia contract has helped Airbus maintain order momentum for the more fuel-efficient A320neo. Incorporating the classic A320s into contracts is a bonus, as the manufacturer can trim the number of unfilled delivery slots for a model that will be phased out gradually. Production of A320neos will start in late 2015. Taking some of the existing model will allow it to get planes faster, Fernandes said.

AirAsia competes with the budget or regional arms of flag carriers including Singapore Airlines Ltd. and Qantas Airways Ltd. The airline, based in Sepang, Malaysia, has set up ventures in the Philippines, Japan, Thailand and Indonesia, and also faces growing competition from emerging low-cost carriers seeking to win passengers who demand low-cost travel options.

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