AirAsia to buy 40 Airbus jets: Source

AirAsia to buy 40 Airbus jets: Source

M. Jegathesan, Agence France-Presse, Kuala Lumpur

Malaysian budget carrier AirAsia has opted to buy 40 A320 jets
from Europe's Airbus and will phase out its current Boeing fleet,
an industry official said Wednesday, a decision seen as a major
setback for the U.S. aerospace giant in the burgeoning Asian low-
cost airline market.

"Yes, AirAsia has picked Airbus. It will buy 40 jets. The
contract will be inked on Friday," the industry source familiar
with the deal told AFP.

AirAsia officials declined to comment.

Asked why rival Boeing lost the deal, the industry insider
said: "In terms of price and technical specifications, Airbus is
better."

"All the current Boeing aircraft with AirAsia will either be
phased out or sold," the source added.

AirAsia, the region's largest low-cost carrier, currently
operates a fleet of 26 Boeing 737 aircraft. Boeing officials have
acknowledged that capturing the contract was critical for them to
regain sales momentum in the market.

The source declined to reveal the cost of the 40-jet deal,
saying only: "They are getting it cheaply."

The order would be valued at US$5.2 billion at the catalog
price but AirAsia was likely to receive significant discounts,
the Wall Street Journal said in a report on the negotiations last
month.

Quoting people familiar with the offer, the newspaper said the
A320 jetliners were priced well below Boeing's.

The industry source told AFP the first aircraft would arrive
in early 2006, followed by one jet each month.

Australia-based managing director for the Center for Asia-
Pacific Aviation, Peter Harbison, told AFP that AirAsia's
decision to pick Airbus was bad news for Boeing.

"It is not good news for the U.S. manufacturer since the
current fleet consists of Boeing. Five years ago, Airbus was
invisible over Asian skies. It is now becoming dominant," he
said.

Harbison attributed Airbus's success to better pricing and the
ability to meet demand.

"Part of the problem for Boeing is being not able to produce
aircraft. After (the terror attack on the U.S. on) Sept. 11,
local carriers were not placing new orders and Boeing downsized
its labor force.

"Now there is a surge in demand from low-cost carriers and
Airbus is in a stronger position to produce. They are also
aggressive in pricing," he said.

Harbison said with the new order, AirAsia would have the
youngest fleet in Asia, putting the carrier "well ahead of anyone
else."

AirAsia has set its sights on a fleet of 80 aircraft and is
expected later to take an option to buy or lease 40 more
Airbuses.

The three-year old no-frills carrier has expanded from a two-
jet operation to become Asia's leading economy airline, carrying
7.5 million passengers since its launch in December 2001.

It operates 322 flights a week from Kuala Lumpur International
Airport to 14 domestic and eight international destinations, and
plans a major regional expansion program.