Dow Jones
Qantas Selects Airbus For No-Frills Ops- Source
By Lilly Vitorovich
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--Qantas Airways Ltd. has selected Airbus planes for its local discount airline in preference to Boeing Co. the sole provider to arch rival Virgin Blue, a person with knowledge of the deal said Monday.
Qantas management is expected to recommend to the board of the national carrier when it meets this week that Airbus A320 planes be purchased for the yet-to-be named offshoot, the person told Dow Jones Newswires.
Boeing was told late last week that it was unsuccessful in securing the contract for the budget airline ahead of its launch next May.
The deal could be worth up to US$450 million, one analyst said, but Qantas is likely to win a steep discount along with the provision of training services and spare parts that might cut the final price tag to less than US$300 million. Boeing and Airbus are actively chasing the growing Asian aviation market, with the U.S. company this month snaring a US$1.7 billion deal with China Aviation Supply Co.
Virgin Blue has steadily built its market share to around 30% since takeoff in August 2000, with its success a key factor in the decision by Qantas to begin its own no-frills domestic operation.
Part-owned by U.K. entrepreneur Richard Branson, Virgin Blue this week began an initial public share offer that will raise A$500 million-plus ahead of its Dec. 8 listing on the Australian Stock Exchange. The airline has a cost base 35% lower than Qantas due in part to its streamlined Boeing 737-800 fleet and union concessions.
While Qantas hasn't said how many planes it will buy for the offshoot, it did reveal last month at its annual meeting that by mid-2005 the operation will have a fleet of 23 aircraft.
Qantas is expected to buy nine planes, according to investment banks Goldman Sachs JBWere and UBS. The cost associated with the planes was included in the company's s capital expenditure outlay of A$6 billion over three years revealed in August alongside its annual results.
The remaining 14 aircraft are expected to be transferred from Qantas' existing fleet, according to a Goldman Sachs research note.
An Airbus spokesman said the average retail price of an Airbus A320 is between US$45 million to US$50 million, valuing the nine Qantas are valued at between US$405 million and US$450 million. The spokesman had no comment on the talks with Qantas.
The Australian airline is likely to negotiate a discount of about 30% off the retail price and also win maintenance concessions, said Ian Thomas, a senior consultant with the Center For Asia Pacific Aviation.
"I think you can happily discount it by about 30% and than you're talking also about some support deals, they'll provide spare parts, training support, and in some cases finance," Thomas said.
"So the sort of deals that manufacturers are doing are packages, and really it's a case of which one comes up with the most enticing package," he said.
A Qantas spokeswoman declined to comment on the plane contract.
Qantas chief executive Geoff Dixon told reporters last Thursday that a fleet recommendation will be put to the board early this week.
The branding and naming of the carrier, which will be run by former Aer Lingus and Ansett Australia executive Alan Joyce, is also expected to be finalized this week.
Joyce's team will include a number of former senior executives from Europe's low cost carrier Ryanair.
-By Lilly Vitorovich; Dow Jones Newswires;
61-2-8235-2963;
[email protected]
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