Malaysia Airlines mulls deals for 42 jets in expansion

Malaysia Airlines Bhd. plans to seal deals for as many as 42 wide-body jets over the next few months as the unprofitable carrier seeks to rebuild its long-haul network following a surge in demand.

Terms should be agreed in the next six to eight weeks for the lease of up to a dozen used Airbus A330 or Boeing 777 aircraft, Chief Executive Officer Peter Bellew said in an interview.

That could be followed later in the first half by an order for 25 to 30 new Boeing 787s or A330neos, as the upgraded Airbus model is known, potentially worth more than US$7 billion.

Bellew is looking to expand wide-body operations after Malaysia Air slashed its fleet and route network in response to a bookings slump that followed two fatal plane crashes in 2014.

Sales have now recovered to the extent that the carrier posted an 81 percent load factor in the fourth quarter of 2016, including a 90 percent occupancy rate in December, when it made money.

“Things have gone a bit better a bit quicker than I expected,” said Bellew, an Irishman who became Malaysia Airlines CEO last July after joining as chief operating officer in 2015, following nine years at Dublin-based discount specialist Ryanair. “We’re ahead of where we hoped we would be.”

The Asian carrier needs the leased jets mainly to replace single-aisle Boeing 737s on 10 or 11 medium-haul routes that are capable of supporting wide-bodies, including services to India, Bali and Hong Kong, Bellew said. The plan has become attractive after hire rates fell 15 percent in 3 1/2 months, he said.

China growth

Malaysia Airlines is also rapidly adding new routes to China, with nine due this year and another eight in 2018, taking the total to 24.

The expansion, part of a plan to make Malaysia a top destination for Chinese tourists, reflects a recovery in bookings that collapsed after the disappearance of Flight MH370 while en route to Beijing from Kuala Lumpur.

Bellew said he’ll seek to take half a dozen leased wide-bodies in the first half of next year, followed by the same number in 2019, all about six years old. A330s would be the obvious choice, though 777s would allow the carrier to add longer routes, perhaps reinstating a service to Amsterdam, he said.

The 25 or more new jets that Bellew is evaluating would likely be bought direct from Airbus or Boeing and would join the fleet between 2019 and 2023, with 15 replacing older aircraft and the rest for expansion.

The re-engined A330neo comes in two sizes advertised at US$255 million and US$291 million before discounts, while the 787 Dreamliner has three variants priced between US$225 million and US$306 million.

The airline is also poised to take delivery of six Airbus A350 wide-bodies, allowing it to move the same number of A380 superjumbos to a new sister carrier specializing in carrying people on the Hajj and Umrah pilgrimages.

With A350 handovers delayed by a shortage of interior fittings at Airbus, the first plane is due a couple of months late in November or December, Bellew said.

All should arrive by June 2018, after which the A380s will be refitted to allow their capacity to be varied between 635 and 720 seats, with the airline commencing operations in December of that year.

Dubbed Project Hope, the startup has yet to be given a permanent name, though most of its management team will be approved at a board meeting next week, Bellew said, adding that a CEO has yet to be chosen but will almost certainly be a Malaysian national.

Long-term support deals have been struck with Airbus and engine maker Rolls-Royce and that could extend to investment in the venture next year, he said.

Malaysia Airlines had a loss last year that was less than half the internal forecast, it said March 1, and aims to reduce the deficit by more than half this year before becoming “consistently profitable” from 2018.