National carrier Malaysia Airlines said Tuesday it would buy up to 25 new Airbus A330-300 planes and raise $778 million to help fund the fleet expansion as it bets economic recovery will boost the beleaguered airline industry.
The airline inked a pact with Airbus for a firm order of 15 of the wide-bodied aircraft, with an option for another 10 planes. The 25 planes have a list price of $5 billion, it said, although airlines typically get discounts for bulk purchases.
Malaysia Airlines Chief Executive Azmil Zahruddin said the carrier will fund the purchases through a share issue and borrowings. It will offer existing shareholders some 1.671 billion new shares to raise 2.67 billion ringgit ($778 million) as it prepares to capitalize on the economic recovery from next year, he said.
The A330 planes will be delivered from 2011 to 2016, and serve the growing markets of South and North Asia, China, Australia and the Middle East. The A330-300 will complement the carrier's incoming fleet of six A380 superjumbos and 35 Boeing B737-800 narrow-body jets, Azmil said.
"By 2016, all the aircraft we have ordered will be in and we expect to have one of the youngest, most fuel efficient and environmentally friendly fleet in Asia," he said. "The new fleet will create a platform for us to profitably grow."
Airlines have been savaged by the financial crisis and recession but Malaysia Airlines has said it expects global travel to pick up by late next year. The International Air Transport Association recently warned the airline industry would face another harrowing year in 2010, with losses expected to reach $5.6 billion despite some recovery in passenger and cargo traffic. It maintained its estimate of $11 billion of losses for 2009.
Azmil said the airline expects to gain annual savings of 300 million ringgit ($88 million) from lower operating costs when the 15 A330 planes are received.
The A330s will fly medium haul destinations, the A380s will serve key long haul destinations such as London and Sydney, while the B737-800s will be used on domestic and regional routes.
Analysts said the airline's move to raise funds via the share issue wasn't surprising as its cash pile had dwindled to 2.4 billion ringgit ($558 million) at the end of September from 4.7 billion ringgit ($1.1 billion) at the close of last year, partly due to fuel hedging losses and restructuring of its derivative contracts.
At the current rate, the airline's cash pile could be depleted by mid-2010 and fund raising is crucial to shore up its balance sheet given the large financial commitment for its fleet expansion, investment bank ECM Libra said in a recent report.
Malaysia Airlines posted a net loss of 300 million ringgit ($87.5 million) in the quarter through September, due to a double whammy of wrongway bets on fuel prices and a sharp slide in revenue due to aggressive fare cutting.