INVESTMENT HIGHLIGHTS

• Orders made for 30 A321XLR and 12 A330-900 neo aircraft for a total price tag of approximately RM34.2b

• AAX remains the largest customer for both A321XLR and A330-900 neo

• Both aircraft have ability to reduce fuel burn per seat by more than 30% compared to previous generation aircraft

• A321XLR could be used for longer and less heavily travelled routes which would not be economical with bigger planes.

• Maintain NEUTRAL with an unchanged TP of RM0.19 per share

Additional orders for A330neo and A321XLR. AAX has placed a firm order with Airbus for 12 A321XLR which was recently launched and 30 additional A330neos. Recall that in July 2018, AAX confirmed the order of 66 A330neos which was firm while another 34 orders for the same aircraft were not finalised at that time. Later in November 2018, AAX did raise some prospects of switching some of the wide body A330neos to narrow body aircraft. Currently, AAX operates 36 Airbus A330-300 aircraft which is smaller than the A330-900 variant which was ordered.

The largest customer for A330neo and A321 variant. According to the management, the deal is worth RM34.2b, costing approximately RM1.1b and RM0.7b for each A330neo and A321 XLR respectively. At this point of time, AAX is still the largest airline customer for the A330neo. Meanwhile, the addition of the A321XLR broadens the A320 family presence in the entire AirAsia Group with a total of 622 aircraft ordered. Considering that airlines usually benefit from discounts to list prices, we opine AAX likely benefitted from hefty mark down due its large orders. Following this deal, deliveries for the A330NEO will begin from 2020 while the A321XLR will be delivered from 2023 onwards.

A330neo and A321 XLR, a good mix right now? Given the long-haul business model adopted by AAX, we continue to believe the deployment of new generation A330 aircrafts in addition to the newly ordered A321XLR as strategic. This is taking into account of their ability to induce higher cost-saving via reduction in fuel burn per seat by more than 20% than similar older generation aircraft and competitor aircraft. Specifically for A321XLR, the aircraft will be able to deliver an extra-long range of up to 4,700 nautical miles or 8,700km, 15% more than the A321LR variant with the same fuel efficiency. With this added range, AAX can operate a lowercost single-aisle aircraft on longer and less heavily travelled routes – many of which can now only be served by larger and less efficient wide-body aircraft.

Source: MIDF Research - 3 Sept 2019