AirAsia X (AAX) announced it has placed a firm order with Airbus for 25 more A330-300s in a deal valued at USD6bn (RM19.5bn) at list prices. The new order will take AAX‟s total firm order for A330-300s to 51 and supplemented by another order of six A330-300s leased from International Lease Finance Corporation (ILFC). While the large order indicated management‟s optimism for low-cost long-haul travel growth in the region, we have our reservations on the financing and utilisation rate of aggressive fleet expansion. Pending further information and clarification from management, we are keeping our Outperform call under review.

Largest single order for A330. AAX‟s new order of 25 A330-300s is the largest single one to date for the type of aircraft. Delivery of the new planes will start in 2015 and run through 2019. The new order includes extended-range version of the A330 which will enable AAX to offer nonstop flights to destinations in Europe or one-stop service to the US. AAX expects to fund the new orders with internal cash flows and debt. With the new orders, AAX will be able to remain as the youngest wide-body fleet in the region with average aircraft age of below five years throughout 2019, ensuring fuel efficiency and operational reliability.

Flying to Europe and the US? AAX has previously flown to Europe in 2009 using A340s but the European routes were dropped in 2012 as the older planes were not fuel-efficient. With the new extended range A330- 300, AAX will be eyeing a return to Europe, possibly in 2016. Besides new routes from Malaysia, the new order will cater for AAX‟s regional expansion such as its new operating hub in Bangkok and other planned regional long-haul ventures.

Outperform call and target price under review. Pending further information and clarification from management, we are keeping our Outperform call and target price under review. While we like the management‟s optimism for low-cost long-haul growth potential, we are concerned on financing and passenger load & yield with the aggressive fleet expansion. Management forecasts strong growth potential based on a low penetration rate of less than 10% for low-cost carriers in the long-haul travel segment across the Asia-Pacific.

Source: PublicInvest Research - 19 Dec 2013