Singapore Airlines Ltd. has made a huge order for 30 jets each from Boeing Co. (NYSE:BA) and its European rival Airbus, an opportunity that will give both aircraft makers a chance to work on expanded models of their most recent jets.
The airline will spend $17 billion between the two orders in the hopes that more available seating will help them compete in crowded intra-Asian routes. Singapore Airlines had a disappointing year as it has struggled to cope with cheaper Asian competitors like Malaysia’s AirAsia Bhd and Indonesia’s Lion Air. Economic growth in Asia has lead to a higher travel demand that Asian airlines are scrambling to fulfill. According to Tony Fernandes, head of AirAsia, the biggest low-fare carrier in the region, Asia has 10 times the population of the U.S., but only a third of the number of aircraft.
Chief Executive Officer of Singapore Airlines, Goh Choon Phong, unveiled the order in a move to overhaul the airline’s strategy by pushing into budget airlines’ territory and expanding its regional network. Phong said of the deal, “Today’s aircraft orders are among the biggest in Singapore Airlines’ history, helping to ensure that we retain our industry leading position.”
Boeing will use the opportunity to work on a bigger, updated version of its 787 Dreamliner, a craft that has only recently been approved for commercial use around the world after it was grounded for three months due to overheating lithium ion batteries. The 787-10X will have 50 more seats than the largest 787, making it ideal for dense routes within Asia or across the Atlantic. The Singapore deal will likely cause Boeing to increase production of the 787 Dreamliner, a prospect Chief Executive Officer Jim McNerney hinted at in a shareholder’s meeting last week.
Airbus has its own plans for bigger commercial jets. Boeing’s European rival will increase production of the new A350-1000 jet, which can seat up to 350 passengers. Orders for the A350-1000, which will make its first flight in coming weeks, have been picking up. Singapore Airlines ordered an additional thirty A350-1000s after having already purchased 40 of the jumbo jets. The deal makes Singapore Airlines the world’s biggest customer for the new European jet, and all that business for Airbus doesn’t mean Boeing can relax just yet.
The new planes are set to begin delivery during Singapore Airlines’ 2016-2017 financial year.
Investing Insights: Will Lockheed Martin Dominate the Competition?