Sri Lankan carrier to buy 10 Airbus aircraft for $ 1.3 bn

Updated 25 May 2013
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Sri Lankan carrier to buy 10 Airbus aircraft for $ 1.3 bn

COLOMBO: Sri Lankan Airlines has signed a provisional deal with Airbus worth $ 1.3 billion to buy six A330-300 and four A350-900 aircraft between 2014 and 2023 to replace aging aircraft, the firm’s CEO said.
The airline, seeking to modernize its fleet to cut fuel costs, will opt for Rolls-Royce Plc engines and use a lease-back arrangement to conserve cash, CEO Kapila Chandrasena said.
“The total cost altogether is going to be around $1.3 billion. But deliveries are progressively from 2014 to 2023 on a staggered basis,” he said.
The carrier signed a memorandum of understanding on the purchase with Airbus last Friday, he said.
Sri Lankan Airlines now operates with a 22-aircraft fleet including seven A320-200s, seven A330-300s, six A340-300s and two Twin Otters.
Chandrasena said the national carrier needs to replace all six A340-300s with A330-300 aircraft and all seven A330-300s with A350-900s.
Sri Lankan, which had been managed by Dubai’s Emirates Airline for a decade until 2008, aims to achieve a modern and fuel efficient twin-engine fleet by 2023.
The A340 has lost favor with airlines due to the cost of running four engines in an era of high fuel prices. Airlines are switching to lightweight new-technology airplanes such as the carbon-fiber A350 and Boeing Co’s Dreamliner, but sales of the older A330 have held up better than expected due to its availability and competitive pricing, aerospace analysts say.
Chandrasena said the airlines considered offers by both Airbus and Boeing.
“We looked at who is giving more value for us. In that discussion, it was apparent that the Airbus offer of A330-300s in the interim and long-term A350-900 is much more favorable than the Boeing,” he said. “Boeing did not have interim aircraft. They were only interested in the long-term offer, which was the 787.”
Sri Lankan Airlines estimates that it incurred a loss of $ 134.8 million in the 2012/13 financial year to March 31, similar to the previous year, and is finding it difficult to finance new aircraft purchases. “We don’t have cash,” Chandrasena said. “So what we are doing is a sale and lease.”
He said the airline would work with either a financial institution or a leasing firm that would buy the aircraft and lease them back to the carrier.
He said the national carrier would be looking at a lease period of 10 to 15 years, with a shorter period for the A330-300s and a longer period for the A350-900s.
“We are talking to various (leasing companies) right now about the sale and lease-back on the six 330-300s,” he said.

The airline operates about 253 flights a week out of Colombo to European, Middle Eastern and Asian destinations.
Chandrasena said in February that, with fuel comprising half the airline’s costs, its ageing, inefficient planes were a heavy drain on profit.
It has the extra burden of having to operate unprofitable European routes, because the country’s economy, hard-hit by a 26-year war that ended in 2009, relies heavily on tourism.
The airline, which is 51 percent state-owned, is expected to break even, or be close to that point, in the 2015/16 financial year.


Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

Updated 47 min 41 sec ago
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Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

  • E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com
  • Boeing on Monday forecast air cargo traffic would double over the next 20 years
JEJU, South Korea: Strong e-commerce demand is fueling Asia’s air freight market, with the US-China trade war having minimal negative impact so far and in some cases even boosting shipments, industry executives said on Friday.
E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com, as well as others such as Japan’s Rakuten, sponsor of Spanish soccer giants FC Barcelona.
But the flow of goods has been threatened this year by the United States imposing import tariffs on billions of dollars worth of Chinese goods to redress what it regards as unfair trade relations — with China’s government responding in kind.
“I think right now we are probably going to see a pretty strong fourth quarter,” Randy Tinseth, Boeing Co’s vice president for commercial airplane marketing, said on the sidelines of an industry conference.
“The economy today has been very, very strong. Frankly in anticipation of this geopolitical situation I think people are just going out and moving (cargo) quickly.”
Asia-Pacific air cargo volume rose 4.8 percent in January-August, showed data from the Association of Asia Pacific Airlines (AAPA). That was lower than last year’s 9.8 percent but came off a higher comparison base at a time of record shipments, said AAPA Director-General Andrew Herdman.
“Given this short-term effect of scrambling to meet deadlines for tariff imposition and so on we are seeing pockets – lanes and channels – where demand is stronger than expected. For the next several months the cargo picture remains relatively robust. The question is what will the outlook for next year be.”
Asian airlines have an outsized role in air freight, accounting for nearly 40 percent of the global market as the region is a major manufacturing hub and e-commerce is growing.
“E-commerce is changing the way people are buying stuff, especially in countries such as Indonesia and the Philippines,” said Jean-Francois Laval, Airbus executive vice president, Asia sales. “It is coming from China, from Korea, it is coming from other parts of the region. You need a huge amount of cargo space.”
Boeing on Monday forecast air cargo traffic would double over the next 20 years, growing at an average rate of 4.2 percent a year.
To meet that demand, the aircraft manufacturer expects the world freighter fleet to expand over 70 percent to 3,260 planes. Around half of air cargo is carried in the bellies of passenger jets, with the remainder flown on dedicated freighters.
Some large Asian cargo carriers including Cathay Pacific Airways and Korean Air Lines rely on freight for around a quarter of revenue.
“Last year the cargo market was extremely hot. In 2018 it still grew. The trade tensions in the world will have some effects but we haven’t seen it yet. I see constraints coming in a very short time. However, we are preparing for it,” Korean Air President Walter Cho told reporters on Friday.
“Anything from the US to China and vice versa is going to be affected. We are looking at alternate markets to China and the US as well.”
Japan Airlines President Yuji Akasaka said the trade war had made no change to the cargo market to date and he only expected an impact if “extremes” occurred.
“If it does happen it may affect us in the future but as of right now we haven’t seen it and hope it will cool down and go back to normal,” he said through a translator.
In the short term, trade war impact has not been too visible because initial tariffs were on items not typically transported by air such as metals, AAPA’s Herdman said. That is starting to change, however, as duties apply to more goods.
“I heard one example ... Seafood from the US to China is subject to retaliatory tariffs, so demand in China is down. Guess what? Demand for Canadian seafood is doing just fine.”