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The reason why Asian airlines have been ordering many Airbus A320s and Boeing 737s with new engines allow fuel savings.

New York (USAsian Network Business & Industry News) Fri, Feb 7, 2014 - One reason many Asian airlines have been ordering many Airbus A320s and Boeing 737s is that engine improvements now allow significant fuel savings. Ample liquidity provided by money-printing central banks has also made it easier to fund the relatively small upfront payments needed to place headline-grabbing plane orders. But bankers warn the race to buy efficient aircraft in anticipation of high demand could spell trouble for the sector. "When you run an airline, for reasons which are both economic reasons and prestige, you want a new kit, so you order an aircraft. And if your neighbour orders aircraft, so you order aircraft," said Bertrand Grabowski who heads German bank DVB's aviation and land transport finance divisions. "I wouldn't call it irrational exuberance but clearly everybody in Asia is ordering aircraft more than they really need," Grabowski told Reuters in an interview. Most of the aircraft orders come from the region's two fastest growing airlines - Malaysia's AirAsia Bhd, run by entrepreneur Tony Fernandes, and Lion Air, co-founded by Indonesian businessman turned politician Rusdi Kirana. Both carriers have placed orders for hundreds of Boeing and Airbus aircraft valued at tens of billions of dollars as they race to get Asians flying in a region set to overtake the United States as the biggest aviation market. Others ordering aircraft include Cebu Pacific, Tiger Airways, 40-percent owned by Singapore Airlines Ltd, Garuda Indonesia's low-cost unit Citilink, and the Qantas Airways Ltd-owned Jetstar and its affiliates such as Singapore-based Jetstar Asia. In the event that any airline cannot complete an order, there are others waiting in the wings to take their slot. While Fernandes has dismissed speculation of an aircraft order bubble in Asia, AirAsia's profits have taken a knock due to a gruelling price war in its home market, stoked by Lion affiliate Malindo and competition from Malaysian Airlines. AirAsia has termed competition in Malaysia and Thailand as "irrational". Kirana, the head of Lion Air which does not disclose profits, believes consolidation in the sector is "inevitable" given the large number of companies in the low-cost market. Recently, Tiger Airways agreed to sell its Philippine operations to dominant carrier, Cebu Pacific, and AirAsia's Philippine unit bought into smaller Zest Air. Such concerns are unlikely to get much of a public airing at this week's aerospace event, where deals may be signed for between 100 and 200 jets worth $10-20 billion - albeit far below the record $200 billion seen in Dubai in November. Manufacturers are perennially upbeat and Boeing is expected to reiterate confidence in long-term Asian demand this week. "Nobody is going to place a future order unless they know that whatever they are taking in today is being absorbed in the market at a reasonable yield and a reasonable load factor level," said Dinesh Keskar, Boeing Commercial Airplanes' vice president, Asia-Pacific and India sales.

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Publication:USAsian Network News & Business & Industry News
Geographic Code:90ASI
Date:Feb 7, 2014
Words:497
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