Air New Zealand will buy six Boeing Co aircraft and lease four more at a cost of more than NZ$1.35 billion (US$1.44 billion), seeking to cut fuel costs and add routes to India and China.

The airline will buy four Boeing 777-200 ER planes and lease a further four, replacing some existing Boeing 767 planes over the next two years, it said in a statement yesterday. The carrier will also buy two Boeing 7E7s, only the second airline to place an order for the plane, scheduled for its first delivery in 2008.

Managing director Ralph Norris is upgrading services and cutting costs because of increased rivalry from Qantas Airways, Emirates and Singapore Airlines. The deal may help re-assert Boeing's grip on the local aviation market after Airbus SAS two years ago won an order to sell the Auckland-based national airline 15 aircraft for domestic and Australian routes.

'It's a fairly pivotal deal for Boeing - it's one it probably couldn't afford to lose,' said Timothy Ross, head of Regional Transport Research at UBS in New Zealand. Air New Zealand 'is a small airline in a regional context but it might have had a bearing on other airlines' sentiments to the competitive positioning of Boeing and Airbus products'.

Chicago-based Boeing is staking its future on the 7E7, a more fuel-efficient replacement for its 757 and 767 models. The Chicago-based company expects demand for such aircraft to grow as passengers seek direct flights and airlines try to minimize layovers.

Analysts expect the new 7E7 to cost US$10 billion to develop. The aircraft, also called the Dreamliner, will have 200 to 300 seats and will consume 20 percent less fuel than the models it replaces, Boeing has said. By contrast, Europe's Airbus is seeking orders for its 550-seat A380, which will be the world's biggest commercial aircraft when it starts flying in 2006.

Excluding the new purchases, Boeing aircraft account for 37 of Air New Zealand's 44 jet aircraft, according to the company's Web site.

Air New Zealand said the first Boeing 777 jetliners will arrive in September 2005. By early 2007 the airline will have eight Boeing 777s, seven Boeing 747s and five Boeing 767 aircraft in its long-haul fleet. That represents a 20 per cent increase in seat capacity from the 10 Boeing 767s and eight Boeing 747s in its existing fleet, Rob Fyfe, group general manager airlines, said on a conference call.

'We expect to fill those seats by flying to new destinations, increasing frequency to existing destinations and stimulating demand,' he said.

The company will fund the additional aircraft using cash flow and bank debt, Mr. Norris said. The airline said it has a right to buy a further 42 long-haul aircraft.

Adding Boeing 777s will give Air New Zealand the capability to add countries such as China and India to its Asian network, Mr. Norris said in an interview. The aircraft 'give us the opportunity to initiate new routes' because they have greater capability than existing Boeing 767s, he said.

The company said it would also add South American routes.

“Ultimately it will be good because it gives the airline more flexibility,” said Reg Montgomery, who helps manage the equivalent of US$110 million at BNZ Investment Management in Wellington.

(CNTA.com June 8, 2004)