US diplomatic support fails to help Boeing but PAL may need more jets
MANILA/PARIS (2ND UPDATE) - Airbus won a $7 billion order to help more than triple Philippine Airlines Inc's fleet, beating Boeing Co to a deal despite U.S. support for Manila in a diplomatic dispute with China.
The flag carrier plans to buy up to 100 new jets in total within the next five to seven years, its biggest ever fleet expansion in its 71-year history, as it restructures operations to become a low-cost carrier and regain dominance of the local market from arch-rival Cebu Air Inc.
Those purchases would take its fleet to around 140 planes, far ahead of Cebu's 38-strong fleet, which it plans to double. Philippine Airlines (PAL) said it was still in talks with both Airbus and Boeing for its next tranche of planes.
For this stage of fleet expansion, the airline has ordered 10 long-haul A330-300s and 44 jets from the A321 family, with delivery starting in 2013, Asia's oldest airline said in a statement.
Philippine Airlines will pay Airbus in cash, with part of the money to come from bank loans, said President Ramon Ang, who also heads Philippine conglomerate San Miguel Corp.
The carrier is also ready to issue more shares to fund its jet purchases, it said in a statement.
"The good Boeing planes we are looking at are the 777-300 ER and the upcoming 777-X. We're also interested in the Boeing 787-9 Dreamliner," Ang told reporters on the sidelines of the deal signing event in Manila on Tuesday.
Philippine Airlines (PAL) Chairman and CEO Lucio Tan (L), senior vice president of sales in Asia Airbus Jean-Francois Laval (C) and PAL President and CEO Ramon Ang hold a replica of a PAL airbus plane during the signing ceremony in Manila August 28, 2012. / REUTERS/Romeo Ranoco
"We have the option on whichever type of aircraft to go," he said.
Boeing and Airbus are locked in a global contest for market share, in some cases more than halving prices to bolster orders of the newly revamped models of best-selling narrowbody jets, industry sources and analysts say.
San Miguel, which bought a 49 percent stake in PAL and a sister airline in April from Filipino billionaire and brewing rival Lucio Tan in a deal worth about $500 million, controls the management of the airline.
A territorial spat in the South China Sea, Asia's biggest potential military flashpoint, appears to have added a diplomatic dimension to the aircraft order talks as Washington seeks to cement a growing alignment with Manila on the issue.
One person familiar with the matter said there had been significant "commercial and political pressure" on the airline to secure a deal with Boeing.
Boeing declined to comment on the negotiations.
In Washington, the State Department did not immediately respond to a request for comment.
Beijing's sovereignty claim over the huge area has set it against Vietnam and the Philippines as the three race to tap possibly huge oil reserves.
The United States pledged in April to triple military aid to Manila in 2012 while remaining broadly cautious on defence ties.
Philippines President Benigno Aquino visited the United States in June, highlighting the archipelago's growing importance in U.S. thinking and temporarily raising U.S. hopes of a commercial aviation deal benefiting export jobs .
With prestige, jobs and often influence at stake, experts say diplomacy is an occasional weapon in jetliner deals.
A 2005 diplomatic cable released by Wikileaks said U.S. diplomats in Manila were "working closely" with Boeing, which had formally requested diplomatic support for previous efforts to sell the Boeing 777 to PAL, resulting in an order in 2007.
Analysts say Airbus -- originally a consortium between France, Germany, Britain and Spain -- also benefits from diplomatic support from European nations for major contracts.
Recent French presidents Jacques Chirac and Nicolas Sarkozy both regularly promoted Airbus overseas, especially in Asia.
Airbus hopes to win orders to sell up to 100 A320 planes to China when German Chancellor Angela Merkel visits the country this week, industry sources said on Monday.
China regularly places three-figure plane orders tied to state events held with U.S. or European leaders.