November 1, 2018 / 8:27 AM / in 19 days

Vietjet to finalize $6.5 billion Airbus order: sources

HONG KONG (Reuters) - Fast-growing budget carrier Vietjet Aviation VJC.HM is set to finalize a $6.5 billion jet order with Europe’s Airbus (AIR.PA) during a visit to Hanoi by French Prime Minister Edouard Philippe on Friday, people familiar with the matter said.

Logo of Airbus is pictured at the Airbus A380 final assembly line at Airbus headquarters in Blagnac, near Toulouse, France, March 21, 2018. REUTERS/Regis Duvignau

The order for 50 A321neo jets is part of an aggressive investment in the Vietnamese airline’s fleet that has provided lucrative business for both Airbus and its U.S. rival Boeing.

It is also a boost for Airbus as it seeks to turn a raft of provisional orders put together at July’s Farnborough Airshow into hard revenues, narrowing a gap against Boeing this year.

The deal is the biggest economic component of an official visit to France’s former colony by Philippe from Nov. 2-4, during which he will oversee deals with French firms and hold talks with Vietnamese counterpart Nguyen Xuan Phuc, they said.

Airbus and Vietjet both declined to comment.

Vietnam and France also signed an agreement in September to expand defense collaboration, although details are scant.

VietJet CEO Nguyen Thi Phuong Thao told Reuters this week that Vietjet plans to maintain an average fleet age of just three years to keep fuel and maintenance costs low.

It placed provisional orders for the A321neo jets and 100 Boeing 737 MAX jets in Farnborough and has been negotiating to firm them up, with deliveries expected between 2020 and 2025.

The formal signing, to take place on Friday, will help to dispel doubts over the substance of deals announced in Farnborough, which was marked by a rash of vague or incomplete order announcements.

Finalizing such deals can involve tough negotiations as airlines try to squeeze out last-minute concessions.

However, finance industry sources have expressed concerns about a glut of orders in Southeast Asia from airlines like Vietjet, Malaysia’s AirAsia (AIRA.KL) and Lion Air of Indonesia and question whether all of the several hundreds of planes on order from the Asian low-cost carriers will actually be delivered.

Vietjet told the Airline Economics conference in Hong Kong this week that low-cost airlines have a relatively low market position in Vietnam, and that those most successful in driving down unit costs would ride out any downturn in the market.

Vietnam’s expansion has also been peppered with trade sensitivities as Vietjet - which says it enjoys government support - juggled Airbus and Boeing procurements: a strategy also designed to win bigger discounts.

Two years ago, Boeing upstaged Airbus by clinching an order for 100 737s during a visit by then-U.S. President Barack Obama.

Until then, VietJet had only bought from Airbus, including an order for 92 jets in 2013.

Philippe’s visit is the latest example of Western leaders beating a path to Asia’s low-cost carriers, whose orders have secured thousands of manufacturing jobs, trade experts said.

Reporting by Tim Hepher, Anshuman Daga; Editing by Neil Fullick & Simon Cameron-Moore

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