Gokongwei-led Cebu Pacific (CEB) is making a conviction buy on Philippine aviation with the purchase of next-generation planes from European plane maker Airbus that will fuel its expansion in the decades to come.
The deal involves the purchase of as many as 152 Airbus A321neo planes for $24 billion or P1.4 trillion, which is based on list prices. It also selected Pratt & Whitney GTF™ engines to power the future aircraft.
There is a firm order for 102 A321neos, which are capable of serving domestic and regional routes such as Japan and Singapore, and an option for 50 more planes within the A320neo family.
The country’s low-cost airline pioneer started operations in 1996 with a fleet McDonnell Douglas DC-9s. It operates 87 aircraft today, including turboprops, mid-range Airbus planes and Airbus A330s.
Big picture
This is the largest aircraft purchase in Philippine history, but the deal is not just for show.
Amid supply constraints and a shortage of spare parts, airlines worldwide are struggling to expand their fleets due to the post-pandemic surge in travel.
As for financing, the final value of the jets is expected to be less than their list prices.
Cebu Pacific will likely use a combination of debt and equity sources to fund the purchase. This could also open opportunities for existing and new partnerships
Management’s view
“The order is designed to provide Cebu Pacific with maximum flexibility to adapt fleet growth to market conditions, with the ability to switch between the A321neo and A320neo,” said Cebu Pacific CEO Michael Szucs.
“When finalized, the deal will be a significant milestone for the local airline industry and a testament to CEB’s unwavering commitment to support the Philippine growth story,” he added.
Airbus vs Boeing
Cebu Pacific previously stated it was considering bids from both Airbus and US-based Boeing, with a preference for placing a mega order with just one manufacturer.
It went with the former, maintaining a 100 percent fleet of Airbus jets.
Choosing one aircraft maker provides operational advantages to Cebu Pacific, said Alfred Benjamin R. Garcia, head of research at stockbrokerage house AP Securities Inc.
“Since their jet fleet is 100 percent Airbus, this will save them on maintenance and spare parts,” Garcia said.
CEB is a buy
Garcia said they’ve issued a buy rating on Cebu Pacific operator Cebu Air Inc. with a target price of P53.10 per share, suggesting a 95 percent upside from its current price.
“This latest purchase would align with CEB’s stated goal of more than doubling its fleet size by 2035,” Garcia said.
“The company also said previously that it would prioritize improving efficiencies in its existing routes first before adding more routes, so I assume the game plan here is to add more flights to key tourist and business destinations and to areas with a lot of [overseas Filipino workers],” he said.
Next-generation aircraft
The A321neo belongs to the best-selling A320 family of Airbus.
The plane is designed to consume less fuel and, based on Cebu Pacific’s current configuration, can carry up to 236 passengers.
Who will fly all these planes?
Another major challenge for the industry is finding enough pilots and cabin crew to meet the significant demand for air travel.
Szucs said in a previous interview they were looking to hire around 1,500 new pilots to properly fly its expanding fleet.
Last month, Cebu Pacific also entered into a landmark deal with Cebu-based Ariworks Aviation Academy to train pilots over a five-year period.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
