KUALA LUMPUR: Malaysian carriers are adjusting their aircraft purchases as passenger traffic will be lower than originally expected over the next two to three years, aviation experts said.
Smaller (narrow-body) aircraft would be more suitable for airlines as fewer passengers are using air travel amid the ongoing fear of the Covid-19 pandemic, they said.
PricewaterhouseCoopers partner and strategy Edward Clayton said airlines should focus on preserving cash and avoid additional cost, than adding more aircraft during this unprecedented time.
"Investing in new and fuel efficient aircraft is not worthwhile currently as oil prices are still low. There is little need for airlines to place new aircraft orders directly from the aircraft manufacturers (Airbus and Boeing).
"Instead, airlines can opt for new and used aircraft available from lessors, if they need to increase their fleet," Clayton told the New Straits Times (NST) recently.
His remarks came amid reports that Malaysian carriers, like their international peers, had postponed orders as well as grounded their Boeing or Airbus aircraft until demand returns to normal.
Two of AirAsia Group's companies AirAsia Malaysia and AirAsia X Malaysia reportedly had a combined orders of 480 aircraft left unfilled with European manufacturer Airbus.
Clayton expects lessors to have a significant number of aircraft in storage as multiple airlines return their leased units.
"There is currently no market for aircraft so they are being put into storage."
He said airlines would potentially lose the deposit for new aircraft orders if they refused delivery.
This is because aircraft manufacturers would not be able to find other customers wishing to take over early delivery slots.
"Airlines are now looking at flexibility because it is hard for them to predict how traffic will recover after Covid-19.
"Therefore, many airlines have announced fleet reduction, knowing that if demand recovers, there are plenty of aircraft available," he added.
Another aviation analyst, who asked for anonymity, said local airlines would likely go bust if they fail to secure funding to keep operations airborne.
"Most local carriers are cash-strapped and they require financial assistance to sustain their businesses," he said.
TA Securities aviation analyst Tan Kam Meng concurred that the local carriers should defer or cancel their aircraft deliveries or orders to maintain cash flow.
He said it would not be feasible for them to take delivery if they were unable to fully utilise it.
"Airlines have been reducing capacity in the short term as most countries have closed borders and banned international flights," he told the NST.
He said aircraft manufacturers could penalise airlines for deferments or cancellations.
AirAsia has said that as far as it was concerned, there was no penalty for deferment in aircraft deliveries.
"Aircraft manufacturers have their own problems too. If they impose a penalty, it will be tougher for airlines. Hence, aircraft manufacturers need to at least lift some burdens from airlines in this unprecedented time," Tan said.
He said zero-penalty would ensure airlines can weather the storm.
"When the situation recovers, orders will returns. Aircraft order is a long-term business strategy. Original Equipment Manufacturers (OEMs) should focus on the long-term instead of short-term profit," he added.
AirAsia Group Bhd executive chairman Datuk Kamarudin Meranun said it did not intend to take any new aircraft deliveries this year.
The target was to end 2020 with 242 aircraft, a net reduction of one aircraft from last year, he said.
Kamarudin said AirAsia was relooking at its Airbus order book.
The decision to sell and lease its aircraft in late 2018 had provided the airline greater flexibility to scale back growth than owning aircraft today, he added.
Since late March, most of the low-cost carrier group's 282 aircraft have been in hibernation at airports around Asia.
Lion Air Group, parent of Malindo Airways Sdn Bhd (Malindo Air), said it would continue its B737 MAX orders.
Malindo Air chief executive officer Captain Mushafiz Mustafa Bakri said the airline was scheduled to receive up to 20 units of the B737 MAX by end of this year.
"B737 MAX is the future of our aircraft fleet, as it will replace our old aircraft fleet. However, the aircraft is still grounded.
"Boeing claimed that the aircraft will be allowed to resume flights by June this year if they get regulatory approval from the relevant civil aviation authorities," he told NST when contacted recently.
He said Malindo Air would have received eight B737 Max aircraft by end of this year if Boeing was able to fix the 737 MAX's flight control computer by June.
Thereafter, an additional four months are required for the Civil Aviation Authority of Malaysia (CAAM) to approve the aircraft's airworthiness.
The 737 MAX is Boeing's latest updated version of narrow-body and fuel-efficient short-range aircraft since its inception in 2017.
As at mid-March 2019, Boeing delivered more than 370 units of the 737 MAX to 47 customers globally.
Malaysia Airlines Bhd (MAB) said it would not be taking delivery of Boeing aircraft this year as planned earlier.
"We are continuing discussions with Boeing on this matter," it said.
MAB said it had a firm order of 25 Boeing 737 MAX aircraft with another 25 purchase rights in a deal valued at US$5.5 billion.
The national carrier suspended the delivery of the 737 MAX as there was no clarity from various aviation authorities on the aircraft's return to service
Boeing temporarily suspended its 737 MAX production in January this year.
"Although its return-to-service estimate as communicated by Boeing remains mid-year 2020, it is subject to the United States' Federal Aviation Administration and other global regulators including CAAM.
"Until then, our technical due diligence and discussions with Boeing are still ongoing as communicated before," an MAB spokesperson said.