Finnair to double its long-haul fleet investments
Airbus contract could run to EUR 2 billion
The Finnish national carrier Finnair announced on Thursday an investment plan, which, according to the company President and CEO Jukka Hienonen, is the largest in the company's history and possibly the second-largest in the history of Finnish business life.
"A nuclear power plant is ahead of us, but this is more expensive than the Espoo metro", Hienonen commented.
In all, around EUR two billion is needed for the undertaking. Hence the programme is more or less double compared to the initial fleet renewal project introduced in December 2005.
The investment plan doubled because the original acquisition schedule for new planes went awry, and because the growth rate of the company’s principal breadwinner - its long-haul Asian traffic - consistently exceeded expectations.
Last year Finnair’s Asian traffic grew by 27 per cent, and last month’s growth rate was no less than 37 per cent higher compared with the previous year’s corresponding figure.
According to the plan published on Thursday, Finnair will buy a minimum of ten Airbus wide-bodied A330/340 planes between 2007 and 2010. The company already has one A340-300E in its fleet. The A330, a twin-engined version of the A340, is a new introduction to the revised acquisition programme. Six such planes are now called for in addition to four A340s.
But both the A330 and the A340 are mere transitional solutions. Between 2014 and 2016, Finnair will receive its long haul fleet’s ultimate workhorse, the A350XWB (Extra Wide Body).
In December 2005 an order was placed for nine of these planes. The type, however, has since proved a disappointment to the market and Airbus has decided to redesign the whole aircraft.
Finnair, in turn, agreed to stay faithful to its original order, and according to Hienonen will receive an even better plane for the same price, albeit nearly two years later than hoped for.
To breach this two-year gap, the company needs the A330/340 planes. Finnair also increased its original order for the A350 planes from nine to eleven, and reserved an option to buy four more at a later date.
Financing this giant investment plan will prove a real challenge for the company. According to Hienonen, all options are being looked into, including an increase of capital through an issue of new shares.
Even over the next three years, it will require an annual investment from Finnair of around EUR 300 million, and this will only increase as the A350XWB aircraft start to come onstream.
To follow through with the investment plan also requires improved profitability. Last year Finnair produced a negative result.
The A330/340 planes carry around 270 passengers. For the A350XWB, Finnair has provisionally ordered three different versions, which can accommodate between 270 and 350 passengers.
Finnair is the first airline to place an order for the A350XWBs. To some extent, the company has been able to take advantage of Airbus's current discomfort over delays and lost sales: by investing in the future of the troubled European manufacturer at a point where it was acutely vulnerable to customers turning their eyes towards rivals Boeing, the buyer was able to demand its own package of flexible details on delivery times, acquisition methods, and model-types.
It is also possible there was an "early adopter" discount involved, but in keeping with the normal practice in this branch, such matters have not been discussed in public.
Previously in HS International Edition:
Airbus crisis could affect Finnair´s investment plans (6.10.2006)