Boeing-Airbus Contest May Hinge on Engine Deal, Saudi Airline Says

(Bloomberg) -- Saudi Arabian budget airline Flynas LCC said terms available from engine makers may determine whether it awards a multi-billion-dollar wide-body jetliner order to Airbus SE or Boeing Co.

Flynas has begun negotiations for Airbus A330neo or Boeing 787-9 planes, and is also engaged in detailed talks with turbine suppliers including Rolls-Royce Holdings Plc, Chief Executive Officer Bander Almohanna said in an interview.

While engines have always been central to aircraft orders, exclusivity deals on models like the A330neo, where Rolls is the only supplier, have hurt airlines’ bargaining power. Turbine manufacturers are also struggling to keep pace with deliveries amid a series of glitches, with Rolls saying last month it had handed over only 10 A330 powerplants this year out of the 30 scheduled.

“You need to start with the engine-manufacturer negotiations,” Almohanna said. “The engine represents a major cost, and with the trend right now of having only one engine type you need to put pressure on the planemaker so that they can work with you to get a good deal with the engines.” Delivery dates for the aircraft and turbines are also central to the talks, he said.

$3 Billion Deal

Flynas’s order, likely to be placed next year, will comprise at least 10 planes and probably more, Almohanna said at the World Travel Market trade fair in London. The 787-9, which comes with a choice of Rolls-Royce or General Electric Co. engines, has a list price of $281.6 million, and the A330-900 sells for $296.4 million, so a deal may be worth more than $3 billion.

The jets, which could be financed via sale and leaseback, would carry Muslims on the year-round Umrah pilgrimage from locations such as Indonesia and West Africa. Flynas currently leases about a dozen planes a year for the 10-day Hajj and would likely continue doing so. The CEO said it looked at leasing surplus aircraft from Abu Dhabi’s Etihad Airways, but the layout wasn’t dense enough,

Saudi Arabia projects that the number of visiting pilgrims will jump to 30 million by 2030 from 8 million now. Much of the growth is expected to be in Umrah devotees, who tend to be more middle class, so that the wide-body fleet will feature a business cabin with lie-flat seats, according to Almohanna.

Flynas will receive the first of an 80-plane order for A320neo narrow-bodies on Tuesday, Almohanna said. The aircraft, originally due in August, has been held up by engine delays. The airline may convert some of those orders to the extended range version of the larger A321neo to offer Umrah services in markets such as London and cities in France, the CEO said.

Almohanna declined to comment on plans for an initial public offering after the company was said in February to have hired Citigroup Inc. to advise on a sale.

Flynas is owned by Kingdom Holding Co., the investment firm of Prince Alwaleed Bin Talal, and competes with state-owned Saudi Arabian Airlines, which recently launched its own discount arm Flyadeal. Bin Talal was among wealthy Saudis temporarily imprisoned by Crown Prince Mohammad bin Salman, who is under pressure to explain the death last month of journalist Jamal Khashoggi in a Saudi consulate in Turkey.

To contact the reporters on this story: Ellen Milligan in London at emilligan11@bloomberg.net;Christopher Jasper in London at cjasper@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Andrew Noël

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