3rd UPDATE: Air New Zealand To Buy 14 New Airbus A320 Aircraft

National carrier Air New Zealand Ltd. (AIR.NZ) said Tuesday that it will consolidate its short-range fleet around Airbus aircraft after a hard-fought contest with rival Boeing Co. (BA), amid delays in orders for the U.S. manufacturer's new 787 long-range plane.

Air New Zealand said it will buy 14 new Airbus A320 aircraft to replace its current domestic jet fleet of 15 Boeing 737-300 aircraft.

Its decision to add to its existing Airbus A320 fleet is a further sign that airlines are happy to mix fleets and will likely be viewed as another blow to Boeing.

Air New Zealand's general manager for short haul operations, Bruce Parton, told Dow Jones Newswires the decision was motivated by technical factors, such as the width and cargo system of Airbus aircraft, as well as price.

"There were a number of reasons. One of course is price. It was a competitive bidding system," he said.

He said the decision to buy Airbus aircraft wasn't related to the delay in Boeing's delivery of the 787 Dreamliner aircraft.

"In this case, the Airbus has come out superior. It is certainly nothing to do with any delays in 787s," said Parton.

Air New Zealand has previously voiced disappointment at Boeing's repeated delays in delivering the 787 Dreamliner aircraft.

It has eight 787-9 aircraft on order, with the first aircraft scheduled for delivery in the first quarter of 2013 but Air New Zealand Chief Executive Rob Fyfe has said that due to publicly announced technical problems, he doesn't expect them until the last quarter of 2013.

Close Call Between Two Suppliers

Craig Investment Partners analyst Geoff Zame said it was likely a fairly close call between the two aircraft suppliers, and the additional width of the Airbus A320 may have helped swing the balance.

Zame said that while Air New Zealand had opted for Airbus, it has clearly retained some competitive tension in its fleet.

"All of the long-haul aircraft will be Boeing. Boeing will still play a major role in the fleet," he said.

Subject to the final contract, the first A320 will arrive in January 2011, Air New Zealand said in a statement. The remainder will be progressively introduced until 2016.

Air New Zealand has also secured purchase rights for a further 11 aircraft, it added.

The carrier, 76% owned by the New Zealand government, said it obtained the aircraft at a discount. At list prices, the cost of the 14 aircraft is over US$1 billion.

Parton declined to specify how much it would pay for the aircraft other than to say the discount was "substantial."

He said the company's efforts to buy aircraft when the market is in a downturn "has been incredibly successful in the past and was incredibly successful this time."

The stock ended higher after the news, gaining 1.6% to NZ$1.30 and was one of the few gainers for the day. In contrast, the benchmark NZX-50 ended down 0.8%.

First NZ Capital analyst Jason Familton said Air New Zealand had demonstrated flexibility and financial capacity with its purchase of the Airbus aircraft.

"They have timed the cycle well in making the acquisitions," he said.

He also noted Air New Zealand is well positioned to bankroll the purchase as it has some NZ$1.4 billion in cash on its balance sheet at present.

The blow for Boeing comes after Ryanair Holdings PLC (RYAAY), one of the plane maker's biggest airline customers, said Monday that management changes at Boeing are threatening a possible order for 200 of its 737 model.

Air New Zealand said it has been evaluating options to replace its 737-300 for the past eight months.

Parton said Air New Zealand's existing fleet of 12 A320 aircraft is performing well on the airline's short-haul international network.

Moving to one single-aisle jet aircraft type across both domestic and short-haul networks "will deliver efficiencies in fuel burn, maintenance, training, spares holding and fleet management," said Parton.

Airlines around Asia Pacific have posted heavy losses in recent months as the global economic crisis sharply curbed demand, but Air New Zealand's agility in shifting capacity has helped the flag carrier remain profitable, albeit at a lower level.

Zame said the move is positive as Air New Zealand will be well-positioned for growth because of the capacity it can bring on stream and "their timing is quite good."

-By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990; rebecca.howard@dowjones.com