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Airbus S.A.S secured the $7 billion jet order from Philippines Airlines (PAL). The order is for 44 A-321 family narrow-body jets and 10 A330 family long-haul jets with deliveries scheduled for next year. And while this order is excellent news for Airbus, it would be naïve to assume that an aircraft deal has been achieved without a political dimension.

Earlier this month, PAL revealed that it was aiming to renew its fleet of airplanes, that include both Airbus and Boeing (BA) jets. The announcement further intensified the ongoing price war between the two global leading suppliers of airplanes, who are both willing to sacrifice margins for market share. An increase in orders was witnessed after the competing firms introduced their narrow-body airplanes that turned out to be a massive success.

On the other hand, the United States is likely surprised by PAL's decision. In April, it had promised to treble Philippines's military aid as it sits right on the South China Sea, taking sides against China's claims there, which the Philippine government has been very vocal in protesting, having gone so far as to force the issue back onto the table at the ASEAN summit in Phnom Penh earlier in the year. This caused a major rift in ASEAN only now just subsiding.

The U.S.'s decision was followed by President Benigno Aquino's visit to U.S., at a time when his host was looking to increase aviation jobs numbers. PAL already had Boeing aircraft in its long-range wide-bodied fleet. Furthermore, rumors persisted that PAL has been under "commercial and political" pressure to opt for Boeing. Cables brought to light by Wikileaks intimated that U.S. diplomats played a major role in the 2007 Boeing 777 deal with PAL.

U.S. diplomats were looking to secure Boeing's interest. It stands to reason that France, Germany, U.K. and Spain would be working together for Airbus. In fact, French presidents, including Jacques Chirac and Nicolas Sarkozy, have never shied away from publicly supporting the European airliner.

Historically, a U.S. or European leader's state visit to Beijing is followed by a massive order for either Boeing or Airbus. German Chancellor Angela Merkel is on an official trip to China and she is accompanied by a large delegation of European businessmen that include none other than the head of EADS (OTCPK:EADSF) (Airbus's parent company) Tom Enders. According to Bloomberg, Fabrice Bregier, the COO of Airbus will also join his boss in China when the country is expected to announce a massive order exceeding 100 jets.

Officially, nothing has been revealed as negotiations are currently underway. If they move forward as Airbus plans, then this would be its single biggest order this year. It should also be noted that Airbus aircraft deals worth up to $14 billion have fallen through because EU had decided to include aircraft emission in carbon credit markets. These current negotiations are focused on smaller planes as passenger habits change towards more regional flights; therefore carbon emission credits are not likely to have any impact.

In another example of diplomatic influence on airline deals, the U.S. defense Secretary Leon Panetta visited Singapore in May-June, to enhance the regional ties. The visit was followed by a $4.9 billion order of Boeing 737s by Singapore Airlines for SilkAir, their regional carrier. This would be Singapore Airlines' biggest order since 2006, $7.5 billion. On the other hand, Qantas has said it cannot afford to buy the 35 Boeing 787 Dreamliners it had earlier ordered.

SingAir (up 6.5% YTD) is a major component of the iShares MSCI Singapore ETF (EWS) which has been consistently outperforming SPDR S&P 500 ETF (SPY) in 2012. Year to date, EWS has risen by an impressive 20.21% as opposed to SPY's 12.67% increase. The Asia-Pacific region is the most important market for both Boeing and Airbus as the highest projected passenger growth will happen there.

For investors, The Guggenheim Airline ETF (AMEX:FAA) includes most of the carriers worldwide including, SingAir and Southwest Airlines (NYSE:LUV) and has underperformed the broader market, trailing SPY 6.7% to 12.9%. The need to move to more modern fuel-efficient aircraft is acute in the face of structurally high oil prices. Airbus, with these two deals has put itself in a very solid position to take advantage of the growth in Southeast Asia.

Source: Airbus Grabs 2 Important SE Asian Orders