July 13, 2024

Biman Shifts Preference to Airbus Over Boeing

In a surprising turnaround, Biman Bangladesh Airlines has reversed its decision on the profitability of purchasing Airbus A350 planes. A newly formed committee swiftly determined the venture profitable, leading to the approval of four aircraft, despite previous evaluations predicting significant losses.

Photo Source: Biman Bangladesh

In a surprising reversal, Biman Bangladesh Airlines has decided to move forward with the purchase of Airbus A350 planes, a shift from their earlier position which forecasted substantial losses. This decision follows an expedited evaluation by a newly appointed committee.

In January, Biman’s evaluation indicated that acquiring two Airbus A350 planes would result in massive financial losses. However, on April 22, a new appraisal committee was formed and, within just three days, they concluded that the venture would be profitable. This led the Biman board to approve the purchase of four Airbus planes, each valued at around $180 million.

Throughout the previous year, Bangladesh had repeatedly affirmed its intent to buy Airbus planes. The final memorandum of understanding, which required a non-refundable $5 million commitment fee per plane, was contingent on this techno-financial evaluation.

The previous evaluation committee, after a six-month study, projected an accumulated cash shortfall of up to $463.08 million over the planes’ 25-year lifespan. Despite this, the committee was reconstituted five months later by the Biman board, with a new head and a mandate to deliver results within three days. This new committee’s report, submitted on April 25, suggested profitability by using optimistic cabin factor estimates, up to 92%, which Biman has never achieved.

The committee’s favorable evaluation allowed for a projected 20% increase in revenue compared to the earlier assessment. They also identified only two profitable routes for the Airbus planes: Dhaka to JFK Airport in New York and Dhaka to Jeddah. The feasibility of serving the New York route remains questionable, as Bangladeshi carriers have been barred from this destination since 2006 due to FAA restrictions.

Additionally, the second evaluation committee’s estimates included reduced jet fuel costs, contributing to about a quarter of the projected revenue increase. These assumptions starkly contrasted with the findings of the first committee, which highlighted high operational costs and significant initial investments in spare parts, tools, and crew training.

While the second committee projected operational profits from the second year, the first committee cited a poor yield in revenue generation compared to costs and identified high-interest costs as a major concern. Despite these concerns, the new report suggested that operating the Airbus A350 on specific routes could generate a profit of $135.34 million over 25 years, whereas the first committee predicted a loss of $188.37 million over the same period.

Photo Source: Biman Bngladesh Airlines Ltd

Biman’s transition from a Boeing-based fleet to a mixed fleet will incur substantial costs. The carrier estimates this transition at $80 million, though Airbus competitor Boeing estimates it to be $146 million. Furthermore, Biman faces a significant shortage of crew, necessitating extensive training for pilots and engineers, which could impact current operations.

Despite the financial and logistical challenges, the Biman board has authorized another committee to negotiate prices, secure permissions, and proceed with the purchase. This decision follows a joint communique signed in London and French President Emmanuel Macron’s visit to Dhaka, where Bangladesh committed to buying ten Airbus planes.

Biman’s managing director, Shafiul Azim, noted that while the Airbus proposal is under intensive evaluation, a Boeing proposal will also be considered to ensure competitiveness. The final decision on the Airbus purchase is still pending.

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