Air New Zealand Ltd said on Wednesday it would buy 10 new Boeing Co aircraft worth over NZ$1.35 billion ($851 million) to upgrade an ageing fleet, cut costs and boost capacity by a fifth.
The airline, majority owned by the government since its near-collapse in 2001, said it would acquire eight new Boeing 777-200 ER planes and two of the aerospace giant's new 7E7 Dreamliner jets through a mix of purchases and leases.
Air New Zealand is upgrading its ageing long-haul fleet to compete with rivals, such as Singapore Airlines, which have newer planes.
The Auckland-based airline is also striving to cut costs ahead of an expected onslaught of no-frills competitors closer to home such as Richard Branson's Virgin Blue.
Air New Zealand selected Rolls-Royce Plc Trent 1000 engines for the mid-sized 7E7s, giving the British manufacturer a head start in its competition with General Electric Co to sell engines for the new plane.
Air New Zealand is the second airline to order the 7E7, reputed to be 15 percent cheaper to run than similar sized planes, but it was the first to specify an engine.
Japan's All Nippon Airways placed an order for 50 7E7s in April, kick-starting Boeing's first new plane for a decade. But it did not specify an engine supplier.
Air New Zealand will buy four of the 300-plus seat Boeing 777-200s and lease another four from International Lease Finance Corporation, a unit of American International Group Inc, at a cost of more than NZ$1 billion. They will be powered by Rolls-Royce Trent 800 engines.
Those planes are scheduled to be delivered between September 2005 and late 2006.
A delivery date has yet to be set for the 7E7 aircraft, which, including supporting infrastructure, will cost more than NZ$350 million.
Designed to save cash-strapped airlines money on fuel and operating costs, Boeing hopes the 7E7 can help it recover ground lost to Airbus which overtook it as the world's biggest commercial jet maker last year.
UBS airline analyst Timothy Ross said the decision to choose Boeing over European rival Airbus was not surprising given Air New Zealand's fleet was predominantly Boeings.
"I'd have thought Boeing would have fought very hard to retain their custom, having lost it with the narrow body upgrade," Ross said.
Air New Zealand, which ordered 15 A320 Airbus planes in 2002 for short- to medium-haul routes, said the upgrade would allow it to develop new routes, possibly including China, and boost existing capacity by 20 percent.
"It would be pretty much game over, I would have thought, as far as they're concerned for a small but loyal customer, had they lost this one," he said.
Air New Zealand said the 777s and 7E7s would be more efficient than expanding its existing fleet of older 767s.
Air New Zealand's Chief Executive Ralph Norris told a news conference the purchases would be funded through operating cash flow and bank debt and would not require a capital raising.
Air New Zealand has about NZ$1.0 billion of bank reserves and generates around NZ$500 million a year in cash flow.
The 7E7 aircraft has a catalogue price of $120 million apiece, but airlines can receive steep discounts.
Shares in Air New Zealand, whose proposed merger with Australia's Qantas has been blocked by competition regulators, closed down one cent at NZ$0.40.
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