Tiger Airways Holdings (TR) has entered into an agreement with Airbus and Pratt & Whitney for the order of 37 fuel-efficient Airbus A320neo aircraft. The purchase agreement also gives Tigerair the option to increase its order by up to 13 additional aircraft and convert the A320neos into the larger A321neo model. Consequent to the agreement, the airline’s existing order of nine Airbus A320 aircraft, that were part of a larger 2007 order, will now be cancelled. These aircraft were originally scheduled for delivery in 2014 and 2015. The cancellation of the nine orders, together with the staggered delivery of the new A320neo aircraft over a period of eight years from 2018 to 2025, will better allow Tigerair to manage its capacity going forward and improve its cost efficiency. However, given the continued challenges TR faces in its core markets, we maintain our SELL rating and fair value of S$0.38 on TR.

Source: OCBC Research - 24 Mar 2014