Budget carrier AirAsia announced today that it will buy 40 A320 jets for RM9.5 billion from Europe's Airbus, which beat US aerospace giant Boeing in bidding for the contract.

AirAsia said in a statement to the stock exchange that it would sign a preliminary agreement with Airbus on Friday and would also agree to take options to acquire up to 40 more aircraft.

The order for the 40 jets would be valued at RM19.8 at the catalogue price, the Wall Street Journal said in a report on the negotiations last month, but AirAsia will pay less than half that amount after securing major discounts.

AirAsia will phase out its current Boeing fleet, an industry insider told AFP , a decision seen as a major setback for the US manufacturer in the burgeoning Asian low-cost airline market.

Boeing loses out

AirAsia, the region's largest low-cost carrier, currently operates a fleet of 26 Boeing 737 aircraft. Boeing officials had acknowledged that capturing the contract was critical for them to regain sales momentum in the Asian market.

Funding for the purchase will be mainly from borrowing capital. AirAsia is currently in negotiations with various financial institutions.

The first aircraft will be delivered in January 2006. The remaining 39 aircraft will be delivered over a five-year span.

The three-year old no-frills carrier has expanded from a two-jet operation to become Asia's leading economy airline, carrying 7.5 million passengers since its launch in December 2001.

It operates 322 flights a week from Kuala Lumpur International Airport to 14 domestic and eight international destinations, and plans a major regional expansion programme.

AirAsia became the first budget carrier to be listed in Southeast Asia in November, when its initial public offering was snapped up by investors in the Malaysian bourse.