AMR Said to Plan Airbus-Boeing Split With Record 400 Jets
July 20, 2011, 3:49 AM EDTBy Susanna Ray, Mary Schlangenstein and Rachel Layne
(Adds report on breakdown of order in sixth paragraph, updates shares in 12th paragraph.)
July 20 (Bloomberg) -- American Airlines plans to split a record order of about 400 jets between Boeing Co. and Airbus SAS as the European planemaker widens its U.S. foothold and Boeing shifts strategy, people familiar with the matter said.
Boeing’s proposal includes upgrading its 737 with new engines to counter Airbus’s revamped A320neo, said four people who weren’t authorized to speak publicly, after the company had said for more than a year that it favored building an all-new single-aisle jet instead. The deal may be announced today.
American’s decision signals that Chicago-based Boeing has “lost the initiative in the narrow-body aircraft debate,” said Kenneth Herbert, a Wedbush Securities analyst in San Francisco. Fort Worth, Texas-based American flies an all-Boeing fleet and hasn’t ordered Airbus jets since 1987.
Counting options and future purchase rights, the order may reach 900 planes, two people said. Boeing and Toulouse, France- based Airbus would help finance the acquisitions by leasing about half of the jets to American, in effect keeping the aircraft on their balance sheets, three people said.
Directors at American parent AMR Corp. were considering whether to approve the deal at a meeting that began yesterday and was to resume today, one person said. The breakdown of the order between the planemakers was under discussion, the people said.
List Prices
American Airlines plans to order more than 250 Airbus A320 and A320NEO planes and about 150 re-engined Boeing 737s, the Financial Times reported today, citing people familiar with the matter. American may also be taking an option on a further 220 aircraft, the newspaper said.
The 400 planes may have a list value of about $37 billion, based on average retail prices from which airlines negotiate discounts. Taken together, the transaction would be the industry’s biggest firm order, eclipsing AirAsia Bhd.’s agreement last month to buy 200 upgraded Airbus A320neos.
Ryan Mikolasik, a spokesman at public-relations firm Weber Shandwick for American, Boeing’s Mike Tull and Airbus’s Mary Anne Greczyn said the companies weren’t discussing the plans. The airline tentatively scheduled a news conference at 10 a.m. local time today at Dallas-Fort Worth International Airport.
Leap-X
American would use the Leap-X engine from CFM International, a General Electric Co.-Safran SA joint venture, exclusively on the upgraded planes, two people said. CFM competes with United Technologies Corp.’s Pratt & Whitney unit on the A320neo and provides the only engine option for the 737. Boeing’s board probably will make the Leap-X the only offering on an upgraded plane for all airlines, the people said.
A CFM spokeswoman, Jamie Jewell, declined to comment.
With Boeing’s proposal to re-engine the 737, the planemaker follows the lead of Airbus, which announced that step last year for its A320 jet family. Boeing hasn’t said publicly whether it would add the new engines, a less-expensive option, or wait until later this decade to offer a new jet.
AMR rose 2 cents to $4.93 in New York Stock Exchange composite trading yesterday, snapping a string of six straight declines, while Boeing gained 98 cents, or 1.4 percent, to $70.53. Airbus parent European Aeronautic Defence & Space Co. added as much as 72 cents, or 3 percent, to 24.65 euros in Paris today.
‘Fleet Simplification’
New planes would help American refresh a fleet that in 2010 averaged 15 years of age, tied with Delta Air Lines Inc. for the oldest among the six biggest U.S. carriers. Jet fuel and labor are the largest expenses at airlines, so more-economical aircraft would help AMR’s bid to return to profit after two straight annual losses.
The trade-off is that adding Airbus planes ends American’s strategy of holding down operating costs by flying only Boeing jets, said Robert Mann, owner of consultant R.W. Mann & Co. The move also creates permanent scheduling inefficiencies, he said.
“They’ve been preaching fleet simplification for years, and all of a sudden it doesn’t matter,” Mann said in an interview from Port Washington, New York. “It’s almost as if the pricing is so attractive they think they can ignore the complexity costs over the life of the airplanes.”
The 737 and A320 compete in the single-aisle segment that makes up the biggest part of the global airline fleet.
New narrow-body planes would help American replace its 216 Boeing MD-80s, the most common model among the carrier’s 613 mainline jets. A workhorse on domestic routes, American’s MD-80s average more than 20 years of age and went out of production in 1999.
Eagle’s Future
American began receiving deliveries two years ago on an order of 130 737-800s that will be completed in 2013. Those planes are 25 percent more fuel-efficient than the MD-80s. The airline stopped flying Airbus jets in 2009.
American Airlines signed an exclusivity agreement with Boeing in 1996, dropping McDonnell Douglas Corp. as its main supplier in favor of an order for 103 Boeing planes and purchase rights for hundreds more.
AMR also is recommending that directors approve the spinoff of regional carrier American Eagle, three people familiar with the matter said. There is no guarantee that the board will vote on Eagle’s future, the people said.
AMR and the Eagle pilots’ union negotiated an agreement for ownership of the smaller airline’s planes to be transferred to American, where they can be parceled out to other airlines to provide regional flying, according to Tony Gutierrez, chairman of the Air Line Pilots Association unit at Eagle.
In exchange, American agreed to terms that include offering a future job to all 3,000 current Eagle pilots, putting them in the queue first when the larger airline is hiring, Gutierrez said in an e-mail to members.
AMR has studied options for Eagle for more than a year. A spinoff would allow American to hire additional regional carriers and let Eagle fly for other major airlines. Tim Smith, an American spokesman, declined to comment.
--With assistance from Jeffrey McCracken in New York, Mary Jane Credeur in Atlanta and Andrea Rothman in Paris. Editors: Ed Dufner, Kevin Miller
To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net
To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Benedikt Kammel at bkammel@bloomberg.net
