Bloomberg News

Boeing Wins $5 Billion Order for Alaska Air’s 737 Fleet

October 11, 2012

Boeing $5 Billion Alaska Air Order Caps U.S. Jet Fleet Overhaul

Boeing Co. rose 0.9 percent to $70.99 at 1:56 p.m. in New York, and Alaska Air Group Inc. fell 0.2 percent $36.51. Photographer: Andrew Harrer/Bloomberg

Boeing Co. (BA:US) won an order for 50 narrow-body 737 jets with a $5 billion catalog value as Alaska Air Group Inc. (ALK:US) refreshes its mainline fleet and caps a round of purchases by the biggest U.S. carriers.

About two-thirds of the new aircraft will be used to replace older 737s in the airline’s fleet of 120 Boeing jets, with the rest to be used for growth, Chief Financial Officer Brandon Pedersen said today in a telephone interview. Deliveries begin in 2015.

“The growth really occurs in the second half of the next decade,” he said. “We have options for deliveries in 2015 through 2024 and those will really be the mechanism we use to modulate growth up and down. To the extent we see profitable opportunities and need more airplanes, we’ll exercise those options and bring those in.”

The purchase announced today by Seattle-based Alaska completes a round of fleet renewal by the largest U.S. airlines and brings Boeing’s order book for the 737 Max to 858 since the model went on sale late last year. Boeing has said it expects about 1,000 orders for the Max by the end of 2012.

Thirty-seven of Alaska Air’s new planes will be 737 Max variants that the Chicago-based planemaker developed in response to Airbus SAS (EAD)’s upgraded A320neo narrow-body jet. Many of the Max aircraft probably will fly to Hawaii, where the carrier already does 20 percent of its flying, Pedersen said.

Fleet Renewal

Earlier this year, United Continental Holdings Inc. (UAL:US) agreed to buy 150 Boeing 737s, following last year’s purchase of 100 Boeing 737s by Delta Airlines Inc. (DAL:US) and Southwest Airlines Co. (LUV:US)’s order for 208 Boeing 737s. AMR Corp.’s American Airlines agreed to acquire 460 single-aisle jets split between Boeing and Airbus in July 2011 before seeking bankruptcy protection in November.

The 737 Max variants will have the Leap engine developed by CFM International, a partnership of General Electric Co. (GE:US) and French manufacturer Safran SA. CFM valued the engine order at $1.2 billion. The power-plant manufacturer has been the sole supplier for all 737 jets since 1981.

After average discounts, Alaska’s order is worth $2.57 billion, according to consultant Avitas in Chantilly, Virginia.

The 737 Max is 13 percent more fuel-efficient than the current-generation models of the jet, which translates into $1 million to $1.5 million in annual fuel savings per plane, Pedersen said.

Jet-fuel prices have climbed 42 percent to $3.23 a gallon in the two years through September, according to data compiled by Bloomberg.

Boeing rose 0.7 percent to $70.83 at the close in New York, and Alaska Air was little changed at $36.56.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $128.73 USD
    • -0.62
    • -0.48%
  • ALK
    (Alaska Air Group Inc)
    • $45.47 USD
    • -0.75
    • -1.65%
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