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Business

American Airlines orders record number of passenger jets

Text by News Wires

Latest update : 2011-07-21

American Airlines ordered 260 passenger jets from Airbus Wednesday - the European plane manufacturer's first US order for decades. The news marks an end to a longstanding monopoly by rival Boeing, which will supply 200 planes.

AP - American Airlines is buying at least 460 new planes over the next five years in the biggest single passenger jet order in history. And in a victory for Airbus, it’s splitting the work between the European plane maker and Boeing.

American said Wednesday it will buy 260 planes from Airbus and 200 from Boeing Co. The new planes promise much much-needed fuel savings for the airline – its current fleet is among the industry’s least fuel-efficient – and modern amenities like Wi-Fi and video for passengers.
 
It’s a major win for Airbus, which hadn’t taken an order from American since the 1980s. It can be seen as a win for Boeing, too, considering that it was in danger of losing the whole order to its European rival.
 
The jets carry a sticker price of more than $38 billion, although big airlines routinely get discounts and routinely play one aircraft maker off the other to get better deals.
 
The order is for Airbus’s A320 and Boeing’s 737, the world’s two most widely-used commercial jets. U.S. airlines generally use these single-aisle planes on domestic routes. Current versions of the 737 have 110 to 220 seats. The A320 seats around 150.
 
The 737-800 has a list price of $80.8 million. The list price for the A320 is $85 million. Add about $6.2 million for the neo version.
 
AMR Corp., American’s parent, also announced that it plans to spin off regional carrier American Eagle as a separate company in another cost-cutting move.
 
The twin announcements overshadowed the news that AMR lost $286 million in the second quarter, as rising fuel prices wiped out an increase in revenue. The loss equaled 85 cents per share. Wall Street was expecting a loss of 77 cents, according to FactSet. Still, AMR shares rose 9 cents to $5.01 in afternoon trading.
 
In recent weeks, the airline industry was riveted by the drama of Airbus and Boeing competing to overhaul American’s fleet, which is currently all Boeing aircraft.
 
In discussions that lasted long into Tuesday night, American decided to buy 200 of the Boeing 737s, with deliveries starting in 2013. Half are expected to be equipped with updated, more fuel-efficient engines. The airline said it will take options for another 100 737s.
 
American also will buy 260 planes from Airbus’s A320 series with deliveries starting in 2013, and take options and purchase rights for 365 more. Starting in 2017, American will get the first of 130 of a new Airbus plane called the A320neo – for new engine option – which Airbus claims will be 15 percent more fuel-efficient than current jets when it goes into service in late 2015.
 
American said the new planes will give it the youngest fleet among similar U.S. airlines within five years, although Delta Air Lines Inc. is also considering a large order to update its domestic fleet.
 
Customers should notice a big difference from American’s current MD-80s, which many of the new planes will replace. The newer 737s have better lighting, more overhead space and entertainment systems, which the MD-80s lack. They’re also less noisy.
 
American said it will move toward having on-board Internet across its domestic fleet, and the new planes will better seats in both coach and first class, American said.
 
Those amenities are important to business travelers, and “these airplanes are going to allow us to make a lot of progress on that front,” said AMR Chairman and CEO Gerard Arpey.
 
American has used Airbus planes before, although only a few dozen of them - it grounded the last one in 2009. When American intensified plans to overhaul the fleet a couple of years ago, Chicago-based Boeing was seen as the favorite.
 
In recent months, Boeing has publicly debated whether to put a new engine on the 737 or take the more radical and costly but perhaps rewarding move of developing an entirely new plane. Airbus, meanwhile, was forging ahead by taking hundreds of orders for the A320neo.
 
Airbus CEO Tom Enders called American’s decision “a strong vote of confidence in our product in the important North American market.” Airbus is part of European Aeronautics Defence & Space Co. Shares of EADS rose 3.6 percent to €24.79 in Paris. Boeing shares were up $1.77, or 2.5 percent, to $72.30.
 
Airbus now has almost 1,200 firm orders and commitments for the A320neo, and has announced plans to increase production to 42 per month in 2013.
 
American desperately needed the upgrade. Its fleet of more than 600 planes averages about 15 years in age, among the oldest in the U.S. airline industry. At a time when the airline is paying more than $3 for a gallon of jet fuel, one-third of the fleet consists of fuel-guzzling MD-80s.
 
“The plan was to replace those MD-80s over seven or eight years,” said Mike Boyd, an aviation consultant who studied American’s fleet for its pilots’ union. “Well, American can’t wait that long, not with fuel over $3 a gallon. They’ve got to unload those MD-80s.”
 
American said the new planes will burn 35 percent less fuel than MD-80s.
 
“This is just a no-brainer economic home run from day one when the airplanes show up,” Arpey said.
 
The need for fuel-efficiency was evident in AMR’s second-quarter results. Revenue rose to $6.11 billion from $5.67 billion a year ago, thanks to higher fares and fees. But American’s fuel bill rose 33 percent – an increase of $547 million from the same period last year, outstripping the gain in revenue. Fuel has overtaken labor as the airline’s biggest expense.
 
Analysts expect all the other major airlines to post a profit for the quarter. United Continental Holdings Inc. and US Airways Group Inc. report earnings tomorrow. Delta reports next week.
 
American said it got $13 billion in financing commitments from Airbus and Boeing to help buy the new planes. But AMR already has $17.1 billion in debt, and analysts wonder about the wisdom of borrowing more while the company is still posting huge losses.
 
“We understand that American’s fleet (and brand) are tired,” UBS analyst Kevin Crissey said in a note to clients, “but this announcement represents a ton of new capital being put into a failing business model.”
 

 

Date created : 2011-07-21

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