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United Airlines

United splits $10 billion-plus order between Airbus, Boeing

Dec 08, 2009

Taking advantage of down market prices, United Airlines said on Tuesday it placed a $10 billion-plus order for 50 wide-bodied jetliners divided between Airbus and Boeing Co, in a bid to slash fuel costs and emissions.

United, a unit of UAL Corp, has letters of intent to order 25 of Boeing's 787 Dreamliners and the same number of A350 planes from its European rival Airbus, part of EADS, following a six-month contest. The carrier also has future purchase rights for 50 of each aircraft.

The third-largest U.S. airline said its order capitalizes on lower prices as Boeing and Airbus grapple with an economic downturn that has led to airline capacity cuts, weaker orders and cancellations. The order also marks one of the biggest aircraft deals since the start of the recession, as well as a bounce in U.S. plane investment after years of industry restructuring.

"We obviously thought the current environment was an opportunity for us," United Airlines President John Tague told Reuters.

"We resisted the pressure during the up cycle to buy during the 'while supplies last' market environment and had the patience to wait until we saw this opportunity. We feel very rewarded by that," he said.

United did not give many details on its order financing but said it obtained financing from both manufacturers.

The carrier said it expects to take delivery of the aircraft between 2016 and 2019. When that happens, it will retire its international Boeing 747s and 767s.

"This order was analyzed in the context of replacement for our 767 and 747 fleet," Tague said. The new planes are smaller than the ones they replace and therefore represent a reduction in average seat count by about 19 percent, the carrier said.

Additionally, the newer aircraft will reduce United's fuel costs and carbon emissions by about 33 percent compared with the retired aircraft and cut lifetime maintenance costs by about 40 percent per available seat mile.

United indicated it had not yet decided whether to choose Rolls-Royce Group Plc or General Electric Co engines for the 787s. Rolls is sole engine supplier on the


The order prompted Helane Becker, airline analyst at Jesup & Lamont, to upgrade UAL shares to "buy" from "hold."

"We believe the order can be a major positive for United Airlines going forward for a variety of reasons," she said in a note. "The company gains flexibility at a minimum cost."

Other experts were less impressed.

"I just see it as kind of an overdue beginning of a reinvestment," said airline consultant Robert Mann, noting that rival U.S. airlines are already updating their fleets.

Richard Aboulafia, aerospace analyst at The Teal Group, agreed the order was overdue.

"A decision to continue treading water is hardly inspirational," Aboulafia said.

"All this is signs of an airline that is doing the bare minimum necessary to continue flying international routes in 10 years," he said.


The Boeing 787 Dreamliner and Airbus A350 together make up the next generation of lightweight composite-built jets being developed by the world's two large airliner manufacturers.

They are designed to address a promising market for aircraft built with tough but lightweight materials to save fuel and carrying 200 to 300 passengers over long distances on two engines.

Planemakers see a market for thousands of such aircraft once the airline industry recovers from recession.

Airbus sales chief John Leahy toasted the order from an airline that shares common roots with Boeing and has always flown long-distance planes made by the U.S. planemaker.

United so far uses Airbus planes only for its short-haul and medium-haul fleet.

"We are very pleased with this order because it establishes that large carriers that clearly have a Boeing bias can introduce 25 A350s and very easily and efficiently fly them side by side with their Boeing fleet," Leahy said in an interview.

Amid lower plane orders due to the recession, the deal -- worth $10.1 billion at list prices -- could kick-start a replacement cycle for less-efficient planes, he said.

The Boeing part of the order will be a confidence boost to the 787 Dreamliner project, coming ahead of its first maiden flight which has been overshadowed by delays. Meanwhile, Airbus will start building the A350 next year.

Separately, Ireland's Ryanair Holdings Plc said it was likely to shelve plans to buy 200 Boeing aircraft because the U.S. plane maker wants to change delivery conditions.

Boeing shares were up 11 cents at $55.93 on the New York Stock Exchange. EADS shares were down 1.4 percent in Paris trading.

United splits $10 billion-plus order between Airbus, Boeing
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