As soon as this fall, United Airlines, a unit of UAL Corp. (UAUA), plans to place a substantial order with either Boeing Co. (BA) or Airbus to begin replacing older aircraft with new, fuel-efficient jets, the Chicago airline confirmed Thursday.
United chief executive Glenn Tilton said in a memo to employees that he contacted the plane makers this week for proposals on a deal that would define the carrier’s fleet strategy “for the next 25 years” The long-term plan for as many as 150 aircraft could be worth as much as $10 billion.
“United’s timing on this is brilliant,” said airline consultant Mike Boyd. While Boeing and Airbus have record numbers of orders on their books, the worldwide recession has forced many airlines to defer or cancel orders. For either Boeing or Airbus, securing such a large order from a major customer like UAL would be “a home run”, Boyd said. But, he said, “United can play hard ball” pitting Boeing and Airbus against each other. The deal is bound to spark discussion at the upcoming Paris Air Show, the year’s major aerospace event.
The industry’s game-changing new aircraft, the Boeing 787 and Airbus A350, are attractive to airlines because of new technology to save more than 20% on fuel.
Although the recent credit crunch has made it difficult to finance aircraft, American Airlines’ chief Gerard Arpey said recently that, after a long drought, banks have begun calling that airline, which has placed a substantial order for Boeing’s new 787.
“If American can find financing, United can, too,” Boyd said.
In his e-mail to employees, Tilton said that “Any aircraft order must be financed in a way that strengthens our balance sheet over the long-term and does not impact our cash position.”
As recently as April, United was standing pat with a plan to retire older aircraft while not spending money to refleet. The order for new planes will help United prepare for an upturn in global air traffic when the worldwide recession is over. Even if United doesn’t grow, it needs more large aircraft to serve long-haul markets, Boyd said.
United’s attention to its fleet is a healthy sign for the company’s future, Boyd said: “Now I think there is a new focus on United, and not on merging.”
In recent years, Tilton was intent on finding a merger partner for the airline. Although that hasn’t happened, United this year agreed to form a joint venture with Continental Airlines, Inc. (CAL), potentially giving both airlines a stronger competitive edge.