Tuesday, November 22, 2011

United/Continental squeeze Boeing and Airbus for a great deal on a 150 airplane order

Airbus and Boeing are bidding to sell around 150 jets to United Continental as the airline joins an industry-wide scramble for fuel savings, people familiar with the matter said.

The merged giant has become the latest battleground as Boeing tries to close a recent sales gap with its European rival and extend the advantage of a huge Indonesian plane order unveiled by US President Barack Obama last week.

The roughly USD$15 billion deal could include 130 revamped narrow-body jets, designed to cut airline fuel costs, and up to 50 of the plane makers' existing models.

Talks could be completed by late December but may slip into 2012, the people said, asking not to be named.

"It is not guaranteed but there is a good likelihood, I'd say more than a 50 percent chance, of a deal before the end of the year," said a source involved in the negotiations.

Another person familiar with the discussions cautioned the deal may take longer than the few weeks remaining until the end of the year to finalize, while others noted that volumes can also change as major aircraft purchases fall into place.

"Negotiations are well underway," a further source said.

Boeing declined comment. An Airbus spokesman said, "We are always in discussions with current and potential customers and these discussions remain confidential".

United Continental was formed last year from a merger of United parent UAL and Continental Airlines, creating a hybrid fleet containing both Airbus and Boeing jets.

A spokesman for the Chicago-based group said it had ongoing talks with plane makers about its fleet needs, but declined to comment on a potential narrow-body order.


Despite fears of recession, the world's leading plane makers have had a harvest of plane orders this year after moving to upgrade their best-selling models -- the Airbus A320 and Boeing 737 -- with new engines capable of saving 12-15 percent fuel.

Airbus moved first by promising to introduce the revamped A320neo from 2015 and has sold more than 1,000 of the aircraft, making what it claims as the fastest-selling launch.

Boeing responded with the 737 MAX, due to enter service in 2017, and has accumulated more than 700 provisional orders even before finalizing the aircraft's design.

Demand from cash-pinched airlines for fuel savings was highlighted last week with the record sale of Boeing jets to Indonesia's Lion Air, months after Malaysian low-cost airline AirAsia handed a similar order to Airbus.

Whereas major US carriers used to dominate the world's aircraft industry, the rise of Asian and Middle East airlines and shift of economic power to emerging markets has generated a sudden scramble to get hold of fast-disappearing stocks.

With jet makers running out of production slots, and some banks avoiding the aircraft market due to Europe's debt crisis, Airbus and Boeing are expected to scour the world's leasing firms to find enough aircraft to pull together a United deal.

Even then, supplies are becoming so scarce that the two rivals may have to make do with only part of any deal depending on the timescale United wants for deliveries, analysts said.

"This could be an interesting order. Although United flies Airbus narrow-bodies, Continental flies Boeing and the Continental management team has been happy to source its aircraft from Boeing over the years," said Rob Stallard, aerospace analyst at RBC Capital Markets in New York.

"United Continental is now a very large airline, and given the scale of its fleet replacement requirement and its experience with flying a mixed fleet, we would not be surprised if this order is split," he added.

The outcome could affect the balance of power between the plane makers since it is seen as a relatively open race.

Apart from a 460-plane order at American Airlines that saw wins for both plane makers, most deals for the new planes so far have involved upgrading existing customers.


No comments: