Thursday, January 21, 2016

Boeing Nabs $3 Billion Jet Deal as United Spurns Bombardier

Boeing won a hotly contested United Airlines order for 40 of the aircraft maker’s smallest jetliners, thwarting Bombardier Inc.’s bid to land a marquee North American customer for its struggling C Series model.

The new Boeing 737-700 planes will enter service in mid-2017 as the airline cuts its use of cramped regional jets, United Continental Holdings Inc. said in a statement Thursday. The order would be valued at $3.22 billion based on list prices, although airlines typically negotiate significant discounts.

Southwest Airlines Co., the largest 737 operator, separately said it was acquiring 33 of the Boeing single-aisle jets.

United decided to stick with the 737, an updated version of a plane that debuted in 1965, instead of the brand-new C Series, which boasts greater fuel and maintenance savings.

Sales of the Canadian-made aircraft, which Bombardier is using to target the 100- to 150-seat segment, have been thwarted by production delays and competition from market leaders Boeing and Airbus Group SE.

“This just shows how difficult it is for Bombardier to win orders these days,” said David Tyerman, an analyst at Canaccord Genuity in Toronto. “It’s not the end of the world, but this loss illustrates what they are up against. It also raises the question of how profitable the next C Series order they win will be for them."

Bombardier tumbled 9.2 percent to C$1.09 at the close in Toronto, its steepest loss since Oct. 29, while Boeing rose 1 percent to $123.40 in New York.”

Remains Stuck

While Bombardier Chief Executive Officer Alain Bellemare has talked up interest from prospective customers since the C Series’s Paris Air Show debut in June, the backlog of orders has remained stuck at 243 for more than a year. That trails Bombardier’s target of 300 by the time the C Series enters service in the first half of this year.

Since Bellemare’s arrival 11 months ago, Bombardier has focused sales efforts on adding established airlines to an order book dominated by lessors and small carriers. Deutsche Lufthansa AG remains the only C Series buyer ranked among the world’s top 20 airlines by passenger traffic.

Airbus and Embraer SA had also bid for the United order as the carrier shifts more flying to employee pilots and reduces its reliance on 50-seater aircraft unpopular with customers, said Benoit Poirier of Desjardins Capital Markets.

Potential Customers

Bombardier is still pitching the plane to other potential U.S. customers, including Delta Air Lines Inc.

A funding infusion it seeks from the Canadian government may help by removing “uncertainty surrounding Bombardier’s long-term viability,” Poirier wrote in a note to clients Thursday. “In the meantime, we expect the market to remain skeptical and believe there is a real risk that the C Series could be canceled if no orders materialize in the next six months.”

While it lost this campaign, Bombardier may have another chance to place its aircraft with United. The third-largest U.S. carrier said Thursday that it plans to order more single-aisle jets as it transforms its fleet and will again consider competing Boeing, Bombardier, Embraer and Airbus proposals.

By sticking with a Boeing model it already uses, United avoids the costs of re-training hundreds of pilots and stocking up on spare parts. United currently operates 310 of the 737s, according to

Improved Experience

“Our customers have a preference for an improved travel experience, including first class seats, Economy Plus and Wi-Fi,” Gerry Laderman, United’s acting chief financial officer, said in the statement. “These aircraft are an efficient way to meet those needs while reducing 50-seat flying.”

Southwest’s purchase of 33 of the 737-800s helps accelerate the retirement of its oldest planes by three years. The carrier is also converting its remaining 25 orders for -700s to the larger -800s.

The new orders from Southwest and United provide a boost to Boeing as it tries to shrink Airbus’s lead among single-aisle models. The deals also help the U.S. plane-maker fill its order book for current generation 737s as it transitions to the upgraded Max.

(Frederic Tomesco, Michael Sasso, Julie Johnsson - Bloomberg)

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