Wednesday, April 6, 2016

Alaska-Virgin deal a big win for Boeing and the Puget Sound region

Virgin America has an all-Airbus fleet. Alaska Airlines has an all-Boeing fleet. It would seem that in a merger – Alaska's $2.6 billion acquisition of Virgin America was announced Monday– the combined company would become a mixed fleet.

For a time, that will be true. But most of Virgin America's fleet is leased Airbus A320s, which means as those leases come up, Alaska can replace them with Boeing 737s. "Boeing may benefit as they provide more 737s to Alaska," said Steve Danishek, an airline analyst for TMA Travel.

The company will likely need around 55 planes to replace Virgin's leased jets. Had JetBlue acquired Virgin, something the company was very much trying to do, it's likely all of those Airbus planes would have continued to be Airbus planes after the leases expired. JetBlue operates a mostly Airbus fleet.

Alaska Air Group has taken on Virgin America's agreement to buy 30 new Airbus A320s, Danishek said, but the penalty for walking away from that deal is about $25 million. When you're talking about buying $4.4 billion worth of jets – which is about what 55 Boeing 737-700s would cost at list price right now – a $25 million penalty may be worth it.

"Ultimately, I think Alaska will try to return to an all-737 fleet," Danishek said.

It's cheaper for an airline to run a fleet of all the same jets because parts and training are basically the same across the whole fleet. Alaska operates 151 Boeing 737s right now.

Boeing is already ramping up the 737 production line in Renton to meet demand for its popular small jet. Asian airlines in particular have demonstrated an interest in buying the planes.

Because there's so much demand for these jets, Danishek said he doesn't imagine it will be a big deal for Airbus if Virgin walks away from its 30-jet order.

"The waiting list is so long," he said. "I think everybody would be happy to move up their place."

Boeing announced last week plans to cut 4,000 jobs in the next few months as the company attempts to keep up with competition from Airbus. While those cuts are likely to happen regardless of new orders, a stronger Alaska could help make for a stronger Boeing. Overall, that's good for the Puget Sound region.

(Emily Parkhurst - Puget Sound Business Journal) 

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