Ryanair terminated talks with Boeing for an order for 200 737-800s, ending a highly publicized negotiating tactic by the ever-talkative Ryanair CEO Michael O’Leary.
Here is the Ryanair statement.
The Financial Times has this interesting take. (Free registration may be required.)
Bloomberg has this report.
Our take: Although O’Leary says this means he will halt growth and potentially return dividends to shareholders, we note that in the Company’s statement, O’Leary talks about ending negotiations for the end of the year. We also note that the FT regards this as no more than brinkmanship.
Here is the key extract from the Ryanair statement:
Ryanair, today (Fri 18th Dec 09) confirmed that its quarterly Board meeting yesterday determined that its negotiations with Boeing for an order of up to 200 new B737-800 series aircraft for delivery during the period 2013-2016 cannot be successfully concluded prior to the end of the calendar year and accordingly the Board of Ryanair have confirmed that its negotiations with Boeing have terminated unsuccessfully. (Emphasis added.)
This means, in our view, that negotiations could well resume after the first of the year–and likely will.
We also noted that Ryanair said no negotiations will be held with other manufacturers. Airbus has been the subject of much speculation, with O’Leary hinting he was talking with Airbus but Airbus denying such. Airbus feels it has been used only as a stalking horse in the past.
O’Leary said the current orders will be unaffected.
O’Leary likes to negotiate in the press, just as do Emirates and Qantas.
We don’t think for a minute this potential order is over.
I agree with your assessment. What’s really in this for Airbus? It’s nice to take a huge order away from a competitor, but not if you’re not going to make any money on the deal.
My guess as to the problem with the ‘delivery terms”:
M.O.L. probably doesn’t want to make those pesky progress payments during build. I wouldn’t either, and look for other airlines to follow suit. Who wants to give up cash for airplanes producing no revenue thee days, even for a few weeks or months?
I’ve been reading commentary and reports on this for over a day now. All seem congratulatory towards Boeing for not caving in and contracting for 200 profitless airplanes.
Yet nobody, anywhere, has any evidence of profitlessness. Nobody seems to have the slightest clue as to the turnkey margin on these aircraft based on Ryanair’s contractual demands.
While I think it’s safe to assume that the margins are less than Boeing would hope for, I highly doubt that final delivery would be made at cost or anywhere near it.
There is a whole lot of shallow reporting and zero data conjecture going on, siding blindly with Boeing, on an order that could have secured 737 production based on the current model through 2016 or so, with no orders of a similar size anywhere on the radar.
Boeing may have been right. Maybe not. Given their propensity to withold material facts and play fast and loose with the truth, I cannot automatically give them the benefit of the doubt as so many others seem willing to.
I fear that with the 787 flight, everyone is ready to jump back onto the Boeing bandwagon, pom poms waving and all sins forgiven.
Not me. I shall remain in the peanut gallery for some time to come yet. It took a lot for Boeing to lose my trust. They will have to work harder to reclaim it. I think the market agrees with me. The first flight resulted in zero bounce to the stock. Even I was shocked as to the degree first flight was baked in to the price. The easy money in BA has been made, now the slog is on, the potential list of excuses has evaporated, and BA’s execs and management are going to have to perform.
A pox upon those who give investors the ‘all is well’ during the flight test and ramp up stages, if it really isn’t. Be they Boeing executives, spokespersons, or the reporters, pundits, and analysts that love them.
I think, O’Leary pulled out of that business with Boeing because of lowered growth expectations in the cheap-to-the-bone airline market. Competitor Easyjet has continuously been growing in this market segment and it’s obviously getting narrow there for two large companies.
But O’Leary (and he is not alone with this) is also fearing the AROC and maintenance costs of the 737, especially near the end of service life. In this field, the 737 has steadily been dropping behind its competitor aircrafts in recent years.