Aviation Week has new twist on American Airlines Airbus-Boeing deal

Aviation Week has a story on the Airbus-Boeing deal–and says it isn’t really a firm order, likening it to the Boeing 787 of a few years ago.

32 Comments on “Aviation Week has new twist on American Airlines Airbus-Boeing deal

  1. I am NOT surprised, because GE still has to re-design and certify their LEAP-X
    engine to accommodate the reduced-size-fan and Boeing still has to work out
    it’s commitment to AA, to deliver the first airplane in 2018, instead of 2020!

    Based on it’s 787 track record, Boeing will have to come up with some tight
    guarantees, before AA will confirm the order.

  2. It appears to be a more accurate understanding of the contingency of the order than was originally reported by the press. Except for the 100 plane order of the leased 737-800’s, the rest of the order looks like an agreement to agree to purchase both Airbus and Boeing planes subject to several approvals and internal arrangements.

    It was a brash public relations gambit that focused and emphsized the competitiveness of the order and the entree of Airbus into a traditionally Boeing supplied fleet, but underneath it all is an inadequately financed arrangement supported by American’s weak financial structure trying to negotiate discounts and financing package that would appear to make them instantaneously upgraded and modern.

  3. Since the AA order for 460 Airbus and Boeing aircraft was announced, I have been saying the APA will want it say in the deal, including what types AA can or should order.

    AA has yet to commit to the 100 B-787 order from 3 years ago. Boeing does not show this order on the orderbooks, it will be wise for Airbus to do the same with the A-320s and NEOs.

    In any order for AA, it is the pilot’s union that has the final thumbs-up or thumbs-down, not AA’s fleet management.

    I believe the AA/APA contract is up next year, so this order, and the B-787 order, will be up for discussion.

  4. According to Airbus’ press release, the Airbus part of the order is firm (source: http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/american-airlines-acquires-260-airbus-a320-family-aircraft/%5D:

    Airbus and American Airlines, a wholly-owned subsidiary of AMR Corporation, have signed a firm contract for American to acquire 260 modern, fuel-efficient Airbus A320 Family aircraft.

    For at least the last few years, I’ve kept an eye on their phrasing of such press releases, and they were indeed quite strict about the use of the term “firm”.
    This is of course in contradiction to Aviation Week’s claims that AA cannot purchase an additional aircraft type without pilot union’s approval.
    So the options, as I see them, are: 1) AA signed something they shouldn’t have signed. 2) Airbus suddenly relaxed their use of the term “firm”. 3) AA already worked out the kinks relating to pilots’ approval without making much of a public fuss about it.

    Unfortunately, Airbus’ XLS table showing Orders & Deliveries hasn’t been updated with the July figures yet, but at this point I would expect the order to turn up in that document.

    Interestingly, the only part that Aviation Week states requires no additional pilot authorisation (i.e. the 100 737-800), is not firm yet, as per Boeing’s press release (source. http://boeing.mediaroom.com/index.php?s=43&item=1845)

    Boeing and American Airlines will work to finalize the agreement over the next several weeks, at which time it will be a firm order and posted to the Boeing Orders and Deliveries website.

    Given that this AW article is to my taste a bit sensationalist in parts of its reporting (see below), I’d take it with a grain of salt or two regarding its claim that the order is more wishful thinking than anything.

    PS: Regarding what I would call “slightly sensational” about the artickle: It mentions 100 787 – AA only signed a MoU for 42 787s. Plus 58 options, yes, but AW doesn’t point this out and creates the impression AA had previously put in another 100+ order that didn’t materialise.
    Also: “The carrier also leaves open the idea that similarly sized Airbus and Boeing aircraft could be assigned to similar operations, even the same route, but with no clarification on how, or why, this would be implemented.” – I find the wording a bit, uhm, alarmist. Especially considering there are multiple answers to this. AA already provided one answer to this one, saying no single supplier would have been able to provide the number of airplanes they want/need; also, witness Lufthansa, Turkish, Air Berlin and a few others that seem to have no issues dispatching 737 and A32S (i.e. similarly-sized airplanes) in their network. Plus: as far as they have let on so far, AA will take 737-800 and A319/A321 with their first batch (i.e. old engine options). No overlap there.

    • One additional point: when the 787 order was agreed upon, AA were quite transparent regarding pilots’ approval. The official press release at the time states (source: http://aa.mediaroom.com/index.php?s=43&item=748):

      The 787 purchase agreement contains provisions that would allow American to choose not to acquire some or all of the 42 initial 787s if it has not reached a satisfactory agreement with its pilots union to operate the aircraft.

      Also, that press release has the headline “American Plans to Buy 42 Fuel-Efficient Boeing 787-9 Dreamliners”. No mention of a firm order.

      So unless AA has suddenly changed its tactics in relation to transparency about orders that are pending pilots’ union approval, I’d be surprised if such approval was still an issue for any part of the 737 and A32S(neo) order announced on July 20th.

  5. It seems to me Airbus has long called MOUs and LOIs “firm” orders, when in reality they are not. Also, How do you know the AA ‘contract’ does not contain the same provisions allowing the pilot’s union approval or disapproval?

    You said yourself;
    “The 787 purchase agreement contains provisions that would allow American to choose not to acquire some or all of the 42 initial 787s if it has not reached a satisfactory agreement with its pilots union to operate the aircraft.”

    Seems to me this would be a ‘standard ryder’ in the ‘boilerplate section’ of the contract for any airplane purchase ‘agreement’. AA would write the contract, and not use the standard purchase contracts provided by Boeing or Airbus.

    • KC135TopBoom :
      It seems to me Airbus has long called MOUs and LOIs “firm” orders, when in reality they are not.

      As I said in my initial post – no, Airbus haven’t been doing this, although I do realise it’s a popular and hard-to-kill myth that they have.
      At least for the last few (4+) years I am quite certain they did not use the expression “firm order” for an LoI or MoU, as I have been keeping an eye on their phrasing of such statements in particular.
      Show me one official Airbus press release from the last 4 years where a LoI or MoU was called a “firm order” and I’m happy to correct myself on this point.

      Regarding the 787 – please re-read my post and the point I was making in it in relation to AA’s 787 agreement.

      • You’ll be waiting for such evidence till you’re old and grey. KCTopwhatshisface has a knack for posting rubbish and general inaccuracies about one manufacturer in particular, he always gets called out on it, but he never returns to admit his mistakes, just moves on to the next topic and post more rubbish.

  6. Sounds like it’s finally time for AA to head into Chapter 11 if the pilots won’t make a deal.

    • Probably the best situation for AA…..AA’s legacy cost are really putting pressure on the bottom line.

      If AA can eliminate a lot of its legacy costs and get new planes (as per the loi/mou), it will establish itself once again as a strong competitor.

      Until then, I see AA “wallowing” along.

      With AA’s stock taking a landing (pun intended), “The Street” might force management’s hand.

  7. KC135TopBoom :
    It seems to me Airbus has long called MOUs and LOIs “firm” orders, when in reality they are not.

    It seems to you, but it isn’t so.

  8. Maybe their 8-K SEC filing on July 25th could provide some light.
    http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-sec&secCat01.1_rs=11&secCat01.1_rc=10
    The Boeing RE agreement is still open to negotiation, provided the Boeing BOD even approve the program. This seems to be about as firm as Mississippi mud after a spring storm. First delivery is expected in 2018.
    NEOs would not be delivered until 2017. The A320 currents (qty: 130) seem to be a lease.

    As for financing, “In addition to other financing previously arranged by American, the manufacturers have committed financing to American of
    $13 billion through lease transactions, which covers the first 100 Boeing deliveries and first 130 Airbus deliveries.”

    Nothing mentioned about the pilots union though.

  9. Better assume there is no deal at all, then face Boeing has no contract (yet) and Airbus has. The 300 something NEO options and purchasing rights will make sure Boeing keeps focussed in finishing the deal with AA.

  10. I believe there was one report that up until the last day of negotiations there was no Boeing orders until the 737 Re-engine was offered to AA. I didn’t save the article, but I’m sure it is still out there some place. If my memory serves me it was from one of the newspapers in Dallas, but I could be wrong. Not to beat the drum too hard on KC135TB, but Big B needs to get its act together, especially if the Busboys partner up with one of the smaller air framers. The Photo from the comments on Embraer and Bombardier article of the new single aisle is very interesting.

  11. Bryan :You’ll be waiting for such evidence till you’re old and grey. KCTopwhatshisface has a knack for posting rubbish and general inaccuracies about one manufacturer in particular, he always gets called out on it, but he never returns to admit his mistakes, just moves on to the next topic and post more rubbish.

    Now, now Bryan, I have answered many, but not all “call outs”. BTW, Bryan, I did not mispell your name. I wouldn’t do that.

    • Bryan: here is your warning: knock off trashing other commenters generally and KCTB specifically. This approach violates our Reader Comment rules.

      Scott Hamilton

  12. I must stress again, that if it had not been for GE offering the reduced-fan-
    diameter version of the the LEAP-X engine at the very last minute and in
    desperation, Boeing would have been unable to prevent AA from going
    AIRBUS all the way AND would probably would also have lost it’s ability to
    offer any 737 replacement aircraft in the foreseeable future, if ever, as well!

    This because, putting either of the two NEs on the 737, would have been
    too costly and thus not competable with the A320NEO, while building an all
    new airplane with either of the two new engines, was too much of a risk to
    tackle in the near future, if ever, due to the 787 and 747-8 delays and cost
    overruns, as well as possibly having to rework or replace the 777, to fend
    off the A350!

    Why Boeing/BCA and GE managements did not see this NECESSiTY coming
    up much earlier, but certainly BEFORE the PAS, is not only inexplicable, but
    also irresponsible, because the very same was done 30 years ago and also
    almost too late, when GE/SNECMA reduced the fan diameter of the CFM-5
    engine, to fit underneath the same 737 wing as it is today!
    I must repeat, that if that had NOT been done at that time, the 737 program
    would have come to an early death, instead of becoming the BEST-SELLING
    comercial airplane in aviation history!

  13. Rudy, I agree with most of that. GE has come to the rescue of the B-737 by offering a clipped fan version of the LEAP engine. Yes, they saved the B-737 program before with the clipped fan CFM-56-3B engine (from the CFM-56-2B engines of the KC-135, E-3/-6, and DC-8) for the B-737CLASSICs (-300, -400, and -500). The CFM-56-5C series powers the A-340-200/-300s and the CFM-56-5B series powers the A-32X-CLASSICs. But I doubt it would have been an ‘early death’ as the B-737 had already been in production since 1967 (in the form of the B-737ORIGINAL, the -100, -200, -200ADV).

    I am guessing here but to me it looks like the Boeing Management was leaning further towards the NSA than to the B-737NE. That is what caused to big and uncertain question for the airline customers. The AA order (firm or not) was the catalist that finally pushed Boeing to the B-737NE, and the fact GE said they build an engine for it. But now (assuming the Board gives the B-737NE go ahead), Boeing has a product to compete directly against the A-32X-NEO for the DL and UA expected orders.

    But, I think the B-787-8/-9 programs and the B-747-8F/I programs were of less concern to Boeing for the NSA program as both the B-787-8 and B-747-8F programs are winding down, and the B-747-8I program is not to far from EIS, either. You may remember the NSA was suppose to have an EIS around 2019. That timetable gave Boeing 2 more years to resolve the B-787-9 engineering issues, begin the 5 year developement of the NSA, and move the B-747 engineers to the B-777RE or Improvement issues. I don’t think the B-787-1000 was ever an issue as developing the NSA would be a much higher priority for Boeing.

  14. KC135TopBoom :
    Since the AA order for 460 Airbus and Boeing aircraft was announced, I have been saying the APA will want it say in the deal, including what types AA can or should order.
    AA has yet to commit to the 100 B-787 order from 3 years ago. Boeing does not show this order on the orderbooks, it will be wise for Airbus to do the same with the A-320s and NEOs.
    In any order for AA, it is the pilot’s union that has the final thumbs-up or thumbs-down, not AA’s fleet management.
    I believe the AA/APA contract is up next year, so this order, and the B-787 order, will be up for discussion.

    KC135TopBoom :
    Since the AA order for 460 Airbus and Boeing aircraft was announced, I have been saying the APA will want it say in the deal, including what types AA can or should order.
    AA has yet to commit to the 100 B-787 order from 3 years ago. Boeing does not show this order on the orderbooks, it will be wise for Airbus to do the same with the A-320s and NEOs.
    In any order for AA, it is the pilot’s union that has the final thumbs-up or thumbs-down, not AA’s fleet management.
    I believe the AA/APA contract is up next year, so this order, and the B-787 order, will be up for discussion.

    When did AA ordered 100 787s?
    I seem to missed that one.
    Source?

    • AA 787 was 42+58 in an MOU, with delivery dates but subject to pilot contract agreement. It’s from a few years ago and outlined thoroughly in AMR’s 10K/10Q.

  15. KC135TopBoom :Since the AA order for 460 Airbus and Boeing aircraft was announced, I have been saying the APA will want it say in the deal, including what types AA can or should order.blockquote>

    Right! I could not resist but to whom have you been saying this? I have checked every post here dating back to a couple of days before the order was announced (Yup, get a life indeed!) but could not even a hint of a comment from you about the APA.

    On the other hand, Mr. Shannon seems to have been on the ball since July 21st
    ( http://www.aviationweek.com/aw/generic/story.jsp?channel=comm&id=news/avd/2011/07/21/02.xml&headline=null&prev=10 )
    when he first mentioned the APA issue, albeit in not so dramatic a style as his more recent article.

    Could you please possibly point out where I might have missed such a revelation on your part?

    Thanks in advance!

    • Here it is, people:

      The 787 purchase agreement contains provisions that would allow American to choose not to acquire some or all of the 42 initial 787s if it has not reached a satisfactory agreement with its pilots union to operate the aircraft. American must notify Boeing of its intent to purchase a 787 at least 18 months prior to its scheduled delivery date, with the first scheduled delivery date occurring in September 2012.

      http://www.americanairlines.cn/intl/cn/aboutUs_en/pr20081024.jsp

    • Everyone: This back-and-forth about who said what when is irrelevant. Stick to the issues or I will close comments.

      Hamilton

  16. leehamnet :
    AA 787 was 42+58 in an MOU, with delivery dates but subject to pilot contract agreement. It’s from a few years ago and outlined thoroughly in AMR’s 10K/10Q.

    So its basically an MOU for 42 planes with options for another 58?
    Cause KC135TopBoom made it sound like AA had actually ordered 100 787s.
    Thanks for the clarification Scott.

  17. Perhaps I should have said the order for the 100 B-787s includes the 58 options? It does not matter because Boeing still does not show this order on its books. So, it really is a moot point.

    • Then why bring it up in the first instance?

      You said: “In any order for AA, it is the pilot’s union that has the final thumbs-up or thumbs-down, not AA’s fleet management.”

      That’s a clear statement. Can this be backed up by facts, other than a particular order, namely the 787? For info, Airbus booked an order for 130 A321s today, as firm (http://www.airbus.com/fileadmin/backstage/orders_deliveries_table/2011-07_Airbus_Orders_and_Deliveries.xls), without stating whether these were OEO or NEO, although the text in ‘month in review’ would indicate they are OEO. Does this imply that a) you are wrong; b) APA did agree to these 130; or c) that Airbus is lying about the status of the order?

      This does of course raise the interesting question of what happened to the other 130 planes.

  18. If the Airbus agreement is essentially for leased aircraft, does the agreement of the pilots still carry weight?

  19. One pertinent question is, how hard is the APA going to be about this pay scale negotiation? Surely they don’t expect AA to remain competitive with the fleet as it is now?

    Obviously they are not going to merely roll over on this and accept a low pay scale but it certainly would be in their best interest to have a modern fleet to fly and they must also realise that the old days of sky high wages with unlimited benefits are, unfortunately, gone.

    Hopefully both sides will compromise and be able to come to an agreement as I don’t see AA remaining in the business long if they cannot buy new aircraft.

  20. Well, it seems that Darren Shannon from AviationWeek got it at least partially wrong.
    Airbus booked 130 A321NEO firm orders by AA, remaining 130 orders will be booked as soon as leasing deals are finalized.

    • No 319s or 320s? Theoretically good news for the C-series. If in fact twenty years of new technology is supposed to be an advantage.

  21. AMR can buy what they want and if Airbus says it’s a firm order, then it is a firm order. In order to operate this new type they will have to find an agreement regarding the payscale with their pilots.
    Mabye AMR was successfull at negotiating with Boeing that the 787 deal was subject to finding this agreement with the pilots while Airbus did not accept this clause? Who knows…

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