Odds and Ends: 737 cost (not price); Bob Crandall

737 Cost, Not Pricing: Wells Fargo has this item about what American Airlines actually paid for the Boeing 737-800, as opposed to the list price: more than a 50% discount from $84.4m. Note that AerCap (AER) appears to have paid $40m per aircraft in a purchase-leaseback. One assumes American didn’t resell the aircraft for the price paid from Boeing but marked them up at least a little bit. We’ve heard AA’s cost was in the range of $35m but this is unconfirmed.

~$40MM Per 737, It Appears. Based on the change in YTD flight equipment additions, AER added $80MM in planes in Q4; since the only Q4 additions were two new 737-800s leased back to American Airlines, the 20-F implies a $40MM unit price. Also, based on changes in purchase commitments from 9/30/11, we believe the average 737-800 purchase price (over the remaining 33 planes as of year end) is ~$41MM. A new 737-800 typically appraises for ~$45MM.

Bob Crandall: The former CEO of American Airlines provides his usual candid views of the airline industry, of today’s American Airlines, and his greatest failure as CEO in this 30 minute video on the Charlie Rose program.

38 Comments on “Odds and Ends: 737 cost (not price); Bob Crandall

  1. So, Boeing gives AA about a 50% discount, at least on the B-737NG. The how much more of a discount was Airbus forced to give AA for their big order last summer?

    • KC135TopBoom :
      So, Boeing gives AA about a 50% discount, at least on the B-737NG. The how much more of a discount was Airbus forced to give AA for their big order last summer?

      Is it more or is it less, that is the question, isn’t it? Did A have to give extra deep discounts to break into a B account, or did B have discount more than usual to keep at least part of the deal?

      I’m interested in this as well, but I’m not presuming to know the answer.

    • Is the $40m (or the $35m figure as is suggested) more or less than the price Martin O’Leary paid for the non consectual sex he had with Boeing a decade ago?

      • Ian :
        Is the $40m (or the $35m figure as is suggested) more or less than the price Martin O’Leary paid for the non consectual sex he had with Boeing a decade ago?

        You would have to ask O’Leary himself.

        Ian :
        Thanks for Reminding us Rudy.
        Boeing was supposed to release the MAX’s specs last November.
        Does any one have any info when are they going to?
        Has Boeing gave any indication?

        I don’t know, but since no one has canceled or changed their order/commitmet, I would say Boeing and CFMI are keeping them up to date with the latest info they have. It seems we have entered the dry period for the MAX and the NEO where there will be only few, if any orders or order confirmations for a while. Everyone is waiting now to hear from Boeing, Airbus, CFMI, and P&W.

      • Taking the $28m ( Scott, further down ) in 2005 dollar
        would inflate to $33.20m in 2012 dollars.

  2. Boeing gave AA a 50% discount on 737NG’s for two reasons, I believe:
    a) To retain at least part of the AAvdeal, as mentioned and
    b) To keep the NG production-line going, before the MAX can be certified,
    two years AFTER the NEO is available.

    Comments which was lost on Leeham News and Comments 3/20, because I
    was late!

    Keesje, RE “Boeing has taken more than 1,000 orders for the MAX since winning
    its first provisional order for the plane from AMR”?
    Who are the 1,000 “orders” from?
    The AMR “order” for 100 MAX a/p’s was “provisional” and subject to Boeing
    guaranteeing the performance data by NOVEMBER LAST YEAR!
    Lion Air and Norwegian, took about 2 hundred each, also subject to the same
    guarantees and presumeably, therefore, all so-called orders, are still subject to
    confirmation of Boeing specification AND the performance guarantees, which I
    believe, have NOT been made yet!

    Are GE/Snecma still having trouble getting the fuel burn guarantees right, with the
    Boeing-selected reduced fan-diameter?

  3. Thanks for Reminding us Rudy.
    Boeing was supposed to release the MAX’s specs last November.
    Does any one have any info when are they going to?
    Has Boeing gave any indication?

  4. Southwest also paid less then $40 million for 737-8 Max , according to themselves.

    http://aviationblog.dallasnews.com/archives/2011/12/why-we-think-southwest-airline.html

    I can understand there was big need to get the MAX rolling after the the NEO tsunami last yr.

    IMO it is very possible Boeing is again making serious trade-offs in the MAX design. Everything is possible at a price. If the market is less jubilant then Randy wants us to believe (listen to MOL, SUH, look at the discounts given, airlines “committing” instead of signing up) Boeing could decide to bite the bullit and do some mods they hoped to avoid earlier on.

    I suggested a more radical 737 upgrade might be necessary in Oct 2010.
    http://www.airliners.net/aviation-forums/tech_ops/read.main/285819/1/#1

    • keesje :

      IMO it is very possible Boeing is again making serious trade-offs in the MAX design. Everything is possible at a price. If the market is less jubilant then Randy wants us to believe (listen to MOL, SUH, look at the discounts given, airlines “committing” instead of signing up) Boeing could decide to bite the bullit and do some mods they hoped to avoid earlier on.
      I suggested a more radical 737 upgrade might be necessary in Oct 2010.
      http://www.airliners.net/aviation-forums/tech_ops/read.main/285819/1/#1

      In that case what would be a realistic delivery date for the MAX and how would the development costs for those extended modifications put it in a price disadvantage vs the NEO?
      I would imagine that it would be a few billion that would have to be recouped and which Airbus doesn’t need to spend and therefore charge it’s NEO customers.

  5. KC135TopBoom

    I don’t know, but since no one has canceled or changed their order/commitmet, I would say Boeing and CFMI are keeping them up to date with the latest info they have. It seems we have entered the dry period for the MAX and the NEO where there will be only few, if any orders or order confirmations for a while. Everyone is waiting now to hear from Boeing, Airbus, CFMI, and P&W.

    I would imagine that to be able to cancel a contract you first need to have a contract!
    Boeing hasn’t even announced yet who are behind most of those those 1000 orders/commitments/MOUs..
    I am interested to know when will the spec’s for the MAX will be coming straight from the horse’s mouth.

    • IMHO no changes on the buyer side because there is no status change on Boeings side
      while now changing queues late ( all early slots are filled on both sides ) provides no gain.

      This worked ( still works ) to Boeings advantage ( at least in respect to orders ) for the Dreamliner. Most customers weighed the vagaries against the very low pricing from
      the initial sales campaign towards staying with their orders.

  6. Did anyone view the interview with Bob Crandall and Peter Greenberg on Charlies Rose’s Show (see above at bottom of article). Excellent discussion of airline issues.

    • I saw it. Only knew Crandall as one of dominant airline tycoons from 20 yrs ago. I must say he is a good speaker, bringing back big developments (he played a major role in) to simple conclusions, not claiming he has the absolute truth, or ignoring other views. He says he has become convinced some the degree of regulating would be good for the passengers, airlines and remote airports. Deregulation hasn’t brought all it promised and the best airlines / airports complete networks aren’t in the US anymore.

      • Sorry for the long reply…

        I worked for AMR back when Crandall was CEO. I used to love attending the “Annual President’s Conference”, not just to hear Crandall’s presentation, which was always top-notch and delivered brilliantly, but especially for the Q&A session afterwards. He would take questions from the audience composed of employees performing every function in the airline, and answer every question, usually unassisted. His grasp of the details of not only AA’s business, but the Industry as a whole, was quite impressive. His reliance on timely operational data and statistics was legendary; the Crandall Reports were run early every morning.

        I have to take issue with his call for partial re-regulation of the industry. First, I can assure you he wasn’t against de-regulation when it was allowing him to build the most powerful airline in the World. He did complain about overcapacity and everyone chasing market share but he never spoke of re-regulation. He’s been on that kick for a few years now, and I suspect the older he gets and the more time he spends in Marblehead, MA, the more socialist he becomes.

        Second, the negative side effects of re-regulation that he sites are: 1) poor service quality and 2) abandonment of small airports / markets. As Crandall stated in one President’s conference circa 1993, “people aren’t interested in paying for quality airline service.” Over the past two decades airlines have tailored their service to fit what people were willing to buy. However, I believe service is improving (e.g., Jet Blue, Virgin American, etc), and will continue to improve, now that the industry has gotten capacity under control.

        Regarding abandonment of smaller airports, is it really so bad that someone has to drive for an hour or two to get to the airport considering they now have so many more non-stop choices once they get to the airport? Prior to de-regulation the hub-and-spoke networks didn’t exist so they might have been able to fly to three destinations from their local airport.

        Still, Crandall was the best CEO for whom I ever worked.

  7. RE LTCJRA: “Did anyone view the interview with Bob Crandall”
    Sorry NO., I could NOT open the Website, can anyone help me, pls.?

  8. In any case: How the hell are these companies able to pay decent salaries to their “manoevring mass” ???

  9. bob crandall should be the next secretary of transportation.

  10. leehamnet :
    Michael O’Leahy paid around $28m in that-year dollars.

    I remember in one of the interviews MOL said something along the lines of ‘I wouldn’t tell a priest how much I paid for those planes!’ Scott, have you heard his confession lately? 🙂

    Staying on the subject of MOL, he has come up with another bunch of gems in the latest interview…

    “…O’Leary added that Lion Air “can’t buy a bag of sweets” and NAS “doesn’t have any oil wells.”

    “Ryanair, an all-Boeing operator, remains skeptical about the re-engined 737 MAX, O’Leary said, questioning its capacity, efficiency and waste-handling costs.”

    “O’Leary said all evidence Ryanair has seen indicates that Boeing’s MAX, “as a product, is rubbish.” The Airbus neo, announced before the Boeing model, “does credibly deliver” a 12 to 14 percent saving on fuel burn, he said, while the C919 is a “glorified” version of the A320 and thus lacks development risk.”

    http://www.businessweek.com/news/2012-03-29/ryanair-could-snap-up-boeing-jets-dropped-by-lion-air-norwegian

    • As for the fact that NAS doesn’t have any oil wells, perhaps that’s not the point. 😉

      That an airline with a market capitalisation of only NKr 2.3 billion ($390m) could order planes worth $22 billion at list prices speaks volumes of the creditworthiness of a country with a wealth fund of $570 billion saved from oil and gas revenues. No wonder the American and European export credit agencies were happy to back the deals.

      http://www.economist.com/blogs/gulliver/2012/01/norwegian-air-shuttle

    • “.. while the C919 is a “glorified” version of the A320 and thus lacks development risk.”

      Certainly interesting to watch what the Chinese deem worth copying 😉

  11. It is a reasonable deduction that Airbus has made presentations to MOL on the NEO in view of his comments regarding savings.
    It is probably also a reasonable deduction that Boeing have made a presentation that failed to offer any substantive performance figures, hence the earlier “back of a fag packet” remark.
    Would not be surprised if MOL went with a small initial fleet of leased NEO’s from one of the lessors who ordered NEO at a better price than is now available, which despite the lease costs could still offer a good deal and with earlier deliveries.

  12. After we all concluded that the 737MAX a/p does NOT have a specification YET,
    which makes all so-called “orders” for 1,000.+ MAX a/p’s subject to aircraft
    Specification and fuel-burn guarantees;
    “The Boeing Company 2011 Annual report, which just came out, on page 112,
    flatly states: “Four months after launch, the 737MAX had logged more than
    1,000 ORDERS AND FIRM COMMITMENTS, from customers worldwide.”

    I always believed that Official Public Co. Annual Reports, had to be “totally
    accurate,” to avoid charges of misleading Co. shareholders and others!

    I am sure that was not the intend, but how could they make such a serious
    mistake, at the time when most people in the know, within and outside the
    Boeing Co., must by now begin to get very anxious about the absence of
    any news about the 737MAX, after last November, when they were supposed
    to provide the above specifications and gurantees?

    • I thought that firm configuration for the MAX was at the end of this year, or am I wrong on that?

  13. I think most people are getting slightly uncomfortable with the 737 MAX.

    Cracks in the wall.

    • I don’t see those crack, keesje. The B-737MAX is still about a year and a half from design freeze.The most important parts of the MAX (and the NEO) are the engines from CFMI and P&W.

  14. Tom :
    I thought that firm configuration for the MAX was at the end of this year, or am I wrong on that?

    That’s what i thought, too, Tom. The final specs won’t be released until the end of this year at the earliest. By then the NEO design should be frozen, giving Boeing several more months to tweek the MAX.

  15. Aviationweek has an article on the topic.

    http://www.aviationweek.com/aw/generic/story_generic.jsp?channel=awst&id=news/awst/2012/04/02/AW_04_02_2012_p28-441719.xml&headline=null&prev=10

    I have the impression Boeing is following a “if you can’t convince them, confuse them” tactic with regards to the 737 MAX vs A320 NEO. The goal probably is to have the public feel they each have their pro and cons & (so) they should be about equal.

    Sofar I’ve had a hard time finding significant cons for the NEO vs the MAX. Apart from price/financing (Lion, SW) and fleet commonality (Lion, SW).

    The leasing companies say they expect the MAX could regain half the market, meanwhile signing up for the NEO’s.

    • keesje, just how did you get the “if you cannot dazzle them with brillience, baffle them with BS” theory out of the AWST story? Did you actually read the whole story, both pages? The story, while giving credit to the NEO, also discussed what has been discussed here and at a.net since the MAX was launched last August. The weight differences between the A-32Xs and B-737NGs will continue onto the weight differences of the NEO vs. the MAX, although the weight difference will be less.

      So, it is not beyond reason that the NEO will suffer a 2.5% fuel burn penalty compared to the MAX, due to the NEO models all being heavier than the MAX models.

      AWST also discussed how Boeing is continuing to work on and refine the MAX design, and the LEAP-1B engine/MAX combination designs won’t be frozen until next year. Airbus with the LEAP-1A/GTF/NEO combination designs won’t be frozen until later this year.

      AWST also pointed out the possibility of an even bigger fan for the MAX/LEAP-1B, adding another .6″, to a 69″ fan. That is the first I have heard of that developement.

      So, based on all of this, Boeing and Airbus will continue to claim advantages over the compitition. Airbus, I believe has already given performance garuntees, while Boeing is waiting a little longer to get closer to design freeze.

      As was mentioned by AWST, it is amazing how physis works differently in Europe than in the US, or the rest of the world.

  16. A while ago a .5% gain for every inch fan size was a agreed upon rule of thumb for engines in this category. That’s why oem’s go to great lenghts to make them as large as possible. Since the MAX however it has become far more complicated, any assumption at this stage is premature. If you can’t convince…

    • If you are saying that fan size will eventually reach a point of deminishing returns, you are correct. You are also correct that ANY assumption about the MAX at this point is premature. This is because the design of the B-737MAX is not yet frozen. Boeing employees excellent engineers, and they know what they are doingo assume Airbus engineers know what they are doing and Boeing engineers don’t is just wrong. The engineers at both OEMs have made great advancements in aeronautical engineering, just as they each have made serious mistakes in the A-330MRTT, A-350, A-380, A-400, KC-767A/J, B-787 and B-747-8 programs. Hopefully each group of engineers can get back on track with new programs after some sucesses in the P-8, KC-46, and sharklet programs with the NEO and MAX programs.

      • “.. Boeing employs excellent engineers, and they know what they are doing .. ”

        Contact has been hard limited to marketing 😉

        With the right background marketing may appear to be able to walk on water while the final product invariably will be a full floater.

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