Air Canada snubs Airbus, orders 737s; keeps some of Embraer portion open

Air Canada snubbed Airbus with its mainline jet fleet renewal and ordered up to 109 Boeing 737 MAXes. The initial order is for the 8 and 8 MAX, with the ability to swap for the 7 MAX. The deal includes the provision for Boeing to purchase up to 20 Embraer E-190s, which would be replaced by the 7 MAX, apparently.

But Air Canada is keeping open the prospect of replacing the other 25 E-190s with a new jet or to keep operating them. Bombardier hopes to win this segment of the order.

This is a big win for Boeing and one of the rare times Boeing has displaced Airbus in the MAX v NEO competition of an incumbent Airbus operator.

The Air Canada press release is below the jump.

press release

Dec. 11, 2013, 5:00 p.m. EST

Air Canada Selects Boeing 737 MAX to Renew Mainline Narrowbody Fleet


MONTREAL, Dec. 11, 2013 /PRNewswire via COMTEX/ — Agreement includes 61 firm orders plus 18 options and rights to purchase an additional 30

Air Canada today announced its mainline narrowbody fleet renewal plan that includes commitments, options and rights to purchase up to 109 Boeing 737 MAX aircraft. The new aircraft will replace Air Canada’s existing mainline fleet of Airbus narrowbody aircraft, creating one of the world’s youngest, most fuel efficient and simplified airline fleets.

The agreement with Boeing, which is subject to completion of final documentation and other conditions, includes firm orders for 33 737 MAX 8 and 28 737 MAX 9 aircraft with substitution rights between them as well as for the 737 MAX 7 aircraft. It also provides for options for 18 aircraft and rights to purchase an additional 30. Deliveries are scheduled to begin in 2017 with 2 aircraft, 16 aircraft in 2018, 18 aircraft in 2019, 16 aircraft in 2020 and 9 aircraft in 2021, subject to deferral and acceleration rights.

“We are pleased to announce our agreement with Boeing for the purchase of 737 MAX aircraft as part of the ongoing modernization of Air Canada’s fleet,” said Calin Rovinescu, President and CEO of Air Canada. “Renewal of our North American narrowbody fleet with more fuel efficient aircraft is a key element of our ongoing cost transformation program and the enhanced passenger cabin comfort provided by the Boeing MAX will help us to retain Air Canada’s competitive position as the Best Airline in North America. Our narrowbody fleet renewal program is expected to yield significant cost savings. We have estimated that the projected fuel burn and maintenance cost savings on a per seat basis of greater than 20 per cent will generate an estimated CASM reduction of approximately 10 per cent as compared to our existing narrowbody fleet.”

Air Canada continues to evaluate the potential replacement of its Embraer E190 fleet with more cost efficient, larger narrowbody aircraft that are better suited to its current and future network strategy. Consistent with this strategy, the agreement with Boeing provides for Boeing to purchase up to 20 of the 45 Embraer E190 aircraft currently in Air Canada’s fleet. The E190 aircraft exiting the fleet will be initially replaced with larger narrowbody leased aircraft until the airline takes delivery of the Boeing 737 MAX aircraft. The company will be reviewing various options over the next six months for the remaining 25 Embraer E190 aircraft including continuing to operate them or replacing them with a yet to be determined number of aircraft in the 100 to 150 seat range.

Air Canada’s plan is for its total fleet including Air Canada rouge™, excluding aircraft flown by its contracted regional carriers, to grow from 192 aircraft as at September 30, 2013 to approximately 214 by the end of 2019, on a pro forma basis. Additionally, for further growth flexibility, Air Canada has 13 options and rights to purchase 10 Boeing 787 aircraft, rights to purchase 13 Boeing 777 aircraft as well as the 18 options and 30 purchase rights for Boeing MAX aircraft.

39 Comments on “Air Canada snubs Airbus, orders 737s; keeps some of Embraer portion open

  1. I don’t want to down play but honestly this is not a big surprise. Having committed to the 777 and the 7-late-7 this is a simple continuation and optimization of the late delivery penalties.
    And if Boeing buy the used cars, well, it would be foolish to refuse the deal.

    The only looser is the regional traveler, not a new thing with AC. 🙁

    • Just flew from NYC to San Diego via Denver on United. From NY to Denver a B757 with the same cabin width as the 737 and from Denver to San Diego on an A320. The seat width were the same and I did not notice much different if any on that cabin width superiority that the A320 has over the 737. I was sitting by the windows, and the sound level in the cabin for both aircraft was very similar. I don’t know where some people get the contort level on the A320 from. Must be in first class section?
      Now, Jet blue seems to have more comfortable seats, but that might have something to do with the seat pitch (32 inches) rather than the seat width.

      • I was sitting by the windows, and the sound level in the cabin for both aircraft was very similar. I don’t know where some people get the contort level on the A320 from. Must be in first class section?

        I’ve sat in pretty much every row of Aer Lingus’ A320s at this point (which have an all-economy layout, in case you’re asking) as well as most rows in 737NG and 737 Classic of the likes of Lufthansa, KLM, Malaysia Airlines and a few others.
        While seat width didn’t bother me that much on the 737 (as the flights were only short hops anyway), the A320 is hands down a much quieter airplane in the cabin than both the 737NG and 737 Classic.

        Now, Jet blue seems to have more comfortable seats, but that might have something to do with the seat pitch (32 inches) rather than the seat width.

        I’ve never been on JetBlue, but I agree that generally (being 1.85m/6’1″), seat pitch for me makes a bigger difference than seat width.

  2. Have to disagree with CBL here – long and short haul fleets can be viewed quite separately, as BA showed who for years ordered only Boeing for long haul while ever increasing the size of its A32S fleet.

    So for me, AC’s long haul fleet (which still has a good few A330s, by the way) says nothing about AC’s likelihood of getting 737MAX vs A320NEO.
    Which also means that for me, this order is a surprise; not least because AC is only the second airline where the A320 was the incumbent and the A320NEO did not win the replacement RFP (the first airline being Silkair).

    • If you knew the history of the Airbus order back in the 90s you would understand that the surprise would have been its renewal.

      • We all know l’Affairbus. That’s ancient history by now CBL; you really think they’re making fleet decisions based on a scandal in 1988? Air Canada have the memory of elephants maybe…

  3. With all the leaks about Airbus getting this deal, it seems AC was playing them all along. Sharp practice to drive a deal through. The MAX needs some scoops and this one is up there. Congrats to Boeing

    • How is that sharp practice? Keeping it known that it was still in competition would have been the best way to drive a bargain on both sides. If it’s believed that Airbus have it in the bag, they stop offering sweeter offers, reducing the pressure on Boeing. Not a good way to return value to shareholders (of AC).

  4. Actually, this is a good deal for AC, Boeing, and the flying customers. New modern, fuel efficient airplanes with great interiors.
    This is not only a loss for the Airbus NBs, but a few years ago AC selected Boeing WBs replacing older Airbus aircraft. AC has turned from an Airbus customer to a Boeing customer for most of their aircraft. It would be nice if they selected the CS-100 to replace the E-195, too.

    • There is no doubt that this is a good deal for AC.
      I will bet with confidence a loony that the terms are unbeatable!

    • Now that explains why Randy was able to share in the details of the recent A340 meeting. Heck with all of the buy backs Boeing has done over the past few years, they might be receiving the lion’s share of that $2 Bil Airbus owes A340 customers. Boeing can certainly use the money to pay off their 787 performance misses.

      So what they gave away the farm for this win. As John would say, a win from your competition is far sweeter than just giving money away for any other sale.

    • “Re AC saying the MAX having 10% better CASM then their Airbusses. I guess that will get them some irritated mails from Randy Tinseth. It’s 17% !!”

      Fuel burn per seat is not the same as CASM, but you already know this, so why are you comparing the two? It is widely known that fuel costs account for about 1/3 of the operating cost, not 100%.

      The Boeing chart you linked claims that 737 MAX 8 burns 17% less fuel per seat. This is not inconsistent with what AC said in their press release “the projected fuel burn and maintenance cost savings on a per seat basis of greater than 20 per cent…”

      When factoring in all the other cost contributors (besides fuel and maintenance), AC goes on to say “…will generate an estimated CASM reduction of approximately 10 per cent as compared to our existing narrowbody fleet.”

  5. That 2005 thread was right about one thing; the used A345/346 planes are, comparatively, without value except as scrap/parts.

  6. Air Canada has been committed to aircraft equipped with GE engines ever since it emerged from bankruptcy protection in 2004. For GECAS was behind the financial arrangement. AC could have selected the A320 with Leap engines, but since the 2004 settlement involved purchasing Boeing aircraft equipped with GE engines it was only “natural” for Air Canada to purchase the 737. But the options on the MAX 7 does not bode well for a large CSeries order. We can expect a split order at best. The portion I don’t understand is the split between the 737-800 and the MAX 8. Since AC never operated the 737 before this entails doubling on many items for the Initial Provisioning. The purchase of the 737-800 can only mean that Air Canada is in a hurry to get the planes. But I am not sure anymore if they are in such a hurry to get the CSeries.

  7. The rumour mill (and it is always fervent about Air Canada management here) suggests that since AC has not yet reported any financial gain from the penalty clauses on its very late upcoming delivery of 787’s that it is in fact reflected in the purchase price of the new MAX. Not sure will track the financial pages here over he next few days.

    • That proposition makes a lot of sense. And it could also mean that the A320 was never in the running. The only option left really is the CSeries, and only because it fits neatly between the E190 and A320 as a potential replacement for both. But only on specific routes. It now looks to me like a big chunk of the order could go to the MAX 7 to fill the upper portion of that particular segment. Within that scenario there is room only for the CS100 since the CS300 would obviously be replaced by the MAX 7.

      • To me, if AC were to buy the CS100, it would only make sense to choose the CS300 over the MAX 7. Unless my memory completely fails me, the CS300 has a considerable CASM edge over the MAX 7 (the runt of the litter, like the A319 neo).

        Of course, if AC can pick up the MAX 7 at fire sale prices, and Bombardier won’t discount the CS300, that will change the equation.

  8. Air Canada had the 787 locked in, until they cancelled in the debacle with Air Crew negotiations. Management said if no agreement they would cancel and they did.

    I do not remember if the 777s got caught up in it but the 787 certainly did.

    Upshot was AC went to the bottom of the list.

    How that played into the order, when they were supposed to get and any compensation I have no clue. I do know there has been no mention of it, Boeing may have held slots for them without any penalty payments.

    Regardless, Boeing getting this single aisle was no slam dunk as you can see from the exchange details (what’s Boeing going to do with E-190s no one wants used?) Break them up for parts probably .

    It does look like Boeing is waking up a bit, hard telling with the Chicago Mafia running the show these days.

  9. It is interesting that a unknown customer order has been on Boeing’s books for 61 Max aircraft since May 2013. If that is this AC order it would mean the corporation has been waiting for some sort of authorization, and it would also mean that this deal has been done for much longer than recent discussion.

  10. Pingback: Boeing wins $6.5bn Air Canada order | News every minutes

  11. Pingback: Boeing wins $6.5bn Air Canada order | Acttu news magazine

  12. 10% advantage over an their current fleet kind of contradicts the Boeing argument that the A320NEO is only able to compete with the NG, and the MAX will enter a whole new territory. OK, I guess no insider ever bought this statement.
    In the end, commercial terms were probably decisive, not technical details.

    • In the press release AC said “We have estimated that the projected fuel burn and maintenance cost savings on a per seat basis of greater than 20 per cent will generate an estimated CASM reduction of approximately 10 per cent as compared to our existing narrowbody fleet.”

      So, AC is claiming that the MAX gives a 20% improvement over the CEO in fuel and maintenance costs per seat. This is inline with Boeing’s claim that the 737 MAX 8 burns 17% less fuel per seat than the A320.
      It is the other operating cost contributors, independent of aircraft type, that make the CASM improvement a paltry 10%.

      • keesje,
        What part of AC’s statement “We have estimated that the projected fuel burn and maintenance cost savings on a per seat basis of greater than 20 per cent” do you not get?

        Whether or not any of us agrees with Boeing’s statements or AC’s statements about the MAX, the fact remains that AC stated that the MAX has greater than 20% better combined fuel and maintenance cost than the current fleet, mostly A320’s. I notice that you ignore this part of AC’s statement and focus exclusively on the 10% CASM improvement part of the statement.

  13. The actually reports in the field say the current 737 and the A320 (include all of the single aisle series) are so close for fuel burn you can’t see a difference more than a couple tenths.

    Would Airbus risk ticking off a less stellar customer to secure the Air Canada order? Sure. However, they also have a big chunk in Lion Air (a less steller customer as they could go bust, not exactly a paragon of virtue in accidents and operation incidents).

    Lion Air wanted guaranteed deliveries because Boeing could not supply them what they wanted (needed is actually another story with the Ryan Air concept of flipping aircraft and maybe Boeing only wants to see so much of that as well).

    I would guess Lion (and others) have put in penalties clauses for failure to deliver. It used to be that Being and Airbus could juggle things and swap and trade but the airlines are probably getting onto that and if not in their interests the penalties if due to a failure to deliver as opposed to a program delay would be serious.

    To shift a fleet is huge and in this case, the NEO is very common with the CEO, where as Boeing is introducing major changes into the 737. So the change from A320 is a lot more expensive than it would normally be and Boeing has to compensate them for that.
    They had to have wanted it badly, but then after the egg on face of loosing some key customers and splitting others at some point it begins to mean you have to deal.

    Despite the rhetoric, Boeing has continued the mantra that our stuff is better and sells at a premium on the 737 series.

    In actually it is an old airframe that is taking a lot of tweaks to be kept competitive and is stuck with one engine technology (LEAP) as opposed to the P&W GTF. If the GTF can be improved faster than the higher tech LEAP then Boeing will loose more long term market share (though market share is really current productions and that’s still very close to 50/50 in single aisle though Boeing is delivering more aircraft overall.)

    Airbus just put new engines on the A320s and winglets. Boeing is having to make a whole lot more changes to stay competitive. Interesting times. Rather than a new airframe when they had the chance they stretched it out far longer than it should have. A Y3 for the NG would have had all the improvements needed and capable of both LEAP and GTF.

  14. Delivery dates seems a crucial factor here, A320/NEO is just sold out until much further out.

    I wonder how Superjet has looked in AC’s analysis for what to do with the regional replacement.
    Better performance than current competitors and nice acquisition price (and with kinks finally worked out, based on Interjet)
    makes it seem likely for SOMEBODY to spring for a Superjet order sooner than later.
    The E-Jet NEO late this decade may be a bookend on that window,
    but Embraer’s NEO would seem to be immediately sold out (along with MRJ if their orders don’t get dropped due to delays).

  15. I am not surprised that they went with the 737 MAX aircraft as part of their ongoing modernization of Air Canada’s fleet.

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