Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Teamsters, Boeing have a new contract April 29, 2025
- Boeing wants to remarket China’s airplanes. It’s costly and time consuming. April 28, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
Analysts view the Re-Engine competition
We were traveling last week and are only now getting around to going through the analyst reports we receive, commenting on the American Airlines order. We put together a long synopsis after the jump.
Meanwhile, there are a couple of charts we want to highlight before getting into the recaps.
UBS put together the following charts of 2010 and 2011 orders at Airbus and Boeing. What we find notable is the break-out of A320 family Legacy orders vs NEO, with the clear preference for the NEO. Note that Boeing’s 737 orders are low this year. Compare the A320 Legacy orders last year, as the market waited for Airbus to decide what it was going to do about reengining. We previously wrote that we felt 737 orders were likely on the low side (though in fact YOY they were roughly the same through June) pending a Boeing decision on the 737’s future. The UBS tables support this view. Click on the tables for a more crisp and readable view.
Source: UBS
Source: UB
Credit Suisse put together a good chart on the potential USA orders Airbus and Boeing will compete for:
Strategically speaking, why American Airlines?
Update, 11:30am PDT July 25: The Ft. Worth Star-Telegram summarizes the delivery schedule of the huge AA order. Of particular note: AA doesn’t receive its first 737RE until 2018. This raises the question: is the EIS of the 737RE not until 2018? Or is AA truly not the “launch operator” of the 737RE (we wonder what a certain UK person would have to say about this)?
Original Post:
Wells Fargo issued a note today in which one small segment said:
“One curiosity about Airbus’s and Boeing’s aggressive marketing campaigns to replace AA’s narrow-bodies is the extent to which the manufacturers appear to have cut deals for one of the least profitable airlines in the world.
“We understand the “strategic” importance of AA, but according to consensus estimates AA is not expected to generate any profit until after 2013. Meanwhile, healthier airlines (see Delta, Ryanair, and Southwest above) are also looking at major re-fleeting plans and no doubt will pursue comparably attractive pricing and financing terms.”
The conventional wisdom is that Airbus wanted to penetrate American and brake the Boeing exclusivity, and this is certainly true. We have a broader take.
$30m for the Airbus, Boeing at American: Wells Fargo
Update, July 26: Wells Fargo issued this update today:
American Airlines Pricing Update. On July 26 we heard from American Airlines regarding our calculation that the average price it is paying for reengined A320s and 737s is around $30M (ex-escalation: $27M). We now understand that the airline’s $10.3B projected Q3-ending purchase commitment balance excludes the 100 re-engined 737s but includes pre-delivery deposits (PDPs) for 230 aircraft (100 737NGs + 130 A320s) to be leased. Based on this new information, we can estimate an A320neo unit purchase price based on an assumed PDP level. Assuming a 20% PDP rate, the estimated implied unit price per new A320neo would be $40M (ex-escalation: $35M). Assuming a 30% PDP rate, the estimated implied price would be $35M (ex-escalation: $31M).
Original Post:
We were traveling last week and didn’t pick up on this-but here’s what Commercial Aviation Online reported about the purchase price of the Airbus and Boeing orders by American Airlines.
This is entirely consistent with the pricing we heard in advance of the deal.
American Airlines order after-thoughts
It will take a while to absorb all the information that’s been released on the massive AA deal with Airbus and Boeing, and to learn data yet to come, but here are some initial thoughts:
American press conference on huge order
Running comments from the American Airlines press conference:
Tom Horton
- Today is a transformational day for American.
- American’s order presentation, 19 page PDF: AMR Aircraft
- With this plan we are jumping to the front of the line and will be ahead of our peers.
- We will have the youngest fleet of our peers.
- We will lower our costs with this modern fleet.
American orders: Airbus, 260; Boeing, 200
American Airlines this morning announced its blockbusting order that has been the subject of international intrigue since the Paris Air Show. The order is comprised of:
- 260 A320 family airplanes from Airbus plus 365, with conversions rights within the family;
- 100 737NGs and 100 737REs from Boeing and 100 options; and
- Engines from CFM for the 737RE; the press release is silent on the engine selection for the NEO; Airbus tells us the engine is to be determined.
Dominic Gates of The Seattle Times has this story about the last-minute flurry of activity by Boeing to save the day.
There are a couple of interesting references in the Gates article:
- We had reported Monday that Boeing’s timeline for the New Small Airplane was moving to the right to the 2020-2025 decade, being closer to 2020. On Tuesday we reported that this date is 2021. Gates reports 2022 and that this is just a “placeholder” date, which could move to the right.
- The 737RE was characterized as a ‘paper’ airplane. Indeed, we have learned that Boeing is still massaging design details. It remains to be decided if Boeing will go with a 70-inch fan that will require more work statement for the airframe, including changes to the nose gear, or if it will go with a 66-inch fan that will eliminate the need for nose gear modifications, reduce the R&D costs but will trade off fuel efficiency slightly and be noisier than the 70-inch fan.
American’s order, as we see it
- Note: It’s impossible to keep up with the changing and leaking information. Just do a Google News search for the latest.
The situation today remains fluid and often contradictory. News stories, and our own information, agree that a split order is coming from American with Airbus and Boeing but contradictory information is flying about as to which company comes out with the majority of the orders.
But here’s the outcome, as we see it:
American to announce big order Wednesday
Flightblogger confirms American will announce a big single-aisle order Wednesday.
We understand it will be a split between Airbus and Boeing. We think we have a basic understanding of the broad details but not yet solid enough to go into print. We’re working on it.
Wednesday is also American’s 2Q earnings call. The announcement is expected before the call, so expect lots of conversation on the call. The webcast information is here.