American Airlines Orders 460 New Planes
FORT WORTH (AP) – American Airlines is buying at least 460 new planes over the next five years in what it calls the biggest airline order in history. And in a victory for Airbus, it’s splitting the work between the European plane maker and Boeing.
American said Wednesday it will buy 260 planes from Airbus and 200 from Boeing Co. It expects the new, better-mileage planes to provide much-needed savings on fuel costs. American’s current fleet is among the least fuel-efficient in the industry.
The jets carry a sticker price of more than $38 billion, although big airlines routinely get discounts. And American might have played one aircraft maker off the other to get a better deal.
AMR Corp., American’s parent, also announced that it plans to spin off its American Eagle regional-flying subsidiary as a separate company.
READ MORE: AMR Plans To Spin Off American Eagle
The twin announcements overshadowed the news that AMR lost $286 million in the second quarter, as rising fuel prices wiped out an increase in revenue. The loss equaled 85 cents per share. Wall Street was expecting a loss of 77 cents, according to FactSet. Still, AMR shares rose almost 4 percent to $5.11 in premarket trading.
In recent weeks, the airline industry was riveted by the drama of Airbus and Boeing making competing bids to overhaul American’s fleet. American currently flies and all-Boeing fleet.
In discussions that lasted long into Tuesday night, American decided to buy 200 planes from Boeing’s 737 family of workhorse single-aisle planes, with deliveries starting in 2013. Half are expected to be equipped with updated, more fuel-efficient engines. The airline said it will take options for another 100 737s.
American also will buy 260 planes from Airbus’s A320 series with deliveries starting in 2013, and take options and purchase rights for 365 more. Starting in 2017, American will get the first of 130 copies of a new Airbus plane called the A320neo — for new engine option — which Airbus claims will be 15 percent more fuel-efficient than current jets when it goes into service in late 2015.
American will also take options and purchase rights for up to 465 additional planes through 2025, mostly from Airbus.
American has used Airbus planes before, although only a few dozen of them — it grounded the last one in 2009. When American intensified plans to overhaul the fleet a couple of years ago, Chicago-based Boeing was seen as the favorite.
In recent months, Boeing has publicly debated whether to put a new engine on the 737 or take the more radical and costly but perhaps rewarding move of developing an entirely new plane. Airbus, meanwhile, was forging ahead by taking hundreds of orders for the A320neo.
Airbus CEO Tom Enders called American’s decision “a strong vote of confidence in our product in the important North American market.” Airbus is part of European Aeronautics Defence & Space Co.
Airbus now has almost 1,200 firm orders and commitments for the A320neo, and has announced plans to increase production to 42 per month in 2013.
With American paying more than $3 a gallon for fuel, the search for better mileage helped drive the company’s plane-buying decision.
American’s fleet of more than 600 planes averages about 15 years in age, among the oldest in the U.S. airline industry. One-third of the fleet consists of fuel-guzzling McDonnell Douglas MD-80 aircraft.
“The plan was to replace those MD-80s over seven or eight years,” said Mike Boyd, an aviation consultant who studied American’s fleet for its pilots’ union. “Well, American can’t wait that long, not with fuel over $3 a gallon. They’ve got to unload those MD-80s.”
In a statement, AMR Chairman and CEO Gerard Arpey said American “expects to have the youngest and most fuel-efficient fleet among our peers in the U.S. industry within five years.”
The need for fuel-efficiency was evident in AMR’s second-quarter results. Revenue rose to $6.11 billion from $5.67 billion a year ago, thanks to higher fares and fees. But American’s fuel bill rose 33 percent — an increase of $547 million from the same period last year, outstripping the gain in revenue. Fuel has overtaken labor as the airline’s biggest expense.
American said it got $13 billion in financing commitments from Airbus and Boeing to help buy the new planes. But AMR already has $17.1 billion in debt, and analysts wonder about the wisdom of borrowing more while the company is still posting huge losses.
“We understand that American’s fleet (and brand) are tired,” UBS analyst Kevin Crissey said in a note to clients, “but this announcement represents a ton of new capital being put into a failing business model.”
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