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.
Credit Suisse put together a good chart on the potential USA orders Airbus and Boeing will compete for:
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)?
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.
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).
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.
There’s a saying that when one door closes on an opportunity, another door opens. This is the case with Boeing’s decision to proceed with a 737 re-engine. We first wrote about this in a previous post. Max-Kinglsey Jones of Airline Business picked up the theme in his recent blog.
There’s no question Boeing’s march down the path to re-engining was driven by Airbus, it was embarrassing and it was messy. Having said that, the re-engine frees resources and money to concentrate on getting the 787-9 right, launching the 787-10 and deciding what to do with the 777-300ER to meet the competition of the re-defined A350-1000.
McBoeing is alive and well in Seattle.
“McBoeing” is the derisive moniker given the combined Boeing-McDonnell Douglas merger of 1997 in which legacy Boeing personnel say MDC bought Boeing with Boeing’s money. Key positions in Boeing’s C-level suite were assumed by McDonnell Douglas officers despite the weak market position MDC had reached–just 7% of the commercial airplane business and a declining defense side.
In what turned out to be the most notorious placements, MDC’s CEO Harry Stonecipher became Boeing’s COO and widely was perceived to overwhelm a weak Phil Condit, Boeing’s CEO. Mike Sears, later of KC-767-Darleen Drunyan tanker infamy, moved from MDC to become Boeing’s CFO.
John McDonnell and Stonecipher, the largest shareholders in Boeing after the merger, went on the Board of Directors and formed a powerhouse team. They and directors allied with them dominated the Board.