Boeing (BA, Financial) receives the largest aircraft order from American Airlines (AAL, Financial) since 2011 for 47 787 Dreamliners for long-range flying. The airline operator is expanding its fleet of the first-ever plane made of composite material.
This also means a big blow to Airbus (EADSF) as it was looking to grab this precious deal and strengthen its foothold in Boeing’s domestic market. It rather turned the other way as American Airlines, in a related move, canceled orders for the 22 A350s. This is a big win for Boeing as it reinforces the Chicago-headquartered aircraft maker’s dominance at home.
A closer look
The deal is worth $12.3 billion at a catalogue price. Boeing says that the new order will double American Airlines’ 787 Dreamliner fleet, making the operator the largest Dreamliner customer in the Western Hemisphere.
According to the order, Boeing will be delivering 22 787-8 Dreamliners and 25 787-9 Dreamliners to American Airlines. Boeing will power these planes with GE Aviation GEnx-1B engines. In this regard, the aircraft major has already signed an agreement with GE (GE). In addition, the airline will also have the option of extending the order by another 28 of these long-range planes.
The 787-8 has a passenger capacity of 242 with a range of 7,355 nautical miles while the 787-9 can accommodate around 290 passengers on a fly range of 7,635 nautical miles. Boeing will begin delivering the 787-8s in 2022 and the 787-9s in 2023 to the carrier. These planes will be used to replace American Airlines’ aging fleet of 767-300s, Airbus’ A330-300s and Boeing’s oldest 777-200s.
In addition to the latest order, American Airlines had earlier ordered 42 787 Dreamliners. The order is still in the process of completion. American Airlines uses these planes to connect North America to Asia and Europe.
The 787 Dreamliner is one of Boeing's most innovative creations. The company claims it to be the “most fuel-efficient commercial jet design,” thanks to the usage of composite materials, which reduces fuel consumption by almost 20% relative to other competing jets. Other factors attracting airlines include advanced aerodynamics and more-electric systems powered by turbofan jet engines.
The new order from the world’s largest airline is a great deal for Boeing. The order win is of immense importance considering the intensifying wide-body battle between Boeing and Airbus. Boeing chief executive Kevin McAllister said:
“This new order is a powerful endorsement of the 787 family’s unique passenger appeal and unmatched ability to help airlines open new routes and grow profitably.”
A big win
The order loss highlights Airbus' struggle in strengthening its foothold in the biggest aviation market, the U.S., which is largely dominated by the home-grown player, Boeing. This is the second time this year that Boeing has been able to sway an Airbus wide-body client in the U.S. to shift to the Dreamliner. In March, Hawaiian Airlines, an Airbus’s A330-800 customer, switched to ordering 10 Dreamliners instead of weighing options offered by the Toulouse-based aircraft major.
American Airlines president Robert Isom said:
“This was a difficult decision between the Boeing 787 and the Airbus A350 and A330neo and we thank both manufacturers for their aggressive efforts to earn more of American’s business. In the end, our goal to simplify our fleet made the 787 a more compelling choice.”
This is, in fact a strategic move by American Airlines, which is working on simplifying its fleet. This will help shed maintenance and training costs, which are relatively higher with the variety of jets flown by an airline.
American Airlines had earlier explained that its small order for the A350s would be difficult to operate profitably. The carrier also plans to cast off another tiny fleet of 20 Embraer (ERJ, Financial) E190 jets. It would be interesting to watch how this move will impact Boeing and Airbus’ fight for wide-body dominance in the largest aviation market.
Disclosure: I do not hold any position in the stocks mentioned in this article.
