United Airlines split

December 9, 2009
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, NEW YORK, Dec 9 – United Airlines unveiled Tuesday a mulitbillion-dollar aircraft order evenly split between Airbus and Boeing, a move to help the US carrier upgrade its aging fleet.

The US airline said it expected to take delivery on 50 future twin-aisle, wide-body planes between 2016 and 2019 as it phases out older Boeing aircraft.

United said it placed firm orders for 25 Airbus 350 XWBs and 25 Boeing 787 Dreamliners, and taken options on the purchase of 50 more of each aircraft.

Analysts said United was able to use the economic downturn and fierce competition between the two manufacturers to get a bargain on the aircraft.

At list prices, this first order for United since 1998 represents roughly 10 billion dollars: about six billion for Airbus and four billion for Boeing.

United, wholly owned by UAL Corporation, did not disclose financial details.

Commercial aircraft are often sold at a discount to the list price.

John Leahy, Airbus chief operating officer and commercial director, told AFP that the company was paying less than the list price.

"It\’s an opportunistic order at the bottom of the business cycle," Kathryn Mikells, United\’s chief financial officer, said in a news conference call.

Financially, said analyst Helane Becker of the Jesup & Lamont brokerage, the transaction will have "minimal" impact on the airline: only 150 millon dollars will change hands before the deliveries and United will likely get easy financing.

The two aircraft manufacturers gave United "a fair amount of flexibility" in allowing the airline to delay deliveries or make substitutions in the choice of planes, Mikells, the United CFO, said.

Despite the sacrifices made by both Boeing and Airbus, British analyst Nick Cunningham of Evolution Securities termed the deal "a very nice win for Airbus."

Apart from Airbus mid-range 320s, United\’s current fleet is all Boeing, he noted.
Jim Bell, Boeing\’s CFO, downplayed the split order.

"This order has exceeded my expectations," Bell said in a conference call with analysts, adding that "obviously we\’d have preferred to get all of them."

Bank of America Merrill Lynch analyst Ron Epstein said that since UAL probably will take delivery of the aircraft over an extended number of years, the order was not "in itself" significant for Boeing\’s backlog.

"What is more intriguing is UAL\’s decision to split the order, which could indicate pricing pressure for the 25 firm orders plus the additional options when turned into firm orders down the road," he said.

The Chicago-based United said it was "a significant investment in the company\’s future with a widebody aircraft order that will enable the carrier to reduce operating costs and better match aircraft to key markets it serves, while providing its customers with state-of-the-art cabin comfort."

United said the new technology, fuel-efficient aircraft would reduce fuel costs and environmental impact, "while enabling service to a broader array of international destinations."

"This aircraft order is another significant step on the path to position United for long-term success in a highly competitive global market," said Glenn Tilton, UAL chairman, president and chief executive.

The 50 new aircraft will reduce the average seat count by about 19 percent compared with the aircraft they will replace, and by about 10 percent when averaged over the entire international fleet, the company said.

Fuel costs and carbon emissions from the 50 aircraft are projected to be reduced by about 33 percent.

The new aircrafts\’ smaller size, longer range, and lower operating costs will broaden the range of destinations that can be profitably served, allowing new nonstop service to destinations throughout Africa, Asia Pacific, the Middle East and Europe, the company said.

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