By Doug Cameron and Robert Wall
Airbus SE and Boeing Co. secured more than $75 billion in
single-aisle plane commitments Wednesday, demonstrating unrelenting
appetite for their most popular planes from discount carriers as
the airlines lock in deals to support growth for years to come.
Airbus secured what it called one of the biggest aircraft deals
in its history with a 430-jet agreement with airlines linked to
Indigo Partners LLC, a U.S. private-equity group with stakes in
some of the fastest-growing low-cost carriers on three continents.
In the U.S., Indigo is best known for transforming Spirit Airlines
Inc. into a successful ultra low-cost carrier before selling the
stock to take over Frontier Airlines.
The proposed deal, announced Wednesday at the Dubai Airshow,
carried a sticker price of almost $49.5 billion before the
customary discounts that can reduce the true value by 50% or more.
Consolidation in the airline and finance industries is giving
buyers more clout.
Boeing followed shortly after with a deal to sell Flydubai up to
225 more of its 737 Max planes, including the newest and largest
version, the Max 10. The deal is for 175 firm commitments with
purchase rights for more, Boeing said, with a combined list price
value of $27 billion.
"We think low-cost travel will certainly grow much faster than
the rest of the market," said Boeing Commercial Airplanes marketing
vice president Randy Tinseth.
Airbus and Boeing are aggressively boosting production of these
single-aisle planes to satisfy demand. Executives at both
manufacturers in recent months have said they could build more
planes. Demand is there, they say, though there are concerns
suppliers may struggle to keep pace with the torrid pace of
production.
Boeing is building 47 single-aisle planes a month this year,
with plans to produce 52 a month in 2018, and 57 in 2019. "There is
upward pressure" to go higher, Mr. Tinseth said. Airbus is boosting
output to 60 A320 planes a month starting in 2019 and has
considered making 63 a month.
Deliveries on the Airbus deal stretch from 2021 to 2026.
Flydubai said its deliveries run until 2029.
Airbus said the Indigo Partners deal tops one by other budget
airlines AirAsia and India's unrelated IndiGo, making the financial
investor its biggest customer by list price.
Indigo, based in Phoenix, is led by industry veteran Bill
Franke, who has invested in a number of carriers including holdings
in Frontier Airlines in the U.S., Hungary's Wizz Air Holdings PLC
and Mexico's Volaris. It also backed JetSmart, a new Chile-based
carrier that launched this year.
The preliminary agreement covers 430 planes--73 A320neos and 157
of the larger A321neo model--doubling the potential orders from the
four Indigo-linked airlines.
Denver-based Frontier plans to take 134 jets, with Wizz
receiving 146 planes pending shareholder backing. Volaris would
receive 80, with 70 for JetSmart.
Budget airlines tend to place massive plane orders at once to
get bigger discounts from plane makers. The big commitments allow
the manufacturers to build planes more efficiently, lowering costs,
and enable them to pressure their own suppliers for discounts.
For Airbus, the deal is a bit of good news amid several
headwinds. Regulators in the U.S. and Europe are scrutinizing sales
by the European company for potential wrongdoing. Airbus said it
had brought the potential misdeeds to the attention of regulators
and was cooperating with the investigations.
Emirates Airline, the world's largest by international traffic,
Sunday snubbed the plane maker on a roughly $15 billion A380
superjumbo order, refusing to finalize the deal unless Airbus made
firm commitments to build the plane for at least another
decade.
The European manufacturer has trailed rival Boeing Co. in
securing new orders this year, garnering more than 300 before
Wednesday's announcement, compared with more than 600 for its U.S.
rival. Airbus officials hope to finalize the deals by the end of
the year.
It is unusual--but not unprecedented--for airlines to order
aircraft jointly. Emirates Airline and Qatar Airways cooperated as
launch customers for the Boeing 777X at the 2013 Dubai Airshow.
Abu Dhabi-based Etihad Airways also combined an order for Boeing
787 Dreamliners with one from now defunct Air Berlin, in which it
held a minority stake.
The Dubai Airshow can be a hotbed for plane deals. Four years
ago, Boeing snagged a $76 billion deal from Emirates Airline for
the 777X. The carrier at the same event ordered 50 A380 superjumbos
valued at around $22 billion at today's list price. A decade ago,
Dubai Aerospace Enterprise drew attention for the then-massive
200-plane deal split equally between Airbus and Boeing for
different plane models. DAE was forced to cancel the $27 billion in
plane orders when it ran into financial trouble.
Several years of strong order intake has helped Airbus and
Boeing amass huge backlogs, particularly for their single-aisle
jets, stretching five or more years, even though both are boosting
output.
However, analysts are cautious on whether some of the big
customers will take all of their planned jets on schedule,
particularly if an economic downturn slows traffic growth. Plane
makers can boost profits by agreeing to defer aircraft
deliveries.
Gus Kelly, chief executive of aircraft lessor AerCap Holdings
NV, this week said placing aircraft orders often represents a
career highlight for some airline CEOs. Speaking at an investor
conference, Mr. Kelly said that some of these orders had served
only to benefit the shareholders of Airbus and Boeing.
Write to Doug Cameron at doug.cameron@wsj.com and Robert Wall at
robert.wall@wsj.com
(END) Dow Jones Newswires
November 15, 2017 08:01 ET (13:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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