By Doug Cameron and Robert Wall
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 16, 2017).
Airbus SE and Boeing Co. landed aircraft deals with a headline
value of more than $75 billion, demonstrating unrelenting appetite
for their most popular planes from discount carriers looking to
lock in deals to support growth for years to come.
Airbus on Wednesday disclosed one of the biggest aircraft
commitments on record 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.
The proposed deal announced at the Dubai Airshow would more than
triple the size of Denver-based Frontier Airlines and fuel the
rapid expansion of carriers in Hungary, Mexico and Chile. It is a
rare example of carriers clubbing together to secure better
prices.
The jets carry a sticker price of almost $49.5 billion before
the customary discounts that can reduce the true value by 50% or
more, and helps Airbus narrow the gap with Boeing in new orders
this year and adds to backlogs at the European manufacturer
representing five years or more of production.
Boeing followed shortly after with a deal to sell budget carrier
Flydubai as many as 225 of its 737 Max planes, including the newest
and largest version, the Max 10. The deal encompasses 175 firm
commitments and purchase rights for more, Boeing said, with a
combined list price of $27 billion.
Airbus and Boeing are pushing production of single-aisle planes
to satisfy demand, with executives at both manufacturers in recent
months saying 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 recently raised annual production of the 737 to 564
aircraft and plans to boost the rate by another 60 in each of the
next two years. Airbus aims to increase annual output of its A320
planes to 690 in 2019--and has considered going as high as 725.
Even with higher production, new customers will have to wait.
The four Indigo-linked carriers' deliveries stretch from 2021 to
2026, with Flydubai's running until 2029
Phoenix-based Indigo, which is led by industry veteran Bill
Franke, is best known for helping launch Spirit Airlines before
selling out to acquire Frontier, as well as Hungary's Wizz Air
Holdings PLC and Mexico's Volaris Aviation Holding Co. It also
backed JetSmart, a Chilean carrier that launched this year.
The preliminary agreement with Airbus covers 430 planes -- 273
A320neos and 157 of the larger A321neo model -- doubling potential
orders placed for the four Indigo-linked airlines.
Frontier plans to take 134 jets, with Wizz receiving 146 planes
pending shareholder backing. Volaris would receive 80, with 70 for
JetSmart.
It is 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.
Budget airlines tend to place massive plane orders at once to
get bigger discounts from plane makers. The big commitments allow
the manufacturers to lower costs by building planes more
efficiently and extracting discounts from their own suppliers.
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 alleged wrongdoing. Airbus said it had
alerted regulators to the possible ethical missteps by middlemen
was cooperating with the investigations.
Emirates Airline, the world's largest by international traffic,
on Sunday snubbed the plane maker on a roughly $15 billion A380
superjumbo order, refusing to finalize the deal unless Airbus
promised to build the plane for at least another decade.
The European manufacturer has trailed Boeing 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.
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 with a 200-plane deal
split equally between Airbus and Boeing for different plane models.
DAE was forced to cancel the $27 billion in plane orders --
considered massive at the time -- when the jet-leasing firm ran
into financial trouble.
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.
Gus Kelly, chief executive of aircraft lessor AerCap Holdings
NV, said this week that placing aircraft orders often represents a
career highlight for some airline CEOs. Speaking at an investor
conference, Mr. Kelly said 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 16, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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