UAL Corp.’s United Airlines confirmed Tuesday that it placed initial firm orders for 50 wide-body planes, evenly split between Boeing Co.’s 787 Dreamliner and rival Airbus’s new A350 model, and arranged future purchase rights for 50 more of each.
United, the third-largest U.S. airline by traffic, hadn’t ordered new aircraft for 11 years. The carrier began shopping last summer, figuring it could drive a better bargain by pitting the manufacturers against each other at the bottom of the business cycle. The airline hired aviation-consulting firm Seabury Group LLC to help it negotiate.
At catalog prices, the order is valued at more than $10 billion, but major customers such as United usually win substantial discounts. These can exceed 40% off list prices, industry officials say, although actual pricing varies widely for each deal.
While United wouldn’t comment on precise terms of the deal, Chief Financial Officer Kathryn Mikells said the airline benefited from the timing and “secured the right aircraft and the right deal,” one that requires minimal capital through 2013.
“They are clearly buying at the bottom of the market, which is always a smart thing to do,” said Airbus Chief Operating Officer John Leahy, the company’s top airplane salesman.
Ms. Mikells said United won significant “backstop” financing from the manufacturers, meaning Boeing and Airbus will finance the purchases if the airline can’t find more attractive options in the credit markets when the planes are closer to delivery.
Dividing the order also gives the airline an opportunity to have the manufacturers compete all over again when United looks to convert the additional future purchase rights into firm orders, she said. The airline also can substitute other versions of these models in the future. Between favorable deal terms, the fuel and maintenance savings the new planes will bring and the revenue boost from serving new international markets with the smaller planes, Ms. Mikells said, the aircraft will produce a return on investment.
United said it will take deliveries between 2016 and 2019, with the new planes replacing its existing Boeing 747s and 767s used on overseas routes. Chicago-based United said it will hold another competition next year for a potential replacement for its aging 757 narrow-body planes.
Boeing’s new-technology 787 has been delayed by developmental problems. The manufacturer isn’t expected to begin deliveries until late 2010, 2 ½ years late. Boeing has said the plane could make its first test flight as soon as next week. Dozens of 787 orders have been canceled as airlines have grown frustrated with the delays—and because the recession has taken a toll on airline budgets.
United’s order is Boeing’s first for the advanced new plane since May and the first new customer named for the Dreamliner in more than 18 months, a big boost for the manufacturer, also based in Chicago.
The first version of the 787, which seats as many as 250 passengers and is designed to fly about 8,000 nautical miles, has attracted 840 orders from 55 customers, including Delta Air Lines Inc., AMR Corp.’s American Airlines and Continental Airlines Inc.
Airbus’s rival A350 model has logged 493 orders from 31 customers, with US Airways Group Inc. and Hawaiian Holdings Inc.’s Hawaiian Airlines being the first U.S. customers. The A350 is designed to seat 270 passengers and fly 8,300 nautical miles. Airbus is expected to start delivering the new A350 to customers in 2013.
United’s split purchase also is a victory for Airbus, which has never sold wide-body jetliners to the carrier, even though United was the first major U.S. airline to buy Airbus’s A320 single-aisle planes roughly 20 years ago. Boeing had tried to keep United exclusively in its camp for long-range planes by proposing its existing 777 model, in addition to the 787, according to people familiar with the negotiations. United operates 52 777s. But Airbus was able to make a case for its A350 model, now in development.
This deal is the sixth time airlines have opted for both models. The two often are considered direct competitors, but the A350 family of three versions is larger than the two long-range 787 models. Singapore Airlines Ltd. and Qatar Airways have ordered both planes. “A big airline like United can use two wide-body types efficiently and optimize for their route network,” said Mr. Leahy, the Airbus operating chief.
The A350-900′s range is 11% greater than the existing 747′s, and the 787-8 can fly 32% farther than United’s existing 767s. Having both allows the airline to fly to a broader array of farther destinations with fewer seats, while saving on fuel and maintenance.
Officials at Airbus parent European Aeronautic Defence & Space Co. are likely to tout such decisions by private airlines to procurement officials at the U.S. Department of Defense, who must choose between competing jetliner models from Boeing and Airbus as the basis for midair refueling planes the Air Force plans to buy. The Pentagon wants to buy only one plane model, while some members of Congress are pressing for a split purchase.