United Provides Boeing a Boost With New 737 Max Order

Edward Russell
March 8th, 2021 at 6:33 AM EST

United Airlines committed another 25 Boeing 737 Max jets in an order unveiled last week. The additional aircraft will arrive in 2023 and bring the Chicago-based carrier’s firm commitments for the Max to 210 aircraft, including the 22 it flew at the end of December.

United has also rejigged its existing orderbook to take delivery of 21 737 Maxes — all -9s — this year, 40 in 2022, and 54 in 2023 with the latter number including both new and existing commitments. United did not disclose the variant for its latest order, though its current commitments include only the 737-9 and -10.

“[We’re] confident in our ability to navigate the recovery, regardless of the inevitable bumps and dips in the months ahead,” United commercial chief Andrew Nocella told staff in an internal staff communiqué. “With a number of our aircraft nearing the end of their lifecycle and the growth opportunities that we know will exist in the Covid-19 recovery period, this agreement will help us to grow as demand returns and renew our fleet with more environmentally friendly, customer-pleasing aircraft.”

The deal is also a much-needed boost to Boeing. After the Chicago-based planemaker’s bread-and-butter 737 line was idled during the 20-plus-month global grounding of the Max, Boeing ramped up deliveries in December as it moved to clear its backlog and sell white tails to eager buyers. Alaska Airlines and Ryanair have both signed deals for more Maxes showing support for the program among existing operators.

However, even as the Max outlook improves, other troubles are brewing for Boeing. Renewed quality issues on its 787 line has paused deliveries since the fall and prompted some to warn that the cost of necessary modification work could run into the billions of dollars. And the airframer has come under renewed — though some misplaced — scrutiny following a February 20 Pratt & Whitney PW4000 engine failure and subsequent cowling separation on a 777-200 flown by United.

United, for its part, appears poised to use its expanded Max orderbook to both replace older aircraft and grow. As Nocella indicated, the airline has a number of aircraft “nearing the end of their lifecycle.” For United, this could mean finally retiring its remaining Boeing 757s — though the Max lacks the range to replace all of these — but also older Airbus A320s and 737-800s, the oldest of which date to 1993 and 1998 respectively. Replacing these smaller jets with the Max would allow for efficient growth by adding seats to existing flights at a lower overall trip cost.

The 737 Max’s superior economics, including 15 percent better fuel efficiency than “current-generation aircraft,” will also help meet the airline’s emissions goals, said Nocella. United aims to go carbon neutral by 2050 and, in addition to ordering more fuel efficient aircraft, is investing in new partnerships to achieve this goal, including new electric vertical takeoff and landing — eVTOL — helicopter-like aircraft and bus connections on the ground that could help take cars off the road.

Edward Russell

AerCap Predicts More Airlines Will Lease Fleets After the Pandemic

When airlines emerge from the Covid crisis, their balance sheets battered, they will be more likely to lean on lessors for new aircraft, rather than owning their fleets, predicts lessor AerCap.

Justifying the expense and debt of owning aircraft will be a harder argument for airline management to make to their boards. Instead, airlines will be focused on paying down debt and any obligations they have to governments that offered loans as part of state aid “and not to send money to the OEMs,” AerCap CEO Aengus Kelly told investors last week. Leasing will be a better use of their capital, he said.

“No airline ever went out of business for having too few airplanes, but plenty of them go out of business for having too many,” Kelly said.

Airlines will be less inclined to buy or lease larger widebodies, like the Boeing 777X and the Airbus A380, Kelly said. AerCap itself has a very small portfolio of those aircraft, with only 3 percent of its fleet comprised of A330s and 4 percent of all 777 variants. Instead, narrowbodies like the A320, 737, and advanced widebodies like the A350 and 787 will dominate airline fleets for years go come.

Comac, the Chinese airframer that has developed the C919, will be a formidable player decades from now, Kelly said. The narrowbody is a “first significant step,” he said. He noted that Airbus took about 40 years to emerge as a true competitor to Boeing, and he predicts the same timeline for Comac and other Chinese airframers.

AerCap made news early in the pandemic when it predicted airlines could cover costs with 60 percent of their 2019 traffic, thanks to lower fuel prices and aggressive cost cutting. Kelly reiterated this is still possible, despite rising oil prices, and said airlines could cover costs with “mid-sixty-ish” percent of 2019 traffic.

The worst of the pandemic is behind airlines, he added. Now, all eyes are on the recovery. AerCap reported lease deferrals fell in the fourth quarter of last year, a sign that airlines are turning the corner. The company reported $28 million in net income on $1 billlion in revenue in the fourth quarter, down 18 percent from 2019. For the full year, AerCap reported revenues of $4.5 billion, down 9 percent.

Madhu Unnikrishnan

U.S., EU Stand Down on Aircraft Tariffs

The U.S., European Union, and the UK have agreed to suspend mutual tariffs on commercial aircraft for four months. This ends, for now, a long-running saga that has played out in the World Trade Organization (WTO) for decades.

Starting in the early 2000s, the two governments have engaged in a trade spat alleging each had provided illegal state aid to their respective airframers. In November, the WTO ruled that the EU could impose tariffs on $4 billion in U.S. goods. (The UK is, of course, now out of the EU and struck a separate deal with the U.S.) Earlier in 2020, the trade organization ruled the U.S. could levy tariffs on $7.5 billion in EU goods. Both Airbus and Boeing objected to the decisions and urged the two sides to come to a negotiated settlement.

That seems to have occurred, at least temporarily. “We both committed to focus on resolving our aircraft disputes, based on the work our respective trade representatives,” said European Commission President Ursula von der Leyden after speaking to U.S. President Joseph Biden. “This is excellent news for businesses and industries on both sides of the Atlantic, and a very positive signal for our economic cooperation in the years to come.”

The pause on tariffs will apply to all goods, not just commercial aircraft, after both governments complete their internal reviews. Talks will continue on a more permanent negotiated settlement, the two governments said in a statement.

“The EU and the U.S. are committed to reach a comprehensive and durable negotiated settlement to the aircraft disputes,” the governments’ statement said. “Key elements of a negotiated solution will include disciplines on futures support in this sector, outstanding support measures, monitoring and enforcement, and addressing the trade distortive practices and challenges posed by new entrants to the sector from non-market economies, such as China.”

This will come as welcome news to not just the airframers but to airlines and lessors. In recent earnings calls, the heads of both AerCap and Air Lease Corp. urged governments to end the tariffs, which were driving up the costs of both Airbus and Boeing aircraft in each market.

Madhu Unnikrishnan

In Other Fleet News

  • Regional changes are afoot at Air Canada. Fresh off steep losses in 2020, the Canadian carrier is moving the 25 Embraer E175s flying under the Air Canada Express brand to Jazz Aviation from Sky Regional. The shift will consolidate Air Canada’s regional flying in the hands of Jazz until at least 2025.

    At the same time, Air Canada will say goodbye to the 19 Dash 8-300s at Jazz. Prop lovers need not fret, no further changes are planned for the airline’s Dash 8-400s (formerly the Q400) fleet that will stand at 39 aircraft by year-end.
  • Australia has signed off on Boeing’s modifications to the 737 Max modifications. This allows the aircraft to return-to-service in the country, not a huge deal considering no domestic airline yet flies the jet — Virgin Australia has orders for 25 — but a sign of the increasingly global acceptance that the plane is safe to return to revenue service.
  • The Wall Street Journal reports that General Electric is in talks with AerCap to merge their aircraft leasing businesses. The deal could be worth $30 billion and would create the world’s largest lessor. GE’s aircraft leasing arm has 1,600 aircraft in its fleet, and AerCap’s fleet is about 1,400 aicraft.

    Edward Russell & Madhu Unnikrishnan
Edward Russell
March 8th, 2021 at 6:33 AM EST

Up Next

1

Air Arabia Leads Second-Quarter Profits

Most airlines have now reported their financial results for the second quarter, and none so far has performed better than Air Arabia. The low-cost carrier, based in the United Arab…
2

American Adds 4 New European Routes

American will add three Copenhagen, Naples, and Nice to its map next May and June. The Oneworld Alliance carrier will offer daily flights from its Philadelphia hub, which has been…
3

Embraer Sees Another Decade of E1 Production

Brazilian aircraft manufacturer Embraer is bullish about the prospect for its flagship commercial aircraft, the E-Jet-E2. It delivered seven of the planes in the second quarter and, with new orders…
4

DFW and Denver See Double-Digit Growth

Dallas-Fort Worth and Denver are two of the biggest hub airports in the U.S. In fact, last year, they were the second and third busiest, respectively, after Atlanta.