United Chief Financial Officer Gerry Laderman once said that an airline could buy a plane tailored to a few routes in its network but, if that is the case, it should not buy said plane. The better bet was to purchase an aircraft that serves the broadest number of routes efficiently, and to buy a lot of them.
That is exactly what Chicago-based United opted to do last week for its widebody fleet. The carrier unveiled a deal for up to 200 Boeing 787s — 100 firm aircraft plus 100 options of either the -8, -9, or -10 variants — that will make the plane the backbone of its longhaul fleet for decades to come. The first 100 aircraft will replace the 54 aging Boeing 767s in United’s fleet, plus some older Boeing 777s, by 2030 with the rest slated for expansion. All of the new aircraft are due to arrive by 2032.
The order is valued at more than $29 billion, based on Boeing’s list price for a new 787-9. However, airlines rarely pay full price for aircraft. Moody’s Investors Service analyst Jonathan Root estimates the order, plus one for 100 more 737 Maxes, to be worth roughly $16 billion.
United’s large 787 replacement order comes despite the aircraft being widely acknowledged as a significantly more capable plane — it can carry more passengers and fly further, for example — than the 767. These additional capabilities, which are part of the purchase price of the aircraft, go unused if it is flown on routes where they are not needed.
But the 787 offers something to United that no other available new widebody aircraft does: Scale. The carrier already operates 64 787s, the second largest number of twin-aisle planes in its fleet after its 96 777s.
“You should go to the best aircraft of the aircraft you’re operating a significant fleet size of, because in that situation the cost of complexity does outweigh the benefit of having the absolute perfect aircraft for that specific mission,” Laderman said in a 2018 interview when he was treasurer of United.
Laderman reiterated that view last week, saying the economics of adding a new aircraft type to United’s fleet, for example, the Airbus A350, did not “make sense.”
United maintains an existing order for 45 A350s. However, Laderman said that deliveries have been delayed — again — to 2030 at the earliest.
United’s aircraft deal comes at an optimistic time for the industry. After the shock of the pandemic and a bumpy recovery, airlines are bullish about 2023. Why? Many point to a level of travel spending that is still below historic norms as a percentage of overall economic activity. This gave Delta CEO Ed Bastian the confidence in October to proclaim that travel was “countercyclical” to a potential U.S. recession. Other airline executives have made similar comments though none went as far as calling the industry countercyclical.
Wall Street analysts generally support this outlook, at least over the near- to medium-term. Many expect the industry’s financial performance to improve in 2023 on the back of strong demand and capacity constraints. And United, at least among U.S. carriers, is expected to benefit significantly from its larger exposure to international markets than American or Delta; longhaul international travel, particularly to Asia, is expected to rebound dramatically next year.
“United has the greatest exposure to the ongoing recovery in higher-margin international travel among U.S. airlines,” Cowen & Co. analyst Helane Becker wrote in a December 1 report. The airline stands to benefit from this exposure, she added.
United executives have leaned into this view and claimed that the airline is the new “flag carrier” for the U.S. CEO Scott Kirby reiterated this last week and said the decision to keep all of its widebody planes during the pandemic rather than retiring some “set [United] apart” from its competitors.
“Today marks another step, a really big step, in solidifying United’s position as the flag carrier of the U.S.,” Kirby said of the 787 order.
Boeing effectively forced United’s decision when it cancelled the much talked about New Mid-Market Airplane in 2020. The aircraft would have sat between the 787 and the 737 Max with the ability to fly roughly 200-300 passengers around 4,000 miles — in other words, perfect for water jumps between the U.S. East Coast and Europe. The planemaker reinforced this decision in November when CEO David Calhoun said Boeing would not “contemplate” a new airplane for some years and then target an introduction sometime in the middle of the 2030s.
This has left carriers, like Delta and United, with no other option than to buy what is already available on the market, namely, Airbus A330neos or A350s, or 787s. Delta has gone the former route with orders for the A330-900 and A350. American, like United today, selected the 787 for its 767 replacement needs in 2018. And the Airbus A321XLR has already won the race to replace longer range Boeing 757s with orders from airlines around the world, including from IAG, Qantas, and United.
And even as United’s 787 order finalizes its mid-sized fleet for decades to come, Boeing has made the twin-aisle aircraft even more capable. In an interview with The Air Current, United Chief Commercial Officer Andrew Nocella confirmed that the airframer has increased the maximum takeoff weight of the 787-10 — the largest in the 787 family — to 572,000lbs from 560,000lbs. That increase allows the plane to fly nonstop fully loaded, for example, between Chicago and Tokyo.
In addition to the 787s, United committed to another 100 737 Maxes, including a new order for 56 aircraft and the conversion of 44 options. The latter bucket will arrive from 2024-26, and the former in 2027-28. Laderman said the airline has not decided whether the additional Maxes will be used for replacement or growth.
United had 353 737 Maxes on order at the end of September.
Comac’s C919 is Big Business for Western Suppliers
The Commercial Aircraft Corporation of China, or Comac, delivered its first C919 on December 9, following more than a decade of development. The plane, now in the fleet of Shanghai-based China Eastern, will enter revenue service early next year.
China Eastern’s C919 will seat 164 passengers, a big increase from Comac’s smaller ARJ21, which China Eastern also flies. That plane seats just 88 passengers. The C919 is a more ambitious product, aiming to ultimately compete with the Boeing 737 and the Airbus A320, the industry’s two most widely sold jets. According to Cirium’s Fleets Analyzer, Comac currently has orders for 602 C919s, the majority from China-based leasing companies. No airline from outside of China has yet to place a direct order to buy the plane.
Comac, owned by China’s national government, is on the forefront of Beijing’s efforts to create a world-class aerospace industry. That would reduce the country’s heavy dependence on Airbus, Boeing, and other western manufacturers. The C919 itself, however, is for now powered by western-built engines, specifically the Leap-1C built by CFM International, a joint venture between America’s GE Aerospace and France’s Safran. Honeywell, based in the U.S., is another key C919 supplier. Escalating trade and national security tensions have led the U.S. and other western countries to rethink their willingness to supply advanced aerospace technology to China, threatening to delay the C919’s development. Comac has largely dismissed the impact of export controls so far. In the meantime, another state-owned Chinese company is now attempting to produce engines for the C919.
The new plane, to be sure, is less technologically advanced than either the latest A320neo or 737 Max. Those planes, furthermore, are part of aircraft families featuring versions of different sizes — that’s an important selling point too many airlines. Airbus and Boeing also have a global network of service and support facilities built up over decades, ensuring any maintenance issues can be addressed wherever in the world one of their planes might be. It will take many years before Comac can offer a similar range of differently sized variants for its C919, and a comparable worldwide scope of service. To succeed commercially without an over reliance on government subsidies, the manufacturer must also become more proficient producing and assembling at scale to lower costs. If it does hope to eventually sell the C919 overseas, it will need to obtain airworthiness certification from regulators in different countries.
Early in the C919’s development, Europe’s Ryanair expressed interest in the plane, even signing a loose agreement with Comac to help with the plane’s design. But the move was viewed by many at the time as a mere negotiating tactic to secure better prices from Boeing, to whom Ryanair is a vital customer.
The C919 appears poised to fly mostly with Chinese airlines in the near term, and unlikely — for now — to win any major orders from outside China or perhaps its close allies. China’s market is large though, ranking second in the world by seat capacity behind the U.S. But even dominating the captive Chinese domestic market is a long way off. In July, China’s three largest airlines — Air China, China Eastern, and China Southern — jointly ordered 292 A320neo family aircraft from Airbus.
In the meantime, China’s unique approach to managing the Covid pandemic has left its airline sector with heavy losses. During this year’s third quarter, a peak travel period in normal times, China’s Big Three airlines combined for nearly $4 billion in net losses, after losing nearly $7 billion the quarter before. In 2019, they earned a collective third quarter profit of $1.4 billion.
The stakes are high not just for China’s economy but also for many important aerospace players in the U.S. and Europe. While Airbus and Boeing are hardly eager to see a new competitor, suppliers like CFM and Honeywell are generating billions of dollars in revenue from their contracts with Comac. Even Massachusetts-based Raytheon, whose Pratt & Whitney unit does not supply engines for the C919, nevertheless hopes to win more business from Comac in the future. “The Chinese commercial aerospace market is the fastest-growing in the world,” Raytheon’s CEO Greg Hayes said last year. “We have to play there. We have thousands of employees. They are key parts of our commercial supply chain. And so, we’re going to continue to engage with Comac.”
In July, Hayes reiterated his emphasis on China’s importance. “Obviously, the Chinese have a desire to have indigenous aircraft. That’s the C919, maybe the C929 at some point. But the fact is… we will continue to work with our partners there.” The C929 is a widebody plane in early stages of development at Comac, this time working not primarily with western suppliers but rather Russia’s United Aircraft Corporation.
- Air New Zealand is partnering with four zero-emission aircraft developers to source the eventual replacement of its De Havilland Dash 8-300 turboprop fleet. The airline will work with all-electric aircraft developers Beta and Eviation, hydrogen fuel cell developer Cranfield Aerospace, and hybrid-electric developer VoltAero on a demonstrator plane that can fly in 2026. That demonstrator, the airline, hopes can lead to the zero-emission aircraft replacement of its Dash 8s in the future. Air New Zealand operates 23 Dash 8-300s.
- Supersonic aircraft developer, Boom Aero, unveiled plans for a new engine to power its Overture aircraft. The engine, named Symphony, will be the joint project of three firms: Florida Turbine Technologies on design, GE Additive providing additive technology design consulting, and StandardAero for maintenance. The news comes after leading suppliers GE Aviation, Honeywell, Rolls-Royce, and Safran Aircraft Engines all said they did not plan to work with Boom on the Overture. Boom’s timeline still remains suspect: The planemaker said last week that it still intends to begin production of the first Overture in 2024, roll it out in 2026, and deliver it to launch customer United in 2029. The timeline assumes quick approvals by the Federal Aviation Administration, European Union Aviation Safety Agency, and other aviation regulators not known for their speed. In addition, Boom’s claims that the Overture, when approved, will be both economic and capable of producing zero emissions by using sustainable aviation fuels are also questionable given the large amounts of fuel needed for supersonic flight.