Down to Two: United weighs its widebody options

Jon,

Thanks for the discussion of the United Order. Your case for each option frames out some of the issues but it would be hard for any of us to weigh those comparisons.

I thought one of the major issues is that United Airlines does not have the capital available to place a substantial order and is asking for some "creative" financing from each of the Companies. Given the current economic situation and some recent news about Airbus' finances, it is hard to believe that there is much room for flexibility.

Additionally, Rynnair is beating the drums for placing a big order of up to 200 planes but only if the price is very favorable. They actually have the cash in hand to confirm an order.

And finally, an order for the A350 seems to be an order for the questionable future as there is no delivery date assurance and the plane is not even in final design yet. Given Boeing's difficulty in the past with the 787, there is good reason to expect Airbus to repeat similar supply and production delays.

So these are but a few of the major currents flying over and under the wings of these proposed deals.

Perhaps you or others would care to comment on additional aspects of this so we could further understand the real issues in addition to plane substitution and whether these options truly are available or are more wishful thinking than reality

Jon,

The above was written before hearing the podcast which certainly explored the many possibilities and alternative issues.

After listening, it sure seems like none of us can guess the outcome. There are so many variables and possibilities that only the decision will indicate what United had in mind.

There was no mention of the Rynnair order but maybe that has no bearing.

I'm wondering that given United financial issues at the moment,
would it be better for them to lease the aircraft instead of trying to cobble together purchase agreements?

The 787 will win out because if they opt for the A350 and the A350 takes a two delay in development that pushes first deliverly date of the A350 to 2016 or 2017.

Some very interesting points for both, however, the fact that United has never really given up on a possible merger with Continental, may play to Boeing's advantage; it would be much easier to integrate their fleets, and since Continental has 25 787s on order, United is probably placing that on the scales.

What`s exactly the reason for posting this Boeing propaganda video?

There is NO WAY that the A350 can span that size range with one common engine. Take that to the bank. They need to get real.

We need to be clear what UA has said it wants. The first 25 wide bodies will be to replace 767s. The contestants are most likely combos of the 787-8 or of the A350-800 (not the -900 or -1000). It will depend on the size of the replacement UA wants. There will be no split buy because UA will want to max the savings from commonality. UA is NOT now ordering replacements for its 777s.

Whatever UA chooses, it will be years before it gets the planes. Thus, UA has refurbished the interiors of its 767s. UA may also need interim lift, and if so, Boeng is well situated to supply 767s and 777s which will integrate cheaply into UA's current fleet. The choice may depend on that.

This possible need for interim lift may explain Boeing's announcement, reported yesteday by Scott Hamiliton, that they will move the 767 line to accomodate the 787 surge line, that the new line will have all-new tooling for Lean manufacturing, that the price of the 767 will drop significantly as a result, and that they wll increase 767 production to 2/month once the new line is in. Scott also reported Boeing's saying that with 787 deliveries they expect and up-tic in 767 orders. Maybe this is because Boeing is so far behind on 787 deliveries that they have decided to supply customers with 767s as compensation, or they want to have 767s available for interim lift because of how filled up the 767/A350 orders are, or they want to be able to reduce the price of the 767 tanker since under the current competition price is more signigicant than before. Maybe all of the above.

In any case, my guess is that UA will go with the 787-8 to replace the 767s because there will soon be some hard info as to its performance and real delivery dates (assuming Boeing can get in it the air on 12/22 and start testing), while there will be nothing like that re the A350-800 for years; and -8 is right-sized to replace the 767-300ERs. If UA want something larger, they can buy a combo of -8s and -9s.

As for the A350-1000's replacing the 747, maybe. But if UA choose the -1000, then their largest plane will have only 340-50 seats once they retire the 747s. Can they compete against foreign international carriers without a plane in the 360-400 seat range (or even the 460 seat range of the 747-8I)? I doubt it. Also, the first -1000 is to delivered in 2017, which means that it will not be available in quantity until 2019-20, at the earliest, assuming no delays. Will UA really want to wait until then to replace its 747s?

I know UA has referred to the -300ER as old tech, but that was in relation to 787/A350 new tech. I have not heard UA say they would never take the -300ER as interim lift. If they do that, Boeing wll like get UA's order for some plane between the -200s and 747s. Again, a lot may depend on who can supply the best interim lift. Boeing can argue they alone can do it with the -300ER because AB offers no product in this market, and the plane will integrate better into UA's 777 fleet than anything Airbus can offer.

So, the 747 replacement order turns on the size UA wants for its replacement. The wild card: To my knowledge, no US international carrier has ever ordered/operated the -300ER. The largest plane they operate, apart from UA's and Delta's 747s, is the 777-200 with 301s in standard 3 class. Why should UA be any different?

I think this is going to go to Airbus since United has previously already expressed doubts about the 787 being able to meet "certain mission requirements." Thats a strong statement against that airplane from the highest levels of the company.

Good day J3:

I appreciate your logic on the United order potential. As always in successful business, the customer must posture itself to gain a position of advantage to get the best product, and marry that with the best market strategy to maximize investor bang for the buck. The traveling customers want safety, price, and comfort in that order. United must compete with whomever in order to stay alive? Now what is the Boeing business solution vs. the Airbus solution? Here are the items I would think United must consider when examining the two manufacturer's business solution. No white elephants, purchase price, maintenance cost, operational cost. Boeing offers a plethora of amenities in its new line-up, as does Airbus so customer satisfaction is a push. Perceived safety of the aircraft is important to get passengers onboard any new technology. The A-380 has proven itself in the early stages and 747-8i is a legacy design where safety is not a perceived risk by traveling customers. The 777 is a warrior and maintains the high ground of a proven technology for new aircraft. Now this brings us to the 787 and the A350.

The game will change when the 787 achieves first flight. Based on that event United will opt for Boeing 787-777-747-8i line.

Boeing seminal moment is first flight in 4 weeks. United will decide after the results of the first flight which will reassure United investors and make Boeings business case a perfect fit for United strategy. I would not want to spend a ton of borrowed money on airplane not even off the drawing board as the A350 currently finds itself in the virtual world. By the time United gets its 787 aircraft in a Boeing offering, the 787 would be proven and upgraded and United would already have five years of (in its possession) newly minted 777's and 747-8i. This would give United market advantage in a game of catch-up to the international market and provided much neede cash flows early on to buy the 787, where as the Airbus suite of A350 would just be out of the gate seven years down the road. The clock is United's enemy and Boeing holds the stopwatch.

Now Boeing needs to sweeten the pot through financing, maintenance packages and meeting commitments and guarantees. United can wait before year-end after first flight before annoucing the winner in this critical battle for market share.

Remember that this order will be up to (only) 150 aircraft (and thats assuming UA can fund it), and for UA to streamline to only the A32X/A350 would require 200+ orders, and that's if they choose not to expand. So it's obvious that at least ONE type in the current fleet will soldier on for a while to come - either the 777 or some of the 757s IMO.

With that being said, I think it's Boeing's order to win. The 787 has more commonality with the 777 than the A350, plus it enables them to right-size their structure. Their is no domestic A350 option, it is a strictly international aircraft, and let's remember that UA flies some 767s domestically, which a 787 varient, -3, is designed for. Plus remember that Boeing is seriously talking about enhancing the 777, which if necessary could be available in four years, which speaks in favor of sticking with the 777.

As for the 747 replacement, I have no idea. They are on average about 13 years old, so it is not imperative that they be retired in the next few years, if necessary they can be used well into the next decade. It's a relatively small fleet, so I doubt the 747 is dictating the order. Again, this is an opportunity to right-size the fleet, and take a hard look at load factors. If necessary they could go to the 777-300ER, use the 748i if the 744's capacity is just right, or they could even go to the A380. I highly doubt, however, that they will get out of the 350+ seat market like the other US majors have.

Jon,

You should hook up with Paddy Power and take bets on which aircraft UA will select. You could also take bets on aircraft first flights. Ie. 787 & A350. Just think in a matter of a few key strokes you could go from aviation journalist to aviation bookie.

To J3

I appreciate your logic on the United order potential. As always in successful business, the customer must posture itself to gain a position of advantage to get the best product, and marry that with the best market strategy to maximize investor bang for the buck. Also, its own traveling customers want safety, ticket price, and comfort in that order. United must compete with whomever in order to stay alive? Now what is the Boeing business solution vs. the Airbus solution? Here are the items I would think United must consider when considering the two manufacturers. No white elephants( does live up to the hype), purchase price, maintenance cost and cycles, operational in flight cost. Boeing offers a plethora of amenities in its new line-up, as does Airbus so customer satisfaction is a push. Perceived safety of the aircraft is important to get passengers onboard any new technology. The A-380 has proven itself in the early stages and 747-8i is a legacy concept with new technology, where safety is not perceived a risk by traveling customers. The 777 is a warrior and maintains the high ground of a proven technology for new aircraft. Now this brings us to the 787 and the A350.

The game will change when the 787 achieves first flight. Based on that event United will opt for Boeing 787-777-747-8i line. Boeing seminal moment is first flight in 4 weeks.

Why? United will decide after the results of the first flight which will reassure United investors and make Boeings business case a perfect fit for United strategy. United is both conservative and progressive in its business model. They have Boeing at its weakest point and in desparate need to close the deal. This deal relights the engine on both the 787 and 747. I would not want to spend a ton of borrowed money on airplane that is not even off the drawing board as the A350 currently finds itself in the virtual world. By the time United gets its 787 aircraft in a Boeing offering, the 787 would be proven and upgraded and it would already have in its possession newly minted 777's and 747-8i in operation already 5 years. A conservative yet progressive move. This would give United market advantage in a game of catch-up in the international market, where as the Airbus suite of A350 would just out of the gate seven years down the road for United. The clock is United's enemy and Boeing holds the stopwatch.

Now Boeing needs to sweeten the pot through financing, maintenance packages and meeting commitments or guarantees.

Unfortunately with UAL I'm not even sure they know what the criteria should be for choosing a new aircraft, as their business strategies since bankruptcy have been less than successful. If indeed they are desiring to restore the brand then some bold thinking that makes economic sense should be in order.

First, replacement of the B757 and B767 fleet will requiring significant pilot training expenses since that fleet equals one-third of the airline. Second, that fleet is also the oldest and most in need of replacement - thus waiting 5+ years for the first A350 to become available seems to go against the basic premise of this exercise - fleet renewal (recognizing that any renewal will take 10 years to accomplish why would you wait 5 more years before you receive the first aircraft?).
Indeed, the recent USAir deferrals provide an excellent opportunity for Airbus to make an excellent case for transitioning to an all Airbus fleet. So here's my solution:

Start by ordering a number (35 - 50) of A320/321 series aircraft for delivery beginning in late 2010, early 2011. These aircraft would easily replace the B757's operating domesitically, and are common with the current A320 series fleet (thus allowing present infrastructure to be utilized). Accept delivery of A330s (15 - 25) beginning in 2011 to replace the B767s and light weight, original A-model B777s. The common cockpit architecture would significantly reduce the transition training requirements. During this five year period of waiting for the A350 to become available, 50 - 75 new aircraft could be added to replace the oldest B757/B767's. The increased efficiency domestically would probably achieve some cost savings that would also reduce the overall size of the fleet needed, gaining more efficiencies.

Then when available utilize the A350s to replace the remaining B767 and B777 fleets. The really bold step would come from choosing 6 - 12 A380s to replace the B747 fleet. This would allow easier hub to hub transfer between the States and Narita/London/China. This overall plan would provide increased commonality with a number of Star partners, thus easing the transition and providing group synergies on maintenance, pricing, etc.

While there is significant history with Boeing, including commonality with some Star members, that stranglehold was weakened years ago when the A320s first arrived and recently when the B737 fleet was phased out. Using B737NGs does not provide any commonality within the domestic narrowbody fleet, thus restoring inefficiencies just gained by the B737 retirement. While the B787 will be a great aircraft, again it's realistically not available in sufficient quantity until 2013+, another wait of 3+ years before fleet renewal can begin. The order could certainly be split, but the commonality issues to mix and match aircraft size to destination and common crewing are hurdles to overcome. While many talk about the insignificance of those problems, those are all spoken by carriers that have inherited mixed fleets or never established a true transition plan.

This concept could also be beneficial for Airbus in the upcoming tanker contract, as having UAL as a customer could help to blunt some of the anti-American sentiment and provide additional partnering resources (shared training facilities, etc). Finally, the real question in all of this discussion centers on just how does UAL believe they are going to pay for all of this? Which is maybe why a 3 - 5 year delay in actual deliveries (B787, A350) would suit them just fine!

If the benefits of the A320 family, have proven themselves at United, then the pitch for the A350 will be more compelling than the B787/B747 argument.

The biggest stumbling block to this little fantasy is that United has NO MONEY. They want financing. Boeing isn't really into doing that, but Airbus has a habit of financing airlines that buy their planes... see US Air as a prime example.