American cites attractive pricing in its Boeing 737-800 deal

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Competitive pricing for Boeing 737-800s coming online at American Airlines this year is driving part of a $300 million surplus the carrier will retain in 2010 as it accepts delivery of 45 aircraft.

During a 20 January earnings call chief financial officer of American parent AMR Tom Horton explained that the company in 2010 estimates an aircraft capital expenditure amount of $1.7 billion, while cash inflows related to its deliveries this year are roughly $2 billion.

Horton cites two reasons for the higher financing levels compared with planned aircraft capital expenditure. One is proceeds from American's financing transactions "are in excess of the price at which we buy the airplane, because we buy them at very attractive prices under our Boeing deal".

The second element driving the surplus is previously paid pre-delivery deposits, says Horton. "There's sort of in effect a refund of that via the financing. So those two things together create that $300 million gap, which means that our aircraft deliveries will be cash positive for us in 2010". He estimates pre-delivery deposits of roughly $100 million.

Horton says American is well into its fleet replacement plan after taking delivery of 31 737-800s in 2009 and through the 45 aircraft scheduled for delivery this year. "At this point, we're committed to another eight in 2011," he adds.

While American chief executive officer Gerard Arpey acknowledges the -800s will pressure the carrier's unit costs excluding fuel, the Next Generation Boeing aircraft are 35% more fuel efficient than the MD-80s they are replacing, he says.

American is also scheduled to start deliveries of 22 additional dual-class Bombardier CRJ700 aircraft in mid-2010, and also plans to reconfigure its existing fleet of 25 CRJ700s in a two-class configuration.