United Airlines has placed its first aircraft order in 11 years by choosing both Airbus and Boeing next-generation widebody aircraft to fulfil its fleet needs as it starts retiring its aging 747-400s and 767-300s.
Key to United's rationale for ordering 25 Airbus A350-900s and the same number of Boeing 787s was the carrier's determination that neither manufacturer offers a next generation aircraft sized optimally to serve its current and future markets. But the combined new Airbus and Boeing widebodies will allow United to serve a broader range of international destinations while remaining disciplined on capacity, says carrier president John Tague.
During its aircraft evaluations United weighed additional cost savings it would net from a single fleet type compared with the economics of having the right aircraft to serve a diverse international network. "The economics of buying both aircraft were straight forward and clear," says chief financial officer Kathryn Mikells.
It is a significant commitment for United, which says its current debt obligations are relatively low compared with its legacy peers.
But the airline during its talks with the manufacturers remained adamant any deal would not affect the work it is "doing to strengthen our balance sheet and improve our liquidity", says United chief executive Glenn Tilton.
"The split order was economically driven, providing United with flexible capacity and range options, lower unit costs and minimal capex requirements over the next few years," says FTN Equity Capital Markets analyst Michael Derchin. Deliveries of United's new widebodies are due run from 2016-19. United estimates its cash outlay for the aircraft is $60 million over the next three years and $152 million over the next five.
"We have also secured considerable backstop financing from both manufacturers, which will protect us in the event of tight credit markets as the new aircraft are delivered," it says. United adds it has secured deferral rights that guarantee it further financial flexibility in the aircraft orders.
United joins American and Continental Airlines on the list of US 787 customers and US Airways as a future A350 operator. United's transatlantic joint venture partner Continental is scheduled to accept delivery of the first of 25 787s in late 2011, roughly five years ahead of United. American is set to receive the first of 42 787-9s in 2013, contingent on reaching a deal with its pilots.
Delta Air Lines is taking a different strategy for its widebody fleet. After delivery of four aircraft during the first half of 2010, it plans to invest in fleet upgrades such as audio-video on demand and lie-flat seats rather than order new aircraft. Chief financial officer Hank Halter says it has 1,400 aircraft in its fleet, including regional jets operated in its network. Excluding a few older Northwest aircraft, Halter notes Delta has one of the youngest widebody fleets in the industry, which precludes an immediate need to order aircraft. That philosophy continues to cast doubt on an 18-strong order for 787s Delta inherited through its merger with Northwest Airlines. Delta says it remains in talks with Boeing regarding the order.