Boeing woos United, but Ryanair isn’t happy
United Airlines is expected to place an order for 25 long-range 787s or A350s before the end of the year, the Chicago Tribune reports.
The airline is being “furiously courted” by both Boeing and Airbus, the newspaper reports, citing unnamed industry insiders.
Meanwhile, another long-time Boeing customer — Ryanair CEO Michael O’Leary — is just furious over the way he’s being treated by the Company, and is threatening to stop buying planes unless he gets a better deal before year’s end.
First, United Airlines.
Earlier this year, the airline announced plans to come in the market in a major way, with an order for up to 150 planes. United’s weak balance sheet made many doubt whether they were serious, but it now appears that they’ve been able to line up financing and are seriously shopping, hoping to strike bargains for taking airplanes originally scheduled to go to airlines that now would prefer to wait to take deliveries.
Insiders told the Tribune that United wants to order 25 long-range widebodys now — with options on up to 75 more — and then come back next year with a tender for single-aisle planes to replace the 96 757-200s it now operates. A firm order for 25 787s would be worth about $4.2 billion at list prices — or about $3.1 billion after what analysts say are typical discounts. Replacing the 96 757s with similarly-sized 737-900ERs would cost about $7.8 billion at list prices, or maybe $5.2 billion after discounts.
Historically, Airbus has cut better deals than Boeing (Boeing complains that’s because of the illegal subsidies Airbus gets), and analysts are telling the Tribune that Team Toulouse could have the advantage on price again. Airbus also would dearly love to get a second American carrier to buy its A350-XWB. So far, only US Airways has done so.
For Boeing, it’s more a matter of prestige, they say: are Boeing executives in Chicago willing to let Airbus do a deal an airline whose headquarters is only a few blocks away?
But money is an object for Boeing as well. As you probably heard, the Company broke ground on its ill-conceived South Carolina expansion today. The Company also made headlines in financial markets this week when it issued $1.2 billion worth of corporate bonds — essentially going out and borrowing that much cash, to help cover cost over-runs and penalties caused by the delays to the massively outsourced 787. To pay back that debt — and to pay the estimated $1.5 billion analysts say it will spend to duplicate its existing Puget Sound facilities in Charleston — Boeing needs cash flow, which means it needs this deal.
O’Leary, the Ryanair chief, also seems to think Boeing should be motivated to cut prices and sell planes. But this week he said he’s this close to throwing up his hands and walking away from a potential order for 200 737s, after months of discussions.
If Boeing doesn’t make a better offer by the end of November, it’s off, O’Leary told reporters. “I am not wasting another Christmas holiday trying to talk to guys in Seattle,” he told Reuters. The Irish Independent also reported that O’Leary says it’s “highly unlikely” that a deal will get done.
Ryanair now operates a fleet of 202 737-800s, and as of October, had another 110 on order. A deal for 200 more ‘Three-Sevens would be worth about $15.3 billion at list prices, but analysts say Boeing typically discounts 737 orders by about 30 percent, or even higher for its best customers, making it about a $10 billion deal.
O’Learly has been public about his frustration with Boeing management all this fall. Earlier, he hinted that Boeing managers seemed obsessed with their 787 problems and unable to focus on doing business with him.