Airlines
American joins Airbus club
American Airlines has unveiled plans to add up to 925 new single-aisle aircraft during 2013-25, in a move that will see four of the top five US carriers operating Airbus equipment. Ian Goold reports.
As part of a long-term fleet-renewal strategy for American Airlines (AA), owner AMR Corporation announced in July a narrowbody aircraft acquisition plan aimed at reducing operating and fuel costs.
AA plans to acquire some 260 Airbus A320-series and 200 Boeing 737-family aircraft (including new variants) during 2013-22. Options and purchase rights for 465 additional A320 and 737 machines could see American take delivery of as many as 925 new aircraft in the 12 years up to 2025.
AMR and AA Chairman and Chief Executive Gerard Arpey claims that the purchase and lease plans are an important step toward positioning the carrier for long-term success. “This was an incredible opportunity from two great manufacturers to meet our needs,” he says.
The plan is to allow the airline to: focus on serving “the world’s most important markets with the best [alliance] partners”; enhance its products and services; work to improve customers’ travel experience; and deliver important benefits to shareholders, customers, and – not least – employees.
Reducing costs
AA claims that the two single-aisle families offer a 35 percent reduction in fuel-cost per seat compared with its current McDonnell Douglas MD-80s, and reductions of 12 percent and 15 percent, respectively, compared with the carrier’s 757 and 767-200 fleets. Having flown four different narrowbody types (including the 737-800), AA says the planned acquisitions will allow it to simplify its narrowbody fleet to two aircraft families, with significant commonality benefits expected within each family.
American has committed to leasing 130 A320-family aircraft, for delivery in 2013-17, and to buying 130 A320neo-family aircraft, which will arrive during 2017-22. The carrier has also taken options on an additional 365 aircraft, and delivery positions may be varied among A319, A320, and A321 models.
The carrier will also acquire 100 current Boeing 737 models (including three earlier 737-800 options converted just before the deal), comprising a mix of Series 700, 800, and 900ER aircraft, for delivery during 2013-2017. The carrier also expects to acquire 100 new, re-engined 737 variants that would be scheduled for 2018-22 delivery.
The acquisition of re-engined 737s is conditional on the Boeing board approving launch of that programme and the carrier agreeing to buy such aircraft. The re-engined 737 will be powered by CFM International Leap-X engines.
The 360 total aircraft covered by these firm commitments are scheduled for delivery as follows: 40 aircraft in 2013, 55 in 2014, 50 in 2015, 45 in 2016, 50 in 2017 and 120 in 2018 and beyond. Airbus and Boeing have committed US$13 billion in financing to American, through leases that cover the first 130 Airbus and the initial 100 Boeing deliveries.
The so-called “sweetheart” arrangement from the two manufacturers will help to maximise AA\’s balance sheet flexibility and to reduce risk, the carrier says.
Excluding previously ordered aircraft to be delivered in coming years, Airbus and Boeing financing under the new deals covers all related 2013-16 deliveries and 80 percent of those scheduled in 2017. American president Tom Horton has stressed that the manufacturers\’ financing requires minimal to no capital expenditure since the aircraft are being financed through operating leases.
“We are putting our partners\’ capital – more [money] than we would otherwise be able to raise effectively on our own — to work for our company,” Arpey told employees.
All these additional aircraft will complement other recent deliveries, as well as those pending under existing orders. In 2009 and 2010, the airline received 76 737-800s. As of 1 July 2011 – before announcement of the new order plans – American Airlines was operating 612 jetliners, of which more than a third were MD-80s and a quarter were 737-800s. The fleet also included 124 757-200s, 58 767-300ERs, 15 767-200s, and 47 777-200ERs. Some 61 owned and leased aircraft were in temporary storage, of which 54 were MD-80s.
Prior commitments
AA had purchase commitments covering 55 737-800s (with 13 deliveries in 2011, 28 in 2012, and 14 in 2013-16), seven 777-200ERs (to be handed over in 2013-16), and seven 777-300ERs (two next year and five in 2013). It has also exercised rights to an eighth 777-300ER to be delivered in 2013. After the new deals were unveiled, senior AA executives acknowledged that the final 777-200s might be changed to Series 300s.
These acquisitions involve the airline in a continuous financial investment over the coming five and a half years of about US$3.5 billion (excluding purchase deposits held by manufacturers). Payments for these previously ordered aircraft (and American\’s 42 delayed 787-9s) were expected to be about US$705 million in 2011\’s second half, US$1.4 billion during next year, US$786 million in 2013, US$313 million in 2014, US$192 million in 2015, and US$103 million for 2016.
According to the airline\’s filings at the US Securities & Exchange Commission (SEC), American has granted Boeing “a security interest in [its] purchase deposits with Boeing [which] totalled US$660 million at June 30, 2011”. The carrier also has sale-and-lease-back arrangements with an unidentified lessor, covering finance for up to 29 of the 737-800s earmarked for 2011-13 delivery and six more 737-800s that are set to arrive in 2013 and 2014, should AA exercise the relevant purchase rights.
In 2008, American agreed to buy – subject to reconfirmation – 42 General Electric GEnx-powered Boeing 787-9s for 2012-18 delivery (now delayed to 2014-18) with acquisition rights covering 58 more aircraft for 2015-20 (revised to 2016-21). American must commit to each aircraft 18 months before its scheduled delivery date, but first it must reach a relevant agreement with its pilots\’ union, which the carrier expects before the first notification date.
During July-September, the value of American\’s purchase commitments is expected to be US$10.3 billion, comprising July\’s firm orders, payment for new deliveries, and deposits paid since 30 June. According to SEC filings, future minimum payments under capital and operating leases (with initial or remaining non-cancellable lease terms of more than a year as at September 30) are expected to be US$24.3 billion.
At the end of June, American parent AMR had net debts of US$11.9 billion, up from US$11 billion 12 months previously. Total debt was US$17.1 billion, versus US$16.1 billion for the second quarter of 2010.
Under its fleet-replacement strategy, American\’s first goal is to retire old, inefficient aircraft, starting with the MD-80s because of their heavy fuel and maintenance costs. By July, almost 60 had been replaced, leaving a fleet of about 210. Next to go are expected to be the carrier’s 767-200s, although AA says it is unsure if those twin-aisle machines will be replaced by new narrowbodies or 787s.
Ageing equipment
American\’s 767-200s are somewhat older than the Series 300s. In fact, at an average age of 24 years, the -200s are even older than the MD-80s, which are said to be in the “high teens”. AA\’s 757s average 17 years old. The airline says that the new orders will reduce the fleet’s average age by about a third – to less than ten years – by 2017.
The American order for new narrowbodies, split between the two manufacturers, means that four of the USA\’s top five carriers will now be operating European-built jetliners. The AA fleet of 124 757s would have been very much in Airbus salesmen\’s gun sights as they targeted that aircraft\’s replacement market, especially with the manufacturer’s re-engined A321neo.
American parent AMR has confirmed it is seeking SEC approval to spin off its American Eagle regional subsidiary (an idea first mooted in November 2007) at an unspecified date, either through a stock issue to AMR shareholders, or perhaps by a straight sale to a third party. As of 1 July, American Eagle’s operating fleet comprised 302 aircraft: 47 Bombardier CRJ-700s, 216 Embraer ERJ-135/140/145s, and 39 ATR 72 turboprops. Some 41 Saab 340B turboprops were stored.
According to Arpey, AMR is confident that the disposal of American Eagle will allow AA to tap regional feeder traffic at more-competitive rates and allow the minor carrier to serve other outlets. “We believe this will enable us, over time, to ensure that we maintain market rates for the feed traffic to AA through Eagle, or other regional airlines, while also providing Eagle with an opportunity to compete for new business and grow,” Arpey says.
One American official has confirmed the long-term possibility that different companies could provide regional flights to AA, while Eagle could retain its affiliate membership of the Oneworld alliance: “That’s part of the strategy on [our] side, but Eagle is going to be a part of our regional flying for a long time.”
Network development
Regarding the development of American\’s route network, Arpey says: “What we have tried to do with Oneworld partners is to create a global network that is the best for premium traffic, [hence] our five [domestic] \’cornerstone\’ [hubs]: New York, Miami, Chicago, Dallas, and los Angeles.”
According to AA, it is too soon to speculate on new routes or any possible changes to its cornerstone strategy, which is “relatively new”. Officials say that perhaps 90 percent of American\’s services touch one of the cornerstones, but they point out that the airline\’s most recent financial reports have talked about “some flying that we were going to stop doing – San Francisco to Honolulu comes to mind”.
Markets cited by Horton as ideal for the new single-aisle aircraft include secondary domestic destinations and selected points in Latin America. For some of the aircraft, AA sees opportunities in US domestic and short-haul Latin American and Caribbean markets.
