American Airlines orders 460 jets
FORT WORTH, Texas -- American Airlines is revamping its fleet with a record order for at least 460 new jets, a move it says will save fuel and give passengers a quieter, more comfortable ride.
The airline pulled off the deal by convincing rival aircraft makers Airbus and Boeing to provide generous financing. American said the new planes will make its fleet the youngest among major U.S. airlines within five years.
"This is almost American rebranding itself," said aviation consultant Darryl Jenkins. "Before, they were old and tired, and now they're going to be young and energetic."
The deal was a bold stroke from a management team that has been roundly criticized on Wall Street for lacking new ideas as it lost $4.8 billion and slid from world's biggest airline to No. 3 in the U.S. in just over three years.
Now the question for American is whether new planes that start showing up in two years will turn the tide -- not only by cutting fuel use, but by attracting passengers who have become familiar with its older, noisier planes.
American announced Wednesday that it will order 260 planes from Airbus and 200 from rival Boeing Co., and take options to buy 465 more.
The twin deal is a major coup for Europe's Airbus, which will break Boeing's exclusive grip on American's fleet. Airbus hadn't won an order from American since the 1980s.
Boeing salvaged one of its biggest sales ever -- a huge consolation considering that the Chicago-based company was in danger of losing the whole order to Airbus.
The jets carry a sticker price of more than $38 billion. Big airlines regularly get discounts, and analysts assumed that American pitted Airbus and Boeing against each other to drive down prices.
The buzz around the order was so strong on Wednesday that it nearly drowned out word that American's parent, AMR Corp., decided to spin off its American Eagle regional airline in a cost-cutting move.
And the hoopla obscured more bad news on the financial front for AMR and American. AMR reported that it lost $286 million in the second quarter, as rising fuel prices wiped out an increase in revenue. The loss was wider than analysts expected.
In the end, investors seemed dazed by all the big news. They pushed AMR shares higher early in the day, only to see the stock slip later and close down a penny at $4.92.
In recent weeks, the airline industry was riveted by the drama of Airbus and Boeing dueling for American's interest. In discussions that lasted long into Tuesday night at an airport hotel near Dallas, AMR's board approved the odd split order.
American considered buying fewer planes but was swayed by generous financing offers from Airbus and Boeing. The two aircraft makers provided $13 billion in financing through lease transactions that will greatly reduce American's need to spend cash up front on the planes.
The jets will replace about 200 McDonnell Douglas MD-80 aircraft that burn about 35 percent more fuel than Airbus' upcoming A320neo, which is expected to carry passengers by late 2015.
The new planes will have better lighting, more overhead space and better seats in both coach and first-class than the MD-80s, according to American.
AMR Chairman and CEO Gerard Arpey said all those amenities will help American attract important business travelers. With the financing help and fuel savings, "This is just a no-brainer, economic home run from day one when the airplanes show up," Arpey said.
American will start getting 100 of the new Boeing 737 aircraft in 2013 and later will get another 100 equipped with updated, more fuel-efficient engines -- if Boeing's board approves production of that plane. American will take options for 100 more.
Airbus will deliver planes from its A320 series, also starting in 2013. Beginning in 2017, American will get the first of 130 of a new Airbus jet called the A320neo -- for new engine option.
Both planes are twin-engine models with a single aisle in the cabin, and are used heavily on routes within the U.S. American's current 737s have 148 or 160 seats, while models in the Airbus A320 family seat between 100 and 185 or more passengers.
American expects to have the youngest fleet among similar U.S. airlines within five years, although Delta Air Lines Inc. is also considering a large order to update its domestic fleet.
American has one of the oldest fleets in the U.S. airline industry -- its more than 600 planes average about 15 years in age. At a time when the airline is paying more than $3 for a gallon of jet fuel, one-third of the fleet consists of fuel-guzzling MD-80s.
Even with more efficient planes, American still faces the challenge of stemming the loss of customers to low-cost carriers such as Southwest and JetBlue.
"You're getting new planes, now start making money, guys," said aviation consultant Adam Pilarski. "Having shiny new planes doesn't guarantee your success."
Some analysts questioned whether American should take on more lease payments while it continues to lose money. J.P. Morgan analyst Jamie Baker -- among those who has criticized AMR management for lacking creativity -- said the company should focus on cost-cutting or aggressive revenue-raising instead.
AMR is expected to be the only major U.S. airline company to lose money this year. AMR's debt swelled to $17.1 billion in the second quarter, up from $16.1 billion a year earlier.
"We understand that American's fleet (and brand) are tired," UBS analyst Kevin Crissey said in a note about the plane-buying spree, "but this announcement represents a ton of new capital being put into a failing business model."
Airlines writer Joshua Freed in Minneapolis contributed to this report.
David Koenig can be reached at http://www.twitter.com/airlinewriter