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American orders 460 jets, including re-engined Boeing 737

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Michelle Dunlop
Herald Writer
Published:
American Airlines split a massive order for 460 jets between Airbus and the Boeing Co., effectively launching a re-engined 737 in the process.
American “expects to have the youngest and most fuel-efficient fleet among our peers in the U.S. industry within five years,” said Gerard Arpey, chairman of American's parent company, AMR.
Airbus got the larger slice of American's $38 billion order. The carrier ordered 260 Airbus single-aisle aircraft and retained options and purchase rights for an additional 365 jets.
From Boeing, American placed a firm order for 200 737s. Boeing will begin delivering the first 100 of its existing version of its 737 in 2013. American becomes the launch customer of Boeing's re-engined 737 by placing 100 of those on order.
Boeing hasn't previously offered this updated 737 and still needs board approval to go forward with the aircraft. The jet maker has been debating whether to put new engines on its Renton-built 737 or to offer a completely new aircraft.
However, Jim Albaugh, president of Boeing's commercial airplanes division, said the decision came down to the production system. While Boeing believes the technology for an all-new aircraft is ready, it's not sure how to build the new jet effectively.
"The issue is how quickly you can ramp up and how efficiently you can build 40, 50, 60 aircraft a month," Albaugh said during American's press conference Wednesday.
Albaugh indicted the company will complete its rough design of the re-engined 737 in the next few weeks and will seek board approval in August. He hopes to offer the updated 737 to customers as early as this fall. Neither Boeing nor American would confirm if American will receive the first re-engined 737.
Boeing's decision to re-engine is a boost to its Puget Sound area workers, given that the company will likely keep work at its Renton facility. Boeing had planned to have locations compete to be the final assembly site of an all-new jet.
American also retains the option for an additional 100 Boeing aircraft.
Airbus managed to break Boeing's hold at American, which hasn't ordered Airbus jets for more than 20 years. Airbus will begin delivering 130 of its standard A320 aircraft in 2013. But the European jet maker will switch over to deliveries of its A320 new engine option, or A320 neo, in 2017.
Airbus launched its re-engined A320 neo late last year. With the American order, the aircraft has received nearly 1,200 orders and commitments for the aircraft already.
“We are extremely proud and gratified once again to count American Airlines among Airbus' global customers,” said Tom Enders, Airbus president. “The order by American represents a strong endorsement of our constantly improving single-aisle product line.”
Enders expressed confidence in Airbus' ability to meet demand for its A320. However, industry observers already were questioning Wednesday whether Airbus would need another production site to keep up with demand. The jet maker previously had looked at Mobile, Ala., for a jet line during the U.S. Air Force tanker contest.
AMR Corp., American's parent, also announced that it plans to spin off its American Eagle regional-flying subsidiary as a separate company.
The twin announcements overshadowed the news that AMR lost $286 million in the second quarter, as rising fuel prices wiped out an increase in revenue. The loss equaled 85 cents per share. Wall Street was expecting a loss of 77 cents, according to FactSet. Still, AMR shares rose almost 4 percent to $5.11 in premarket trading.
American's fleet of more than 600 planes averages about 15 years in age, among the oldest in the U.S. airline industry. One-third of the fleet consists of fuel-guzzling McDonnell Douglas MD-80 aircraft.
"The plan was to replace those MD-80s over seven or eight years," said Mike Boyd, an aviation consultant who studied American's fleet for its pilots' union. "Well, American can't wait that long, not with fuel over $3 a gallon. They've got to unload those MD-80s."
The need for fuel-efficiency was evident in AMR's second-quarter results. Revenue rose to $6.11 billion from $5.67 billion a year ago, thanks to higher fares and fees. But American's fuel bill rose 33 percent -- an increase of $547 million from the same period last year, outstripping the gain in revenue. Fuel has overtaken labor as the airline's biggest expense.
American said it got $13 billion in financing commitments from Airbus and Boeing to help buy the new planes. But AMR already has $17.1 billion in debt, and analysts wonder about the wisdom of borrowing more while the company is still posting huge losses.
"We understand that American's fleet (and brand) are tired," UBS analyst Kevin Crissey said in a note to clients, "but this announcement represents a ton of new capital being put into a failing business model."
The Associated Press contributed to this story.
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