Ryanair Holdings Plc agreed to buy 175 Boeing Co. 737 jets worth $15.6 billion at list price to add discount flights in markets vacated by full-service rivals, and said it may opt to add 200 more by the end of the year.
Ryanair will initially take the existing 737-800 version of the single-aisle plane, and could become a “lead customer” for the re-engined Max model for the follow-on requirement, Chief Executive Officer Michael O’Leary said on a conference call.
Europe’s biggest low-cost carrier last placed a major order in 2005 and has been contemplating a new deal for more than three years with deliveries from Boeing having ended in December. The carrier got a heavy discount on the last purchase and the new accord has similar terms, O’Leary said.
“We needed this order to fill the gaps left by the likes of Iberia in Spain and SAS in Scandinavia as the network airlines concentrate on long-haul and feeder services,” the CEO said in an interview. “We could be looking at 100 or 200 more when we decide on the Max, depending on how much the market opens up.”
Ray Conner, president of Boeing Commercial Airplanes, said the company is working with Ryanair to finalize the deal.
“We are pleased that the Next-Generation 737, as the most efficient, most reliable large single-aisle airplane flying today, has been and will continue to be the cornerstone of the Ryanair fleet,” he said in a statement.
Back on Track
The new planes, scheduled for delivery between late 2014 and 2018, will permit 5 percent annual growth and take passenger numbers above 100 million from 79 million in 2012, Ryanair said today. A Max order would address expansion through 2019.
“This puts Ryanair back on a growth track which they were at risk of not seeing,” said Donal O’Neill, an analyst at Goodbody Stockbrokers with a “buy” rating in the stock, adding that staggered growth should minimize pressure on ticket prices.
O’Leary said the past year or so has seen a “significant uptick” in growth opportunities, with the failure of Spanair SA and Hungary’s Malev Zrt. plus job cuts at carriers spanning SAS AB of Scandinavia, the Iberia unit of International Consolidated Airlines Group SA and discount rival Air Berlin Plc.
Some 75 of the planes bought today will replace older ones, with the rest adding capacity, taking the total toward 400 aircraft, all of them 737-800s. The fleet might grow to more than 500 jetliners with a follow-on order that could reach a list price of more than $20 billion.
Ryanair had said it was also considering Airbus SAS A320 planes, which have nine fewer seats, as well as the C919 from Commercial Aircraft Corp. of China, a new entrant to the single- aisle market. Another option was to grab jet orders from rivals struggling to fund purchases, though second-hand prices are high, making that option unattractive, O’Leary said.
The fleet deal will be fully funded from cash flow and debt, with some aircraft sold on under so called sale-and- leaseback arrangements. With capital outlays increasing this year and next, the Irish airline will hold off on further share repurchases and special dividends until 2015, it said.
Today’s order, Boeing’s biggest-ever from a European carrier and its largest this year, comes after Airbus won commitments for more than 400 A320 aircraft in the past week from Deutsche Lufthansa AG, Turkish Airlines and Lion Mentari Airlines PT of Indonesia.
Carolyn McCall, chief executive officer of Airbus operator EasyJet, Europe’s second largest discount airline, said yesterday that Boeing is a contender for its fleet needs.
Neo Price Issue
The Ryanair contract also helps fill up remaining delivery positions at Boeing as the U.S. manufacturer seeks to smooth the production transition from the current 737 to the Max model.
Airbus’s sales success with the re-engined A320neo, which rivals the Max, makes it unlikely that Ryanair could get the discount it would want to buy the plane, O’Leary told analysts.
The airline team evaluating the Max is probing several issues including whether buying the heavier model makes sense, since it will incur higher airport landing charges, he said.
Even with today’s order, Ryanair will be able to lift its share of the European market only to 20 percent from about 15 percent, and the carrier says it’s in negotiations with more than 75 airports about new routes or growth on existing ones.
Ryanair delayed a jet order while pursuing a $909 million bid for Aer Lingus Group Plc, an acquisition blocked by European competition authorities last month.