Boeing decision on 737 engine likely to benefit workers in state

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, chair

man 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 an order for 100 of its existing 737s and

another 100 of its re-engined 737s, which Boeing hasn’t yet received board approval to offer to customers. American also retains the option for an additional 100 Boeing aircraft.

“With commitments for 100 aircraft and options for 60 more, American will be a launch customer for this airplane pending finalization of the airplane configuration and launch approval by the Boeing board of directors,” wrote Jim Albaugh, president of commercial airplanes for Boeing, in an e-mail to employees.

The jet maker has been debating whether to put new engines on its Renton-built 737 or to offer a completely new aircraft. Albaugh 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 Wednesday.

The decision to extend the life of the 737 by giving it new engines 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 for a 737 replacement jet.

Renton Mayor Denis Law welcomed the Boeing announcement, which “offers greater assurance for many years to come thousands of workers will remain on the job in Washington state and right here in Renton.”

Earlier this year, Gov. Chris Gregoire had kicked off an effort to keep Boeing’s next new airplane in Washington state. She noted on Wednesday that the state will continue its efforts to retain Boeing and expand the state’s aerospace industry here.

“The announcement that Boeing will put new engines on the Renton-built 737 gives us a sense that Boeing recognizes the value of its greatest asset, that being its skilled workforce here,” said Tom Wroblewski, president of Boeing’s local Machinists union.

Boeing’s Albaugh said 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.

The updated 737 will use CFM International’s LEAP-X engine. Albaugh expects the aircraft will be 12 to 15 percent more fuel-efficient than its existing 737.

By dragging their feet on deciding the 737’s fate, Boeing executives ceded the larger share of the American order and a foot in the door at major U.S.-based carrier.

“Boeing looks kind of silly in the context of the past year, where it dismissed the A320neo program and its own re-engining design,” noted analyst Scott Hamilton.

The A320 new engine option jet, or A320 neo, has nearly 1,200 orders and commitments including American’s order, which is for a mix of standard and updated A320s.

“We are extremely proud and gratified once again to count American Airlines among Airbus’ global customers,” said Tom Enders, Airbus president.

American officials said the order split was due in part to the fact that neither jet maker could satisfy the carrier’s needs. Both Boeing and Airbus already have announced a series of production increases to meet the demands of customers. However, American’s order, and the likely prospect of large orders by other U.S.-based carriers in the near future, puts pressure on both jet makers and their supply chain to keep up.

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. The jet maker previously had looked at Mobile, Ala., for a jet line during the U.S. Air Force tanker contest.

Both Boeing and Airbus will begin deliveries of their existing single-aisle jets in 2013. 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. AMR lost $286 million in the second quarter, as rising fuel prices wiped out an increase in revenue.

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.

Boeing’s shares rose $1.58 to close at $72.07 on Wednesday.

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