American Airlines splits huge new plane order between Airbus and Boeing

American Airlines has announced, just minutes ago, that it is placing orders for 260 Airbus A320 series planes and 200 Boeing 737 series planes.  This has concluded a growing crescendo of speculation about what AA would do.  With additional options and purchase rights also in the deal (most of which appear to be placed with Airbus, not Boeing), this makes what AA claims to be the largest commercial aircraft deal, ever.

Interestingly, AA says that half of the 200 737s will be equipped with new fuel efficient engines – which is apparently signaling Boeing’s response to the A320neo series from Airbus.

Boeing had previously been giving signals that it preferred to design a new plane from scratch, but it is thought that AA told Boeing it couldn’t afford to wait until such a new plane would appear (estimated to be 2022 at the earliest), which forced Boeing to adopt its less preferred option of attempting to squeeze new bigger engines underneath its low-slung 737 wings.

Boeing is believed to still be interested in developing a completely new alternative to the 737, but clearly Airbus has forced it to copy Airbus’ strategy of an intermediate model plane prior to a completely new redesign of the airplane frame.

There might also be a small element of ambiguity as to how 100% locked in AA is to buying the 100 737s with the new engine option.  Clearly it seems AA has signed (or is signing right now) an unconditional order for 100 of the present version of the 737, but it is unclear if there is some ‘wiggle room’ allowing AA to back out of the second 100 orders if the plane is delayed or fails to live up to initial promises.

AA will start getting deliveries of current generation A320 and 737 planes from 2013, and the new versions of each from 2017.

By giving the larger share of the order to Airbus, AA has contradicted its own strange statement issued in 1996 when it said that it had appointed Boeing as sole supplier of airplanes for the next 22 years (ie through 2018).  This was a ridiculous statement to make – in doing so, it immediately gave up any negotiating leverage with Boeing, and as has now been decisively shown, was not a statement that AA actually felt obliged to honor in any event.

Not only did AA make this strange announcement, but in 2001 it had a very public dispute with Airbus, with the two companies exchanging accusations and insults publicly after the crash of the AA587 flight (an A300) shortly after taking off from JFK on 12 November 2001.  There remains some subjective ambiguity as to whether the primary cause of that crash was pilot error or airplane design (see the Wikipedia article for a discussion on the contributing factors), and for sure the event created some bad feeling between AA and Airbus.

Clearly, that ill-will has now been expunged, with the first Airbus order from AA in twenty years.

However, AA has gone out of its way to be kind to Boeing in its announcement, playing up its other orders with Boeing as much as it can, while downplaying its reneging on its previous Boeing-exclusivity promise.

AA’s announcement was almost exactly in line with my prediction on 1 July, with a more or less even split between the two aircraft manufacturers.  As I said back then, the airlines need to protect the health and viability of both Airbus and Boeing – not because they are public spirited, but because they need the competition between the two companies to keep prices down and innovation flowing.

While keeping both Boeing and Airbus viable is definitely an issue, there is no denying that in switching from its very public 100% Boeing loyalty and its current more or less all Boeing fleet to now letting Airbus back in, AA has sent a very strong signal that Boeing needs to improve its act.  It could be argued that by staying with Boeing, AA was protecting the status quo in terms of Boeing’s market share; by now giving 260 of the 460 planes ordered to Airbus, it is definitely moving market share to Airbus.

The new planes will be about 12% more efficient than AA’s current 757-200 planes, and a huge 35% more fuel efficient than their old MD-80s (expressed in terms of fuel burned per passenger seat on the plane).  This will definitely help AA’s operating costs into the future.

Delta is also in talks with both Airbus and Boeing and expects to place an order for new planes by the end of the year.  Southwest and United are in the early stages of considering future orders too.  The operating cost advantage that AA will enjoy as it starts to replace its older planes with the new A320neo and 737 planes will accelerate the timetable on which AA’s competitors must consider their own future fleet requirements.