Boeing finally finds new buyer for 737 Max
Boeing got a huge vote of confidence for its troubled 737 Max on Tuesday as International Airlines Group announced it plans to buy 200 of the jets.
Boeing (BA) and IAG, the owner of Aer Lingus, British Airways, Iberia and other European carriers, announced a letter of intent on the purchase of the jets at the Paris Air Show.
Although IAG does use wide-body jets from Boeing, the purchase is a major shift for IAG, which now almost exclusively uses the A320 family aircraft from rival Airbus (EADSF) for its single-aisle jets.
Boeing 737 Max jets were grounded in mid-March in the wake of fatal crashes in Ethiopia and Indonesia. Boeing has been working to come up with a fix to the automatic safety feature that is the focus of crash investigations. There is not yet a time frame for the 737 Max’s return to service.
“We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months having received approval from the regulators,” said Willie Walsh, CEO of IAG.
The 737 Max is Boeing’s bestselling jet, and it has a backlog of nearly 5,000 of the planes on order. It has continued to build the jets since the grounding, although at a reduced pace. But it has not made any deliveries. It also has not reported any sales of the 737 Max since the groundings.
“We are truly honored and humbled by the leadership at International Airlines Group for placing their trust and confidence in the 737 Max and, ultimately, in the people of Boeing,” said Kevin McAllister, CEO of the company’s commercial planes unit.
Boeing said the list price for 200 of the 737 Max jets would be about $24 billion. But an industry expert said any sale of the 737 Max at this point is likely at a sizable discount.
“This is a very positive development for both sides. Boeing got a great endorsement from a respected airline group and IAG gets a heavily discounted jet,” said Richard Aboulafia, aerospace analyst with the Teal Group.
Boeing said it does not comment about discussions about prices it has with customers.
Before Tuesday, its most recent sale of commercial jets of any kind took place in late March. Earlier Tuesday it announced it had sold 30 of the 787 Dreamliner to Korean Air.
While the IAG sale is not finalized, it is a far more significant announcement than the Korean Air sale, and not just because the 737 Max has been the focus of so many questions and uncertainty.
“Letters of intent generally don’t mean much, but this one is extremely meaningful,” said Aboulafia.
Boeing and Airbus are a duopoly, basically controlling the commercial jet market for airlines around the world. But as much as they compete, it is typically very difficult to get an airline flying one manufacturer’s aircraft to buy versions of a competing aircraft. They prefer to allow pilots to move freely between all the planes that might be used on a specific route, and having two types of aircraft also increases the cost of parts and maintenance.
“At this stage in the order cycle, it’s pretty unusual for an airline to switch,” Aboulafia said. “It’s certainly noteworthy.”
Even so, there can be advantages when an airline buys a competing type of aircraft, according to Walsh, the IAG CEO.
“Given the scale of our operations, I see no reason why we should be confined to Airbus,” he told the business publication Aero Telegraph earlier this month. “That is not healthy. There [should be] competition between aircraft manufacturers.”
Meanwhile, Airbus CEO Guillaume Faury told CNN on Tuesday he is not overly concerned about losing this sale to Boeing.
“I don’t think it’s a blow,” he said. “We are very successful with our own single-aisle at the moment. We have a lot of orders and we see the future very [positively].”
And Aboulafia said he does not expect this will start a flood of orders for the 737 Max. Many airlines have already placed orders for the single-aisle aircraft that they think they’ll need in the coming years.
“This doesn’t change the fact that most people already have what they need in the pipeline,” he said.
And the large backlog of 737 Max orders means that IAG is unlikely to receive any of these planes for at least several years. By then the current questions about the safety of the 737 Max could be long forgotten by many fliers.