American Airlines makes largest plane purchase in over 10 years
March 4, 2024 – 2:44 PM PST
NEW YORK (Reuters) – American Airlines (AAL.O) on Monday unveiled its biggest plane order since 2011, buying 260 new jets from Airbus (AIR.PA), Boeing (BA.N) and Embraer (EMBR3.SA) as it looks to increase earnings by capitalizing on booming demand for premium travel.
The deal includes 85 Airbus A321neo jets, 85 Boeing 737 MAX 10s and 90 Embraer E175 aircraft. The order also includes options and purchase rights for an additional 193 aircraft.
“(Travel) demand is back,” American Airlines’ CEO, Robert Isom, told an investor conference.
The order is also a big boost for Boeing, which has been under fire since a Jan. 5 incident when a door plug blew off a 737 MAX plane in mid-flight, exposing frightened passengers to the outside air.
This is American’s first-ever order for the MAX 10, the largest variant of Boeing’s best-selling single-aisle 737 MAX planes.
The aircraft has yet to be certified by the U.S. Federal Aviation Administration (FAA). The Jan. 5 incident has raised new doubts over its certification.
American’s chief financial officer, Devon May, said the order reflects the airline’s confidence in Boeing, adding it offers fleet flexibility to the company as it provides an alternative to its Airbus A321 planes.
Its first MAX 10 plane is due for delivery in 2028. But if delivery is delayed, the company has negotiated with Airbus for sufficient options, he said. The Texas-based airline also has options to convert those orders into MAX 8 or MAX 9.
“Our first MAX 10 delivery is going to happen in 2028,” May told reporters on the sidelines of American’s investor conference. “It gives Boeing a lot of time to actually get the airplane certified and then deliver it on time.”
Reuters has reported that rival United Airlines (UAL.O) is in talks with Airbus for a potential mega order to replace hundreds of MAX 10s on order from Boeing, as airlines scramble for scarce Airbus production slots.
May expressed confidence that Boeing would “get it right,” saying the U.S. planemaker was “taking the right steps.”
“It’s probably going to take some time,” he said.
American Airlines shares fell 5.4% to close at $14.81 on Monday.
The new plane order is expected to enable American to add more high-margin premium seats on its domestic and short-haul international routes.
American, United and Delta Air Lines (DAL.N) have all benefited from increased demand for premium travel after the pandemic.
The company is also looking to drive up revenue from its co-branded credit cards. The programs have become a cash-generator for carriers through sale of miles to third-party partners.
American expects its profit margin to jump to 15%-18% in 2026, up from 14% estimated for this year, resulting in a free cash flow of more than $3 billion.
Reporting by Rajesh Kumar Singh in New York and Shivansh Tiwary and Aishwarya Jain in Bengaluru Additional reporting by Tim Hepher in Paris; Editing by Devika Syamnath, Shilpi Majumdar and Matthew Lewis
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What is the purpose of American Airlines’ major plane order?
G by Lisa Richwine in Los Angeles Editing by Maju Samuel
American Airlines Announces Major Plane Order to Meet Rising Demand for Premium Travel
March 4, 2024 – American Airlines, one of the largest airlines in the United States, has revealed its biggest plane order since 2011. The airline plans to purchase 260 new jets from three different manufacturers - Airbus, Boeing, and Embraer – in order to capitalize on the growing demand for premium travel and increase its earnings.
The deal includes 85 Airbus A321neo jets, 85 Boeing 737 MAX 10s, and 90 Embraer E175 aircraft. American Airlines has also secured options and purchase rights for an additional 193 aircraft, allowing for future flexibility and expansion.
“(Travel) demand is back,” said Robert Isom, the CEO of American Airlines, during an investor conference. This move reflects the airline’s confidence in the return of travel and its commitment to meeting the evolving needs of its customers.
The order is particularly significant for Boeing, as it comes at a crucial time for the aircraft manufacturer. Boeing has been facing scrutiny and criticism since a January 5 incident involving a 737 MAX plane, where a door plug blew off mid-flight, causing passengers to be exposed to the outside air. This plane order from American Airlines reinforces their trust in Boeing’s ability to address safety concerns and deliver reliable aircraft.
Notably, this order marks American Airlines’ first-ever purchase of the MAX 10 variant, which is the largest model in Boeing’s popular single-aisle 737 MAX series. However, the MAX 10 is yet to be certified by the U.S. Federal Aviation Administration (FAA), and the recent incident has raised questions about its certification. American Airlines remains optimistic about the certification process, expressing confidence in Boeing’s ability to resolve any issues.
Devon May, the chief financial officer of American Airlines, stated that the order provides fleet flexibility and offers an alternative to the airline’s existing Airbus A321 planes. The first delivery of the MAX 10 is expected in 2028, with the company having negotiated options with Airbus as a contingency plan. American Airlines also retains the option to convert these orders to the MAX 8 or MAX 9 models if necessary.
While American Airlines makes this major aircraft purchase, its competitor United Airlines is reportedly in talks with Airbus for a potential mega order to replace their existing orders for the MAX 10 from Boeing. The demand for Airbus production slots has intensified, leading some carriers to explore alternative options.
Despite the current challenges, American Airlines remains confident in Boeing’s ability to address safety concerns and meet delivery timelines. However, they acknowledge that the process may take time and they will closely monitor developments.
Following the announcement of this plane order, American Airlines’ shares experienced a decline of 5.4%, closing at $14.81 on Monday.
This significant investment in new aircraft is expected to enable American Airlines to add more high-margin premium seats on its domestic and short-haul international routes. As with other major U.S. carriers like United and Delta, American Airlines has witnessed a surge in demand for premium travel following the COVID-19 pandemic.
In addition to increasing premium travel offerings, American Airlines aims to boost revenue through its co-branded credit cards. These programs have become a lucrative source of income for airlines, as they sell miles to third-party partners.
With this ambitious plane order, American Airlines anticipates its profit margin to rise to 15%-18% by 2026, surpassing the estimated 14% for this year. The airline also expects a significant increase in free cash flow, exceeding $3 billion.
As American Airlines looks towards the future, this major plane order showcases their commitment to meeting customer demand, expanding their network, and continuing their growth trajectory in the highly competitive aviation industry.
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