United Continental Holdings Inc. may convert a $12.4 billion order for Airbus Group SE’s largest twin-engine jet to smaller long-range models. It’s also interested in a new Boeing Co. 737 Max that’s still on the drawing board.
Those are among the multibillion-dollar changes under consideration as a new management team reviews the Chicago-based carrier’s order portfolio and revamps its fleet strategy, Chief Financial Officer Andrew Levy said in an interview. The goal: to close a profit gap with Delta Air Lines Inc. and American Airlines Group Inc.
United is weighing the conversion of Airbus A350-1000s as it looks to replace its fleet of 747 jumbo jets. The carrier could switch to a smaller version of the aircraft, or even the mid-sized A330. That would dent Airbus’s order book, since United is the second-largest customer for the -1000 variant, which took its first flight last week.
The airline also is studying the so-called Max 10X, a stretch of Boeing’s largest 737, after deferring 61 of the company’s smallest jets this month. The support from a blue-chip airline customer may help the planemaker close the business case for the proposed new variant, intended to help catch up to sales of Airbus’s A321neo.
“These fleet decision are big decisions, they affect your balance sheet for a long time,” Levy, 47, said in the interview at United’s Chicago headquarters. “These are big capital decisions that you have to live with for a really long time, so you need to make sure you get it right.”
The A350-1000 has only garnered 195 total orders, according to Airbus’s website. Qatar Airways is the largest customer for the jet, which is similar in size to Boeing’s 777-300ER. An Airbus representative declined to comment.
Share Buybacks
Levy said United also is rethinking its share buybacks after announcing a $2 billion repurchase plan this summer that followed a $3 billion effort from a year earlier. The pace may need to slow because of significant increases in labor expenses from several new union contracts as well as rising fuel costs, he said.
United Chief Executive Officer Oscar Munoz unveiled a $4.8 billion plan this month to reap greater revenue and savings from its worldwide route network. That includes improvements in the way the airline forecasts demand and manages seats, which is expected to generate an extra $900 million a year. Cost-cutting moves will save another $700 million by 2020, compared with last year’s level.
Munoz pledged to reshape the executive corps he inherited when he became CEO in September 2015 and has been under pressure from investors to improve performance. With new agreements with workers in hand, the focus now is to lift United’s operating profit, which amounted to 13.6 percent of sales last year. Industry leader Delta had a 19 percent margin and American’s was 15.1 percent.
Scrapping current jet orders altogether is unlikely because it would be too costly, Levy said. United plans to accept delivery of 14 of Boeing’s ultra-long 777-300ER, the first of which is due to arrive within weeks. That is a “done deal,” he said.
Max 10
Boeing met with United officials recently to discuss the Max 10X, a longer version of the largest 737 model. It “definitely looks to be of interest to us,” Levy said.
United’s interest is critical as Boeing weighs how to respond to the Airbus A321neo, which has emerged as a hot-seller for airlines flying trans-continental routes.
Boeing is mulling two options. One is a simple stretch of the Max 9 that would enter the market by 2019 and rely on a higher-thrust version of the Leap-1B engine developed for the Max family. The Chicago-based planemaker is also studying a more extensive revamp that would rely on the larger Leap created for Airbus and would be ready to fly commercially by late 2021.
“We are continuing to work through the business case and talk to customers about a potential Max 10X,” Boeing spokesman Paul Lewis said. “Once this process is successfully completed we will be in a position to share more details.”
Fleet Review
Deferring the 61 737-700s was an easy call, Levy said, because of the jet’s small size and older technology. United also is considering the more advanced 737 Max 8 or the Max 9 models as replacements, Levy said.
Levy likes Bombardier Inc.’s C Series jets but until a review of United’s entire fleet is completed he’s unsure “if there’s a place for a 100- to 120-seat airplane.”
United placed the A350-1000 order in 2013, upgrading an earlier deal, and it has a value of $12.4 billion at list prices before big discounts that are customary for major airlines. Levy wants to look at whether United should swap out some or all of those aircraft for other wide-body jets, such as the A350-900, which can fly longer routes, or the smaller A330.
“Since we have the opportunity let’s look at what we think would be ideal,” he said.
Bloomberg
Archives for November 2016
Lavatory fan causes an ExpressJet CRJ-900LR to reject take-off at Montreal
An Expressjet Canadair CRJ-900, registration N138EV performing flight EV-5545/DL-5545 from Montreal,QC (Canada) to Atlanta,GA (USA) with 73 passengers and 4 crew, was accelerating for takeoff from Montreal’s runway 06R when the crew received an aft lavatory smoke indication and rejected takeoff at high speed. The aircraft slowed safely, vacated the runway and stopped, emergency services responded, the occupants evacuated through the main door.
The Canadian TSB reported the crew rejected takeoff at 150 KIAS. After the aircraft came to a stop the flight crew consulted with the cabin crew, who reported an odour from the lavatory. Although no fire was detected and the fire extinguisher did not need to be used, the occupants were evacuated through the main cabin door. Maintenance subsequently identified the aft lavatory fan was at fault.
The Aviation Herald
Flights to/from Nova Scotia cancelled because of massive snow storm
A messy mix of snow and rain has knocked out power to more than 19,000 Nova Scotia Power customers, cancelled flights and led to warnings of slippery road conditions.
Most of the outages are in Colchester and Cumberland counties as well as areas around New Glasgow. According NSP’s website, the estimated restoration time could be as late as 6 p.m. AT.
All schools in the Chignecto-Central Regional School Board cancelled classes on Wednesday. Some campuses of NSCC either cancelled or delayed classes.
Several highways north of Halifax were snow covered Wednesday morning but passable with caution. The Department of Transportation warned of slippery conditions with a messy mix of snow and rain on many roads, especially in Kings County east, Cumberland County, Cape Breton County and southern Inverness County.
Half a dozen flights were cancelled flying into and out of Halifax Stanfield International Airport.
Annapolis Valley Regional School Board buses won’t be travelling to Halifax for WE Day, a huge youth empowerment event scheduled for the Scotiabank Centre.
Nova Scotia dodged the worst of the outages. In New Brunswick, 43,000 NB Power customers were affected by outages Wednesday morning.
Prince Edward Island had some customers who may not be reconnected until Thursday, many of whom were still out since the storm earlier this week.
CBC News Nova Scotia
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