American Airlines in ‘largest ever aviation order’ with Boeing, Airbus

Reuters: AMR Corp, parent of American Airlines, said on Wednesday it would buy 460 narrowbody planes in a historic deal that gives Europe’s Airbus a new toehold in U.S. markets and forces Boeing Co to put a new engine in its best-selling airplane.

The order, which AMR says is the largest in aviation history, is valued at nearly $40 billion and calls for American to buy 200 Boeing 737s and 260 Airbus A320s. The deal comes after tense haggling as American Airlines played the world’s two largest plane makers off each other.

Boeing salvaged its portion of the order by offering to put a new engine in its best-selling 737, retreating from a more ambitious plan to completely redesign the plane.

“This is a marginal victory for Boeing as many considered them out a few weeks ago,” said Alex Hamilton, managing director of EarlyBirdCapital.

“I also believe this is huge for Airbus from a marketing perspective,” he said. “But let’s not lose sight that that is huge for the industry and speaks to the robustness of the cycle.”

The deal calls for the airline to take delivery of 100 aircraft from Boeing’s current 737NG family starting in 2013, including three 737-800 options that had been exercised as of July 1, 2011.

American Airlines also intends to order 100 of Boeing’s expected new version of the 737NG, featuring CFM International’s LEAP-X engine. The carrier would become the launch customer for the new plane, which still needs approval by Boeing’s directors.

The airline has options for another 100 737s and 365 options and purchase rights for additional aircraft. American Airlines said it has the flexibility to convert the new deliveries into variants within the 737 family, including the 737-700, 737-800 and 737-900ER.

The carrier said it also has the option to convert its order into variants within the A320 family, including the A319 and A321. The carrier said it would take delivery of 130 current-generation Airbus A320s beginning in 2013.

Starting in 2017, American will begin taking delivery of 130 aircraft from the A320neo, which will feature a new engine and provide 15 percent better fuel efficiency.

American Airlines last ordered Airbus planes in the late 1980s. In its gusto to poach a key Boeing customer, Airbus essentially forced Boeing to re-engine its 737 rather than proceed directly to a redesigned version, which would have taken longer to bring to market.

Boeing has been putting off the decision on how to upgrade its 737 for more than year. Airbus dominated the Paris Air Show last month with orders for the A320neo, putting pressure on Boeing to respond, and the contest for American’s business has brought the battle over strategy between the world’s leading planemakers to a head.

“Airbus is penetrating a pure Boeing client with a mix of A320 and A320neo, which addresses the risk of one aircraft cannibalizing demand for the other,” said Yann Derocles, aerospace analyst at Oddo Securities in Paris. “It has put so much pressure on Boeing that Boeing decided to re-engine the 737.” The market for narrowbody jet sales is estimated at $2 trillion over 20 years and is split between Boeing and Airbus, whose A320 has made substantial U.S. inroads. AMR on Wednesday also reported a net loss of $286 million, pr 85 cents per share, for the second quarter, compared with a year-ago loss of $11 million, or 3 cents per share. The results were weaker than Wall Street forecasts for a loss of 81 cents per share, according to Thomson Reuters I/B/E/S.