Is American Airlines' Big Order a "Game Changer"?
After reporting a quarterly loss, American Airlines announced Tuesday it was making the largest airplane order in aviation history to the tune of $85 billion.
American Airlines's quarterly loss of $286 million wasn't unexpected, due to rising fuel costs, but the airline's purchase--which could total 925 airlines by 2025--was a bombshell and could be a game changer for American, the only legacy carrier never to have filed for bankruptcy or merged. The order is so big American plans to split it between Boeing and Europe's Airbus.
Why American Placed the Order
It's all about options and strategic planning. This major narrow-body plane order has the net effect of American controlling the production lines of both Boeing and Airbus for the next five years, and that can impact competing airlines' attempts to upgrade their fleets.
It's a win-win situation for Boeing and Airbus, who can show all these new orders on their books. It's a win-win situation for American. In essence, the airline will lease and the manufacturers will sell to leasing companies.
Then there are the options American holds to buy even more airplanes (up to 925). If the economy rebounds and American exercises its options and receives more planes -- or if other airlines need planes, they may have to negotiate with American to sell its options. If the economy heads in the other direction, American then simply walks away from its options with less severe financial exposure.
The new generation planes, which will replace the old MD-80s,757s and 767s will offer fuel savings of between 17 and 20 percent. If the plan goes according to schedule, American will have the youngest fleet within the next four years. That is a big plus for American, which needed to upgrade its fleet of 600 planes (with an average age of 15 years).
The impact on travelers?
Don't expect lower airfares. Don't expect more comfortable, luxurious seats. Remember, this entire plane order is for single-aisle, narrow-body aircraft.
However, those planes coming off the assembly lines will all carry Wi-Fi and better electrical connections for those who like to use planes as airborne offices. And they'll have the knowledge that these planes are more energy-efficient.
But this aircraft order isn't about passenger convenience, style or luxury. The bottom line here is...the bottom line.
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