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American Airlines Group Inc. is stepping up efforts to decide if an Airbus SE A350 order still makes sense for its fleet, forcing the European planemaker to try to defend another U.S. sale of its marquee wide-body jet.
The two companies have restarted talks about a twice-delayed deal for 22 of the A350-900 planes, a person familiar with the discussions said. A predecessor airline placed the order in 2005 and got a good value on a purchase that at current prices would carry a list value of $6.8 billion. But American President Robert Isom said the modest number of jets probably isn’t suitable for the world’s largest carrier.
“I don’t like small fleets in an airline our size,” Isom told American pilots at a question-and-answer session Aug. 29, a recording of which was heard by Bloomberg News. “It’s exceptional pricing. Unfortunately, pricing is just one aspect of trying to fly something profitably.”
The review underscores the challenge for Airbus as it breaks into a U.S. wide-body market dominated by Boeing Co., at a time when carriers around the world are reining in capacity growth to ease pressure on fares. Airbus salvaged a deal last week with United Continental Holdings Inc., as the carrier switched an order for 35 of the biggest A350-1000 aircraft to 45 of the smaller -900 variant. Cathay Pacific Airways Ltd. made a similar move Wednesday on an order for six planes.
It’s too early to determine the outcome of American’s negotiations with Airbus, said the person, who asked not to be identified because the talks are private. Options include adding to the order, downsizing to a smaller Airbus wide-body such as the A330, deferring delivery again or canceling outright.
A cancellation could carry a financial penalty. Isom said the order was “an item of discussion,” without elaborating. Representatives of American and Airbus declined to comment on any talks.
While American needs the A350s to replace Boeing 767 and 777 jets that it’s slowly retiring, the airline’s Boeing 787 Dreamliner wide-bodies do “many of the same missions,” Isom said. The carrier has a 42-aircraft order for the 787 with options to take another 52. American, with 29 of the planes at the end of the second quarter, expects to have 34 by year-end, according to a regulatory filing.
United deferred deliveries of its A350 planes by about four years, according to a statement last week. In May, Delta Air Lines Inc. deferred by as many as three years its deal for 10 A350s, which would have been used on international routes. It expanded an order for Airbus’s A321 single-aisle aircraft to fly in domestic markets.
American inherited the A350 deal from predecessor US Airways, which ordered 20 of the planes in 2005 in a deal valued at $3.2 billion at the time. The current list price for that number of the A350-900, a more advanced model than was available 12 years ago, would be $6.2 billion, before the discounts that are customary for aircraft purchases. At 22 jets, it would be $6.8 billion.
American first pushed back the order in July 2016 by an average of 26 months, allowing it to delay about $1.2 billion in spending. The second deferral, in April, was for an average 24 months, setting delivery of the first A350 in 2020 instead of 2018. The rest of the planes will arrive by the end of 2024.
One question for the Fort Worth, Texas-based airline is whether it would be cost effective to add such a modest number of a particular kind of jetliner to its fleet of more than 1,500 planes. While American flies many short-haul Airbus jets, each model has specific needs in such areas as pilot training and spare parts. A small stable of A350s would add expenses that couldn’t be spread over a larger operation.
“They are planned to come, but at the end of the day, is it something I would like to figure out to either make it a bigger fleet or make it something that is common in another place?” Isom said. “The answer to that is yes, but we haven’t figured it out.”
©2017 Bloomberg L.P.
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