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Airbus cannot give United Airlines a competitive price for new single-aisle aircraft because of a deal the manufacturer struck with American Airlines several years ago, United President Scott Kirby told employees recently in Los Angeles.
American’s deal with Airbus — called a “most-favorable customer” clause — suggests United may add more Boeing aircraft than Airbuses in the near future. But Kirby, until August 2016 American’s president, said the deal eventually expires — he did not say when — and that United will seriously consider Airbus jets.
American, historically a Boeing and McDonnell Douglas operator, placed a large order in 2011 for Airbus A319s and A321s, a deal that proved Airbus could win big business from a major U.S. airline. The New York Times called it a “coup” for Airbus.
“One of the challenges for us buying new airplanes right now is that Airbus did a deal with American — this was before I was there and before American filed for bankruptcy — where American paid a pretty rich price for airplanes,” Kirby said in a video for employees, a copy of which was obtained by Skift. “Airbus gave them a most-favored customer clause, meaning if they give anyone else a lower price, they have to write a check to American to give American retroactively that price. Airbus just can’t give us a competitive price today.”
United is Mostly a Boeing Customer
Since merging with Continental Airlines in 2010, United has almost exclusively bought Boeing aircraft, and it is the world’s largest customer of the Boeing 737-900. In June, United said would be an early customer for a newer-generation 737 called the Max 10, committing to at least 100 planes, with the first delivery scheduled for late 2020.
At the Los Angeles event, Kirby told employees United has worked with Boeing on the airplane’s design, in hopes it can be a “better operating airplane” than the Boeing 737-900. The 737-900 has poorer performance compared to some other aircraft, and requires longer runways than some other jets. It is also prone to a problem called tail-tipping, in which the aircraft’s nose can rise from the ground. Airlines must be careful how they load and unload the aircraft, and some use tail stands to balance the aircraft.
United, which still flies Airbus A319s and A320s it acquired before the merger, has added some used Airbuses in the past two years, mainly from China Southern Airlines. Kirby said United will continue to add more used aircraft. As for new Airbus planes, United has just one outstanding order — for 45 twin-aisle A350s.
From a passenger standpoint, it probably matters little whether United flies Boeing 737s or A320s. Airbus argues its aircraft are more comfortable because the fuselage is wider than on the 737, allowing carriers to install slightly wider seats. But like customers who often book the cheapest prices regardless of the airline, carriers tend to look at economics rather than passenger comfort when deciding between aircraft.
“We as a company are going to be completely agnostic about airplanes,” Kirby said last week. “We are not going to to be a Boeing airline or an Airbus airline. We are going to be with whoever gives us the best deal.”
In an email, Airbus spokesman James Darcy declined to comment on the company’s deal with American and how it might affect negotiations with other carriers. About Kirby’s comments, he said, “we leave it to our customers to comment on their own public statements.”
Analyst Skeptical of United’s Claim
Aerospace analyst Richard Aboulafia, a vice president for Teal Group Corp., said in an interview that most-favored customer clauses are rare, but not unprecedented. In the mid-1990s, American, Delta and Continental all had similar agreements with Boeing that guaranteed them the best prices.
But Aboulafia said the clauses rarely impede new deals. He said Airbus might get around the contact language by selling United a different variant of the same plane. Or, in some cases, when the new order is too important to lose, a manufacturer might send a check to the airline with the contractual right to price matching.
“There are ways around these things,” he said.
He said he doubts the most-favored customer clause is the major issue here, especially since other U.S. carriers have ordered Airbus narrow-body planes relatively recently.
“It tells me he is probably asking for a pretty hefty discount,” Aboulafia said. “If you don’t want to spend the money, there’s always an excuse.”