International Airlines CEO Willie Walsh likes a good deal. We're guessing he found one here. Clearly he's betting travelers have short memories.
International Airlines Group, or IAG, parent of British Airways, Iberia, Aer Lingus, and two low-cost European airlines, made a surprise move Tuesday at the International Paris Air Show, announcing it may buy 200 of Boeing’s Max aircraft, worth $24 billion at list prices.
IAG said it signed a letter of intent with Boeing, with plans to take the Max jets in two versions — the midsize 737-8 and the larger 737-10. In a release IAG said the airplanes may go to its two-low-cost airlines, Vueling and Level, though it did not say when deliveries might start. Both low-cost-carriers now fly only Airbus aircraft.
The 737 Max has been under a cloud since regulators worldwide grounded the jet in March after a second crash in five months. Boeing has paused deliveries, and some airlines that already bought the jets have made statements that they’d like to get out of their commitments, though few are expected to do so.
Boeing has been working to fix a software system that likely contributed to both crashes, but there’s no timeframe for when the aircraft will fly again. Still while flyers remain skittish — many say they’ll avoid the airplane, at least short-term, after regulators clear it — most industry insiders say the airplane will be fine long-term.
“We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months [after] having received approval from the regulators,” IAG CEO Willie Walsh said in a statement.
Assuming a deal is finalized, IAG is likely getting a steal on this airplane, considering it’s the only major airline company to express public interest in the Max in months.
Airlines rarely pay anything close to the list price — carriers often get half off — and here IAG may have done better. As is customary, though, real prices are not public.
It is probably not a surprise IAG moved first. Walsh, who led British Airways before taking over the parent group, is both opportunistic and a shrewd negotiator. He probably liked what he saw from the Max, said Madhu Unnikrishnan, editor of Skift Airline Weekly.
“The Max remains an excellent aircraft, offering operating efficiencies and range advantages that airlines will continue to find compelling,” Unnikrishnan said. “Once the world’s regulatory bodies approve Boeing’s software fixes, airlines will happily return to flying the Max.”
Not all deals go from letter of intent to firm order. But given Walsh’s track record, and Boeing’s commitment to fix the airplane, Unnikrishnan said he expects IAG will go through. “Given the missions IAG airlines fly, I would bet this order will become firm,” he said.
Still the proposed deal is slightly unusual, because while IAG has both Boeing and Airbus planes for long-haul flights, it almost always uses Airbus A320 family airplanes for short-haul. And often, once airlines choose one airplane type, they tend to stick with it, because operating two similar planes from two manufacturers on the same routes can inflate costs.
But airlines also have a vested interest in making sure Boeing and Airbus continue to engage in healthy competition. Airline executives like to play manufacturers against each other so they can score the best deals. If the Boeing 737 Max falls out of favor, there is some concern Airbus could have more leverage in negotiations for its popular A320 family of airplanes.
IAG also on Tuesday ordered 14 Airbus A321XLRs for Aer Lingus. The airplane is a long-range narrowbody aircraft that can fly from Dublin to the middle of the United States.
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Photo credit: International Airlines Group signed a letter of intent for 200 Boeing 737 Max aircraft. Pictured is an airplane being built. David Ryder / Bloomberg