As it strives for post-pandemic expansion and updates older, less efficient aircraft, United Airlines (UAL.O) announced Tuesday that it is acquiring 100 Boeing (BA.N) 787 Dreamliners, together with 100 737 MAXs.
After political and manufacturing challenges for the two jets this year, the Chicago-based plane’s order for 200 aeroplanes, valued at approximately $43 billion at list prices, is a significant win for the American aircraft manufacturer.
By exercising options to buy 44 737 MAX aircraft for shipment between 2024 through 2026 and 56 extra MAX aircraft for service between 2027 and 2028, United said it will be able to fulfil its recent commitment for 100 737 MAX aircraft. Currently, United has 443 MAXs on order in total.
United’s significant investment in the 787 is a reflection of forecasts for ongoing growth in long-haul travel demand as well as a need to replace ageing aircraft.
However, the hefty aircraft deal has raised questions about United’s financial statements. Over the following two years, it is anticipated to require $20 billion in capital investments.
Analysts at Jefferies believed United would likely spend $50 billion on capital expenditures via the delivery of 700 new aircraft.
There is no question that this decision was necessary, but increased leverage presents a significant obstacle moving forward, they stated in a note.
Still, the Chicago-based carrier stated in a regulatory filing that it is “dedicated” to providing a sound cash flow and its debt relief plan.
In midday trading, its shares were lower by 5.5% at $41.78 while Boeing shares gained 0.2%.
Additionally, United indicated that the airline would push back its announced earlier contract for 45 Airbus (AIR.PA) A350 aircraft until “at the earliest” 2030.
This order, an extended version of one that dates back to 2009, is reportedly in limbo after many delays and may not go through.
The argument about the 350 vs (787) should be had when we replace the majority of the 777s, which isn’t until the end of the decade, according to United CEO Scott Kirby.
The company’s current 787 fleet, according to Kirby, was a critical consideration in choosing between Airbus and Boeing for its significant widebody order.
Adding a new fleet type significantly slows down efforts to hire 2,500 new pilots annually and expand the airline, as per Kirby.
2,400 pilots were among the 15,000 new personnel employed by United in 2022, and the company expects to add 15,000 more people in 2023, including 2,500 more pilots.
It anticipates receiving delivery of 787s between 2024 and 2032, and it has a choice of the 787-8, 9 or 10 variants. By 2030, United will replace its complete 767 fleets with 787s and some 777s, reducing carbon emissions in each seat on the new aircraft by around 25%.
The order, according to United’s Chief Commercial Officer Andrew Nocella, will enable the airline to replace ageing aircraft with newer, more fuel-efficient ones that have more premium seats, can carry more cargo, and travel at a faster speed.
The airline intends to highlight the purchase at a gathering on Tuesday with Stan Deal, CEO of Boeing Commercial Airplanes, at the Boeing factory in South Carolina.
This year, difficulties have plagued both the MAX and the 787.
After production issues led Boeing to halt 787 deliveries in May 2021, the company ultimately resumed deliveries in August. The Federal Aviation Administration approved Boeing’s examination and retrofit plan in July, and each aircraft is now being inspected prior to delivery to meet certification standards.
Boeing experienced a blow last week when Congress decided against extending a deadline that would have imposed stricter safety criteria for the MAX 7 & MAX 10 models. According to United, the MAX 10 will make up 80 of the 100 new MAX aircraft it is ordering.
The deadline that applies to Boeing’s MAX 7 but also MAX 10 aeroplanes and was set by Congress in 2020 after two 737 MAX disasters killed 346 people in Indonesia as well as Ethiopia has been the subject of months of lobbying by Boeing to persuade lawmakers to waive it.