AA to replace domestic fleet

[Veritas]

How about we all act like grownups and look to see if someone else has already started a thread on the topic that is hot news to us because we just found out about it 2 weeks after the fact?

Ralph would have taken care of that transgression.

 

[Hopeful]

Agree.... we've had three different discussions on fleet types going on....


Interesting reading here at http://www.glgroup.com/News/The-impact-of-the-Airbus-A320neo-program-51943.html

If he's correct that the 320neo may only going to wind up with a 3-4% cost advantage over the 73NG's, and that Boeing can still squeeze another 1-2% out of the current platform, I'd be shocked if the Airbus story wasn't more than just a whipping horse to get Boeing down more on price...

In March, Adam Pilarski from Avitas spoke at the ISTAT conference about Boeing's options regarding a new design or their own new engine option ( http://www.flightglobal.com/articles/2011/03/14/354329/avitas-expects-a-boeing-737-re-engine-announcement-in.html )

He said "waiting to offer a significant improvement in narrow body efficiency will give the A320neo, Irkut MS-21 and Comac C919 an opportunity to fortify and gain a 'beach head' against Boeing."

The orders at Paris would indicate that the beachhead is indeed being built.

If Boeing agrees that the message from Paris was another engine option, AA is the right size order to justify the program.

Sounds to me like Boeing management dropped the ball on this.. Guess they were too occupied building a new assembly plant in a right to work state trying to screw the union workers.

 

[WorldTraveler]

At the current pace, AMR will likely spend $8 billion on fuel this year, about $6.5 billion more than it did in 1998 or 1999. With passengers resisting fare increases (fares are currently not a whole lot higher than in those two years of very cheap fuel costs), new fuel efficient planes probably represent the best chance employees have of ever achieving meaningful wage hikes. Just think - at 1998-99 fuel prices, AMR would earn over $5 billion this year; more than enough for "restore and more." Over the past decade, AMR has spent about $25 to $30 billion more on fuel than it did in the previous decade. THAT's where the wage concessions of 2003 went (and then some).

With "A Stimulus per Day" President Obama in the WH, seems to me that he should be cheerleading some form of stimulus package to help AMR (and DL and UA) buy new fuel efficient fleets. It would help airplane manufacturers, it would lessen fuel consumption, ordinary pollution and carbon emissions (environmentalists would rejoice) and it would indirectly help keep airfare low (once-a-year vacation flyers would rejoice). What's not to like?

One of management's biggest failures of the past decade was not replacing the MD-80s faster. As I've posted before, had AA accelerated 738 deliveries in 2004 or 2005, AA would have saved billions in fuel by now. Probably should have been the first order of business after the ink was dry on the concessions in 2003. Even the APFA agrees with me on this one. This failure has cost AMR extra billions of dollars in fuel expense.

except, FWAAA, other airlines are looking at refleeting as well which means they will be in a position to reduce their fuel-related costs as well.
As such, AA's advantage will be fleeting and may not even materialize if other airlines replace their older aircraft as fast as AA does.... and many don't have to get rid of as many less fuel efficient aircraft as AA does - or they already have started on that effort.
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AA's problem is labor costs - specifically labor productivity. Replacing aircraft won't change AA's need to get its labor costs under control.
DL and UA are probably pushing their refleeting plans forward knowing that AA likely will gain a cost advantage... of course, given that fuel prices continue their march upward, it makes sense for EVERY airline to invest in aircraft that will reduce their costs.
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You should be asking why the WH is not pushing for a tax based on the tax revenues they will lose on jet fuel the industry will NOT burn by buying new aircraft.
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Sounds to me like Boeing management dropped the ball on this.. Guess they were too occupied building a new assembly plant in a right to work state trying to screw the union workers.

I agree Boeing has waited too long for this... but remember that if they really have a pretty good ideal of what the next generation of aircraft will look like, then Boeing can put the 320neo to shame.
Product cycles change between the two... the real damage to Boeing would be if Airbus decides to go for the 320neo AND ALSO build a new narrowbody replacement that would compete with whatever Boeing chooses to offer.
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Not sure what DL or UA will do - and I would bet that WN gets in the act before it is over - they can't afford to allow network airlines to gain an advantage over them - but I think between the big 4 US airlines, we will see a big shot in the arm for one or more of the manufacturers other than Airbus and Boeing.
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Embraer is quoted as saying they think they have a pretty good shot at landing an order from DL.

 

[kirkpatrick]

Just think - at 1998-99 fuel prices, AMR would earn over $5 billion this year; more than enough for "restore and more."

A bit misleading. If fuel prices had remained at 1998-99 levels fares wouldn't have climbed and the revenue wouldn't be there.

MK

 

[eolesen]

I just don't see EADS taking on any more risk and liability than they've already incurred thru programs already underway. Between engine issues and the economy, the A380 is not exactly selling like hotcakes (original forecast was 1,000 units, now it is likely they won't deliver more than 250-300), the A400M is at least three if not four years late and will never break even, and the A350 is also way behind schedule (don't quite recall how it is holding to a sales forecast).

Boeing was in that same state two years ago -- the 787 and 747-8i were consuming all of their attention. Now that both programs appear to be back on track, perhaps they've got the appetite to undertake the 737 G3 or even a 797.

I wouldn't be surprised to see either Bombardier or Embraer secure something in the 90-120 seat range, but that's not what AA or WN are interested in. WN's looking at 137 seats upward, and I suspect AA is also targeting the 130-180 seat range. Since both are well invested in the 737 today, they have the most influence on where Boeing goes next.

UA refleeting I see as quite unlikely until the JCBA is resolved, and that could be years away given how things have been going.... There's no point upsetting that apple cart anymore than it already is.

DL? They just got rid of all the MD80s a few years back, and are mostly done replacing the remaining DC9's. Replacing the 757s might be due, likewise with the 763s, but I don't think they really have much justification to start replacing the 738s yet. The only thing I could see is replacing the oldest A320 (NWA was an early adapter, so they've got some that are probably at if not beyond 20 years old, which is well beyond what I'd consider the economic service life for an Airbus).

 

[WorldTraveler]

A bit misleading. If fuel prices had remained at 1998-99 levels fares wouldn't have climbed and the revenue wouldn't be there.

MK

exactly.
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the whole reason why there is an acceleration in refleeting around the world is because there is a clear recognition that fuel prices around $3 per gallon are likely going to be the norm in the years ahead.... when airlines the size of AA and other majors buy tens of billions of dollars in jet fuel per year, the economic justification of buying new equipment adds up very quickly.
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Given that US airlines typically have had older aircraft, they are in a worse position to feel the effects of higher fuel prices - compounded by the weak dollar which is itself a factor in the rise of fuel prices. For airlines in countries where revenue comes largely from a stronger dollar, they can offset some of the pain at the pump.
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The next five years could see some of the most extensive investment in new equipment by US airlines in decades... and with consolidation in the industry likely nearing completion and capacity likely close to what will exist going forward - along with the ability to raise fares when needed - this might be the ideal time for US airlines to start buying airplanes again.
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There also seems to be a fascination that the 320neo family is now the next best thing to sliced bread... which is clearly over the top.
The Airbus narrowbody family is a credible airplane but there are threats from below - the Cseries and Ejets - and from Boeing which has the potential to significantly ^trump^ the 320neo family with an all new jet not too many years later.
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Even if AA believes Airbus products are the best for it right now, the relatively shorter life span of the 320 means AA will be going through this exercise again relatively soon - and at that point the product selection will look alot different.

DL? They just got rid of all the MD80s a few years back,

perhaps you misspoke?
DL's M80 fleet is still 100 plus units strong... but it has below average fuel economics, which DL is partly offsetting by adding seats to take them to 150 seats.
many of DL's current narrowbody leases M80s/320s/757s are up for renewal in 2014-15, 7 years after exiting BK... that is part of what is driving DL's refleeting needs as well....
I think UA will move forward w/ a narrowbody order even though the merger integration process is still not completed... they too can't afford to be trumped by competitors with much more fuel efficient fleets.
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I think the economics of the C series and E jets will make using a 100-120 seater profitable again, something that wasn't possible with the "shrunk" versions of the 737 and 320.
When you consider that many US airlines are getting rid of 120 seat aircraft in favor or larger 150-160 seat aircraft, the jump from 70 seat RJs to 150-160 seats is a big jump...

 

[eolesen]

Sorry, don't follow DL's fleeting very closely, and haven't seen a DL MD80 in so long I'd assumed they'd replaced them.

Replacing anything at UACO is going to piss off one or both pilot groups. CO's pilots are already in a tizzy because of the mix of widebody/midbody flying between legacy UA & CO, and CO 762 sales.

I still think a lot of the hype around the NEO is due to cheap financing more than the promise of lower operating costs. Airbus has always been the leading sub-prime lender in the aircraft industry...

 

[Frank Szabo]

Sorry, don't follow DL's fleeting very closely, and haven't seen a DL MD80 in so long I'd assumed they'd replaced them.

Replacing anything at UACO is going to piss off one or both pilot groups. CO's pilots are already in a tizzy because of the mix of widebody/midbody flying between legacy UA & CO, and CO 762 sales.

I still think a lot of the hype around the NEO is due to cheap financing more than the promise of lower operating costs. Airbus has always been the leading sub-prime lender in the aircraft industry...

I was under the impresion, Mr. E, the big deal re: the Scarebus 320/321 was the Pratt geared fan motor they intended to hang on the wing.

While I don't do that work now (engine wrench) I did in the service and still have an interest. When I realized what was going on in a CFM engine, I remembered this is what the instructors in Jet School said was possible when the correct materials came available. Now - suck a tad more power from the burn and hook it into a planetary gear system - there's damned little that couldn't be driven off that power source.

The airframe is junk and I'll not dispute that nor argue it with anyone. It's the motors that are of interest here.

 

[eolesen]

I haven't seen a breakout of who has ordered which of the two engine offerings, but both are proposing a 16% fuel burn improvement.

The GTF looks way cool, but it may be a bigger leap of faith than the LEAP-X. LEAP-X also seems to be reasonably close in size to the CFM56 that there's no need for modifying gear, etc...

 

[Frank Szabo]

I haven't seen a breakout of who has ordered which of the two engine offerings, but both are proposing a 16% fuel burn improvement.

The GTF looks way cool, but it may be a bigger leap of faith than the LEAP-X. LEAP-X also seems to be reasonably close in size to the CFM56 that there's no need for modifying gear, etc...

I looked up the LEAP-X just now and THAT IS a scary engine. CFM is modeling the engine after a smaller helo motor made with one-chunk wheels and blades - ie, the "blisk"design, for the N1, if I read correctly. Roach out a blade and the entire wheel/spool has to be replaced as the blades are integral. The replacement requires an engine removal. Not too bright a design, IMHO.

Exactly what I would expect a wine-swilling Frenchman to design after lunch.

 

[frontline]

God knows we need to do something. The Mad Dogs are going to bleed us dry when oil gets back to $150 and beyond.

 

[777 fixer]

Sounds to me like Boeing management dropped the ball on this.. Guess they were too occupied building a new assembly plant in a right to work state trying to screw the union workers.

That assembly line in Charleston is already built, by Vought. Boeing had to spend $500 million to buy them out becasue they could not handle the job Boeing wanted them to do.

 

[Interested]

Interesting read.
http://www.fool.com/investing/general/2011/07/08/can-american-airlines-afford-15-billion-worth-of-n.aspx

 

[Hopeful]

Interesting read.
http://www.fool.com/investing/general/2011/07/08/can-american-airlines-afford-15-billion-worth-of-n.aspx

I guess the employees are just gonna have to give more concessions so AA can buy shiny new aircraft!

 

[WorldTraveler]

while this article may be correct from a general business standpoint, it does not demonstrate much of an understanding of the airline industry... but few articles from The Fool do.

If AA or any other network carrier esp. moves forward with refleeting, it is because the cost advantages from newer aircraft far outweigh the financial costs of the extra cash required. AA alone could trim billions of dollars from its fuel and maintenance costs by replacing its older aircraft.
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Aircraft have well established values and airlines can obtain financing to cover almost - if not all - of the cost of the new aircraft. There is little risk to AMR's investors by AA or any other airline buying aircraft. When you consider that larger airlines likely are making money between the deals they get for new aircraft and the value they can sell them for - whether it is to sell the planes outright as DL has done with its 737 orders or AA has done in sale-leaseback transactions, ordering new aircraft could actually be balance sheet positive.
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Further, if Airbus wins this deal, it will be the same way it has with every other major US airline - by doing it on the basis of helping with financing. Even if Boeing's products deliver better financial performance in service, AMR can likely get a better overall deal when you factor in finances. It is also possible that AA could not even do a deal of this magnitude with Boeing - which is why they apparently struck a deal with Airbus first and then asked Boeing to try and match it.
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AA employees will not take pay cuts to pay for new aircraft. If anything, AA employee jobs will be more secure because AA's costs will go down and the pressure on overall costs will be lessened, allowing AA to live longer with its labor cost disadvantage and slowly work it out, which the current management appears to do rather than face a confrontational showndown including through BK.
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Replacing older aircraft is good for nearly everyone; buying from Airbus obviously is not as good for America overall but Europe buys plenty of Boeing products.
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The fact that other carriers can also buy aircraft and reduce their costs means AA's advantage over time is not as great as it might be but gaining efficiencies for AA are good for everyone... and in this case cost employees nothing.