ILFC Plans to Buy $11.8 Billion Worth of Airbus, Boeing Jets

American International Group Inc. (AIG)’s jet-leasing unit said it will buy 100 Airbus SAS aircraft and 33 Boeing Co. (BA) 737s, $11.8 billion in planes at list prices, as airlines refresh their fleets amid rising travel demand.

International Lease Finance Corp. said its deal with Airbus consists of 75 A320neo narrow-body jets, as the model fitted with new, more fuel-efficient engines is called, and 25 A321neo planes. That replaces a plan to buy 10 A380 superjumbo jets, which list for about $375 million each, ILFC said today.

The purchase will be Los Angeles-based ILFC’s first since 2007 as it seeks to resume growth after AIG’s bailout during the 2008 financial crisis. ILFC Chief Executive Officer Henri Courpron said in July he was starting negotiations about an order to add to the company’s fleet of about 930 aircraft.

“It’s encouraging to see that ILFC is firmly back in the game,” said Rob Stallard, an analyst with RBC Capital Markets in New York. “We expect their leasing peers to also be looking at follow-on orders this year.”

Boeing rose $1.16, or 1.6 percent, to $72.04 at 4:01 p.m. in New York Stock Exchange composite trading. Airbus parent European Aeronautic, Defence & Space Co. rose 54 cents, or 2.8 percent, to 19.84 euros in Paris.

Aging Fleets

Airlines’ demand is being fueled by aging fleets in North America and Europe and the growth of low-cost carriers in emerging markets, said Peter Arment, a Gleacher & Co. Securities analyst in Greenwich, Connecticut. Boeing and Airbus are boosting output to record levels as orders rebound after the recession.

ILFC’s plans are a “sign that leasing activity from one of the industry’s top players is back,” Arment said.

AIG’s rescue by the federal government eventually swelled to $182.3 billion. Shut out of capital markets for more than a year, ILFC had to be propped up by AIG, sold 53 planes to Macquarie Aerospace Ltd. for $2 billion in April 2010 and named Courpron, a former Airbus executive, as CEO in May.

Airlines’ efforts to blunt rising fuel costs helped drive the order, Courpron said in an interview today, a day after crude oil rose to a 29-month high in New York.

“Customers are saying fuel is becoming a significant factor in their cost, and it is a sense of history - you can’t stop progress,” Courpron said. “Engine manufacturers have made significant progress in offering technology, aircraft makers need to avail themselves of that.”

Boeing Deliveries

ILFC will start taking the 737 deliveries in 2012. Toulouse, France-based Airbus, which unveiled the A320neo on Dec. 1, has said the first of the new jets would reach customers starting in 2016. Today’s memorandum of understanding marks the first intended order for the larger A321neo model.

“This brings to 302 the number of airplane commitments for the A320neo,”‘ John Leahy, Airbus’s chief salesman, said in an interview. “That’s the fastest rate of sales we’ve ever seen on any plane.”

The loss of the A380s “is not a big blow” for Airbus because ILFC doesn’t operate the jets itself and was buying the planes to lease to airlines, Leahy said.

The A320neo has a list price of $91.2 million, while the published price of the A321neo is $105.9 million. Boeing’s 737-800 lists for $80.8 million. All are similar single-aisle jets, which are the workhorses of the global airline industry, flown chiefly on domestic routes.

Watching Boeing

Boeing is leaning toward developing an all-new successor to the 737, the world’s most widely flown airliner, by 2019 instead of mimicking Airbus by offering upgraded engines. Airlines would prefer an even more efficient replacement jet and don’t want the complexity of multiple new engines in their fleets, said Nicole Piasecki, Boeing’s vice president of business development.

The company aims to make a decision by June, after studying the technology and production requirements for a new plane, Piasecki said in an interview today.

“We need to have confidence both in our timing and in the total life-cycle economics and in delivering that into the market by the end of the decade,” Piasecki said.

Courpron said ILFC will monitor the market and see how airlines respond to the neo and to Boeing’s plans. He also hasn’t ruled out buying Bombardier Inc. (BBD/B)’s CSeries jet, which competes with smaller versions of the A320 family and the 737.

The larger A321neo is a “potential strong replacement” for Boeing’s single-aisle 757s, which went out of production in 2005, Courpron said.

Pratt & Whitney Win

ILFC chose Pratt & Whitney’s geared turbofan engine to power 60 of the twin-engine Airbus planes, giving the unit of Hartford, Connecticut-based United Technologies Corp. (UTX) its biggest order to date for the technology.

Pratt & Whitney didn’t disclose financial terms and hasn’t announced a list price for the engine. Pratt’s offering competes with the new Leap-X engine from CFM International, a joint venture of General Electric Co. (GE) and Safran SA (SAF) of France, on Airbus neo models. Boeing’s 737-800s are exclusively powered by CFM’s existing CFM56 model. Courpron said ILFC is still in talks with CFM on the Leap-X.

“This is the first win for the new Pratt & Whitney engine on the A320neo,” RBC’s Stallard said. “Given the quality of the customer, I’d say it is a strong endorsement of the potential qualities of this engine.”

To contact the reporters on this story: {Mary Jane Credeur} in Atlanta at mcredeur@bloomberg.net; {Susanna Ray} in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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