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Boeing’s Albaugh Expects Long-Term Benefits From AMR Bankruptcy Filing

Boeing Co.’s (BA) commercial jet chief expects both planemakers and American Airlines to benefit from parent AMR Corp. (AMR)’s bankruptcy reorganization, which may hone the carrier’s competitive edge.

AMR sought court protection from creditors after grappling with soaring fuel expenses while failing to secure cost-cutting labor agreements. The Fort Worth, Texas-based carrier was on track for its fourth consecutive yearly loss.

“I’m really confident that American’s going to come through this restructuring a better company, a more competitive company, and if they’re more competitive and making more money, they’re going to buy more airplanes,” Jim Albaugh, president of Boeing Commercial Airplanes, said yesterday in an interview at Bloomberg’s headquarters in New York. “Longer term, it’s going to be good for them and good for us.”

The airline’s fleet of older, gas-guzzling planes left it at a disadvantage as fuel prices increased 19 percent this year. American took steps to remedy that this summer with a record contract for more efficient aircraft, and those orders remain “rock solid,” Chief Executive Officer Thomas Horton said yesterday.

“When we’re completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” Horton said on a conference call.

AMR announced plans to buy 460 single-aisle jets in July, with 200 from Chicago-based Boeing and 260 from Toulouse, France-based Airbus SAS. The planes had a list value of $38.5 billion based on average prices, and the deal included options and future purchase rights for 465 more.

American Jet Leases

“If they’re going to be cost-competitive going forward, they’re going to do it with new equipment,” Albaugh said. “We are very much part of their long-term plan for turning around American Airlines.”

American expects to continue regular operations during the restructuring, which is positive for the approximately $350 million in jets leased from Boeing Capital Corp., Albaugh said.

“I anticipate they’ll continue to fly those airplanes,” which make up about 10 percent of Boeing Capital’s portfolio by value, he said. “I also anticipate they’ll probably come back and want to renegotiate some terms, and we’ll work with them on that.”

The carrier has firm, unfilled orders for 13 777s and 143 of the current 737s, according to Boeing’s website. American Airlines also tentatively agreed in 2008 to buy 42 787 Dreamliners, pending an agreement with pilots to operate the new model.

‘A Great Customer’

“We’re assuming that we’ll deliver all of those,” Albaugh said of the firm orders. “They’ve been a great customer, and we want to work with them and make them successful.”

Boeing was still working with American on financing for its planned purchase of 100 737 MAX jets, an upgrade of the single- aisle plane with more fuel-efficient engines that will compete with the revamped A320neo from Airbus. The arrangements for those jets, included in the July announcement, had not been completed.

“They think their future is tied to the neo and the MAX order,” Albaugh said. “So I’m assuming that they will go through this and they will emerge and sign the deal and take the planes.”

The airline will probably take about 30 single-aisle 737 jets and two twin-aisle 777s slated for delivery next year, said Robert Spingarn, a New York-based analyst with Credit Suisse Group AG.

“If not, high demand and tight availability should allow others to step in,” he wrote in a note to clients.

‘Airline-Specific Situation’

AMR’s filing was an “airline-specific situation” that doesn’t reflect demand or healthy global traffic growth, so backlogs at Boeing and Airbus remain safe, Noah Poponak, a New York-based analyst for Goldman Sachs Group Inc., said in a note to clients.

Boeing has experience dealing with airline companies in bankruptcy, Albaugh said. “It’s not like it’s the first time.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net.

To contact the editor on this story: Ed Dufner in Dallas at edufner@bloomberg.net

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