Korean Air Buying 747-8s to End Boeing’s Sales Drought

Korean Air Lines Co. (003490) agreed to buy five Boeing Co. (BA) 747-8 passenger planes as part of a planned $3.6 billion purchase of wide-body aircraft, giving a sales boost to a jumbo jet whose output is being cut due to weak demand.

Korean Air, the second-largest global operator of the jumbo known for its iconic fuselage hump, is the first at the Paris Air Show to commit to the 747-8 Intercontinental, which lists for $351 million. The Seoul-based carrier also intends to buy six twin-engine 777-300ER jets from Chicago-based Boeing, according to a statement yesterday at the expo.

Boeing still trails Airbus SAS in sales of four-engine jets at the Paris event after the European planemaker agreed on June 17 to sell 20 A380 superjumbos to Doric Asset Finance Ltd. Big aircraft are falling from favor as airlines turn to new, less-fuel-thirsty twin-engine models that can fly longer routes and reduce engine maintenance costs.

“You’re looking at survival rations for two very hungry programs,” said Richard Aboulafia, a vice president of Fairfax, Virginia-based consulting firm Teal Group, speaking of the A380 and 747-8 deals announced in Paris.

‘1960s Classic’

Boeing’s latest jumbo jet model is proving tough to sell although it has better economics than earlier versions and is an attractive option on high-density routes, Robert Mann, an aviation consultant based in Port Washington, New York, said in an interview yesterday.

The largest and most expensive jets made by Boeing have drawn three new orders this year against five cancellations, according to Boeing’s website.

“The Intercontinental is a variation of the 1960s classic with a lot of tweaks: much better propulsion and much better payload,” said Mann, who heads R. W. Mann & Co. “But over the lifetime of a jet, the bias is in favor of the very large” twin-engine jets.

Korean Air’s purchase isn’t firm and won’t be added to Chicago-based Boeing’s orders website until the terms are final. Once this occurs, Korean Air will hold orders for 10 passenger versions of the stretched 747 jet, according to the airline. It has also received three of the seven freighters it ordered.

“The economics and reliability of these airplanes, combined with the unique passenger experience, played a big part in our decision,” Walter Cho, Korean Air’s executive vice president of corporate strategy and planning, said at a news conference at the show.

Korean Air shares gained as much as 1.1 percent to 31,750 won and traded at 31,550 won as of 10:24 a.m. in Seoul. The stock has fallen 30 percent this year, compared with a 5.3 percent drop in the benchmark Kospi index.

Korean Air expects to start taking delivery of the planes starting in 2016 once a final agreement is reached, the company said in an e-mailed statement. The airline plans to take out all 15 747-400s from its fleet by 2017 as part of its plan to operate more fuel-efficient planes.

Indonesia’s flag carrier, PT Garuda (GIAA) Indonesia, is considering buying three to five Airbus SAS A380s or 747-8 jumbo jets to help ferry religious pilgrims to Saudi Arabia, Chief Executive Officer Emirsyah Satar said yesterday in Paris.

Korean Air operates 36 747-400 jets and three of the new freighters, according to data compiled by Ascend Online Fleets, giving it the second-largest 747 fleet behind the 54 jumbos flown by British Airways.

Boeing has only 105 747-8 orders and said in April it would pare production 13 percent to 1.75 a month by early 2014.

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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