AMR Said to Plan Record 400-Jet Order in Airbus-Boeing Split

AMR Said to Plan to Advise Board to Spin Off American Eagle
An AMR Corp. American Eagle jet taxies on the tarmac outside the Central Terminal at LaGuardia Airport in Queens. Photographer: Daniel Acker/Bloomberg

American Airlines plans a record order of about 400 narrow-body jets split between Boeing Co. and Airbus SAS, giving the European planemaker a toehold at the U.S. carrier, four people familiar with the matter said.

Counting options and future purchase rights, the deal may reach 900 planes, said two of the people, who aren’t authorized to speak publicly. The board of American parent AMR Corp. will review the proposal at a meeting that starts tonight, another person said. The breakdown is under discussion, the people said.

The 400 planes may have a list value of about $37 billion, based on average retail prices from which airlines negotiate discounts. Taken together, the transaction would be the industry’s biggest firm order ever, eclipsing AirAsia Bhd.’s agreement last month to buy 200 upgraded Airbus A320neos.

American has an all-Boeing fleet and hadn’t ordered Airbus jets since 1987. Boeing’s proposal includes upgrading its 737 with new engines to counter the A320neo, three people said, after the Chicago-based company had said for more than a year that it favored building an all-new single-aisle aircraft.

Boeing and Airbus would help finance the acquisitions by leasing 230 of the jets to American, in effect keeping the aircraft on their balance sheets, according to one of the people. Those planes eventually would be sold to leasing companies, the person said.

Ryan Mikolasik, an outside spokesman for Fort Worth, Texas-based American, said the third-largest U.S. airline wasn’t discussing its plans. Boeing’s Mike Tull and Airbus’s Mary Anne Greczyn also declined to comment.

News Conference Set

American tentatively scheduled a news conference at 10 a.m. Dallas time tomorrow at Dallas-Fort Worth International Airport, the carrier’s largest hub.

AMR rose 2 cents to $4.93 in New York Stock Exchange composite trading, snapping a string of six straight declines, while Boeing gained 98 cents, or 1.4 percent, to $70.53. Airbus parent European Aeronautic Defence & Space Co. added 17 cents to 23.93 euros in Paris.

New planes would help American refresh a fleet that in 2010 averaged 15 years of age, tied with Delta Air Lines Inc. for the oldest among the six biggest U.S. carriers. Jet fuel and labor are the largest expenses at airlines, so savings from more-economical aircraft would help AMR’s efforts to end two straight annual losses.

‘Fleet Simplification’

The trade-off is that adding Airbus planes ends American’s strategy of holding down operating costs by flying only Boeing jets, said Robert Mann, owner of consultant R.W. Mann & Co. The move also creates permanent scheduling inefficiencies, he said.

“They’ve been preaching fleet simplification for years, and all of a sudden it doesn’t matter,” Mann said in an interview from Port Washington, New York. “It’s almost as if the pricing is so attractive they think they can ignore the complexity costs over the life of the airplanes.”

With Boeing’s proposal to upgrade the 737 with new engines, the planemaker is following the lead of Airbus, which announced that step last year for its A320 jet family. Boeing hasn’t said publicly whether it would re-engine the 737, a less-expensive option, or wait until later this decade to offer a new jet. Boeing’s board still has to approve a new-engine plan, according to the people familiar with that matter.

Single-Aisle Competitors

The 737 and A320 compete in the single-aisle segment that makes up the biggest part of the global airline fleet.

New narrow-body planes would help American replace its 216 Boeing MD-80s, the most common model among the carrier’s 613 mainline jets. A workhorse on domestic routes, American’s MD-80s average more than 20 years of age and went out of production in 1999.

American began receiving deliveries two years ago on an order of 130 737-800s that will be completed in 2013. Those planes are 25 percent more fuel-efficient than the MD-80s. The airline stopped flying Airbus jets in 2009.

AMR also is recommending that directors approve the spinoff of regional carrier American Eagle, three people familiar with the matter said. There is no guarantee that the board will vote on Eagle’s future, the people said.

AMR and the Eagle pilots’ union negotiated an agreement for ownership of the smaller airline’s planes to be transferred to American, where they can be parceled out to other airlines to provide regional flying, according to Tony Gutierrez, chairman of the Air Line Pilots Association unit at Eagle.

In exchange, American agreed to terms that include offering a future job to all 3,000 current Eagle pilots, putting them in the queue first when the larger airline is hiring, Gutierrez said in an e-mail to members.

AMR has studied options for Eagle for more than a year. A spinoff would allow American to hire additional regional carriers and let Eagle fly for other major airlines. Tim Smith, an American spokesman, declined to comment.

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