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United Airlines 737-700 Follow-Up Order is a Blow for CSeries

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United Airlines 737-700 Follow-Up Order is a Blow for CSeries

United Airlines 737-700 Follow-Up Order is a Blow for CSeries
February 23
11:17 2016

MIAMI — Just one month after placing an order for 40 737-700s, United Airlines is set to order an additional 25 aircraft of the type to bulk up its 100-125 seat aircraft fleetThis order is a blow to Bombardier, as it was hoping to win an order for its CSeries from United to further validate its momentum after the Air Canada order.

This 737-700 follow-up order will increase United’s combined order book for new 737-700s and used Airbus A319s to 89 frames in all.

Boeing prices Bombardier out of United Airlines’ business

Boeing was competing head to head for this second order with both Bombardier’s CSeries and Embraer’s E-Jets E2. In the recent years, Bombardier and Embraer have come to dominate the 100-125 seat market years, as Boeing and Airbus failed with the 737-600 and A318 respectively, and appeared to have ceded this space to the two secondary manufacturers on the next generation of aircraft. Neither the 737 MAX 7 nor the A319neo has sold very well, and with just two customers for the MAX 7, it was open question as to whether the variant would be developed at all.

Boeing perceived a real threat to United Airlines, one of its core customers, and acted swiftly. Reportedly, the 737-700s were discounted to between $20 and $25 million according to sources at the Chicago-based manufacturer, a whopping 70-75% discount off of the list price of $80.6 million. As a point of comparison for just how low that is, Air Canada’s CS300s were reportedly priced at $30 million, showing just how low Boeing was willing to go on prices to keep United off of Bombardier’s order book.

Thanks to the Air Canada order, United choosing Boeing is not a critical blow for the CSeries program, which also has existing sales campaigns targeting carriers like JetBlue, International Airlines Group (British Airways), and Delta Air Lines. But this renewed aggressiveness from Boeing might threaten Bombardier’s prospects if it persists.

The open question is whether such aggressive pricing was a one-time confluence of Boeing’s need to sell a few more 737NGs to tide over production till the MAX and a key customer leaning in a different direction, or if it represented a “new normal” for Boeing. If Boeing can price the 737 MAX 7 at $30-35 million profitably (and that’s a big if), it can definitely win some orders in the 100-130 seat categories once all of the other factors (such as maintenance support, dispatch reliability, and fleet commonality) are taken into account at the current price of fuel (or even double that). Selling more MAX 7s and financially out-muscling Embraer and Bombardier could be an interesting way for Boeing to narrow some of the order deficit for the MAX against the NEO, and it would certainly alter the competitive dynamic for the two smaller manufacturers.

United Airlines re-builds its small mainline fleet

For United, the 737-700 orders (along with the earlier buy of used A319s) allow it to really rebuild its mainline operations, particularly on thinner routes from its hubs. As United and Continental merged and began to shed older aircraft, the retirement of the ex-Continental 737-500s left a real hole in United’s network. United was over supplied with 50-seat regional jets and lacked a 100-125 seat jet to fly on thinner routes that still justified a mainline presence.

Now, United is finally rebuilding that fleet, and the 737-700 makes a great cornerstone for doing so. The net effect is going to be even fewer 50-seat regional jets, as 737-700s will replace E170s/E175s, and they in turn will begin to kick even more E145s and CRJ-200s to the curb. After years of mismanaging the situation, United’s new management team has really accelerated the thoughtful re-fleeting of the airline. The potential Boeing widebody order tied to the 737-700 buy (for 10-15 more Boeing 777-300ERs?) would qualify as more of the same.

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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