MIAMI — As United Airlines reportedly nears a deal to switch 10 Boeing 787-9 Dreamliners into an order of 777-300ERs, as reported by Bloomberg, an industry analyst offers insight into why the deal is a win-win for the airline and the manufacturer.
“While we generally do not discuss specifics about our future fleet plans, we are not currently considering purchasing incremental wide-body aircraft,” said United spokeswoman Megan McCarthy. “We do, however, have the ability to negotiate the substitution of certain aircraft types for other aircraft types as part of our flexible fleet plan, and we are considering the Boeing 777-300ER in this context.”
Boeing spokesman Doug Alder declined comment, saying that conversations with customers are private. “But we are always working with airlines to meet their specific fleet needs,” he said.
Aviation analyst Robert Mann sees the potential deal as helping both Boeing and United. “My guess is that first, United has some of the early Boeing 777-200A models in its fleet. They’re old in the tooth and are a smaller gauge than United wants to see,” he said.
With this potential deal, United can swap those older 777s out with a higher-gauge aircraft with better economics, said Mann. He compared United’s possible deal with the one American Airlines made with McDonnell Douglas for the MD80 in the 1980s.
“McDonnell Douglas was struggling to keep the MD80’s Long Beach production line open. When American needed a narrowbody to replace the Boeing 727, it saw an opportunity to place a large order with McDonnell Douglas, whose order book was drying up,” said Mann. “American bought 75 MD80s on a lease-return basis. It worked well enough that it eventually turned into 400 orders.”
This is a hell of a deal for United, said Mann. “It’s similar to the deal American made with McDonnell Douglas, which had to sell a bunch of MD80s or shutter the plant,” he said. “While Boeing doesn’t face shuttering the 777 line, there is a gap between the 777 and 777X, and it needed to do something to bridge that gap.”
United had the flexibility to change its 787 orders, and Boeing will be able to remarket those easily, said Mann. “This order will be a placeholder in the 777 line, helping Boeing avoid cutting production. It’s an opportunistic deal for United and Boeing.”
The conversion of the 787-9 orders to the 777-300ER was partially a capital cost issue and partially a return on capital issue, said Mann. “United sees the chance to do better with its return on capital with larger aircraft that have better economics than 787-9. It also traded in on the premium Boeing can get remarketing it,” he said. “What this deal really says to me is that an airline and a manufacturer can be creative and opportunistic.”
As for United’s other options, it presumably could have looked at additional Airbus A350 units, said Mann. On June 20 2013, United announced it was converting an order for 25 A350-900s into the A350-1000, and added another 10 firm orders for A350-1000s, for a total order of 35 of the type.
Mann feels the order will accelerate the retirement of United’s four-engined 747s. The 777-300ER has more container positions than 747,” he said. “So from that standpoint, it can carry both 747 passenger loads and more cargo container positions. That’s a great opportunity.”
Globally, the 777-300ER has been a best-seller, but it has been sold mostly outside of United States, said Mann. “It came at a time when no U.S. carriers were ordering because industry was in a morass from 2000 to 2010,” he said.
The biggest winner in this deal is Boeing. “Without it, they would have had to ramp down the production rate of the 777 line as the orderbook dried up, or even produce white tails to fill the gap between the 2019-20 introduction of the 777X,” said Mann. “It gives Boeing the ability to mitigate the production ramp-down. It may also give other airlines with older 777 models an idea on how they could also participate in a chance to trade up.”