LDN - Business

Airlines try to leverage Boeing woes despite lack of alternatives

[March 14, 2024] By Rajesh Kumar Singh

NEW YORK (Reuters) - Airline executives are frustrated with Boeing as its safety crisis has upended their business plans. But in a tight market for large aircraft supplied by two companies, they have little choice but do business with the U.S. planemaker.

Despite some public displays of alarm - United Airlines CEO Scott Kirby flew to France to talk with Airbus as Boeing's latest crisis erupted - carriers are still negotiating new plane orders, looking to leverage Boeing's delays to secure better terms.

Boeing's delivery schedule faces extended delays following a Jan. 5 mid-flight cabin blowout that exposed problems with safety and quality control in its manufacturing processes. But rival Airbus already has a backlog of orders that makes shifting over a non-starter.

Instead, airlines are adopting a variety of strategies to try to stay in the game with Boeing, using orders of one type of plane as a placeholder to possibly take deliveries of a different model. They also are negotiating harder, looking to use production delays to get discounts from the planemaker on new orders and compensation for financial losses.

"Boeing customers don't have much option but to stick with Boeing whether they like it or not," said Scott Hamilton, managing director at aviation consulting firm Leeham Company.

Kirby has been among the most vocal in expressing frustrations with Boeing. He met with Airbus after regulators grounded all of United's Boeing 737 MAX 9 fleet and put a big question mark over certification of the larger variant MAX 10, which was due for deliveries this year and was to be the cornerstone of United's fleet.

United has ordered 277 MAX 10 jets with options for another 200, but the tumult at Boeing moved the company to look at Airbus' A321neo jets as an alternative. Those talks raised the specter of Boeing losing one of its most loyal customers.

However, Airbus' order book is full through 2030. On Tuesday, Kirby said United wants A321 jets but is not willing to overpay for them.

Now, there is growing realization inside United that the carrier won't be able to find one solution to its MAX 10 problem, a person familiar with the matter said.

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A Boeing 737 Max at the Farnborough International Airshow, July 20, 2022. REUTERS/Peter Cziborra/File Photo

Instead, United is looking to use the delayed Boeing order to extract better deals for other planes, the person said. United has asked Boeing to start building MAX 9s for delivery and plans to convert those orders into MAX 10s once that aircraft is certified, Kirby said.

Several weeks ago, American Airlines CEO Robert Isom blasted Boeing for its persistent quality issues, asking the jet manufacturer to get its act together. Last week, it placed its first-ever order for MAX 10 jets to secure an alternative to its Airbus A321 planes.

The Texas-based carrier has had to deal with Boeing's delivery delays, including for the 787 Dreamliner, which not only hampered its efforts to capitalize on the post-pandemic travel rebound, but also drove up its costs.

In return for a vote of confidence for the troubled MAX 10 program, Chief Financial Officer Devon May said American had negotiated options to convert those orders into MAX 8s or MAX 9s. Its supply contract also provides for financial compensation from Boeing for delivery delays.

For airlines like Southwest, one of Boeing's primary customers, transitioning away from Boeing is tantamount to changing their business model. It would entail heavy investments in maintenance, training and technologies.

Airbus has long tried to woo Southwest with its smaller A220 as a substitute for Boeing's delayed MAX 7. But CEO Bob Jordan said the cost of operating multiple fleets is "significant."

"A strong Boeing is great for Southwest Airlines," Jordan said at JP Morgan's industrial conference on Tuesday. "It's great for our industry."

(Reporting by Rajesh Kumar Singh; Editing by David Gaffen and Bill Berkrot)

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