Wednesday, April 25, 2012

General Electric would benefit in United order of 200 Boeing 737s

 Bloomberg News
Published 09:45 p.m., Tuesday, April 24, 2012

United Continental Holdings Inc. is negotiating only with Boeing Co. for an order of about 200 narrow-body jets after dropping discussions with Airbus SAS, two people familiar with the matter said.

Talks had been under way for at least six months about a mix of current-generation Boeing 737s or Airbus A320s plus variants with new, more-efficient engines, said the people, who declined to be identified because details aren't public.

An all-Boeing order would also benefit CFM International, the General Electric Co.-Safran SA venture that makes the only engines used on the 737. CFM competes with United Technologies Corp.'s Pratt & Whitney unit on the A320neo model.

The 737 is the world's most widely flown airliner, and Boeing planes account for more than three-fourths of the main fleet of 701 jets at United Continental, which was formed in the 2010 merger between UAL Corp. and Continental Airlines Inc.

"It will be a nice win for Boeing and GE," Jeff Sprague, co-founder of Stamford-based Vertical Research Partners, said in a telephone interview. "Although the new company is called United, it's really being run by Continental management and they've always been a Boeing carrier. It was probably natural for them to go toward Boeing and CFM for fleet commonality."

A United deal would cement ties to a longtime customer and build on Boeing's victory over Airbus in winning a 100-plane purchase from Delta Air Lines Inc. in August. Airbus and Boeing, split a 460-jet order with AMR Corp.'s American Airlines in July. The list value for 200 737s would be about $16.9 billion, based on the $84.4 million retail price of the 737-800.

"If United goes with Boeing for this order we see this as a helpful market-share gain," Robert Stallard, an RBC Capital Markets analyst in New York, said in a note to clients. He has an outperform rating on Boeing, which like United is based in Chicago.

Spokesmen for United, Boeing and Toulouse, France-based Airbus all declined to comment about the status of the latest negotiations.

Boeing slid 0.9 percent to $72.86 at the close in New York as U.S. stocks slumped, while United, the world's largest airline, fell 0.3 percent to $22.85. Airbus parent European Aeronautic, Defence & Space Co. dropped 4.4 percent to 29.25 euros earlier in Paris.

Aircraft Options

Some of the planes in the 200-jet total may be options for future aircraft, said the people. The value of the order may rise once United settles on terms, because the 737-800 is less expensive than the so-called MAX model with upgraded engines. Airlines typically buy at a discount.

Continental had an exclusive relationship with Boeing dating back two decades. The new United is run by Jeff Smisek, who joined Continental in 1995 and was chief executive officer during the merger talks. United's fleet management group is overseen by Gerry Laderman, senior vice president of finance and treasurer, who joined Continental in 1988.

Boeing is trying to reclaim the top spot in commercial production lost to Airbus in 2003. Airbus had record orders of 1,419 aircraft last year, while Boeing's tally was 805. Airbus has said 2012 orders may fall by half as an initial flurry of purchases of its A320neo wanes.

United is refreshing a single-aisle fleet that includes Boeing 757-200s, with an average age of 18.2 years, and 737-500s that average 16.6 years old. Boeing no longer makes either model.

Before the merger creating the new airline, UAL's United agreed in December 2009 to split an order for 50 wide-body jets between Boeing and Airbus. That deal was for 25 Boeing 787 Dreamliners and the same number of Airbus A350s.

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