Thursday, January 21, 2016

United, Southwest buy 73 Boeing jets in blow to Bombardier

(Reuters) - United Airlines said on Thursday it will buy 40 small planes from Boeing Co., dealing a $3.2 billion blow to Bombardier Inc. hopes of landing a major customer for its fledgling CSeries program.

Separately, Southwest Airlines Co. said it had ordered 33 of Boeing's 737-800 aircraft, a deal it struck in December but announced on Thursday.

Reuters reported last week that Boeing was poised to snatch at least part of Chicago-based United's order for small jets that seat about 100 passengers.

Boeing 737-700s can seat 126 people and will be flown by United's pilots, reducing its reliance on contractors as a shortage of regional pilots looms in the United States.

Canada's Bombardier has not landed an order in more than a year for the CSeries, a new carbon-composite aircraft whose two models seat between 100 and 160 passengers and are equipped with fuel-efficent Pratt & Whitney engines.

The orders suggest "good market demand" for aircraft after sales fell last year, said Howard Rubel, an analyst at Jefferies in New York. It also shows airlines prefer fewer models in their fleets, making cockpits more familiar to pilots.

"Commonality works," Rubel said.

Reuters reported in October that Bombardier had offered the CSeries to Southwest, a long shot since the airline maintains an all-Boeing fleet.

The CSeries is due to enter service in 2016 after delays and amid cash problems at Bombardier. The plane maker did not immediately respond to requests for comment. A spokeswoman said this week the plane is "a top contender in several key campaigns."

Delta Air Lines Inc DAL.N on Tuesday said it was considering Bombardier's new aircraft.

Another competitor for the United order, Brazil's Embraer SA, declined to comment on the Boeing deal.

United is expected to buy more small jets because it lacks planes in the 100-seat niche, Cowen and Co analyst Helane Becker said in a research note.

United, the second-largest U.S. airline by capacity, likely paid well below half the $80.6 million catalog price for the Boeing 737-700s, industry sources said. The plane is being phased out in favor of a newer model, the 737 MAX, and United's jets are due to start entering its fleet in mid-2017.

Airlines typically enjoy discounts of 40 percent or more on aircraft. Bombardier has been reluctant to discount the CSeries, a new product that has yet to recover development and early manufacturing costs.

Boeing's 737-700 long ago recovered such costs, allowing greater discounts for sales that help fill the production schedule as it shifts to the MAX, due to make its first flight this year.

Bombardier has 243 firm orders for the CSeries, shy of its target of 300 orders by the time the plane enters service.

"If Bombardier were to win an order from United or Delta, it would be a significant program-legitimizing order and a major positive for the company," National Bank analyst Cameron Doerksen wrote this week.


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