United Airlines is placing a large order for new planes so it can replace older planes and prepare for growth once the pandemic subsides
United Airlines is placing its largest order ever for commercial airplanes in an aggressive bet that air travel will make a strong comeback from the pandemic.
United said on Tuesday it would buy 200 Boeing MAX jets and 70 aircraft from Europe’s Airbus to replace many of its smaller and some older planes and make room to grow its fleet.
This is the largest order in United’s history and the largest order by any US carrier since American Airlines ordered 460 Boeing and Airbus jets in 2011.
With previous orders, United expects to add about one new aircraft every three days in 2023, up from just over one a month next year. That’s an ambitious amount of growth for an airline that lost $7 billion last year, when passenger traffic fell 69%.
US airlines needed billions of dollars in federal aid and private lending last year, but they are starting to see blue skies through the clouds of the pandemic. Flyers in the US are now above 2 million in several days – not back to 2019 levels, but a change from fewer than 100,000 passenger days in April 2020.
United said it expected to make money in July excluding some costs, although Wall Street doesn’t expect United to have an adjusted profit until the second quarter of next year, according to a FactSet survey of analysts.
CEO Scott Kirby said business travel would pick up after Labor Day, and that both business and international travel would fully recover, though probably not until 2023.
United said it has ordered 150 Boeing 737 MAX 10S jets, 50 smaller MAX 8S and 70 Airbus A321Neos, which typically seat 220 passengers in economy and premium. United’s chief commercial officer Andrew Nosella said aircraft larger than Europe’s Airbus would be particularly valuable in San Francisco and Newark, New Jersey, where limited runways prevent United from adding many more flights.
As with previous deals, United expects to take delivery of about 500 new aircraft between now and 2026. Nocella said 300 will replace many of the airline’s 50-seat regional jets and older Boeing 757s, while 200 will be used for augmentation.
The new aircraft will have more premium seats and seat-back entertainment screens. United also plans to refresh the interiors of its existing aircraft by 2025.
United will rapidly increase capital spending to pay for the new aircraft, from $4.2 billion next year to $8.5 billion in 2023. The airline is counting on growing revenue to reduce its net debt from about $25 billion to less than $18 billion by 2026.
United’s order is, of course, a huge boost for the world’s two main aircraft makers, particularly Boeing. The Chicago-based company saw a drop in orders after Max jets were grounded after two fatal crashes. On top of that, the pandemic has hurt sales for both companies.
Boeing “needs to play a little catch-up,” and so it gave United a huge discount, said George Dimitroff, an analyst at Ascend By Cerium.
“From here onwards, pricing will get stronger. I think United are probably taking advantage of the last of the good pricing,” Dimitroff said.