United Seeks Fuel Savings with $14.7 Billion Boeing Order

Boeing Co. (BA) won another big order for the stretch version of its 737 jet, biting back at a challenge from Airbus SAS, which modified the wings of its A321 to make it more competitive.

United Continental Holdings Inc. (UAL) ordered 150 of Boeing’s biggest single-aisle jets on 11 July, including 50 737-900ERs, as the world’s largest airline works to cut its fuel bill by replacing older, less efficient planes like Boeing’s 757. Delta Air Lines Inc. similarly rebuffed Airbus last year with an order for 100 737-900ERs.

The decision is a blow to Airbus, which said in 2010 it would add eight-foot-high extensions known as sharklets to the A321’s wings to help it fly farther and capture more of Boeing’s home market. The 757, which Boeing stopped building in 2005, has been U.S. carriers’ plane of choice on cross-country flights and to Hawaii, as well as some routes to Europe.

United’s order is “a real glowing endorsement of the 737-900ER, because there’s an argument to be made that it doesn’t quite get there as a 757 replacement,” said Carter Leake, a BB&T Capital Markets analyst in Richmond, Virginia.

The 757-200, which can carry as many as 200 in a two-class configuration, has a maximum range of about 3,900 nautical miles(7,200 kilometers). That compares with about 3,200 nautical miles for the 737-900ER, which can carry about the same number of people, according to Boeing’s website.

The A321 can fly 185 passengers about 3,200 nautical miles with the sharklets.

Aircraft Commonality

Airlines probably are accepting a compromise because of the commonality between the 737 and 757 for pilot training and maintenance purposes, compared with the cost of having to switch to a different manufacturer, Leake said.

Airbus didn’t immediately respond to requests for comment.

United’s order, valued at $14.7 billion, included 100 737 Max 9 jets, making it the first North American customer for Boeing’s planned revamp of the narrow-body jet, which will eventually replace the 737-900ER.

The planes will be delivered from 2013 through 2022, the airline said at its Chicago headquarters.

The 737-900ER is about 15 percent more fuel-efficient than the Boeing 757-200s it will replace, and the Max model will be about 13 percent better than that, the airline said. United is the last of the four biggest U.S. carriers to upgrade its single-aisle jets in the past year, and a $12.4 billion fuelbill was its largest expense in 2011, about 36 percent of total spending.

757 Replacement

“United, like all the airlines, is looking to have the most fuel-efficient fleet because that’s the best hedge for rising fuel prices,” Michael Derchin, a CRT Capital Group LLC analyst, said in an interview. “The 757’s been a really good airplane for a long time. I don’t think they ever envisioned they’d be used for international flying. That gave them new life.”

Boeing’s decision to stop building the 757 after a 23-year production run opened a flank to its larger rival. The 737-900ER can fly 95 percent to 97 percent of the routes the 757 flies today, so that jet, followed by the upcoming 737 Max 9, will be the company’s replacement plan for now.

Max Orders

Boeing kicked off the Max program with a deal with American Airlines for 100 of the new planes. The model is due to enter service in 2017.

The plane maker climbed 0.3 percent on 11 July in New York trading to $71.71. That pared the stock’s decline this year to 2.2 percent, underperforming an 11 percent gain in the same period by Airbus parent European Aeronautic Defence & Space Co.

The United order, which builds on 549 previous firm orders for the Max, is the airline’s first since the 2010 merger of former parent UAL Corp. and Continental Airlines Inc.

Boeing has delivered a total of more than 1,400 jetliners to United and Continental, said Jim McNerney, the planemaker’s chief executive officer.

United will begin receiving the Max 9 in 2018. The plane has a list price of $101.7 million, though airlines typically negotiate discounts. The 737-900ERs, with a list price of $89.6 million each, will start arriving in late 2013.

Boeings make up about 78 percent of the carrier’s mainline jets, with the rest made by Toulouse, France-based Airbus. United held talks over about six months on a possible mixed order of current and new-model 737s and A320s before opting to stay with Boeing, people familiar with those discussions said in April.