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Monday, September 26, 2022

United orders 270 jets to replace old ones, plan for growth

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United Airlines is placing one of the largest commercial jet orders in history, betting that air travel would recover quickly from the pandemic.

United announced on Tuesday that it will purchase 200 Boeing Max airplanes and 70 Airbus planes from Europe’s Airbus to replace many of its smallest and oldest planes while also expanding its fleet.

It’s United’s largest order ever, and the most by any American carrier since American Airlines ordered 460 Boeing and Airbus planes in 2011.

The accords are worth more than $30 billion at list rates, despite the fact that airlines often receive huge discounts. According to Ascend by Cirium, a company that measures aircraft valuations, the sale is worth roughly $15 billion. United refused to reveal the financial details of the deal.

United aims to add nearly one new plane every three days in 2023, up from just over one a month next year, thanks to prior orders. That’s a lot of increase for an airline that lost $7 billion last year due to a 69 percent drop in passenger traffic.

Last year, U.S. airlines required billions of dollars in public aid and private financing to stay solvent, but the epidemic clouds are beginning to lift. On many days, the number of persons flying in the United States exceeds 2 million, which is a significant increase from the days when there were fewer than 100,000 fliers in April 2020.

According to a FactSet survey of analysts, United expects to make money in July after deducting certain costs, but Wall Street does not anticipate United to post an adjusted profit until the second quarter of next year.

Business travel will start up after Labor Day, according to CEO Scott Kirby, and both business and international travel will fully recover, though not until 2023.

United has placed orders for 150 Boeing 737 Max 10s, 50 Boeing 737 Max 8s, and 70 Airbus A321neos, which can accommodate 220 passengers in economy and premium seating. According to Andrew Nocella, United’s chief commercial officer, the larger planes from Europe’s Airbus will be especially useful in San Francisco and Newark, New Jersey, where narrow runways hinder United from adding many more flights.

Between now and 2026, United intends to take delivery of around 500 new planes, based on past agreements. Many of the airline’s 50-seat regional jets and aging Boeing 757s will be replaced by 300, while 200 will be utilized to expand, according to Nocella.

More premium seats and seat-back entertainment displays will be available on the new planes. By 2025, United also wants to update the cabins of its current planes.

To pay for the additional jets, United will increase capital spending from $4.2 billion this year to $8.5 billion in 2023. By 2026, the airline expects increased revenue to reduce its net debt from around $25 billion to less than $18 billion.

United’s order is, of course, a significant boost for the world’s two largest aircraft manufacturers, particularly Boeing. Following the grounding of Max aircraft following two fatal crashes, the Chicago-based business noticed a drop in orders. Furthermore, the epidemic has harmed both firms’ sales.

According to George Dimitroff, an analyst at Ascend by Cirium, Boeing “has to play catch-up,” thus it likely gave United a substantial discount.

“Pricing will get firmer from here on out,” Dimitroff said. “I believe United is taking advantage of the last of the favorable pricing.”

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