Lufthansa Switches Boeing 777 Orders to Options in Fleet Rethink

(Bloomberg) -- Deutsche Lufthansa AG is stepping back from a commitment to buy 14 Boeing Co. 777X wide-body jets valued at $6.2 billion as it slows fleet growth in an effort to cut capital spending and rein in capacity.

Announced as a regular order six years ago as part of a 34-jet deal, the aircraft have been re-designated as “options,” Lufthansa said Thursday in a quarterly earnings report. The change is normally in the other direction, with options upgraded to firm purchases. The airline said the deal had always been “reconfirmable” and that the move doesn’t amount to a cancellation.

Lufthansa has been scrutinizing its backlog for the biggest wide-body jets as it increasingly opts for smaller twin-aisle planes. The company plans to get rid of some Airbus SE A380 superjumbos and in March ordered 787 Dreamliners, which carry fewer people than the 777, for the first time. Chief Executive Officer Carsten Spohr told staff as long ago as 2017 that the 777-9 order was under review.

Lufthansa said in its third-quarter statement that the orders for the 14 planes are “not sufficiently certain to be exercised.” The switch to option status is a “more sensible approach to capacity growth,” Sanford C. Bernstein analyst Daniel Roeska said in a note.

Boeing said the aircraft weren’t listed as orders in its backlog and that Lufthansa “continues to have a firm order for 20 777Xs and 14 options.”

The 777X’s service entry has shifted to early 2021 from late next year following a delay concerning the model’s General Electric Co. engines. Launch customer Emirates may juggle its order book in light of the development and stuttering demand for travel in the Persian Gulf.

The 777-9, the bigger version of the upgraded model, has a list price of $442 million, though the cost would have been much lower when Lufthansa ordered the planes, even before the hefty discounts usually secured by major carriers.

--With assistance from Siddharth Philip and Julie Johnsson.

To contact the reporters on this story: William Wilkes in Frankfurt at wwilkes1@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tony Robinson

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