Boeing’s Embattled Max Gets a Key Win With Its First Post-Crash Deal
Boeing’s Embattled Max Gets a Key Win With Its First Post-Crash Deal
(Bloomberg) -- Boeing Co. won a huge endorsement for its troubled 737 Max aircraft, as the parent company of British Airways promised to build its future short-haul fleet around the model with a plan to buy 200 jets.
In a commitment valued at $24 billion, IAG SA signed a letter of intent to take the single-aisle planes between 2023 and 2027, Boeing said in a statement Tuesday. It was the first deal for the 737 Max since a March grounding that followed two deadly crashes of the aircraft, the best seller in Boeing’s history.
The pact ends months of unrelentingly bad news for Boeing’s flagship aircraft, which the company is struggling to return to the skies as a grounding enters its fourth month. IAG’s willingness to bet on the model provided a special boost since Chief Executive Officer Willie Walsh is a former 737 pilot who has flown a Max simulator equipped with an update to a software system implicated in both crashes.
“I wouldn’t ask anybody to do something I wouldn’t do myself,” Walsh told reporters at the Paris Air Show. “If you ask me, I would get on board a Max tomorrow.”
Boeing climbed as much as 4.3% to $370.08 in New York for the biggest intraday gain since Jan. 30. The share gain was the most since an Ethiopian Airlines 737 Max crashed on March 10, less than five months after the same model went down off the coast of Indonesia. The disasters killed a total of 346 people.
‘Strong Endorsement’
Negotiations with IAG went down to the wire, and it wasn’t clear until Tuesday afternoon in Paris that Boeing would clinch the sale, according to a person with knowledge of the matter.
“It’s a very strong endorsement and exactly what they needed,” said aerospace analyst Richard Aboulafia. “Both sides get something great: Boeing gets an incredibly well-timed endorsement and IAG gets to buy planes at a very heavy discount, probably, with no risk.”
By signing of a letter of intent instead of a firm order contract, IAG gains an insurance policy of sorts for a jetliner whose immediate future is still uncertain, Aboulafia said. It’s not clear when the Max’s grounding will end, as global regulators evaluate its flight-control systems including a software redesign.
IAG “can firm it up as the situation gets clearer,” Aboulafia said.
For Boeing, “that’s the best win you’re going to get given the circumstances,” he added. “This is an airline company with a very respected engineering department. That matters. Absolutely.”
Upending Paris
With the Max deal, Boeing upended what looked to be a cake walk for Airbus at this year’s Paris trade fair. As of Tuesday afternoon, Boeing had pulled ahead of its European rival with a total of $31.8 billion in deals over two days, with Airbus about $150 million behind. The amounts are based on list prices, before customary discounts.
The IAG deal dwarfs any other announcements so far at the Paris Air Show, where rival Airbus SE took an early lead on Monday and Boeing came up empty.
The duel between the two planemakers heated up on Tuesday, with IAG also ordering 14 Airbus A321XLRs for its Iberia and Aer Lingus units. That followed on the heels of similar deals from influential lessor Air Lease Corp., Saudi Arabian Airlines and Filipino carrier Cebu Pacific.
Boeing won a 20-plane 787 order from Korean Air Lines including 10 new 787-10s and 10 new 787-9s valued at $6.3 billion at current list prices. Korean Air will also lease 10 787-10s from Air Lease.
‘Honored and Humbled’
A 200-plane order would be one of the largest ever for the 737 Max and, if completed, the biggest ever for IAG. It would immediately make IAG one of the plane’s top customers. The Max, the latest version of Boeing’s workhorse narrow body, debuted two years ago.
“We are truly honored and humbled by the leadership at International Airlines Group for placing their trust and confidence in the 737 Max and, ultimately, in the people of Boeing and our deep commitment to quality and safety above all else,” Kevin McAllister, president of Boeing’s jetliner unit, said in the statement.
Assuming the IAG deal is formalized, the airline group will use the Max to diversify a single-aisle fleet that mostly consists of Airbus’s A320-family models. IAG will take a mix of Max 8 and Max 10 jets.
CEOs’ Confidence
The Max got a second boost Tuesday from one of the world’s top aircraft lessors.
Alec Burger, CEO of GE Capital Aviation Services, said “global demand overall remains strong” for narrow-bodies, including the 737 Max.
GECAS, which has taken 25 Max deliveries and has another 151 on order, is in active conversations with 20 customers about placing the planes, he said at an analyst meeting during the air show.
Walsh said he flew the Max in a simulator, including a version with a software update Boeing is finalizing. Global regulators led by the U.S. Federal Aviation Administration are conducting a review of the plane as they study whether the jet can safely resume commercial flights.
“It was very helpful to see it in operation and understand the changes Boeing were proposing,” Walsh said. “It gave me confidence.”
--With assistance from Richard Weiss, Richard Clough, Benedikt Kammel and Tara Patel.
To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net;Benjamin Katz in London at bkatz38@bloomberg.net
To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net;Anthony Palazzo at apalazzo@bloomberg.net
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