Buying airplanes, the Ryanair way

As airplane manufacturers gear up to pitch their products at the annual Paris Air Show, they're uncomfortably aware that the market for new airplanes is at its lowest in years. The realities of the tough market conditions aren't lost on Ryanair chief Michael O'Leary, either. But while Airbus and Boeing are struggling with a significant drop in orders, O'Leary is figuring that now's the time to open up the wallet, much as United is planning on doing; he knows that he's likely to get a better deal out of them when they're desperate for customers.

So the recent report that Ryanair is looking at ordering 300 new airplanes from either Airbus or Boeing should come as no surprise. That's a lot of aircraft - without a doubt, Boeing CEO Jim McNerney is salivating at the prospect of what he's labeled "the deal of the year." Ryanair is one of Boeing's best customers, operating a fleet of almost 200 Boeing 737-800s. CEO O'Leary, notoriously brash with his public statements, has told a group of Boeing employees that he would help them "kick the shit out of Airbus," and later told them that they "make the best goddamn aircraft in the world." "We love Boeing," he said. "Fuck the French."

So then why did Ryanair mention that it is considering an Airbus product? It has made fleet standardization one of the key points to its success, and there's no chance that it would operate both the 737 alongside the A319 or A320. And Airbus itself has said that it's not in talks with Ryanair; sales chief John Leahy told Dow Jones that "we're not negotiating," saying that Ryanair had set price expectations that were "unrealistically low."

The answer comes down to the fact that Michael O'Leary has always driven a hard bargain. He waited to order the initial batch of 737s until 2002, when Boeing was struggling after 9/11. But the order for Boeing was never a foregone conclusion; instead, he brilliantly played Airbus and Boeing off of each other, reportedly faxing the latest offer he received from Airbus over to Boeing and vice versa, in an attempt to get a lower price. Airbus offered to sell him A320s at half price, and O'Leary had apparently even shaken hands with the Airbus CEO before switching at the last minute to order from Boeing at even lower prices. O'Leary didn't mince words when recounting how he managed to get a spectacular deal from Boeing, saying: "We raped the fuckers."

But O'Leary can't fall back on competition between Boeing and Airbus to get a good deal anymore. Boeing knows that at the end of the day, barring some unforeseen tectonic shift, O'Leary will continue to be a devoted Boeing customer. And so it will be interesting to see how Ryanair will try to continue to get low, low prices on its new airplanes.

photo by Drewski2112 from Flickr, licensed under the Creative Commons

Airbus slows A380 output

photo by NguyenDai

Airbus unsurprisingly announced that it would lower the amount of A380 aircraft it produced this year to 14, down from 18. Originally, the company had planned to increase production this year compared with last (and still is expected to deliver 20 next year), but the weakened economy and recent scare over swine flu has had an impact on travel demand, causing airlines to defer/delay some aircraft deliveries. IATA has estimated that air traffic, which started declining back in September, fell by 11% in March. (The figures for April will be released soon.)

It's only the latest bump in the A380 program, which has not only seen cost overruns (development spending is now at $18 billion, up from the originally planned figure of $12 billion) but also substantial delays. Singapore Airlines, Qantas and Air France are expected to be among the airlines that take delivery of A380s this year. And Airbus is also scaling back production of other models, too - a move that competitors Boeing and Embraer have also followed.

Farnborough Airshow Review, Days 1 and 2

The Farnborough 2008 Airshow, which runs from July 14 to 20, is the first major airshow to be held since the Paris Air Show last June. Boeing VP Randy Tinseth pointed out on his journal a few ways that the aviation world has changed since the Paris show:

• There have been 2,678 commercial airplane orders (Boeing and Airbus)
• Oil has gone from $67/bbl to $134/bbl
• Jet fuel has gone from $2.12/gal to $3.92/gal
• The U.S. dollar has gone from 0.75 euros/dollar to 0.64 euros/dollar, and from 123 yen/dollar to 107 yen/dollar
• The market has continued to liberalize with “open skies” between the EU and the U.S.
• And worldwide aviation traffic continues to grow

The economic situation that the airline industry's in has only gone downhill since last year, so some expect that, as a result, there will be fewer orders announced at this year's airshow. So here's a quick summary of the orders placed from days 1 and 2 (July 14 and 15). It should also be noted that Airbus tends to "save up" announcing orders until airshows, while Boeing tends to announce them on a more regular basis.

Boeing

• Dubai-based low-cost startup FlyDubai ordered 50 737-800s, worth $3.74 billion at list prices.
  
• Ethiad Airways ordered 35 787-9s and 10 777-300ERS, worth $9.4 billion.
• Nigerian airline Arik Air announced an order for seven more 737s.

Airbus

• Aeroflot ordered five A321s.
• Dubai-based Aircraft lessor DAE Capital ordered 30 A350-900s and 70 A320s.
  
• Aviation Capital Group ordered 23 A320 family aircraft.
• Tunisair ordered three A350-800s, three A330-200s and ten A320s.
• Qatar Airways ordered four A321s.
• Ethiad Airways ordered 20 A320s, 25 A350 XWBs and 10 A380s.
  
• Saudi Arabian Airlines ordered eight A330s.
  

Airbus could build plants in US, Russia

photo by mathoov

According to a story in the German business weekly WirtschaftsWoche, Airbus is considering building assembly plants in the US or Russia. This is due to the strong euro, which Airbus parent company EADS head Louis Gallois said is threatening the long-term existence of the company.

The story said that if a plant were built in the US, it would probably be in Mobile, Alabama - this is also important because the company has long been seeking a contract with the US military to build tanker airplanes. An Airbus official pointed out that if the company were to build the tankers in the US, it would be more difficult for the military to reject Airbus' offer because they are a European company.

Hawaiian dumps Boeing for Airbus long-haul

photo by Ack Ook

Hawaiian Airlines announced yesterday that it was replacing its 18-strong fleet of Boeing 767-300s with 24 new long-range airplanes from Airbus. The order, which is for six A330-200s and six A350 XWB-800s (plus six options on each kind), is worth approximately $4.4 billion at list prices and will "enable [the airline] to open new routes to more distant markets on a nonstop basis from Hawaii," said a company press release. The first A350s will be delievered in 2017 (that's a ten year wait!), but Hawaiian will only have to wait five years for the first A330.

Mark Dunkerley, Hawaiian CEO and president, said that "we are building flexibility into the plan with some aircraft purchased, some to be leased and having options for others, which will allow us to scale the fleet according to our needs and opportunities over the next two decades". He also said that agreements with Airbus allow the company to lease additional A330s starting in 2009, which will allow Hawaiian to expand and to replace the Boeing 767s with leases that are due to expire in the next few years.