Friday, 23 June 2017

United Airlines Paris Air Show Ordered 100 Boeing 737 MAX 10

United Airlines made a blockbuster announcement Tuesday at the Paris Air Show, shifting 100 of its outstanding 737 MAX orders to Boeing’s newly launched 737 MAX 10.

United also announced an incremental order for 4 Boeing 777-300ER widebodies, growing its 777-300ER order book to 18 frames, just two short of rival American Airlines and one short of Air Canada for the biggest fleet of 777-300ERs in North America.

The 737 MAX 10 is the newest and largest variant of Boeing’s re-engined 737 MAX family and was launched Monday at the Paris Air Show in a brief press conference. The 737 MAX 10 adds two additional rows of seating relative to the 737 MAX 9 (the previous largest member of the MAX family).

It seats as many as 230 passengers in a single class configuration and will seat approximately 188 passengers in a typical two-class configuration. For United, the aircraft will probably be configured in a three-class configuration with Economy Plus so the seating capacity might be smaller.

United currently has 161 737 MAX jets on order; 100 from an order placed back in July 2012 for 100 737 MAX 9s, and 61 conversions from United’s multiple orders for the 737-700 placed under prior management teams. Its order book now consists of 61 737 MAX 9s and 100 737 MAX 10s. United expects to take delivery of its first MAX 10 in 2020.

With the announcement, Boeing has now revealed 290-310 orders and commitments for the 737 MAX 10 from 11 customers. Both figures are actually higher than the 240 from 10 customers promised by Boeing at the opening of the show.

The order was announced at a press conference featuring Boeing’s Global VP of Sales Ihssane Mounir, Boeing Commercial Airplanes CEO, and Gerry Laderman, United’s SVP of Finance and Procurement.

Once again, Mounir kicked off the press conference with a half-attempt at humor:

Apologies the room is a little hot, but the announcement makes it a little hotter. Jerry is the godfather of economics, and their order is all about economics. They have elected to purchase 100 MAX-10s and four additional 777-300ERs.

McAllister also spoke fondly of the deal.

This is a very special day for all of us at Boeing, and I have to say on bahalf of all, this means a lot to us. This order is not only a launch customer, it makes them the largest MAX-10 customer in the world. They have a very talented team who participated in this assessment. We are simply honored with the confidence United places in the MAX-10. This makes United’s 11th launch with Boeing, beginning in the 1920s.

Laderman was similarly nostalgic:

When I first joined the airline, we [United] were flying 737-100s, and now we’re very excited about the 737 MAX. We have had great success with the stretched models of aircraft, including the 757-300. Today we launch the MAX-10 which we hope will be as successful as those other models.

These 100 737 MAX 10s will be used by United to grow domestic capacity, whether through direct capacity growth or through United’s typical cascade of replacing regional jets indirectly with large narrowbodies.

In this model United uses smaller narrowbodies (the 737-700/800 or Airbus A319/A320) to replace regional jets, and then uses larger narrowbodies (the 737-900ER mostly) to replace the routes that had been flown by the smaller 737 and A320 family jets.

Sometimes the first step in this chain is actually to replace a small, 50-seat regional jet with a larger 76-seat one in which case the cascade just moves down a level.

In particular, the MAX 10 will be very useful for United at its space constrained Newark and San Francisco hubs, as well as for high-density routes from the Denver hub. It may also fly to Hawaii and other leisure destinations. Essentially it will play the same role that the 757-200 used to domestically and a similar role to the 737-900ER.

Another role will be to perhaps replace the 21 757-300s in United’s fleet. While these aircraft about 25 seats larger than the MAX 10, they are also getting up there in age, and the MAX 10 should have comparable seat mile economics as it is basically two generations newer.

Another almost certain replacement role will be for United’s transcontinental fleet of premium service (p.s.) Boeing 757-200s. Rival American Airlines has already switched to the Airbus A321, and retiring the MAX 10s would allow United to isolate the 757 fleet to purely a trans-Atlantic mission either replacing these aircraft with the 737 MAX 8 or with a new mid-sized airplane NMA from Boeing.

The 737 MAX 10 was already in good shape after the massive surge of orders announced over days one and two of PAS, but the order from United is validation on a different level even than Lion Air or SpiceJet.

Obviously, one piece of this is the size of the order, but United is a tier 1 global carrier in a way that those two Asian ULCCs simply cannot match. United is the world’s third largest airline (by RPKs) and that gives Boeing’s attempt to address the middle of market (MOM) space real weight from day one.

Between the 737 MAX 10 and the 737 MAX 9, Boeing has now closed the gap to perhaps 2:1 or 2.5:1 in favor of the Airbus A321neo. That still isn’t great but it is much better than the 3-4:1 before the show.

One underrated aspect of this order is the incremental top-up of United’s 777-300ER fleet, growing that subfleet to 18 aircraft by the end of 2018. Three of the four additional orders will be delivered before summer 2018, while the fourth will be in place by the end of 2018.

United has apparently seen strong success with its existing 777-300ER fleet which features the carrier’s new Polaris Business Class product and seats 366 passengers in a three-class configuration (60J / 102Y+ / 204Y).

The 777-300ERs are being used to replace the Boeing 747-400 and in the current environment are highly economical. Boeing no doubt gave United a spanking deal on these 777-300ERs to help bridge its production gap in 2018 as it seeks to transition from the 777 Classic to the re-engined 777X.

The one question that this does bring up for Boeing’s rival Airbus is whether United will further defer at least a portion of its order for Airbus A350-1000s. We are hearing further chatter about delays to United’s order for 35 A350-1000s, and United is no doubt being pitched by Boeing on more 777-300ERs on the cheap followed by 777Xs in the mid 2020s.