Boeing lands multibillion deal from BA

British Airways (BA) announced a multibillion-dollar order for up to 42 Boeing 777 fuel-efficient passenger jets on Thursday, just two weeks after Airbus said it would no longer make its A380 superjumbo. British Airways is the flag carrier and the largest airline in the United Kingdom...

British Airways (BA) announced a multibillion-dollar order for up to 42 Boeing 777 fuel-efficient passenger jets on Thursday, just two weeks after Airbus said it would no longer make its A380 superjumbo.

Background

British Airways is the flag carrier and the largest airline in the United Kingdom based on fleet size. The airline is based in Waterside near its main hub at London Heathrow Airport. In January 2011 BA merged with Iberia, creating the International Airlines Group (IAG), a holding company registered in Madrid, Spain. IAG is the world's third-largest airline group in terms of annual revenue and the second-largest in Europe. It is listed on the London Stock Exchange and in the FTSE 100 Index.

The Boeing Company is an American multinational corporation that designs, manufactures, and sells aeroplanes, rotorcraft, rockets, satellites, and missiles worldwide. The company also provides leasing and product support services. Boeing is among the largest global aircraft manufacturers; it is the fifth-largest defence contractor in the world based on 2017 revenue and is the largest exporter in the United States by dollar value. The company is registered under the Dow Jones Industry Average.

The deal between BA and Boeing comes just after Airbus announcing to stop production on the double-decker A380. Airbus SE is one of Boeing’s biggest rivals in the international market. The production of A380 will be halted in 2021 after the completion of the remaining deliveries.

Analysis

IAG, the parent company of BA, said the British carrier would purchase 18 Boeing 777-9 planes with an option for a further 24 aircrafts bringing the total cost of the deal to $18.6 billion at list prices before the usual discounts are factored in.

The announcement comes as IAG, the group that also owns Iberia and Aer Lingus, said that their net profits soared up by 45 per cent last year raking in a profit of $2.9 billion. The profit was possible due to high passenger numbers and lower operating costs. They also announced that the 777’s would replace BA’s 747 aeroplanes, which were meant to be competition to Airbus’ A380.

The U.K based engineering group Rolls Royce have reported a net loss of $3.2 billion in 2018 while having a net profit of around $4 million from the previous year. This was in part due to the cancellation of the A380. Another major expense for the company was due to the repairs that were necessary for the Trent engines. The British company also said it no longer wished to be a candidate to make the engine for a new midsize passenger jet proposed by Boeing.

“Rolls-Royce has decided to withdraw from the current competition to power Boeing’s proposed middle of the market — or New Midsize Airplane (NMA) — platform,” Rolls said in a statement. “While we believe the platform complements Boeing’s existing product range, we are unable to commit to the proposed timetable to ensure we have a sufficiently mature product which supports Boeing’s ambition for the aircraft and satisfies our own internal requirements for technical maturity at entry into service.”

The Boeing 777-9 is touted to be an NMA or a single-aisle commercial jet for long-haul journeys. The planes will be made of carbon-fibre and are trying to fill a gap in the market by offering smaller long-range aircraft that could economically flyover major hubs and directly connect smaller airports. The NMA’s are more fuel-efficient than the older jumbo jets.

“The 777-9, in particular, simply has no competitor in its class when it comes to efficiency and performance. It is the right-sized aeroplane for British Airways to efficiently serve long-range routes with heavy passenger demand” said Kevin McAllistor, president and CEO of Boeing Commercial Airplanes.

Assessment

Our assessment is that multibillion-dollar order placed by BA for Boeing’s 777 aircraft is beneficial for both the companies. Boeing received the order just after the cancellation of the A380 which places the company ahead of its market rival. The smaller, more economic long-haul flight sector has a lot of potentials that can be tapped by BA in order to generate higher profits. We feel that the withdrawal of Rolls-Royce from manufacturing of the engines could lead to extended lead times in delivery.

 

Read more:

 

Image Courtesy: Dmitry Terekhov from Odintsovo, Russian Federation, British Airways, Boeing 777-236(ER), G-VIIHCC BY-SA 2.0

 

Comments