By Susan Carey
(From THE WALL STREET JOURNAL)

United Airlines has asked Boeing Co. and Airbus to propose dueling bids for up to 150 new airliners -- the latest example of major companies exploiting the recession to bargain-hunt.

For the two aircraft makers, the deal could be worth more than $10 billion at a time when both are watching other customers cancel or defer orders. By staging a winner-take-all competition, United's parent, UAL Corp., is hoping to obtain better terms than otherwise might be available, according to people familiar with the situation.

It's a notable move amid falling travel demand and a tight lending environment -- on top of UAL's recent heavy losses and poor credit rating. But even in good times aircraft builders will go to considerable lengths to lock in an order, using in-house financing arms and other maneuvers to help airlines buy. Their goal: Ensure a steady appetite for their product in the notoriously volatile airline business.
United is among myriad companies attempting to use the economic downturn -- and in some cases, lower steel and other commodity costs -- as a chance to expand or land better pricing. In February, chip maker Intel Corp. said it would spend $7 billion over two years to expand three U.S. plants. German discount retailer Aldi plans to add 75 U.S. stores this year, far more than usual, to appeal to cash-strapped consumers.

Exxon Mobil Corp. in March said it would raise spending on exploration and production in 2009 by 11%, to $29 billion, despite tumbling oil prices.

Others are playing hardball with suppliers. Louise O'Sullivan of Prime Advantage, a buying consortium for industrial-equipment makers, said her group's spring meeting had surprisingly strong attendance. "Some of the biggest [ members] were there with grins on their faces," she said, because it "gave them the chance to hammer 40 to 60 of their suppliers in two days."

United has taken pride in its lack of aircraft orders in recent years, even as U.S. rivals started reopening their checkbooks. By ordering now, in the downturn, it hopes to be able to start taking delivery of the planes in a few years, when the economy is better. In the past, airlines have gotten stung by placing orders in good times, then having too many planes in a downturn.

United, which has a total fleet of 400 jetliners, sent a formal request to Boeing and Airbus on Tuesday, people familiar with the matter said. The request focuses on replacing many of United's 111-airplane wide-body fleet, as well as some of its 97 aging Boeing 757 narrow-body planes, these people said.

Chicago-based United has hired aviation consulting firm Seabury Group LLC to help it negotiate with the builders.

Unlike some of its largest domestic rivals, United already flies both Airbus and Boeing planes, giving both manufacturers an incentive to try to grab a bigger share of a major airline's business. As part of its order, United is hoping to simplify its fleet by ending up with fewer different types of aircraft, a change that would cut its maintenance and crew-training costs.

A spokesman for Airbus, a unit of European Aeronautic Defense & Space Co., declined to confirm or deny United's request. A Boeing spokesman declined to comment.

United could sign a major order as early as the fall, the people familiar with the matter said, if Boeing or Airbus agree to certain conditions. The most crucial would be financing arranged by the manufacturer that doesn't eat into United's cash, these people said. United also wants the flexibility to change the order later, according to these people.

By placing a firm order, an airline is committing to a buying and price schedule that stretches for years. However, contracts typically allow airlines to wriggle out of those deals with limited penalties.

If pitting Boeing and Airbus against each other doesn't yield a deal acceptable to United, the airline can wait because its fleet is, on average, a relatively young 13 years old. It already has retired more than half of its elderly Boeing 737s and plans to rid itself of the rest by year's end.

Boeing and Airbus still have multiyear order backlogs. But last year's spike in oil prices, along with the recession and financial crisis, brought on a series of order deferrals and a few outright cancellations by customers around the world.

Airbus in February said it would cut deliveries of its popular A320 narrow- body model to 34 a month from 36, starting next year. It originally had intended to ramp up to 40 units a month by 2010. In April, Boeing said it would trim its wide-body 777 production next year to five planes a month from seven.

For years, aircraft orders by major U.S. airlines were relatively rare. Following the 2001 terror attacks, carriers struggled with restructuring and bankruptcy. Overseas carriers did better, flooding manufacturers with orders. Carriers covet the fuel-efficiency of newer aircraft. The new models also let them cover routes they can't with existing planes.

U.S. orders have started to revive. AMR Corp.'s American Airlines, No. 2 in the U.S. by traffic, last fall announced its intention to order up to 100 Boeing 787 jetliners, if it can win agreement with its pilots' union on pay and other issues. This spring, American revved up deliveries of new 737-800s to replace some of its geriatric workhorse MD-80s.

United has been the odd man out since emerging from Chapter 11 bankruptcy protection in early 2006. In several conference calls with investors, as recently as April, it stressed that it had no new planes budgeted.

The timing is certainly opportune to place such a large order, and they've retained top advisors in Seabury.

With few orders of recent, both companies will go all out to win this order.

Funniest thing I have read in a long while.

UA has 40+ deferred A32X's it is unable to renegotiate these and I guarantee that if they select Airbus, it will be a rehash of these deferred jets.

Speaking to a couple of sales folks at Boeing involved in this RFP, they have already turned down UA's financing requests/proposals.

Unless UA gets funding elsewhere, I doubt Boeing or Airbus will go all out to win this. It saddles them with unwanted and possibly near unmarketable assets amidst the worst downturn for 50 years.

UA's pathetic attempt to dupe the press and others its "back with a bang" with a 150-jet order plan is quite frankly an unfunny joke.

The real joke will be on the idiots who finance and underwrite this fanciful notion that UA is somehow a healthy entity.

What will really be interesting is will UA make their fleet rationalization choices based on how well it would mesh with CO's?

UA still wants to merge with someone, but CO is still resistant. However, I cannot see UA buying the 737-900ER because it would be a niche plane in their Airbus A320 family fleet. The A321-200 pretty much has to win this one by default if it's just for UA. However, CO operates the 737-900ER and UA has canceled their unfilled A319 and A320 orders.

The 787 might not be big enough for UA unless the 787-10 launches and has similar performance to the 777-200ER. And even then... I know of a few airlines that are looking at the A350-1000XWB not as a 777-300ER replacement, but more as a "777-200ER Plus". So the entire A350 family could be a very nice fit for UA, allowing them to continue to perform their general plan of scaling capacity to demand throughout the year (as they now do with the 767, 777 and 747).

Could UA use the A380? I think they could make it work, if they adjust their schedules and feeds. I'd hate to lose SEA-NRT to keep an SFO-NRT A388 fed, but we might still survive with non-stop service. We've always been a 777, even though UA's 767s could do the mission, so the route must be making money. UA might also need to shift some services from a DEN connection to an SFO/ORD connection to feed A380 services.

Both companies will move heaven and earth to win this one, but right now, I think Airbus has the upper hand if UA is buying for themselves to operate independently going forward, or Boeing if UA is still trying to merge with CO.

I don't really see UA being able to finance so many jets whatsoever.

Forget the fact UA will be unable to finance it, I cant see WHO would be stupid enough to want to back this fanciful RFP. In a way, the "credit crunch" arrival is a good thing:

If United cant arrange payments/afford to pay Airbus for 40~ A320's, people must be deluded to think they can arrange funding for triple that amount of airplanes with a higher cumulative price tag to match.

You never know - an order for a two score order of A321-200s, a score of A380-800s and a four score total of A350-800XWBs, A350-900XWBs and A350-1000XWBs might just get France and Germany to open the check book to make it happen. France is already willing to fund near-term Airbus deliveries.

You never know - an order for a two score order of A321-200s, a score of A380-800s and a four score total of A350-800XWBs, A350-900XWBs and A350-1000XWBs might just get France and Germany to open the check book to make it happen.

You painted a very pretty picture, however, the biggest component missing is what all these Govt backed loans etc will do with an armada of unwanted Boeing jets.

Look at it this way, no one is queuing up for 747-400BCF conversions (despite Keesje's sordid beliefs) and 747-8F orders remain perfectly intact.

The 77A market evaporated a long time ago - the 757/767's may see freighter action, but the rest of the United fleet is essentially worthless. Even the 777-200ER's would be hard pressed to find buyers. I just dont see such a deal being orchestrated, least of all by the French/Germans much less Airbus itself.

As the story says, United apparently aren't aiming to replace all of there 757s and widebodies. Just some of them. United's fleet of these is approximately:

747-400: Soon to be 24
777s: Have 52, including 33 -200ER and 19 -200. None more recent than January 2002.
767-300ERs: Have 36, 22 of which are from 1991 - 1993, 14 from 1988 - 2001.
757s: Have 97, 88 of which are from 1989 - 1993 plus 9 from 1996 - 1999.

That's 209 planes total.

I think the outcome here depends a lot upon what United is trying to do -- how big a fleet do they end to end up with what time frame are we talking about?

If this is a 1 for 1 replacement order, then probably (most of) the 772s and 40ish 757s stay. 737 v A320/A321 and 787 v A330 for 2012 delivery. And 773ER or 748 v A380 and short-term Airbus A346 gets beat like a drum product whole.

But is it that? I honestly don't know. If UA wanted to grow internationally, this would be a means to do it. They could take the opportunity to fly 757s across the Atlantic and grow their widebody fleet.

Or maybe this is just the reverse -- it's 50 or 60 A32x or 737s plus 80 widebodies to replace all their 747s/767s/777s, with United envisioning modernizing and shrinking again. All we really know is that United has decided it needs to change its strategy -- but it's unclear what that new strategy looks like.

As the story says, United apparently aren't aiming to replace all of there 757s and widebodies. Just some of them. United's fleet of these is approximately:

747-400: Soon to be 24
777s: Have 52, including 33 -200ER and 19 -200. None more recent than January 2002.
767-300ERs: Have 36, 22 of which are from 1991 - 1993, 14 from 1988 - 2001.
757s: Have 97, 88 of which are from 1989 - 1993 plus 9 from 1996 - 1999.

That's 209 planes total.

I think the outcome here depends a lot upon what United is trying to do -- how big a fleet do they end to end up with what time frame are we talking about?

If this is a 1 for 1 replacement order, then probably (most of) the 772s and 40ish 757s stay. 737 v A320/A321 and 787 v A330 for 2012 delivery. And 773ER or 748 v A380 and short-term Airbus A346 gets beat like a drum product whole.

But is it that? I honestly don't know. If UA wanted to grow internationally, this would be a means to do it. They could take the opportunity to fly 757s across the Atlantic and grow their widebody fleet.

Or maybe this is just the reverse -- it's 50 or 60 A32x or 737s plus 80 widebodies to replace all their 747s/767s/777s, with United envisioning modernizing and shrinking again. All we really know is that United has decided it needs to change its strategy -- but it's unclear what that new strategy looks like.

Forget the fact UA will be unable to finance it, I cant see WHO would be stupid enough to want to back this fanciful RFP. In a way, the "credit crunch" arrival is a good thing:

If United cant arrange payments/afford to pay Airbus for 40~ A320's, people must be deluded to think they can arrange funding for triple that amount of airplanes with a higher cumulative price tag to match.

1. We don't know (or at least, I don't) the terms of that ~40 A320 order. Airbus and Boeing were both less eager discount in the late-90s than became the norm in this decade. UA may have had terms that would see them paying above market rates for those A320 than if they negotiated new contracts today. One of the factors that sank ATA were the top-dollar leases they signed in the late-90s for new-build 738s and 757s. Using bankruptcy protection, UA may have been quite shrewed to shed those orders.

2. UA must plan for the future or their extinction will be self-fulfiling. I do tend to think this order feels oddly like the TWA Airbus order, but what other choice does UA have? In any event, UA is probably looking at delivery slots in 2013. I am fairly pesemistic about the economy and U.S. fiscal policy but surely by 2013 we will experience economic recovery and traffic should be growing. If UA makes it to 2013 and doesn't have new equippment at that time, then they will be goners.

3. It isn't necessary for UAL to secure the full financing for an aircraft order at this time. The deposits necessary to secure delivery slots are still quite modest. For 2013 delivery slots, it would be several years before UAL needed to begin making incremental payments as production on their aircraft started. Not only are the credit markets already looking much better than they did 6-9 months ago, but we could also be in recovery by 2011-2012 when payments would begin. Plenty of time to get financing in order.

OK, I'll play the devil's advocate.

Where is UA headquartered? Is this a unionized airline? What prominent politician comes from the same state in which UA is headquartered? Who is the White House Chief of Staff? Where does he come from? Who beat John Murtha like a drum (out of sight) to get him to stop the dual tanker buy nonsense? What is the nationality of the company that is offering A350s? What is the nationality of the company offering 787s? The selection of which aircraft would boost employment in the USA? Selecting which aircraft would endear the company to the White House?

The game has changed. Elections have consequences.

BOEING777 correctly reports that financing will be crucial to this deal, but politics will play its part. There's a new sheriff in DC and he ain't a "free trader" like his despised predecessor. There will be pressure exerted behind the scenes.

After all, Obama was quite happy to sell Chrysler to the Italians.

.P. Morgan lowered its rating on United Airlines parent company UAL Corp. /quotes/comstock/15*!uaua/quotes/nls/uaua (UAUA 5.00, -0.12, -2.34%) to underweight from neutral on Friday, saying its proposal request for new jets is a ploy to raise capital and highlights its weak cash position. "Almost 10 years ago to the day, Boeing /quotes/comstock/13*!ba/quotes/nls/ba (BA 52.01, +1.44, +2.85%) purchased 17 A340-300s from Singapore to help secure a 777 order," wrote analyst Jamie Baker. "While it is unlikely that manufacturers could simply advance needed cash to United in exchange for long-term commitments, we believe United itself readily expects significant 'creativity' on part of the manufacturers."

Actually Chrysler is owned by the UAW with a 55% majority stake, with Fiat as the largest private sector owner at 20%. The U.S. and Canadian gov'ts own the balance.

You never know - an order for a two score order of A321-200s, a score of A380-800s and a four score total of A350-800XWBs, A350-900XWBs and A350-1000XWBs might just get France and Germany to open the check book to make it happen. France is already willing to fund near-term Airbus deliveries.

If this is a 1 for 1 replacement order, then probably (most of) the 772s and 40ish 757s stay. 737 v A320/A321 and 787 v A330 for 2012 delivery. And 773ER or 748 v A380 and short-term Airbus A346 gets beat like a drum product whole.

2. UA must plan for the future or their extinction will be self-fulfiling. I do tend to think this order feels oddly like the TWA Airbus order, but what other choice does UA have? In any event, UA is probably looking at delivery slots in 2013. I am fairly pesemistic about the economy and U.S. fiscal policy but surely by 2013 we will experience economic recovery and traffic should be growing. If UA makes it to 2013 and doesn't have new equippment at that time, then they will be goners.

Although it is one of the largest jumbo-jet operators in the world, United Airlines isn't looking to replace its Boeing 747s with new supersize aircraft that Boeing Co. and Airbus SAS are desperate to sell.

Chicago-based United is mapping out its aircraft needs for the next 25 years, hoping to take advantage of a swift and sudden downturn in global air travel that has left the planemakers scrambling to find takers for wide-body jets slated to roll out of factories over the next two years.

However, analysts question how United will finance the new planes at a time when oil prices are rising, ticket sales are sluggish because of a global recession, and airlines are striving to raise capital and preserve their precious cash reserves.

As it mulls an order for as many as 150 jets, United is looking to smaller, twin-engine planes to handle the long-range flying done by its fleet of 26 Boeing 747-400 planes, say people familiar with its plans. The jumbos seat about 350 people and are powered by four engines.

Airbus Chief Operating Officer John Leahy told the Tribune on Friday that United is not looking to buy Airbus' double-decker A380 planes, which seat more than 450 passengers.

"We have been talking with them for quite some time. But the [request for proposal] is very recent. Unfortunately (for both companies) the A380 is not (currently) included," Leahy said via e-mail, implying that Airbus may attempt to sway United.

Airbus has yet to land a North American customer for the A380 and recently said it would slow production of the planes during 2009 and 2010 as such customers as Australia's Qantas Airways Ltd. defer deliveries.

Chicago-based Boeing has only one airline customer for the passenger version of the 747-8, a stretched model of the jumbo that seats about 460 and borrows some of the design innovations of its 787 Dreamliner. Boeing has absorbed nearly $1 billion in charges as a result of design problems and delays with the stretched 747, which is running months behind schedule.

While both planemakers likely would offer deep discounts to nab a United order for their jumbo jets, the carrier instead is eyeing smaller aircraft like the Boeing 777-300ER. It seats about 365 people but flies on two engines, offering greater fuel efficiency than the larger planes.

Looks like United has ruled out an order for the 747-8I or A380.

http://www.chicagotribune.com/business/chi...0,1615387.story

Looks like United has ruled out an order for the 747-8I or A380.

http://www.chicagotribune.com/business/chi...0,1615387.story

That's just a cover to get the financing approved.

Trust me, within a year or two, FIAT will own Chrysler. That is the final goal.

Guess I made one call correct so far...kudos to me....

If the journalist had bothered to do some research properly, she'd have known that its just the A380 UA is not considering. I have seen plenty of evidence to the contrary as early as yesterday that suggests the 747-8I has a good a chance as any other airplane up for grabs - and is precisely why she makes zero reference to it save Leahy's comments on the Whalejet.

That's just a cover to get the financing approved.

Trust me, within a year or two, FIAT will own Chrysler. That is the final goal.

Well, FIAT must like the price $ 0 for 20%. It wouldn't surprise me if Chrysler just fades away except for Jeep. FIAT could regain a dealer network to sell cars from europe.

If the journalist had bothered to do some research properly, she'd have known that its just the A380 UA is not considering. I have seen plenty of evidence to the contrary as early as yesterday that suggests the 747-8I has a good a chance as any other airplane up for grabs - and is precisely why she makes zero reference to it save Leahy's comments on the Whalejet.

Unless UA gets funding elsewhere, I doubt Boeing or Airbus will go all out to win this. It saddles them with unwanted and possibly near unmarketable assets amidst the worst downturn for 50 years.

UA's pathetic attempt to dupe the press and others its "back with a bang" with a 150-jet order plan is quite frankly an unfunny joke.

The real joke will be on the idiots who finance and underwrite this fanciful notion that UA is somehow a healthy entity.

NEW YOKR (MarketWatch) -- Fitch Ratings downgraded United Airlines and its parent company UAL Corp. /quotes/comstock/15*!uaua/quotes/nls/uaua (UAUA 4.35, -0.02, -0.46%) on Wednesday to CCC from B- due to "extreme pressure" from declining revenue. "Despite preliminary signs of a moderation of year-over-year deterioration in passenger yields and revenue per available seat mile (RASM) in April, the revenue picture appeared to worsen again in May as H1N1 flu concerns depressed industry bookings further," the ratings firm said. "Although domestic leisure-oriented demand is holding up reasonably well...passenger yield and RASM trends in premium business travel markets will likely improve only slowly as the economy strengthens somewhat moving into 2010." Shares of UAL fell 6% at last check to $6.47.

Let's put UA's "demands" in perspective. Suppose one were to go bankrupt and renege on all financial obligations. Of course, we continue to pay ourself a nice bonus and hefty salary. We then go to the auto dealer and "demand" financing on a new luxury automobile, despite the fact that our credit rating is virtually non existant.

Would it not be understandable if the car salesperson doesn't offer us the time of day?

Having today spoke to various people (as I have since this ridiculous RFP emerged), both Airbus & Boeing in Le Bourget about UA, it should not be surprising that neither of them want to win this RFP - regardless of how its dressed up when its firmed up.

But I digress...