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Written by Rajesh Kumar Singh
NEW YORK (Reuters) – Airline executives are frustrated with Boeing Co., saying a safety crisis has derailed their business plans. But the tight market for large aircraft supplied by the two companies leaves them with little choice but to do business with American aircraft manufacturers.
Despite public warnings in the wake of Boeing’s recent crisis, including United Airlines CEO Scott Kirby flying to France to hold talks with Airbus, airlines have been unable to secure a deal with Boeing. It is still negotiating orders for new aircraft, trying to take advantage of delays in securing better terms.
Boeing’s delivery schedule is facing significant delays after an explosion inside the plane during a Jan. 5 flight exposed safety and quality control issues in the manufacturing process. However, rival Airbus already has a backlog of orders, making the switch impossible.
Instead, airlines are employing a variety of strategies to try to stay competitive with Boeing, potentially using orders for one type of aircraft as replacements to allow delivery of another model. They are also intensifying negotiations with aircraft manufacturers to take advantage of production delays to obtain discounts on new orders and compensation for financial losses.
“Boeing customers don’t really have much of a choice but to stick with Boeing whether they like it or not,” said Scott Hamilton, managing director of aviation consulting firm Leeham Company.
Mr. Kirby has been one of the most vocal voices of dissatisfaction with Boeing. He spoke after regulators grounded all of United’s Boeing 737 MAX 9 planes, putting a big question mark on the certification of United’s flagship MAX 10 planes, scheduled to be delivered this year. I met with
United Airlines has ordered 277 MAX 10 jets with an option for 200 more, but the Boeing turmoil led the company to turn to Airbus’ A321neo jets as an alternative. These talks raised fears that Boeing would lose one of its most loyal customers.
But Airbus’ order book is full until 2030. Kirby said Tuesday that United wants the A321, but doesn’t want to overpay.
There is now a growing recognition within United that the airline cannot find a single solution to its Max 10 problems, people familiar with the matter said.
Instead, United Airlines is considering taking advantage of Boeing’s delayed orders to extract better contracts for other planes, the company said. Kirby said United has asked Boeing to begin manufacturing the MAX 9 for delivery and plans to convert the order to the MAX 10 once the plane is certified.
A few weeks ago, American Airlines CEO Robert Isom criticized Boeing’s persistent quality problems and called on the jet maker to cooperate. Last week, the airline ordered its first-ever MAX 10 aircraft to replace its Airbus A321.
The Texas-based company has had to contend with Boeing Co.’s delivery delays, including the 787 Dreamliner, which not only hampered efforts to capitalize on the post-pandemic travel recovery but also increased costs.
Chief Financial Officer Devon May said that in return for a vote of confidence in the struggling Max 10 program, American had negotiated options to convert those orders to Max 8 or Max 9. The supply agreement also provides for financial compensation from Boeing for delivery delays.
For airlines like Southwest Airlines, one of Boeing’s major customers, moving away from Boeing amounts to a change in business model. It requires significant investment in maintenance, training, and technology.
Airbus has been trying for years to woo Southwest Airlines with its smaller A220 as a replacement for Boeing’s lagging MAX 7, but CEO Bob Jordan said the cost of operating multiple aircraft said it was a “huge amount”.
“A strong Boeing is great for Southwest Airlines,” Jordan said Tuesday at a JPMorgan industry conference. “It’s great for our industry.”
(Reporting by Rajesh Kumar Singh; Editing by David Gaffen and Bill Berkrot)
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