United Airlines has ordered 270 aircraft in its largest ever purchase

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The list price of 270 aircraft is about $35 billion. Airlines usually pay only a fraction of list prices – and because that’s still inconvenient for aircraft sales, United pays well under half the list price. The 737 Max aircraft, which make up the bulk of the demand. The remainder of the order is for 70 Airbus (EADSF) A321neo aircraft. On Monday, United (UAL) told investors it expects to post adjusted pre-tax earnings in July, the first sign of profitability by United or any major airline since then. The start of the COVID-19 pandemic. Demand for leisure travel is almost back to normal, helping drive up prices, even if lucrative business and international trips are still a fraction of what they were before the pandemic.

“It’s an indication that United is a skilled aircraft buyer,” said Ron Epstein, aviation analyst at Bank of America. “I’m sure they’re getting a good deal with Max. But if they’re not reasonably satisfied with the market going back to flying, they won’t.”

Small aircraft replacement

United will use most of the planes it ordered on Tuesday to replace 200 smaller regional planes each carrying about 50 passengers, allowing it to increase capacity without adding flights at airports like Newark and San Francisco, limiting each airline’s take-off and landing. It will also replace about 100 older full-size aircraft.

It should be good news for passengers, who tend to hate smaller planes, CEO Scott Kirby said in a presentation to investors on Tuesday.

“We’re trying to fly 50-seat regional jets between Chicago and Dallas or between Newark and Atlanta. We’re trying to compete with people who have a much better product,” CEO Scott Kirby said in a presentation to investors on Tuesday. “We never had a chance to compete effectively. This is about addressing that and creating a local network with a product that our customers love.”

Currently, United said, regional aircraft are used for a third of domestic flights. Tuesday’s purchases will bring that number down to 10%.

Outlook for a recovery in business and international travel

Including Tuesday’s orders, and previous orders that were on record, United now has orders for 500 new planes coming in the next few years, with 40 planes – many of them wide-body jets used on long-haul routes – due to be delivered next year and 138 in 2023 alone.

It’s a stunning change from a year ago, when a lack of demand forced United and all other airlines around the world to ground planes and halt aircraft purchases and deliveries. New aircraft deliveries this year will remain a fraction of pre-pandemic levels. But, like United, Southwest and Delta (DAL), it has also announced aircraft purchases in recent months.

“What a difference it makes every year,” Kirby said. But he said United have been planning a recovery and have been discussing purchases since last summer, adding that “that’s about where we expect to be” at this point.

Kirby told investors that business travel is accelerating, and while it’s still down 60% from pre-pandemic levels, this is an improvement from a 90% drop earlier this year. International travel remains limited, with many countries still restricting cross-border travel, but Kirby and other US executives expect record international travel next year.

However, aircraft deliveries will remain slow this year and next. United said in a statement on Tuesday that it expects the first aircraft to arrive on Tuesday’s order in 2023. The order includes 150 of the latest version of the 737 Max, the Max 10, which made its first test flight earlier this month and is no longer doing so. It is still approved for passenger transport.

Plans to add 25,000 jobs

United plans to add about 25,000 jobs over the next five years to the 68,000 frontline jobs it now has, and hire the pilots, flight attendants, mechanics, gate agents and other personnel needed to handle the increase in passengers it expects.

The airline cut about 22,000 employees last year during the economic downturn, although it has already recalled some of those employees to deal with the increase in leisure travel.

It’s by far the largest order for the 737 Max since it was delayed for 20 months starting in March 2019 after two fatal crashes that killed 346 people. Southwest (LUV), which has more Max planes than any other airline, has ordered an additional 134 737 Max planes since the Federal Aviation Administration approved the plane to fly again. But even with orders out of the US on Tuesday, Boeing hasn’t recovered more than 1,000 canceled orders for its best-selling plane since March 2019, and as much as this is an important vote of confidence for Boeing and the 737 Max, demand for the planes remains relatively low. , which leads to lower prices that aircraft manufacturers can charge. Boeing has slowed production of its planes, shutting down one plant in Washington state that had built the 787 Dreamliner wide-body jet, and cutting staff. United has already placed orders for an additional 50 737 Max aircraft since the grounding was lifted last November – 25 of which were among those built during the grounding but never delivered due to the cancellation of the original orders.

United also said it would revamp the interiors of all of its existing full-size planes, adding behind-the-seat entertainment systems, larger luggage boxes and more “economy plus” seats that come with extra legroom — and higher prices.

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