American Airlines Group Inc. The agreement to buy 260 short-haul aircraft includes a major deal for Boeing Co.’s 737 Max jet, a key endorsement for the planemaker as it works through a crisis of confidence following a near-catastrophic crash in January.
The order includes 85 Boeing Max 10 aircraft, 85 E321 new aircraft from Airbus SA and 90 Embraer SA E175 regional jets, American said in a statement on Monday. The carrier also has options to order 193 more aircraft. The airline will feed into US plans to expand service in North America and nearby international markets and increase the number of premium seats it offers.
It’s the first major deal for Boeing’s marquee 737 Max since a plane crash on an Alaska Airlines jet earlier this year left the planemaker in crisis. Orders from blue-chip buyers like Americans often affect other customers.
For American, the purchase is a condition that the first-ever Max 10, the largest 737 model, will clear final regulatory hurdles to begin flying in the next two years. As part of the order, the carrier converted 30 existing orders for the Max 8 aircraft to the larger Max 10. Rival United Airlines Holdings Inc. has dropped the Max 10 from its near-term plans, citing uncertainty as to when it will receive the aircraft. .
American believes Boeing will be able to deliver a certified Max 10 by 2028, when the airline should begin receiving planes, American Chief Executive Officer Robert Isom told CNBC in an interview.
With the contracts, American secures a valuable production slot in a limited market for new jets, with both aircraft makers largely sold out of single-aisle jets by the end of the decade. The order will allow American to replace some of its older fuel-efficient single-aisle planes with more efficient models with more premium seats.
“As we look into the next decade, there will be a steady stream of new aircraft with balanced levels of U.S. capital investment,” Chief Financial Officer Dion May said in the statement.
American said it expects to stay within previously announced guidance for capacity and under $3.5 billion a year for aircraft capital spending from 2025 to 2030.
Boeing is still working through a major crisis in the wake of the near-catastrophic crash on the 737 Max 9 in January. US regulators on February 28 gave the company 90 days to develop a plan for what the Federal Aviation Administration called “systemic” quality control problems.
“We deeply appreciate American Airlines’ confidence in Boeing and its confidence in the 737 Max family,” Stan Dale, president of Boeing Commercial Airplanes, said in the statement. “American’s selection of the 737-10 will provide even greater efficiency, convergence and flexibility for its global network and operations.”
Read more: Boeing gets 90-day FAA ultimatum to fix its quality problems
American fell 4.2% at 12:55 pm in New York while Boeing pared earlier losses to gain 0.5%. Airbus in Paris rose 1.8%.
The agreement includes options and purchase rights for an additional 75 A321s, 75 Max 10s and 43 Embraer E175s, American said.
American’s current fleet of A319s and A320s average 19.7 and 22.7 years, respectively, at the end of 2023, while its 303 Boeing 737-800s average 14 years. Including the new order and existing widebody deals, the airline now has 440 aircraft on order with deliveries expected to increase over the next decade, American said.
The airline continues to reduce what has been an industry-leading debt, and said separately Monday that it will reduce it to $41 billion by the end of this year and $39 billion by December 2025. The US debt will exceed 50 billion dollars in 2021, mostly due to the purchase of aircraft, it has been committed in the large order of 2011. Carrier is 75 percent of the way to achieving its $15 billion debt reduction goal.
The carrier also sees free cash flow growing to about $2 billion this year to more than $3 billion in 2026, according to materials prepared for an investor update meeting. Adjusted earnings before net interest and other non-operating expenses excluding the impact of special items, taxes, depreciation, amortization and aircraft rent will increase from 14% this year to 18% in 2026 and beyond.