Boeing’s (BA, Financial) got some good news for its twin engine 777 aircraft. United Airlines (UAL, Financial) is preparing to give orders for 10 777-300ERs to substitute its aging fleet. People close to the matter said that the 777 will be used to ply over United Airlines’ long routes. Let’s take a closer look at the deal and find what it means to the Chicago based aircraft manufacturer.
Boeing 777 picture taken from Boeing
The basics of the deal
United Airline has never flown the 777-300ER variant and looks to add this to its current fleet of jets, said people familiar with the matter who requested not to be identified as talks are private. The deal size comes to around $3.3 billion at list price, but obviously this isn’t the price at which the carrier is buying. There are big discounts given by the aircraft manufacturers, and in this case in particular United Airlines must have garnered high discounts. The reason being, Boeing is desperately looking to sell its current 777 models until its predecessor, the 777X, takes to the skies. Quite obviously, United must have bargained the deal well.
The deal is expected to be official announced this week. However when Luke Punzenberger of United and Doug Alder of Boeing were asked in this regard, they declined to make any comment. The 777-300ER is the bestselling 777 variant, which offers great operating efficiency and huge underbelly capacity to hold cargo. The plane has a seating capacity of 386 in a typical three class configuration, and is flown by General Electric (GE, Financial) engines. The jet boosts of a range of 7,825 nautical miles (14,490 km). For a sense of scale, it can carry passengers from Los Angeles to Sydney or New York to Hong Kong.
Why the order is crucial for Boeing
United Airlines is the launch customer of Boeing 777 when it entered service in 1995. However the carrier has not really upgraded to other 777 planes. It instead shifted its focus to other next generation aircraft, Boeing 787 Dreamliner and Airbus (EADSY, Financial) A350 which is yet to enter service. The airline operator has orders for 35 Airbus A350-1000, a model that contends with the largest 777 variant. However, the latest 777 orders from the carrier is of great importance to Boeing as it looks to manage a smooth transition to the much awaited 777X, which it introduced in the 2013 Dubai air show.
No doubt the 777X received an extravagant response, evident from the orders for 259 units at launch, but it has cast a shadow on the 777 in a big way. Since the launch of 777X, orders for the 777 has slowed. Boeing managed to gather 63 orders for the 777 in 2014 and needs to continue getting orders in a similar pace to avoid a production cut until the reengineered model arrives. The 777 is one of the most lucrative offerings of the company that drives both revenue and cash flows. Last year Boeing had delivered 723 planes of which 99 were 777s. There’s no doubt that besides the 737, the 777 is Boeing’s cash cow.
As such it is very important for Boeing to sustain production level until the 777X enters service in 2020, else the revenue and cash flows would get hit. The new year looks to have started just the way Boeing would have wanted for its 777. What remains to be seen is if Boeing can bag the balance 777 orders this year to maintain the production level of the aircraft until the 777X hits the runways.
