American Airlines is in talks with European aircraft manufacturer Airbus over the future of its A350-900 commitments as questions are raised on if the order still makes sense for its fleet. The American carrier is “considering all options” on the future of the order.

The two companies have restarted negotiations on the twice-deferred deal for 22 of the wide-body jet. The order was placed by US Airways in 2005 before the American Airlines-US Airways merger at a price that, adjusted for inflation, is worth $6.8 billion at list price.

The original A350 order was placed by US Airways in 2007 before the carrier merged with American Airlines.
Photo Source: Airways Magazine

American president Robert Isom said that the small order probably won’t be suitable for American, which is the largest carrier in the world.

“I don’t like small fleets in an airline our size,” Isom told pilots at a Q&A session last month. “It’s exceptional pricing. Unfortunately, pricing is just one aspect of trying to fly something profitably.”

American CEO Doug Parker, however, said that American is “happy” with the size of the order. He also acknowledged that “no airline likes to have small fleet sizes”.

“We need to make sure that we have a fleet that makes sense for American Airlines going forward,” Parker said to reporters last Wednesday. “That doesn’t mean, by any means, that the A350 doesn’t fit.”

One big issue that Isom alluded to in his Q&A is whether having a small fleet of only 22 planes isn’t cost effective in an overall fleet of more than 1500 planes. Each new aircraft model requires specific needs such as modified pilot training and spare parts. In addition, it could be hard to manage such a small fleet across American’s seven US hubs.

“They are planned to come, but at the end of the day, is it something I would like to figure out to either make it a bigger fleet or make it something that is common in another place?” Isom said. “The answer is yes, but we haven’t figured it out.”

The order was originally deferred in July 2016 when deliveries were put back an average of 26 months, saving American USD$1.2 billion in short-term payments. Another deferral came in April of this year, which pushed deliveries back an additional 24 months, setting delivery for the first A350 for 2020 instead of 2018.

One option for American could be to convert their A350 order to A330s like this one.
Photo Source: Wikimedia Commons

A source close to the talks said that it’s too early to determine the outcome of the negotiations. The source has requested that they remain nameless because the talks are private. However, one option could be downsizing to the A330, a smaller Airbus-made widebody, and adding additional planes to the order. American could also defer delivery again or cancel the order outright. Isom says that canceling the order, which could carry financial penalties, is an “item of discussion”.

American needs the A350s to replace Boeing 767 and 777 routes that it is slowly retiring. However, Isom says that the B787 Dreamliners operated by the airline “do many of the same missions”. American currently has a 42 plane order for the 787 with rights to take an additional 52. The carrier has taken 29 of the model this year and plans to take 5 more of the aircraft by the end of the year.

American Airlines plans to take 5 B787s out of an order of 42 by the end of the year. The B787 serves many of the needs that the A350 might cover for American.
Photo Source: USA Today

In terms of smaller jets, the smallest fleets in American’s book are its 24 A330s and 20 Embraer E190s. American plans to retire nine A330-200s and all of the E190s by the end of 2019.

This isn’t the first A350 order that has taken a hit recently. Earlier this month, United downsized an A350-1000 order to an A350-900 order and pushed delivery of the order back up to four years. Last May, Delta Airlines deferred its order of 10 A350s by up to three years.

The American negotiation can prove to be troubling for Airbus, who has struggled recently to sell the A350 efficiently. However, the United deal mentioned above did call for an increased number of planes, while Cathay Pacific Airways made a move earlier this week for six planes. If American decides to keep the order, it will allow Airbus to get a slightly larger piece into the US long-haul market that is largely dominated by Boeing.

Featured image from Fly Away Simulation

Categories: Industry Talk