Boeing ousted Airbus as Air Canada’s primary supplier of narrow-body jets, winning an big order for the 737 MAX model as they vie for supremacy in the biggest segment of the aircraft market.
The 61 planes have a list price of $6.5 billion, but estimates from aircraft-valuation firm Avitas of actual prices paid after discounts put the total closer to $3.2 billion.
The aircraft will start arriving in 2017, Montreal-based Air Canada said Wednesday, as Boeing starts delivering the upgraded successor to the 737 line that is now the world’s most widely flown jetliner. The order consists of 33 of the MAX 8 version of the 737 and 28 of the larger MAX 9s.
“They made the best total decision for the next few decades,” Chris Murray, an AltaCorp Capital analyst in Toronto, said in an interview. “The MAX is the plane that our grandchildren will be flying on.”
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The order was a blow to Toulouse, France-based Airbus, which made the 86 A320-family planes in Air Canada’s fleet and is offering the re-engined neo that competes with the MAX. Air Canada now flies widebody Boeing models, including the 787 Dreamliner, along with 97-seat Embraer E190 jets on short- haul routes.
Air Canada’s agreement calls for Boeing to buy as many as 20 of the carrier’s 45 Embraer E190s. The E190 aircraft leaving the fleet will initially be replaced with larger narrow-body leased aircraft until Air Canada takes delivery of the 737s, the carrier said.
“We know the 737 MAX will provide the airline and its customers with an experience that can’t be matched,” Brad McMullen, Boeing’s commercial vice president for North American sales, said in a statement.
In addition to the firm orders, Air Canada will get options for 18 more planes and purchase rights for an additional 30.
“You’ve seen Airbus make inroads into Boeing’s territory but not the other way around with next-generation planes,” said Richard Aboulafia, aerospace analyst with Teal Group, in a phone interview. “It shows they’re able to fight back.”
Boeing may have benefited because Airbus lacks a counterpart to Boeing Capital, the leasing arm of the Chicago-based plane maker, Aboulafia said. That unit can be used to remarket secondhand aircraft.
The MAX win breaks Airbus’s sales momentum for its updated narrow-body jet after the European plane maker won a $5 billion order from the Mexican airline known as VivaAerobus to displace the U.S. company earlier this year.
“We are disappointed,” MaryAnne Greczyn, an Airbus spokeswoman, said by email after Air Canada’s announcement. “We’re convinced that Airbus has the superior aircraft to accomplish the airline’s mission. Nonetheless, we are pleased with the tremendous market success our products have enjoyed throughout 2013.”
Adding the 737 MAX will allow Air Canada to reduce fuel burn and maintenance cost savings by more than 20 percent for each seat flown a mile, Chief Executive Officer Calin Rovinescu said. Costs on that basis, a benchmark of industry profitability, will decline 10 percent compared with the current Airbus narrow-body aircraft, the carrier said.
Air Canada continues to lag behind North American rivals in efficiency, due in part to an aging fleet. Costs for each seat flown a mile were 15 cents in the third quarter, topping the 13-cent average for 13 North American carriers tracked by Bloomberg. Costs at WestJet Airlines, Canada’s second- biggest carrier, were 13 cents.
Air Canada’s jets had an average age of about 13 years at the end of last year, compared with about 7 for WestJet, which agreed in August to buy $6.3 billion of 737 MAX jets, according to data compiled by Bloomberg.
Ordering narrow-bodies is “a 20-year, 25-year kind of a decision,” Chief Financial Officer Michael Rousseau said Nov. 8 on a conference call with analysts.
Air Canada’s last major order came in April 2005, when it agreed to buy Boeing 777s and 787s. The company bought the E190s about seven months earlier.
Air Canada said it will review various options in the next six months for the other E190s not being acquired by Boeing, “including continuing to operate them or replacing them with a yet to be determined number of aircraft in the 100 to 150 seat range.”