Irish low-cost carrier Ryanair’s firm order for 75 additional 737 MAX airplanes on Thursday provided a much-needed boost for Boeing as it struggles to revive its fortunes after the MAX crash tragedies and the global pandemic’s devastating hit to the air travel industry.
In an interview with the Seattle Times, Ryanair Group CEO Michael O’Leary — while acknowledging the anguish of the families of the 346 people who died in the two MAX crashes — confidently asserted his belief that the MAX is now safe.
He detailed his plans to steal a march on competing airlines and lead the European industry to a fast recovery next year with aggressively low fares.
O’Leary said this will provide a stimulus for jobs in Europe, as well as at Boeing’s factories here in the Puget Sound region.
“This is a very important day for Seattle,” said O’Leary in a phone interview. “There have been a lot of job losses there on the production line and a lot of uncertainty.”
“We intend to accelerate the recovery of traffic, tourism and jobs across the continent of Europe in the next five years,” O’Leary said. “The Ryanair and Boeing partnership will lead that recovery.”
The order was signed at a press conference in Washington, D.C., where O’Leary and Boeing CEO Dave Calhoun extolled the safety of the upgraded MAX and their confidence in the aviation industry’s ability to recover from the COVID-19 pandemic — perhaps more quickly than previously anticipated, now that distribution of vaccines is beginning.
For Boeing, which has seen its MAX order book shrink by more than 1,000 jets this year, the Ryanair order underscores hopes for a turnaround.
Calhoun said he now expects “a more robust order book, more coming in than going out.”
O’Leary said he expects his first MAX delivery in the spring, and plans to have 27 in the Ryanair fleet by next summer and 75 a year later. He showed a chart that anticipates all 210 MAXs he now has on order will be in service with Ryanair by the summer of 2025, making up 35% of its total fleet.
“We need more aircraft in Ryanair if we are going to lead that recovery in Europe,” O’Leary said. “This is a great aircraft. We’re proud to buy them. We’re proud to fly them.”
In the interview, O’Leary said that even if air travel recovers more slowly than hoped and fewer planes are needed, Ryanair will still take the MAXs next year and park some of its older, less fuel-efficient 737 models.
“We’re very much looking forward to coming out to Seattle in the spring to take delivery of the first aircraft and to thank all the great men and women making these great planes,” he said.
Addressing head-on the impact of the two deadly MAX crashes that killed 346 passengers and caused the jet to be grounded for more than 20 months, O’Leary praised the efforts of air safety regulators in the U.S., Europe, Canada and Brazil to intensively review the airplane’s systems.
“This is the most scrutinized, most audited aircraft in history,” he said. “I cannot tell you how confident we are in the safety of this aircraft.”
A discount to gain sales momentum
Boeing’s Calhoun said Ryanair’s order demonstrates “belief and faith in the future of our industry.”
The financial terms of the order were not disclosed. According to an estimate of standard pricing by aircraft valuation firm Avitas, 75 MAX planes might cost up to $3.5 billion in this year’s depressed market. However, for such a validating order following the MAX’s ungrounding, Boeing must have given O’Leary a more deeply discounted deal.
O’Leary famously times his orders to negotiate aggressively low pricing.
“Boeing wants somebody to take on some of the undelivered aircraft,” he said in the interview. “We’re more than happy to sign up for that.”
Calhoun said the low price won’t harm Boeing’s profit on the MAX program.
“I’m not concerned about price discounts as incentives to move airplanes,” he said, adding that Boeing will be patient in negotiating deals because it believes strongly that demand will rebound.
However low Ryanair’s price, the sale has important psychological value after the grounding. Stan Deal, chief executive of Boeing Commercial Airplanes, said “this order builds momentum going into next year.”
If other airlines step up behind Ryanair to buy the plane for a future return to more normal levels of air travel, the public may gradually accept what the U.S., European and Brazilian aviation regulators have just recently attested: that the MAX is safe to fly.
Boeing has to deliver more than 450 jets built after the grounding and parked since they rolled out of the factory.
According to an October analysis by trade magazine Aviation Week, 62 of those planes were fulfilling orders subsequently canceled by their original customers, and had not yet been picked up by another. Boeing’s sales team has been offering bargains to move those jets.
Since the grounding, Boeing has booked some small MAX orders totaling 42 aircraft, likely the result of customers picking up canceled jets cheaply.
Yet through October, Boeing this year has canceled orders for 448 MAX airplanes and removed a further 595 from the MAX backlog as too dubious to count, for a total order reduction this year of 1,043.
Is the Ryanair order a turning point?
Ken Herbert, an aviation industry analyst with investment bank Canaccord Genuity, said Ryanair is unique in how it dominates the European market, so he’d want to see a cross section of airlines and airplane lessors stepping up to order before declaring the MAX recovered.
“It’s great news,” he said. “But it doesn’t singlehandedly save the MAX.”
Steve Udvar-Hazy, executive chairman of L.A.-based Air Lease Corp. and regarded as a seer in the aviation market, had 15 MAXs in his fleet when the aircraft was grounded in March 2019 and has another 126 on order.
In an interview Thursday, he said the MAX will recover eventually because hundreds of airlines fly older versions of the 737 and so are a natural market for the MAX.
“The 737 is a major foundation of the airline industry,” Udvar-Hazy said.
And he believes that in the near term many airlines that have compensation claims against Boeing for the prolonged grounding of their MAXs will find that the best way to resolve such claims — rather than spending millions of dollars on lawyers — is to negotiate a break on further sales of Boeing MAXs.
“I think there’s going to be a surge of sales of the MAX in the next six months,” Udvar-Hazy predicted.
“We’re working with Boeing to sponge up” some of the already-built MAXs now lacking a buyer, he added.
Planning for expansion in a downturn
Ryanair already had 135 orders for a special high-density version of the MAX 8. While that model typically seats a maximum of 189 passengers, the Ryanair variant — the MAX-8200 — is configured to seat 197 passengers.
Ryanair’s total order for 210 airplanes includes MAXs for Polish subsidiary Buzz Air.
Airplanes painted with the liveries of Ryanair and Buzz have been parked for months beside the runway adjacent to its 737 assembly plant in Renton, indicating they are in line for delivery sooner rather than later.
As currently parked MAXs in Renton, Everett and at Boeing Field in Seattle move out, more than 200 more parked for longer-term storage at Moses Lake in Central Washington will be flown in batches to Seattle for delivery.
During the current steep, pandemic-driven drop-off in air travel, Ryanair is one of a few financially strong airlines seeking to gain market share over rivals by planning an expansion of its aircraft fleet as soon as the current downturn eases.
In the 12 months prior to the MAX grounding in March 2019, Ryanair made $1.1 billion in profit. In the year after, it still managed a profit of $784 million. The airline raised $1.25 billion from bond holders in September to fund the planned order.
In the airline’s annual report in April, O’Leary wrote that “the COVID-19 crisis will cause dramatic unemployment and recession across Europe, but we expect this will create opportunities for Ryanair … to grow our network, to expand our fleet.”
In Thursday’s interview, O’Leary noted that rival European airlines Thomas Cook and Flybe have gone bust, Germanwings has been closed down and Alitalia has cut capacity by 25%.
That provides “huge opportunities out there for any airline that can deliver new capacity over the next two summers,” he said.
“As we emerge from this godforsaken COVID nightmare,” he said, he plans to boost air travel demand by aggressive fare discounting. He expects this could pump up passenger traffic to as much as 90% of pre-COVID levels by the winter of next year.
“We’ll do it on price,” O’Leary said, adding that while this should quickly restore passenger traffic volumes, “it may take 3, 4 or 5 years for the pricing to recover.”
With his airline’s strong finances and the addition of the fuel-efficient MAXs at a bargain price, he said, “Nobody will be better placed in Europe than Ryanair to engage in aggressive price discounting.”
Ryanair flies more passengers within Europe than any other airline.
In the 12 months before the pandemic shut down the industry, Ryanair carried 149 million passengers. In this pandemic year, between March 2020 and March 2021, it expects to carry only 35 million.
However, it’s anticipating strong growth after that and projects carrying 200 million passengers annually within five years.
In the U.S., Alaska and Southwest also have ambitions to grow as travel recovers.
Last month, Alaska announced it would add 13 leased MAXs to the 32 MAXs it previously ordered directly from Boeing. And Boeing is hoping for an additional MAX order from Southwest to add to the 281 it previously ordered.
ALC’s Udvar-Hazy said he’s hearing positive projections now from U.S. low-cost carriers, including Southwest, Frontier and Spirit, that they anticipate a recovery in domestic leisure travel “as soon as May or June of next year, probably to more than 75% of where we were in 2019.”
One hurdle for Ryanair that doesn’t affect the U.S. carriers is the imposition by the European Union last month of a 15% tariff on Boeing jets delivered to Ryanair and other European airlines. This is in retaliation for a similar tariff imposed by the U.S. on Airbus jets a year earlier.
Both Calhoun and O’Leary said Thursday they expect the U.S. and Europe to come to a “sensible agreement” that would eliminate those tariffs.
O’Leary said “the industry has suffered such a shock from COVID that both the American and European authorities want to get air travel back.”
He predicted “peace and harmony between the U.S. and the EU” when Biden takes office, “and there’s an Irish guy in the White House.”
Addressing the MAX tragedies
The families of those killed in the two MAX disasters remain unconvinced that the airplane is safe and expressed outrage at Ryanair’s vote of confidence.
Naoise Ryan, wife of Mick Ryan, an Irishman who died in the March 2019 Ethiopian Airlines Flight 302 crash, called the order “an endorsement of Boeing’s disregard of safety and human life.” She criticized Ryanair for being “prepared to gamble with people’s lives in order to sell cheap flights on ‘bargain-binned’ planes.”
Responding to this in the interview, O’Leary said, “We can never forget the tragedy these families have suffered and the trauma inflicted on them.”
“Aviation can only survive by learning from these mistakes,” he said. “The history of aviation, which is the safest form of travel, is one of learning from those mistakes and committing to never repeating them.”
Boeing’s Calhoun, at the press conference, declared that “we have reinstated, reinvigorated everything that has anything to do with safety across our company.”
“We firmly believe in this airplane and we will continue the work to re-earn the trust of all of our customers,” he said.
And Calhoun said that the enormous impact of the coronavirus pandemic, which has led to tens of thousands of layoffs and a shrinking of the company, will have a “silver lining”: a redefining of Boeing.
“I think we come out of here leaner, faster, better, and most importantly, safer,” Calhoun said.