Continental Airlines yesterday announced that it will order 10 7E7s, becoming the first major U.S. air carrier to commit to Boeing's new jet. Boeing and Continental said they...
Continental Airlines yesterday announced that it will order 10 7E7s, becoming the first major U.S. air carrier to commit to Boeing’s new jet.
Boeing and Continental said they expect to firm up the order worth about $1.2 billion at list prices early next year. However, in an apparent attempt to head off criticism from its labor unions, Continental hedged its commitment much more than usual.
The company statement said the order may not be finalized unless the airline reaches a labor agreement on wage and benefit reductions by the end of February.
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Announcing the deal in advance of any labor agreement looked like a parting gift to Boeing from Continental chairman and chief executive Gordon Bethune, who will retire tomorrow. A former Boeing executive, Bethune once ran the 757 and 737 programs at Boeing’s Renton plant.
“The 7E7 is simply a game changer,” Bethune said in a statement. “[It] will be an important part of our international growth strategy.”
The world’s sixth-largest airline, Continental is in better shape than most of the major U.S. carriers and has always been a stalwart Boeing customer. It is set to remain so.
Larry Kellner, the airline’s president and chief operating officer, who will succeed Bethune, described the 7E7 as “the widebody of the future for Continental.”
The order is for the basic version of the new jet, the 7E7-8, that will carry 200 passengers in two classes and travel 8,500 nautical miles.
Continental also said that it has agreed to accelerate into 2006 the delivery of six 737-800 aircraft previously scheduled to be delivered in 2008 and to lease from Boeing eight used 757-300 aircraft, to be delivered beginning in July 2005.
If Continental is unable to obtain financing, Boeing has agreed to finance the 737 deal.
However, in a press release, Continental said that the announced orders are “subject to several conditions” and must be approved by the airline’s board of directors by the end of February.
One of those conditions is an “acceptable” 7E7 engine supply arrangement with either GE or Rolls Royce.
Another is negotiating $500 million in annual wage and benefit cost reductions by Feb. 28 to create what the company called “a cost structure that will allow the aircraft to generate a positive return.”
Continental may be laying out this condition in deference to its unions. Buying brand-new jets could be interpreted by the unions as proving that the considerable financial sacrifice being asked of the employees is unnecessary.
“The first thing labor does is say ‘Wait, you have money to spend on new planes and you don’t have money to pay us,’ ” said Adam Pilarski, an analyst with Avitas. “You want to take this kind of argument away from them.”
However tentatively couched, the 7E7 order provides important market validation for Boeing, which had not previously produced a major airline customer outside Japan.
Mike Bair, head of the 7E7 program, described Continental as a “bellwether addition” to the new jet’s customer base.
The agreement with Continental brings the total of 7E7 order announcements to 122. Of those only 56 are firm contracts. The total remains well short of a target of 200 orders for the 7E7 that Boeing had earlier said it expected by year end.
Dominic Gates: 206-464-2963 or firstname.lastname@example.org
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The decision appears unlikely to have much impact on manufacturers Boeing and Airbus and their efforts to sell the country new planes still in development.
Some 147 aircraft are scheduled to be delivered to Chinese airlines next year, the official China News Service said, citing Yang Yuanyuan, head of the Civil Aviation Administration of China. Yang was quoted as saying Monday that no further planes would be needed.
This was initially interpreted as casting doubt on expected orders for either Boeing’s 7E7 or Airbus’ A380. Later clarification, reported in The Wall Street Journal, corrected this impression. The Journal quoted an official in Beijing who said that purchase talks for planes to be delivered after 2005 wouldn’t be affected.
The Associated Press
and Seattle Times business staff