Thursday, June 4, 2009

United Airlines bucks trend with big plane order

United Airlines has sought bids from the two largest planemakers for a 150-jet order, possibly jump-starting demand from embattled U.S. carriers as the industry wades through an economic recession, a source with direct knowledge of the request said on Thursday.

United, a unit of UAL Corp, has solicited the competing bids from Boeing Co and its European rival Airbus, the source said. The top bid would win the entire order.

UAL, Boeing and Airbus declined to comment.

United has not ordered new aircraft since 1998, and the average age of its fleet is 13 years. U.S. airlines lag foreign rivals in fleet replenishment, and some experts say the carriers are suffering as they fly outdated planes that burn more fuel than modern aircraft.

Most airlines are shedding capacity to cope with a steep fall in demand, and many have deferred orders to conserve cash and in the absence of financing for final delivery payments.

The head of global airlines body IATA told Reuters earlier that plane orders could fall 30 percent in 2010. ID:nKLR478500 The possible contest at United echoes an epic battle between Boeing and Airbus, then a relative newcomer to the U.S.

market, in 1992 at the cusp of another economic and industry recession.

The battle saw United break its reliance on Boeing and opt for dozens of Airbus aircraft for domestic routes. That sparked a rethink that helped push the U.S. planemaker into modernizing its 737 short-haul plane, now the world's most-sold aircraft.

United's current fleet of almost 400 aircraft mainly consists of the Airbus A320 single-aisle family for short and medium domestic routes and Boeing wide-body jets such as the 747 and 777 mini-jumbo for longer routes and international travel.

Most U.S. airlines, hampered by frail finances, held back from joining in a boom in plane orders that reached its zenith last year, but many are running fuel-guzzling fleets.

United's order request focuses on replacing many of its 111-airplane wide-body fleet, as well as some of its 97 aging Boeing 757 narrow-body planes, the source said.

United could sign a major order as early as the fall if Boeing or Airbus agree to certain conditions. However, the financing arranged by the manufacturer that does not eat into United's cash would be the most crucial, the source said.

Fitch Ratings analyst Bill Warlick told Reuters early last month that airlines facing the greatest risk of covenant breach that could potentially lead to a liquidity crisis were US Airways, American Airlines parent AMR and UAL.

Such a scenario would unfold only if revenues continued to worsen in the summer and there were no signs of U.S. recovery by late this year, Warlick had said.

However a Standard & Poor's analyst said most airlines had enough cash to limp through the downturn. ID:nN28430152 Boeing shares were up 1.6 percent at $49.14 on the New York Stock Exchange, while UAL was down 3.8 percent at $5.09. Shares of Airbus parent EADS were up 1.4 percent.

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