United Buys Boeing In Blow To Bombardier

United Airlines announced a deal to buy 40 Boeing 737-700s, worth USD$3.2 billion at list prices in a blow to Bombardier's hopes of landing a major customer for the CSeries.

Bombardier has not landed an order in more than a year for the CSeries, a new carbon-composite aircraft whose two models seat between 100 and 160 passengers.

Boeing 737-700s can seat 126 people and will be flown by United's pilots, reducing its reliance on contractors as a shortage of regional pilots looms in the United States.

Separately, Southwest Airlines said it had ordered 33 Boeing's 737-800s, a deal it struck in December but announced on Thursday.

The orders suggest "good market demand" for aircraft after sales fell last year, said Howard Rubel, an analyst at Jefferies in New York. It also shows airlines prefer fewer models in their fleets, making cockpits more familiar to pilots.

"Commonality works," Rubel said.

The CSeries is due to enter service in 2016 after years of delays and budget overruns. A spokeswoman for Bombardier declined to comment on United's announcement. "For us it's business as usual as we continue to pursue key campaigns," a spokeswoman said.

Delta Air Lines on Tuesday said it was considering Bombardier's new aircraft.

Another competitor for the United order, Brazil's Embraer, declined to comment on the Boeing deal.

Gerry Laderman, United’s acting CFO, told a quarterly conference call that fuel prices do not play a role in long-term fleet orders and that United is still considering narrow-body aircraft from Bombardier, Embraer and Airbus.

"As I mentioned, we will continue to look at aircraft and we will continue to look at each of those types,” Laderman said.

DEEP DISCOUNTS

United likely paid well below half the USD$80.6 million list price for the 737s. The aircraft is being phased out as Boeing moves towards 737 MAX production. United's jets are due to start entering its fleet in mid-2017.

Airlines typically enjoy discounts of 40 percent or more on aircraft. Bombardier has been reluctant to deeply discount the CSeries, a new product that has yet to recover development and early manufacturing costs.

Boeing's 737-700 long ago recovered such costs, allowing greater discounts for sales that help fill the production schedule as it shifts to the MAX, due to make its first flight this year.

Bombardier has 243 firm orders for the CSeries, short of its target of 300 by the time the plane enters service.