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American flies Boeing
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November 21, 1996: 9:45 p.m. ET
Airline agrees to buy up to 630 planes from Boeing in largest order in history
From Correspondent Jody Davis
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NEW YORK (CNNfn) -- American Airlines announced Thursday it has made the largest aircraft order in history, agreeing to buy up to 630 planes from Boeing Co. for more than $35 billion.
In a deal that could replace the company's entire fleet, the nation's No. 2 airline said it has ordered 103 planes for delivery by 2001, with an option on another 527.
By signing on with one manufacturer, Robert Crandall, chairman of AMR, parent of American Airlines, said he received a price cut for each plane and the flexibility to order the remaining 527 planes according to the company's needs.
"Given the range of the product line that Boeing has, we don't think we're precluding ourselves from any capabilities of modern airplanes," Crandall said. "At the same time, we're getting some unique advantages by establishing that partnership kind of relationship."
American is pledged to purchase 12 Boeing 777 wide body jets, 75 Boeing 737s, and 16 of the 767 and 757 jets.
In addition to a discount on the planes, American also will receive savings in maintenance and training costs.
"With labor costs relatively high, the savings in maintenance and inventories and training is quite significant, and I think Boeing is trying to play off its fleet to take advantage of that," Glenn Engel, airline analyst for Goldman Sachs.
The deal is contingent on American settling its labor negotiations with the pilot's union. The Allied Pilots Association is scheduled to vote on a pact in December. The association's board on Wednesday voted, 10-8, to accept the agreement, and union members are expected to back it.
The deal with Boeing is another blow to McDonnell Douglas, which just last week was removed from contention for a huge fighter contract with the Pentagon.
American used to be McDonnell's biggest customer, but the airline's executives were believed to be unhappy with its latest fleet and Crandall said he never even considered McDonnell.
Thomas Longman, analyst with Varian Capital, said McDonnell's future in the commercial airline industry is cloudy. (77K WAV) or (77K AIF)
Despite the huge dollar value of the deal, it represents more a modernization than a rapid expansion of American's fleet, which currently stands at 640 planes.
Crandall said he expects it to bring a capacity increase of between 1.5 percent and 2.0 percent per year over the next five years.
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