United, Southwest buy 73 Boeing jets in blow to Bombardier

Reuters
A passenger looks at a United Airlines airplane, painted with its new corporate logo, at a gate at Liberty International Airport in Newark, New Jersey February 7, 2011. . REUTERS

(Reuters) - United Airlines <UAL.N> said on Thursday it will buy 40 small planes from Boeing Co <BA.N>, dealing a $3.2 billion blow to Bombardier Inc's <BBDb.TO> hopes of landing a major customer for its fledgling CSeries program.

Separately, Southwest Airlines Co <LUV.N> said it had ordered 33 of Boeing's 737-800 aircraft, a deal it struck in December but announced on Thursday.

Reuters reported last week that Boeing was poised to snatch at least part of Chicago-based United's order for small jets that seat about 100 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.

Canada's 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 and are equipped with fuel-efficient Pratt & Whitney <UTX.N> engines.

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.

Reuters reported in October that Bombardier had offered the CSeries to Southwest, a long shot since the airline maintains an all-Boeing fleet.

The CSeries is due to enter service in 2016 after years of delays and budget overruns. A spokeswoman for the Montreal-based plane and train-maker declined to comment on United's announcement. "For us it's business as usual as we continue to pursue key campaigns," said spokeswoman Isabelle Gauthier.

Delta Air Lines Inc <DAL.N> on Tuesday said it was considering Bombardier's new aircraft.

“Our competitors will keep shooting at us but there is only so much negativity you can project on an aircraft when airlines are beginning to endorse it,” said Colin Bole, a Bombardier senior VP, sales and asset management, speaking to Reuters in Dublin before the United deal was announced.

Another competitor for the United order, Brazil's Embraer SA <EMBR3.SA>, 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 Boeing rival Airbus Group SE <AIR.PA> .

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

United is expected to buy more small jets because it lacks planes in the 100-seat niche, Cowen and Co analyst Helane Becker said in a research note.

Rubel said Bombardier is being squeezed by aggressive pricing from Boeing and Airbus, which undercuts the smaller rival. "Bombardier is in the middle of a rope-a-dope between Boeing and Airbus," he said.

United, the second-largest U.S. airline by capacity, likely paid well below half the $80.6 million catalog price for each Boeing 737-700, industry sources said. The plane is being phased out in favor of a newer model, the 737 MAX, and 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, shy of its target of 300 by the time the plane enters service.

In a note to clients, Desjardins analyst Benoit Poirier wrote on Thursday that CSeries orders "will remain the key catalyst for Bombardier's share price," which closed down more than 9 percent at C$1.09 ($0.7637).

"We expect the market to remain skeptical and believe there is a real risk that the CSeries could be canceled if no orders materialize in the next six months," Poirier wrote.

($1 = 1.4273 Canadian dollars)

(Reporting by Jeffrey Dastin in New York, Tim Hepher in Dublin, Alwyn Scott in New York and Allison Lampert in Montreal; editing by Jeffrey Benkoe, Nick Zieminski, David Gregorio and Dan Grebler)