American Airlines orders up to 100 Boeing 787 jets

Oct 17, 2008 (The Dallas Morning News - McClatchy-Tribune Information Services via COMTEX) -- AMR | Quote | Chart | News | PowerRating -- American Airlines Inc. said Wednesday it has agreed to buy up to 100 advanced-technology Boeing 787 jets, an order with a list price of around $15 billion.

But the deal comes with a provision that gives American an out if it can't reach an agreement with its pilots union on pay rates for flying the 787 and other matters.

A spokesman for the Allied Pilots Association said the union welcomed the purchase.

"We're always glad to see them buy airplanes and reinvest in the company," pilot Kevin Cornwell said. "We'd now like to see them reinvest in their employees."

The 787, scheduled for first commercial flights in 2009, offers extensive use of composites to reduce the airplane's weight, helping it achieve a 20 percent reduction in fuel consumption compared with older Boeing Co. models.

The use of composites rather than metals for the airplane's skin also will allow higher air pressure and humidity levels inside the airplane to improve passengers' comfort.

American said it is buying 42 airplanes on firm order for delivery between 2012 and 2018, with purchase rights for 58 more between 2015 and 2020.

"If the plane performs as Boeing promises, it will be a tremendous step ahead for the airlines," said aviation analyst Scott Hamilton of Leeham Co. "It promises to have 20 percent less operating costs, about 30 percent less maintenance costs.

"Those numbers are a great leap forward."

Boeing says it has 58 other customers for nearly 900 of the jets, and Mr. Hamilton said the next available 787 delivery spots for regular Boeing customers aren't until 2017 to 2020.

American, by virtue of a 1996 contract with Boeing, has the right to get delivery of airplanes on relatively short notice: 15 months for narrow-body Boeing 737 and 757 airplanes, 18 months for wide-body Boeing 767s and 777s.

The 787 was developed after the 1996 agreement, but American chief financial officer Tom Horton said the pact extended those rights to "successor aircraft."

American and Boeing negotiated the delivery dates, with the first airplane to arrive in September 2012.

American's contract with the pilots' union provides pay rates for each type of aircraft, with larger airplanes paying higher rates than smaller ones. Adding a new aircraft type would normally be a relatively minor process, with the rates generally based on the weight of the airplane.

However, American and the union couldn't reach agreement on a contract waiver in 2006 that would have allowed American to operate long-distance flights between Dallas/Fort Worth and Beijing, China.

The U.S. Department of Transportation instead awarded the coveted China route to United Airlines Inc.

American chairman and chief executive Gerard Arpey said the airline is reasonably confident that it will be able to negotiate pay rates for the Boeing 787, but he said there's always a chance that it won't.

Another union spokesman, pilot Sam Mayer, said any deal on the 787 would have to be part of a new pilot contract, not an agreement negotiated outside the current contract talks that began in September 2006.

American must alert Boeing at least 18 months before the September 2012 delivery date that it wants to proceed with the purchase, meaning that American wants a deal in place by March 2011.

The order marks the first purchase of an all-new aircraft type for American since it placed an order for Boeing 777s -- the largest airplane now in its fleet -- as part of the 1996 pact.

The 787 will allow American to replace older, smaller wide-body jets, such as the Airbus A300 and the Boeing 767.

In addition, Mr. Arpey and Mr. Horton said, the airplane can be used to help American grow internationally, particularly if regulators approve American's application for antitrust immunity on its dealings with alliance partners British Airways PLC and Iberia.

"American has a strong future, but only if we plan for it now," Mr. Horton said.

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