AC ups order on B787

[Kip Powick]

MONTREAL, April 24 /CNW Telbec/ - Air Canada today announced it has

exercised existing options and purchase rights for 23 Boeing 787 aircraft,

bringing its total firm orders for the aircraft to 37 from the 14 originally

announced, with deliveries starting in 2010. Air Canada thus becomes the

largest North American customer for the Dreamliner, the world's most advanced

aircraft.

"As we take delivery of new, fuel efficient aircraft, we are removing

older aircraft from the fleet to create one of the youngest, most efficient,

customer-friendly fleets in the world," said Montie Brewer, President and

Chief Executive Officer. "The Boeing 787 aircraft features better operational

performance in terms of speed and flight range, providing us with the ability

to serve new markets that could not be previously served in an efficient

manner. With new Boeing and Embraer aircraft entering the fleet, we will

continue with our overall strategy of matching capacity with demand, which has

produced more than three consecutive years of record breaking load factors."

The revised agreement includes options for 23 Boeing 787 aircraft for a

total of up to 60 Boeing 787 Dreamliners. At the same time, Air Canada has

reduced its original Boeing 777 firm order and the related capital commitment

by two aircraft which were due to be delivered in 2009. The carrier is

scheduled to take delivery of a total of 16 Boeing 777s, in addition to one

leased from International Lease Finance Corporation, by the end of 2008. Air

Canada received its first Boeing 777 on March 30..

Air Canada's major fleet renewal program will see the carrier's existing

Airbus A340 and A330 and Boeing 767-300 and 767-200 aircraft replaced by

modern, fuel efficient and more customer friendly aircraft. The revised order

will enable the replacement of substantially all of the carrier's B767 leased

aircraft at the time of the expiry of the aircraft's operating leases. The

carrier estimates fuel usage and maintenance costs for a Boeing 787 aircraft

to be approximately 30 per cent less than that of a Boeing 767-300.

Air Canada continues to make progress on subleasing and/or returning

leased aircraft considered redundant to its fleet requirements and the airline

expects to meet its target to remove from service approximately 23 aircraft in

2007, including eight widebody and 15 narrowbody aircraft.

Carrier receives loan guarantee commitments from the Export - Import Bank

of the United States

Air Canada also announced that the Export-Import Bank of the United

States has provided the carrier with a Final Commitment for loan guarantees

for seven Boeing 777 aircraft which will be delivered in 2007 and a

Preliminary Commitment covering the remaining Boeing 777 aircraft which will

be delivered in 2008 and 14 Boeing 787 aircraft which will be delivered in

2010 and 2011.

Montreal-based Air Canada provides scheduled and charter air

transportation for passengers and cargo to more than 170 destinations on five

continents. Canada's flag carrier is the 14th largest commercial airline in

the world and serves 34 million customers annually with a fleet consisting of

335 aircraft. Air Canada is a founding member of Star Alliance, providing the

world's most comprehensive air transportation network.

[dagger]

AC basically dumped the 777 freighters from the original order. I guess Boeing was happy to have a substantially larger number of 787s. Unfortunately, no news about earlier 787 deliveries which AC would have been happy to have.

[Vsplat]

Dagger, better check that presumption out before this thread gets much older. The company's LOU with the pilots over freight carriage included statements regarding the complement of 777's. If it comes out that the company knew those aircraft were gone before they signed, this is going to look and smell like bad faith bargaining.

I know, more 787's than planned, but that doesn't buy a 777 captain anything but a pay cut.

Vs

[handyman]

Are these replacement aircraft or expansion aircraft?

[dagger]

Dagger, better check that presumption out before this thread gets much older.  The company's LOU with the pilots over freight carriage included statements regarding the complement of 777's.  If it comes out that the company knew those aircraft were gone before they signed, this is going to look and smell like bad faith bargaining.

I know, more 787's than planned, but that doesn't buy a  777 captain anything but a pay cut.

Vs

You have me at a disadvantage with respect to the wording of the LOU, which I have not seen. I have been saying that these freighters were gone for some time now. Also, in terms of a pay cut, I'm not certain that there will be ANY loss of captain's pay between a 777-200LR - the planes AC ultimately specified to replace the freighters - and a 787-9 or - if such a plane is launched, a 787-10. EK is placing strong pressure on Boeing for a -10.

The 787-9 is meant to replace the A330s which are comparably sized to the 777-200LR. So I would suggest to you that the issue of loss of pay doesn't necessarily apply until AC knows the breakdown of the 787s. I would guess that at this point in time, they do not know that breakdown, just as they do not know the outcome of the 787-10, or a higher MTOW version of the -9. At this point, they have probably specified only 787-8s and will continue to do so until the final lock-in dates for each delivery slot as that means they can make smaller progress payments. This is what was done with the 777 order.

As for the freighters, they are dead for this particular acquisition, which isn't to say AC couldn't use its options to buy them as a separate transaction if the business case is there.

By the way, I believe, given the fantastic demand for this aircraft, that AC will look at taking all 60 787s before we are done and will look, in the middle of the next decade, at operating an all-787 fleet plus the 777-300ERs for very high density routes. Any 777 with fewer than 300 seats will be rendered obsolete by the larger versions of the 787.

Potentially, there is another shoe to drop. I believe AC has been trying to renegotiate this order for some time, based on being able to get earlier deliveries of 787s. For that to happen, Boeing has to make a decision on increasing production from the get-go. The demand for 787s is so great, I expect this to happen, but I don't know how it impacts AC's order. I suspect that this issue probably clouded the negotiations on reducing the 777 order by two fins. If AC does get some earlier 787-8 deliveries, say, in 2009, it can leap right into the 787-9 as soon as Boeing starts producing it in 2010.

These are only my assumptions. I have heard nothing from my contacts about Boeing's willingness to advance AC deliveries, although I firmly believe that if Boeing increases production it will mean some earlier or accelerated deliveries for AC.

[dagger]

Are these replacement aircraft or expansion aircraft?

Both

Over time, AC is replacing all 767 and all Airbus widebodies. At the end of last year, that was 63 aircraft. This order commits to 54 777s and 787 including the leased ILFC fin. AC retains options for up to 40 more 777s and 787s. So AC has the capability to expand beyond 63 aircraft, but what is also true, is that many of these new planes are larger than the aircraft they will replace. For example, the 767 fleet contained 11 -200 aircraft. These and a few 767-300s are going, replaced initially by some of the 777s (17 777s being acquired vs 12 A340-300/500s pegged to leave the fleet). So there is both fin growth and capacity growth, and the prospect of more. The airline's remaining 787 rights are all options now, not a combination of options and purchase rights. And given the popularity of the aircraft, I would expect them to order the planes and flip them if the airline doesn't need them.

[buzz]

Vsplat,

I seem to recall that the "extra positions" on the 777 were to be only to be factored in for a brief time, and would not be reflected by the 2009 window. Not too sure about that, and quite frankly, the extra positions weren't the deciding factor in voting on the LOU, at least for me personally.

For Dagger, the 777- 200LR will have a much higher GTOW than any of the 787 configurations. As well, the pay rates for the types do not differentiate between the variants, the 777 rate is what was arbitrated, and the 787 is also arbitrated albiet at a much lower rate. Vsplat would be correct in the pay issue IMHO.

Any way you slice it, it is good news and I'm looking forward to it's arrival...we should be back to straight formula on each type by 2009...

buzz

[handyman]

(17 777s being acquired vs 12 A340-300/500s pegged to leave the fleet). So there is both fin growth and capacity growth,

Sounds like a great plan until Airbus, in a desparate move, offers the wide-body aircraft at 10 cents on the dollar!

Everyone seams to be planning the elimination of the 340's from thier fleet and I suspect they will be flying for another 10 years at an incredible rate from Airbus/leasors.

[dagger]

Sounds like a great plan until Airbus, in a desparate move, offers the wide-body aircraft at 10 cents on the dollar!

Everyone seams to be planning the elimination of the 340's from thier fleet and I suspect they will be flying for another 10 years at an incredible rate from Airbus/leasors.

The used market is damn tight. Blame the 380 fiasco. Until a lot of 787s are in the air and the 350s start rolling out, this won't change. And if fuel prices rise significantly above current levels, it will further tilt the benefits towards the newer aircraft vs the 340 no matter what the lease rate. Wait until the carbon taxes start coming in earnest.

[Maverick]

Sounds like a great plan until Airbus, in a desparate move, offers the wide-body aircraft at 10 cents on the dollar!

Everyone seams to be planning the elimination of the 340's from thier fleet and I suspect they will be flying for another 10 years at an incredible rate from Airbus/leasors.

You could be correct HM, the A340-500's and to a lesser extent the -300's are becoming the red-headed step child of leasesd aircraft and AC should be in a good position to negotiate long term, favourable leases when they are up.

The 767-300's are another story though, there ain't gonna be any bargains there.

[handyman]

Fuel price is significant to an airline but that 40M 340-300 has to burn a bunch of fuel to cost more than a 300M 777 or 200M 787!

I'm sure someone has done the figures...what is the payoff period to go new-technology vs the old bus?

[dagger]

Fuel price is significant to an airline but that 40M 340-300 has to burn a bunch of fuel to cost more than a 300M 777 or 200M 787!

I'm sure someone has done the figures...what is the payoff period to go new-technology vs the old bus?

I don't have access to AC's analysis but the party line is that the 787 will be 30% cheaper to operate than a 763, the result of a 25% reduction in Fuel cost per ASM, and 5% in maintenance and scheduling efficiencies. Obviously, if fuel costs more than the baseline in the models, the savings will be greater. The scheduling efficiencies come from the ability to utilize any 787 or 777 over any distance AC currently flies, whereas now, you can't swap out a 340 and replace it with a 767-300 (and certainly not a 767-200) on a lot of routes that are at the higher end of the 340 range. So you can't fly a 767-300 to Hong Kong, but AC will be able to fly any 777 or 787 on either HKG route. Also, there will be a lot fewer unscheduled fuel stops when the winds are unfavorable. That means planes can be scheduled a bit more aggressively and when mechanicals occur, it will be easier to adjust to accommodate the swap. I'm guessing that it could mean a bit more efficient use of pilots in particular. Right now, the 767-300 captain can't take over an A340, but maybe you can tell me whether a guy scheduled to fly a 787-8 would be allowed to switch over to a 787-9 if his original aircraft goes mechanical. That would require knowledge of the ACPA collective agreement that I don't have.

[GDR]

GOOD DAY FOR BOEING

Dreamliner double hit for Boeing

Associated Press

CHICAGO — — Virgin Atlantic Airways and Air Canada delivered double victories to Boeing Co. on Tuesday, choosing the company's 787 Dreamliner over the competing Airbus A350 model.

Meanwhile, Boeing said it was partnering with London-based Virgin Atlantic to develop a new biofuel for commercial jets as part of an effort to reduce carbon emissions.

Virgin Atlantic's 15-plane order is worth $2.8-billion (U.S.) at list prices and is the largest European order to date for the aircraft, which is due to enter service in 2008.

Virgin Atlantic also took options for eight 787s and purchase rights for 20 more of the aircraft, which Boeing is touting for its increased fuel efficiency — a deal potentially worth $8-billion. The planes will be added to its fleet in 2011.

Separately, Air Canada said it is increasing its Dreamliner order to 37 from 14, making it the largest North American customer for the plane. The revised agreement also includes options for an additional 23 more 787s. The new aircraft will replace its existing Airbus A340s and A330s and Boeing 767s. Those planes are scheduled to be delivered in 2010.

The 787-9 burns around 27 per cent less fuel than many other aircraft, thanks to its partial use of composite materials instead of metal. So far, 44 customers have ordered 557 Dreamliners, officials said.

“As we take delivery of new fuel-efficient aircraft, we are removing older aircraft from the fleet to create one of the youngest, most efficient, customer-friendly fleets in the world,” said Montie Brewer, Air Canada's president and chief executive officer.

“The Boeing 787 aircraft features better operational performance in terms of speed and flight range, providing us with the ability to serve new markets that could not be previously served in an efficient manner.”

Boeing executives and Virgin Atlantic chairman Richard Branson announced the orders and the partnership at a news conference where they said they hope to launch a test flight of a biofuel-powered 747 in the next year.

Officials at both companies declined to comment on the value of their investment in the biofuel project, which follows a similar airline industry initiative.

“We look forward to finding and testing alternative fuels and developing and implementing solutions that will reduce emissions both in the air and on the ground,” said Boeing chief executive officer Jim McNerney. “This is important work with high objectives.”

It could take at least five years before any jet biofuel, likely made from cellulosic material, is widely available on commercial flights.

Mr. Branson said he hopes the new fuel and more widespread-use of the twin-engine 787s will help reduce the overall pollution generated by the airline industry, which is responsible for about 2 per cent of the world's carbon emissions.

“We all have a responsibility whether as airline owners, airline manufacturers, or engine makers to reduce that carbon footprint, which has grown over the years,” he said. “Doing nothing should not be an option.”

Boeing shares rose three cents to close at $93.67 on the New York Stock Exchange after reaching their latest all-time high of $94.96 earlier in the session.

On the Toronto Stock Exchange, Air Canada shares closed down 33 cents (Canadian), or nearly 2 per cent, at $17.10.