© Reuters. FILE PHOTO: American Airlines flight 718 takes off from Miami, Florida, U.S. December 29, 2020. REUTERS/Marco Bello/ FILE PHOTO
By Rajesh Kumar Singh and Shivansh Tiwary
NEW YORK (Reuters) -American Airlines on Monday unveiled its biggest plane order since 2011, buying 260 new jets from Airbus, Boeing (NYSE:) and Embraer as it looks to increase earnings by capitalizing on booming demand for premium travel.
The deal includes 85 Airbus A321neo jets, 85 Boeing 737 MAX 10s and 90 Embraer E175 aircraft. The order also includes options and purchase rights for an additional 193 aircraft.
“(Travel) demand is back,” American Airlines (NASDAQ:)’ CEO, Robert Isom, told an investor conference.
The order is also a big boost for Boeing, which has been under fire since a Jan. 5 incident when a door plug blew off a 737 MAX plane in mid-flight, exposing frightened passengers to the outside air.
This is American’s first-ever order for the MAX 10, the largest variant of Boeing’s best-selling single-aisle 737 MAX planes.
The aircraft has yet to be certified by the U.S. Federal Aviation Administration (FAA). The Jan. 5 incident has raised new doubts over its certification.
American’s chief financial officer, Devon May, said the order reflects the airline’s confidence in Boeing, adding it offers fleet flexibility to the company as it provides an alternative to its Airbus A321 planes.
Its first MAX 10 plane is due for delivery in 2028. But if delivery is delayed, the company has negotiated with Airbus for sufficient options, he said. The Texas-based airline also has options to convert those orders into MAX 8 or MAX 9.
“Our first MAX 10 delivery is going to happen in 2028,” May told reporters on the sidelines of American’s investor conference. “It gives Boeing a lot of time to actually get the airplane certified and then deliver it on time.”
Reuters has reported that rival United Airlines is in talks with Airbus for a potential mega order to replace hundreds of MAX 10s on order from Boeing, as airlines scramble for scarce Airbus production slots.
May expressed confidence that Boeing would “get it right,” saying the U.S. planemaker was “taking the right steps.”
“It’s probably going to take some time,” he said.
American Airlines shares fell 5.4% to close at $14.81 on Monday.
The new plane order is expected to enable American to add more high-margin premium seats on its domestic and short-haul international routes.
American, United and Delta Air Lines (NYSE:) have all benefited from increased demand for premium travel after the pandemic.
The company is also looking to drive up revenue from its co-branded credit cards. The programs have become a cash-generator for carriers through sale of miles to third-party partners.
American expects its profit margin to jump to 15%-18% in 2026, up from 14% estimated for this year, resulting in a free cash flow of more than $3 billion.