United Gets OK to Buy Pacific Routes, Places Big Order With Boeing
United Airlines won final approval Thursday from the U.S. Transportation Department to take over the Pacific routes of Pan American Airlines, and it separately announced a $3-billion order for up to 116 aircraft from Boeing to expand and modernize its fleet.
Approval of the route expansion came from Transportation Secretary Elizabeth Hanford Dole, who brushed aside the objections of the Justice Department and other airlines that competition would suffer if the largest U.S. carrier were to acquire the additional routes to Asia and Australia.
Noting that new Pacific routes recently agreed to with foreign governments are to be divided among U.S. carriers in the coming months, she predicted that “United will confront a more competitive situation when this transaction is completed than exists today.”
UAL Inc., United’s parent, will pay Pan Am $715 million for its Pacific division. UAL said it may spend as much as $3 billion to buy up to 110 short- to medium-range Boeing 737-300s and up to six long-range 747s. United spokesmen described the route purchase as the largest deal ever struck between commercial airlines and also maintained that the $3-billion order represents the largest order for commercial aircraft.
2nd Major Order for Boeing
It was the second major aircraft order in about a month for Boeing, which on Oct. 22 announced a $2-billion order from Northwest Airlines for new 737 and 747 airplanes. Analysts said the expansion of Boeing’s backlog was in line with a general expectation that the No. 1 commercial aircraft maker will be steadily increasing production in the next several years.
President Reagan may reverse the routing decision on grounds that it would interfere with defense or foreign relations, but that is regarded as unlikely. At the same time, the airline must still negotiate landing rights with foreign governments, a process that some analysts fear could bog down if Japan decides to press for expanded U.S. landing rights for Japan Air Lines.
Dole had tentatively approved the deal early last month.
The Transportation Department said then that, on the recommendation of the Justice Department, it would review whether United should be required to give up routes from Seattle and Portland to Tokyo, which it has operated since 1983. United officials said Thursday that they “welcome” such a review, asserting that they are confident that the Transportation Department will not decide to turn over the routes to any other airline.
American and Northwest airlines had argued against the route takeover.
As part of the deal with Pan Am, United will take over 18 of Pan Am’s jumbo jets, its ground operations in Asia and more than 2,000 employees. The Pacific routes link several U.S. cities with China, Taiwan, Hong Kong, Thailand, Singapore and the Philippines. They also include routes from Los Angeles to Australia and New Zealand.
Catching Up on Modernization
United said the new aircraft being ordering from Boeing will be used to expand both domestic and overseas routes and will be delivered between 1988 and 1990. The first 20 Boeing 737s and two of the six Boeing 747s are to be delivered by June, 1988.
Analysts said neither announcement was entirely unexpected. Candace Browning, an analyst with Oppenheimer & Co. in New York, said United was “actually in something of a catch-up position” on fleet modernization, since American and Northwest airlines, and other carriers, have recently put in similar orders.
She said the traveling public also stood to benefit from the route change, since financially weak Pan Am was not in a position to buy new aircraft or expand the Pacific routes.
Bill Gorman, an analyst with Provident National Bank in Philadelphia, said the two recent purchase orders will sustain but not dramatically improve Boeing’s position in the market. “They’re already the clear leader, and this will keep them on top,” said Gorman, who estimated that the Seattle-based aerospace firm has 55% of the commercial aircraft market.
Boeing’s common stock rose 75 cents in trading Thursday, closing at $47.25. UAL stock closed at $50.50, up 87.5 cents.