Boeing, Texas Air Discussing Possible $6-Billion Deal
Boeing Co. said Thursday that it is holding talks with Texas Air Corp., the nation’s biggest air carrier, and financial analysts said they expect a deal for the purchase of aircraft that could total $6 billion.
Boeing refused to comment further in Seattle on the talks, but Prudential-Bache Securities analyst Paul Nisbet, as well as some others, said in New York that Boeing was expected to sell or lease up to 200 aircraft, 100 of its short-range 737s and 100 of its medium-range 757 aircraft.
They said the deal could be worth up to $6 billion.
But some industry sources said that the deal would involve mostly options to purchase aircraft rather than firm orders.
“Actual orders versus options will be very modest,” said one source, who would not say if the orders would be firm purchases or leases. The sources estimated that less than 25% of the aircraft could be actual orders.
Industry analysts said that a deal would likely involve leasing of aircraft rather than outright purchases because of Texas Air’s heavy debt burden, which came from its takeovers last year of People Express and Eastern Airlines. Leasing deals have grown more common in recent years due to severe competition among aircraft manufacturers.
“There is tremendous pricing pressure, and with a company like Texas Air that’s loaded up with debt and thrives on being the low-cost carrier, you know they’re not going to sign up for some sweetheart deal with Boeing,” said analyst William Deatherage of Dean Witter Reynolds.
Another analyst, who asked not to be identified, said a problem could emerge for Boeing if Texas Air were to make a deal to lease a large number of aircraft and was then faced with an economic downturn. Since it is highly leveraged, analysts say Texas Air could be in serious trouble if there is another major recession in the industry.
Texas Air stock closed off 1 5/8 at 35 7/8, but Janney, Montgomery Scott analyst Louis Marckesano said it may have overreacted.
“An airline that size can expect to spend about $1 billion a year on aircraft,” Marckesano said. “I think this is a normal expectation. A lot of this will come through depreciation.”
Texas Air Corp. also refused comment. Nisbet said the two companies could reveal some information about the nature of the talks at the Paris Air Show, which begins next week.
New York investor George Soros and an investment fund he manages, meanwhile, told the Securities and Exchange Commission that they have acquired combined 2,134,600 shares of Texas Air Corp., or 5.4% of the total outstanding.
Soros and Quantum Fund N.V., a Netherlands Antilles mutual fund, said they spent a total of $85.5 million on the stock, which they said they bought solely for investment purposes.
