United to Lease 757s From Boeing : Orders 30 Planes, Takes Options on 30 in $2-Billion Deal
United Airlines said Thursday that it has ordered 30 Boeing 757-200 airliners and taken options on 30 more in a deal that is worth more than $2 billion and is notable for the fact that United will lease, not own, the planes.
It was the third recent large order for Boeing aircraft: Ten days ago, International Lease Finance of Beverly Hills ordered 100 planes of various types and took options on another 24. The aircraft-leasing firm reportedly will pay about $4.6 billion for the 124 planes. On Wednesday, American Airlines announced that it will buy 50 757s, worth more than $2 billion, and take options on another 50 at the same price.
A New Name
United Chairman Stephen M. Wolf said Thursday that United itself had placed the order for the planes with Boeing but will not actually purchase them. Between now and the time of delivery, the airline company will make arrangements with a consortium of financial institutions that will buy the planes and lease them to United.
Although Wolf would not identify the lessors and declined to give financial details, he said the airline would lease the planes for between 18 and 20 years. United owns 85% of its airplanes and leases the rest, he said, adding that most other airlines lease a much higher proportion of their planes.
Announcement of the deal was made at the annual meeting of Allegis Corp., the airline’s parent company. In other business at the meeting, shareholders, as expected, voted to change the name of the corporation to UAL Corp., a reflection of the fact that the company has sold off the non-airline subsidiaries it had acquired in recent years.
After the vote-count, Wolf removed an Allegis sign from the lectern and put up one saying UAL Corp. The crowd of 300 shareholders, many of whom were employees, cheered and applauded, obviously delighted that their company is once again simply an airline concern.
The new 757s have a list price of around $45 million each but are selling for between $36 million and $37 million because until recently they have not been sought with much eagerness by airlines. But now they have suddenly become hot sellers.
The Associated Press, reporting from Boeing headquarters in Seattle, quoted Boeing spokesman Jim Boynton as saying: “It’s been a very pleasant week, hasn’t it?”
The twin-jet, medium-range 757s that will join United’s fleet will be equipped with U.S.-made Pratt & Whitney engines and will replace the airline’s aging DC-8 airliners, which will be sold, Wolf said. “The 757 order is part of our ongoing fleet modernization effort aimed at improving overall fleet efficiency,” he added.
United expects to take delivery of the first of the 757s in August, 1989, and will receive five more later in 1989. The airline will get another 21 planes in 1990, with the remaining three to be delivered in 1991. United now operates 387 airplanes.
A major reason the company cited for ordering the 757s is the plane’s fuel efficiency. On a typical United transcontinental route--from Washington Dulles to San Francisco, for example--the twin-engine 757s will burn 34% less fuel than the older, four-engine DC-8s.
The company said it has an agreement in principle to sell its 29 DC-8-71s, built by McDonnell Douglas, to GPA Corp., a U.S. subsidiary of GPA Group Ltd., an aircraft-leasing firm based in Shannon, Ireland. The U.S. subsidiary is headquartered in Stamford, Conn.
Industry sources said that such DC-8s are selling for $10 million to $15 million and are likely to be used in the future by air cargo firms.
Wolf also told the shareholders that business is so brisk that United is having trouble meeting the demand for seats on its airplanes, both on its Pacific routes and within the United States. For that reason, he said, United needs still more aircraft in addition to the 757s.
“We don’t have enough product to go around,” he said. “We are not responding to demand.” He said United has one of the highest load factors in the industry, flying with its planes an average of 67.7% full in April, for example.
How quickly the airline purchases additional planes and how many it will buy depends greatly on its profitability, Wolf added: “Clearly we are going to acquire new aircraft. If our earnings are modest, I would assume our fleet expansion would be modest. But if our earnings are somewhat consistent and significant, we will use a large percentage of these earnings to expand and modernize our fleet.”