Irish Firm Places Record $17-Billion Order for Jetliners
An Irish aircraft leasing firm on Tuesday announced a $17-billion order for up to 308 commercial jetliners from three manufacturers, by far the largest such single-day purchase ever and another boost for McDonnell Douglas’ commercial aircraft division in Long Beach.
GPA Group Ltd., one of the world’s largest aircraft leasing companies, said its order includes a $3.1-billion request for up to 72 aircraft from McDonnell Douglas. That deal will fill out gaps in McDonnell Douglas’ already busy production lines in Long Beach, although it will not increase employment, company officials said.
McDonnell Douglas, which nearly shut down commercial jetliner production in the early 1980s due to sagging orders and financial losses, now has enough orders to fill out its production line well into the mid-1990s, thanks to this and other recent large orders, spokeswoman Elayne P. Bendel said.
Also included in GPA’s huge order, which the company first hinted at last week, was $9.4 billion for up to 182 aircraft from Boeing Co. in Seattle and a $4.3-billion request for up to 54 planes from Airbus Industrie, a European consortium.
The deal--which one analyst said represents a half-year’s worth of production in the world jetliner industry--is the latest in an unprecedented series of orders in the past year.
These orders, spurred by projections of strong growth in worldwide demand for airline travel into the 1990s, have filled out production schedules for major manufacturers.
But they have also fueled production problems and delays which could lead to higher costs, financial losses and customer discontent with late deliveries.
“This is a surprisingly strong airliner market we’re witnessing, and this is just one more manifestation of that,” said Paul H. Nisbet, aerospace analyst at Prudential Bache Securities in New York.
The previous record for a single purchase was Delta Air Lines’ $10.5-billion order last September for 225 Boeing and McDonnell Douglas jetliners. American Airlines and International Lease Finance Co. in Beverly Hills also have placed giant multibillion-dollar orders in recent months.
The deal also is the latest sign of the growing prominence of leasing as a cheaper and more flexible way for airlines to obtain planes.
Leasing enables airlines to adjust more quickly to changing passenger demand, avoiding the risk of committing large amounts of capital for purchases. Some smaller airlines cannot afford the high up-front costs of owning their own planes. Leasing also brings more capital to the aircraft market, since institutions and individuals can invest in aircraft deals through leasing limited partnerships.
On the other hand, the growing leasing trend has pushed up prices of new and used jetliners and could leave some carriers unable to get aircraft on their own for years. Leasing firms now account for more than 20% of the world’s commercial jetliner orders, with GPA and International Lease Finance considered the largest players.
GPA, formerly known as Guinness Peat Aviation, is based at Shannon Airport in Ireland and is privately owned by company founder T.A. Ryan and several companies, including Air Canada, the Irish airline Aer Lingus, Prudential Insurance and Mitsubishi Trust Bank of Japan. It already owns one of the world’s largest aircraft fleets, including 172 planes operating with 64 carriers in 32 countries, with another 350 jetliners on order.
In announcing its latest deal, GPA said it will buy 92 Boeing 737 narrow-body twinjets, 50 Boeing 757 narrow-body twinjets, and 40 Boeing 767 wide-body twinjets. It also ordered 30 short-to-medium range Airbus A320s, 10 medium-to-long-range Airbus A330s and two long-range A340s, while taking options on another 10 A330s and two A340s. Orders also were placed with several major jet engine manufacturers, including Pratt & Whitney and General Electric in the United States.
“This significant commitment means that we expect to purchase about 10% of all of the commercial jet aircraft delivered through the mid-1990s,” Chairman and Chief Executive Ryan told reporters in New York.
While McDonnell Douglas got the smallest piece of the order relative to archrivals Boeing and Airbus, the allocation of the orders to each manufacturer represents their approximate relative worldwide market shares, analyst Nisbet said.
The order also is another boost for Douglas’ fledgling MD-11, an updated version of its DC-10 trijet. Included in the transaction were firm orders for eight MD-11s, bringing the order backlog for that model to 284, including 91 firm orders.
GPA also placed firm orders for 34 MD-83 twinjets, with options for another 30. That brings the total backlog for all versions of the MD-80 series to 1,499, with nearly 1,000 firm.
However, spokeswoman Bendel said, the order will not increase employment, which now totals more than 25,000 in Douglas’ commercial operations and about 40,000 for all Douglas operations, including military programs. That division-wide figure is up from 27,400 a year ago and 14,000 five years ago.
Instead, the order will fill in gaps in aircraft delivery positions and assure the company of maintaining its current full production rate of 2 1/2 aircraft per week, Bendel said.
“The order has been anticipated in our current production rate,” she said.
But the swelling order book has not come without its problems. The MD-11 is about three months behind in flight testing, while deliveries for MD-80s are as long as a month behind schedule. Similar delivery delays are plaguing long-time industry leader Boeing.
“The industry is running flat out and everybody is having delivery delays,” said Wolfgang H. Demisch, aerospace analyst at UBS Securities in New York. The result, he said, could be higher costs and other woes. “I’m sure it (higher costs) will haunt everybody,” Demisch said.
Robert H. Hood Jr., who will take over as Douglas’ new president next month, acknowledged such problems in a recent interview when he said that the division is beset by inadequate quality on production lines, antiquated management systems, high costs, disorderly procedures, a messy factory and looming future losses if conditions don’t improve.
