United Will Buy 370 Boeing Jets for $15.74 Billion
United Airlines ordered $15.74 billion worth of airplanes Wednesday, the biggest order by an airline in U.S. commercial aviation history, and handed Boeing Co. its largest single chunk of business ever.
The order by United, which has lagged behind its competitors in acquiring new aircraft and has lost business as a result, is for 370 Boeing jets. It includes 120 firm orders and 130 options on Boeing 737 aircraft and 60 firm orders and 60 options for Boeing 757s.
Stephen M. Wolf, chairman and president of the airline and UAL Inc., its parent, acknowledged at a news conference in Chicago that United had lost ground in the marketplace and said the purchase marks a commitment to “grow and compete in vigorous fashion.
“For some years United has not been growing while the industry has been growing, which is a nice way of saying we have been losing market share,” said Wolf. “This (order) will stop that erosion of market share and put us back in a vigorous growth mode.”
Into Next Century
Wolf said the new orders will take care of United’s narrow-body fleet needs into the next century, and promised that the airline will take action “shortly” to complete the modernization of the its wide-body fleet.
“We will have one of the newest, most modern fleets in aviation,” he said.
Boeing Chairman Frank Shrontz, who joined Wolf to announce the mammoth order, called it the largest order to a single aircraft manufacturer in history.
United is Boeing’s largest jet customer. The Chicago-based carrier got its first jet from Boeing 32 years ago, Shrontz said, and has since purchased 898 Boeing jet aircraft.
The order placed Wednesday comes only a week after the GPA Group Ltd., an Irish aircraft leasing firm, placed orders for 308 aircraft from Boeing, McDonnell Douglas Corp. and the European consortium Airbus Industrie. That order, of which $9.4 billion was to Boeing, totaled $17 billion, making it the largest order in terms of dollars.
Defense Industry Decline
The cascade of commercial orders placed with Boeing and McDonnell Douglas could go a long way in offsetting the decline in defense industry sales as the Pentagon trims its budget. Not every aerospace contractor participates in the commercial aircraft industry, but such firms as Northrop, General Dynamics, Allied-Signal Aerospace, General Electric and United Technologies will share in the commercial boom.
For Boeing, the order was the best news yet in what is developing into another banner year. The Seattle-based manufacturer has reported total jetliner orders of 499 valued at $26.5 billion so far this year, compared with 170 orders worth $7.5 billion at the same time last year.
For all of last year it won a record 636 orders for new jetliners, which was a 74% increase over 1987. Boeing’s total backlog for all models is 1,519.
In addition to committing the airline to expansion, United’s giant order apparently resolves some of the differences the airlines had with its pilots union. The pilots have been working without a contract for over a year and talks with the carrier are being conducted by a Federal mediator.
The pilots in 1987 forced the corporation, then known as Allegis Corp., to begin divesting itself of hotel properties and of its Hertz car rental company so it could devote its attention to the airline business. It was instrumental in ousting the management at that time.
Hans J. Plickert, an airline specialist with The Transportation Group, a corporation affiliated with the New York brokerage house of Paine Webber, said United’s slow aircraft acquisition program created problems for pilots because their advancement was “stymied.” It has been impossible, he said, for co-pilots to advance into the captain’s seat.
“This is a very pragmatic issue,” he said. “This affected their job opportunities and their pay. These guys were just plain frustrated. Now the logjam at United in terms of promotion will be broken.”
Wolf said: “I felt that we needed to unilaterally demonstrate to our pilots a very firm commitment to our returning to the core business, that we intend to grow. We needed to demonstrate that in a very solid fashion. From their perspective we have been remiss for a number of years.
A spokesman for the United local of the Air Line Pilots Assn., James A. Damron, said: “We are delighted. We think the announcement is long overdue.”
But Robert Decker, an airline specialist with the Chicago firm of Duff & Phelps, said the orders might be too late and could create an oversupply capacity for United.
“It appears too late in the economic cycle for an expansion,” he said. “An economic downturn now becomes much riskier.”
Wolf said that although United currently owns about 80% of its fleet, the plan was to lease aircraft for all of this year. United might then return to buying planes, and expects no difficulties financing them.
With the orders announced Wednesday, as well as the Boeing 747-400s, 737-300s and 757s ordered earlier by United, the airline has 469 new aircraft on order or option--more than its entire current fleet of 412 planes.
Wolf said that there would be an “orderly” phaseout of of the older planes as the new ones are delivered. However, the overall fleet will be expanded. As a result, he said, United’s fleet would grow significantly.
He said that the average age of United’s fleet, currently 13.5 years and one of the oldest in the industry, would decline fairly rapidly. Currently the industry average age of planes is 11.7. Eastern Airlines has the oldest fleet at 14.6 years while Delta Airlines has the youngest at 8.5 years.
The firm orders for 737 models will be delivered between July of 1991 and July of 1995 and the options, if they are taken, between 1995 and 1998. They will be powered by engines made by General Electric Co.
The 757 firm orders will be delivered between February, 1991, and August, 1993, and the options will be delivered between August, 1993, and February, 1996. They will be powered by Pratt & Whitney engines.
Times staff writer Ralph Vartabedian contributed to this story.
