bernardd

Moving a little OT there are moments when I look at the airline business and wonder if unfettered competition is so wonderful and/or if the managers of the airlines REALLY understand how to handle competition.

If you look at what's happened over the last couple of decades, we've worked ourselves into a state where we can travel for very little in real terms, certainly compared to the first half of my life, but the price has been almost every supplier making miserable returns on capital employed and/or making trips through Bankruptcy Court, wiping out stockholders and small suppliers. One question nobody wants to ask is whether it's ultimately good for consumers that suppliers are perpetually on the brink of insolvency? And whether there's a risk this could rebound, leading to rapid, massive fare increases?

transportbiz

Another example of extreme literal interpretation.

sbm12

Dual sourcing is certainly going to yield better initial purchase price. I don't think there is too much dissent on that topic. The question is whether it is enough of a better price in the realm of airline operations.

You have to consider much more than just the initial purchase price. There is maintenance, training, spare part sourcing, pilot type rating, FA training certification, ground handling and a few dozen other moving parts that all have to be analyzed.

Simply saying that you can save 3% on the initial up-front price of the bird doesn't equate to necessarily being a better deal over the life of the aircraft.

Let there be any confusion, I'm not suggesting that a combined CO/UA will go one way or the other here (though I certainly know my opinion). I'm just saying that we don't have all the data to know how it will play out.

channa

There are a couple other factors. First, it's being able to meet the business need with one vendor. Typically one vendor will have a gap here or there in its product line. If you can meet your needs with that constraint, that's great. However, if you're adapting your service because you're constrained by the vendor, that may not be so good, and may carry a significant cost (square peg in a round hole theory).

Second, the long-term impact from sourcing from one vendor needs to be accounted for. In other words, the inability to seriously negotiate not just future business, but also services and parts, because you're allegedly realizing the operational savings can be significant over time.

HeathrowGuy

I agree 110%.

While I think it's rather clear "New UA" would have a primary inclination towards Boeing for future 120+ seat mainline jet acquisitions, there are too many variables at play - starting with, but by no means limited to, acquisition costs and delivery timing - to determine the extent of Airbus participation in new orders and deliveries going forward, especially with respect to the New UA longhaul fleet (as the current United Airbus narrowbodies just aren't going away anytime soon no matter what anyone thinks). In the HeathrowDamus(tm) crystal ball, it's entirely possible to envision New UA going all Boeing for future aircraft needs. Similarly, I could envision a "Boeing drops the ball" scenario whereby New UA gets a sh!tload of Airbus 350 aircraft with A330s as stopgaps (which can also have some beneficial impact in merger labor integration by eliminating issues with respect to disparate aircraft types), with Boeing 787 deliveries confined to the existing CO and UA orders.

All of the above being said, the interesting contest in the near term will be the battle between Bombardier and Embraer for 70-110 seat large RJ orders.

MileHighGuy

Channa keeps claiming, with no evidence whatsoever offered, that CO is overpaying for Boeing planes. For all any of us outsiders know, CO has a "best price" clause in their contract.

channa

We don't know if CO is overpaying. I suspect they are because Boeing knows their business is in the bag.

As for a "best price" clause, that would be very difficult to prove or enforce. In addition to the contracts likely being under NDA where Boeing and customers cannot share pricing info, each customer's plane type is different -- with different options and configurations -- that it would be very difficult to align prices anyway.

I'm not sure why this concept is so difficult to understand. Anyone who negotiates stuff knows they get a better deal when they bring a real threat of competition to the table. By CO being an all-Boeing shop, not to mention as standards-focused as they are, even if they brought that threat to the table, that threat is not very real.

star_world

I don't often agree with you, but you are absolutely correct on this point ^

MileHighGuy

Speculate on.

star_world

Have you any experience with negotiating large, multi-hundred million dollar contracts?

TWA Fan 1

No matter what, though, it is clear the "gentlemen's agreement" reduces CO's leverage with Boeing.

But also we should not forget why the Boeing exclusive was instituted in the first place, namely because when Bethune came to CAL from Boeing he persuaded his former colleagues at Boeing to help out the struggling airline.

They agreed, but only if something was in it for them, so that's where the quid pro quo was established.

However the quo is working out, Boeing is certainly profiting from this arrangement...

DiverDave

Agree.

Delta was a Boeing/MD shop and they are finding good uses for their Airbus fleet. There is no sign of any new Airbus orders, but it appears that Delta is done buying any new aircraft for the near future so that is not a reflection on their satisfaction with their Airbus equipment.

David

LuvAirFrance

Is there a "downside" of using assets acquired by the company you are acquiring? Maybe they didn't want to buy these planes in the first place, but if they come along with the merger, are they gonna pay billions to get Boeings to replace them?

EWR764

Are you suggesting that Boeing rakes Southwest over the coals just because their strategy has been to operate an exclusively-737 fleet throughout virtually all of their history?

Generalizing all purchasing and lumping aircraft sales into the same category merely demonstrates a lack of understanding of the specific instance to which you apply your contention. Boeing's interest in the product doesn't terminate at the time the airplane is handed over to the customer. Large aircraft purchases require training, servicing, parts, and a number of ongoing contracts that are lucrative to Boeing. It's worth it to Boeing to charge one of their best customers (who buys and operates their aircraft in large quantities) a preferential rate to secure that business going forward.

What about the contention that CO gets the "lowest price" from Boeing as a result of their agreement? Did this just materialize out of thin air? Or is it another CO/Kellner conspiracy theory?

Nugget_Oz

Actually DL made an order for the 787. It is also interesting that they are not refurbishing or upgrading their Airbus fleet with the same gusto as the Boeing/MD fleet.