American Airlines Keeps Bets on New Jets Despite Bankruptcy

In furthering its plans to build the youngest and most fuel-efficient fleet of aircraft in the U.S. over the next 5 years, American Airlines (NYSE:AMR) announced its plans earlier this year to make the largest aircraft order in history despite filing for bankruptcy. American Airlines will take order of 460 narrowbody jets comprising a mix of Boeing 737s and Airbus A320’s. ^[1] According to Tom Horton, president of American Airlines and its parent, AMR Corp., “The A319 and A321 aircraft will strengthen our fleet, helping us dramatically improve our fuel and operating costs, while at the same time offering our customers the chance to fly in aircraft that are designed to greatly enhance their travel experience.” ^[1] Competing airlines, including United Continental Holdings (NYSE:UAL), Delta Airlines (NYSE:DAL) and, to a lesser extent, US Airways (NYSE:LCC) continue to suffer from high fuel costs, which are further burdened by inefficient, outdated aircraft.

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Rising Fuel Costs Driving Upgrades

Rising fuel costs, which accounts for 43% of domestic revenue, have intensified American’s need to update its fleet. ^[2]. Favorable financing terms and leaseback deals allow American to go forward with its fleet upgrade, despite poor overall economic conditions. AMR is expected to begin taking deliveries of the aircraft in 2013. Consider how fuel margins affect American Airlines’ share price.

American Airlines also recently announced its selection of the CFM56-5B engine, manufactured by CFM International, a joint venture between General Electric and Snecma for the A319 and the V2500-A5 engine made by International Aero Engines (IAE), a joint venture between Pratt & Whitney, Rolls-Royce, MTU and JAEC for the A321. With these new engines, American’s future fleet of Airbus aircraft is expected to reduce fuel cost per by between 12 and 35 percent per seat. ^[3] Fuel costs are hurting the margins of airlines industry-wide, so American’s fleet upgrade positions it competitively for sustained future growth by simultaneously reducing operating costs while increasing customer satisfaction.

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1. American chooses A319 and A321 for its initial Airbus order, Star-Telegram [↩] [↩]
2. Capex Reductions Could Help American Airlines Stave Off Bankruptcy, Trefis [↩]
3. American Airlines Chooses Airbus 319, 321 Variants as Part of Its Fleet Transformation, The Street [↩]