American Airlines (NYSE:AMR) announced it was splitting its fleet between Boeing (NYSE:BA) and Airbus, EADS (EAD). After 911 airlines were bankrupt and needed all sorts of support from the American people. Now when the big order goes in workers in Toulouse France and Hamburg Germany will be enjoying some overtime. Less money in the US economy thanks a lot.
But wait a minute lets take a closer look. AMR trades around $5 @ share. The fundamentals are not compelling. They have a huge union legacy issue; especially with the heavily unionized repair facility that American maintains. The repair facility is exclusively Boeing oriented because that’s all American has in the air. Where will the Airbus be maintained? Which union picks up the work? Opportunity to cut or eliminate legacy costs?
Then look at the battle of the options. Both contracts have huge options to buy more aircraft. Each manufacturer wants the options exercised thereby adding to the order backlog. Now you have some old-fashioned competition. Boeing and Airbus will compete heavily against each other with American being the beneficiary.Of course if American does not survive, the manufacturing hit is partly exported to Europe and the Boeing guys do not hurt as much.
Aircraft manufacturing is also a huge political football. Boeing will be watching sneaky European subsidies affecting the American Airlines deal. Boeing is in a political fight with the Obama Administration about their right to open new manufacturing facilities in South Carolina. Sure they will manufacture 787s there but when it’s political it becomes quite the mess.
So fly the friendly skies and keep your seat belt buckled at all times.
Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours. When I fly I am more motivated by schedule and on time performance. I usually do not care much about which airliner I’m in. Attentive stewardesses are always appreciated.
- Airbus A320neo beats out Boeing in AMR’s order (marketwatch.com)
- American Airlines orders up to 300 Boeing 737s (bizjournals.com)
- American Airlines splits massive plane order between Boeing, Airbus (bizjournals.com)
- American Airlines Just Made The Biggest Plane Purchase Of All Time: Here’s What You Need To Know (AMR, BA) (businessinsider.com)
- American Airlines buys Airbus, stings Boeing (seattlepi.com)
- American Airlines may split up big jet order (seattlepi.com)