In mid-June at the Paris Air Show, IAG (the parent company of British Airways, Iberia, Aer Lingus, and Vueling) expressed interest in a surprising aircraft. The company signed a letter of intent to acquire 200 Boeing 737 MAXs, valued at $24 billion at list prices.
This caught many of us off guard:
- The 737 MAX is grounded globally right now, and we don’t know when it will be flying again
- An order for 200 planes is massive, and this seemingly came out of left field
- On some level IAG seemed to be involved with Boeing here in the subtle rebranding of the plane — IAG simply referred to the plane as the 737, with no mention of the “MAX” (in the meantime Ryanair has done something similar — they’ve rebranded the 737 MAX 200 as the 737-8200)
So, what was IAG’s motivation for signing this LOI, according to CEO Willie Walsh? He says that this order was motivated by frustration with Airbus:
- IAG has experienced an average of 70 day delays on their new A320neos, which has left the company frustrated
- IAG wants to have a mixed narrow body fleet, so that they’re not entirely reliant on one manufacturer; I suppose that’s fair enough, when you look at what’s happening with the 737 MAX right now
Walsh says that this “should be an indication not just to Airbus but to everybody that we’re unhappy with their performance. I know everybody interprets it as an issue of price, it’s not.”
Airbus has indicated that they’d like the opportunity to compete for IAG’s business, though Walsh has stated that he’s not interested in pursuing that.
Personally I remain skeptical for now.
With all due respect to Mr. Walsh, him saying that something isn’t about price isn’t especially believable. I have a lot of respect for the guy, and part of the reason he’s so successful is because he is always concerned about price. Always.
He’s as concerned with price as American mechanics are concerned about no American plane taking off without every little thing fixed, regardless of whether it needs to be or not.
While the optics of this deal look bad, in my opinion, this was ultimately probably a smart strategy on IAG’s part:
- IAG hasn’t actually committed to anything, as they’ve only signed an LOI and haven’t finalized their order
- If they do finalize their 737 MAX order, I’m sure they’re getting a heck of a deal from Boeing
- If they do decide to go with the A320neo, you can bet they’d get a great deal from Airbus as well
So whether Walsh will admit that this is about price or not, there’s no doubt that IAG will get the best price imaginable on whatever narrow body fleet renewal they plan going forward…