Markets

Skepticism Surrounds Potential United Aircraft Order

By Brett Snyder

Updated on: June 9, 2009 / 10:31 AM EDT / MoneyWatch

By now you've likely heard that United has sent out a request for proposal to replace its widebody and 757 fleets. (Bryan wrote about it here last week.) For an airline that has refrained from ordering new aircraft for years, often enduring criticism in the press, this is big news. But this plan has already drawn plenty of skepticism, and many aren't expecting to ever see this order materialize.

Some have wondered whether United has a strong enough balance sheet to be able to actually pull off such a purchase. I think @FlyingSig on Twitter said it quite succinctly:

the real question is not Boeing vs Airbus but how are they gonna pay for these new jets

Though this is still in the RFP phase, it is certainly an important question to be asking. Buying 150 airplanes is not cheap, so can United actually find someone to fund this? The airline has seen higher losses than the industry average, its costs are high, and its cash balance is relatively low. While there are certainly balance sheet issues, does that mean it won't be able to finance new aircraft? Not necessarily, but it will certainly make it more difficult, especially in this credit environment. Then again, the aircraft manufacturers will be hungrier now than they would have been a couple years ago.

Some are speculating that this is no more than a play to strengthen the balance sheet. How? This week's PlaneBusiness (subscription only) proposes that United is trying to pit Airbus vs Boeing so that they can get some cash upfront in exchange for a big order. This would help build up that cash balance and get them through the winter.

Other whispers have suggested that this might be nothing more than an effort to excite the unions with new aircraft orders as they prepare to enter into negotiations. If that's the case, then it's a pretty poor attempt. As a pilot friend of mine at United said:

What the rank and file is really interested in is growth, not a replacement program for our current fleet. It certainly wouldn't be seen as a negative, but I doubt it would materially improve the company's bargaining position.

One thing that's clear is that not many people actually believe United just wants to order new airplanes. I tend to agree. There has to be more behind this than what the airline is saying publicly.