Ryanair gives Boeing a boost with big 737 jet order
There's finally some good news for Boeing: European discount airline Ryanair announced Tuesday that it will buy 175 of the company's popular 737 jets, the largest order ever placed by a European carrier.
Chicago-based Boeing Company has struggled ever since its new 787 Dreamliner was grounded by regulators in January following problems with its electrical system.
It also was dealt a major blow Monday in the race to win the single-aisle plane market when Indonesia's Lion Air signed a deal with rival Airbus for 234 A320s.
Ryanair CEO Michael O'Leary said the deal will allow his airline to expand in markets such as Germany, Spain, Italy, Poland and Scandinavia. Neither side disclosed the purchase price for the 737-800s, but O'Leary said it did negotiate a bulk discount off the total list price of US$15.6 billion.
Ryanair received a 53 per cent discount on a prior 737 order. This time, O'Leary said he was paying "slightly higher" prices.
"I'm paying higher prices, I'm just not allowed to say so," he said, joking that Boeing executives got him drunk on St Patrick's Day.
Ryanair will cease dividends and share buybacks for the next two to three years to help pay for the jets.
TRANSITION TO NEW MODEL
The deal was timed to coincide with Tuesday's visit by Irish Prime Minister Enda Kenny to Washington, DC, to meet President Obama and senior American legislators for St Patrick's Day-related events. Kenny plans to visit the Seattle area, the base for Boeing manufacturing, later this week.
Ryanair already operates a fleet of 305 Boeing 737-800 aircraft, each with 189 seats, one of the tightest configurations in the industry. It is Boeing's biggest European customer for the model, which launched in 1997 and faces global competition from the Airbus A320.
Boeing's primary 737 assembly line in Renton, Washington, faces a transition to building a newer model called the 737 MAX by 2017. Ryanair's order represents about a half-year of full-time work for the plant.
Ryanair has yet to sign on for the new MAX jet, but O'Leary said he has assembled a team to evaluate the new version of the 737.
"Today's order is a very much interim order and will hopefully be a fore-running to ordering the MAX later on," he said at a signing ceremony in New York.
Ray Conner, the head of Boeing's commercial airplanes division, said this deal fills most of his 737 assembly line capacity until MAX production begins.
Ryanair expects to get the first new planes at the end of 2014. O'Leary said about 75 of the new-order 737s would replace older airplanes, but the fleet would grow to 400 by 2019.
He said Ryanair expected its passenger volume to grow around 20 per cent to 100 million passengers by 2019, by which time its workforce would expand from 8,500 to around 11,500.
O'Leary has spent years playing hardball with Boeing to secure the best possible price for his next bulk order — and even sowed the seeds Tuesday for his next marathon negotiation, noting that his airline was "continuing to evaluate the benefits of Boeing's 737 MAX aircraft."
Conner said the problems with the 787 had "no bearing on this (deal) at all" adding that "This is a partnership that we find critical."
The purchase contract for much of Ryanair's current Boeing fleet was agreed in the months following the 9/11 terrorist attacks, when airlines struggled to place new orders.
Later Ryanair regulatory filings in Dublin confirmed that it received a 53 per cent discount off Boeing's list prices.
In 2009, O'Leary noisily withdrew from talks to purchase more 737s and hinted that Ryanair might turn to Airbus.
But both sides sang each other's praises Tuesday.
Conner said Boeing's "partnership with this great European low-cost carrier is of the utmost importance to everyone at The Boeing Company, and I could not be more proud to see it extended for years to come".
Ryanair is one of the world's wealthiest airlines, with more than US$4 billion in cash available. Its business model offering Internet-only sales of low-fare tickets - accompanied by a panoply of extra charges for credit card payments, checked baggage, boarding cards and reserved seats - is increasingly copied by the industry.
Ryanair's specifications on its Boeings do away with standard touches, with no business-class seating and no tray tables on the backs of seats, permitting tighter spacing of passengers.
O'Leary said one of the key advantages of the 737 was the ability to fit 189 passengers onboard, but that he'd love to add 10 more seats — something that would require removing the two rear toilets, a move regulators are unlikely to allow.
O'Leary on Tuesday repeated his proposal to then charge for use of the one front toilet, donating the money to "prostate cancer and incontinence research".