Boeing pulled a rabbit out of the hat at the Paris Air Show this week, when it announced IAG had signed a letter of intent to take 200 Boeing 737 MAXs. IAG is the parent company behind British Airways, Aer Lingus, Iberia, LEVEL, and Vueling. The deal is worth up to USD$24 billion and the 737 MAXs are destined for LEVEL, British Airways and Vueling.
The news surprised many, not least Airbus who, according to a Reuters report, had been caught “unawares” by the deal.
Airbus had only just signed a deal to sell 14 A321XLRs to IAG.
It was a big boost for Boeing, who had been having a quiet week at the Air Show. It’s an even bigger boost for their beleaguered 737 MAX airframe which is currently grounded. It was Boeing’s first sale of the 737 MAX since the Ethiopian Airlines crash in March 2019.
Speaking after the announcement of the deal, IAG’s Willie Walsh said;
“We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months having received approval from the regulators.”
Airbus isn’t happy
Unsurprisingly, Airbus is not at all happy with the situation. Airbus Chief Commercial Officer, Christian Scherer, told Reuters that they would have liked to have had a chance to bid for the business.
It constituted a sharp criticism of the deal from Airbus. The rivalry between Airbus and Boeing is intense, but it had been muted lately as Boeing deals with its ongoing issues. The absence of an open tender and the secrecy around the deal sparked the response from Airbus.
Reuters suggests that one reason for the signing was a desire by IAG to keep competition alive between the two big aircraft manufacturers. More cynical observers of the aviation scene suggest the signing was a strategic move by IAG to negotiate a better deal in the future from Airbus.
It is worth keeping in mind that a letter of intent is non binding. It simply indicates a desire to do business together and outlines the prospective deal.
Last year, Slovenia’s Adria Airways walked away from a letter of intent based deal to lease 15 Sukhoi SuperJet 100 aircraft from Sukhoi Civil Aircraft. The agreement was never transferred to a hard order.
Aircraft production can be beset with delays, as customers are now experiencing with the 777x.
Some airline customers can be forgiving, others are tougher. Qatar Airways for example, is a notoriously demanding customer for both Boeing and Airbus. The challenge for Boeing now is to convert IAG’s letter of intent into a firm order.
Criticism of the deal
The prospective deal is attracting plenty of criticism from the industry too. It seems, however, that IAG can’t lose. If they change their mind they can simply walk from the deal, no harm done to IAG. If they follow through, on the other hand, it’s likely they’ll acquire the 200 aircraft at a knock down price, given the current situation.
The immediate win for Boeing is a major airline conglomerate very publicly stating its confidence in the 737 MAX. For Boeing, IAG pretty much saved the Air Show. Without their order, Boeing wouldn’t even have broken the 100 plane order barrier.
On the face of it, it seems a very strange move by IAG to bet on a plane which is yet to be recertified as safe. But, as it’s only a letter of intent at this stage, rather than a legally binding memorandum of understanding, their risk factor is pretty low.
What do you think about IAG’s ‘rescue’ deal with Boeing? Should Airbus be allowed to tender for the business also? Let us know in the comments!