United’s bid to replace up to 150 of the larger airliners in its fleet is poised to take advantage of a lagging economy and likely intended to cause a potential bidding war, but some feel it may be a sign the airline is having difficulty raising capital against older aircraft. The airline, which currently flies both major manufacturers’ products, has asked Boeing and Airbus to generate bids for the potential order that may earn one of them anywhere from $10 billion to $20 billion in orders depending on final aircraft selected, discounts applied and order size. Each manufacturer is theoretically motivated by recent history that’s buffeted the industry, first with a 2008 spike in oil prices followed by an international recession and worldwide financial crisis — all of which led to order deferrals from customers. Outfitting its fleet with new models from either major manufacturer would promise better efficiency and route flexibility for United, aside from the impact it may have on customer decision-making. But the move itself doesn’t necessarily mean the company is flush with cash. Actually, at least some analysts appear to be arguing that it may mean the opposite.
In the short term, United’s investment (if it happens) has some adverse affects on its market standing as financial analysts at J.P. Morgan used the news to lower the airline’s stock rating. Those analysts may believe a purchase signals United’s difficulty in raising capital against an aging fleet and a creative way to free up cash. United could sell off older, less efficient aircraft in a better used-aircraft market in exchange for generous recession-inspired payment plans on more efficient new aircraft — aircraft that may also prove to be better assets to borrow against as the price of oil rises. United’s fleet of 400 includes nearly 100 senior Boeing 757s and some older wide-bodies. Boeing and Airbus will have order backlogs that stretch multiple years into the future regardless of any new orders that may be acquired from United, but both manufacturers have trimmed (or have plans to trim) production of certain models to match the soft market.
