We ran one month ahead of the FT and other outlets when we informed you of the massive 777X orders to come at the Dubai Air Show and now here we are again confirming a rather more obvious order to come from Cathay Pacific this time for a far smaller 25-strong aircraft order.
US Airways and AMR shares took a hammering on Friday on the news that the battle with the DOJ will most likely end in US/AA giving-up far too much to see the deal go through before the November 25th court date, which, in the event, will see very good routes divested.
Southwest Airlines will move for Reagan National Airport and LaGuardia Airport slots as US/AA are forced to divest the same to get the merger past the DoJ roadblock. This news is bad for US and AA and leaves a significant dent in their core market and indeed the US Express operators such as Piedmont seem to be in the firing-line to an extent on this one.
Reagan Airport in Washington DC is the one where slots are very hard to come by and Southwest will go all out to bag some having lost out last time. They will however come at a cost as Spirit cannot afford not to take a second look at additional DC and NYC connectivity at the expense of is rival that is for sure. JetBlue and Virgin America should also be interested at the right price once again.
Everyone is asking the same question though: At what price is this merger a good one and at what point does it turn into a bum deal. Investors seem to be fairly certain that we are reaching a tipping point. Of course those invested in AA through AMR stock will be very sad indeed given the results of late at the airline.
Of course our view for the past three years has been to stick with Spirit and Allegiant even so those that followed our recommendations need to think about cashing-in and looking for the next opportunity, something that is occurring across the board right now as investors see the peak is here and passing. Of course our view was to put it into Boeing at the beginning of this month and sell after the 777X announcements in November at the Dubai Air Show.
Meanwhile Cathay Pacific is to confirm an order for 25 777X aircraft to add to the airlines that are to order/will order such as Emirates, Etihad, Lufthansa. Now our sources at both Boeing and Qatar Airways tell us that the airline will be ordering 777X aircraft and that this should happen next month at the Dubai Air Show. Reports this weekend quote CEO, Akbar Al Baker as saying that "we are not interested in buying". I would suggest that there is extensive jockeying going on for delivery slots at this time and Qatar are once again trying their luck and making the usual noises.
There is one simple fact in all of this: If Qatar does not order the 777X then someone in senior management needs to be taken out and shot, as from all of the data and information to hand here in these offices, you either have a 777X in the near future or you have the 777X in a fleet mix with the A350-1000 but you do not, not have the 777X. Worried this sounds like a Boeing advert? We don't do adverts in this editorial, so here is some balance: Airbus have its A321Neo, which is best in class. Airbus also has its A350-900 which too is best in class (on its own there) and is a real winner. Finally the A350-1000 is a great aircraft to capture the 787 debacle fallout, but as mentioned here the other day - If ANA go for the 777X, and they will, then JAL will most likely also order the 777X but with of course diminished delivery slots and most likely not too good a deal on list prices.
Now the very mention of list prices conjures a smile as they mean very little these days. They used to be a starting point for discussions, and I have a feeling that they will become more relevant in the near future. So when considering the A350-1000 and the 777X we have two aircraft very closely matched on price. The 777X is aiming to come in at around $338m while the A350-1000 is listed at $332.10m. This narrow margin on pricing makes the situation critical for airline fleet managers and treasurers as they will not be able to note significant pricing gaps, unless good deals on pricing are achieved and this means going big on orders is the safer option right now for airline management. In turn this means airlines that are expanding fast have to react to get delivery slots and that right now means THY needs to think fast about its options and make a move or be left behind in their battle against the Middle East big three. In addition being on the order books for the 777X might just improve the IPO story to come.
As with every aircraft order, it is a question of circumstance that dictates which aircraft an airline orders. The A350 is lighter, but then again the 767 is lighter than an A330 but we all know which is the better aircraft. The A350-1000 battle against the 777X is a battle of engine power and that looks to be a home run for GE with its new engine that once again pushes new boundaries on diameter and fuel burn and it is this which will give the edge.
Even so, the 777-300ER has seen far too many engines coming off wing at a rate far higher than was expected, as reported here a few months ago. The massive Emirates engine pool now looks like the best decision in recent history by any airline and the value of the same has shot up as GE and others try to secure spare engines for service agreements. All those looking at the 777X will need to ask GE some serious questions and maybe hold them to maintenance forecasts.
In other news it is worth keeping an eye on claims that pilots and cabin staff are subjected to as much radiation in a year as a nuclear power plant worker. As more scientific research is devoted to this area and more clarification is given insurance costs are liable to rise for operators across the globe on the premise that we might yet see a rush of workers comp claims from airline staff as they get older. Another interesting question being asked today in the scientific community is this: Which affords better protection against radiation: Steal or composite? Now that argument could indeed have an effect on aircraft values and indeed with the 777X made out of steal and not composite there could be an interesting debate yet to be had on this matter. This is a small story today but do not bank on it staying that way.