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Boeing: AMR, Still Wobbly But Firming On Orders

 January 15, 2013 01:24 PM

(By Mani) American Airlines, a unit of AMR Corp. (PINK: AAMRQ) has confirmed orders with The Boeing Co. (NYSE:BA) for hundreds of new planes, including 42 Boeing 787 Dreamliners valued at $8.7 billion at list prices.

Whether American Airlines will survive as an independent airline remains an open question, but in case it does, it's preparing to operate even more new Boeing planes.

In addition to the 111 737s and 16 777s AMR previously committed to buying from Boeing, it is now adding 100 737MAXs, 2 777s, and 42 787s.

"Granting that AMR's uncertain fate makes these orders speculative, we nevertheless believe the agreement underscores legacy airlines' imperative to upgrade to new, efficient aircraft, highlighting afresh the operating economics that undergird Boeing's hefty backlog," Oppenheimer analyst Yair Reiner said in a note to clients.

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Just as importantly, the deal appears to lend the 787 a vote of confidence at a critical moment.

Pending approval of the bankruptcy court, the deal firms up the 100 737Max purchase agreement that was announced July 2011, but hadn't been confirmed or added to Boeing's backlog. The deal also expands AMR's 737Max options to 60 from 40 planes, and re-confirms the existing 737ng book of 111 orders and 40 options.

The deal also firms up AMR's prior agreement for 42 787s, and their first deliveries beginning November 2014. Additionally, it converts 22 of the 787s to -8s, versus the prior deal which stipulated all -9s. The new agreement also reconfirms AMR's prior option for 58 additional 787s. In all, a nice nod of support.

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While the deal grows Boeing's backlog and is likely to be seen as positive overall, the plane-maker did make some concessions, including releasing AMR from a variety of un-quantified bankruptcy claims related to prior lease and finance agreements.

"More importantly, Boeing provided AMR with price concessions on the 737ngs, an acknowledgment, perhaps, that the pending end-of-line aircraft have lost some luster in the 1.5 years since the MAX was introduced," Reiner said.

There are also price concessions on the 787s, though those likely reflect the mix shift to the smaller variant.

"According to our estimates, the agreement expands the value of AMR's backlog at Boeing to $34.4B from $14.6B (at list), and propels the carrier to the top spot from the #9 spot among Boeing's customers," Reiner added. 

In contrast, AMR's deal with Airbus was left unchanged, apart from un-specified amendments to the delivery timetables, indicating that Boeing has an edge over Airbus at American Airlines.



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