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Air Canada jets sit by the gates at Toronto Pearson International Airport in Toronto on April 25 2013. (Fred Lum/The Globe and Mail)
Air Canada jets sit by the gates at Toronto Pearson International Airport in Toronto on April 25 2013. (Fred Lum/The Globe and Mail)

Air Canada, Boeing strike jet deal Add to ...

Air Canada has chosen Boeing Co. planes over those from Airbus SAS in a deal worth at least $6.5-billion (U.S.) that will give the country’s biggest airline a more efficient fleet.

The airline signed a firm order for 61 Boeing 737 Max planes, and options or purchase rights on 48 more aircraft, taking the potential size of the order to 109 aircraft.

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The planes have a list price of about $100-million (U.S.) apiece, but airlines typically receive discounts of as much as 50 per cent, and Airbus and Boeing have been battling fiercely to win new orders in the most competitive and largest segment of the commercial airline market.

Air Canada chief executive officer Calin Rovinescu said in a statement that the aircraft deal is “a key element of our ongoing cost-transformation program.”

Fuel is the airline’s single largest expense; it spent about $2.7-billion (Canadian) on fuel in the first nine months of the year, which represents representing 30 per cent of its operating costs. The Boeing jets should allow the the airline to cut costs per available seat mile by 10 per cent compared with its existing narrow-bodied planes, he said.

With Boeing clinching the Air Canada order, attention is now turning toward Bombardier Inc. and Brazil’s Embraer SA.

The rivals are fighting to land a contract for the smaller single-aisle planes that can carry between 100 and 150 passengers.

Air Canada has not disclosed how big this order will be. It depends on a number of decisions yet to be taken, said Priscille Leblanc, vice-president of communications.

This is a must win for Bombardier, whose new C Series airplanes are off to a slow start. So far, Bombardier has garnered 182 firm orders. The Montreal-based aircraft manufacturer expects to have sold 300 planes by the time Bombardier delivers its first C Series.

Air Canada has put off a decision on replacing its 45 Embraer E190 regional jets and will review its options on those smaller aircraft during the next six months, a delay that gives Bombardier more time to to test the C series and demonstrate it can live up to its promises.

Boeing will purchase up to 20 of the E190s, which will be replaced with larger narrow-bodied aircraft until deliveries of the new Boeing planes begin.

“The company will be reviewing various options over the next six months for the remaining 25 Embraer E190 aircraft, including continuing to operate them or replacing them with a yet-to-be determined number of aircraft in the 100- to 150-seat range,” Air Canada’s statement said.

Bombardier likely leads in the running for the Air Canada order for the smaller planes, industry sources said, because the C Series has actually flown. Embraer’s new version of the E190 with more fuel-efficient engines isn’t scheduled to be available to airlines until later in the decade.

“It’s important to win at home,” said one industry source familiar with Air Canada’s deliberations. “It would be kind of like Boeing losing in Alaska.”

The C Series is precisely the plane Air Canada needs for such long, thin routes as Toronto-Calgary and Toronto-Halifax, the source said.

Mr. Rovinescu said in October that the decision on the single-aisle airplanes would be based solely on the airline’s needs.

“We’ve sent a fairly clear signal to the marketplace that our objective is to deliver a sustainably profitable company, so we’re going to make decisions that make sense from the Air Canada stakeholder perspective,” he said.

Guy Hachey, president and CEO of Bombardier Aerospace, said at an industry conference recently held in Montreal that the 12-month testing program was “going according to plan.” But most financial analysts expect that Bombardier will need more time and predict that the first delivery will take place in early 2015 instead of late 2014, as the company maintains.

In the Boeing purchase, Air Canada has placed firm orders for 33 737 Max 8 planes, which carry 162 passengers in a typical two-class configuration. The larger Max 9 carries 180 passengers in two classes.

The combination of the new Boeing 787s, that will begin arriving next year to replace the airline’s Boeing 767s, the arrival of more Boeing 777 planes, and the addition of Boeing 737s with new fuel-efficient engines will improve the fuel efficiency of Air Canada’s fleet dramatically, one industry source said.

Boeing says the latest versions of its 737 are 14-per-cent more fuel efficient than existing aircraft.

The airline’s fleet will grow to 214 planes by the end of 2019 from 192 aircraft as of Sept. 30.

Boeing offered backstop financing, an intermediary arrangement until Air Canada can negotiate a financial deal with better terms, indicated Priscille Leblanc, vice-president communications.

Bombardier says it will deliver the first Cseries in the fall of 2014 and is still on schedule with its 12 month testing program. The company said however that it will soon update investors on its progress so far. Most financial analysts expect the Cseries won’t be delivered until the first months of 2015.

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