Boeing won a major vote of confidence at the Paris Airshow on Tuesday as British Airways owner IAG signed a letter of intent to buy 200 of its 737 Max aircraft that have been grounded since March after two deadly crashes.
News of the deal, worth more than $24-billion at list prices, sent shock waves round the world’s largest air show which had struggled to find its rhythm amid the 737 Max crisis and concerns about an economic slowdown.
Airbus, the current supplier of IAG’s British Airways (BA) and Vueling brands, was stunned by the announcement which came months after it lost a major BA wide-body aircraft order to its U.S. rival. Industry sources said it seemed unlikely the European company had been offered a chance to bid.
“We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months,” IAG chief executive Willie Walsh said of the 737 Max, announcing the first deal for the plane since its grounding.
Boeing’s top-selling aircraft has been taken out of service worldwide since an Ethiopian Airlines 737 Max crashed in March, five months after a Lion Air 737 Max plunged into the sea off Indonesia. A total of 346 people died in the two disasters.
Boeing is working on a fix to anti-stall software blamed for the crashes and hopes to get approval from regulators to get the jet back flying by the end of the year.
Walsh, a former 737 pilot, said he would have “no hesitation” in flying on the plane and voiced confidence in the changes Boeing has made, having seen them first hand.
“I believe the aircraft is safe,” he said.
IAG said it planned for the mix of 737-8 and 737-10 aircraft to be delivered between 2023 and 2027.
“Obviously it’s a breakthrough for Boeing to be able to say that a major airline has shifted to Boeing and an endorsement of the future of this aircraft.” said Mark Simpson, an analyst at brokerage Goodbody, adding it was likely IAG had secured an “extremely compelling discount.”
“We can’t thank you enough for the confidence you placed in the Boeing family,” Boeing’s head of commercial airplanes Kevin McAllister said in response to IAG’s support.
At 1540 GMT, Boeing shares were up 3 per cent at $365.59.
Airbus’s shares, meanwhile, were up 0.5 per cent at €125.6, having earlier hit a record high of €126.5 after the company struck a series of deals at the air show.
These included a $6-billion order for 36 planes from Philippines budget airline Cebu Air, including 10 of the new long-range A321XLR model launched on Monday, and a deal to sell a further 30 A320neo aircraft to Saudi Arabian Airlines, worth $3.3-billion at list prices.
The flurry of deal making could help to soothe investor nerves that a decade-long boom in demand for commercial aircraft is coming to an abrupt end.
With airlines struggling to contend with overcapacity, slowing economies and geopolitical tensions, some analysts warn Airbus and Boeing could face a growing number of cancellations from their bulging order books.
But the plane makers remain confident of continued strong demand for more fuel-efficient jets as emissions regulations tighten and air travel continues to rise, driven by Asia’s growing middle classes. Boeing on Monday increased its 20-year industry demand forecast.
“Although investors have started to ask questions about the state of the upcycle, the aerospace industry remains very confident in the current state of the market,” analysts at Vertical Research Partners said in a note.
Sources familiar with the matter say that American Airlines and leasing giant GECAS are also in talks to buy Airbus’s new A321XLR, which is aimed at helping airlines deliver new routes with smaller planes and stealing a march on Boeing’s own plans for a potential new midmarket jet.