United Continental Holdings said it would buy 40 of Boeing’s smallest jetliner, snubbing Bombardier’s C Series in favor of a model that already accounts for the bulk of the airline’s fleet.
The new Boeing 737-700 aircraft will enter service in mid-2017 as United cuts its use of cramped regional jets, the carrier said in a statement Thursday. The order would be valued at $3.22 billion based on prices listed on Boeing’s website, but airlines get large discounts on big orders so the real price is likely around $1.37 billion, according to data from aircraft valuation firm Avitas.
United’s decision to choose the 737, an updated version of a plane that debuted in 1965, instead of the brand-new C Series deals a blow to Bombardier’s efforts to line up U.S. customers for its marquee jet. Sales of the Canadian-made aircraft, which Bombardier is using to target the 100- to 150-seat market, have been thwarted by production delays and competition from market leaders Boeing and Airbus Group.
“This is just shows how difficult it is for Bombardier to win orders these days,” said David Tyerman, an analyst at Canaccord Genuity in Toronto. “It’s not the end of the world, but this loss illustrates what they are up against. It also raises the question of how profitable the next C Series order they win will be for them.”
While Bombardier Chief Executive Officer Alain Bellemare has talked up interest from prospective customers since the C Series’s Paris Air Show debut in June, the backlog of orders has remained stuck at 243 for more than a year. That trails Bombardier’s target of 300 by the time the C Series enters service in the first half of this year.
Since Bellemare’s arrival 11 months ago, Bombardier has focused sales efforts on adding established airlines to an order book dominated by lessors and small carriers. Deutsche Lufthansa remains the only C Series buyer ranked among the world’s top 20 airlines by passenger traffic.
By sticking with a Boeing model already in its fleet, United avoids the costs of training hundreds of pilots and stocking up on spare parts, as well as the hassle of matching crews to a new aircraft type. United currently operates 310 of the 737s, according to Planespotters.net.
“Our customers have a preference for an improved travel experience, including first class seats, Economy Plus, and Wi- Fi,” Gerry Laderman, United’s acting chief financial officer, said in the statement. “These aircraft are an efficient way to meet those needs while reducing 50-seat flying.”
In a separate announcement, Southwest Airlines said it would acquire 33 Boeing 737-800s as it accelerates the retirement of its oldest planes by three years, and converted its remaining 25 orders for -700s to the larger -800s.