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Boeing is a leading manufacturer of commercial and military aircraft, rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. Headquartered in Chicago, Boeing employs more than 170,000 people across the United States and in 70 countries.
Boeing is organised into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. Supporting these units is Boeing Capital Corporation, the Shared Services Group and Boeing Engineering, Operations & Technology.
Boeing’s main commercial products are the B737, B747, B767 and B777 families of aircraft and the Boeing Business Jet. New product development efforts are focused on the B787 Dreamliner, 737Max, 777X and the B747-8. The company has nearly 12,000 commercial jetliners in service worldwide, which is roughly 75% of the world fleet.
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Any number of US airlines are in the midst of, or have recently completed, reconfigurations to increase seating density on their aircraft in an effort to drive additional revenue at a relatively low cost. As capacity creeps up in the domestic market place, airlines often reference their aircraft densification programmes as efficient capacity expansion.
Three US airlines viewed as some of the most consumer friendly – JetBlue, Alaska and Southwest – have all opted to add seats to their respective narrowbody fleets. Those airlines walk the fine line of adopting strategies to bolster revenue while ensuring that passenger goodwill remains intact. Few consumers enjoy less legroom.
The revenue potential of densifying aircraft for most airlines is too beneficial to pass up, reflecting the balance of appeasing investors and working to create a still comfortable travelling experience. It is a scenario whose prevalence will grow as both passengers and shareholders become more vocal in their demands.
Latin American airline group Avianca is attempting to mitigate tough conditions in the region, particularly a sharp devaluation of the currency in its largest market Colombia. Steps the company is taking to counteract weakness in Colombia and throughout Latin America include a domestic capacity reduction within Colombia and fleet adjustments that include both deferral of aircraft deliveries and grounding of its subfleet of Embraer 190 aircraft.
Similar to most airlines operating in Latin America, Avianca is attempting to match its supply with demand and shore up yields, even if that means sacrificing some market share, as is the case in another one of its large markets Peru.
The worsening conditions in Latin America have forced Avianca to join most of its rivals operating in the region to issue a downward revision of its EBIT margin for 2015, a discouraging sign for a company that embarked on 2015 in a seemingly better position than its rivals.
Canadian airline WestJet during 2H2015 marked the second anniversary of its regional subsidiary Encore, an airline designed to allow WestJet to tap new sources of revenue within the Canadian domestic market and flesh out its schedule to make it more desirable for the business passenger segment.
WestJet has stuck to its plans for Encore expansion, launching in Western Canada and then setting its sights on the Eastern region of the country culminating with a push from Halifax in 2015. Encore’s network composition is a mix of stand-alone stations and markets where it operates alongside mainline narrowbodies to improve schedule integrity.
Encore is fuelling at least half of WestJet’s capacity growth in 2015, and WestJet management has found itself defending Encore’s growth amid a shaky Canadian economy, stressing that the growth was justified given the regional operator’s stimulative effects. That growth continues in 2016 when Encore enters its first US transborder market, Boston.
HNA Group unit, Bohai Leasing has taken another step towards becoming a major global aircraft lessor, with the Chinese company signing a definitive merger agreement with Avolon earlier in Sep-2015.
The deal prices the publicly listed Irish lessor at USD31 per share, representing a purchase price of about USD2.6 billion. The transaction has a total enterprise value of approximately USD7.6 billion.
Bohai agreed to a modest discount to the USD32 per share commitment the parties announced when they entered an exclusive negotiating agreement in early Aug-2015. The price cut, totalling about USD82 million, is due to “significant volatility across global equity markets”, which have particularly affected markets in China. A formal agreement is due to be signed in 1Q2016.
Canadian airlines WestJet and Air Canada are busy preparing for upcoming aircraft deliveries as part of significant planned fleet changes at each company as they work to create the proper fleet profile for their respective business models.
WestJet recently marked a milestone with the delivery of its first Boeing 767 widebody, marking a time of rapid change at the airline during the last three years that also included the introduction of 70-seat Bombardier Q400 turboprops.
Air Canada in the short term is focussed on expanding its Boeing 787 widebody fleet, but is also preparing to add 737 Max narrowbodies beginning in 2017, the same year WestJet is adding the new next generation narrowbody to its fleet.
Each airline has also been working to line up financing for its upcoming deliveries, with WestJet tapping Export Development Canada and Air Canada capitalising on the EETC market that opened up to Canadian airlines in late 2012.
US airline fleet strategy and finance Part 2: Alaska and Southwest differ in leveraging their fleets
The two US investment grade airlines – Alaska and Southwest – have steady delivery streams planned from Boeing during the next couple of years as they work to ensure that the average age of their respective fleets remain optimal.
But Alaska and Southwest are taking different approaches to their fleet fortification. Alaska is choosing to stick with new-build aircraft to replace 737 Classics exiting its fleet while Southwest is opting to add a mix of new and pre-owned aircraft to sustain its fleet at around 700 aircraft in 2015.
Both airlines own a solid portion of their respective fleets, allowing for a certain level of flexibility if market conditions change. Although each airline’s investment grade status allows for favourable market rates, Alaska for the moment has no plans to finance aircraft through debt, but is not ruling out the possibility in the future.