Boeing's Max sales get boost with $33b order for 200 jets

Korean Air Lines CEO Walter Cho (second from right), with (from left) Boeing Commercial Airplanes vice-president Ihssane Mounir and CEO Kevin McAllister, and Air Lease CEO John Plueger after the Korean carrier ordered 20 Boeing 787 Dreamliners at the
Korean Air Lines CEO Walter Cho (second from right), with (from left) Boeing Commercial Airplanes vice-president Ihssane Mounir and CEO Kevin McAllister, and Air Lease CEO John Plueger after the Korean carrier ordered 20 Boeing 787 Dreamliners at the Paris Air Show on Tuesday.PHOTO: REUTERS

It upstages Airbus at Paris show to clinch major deals, including one for 20 Dreamliners

BERLIN • The Paris Air Show is typically an Airbus stronghold, where the European company unveils its biggest orders, relegating Boeing to bit player.

This year was shaping up to be particularly difficult for the US manufacturer, which is reeling from two deadly crashes that grounded its all-important 737 Max jet.

Chief executive officer Dennis Muilenburg came to the event with a focus on "humility and learning" rather than chasing deals.

That was until the second day, when Boeing managed to pull off a stunning turnaround with the help of one of the world's most respected airlines.

British Airways owner IAG signed a letter of intent for 200 of the single-aisle Max planes, in a commitment valued at US$24 billion (S$33 billion) that gives Boeing the opportunity to turn around the negative narrative surrounding its biggest source of profit.

The US company could not have hoped for a stronger endorsement to win back trust from wavering customers and a jittery public.

IAG chief executive Willie Walsh - a former 737 pilot - vouched for the Max personally, saying that he would board one himself if he could and that he had been on a simulator to run through Boeing's proposed changes.

It is among the biggest orders ever placed for a single-aisle model in Europe, and IAG is essentially building the future of its low-cost operations, including the Level and Vueling brands, around the Max.

"Both sides get something great: Boeing gets an incredibly well-timed endorsement and IAG gets to buy planes at a very heavy discount, probably with no risk," said Mr Richard Aboulafia, vice-president at Teal Group, an aviation consulting firm.

While the Chicago-based manufacturer had drawn a blank on opening day - and watched Airbus pull in US$13 billion in deals - Tuesday began more upbeat for Boeing. It landed an order for 20 787 Dreamliners from Korean Air Lines, before the crescendo from IAG, marking the first commercial endorsement for the Max since the grounding.

Negotiations came down to the wire, and it was not clear until Tuesday afternoon that Boeing would clinch the sale, according to a person with knowledge of the matter.

Airbus was blindsided, unaware of the talks or even the IAG requirements, another person said. After Mr Walsh penned a contract with Boeing Commercial Airplanes chief Kevin McAllister, Boeing staff high-fived and hugged one another. Mr McAllister said he was "truly honoured and humbled" by Mr Walsh's endorsement.

The backing from IAG also bolsters Mr Muilenburg's bet to stick with the Max as the cornerstone of Boeing's short-haul strategy.

The CEO has dismissed the notion that Boeing may be forced to fast-track development of an all-new single-aisle model because of the risk that the Max, in its fourth month of grounding, turns out to be mortally wounded.

Instead, Mr Muilenburg said, the Max would remain for decades to come, until technology has matured sufficiently to justify the huge investments needed for a brand-new model.

Still, Boeing has kept the door open to a Max name change if it becomes necessary - given its link to the tragedies.

While Airbus and Boeing readily provide nominal values of orders based on list prices, the actual money changing hands for jetliners is a closely guarded industry secret.

Given the pressure on Boeing to secure a marquee order, IAG is likely to have locked in a good deal, with the bonus that big orders tend to come with steeper discounts.

Opting for a letter of intent rather than a firm order contract also gives IAG an insurance policy of sorts for a jetliner whose immediate future is still uncertain, Mr Aboulafia said.

Mr Muilenburg said he is confident the Max will return to service before the end of the year. The grounding was enforced globally after the second crash of a 737 Max in March, following a previous disaster in Indonesia last October. In both cases, a software system received erroneous readings from a sensor, repeatedly forcing the nose of the planes down until pilots lost control.

Boeing has vowed to undertake a deep review of the plane's design, as well as its certification and communication procedures.

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A version of this article appeared in the print edition of The Straits Times on June 20, 2019, with the headline 'Boeing's Max sales get boost with $33b order for 200 jets'. Print Edition | Subscribe