On June 29, United Airlines announced the largest airplane order in its history, as well as plans to create around 25,000 new jobs. Its order for 270 single-aisle jets includes 200 Boeing 737 MAX variants plus 70 Airbus A321neo aircraft, and is the first major order by a U.S. airline since 2011.1
Here, Chris Rogers, a managing director and head of the Harris Williams Aerospace, Defense & Government Services Group, discusses the United order and what it portends for the commercial aviation market.
What does United know that gives it the confidence to place this order?
I think we all have roughly the same information: The pandemic seems to be abating; demand for commercial air travel is coming back; and the airlines are trying to reestablish route networks and right-size their fleets after the significant disruption of COVID-19. With passenger demand recovering—particularly domestic demand—the decision to be made is whether to pull parked aircraft out of the desert and return them to service or to invest in new jets. United is obviously taking an optimistic long-term position and betting that an investment in newer, more fuel-efficient planes is the best course of action. Of course, if the delta variants or other mutations of COVID-19 become a more disruptive factor in the overall COVID-19 recovery, United could revisit these plans. But right now, we see this order as a strong vote of confidence in the future of commercial air travel.
Why 737s and A321s? Why no regional jets?
We see this as one of the fundamental shifts in the industry coming out of the pandemic. Driven by both passenger demand and crew availability, airlines have reassessed their route networks and have been forced to cut back, primarily on regional routes. Anyone living in a smaller city has no doubt lost flights to other smaller cities. The order for single-aisle aircraft reflects this change. We think other major airlines will likely follow suit, leaving the “spokes” to smaller operators with regional fleets. Overall, the pandemic created an opportunity for United to mold its fleet to reflect what it believes will best accommodate long-term passenger trends.
So what does this mean for M&A activity?
In the short term, the order gives the industry a huge boost in confidence and sentiment. It’s particularly good news for Boeing, which has obviously had struggles with its 737 MAX program. This volume of planes in reliable, long-term service will be great for the reputation of the company and the plane itself.
Longer term, this will also be a shot in the arm for the supply chain serving OEMs. The last major order for new planes was 10 years ago, when American Airlines bought 460 planes.2 Since then, we’ve seen strong interest and growth in the MRO and aftermarket space as these planes have aged. United’s order will help spread the interest back to manufacturing, especially when and if other airlines follow suit.
It will also be interesting to see what opportunities this creates for regional airlines and their suppliers. Our hypothesis is that they will be looking to buy some of the smaller planes currently mothballed by larger airlines to meet demand for regional travel. That would obviously be good for all the companies involved in getting and keeping those planes back in the air.
Overall, it’s great to see a major airline like United placing a large bet on the future. We share the airline’s optimism for the outlook of commercial aviation.