American Airlines appears to have worked for some time towards an agreement with Airbus to defer its A350-900 deliveries, reaching one less than a year before its first aircraft was due.
The Fort Worth-based carrier “needed to find a point in time where it was in Airbus’ best interest to defer the orders”, says American president Scott Kirby during an earnings call today.
Derek Kerr, chief financial officer of American, says earlier in the call that the move was part of an on-going effort to balance overlapping widebody replacement plans in 2017 and 2018 that were the result of the 2013 merger with US Airways.
American had six A350 and nine Boeing 787 deliveries in 2017, and 10 A350 and seven 787 deliveries in 2018 immediately following the merger.
The airline will take two fewer widebodies in 2017 and seven fewer in 2018 as a result of the latest deferral, its third since the merger. It will take delivery of 13 787s in 2017, and two A350s and eight 787s in 2018, a fleet plan shows.
The deferral of the A350s will reduce American’s aircraft-related capital expenditures by $500 million next year and $700 million in 2018, says Kerr. Total aircraft commitments now stand at $4.06 billion and $2.2 billion in 2017 and 2018, respectively.
JP Morgan analysts call the reductions an “incremental positive” for American’s balance sheet but maintain their concerns about high leverage levels, in a report today. They note that the airline’s gross adjusted debt to EBITDA leverage increased 0.2x to 3.3x during the quarter.
“We have grown more concerned with AAL’s larger absolute and relative leverage,” they say. “While UAL remains focused on reducing debt and boasts a sizable unencumbered asset base, AAL has yet to put forth any sort of definitive credit metric improvement commitments.”
Kerr says during the call that American will maintain a higher level of liquidity than either Delta Air Lines or United Airlines due to its high debt and capital commitments for the foreseeable future.
JP Morgan calculates gross adjusted debt to EBITDA leverage of 1.0x at Delta at the end of June and 2.1x at United at the end of March, recent reports show.
Asked why the carrier reached the A350 deferral now and not sooner, Kirby emphasises that the timing allowed them to achieve a “win-win” for both the airline and the airframer.
“It’s been a very popular product as you know, [Airbus has] sold a lot of them,” says Doug Parker, chairman and chief executive of American, on the A350 during the call. “They’re trying to meet all their customers’ needs and this deferral was consistent with that.”
Parker implies that Airbus can use American’s delivery slots for other A350 customers.
“We look forward to delivering the A350 to American in a couple of years’ time, when it will begin providing an excellent platform for the airline to serve to its passengers,” says an Airbus spokesman. They decline to comment on whether or not the delivery slots are needed for other customers.
CAPACITY FLEXIBILITY
American will begin taking A350-900s in late 2018, with deliveries continuing through 2022 under the new schedule. It will take two aircraft in the first year, five in both 2019 and 2020, and the remaining 10 in 2021 and 2022.
It previously planned to take four A350s next year, 10 in 2018, six in 2019 and two in 2020.
The deferral gives American the option to either extend leases or keep older aircraft in its fleet longer than planned, or remove them and reduce capacity, over the next two years, says Kirby. It plans to use the A350s to replace older models when they begin arriving.
This flexibility allows the carrier to better manage its capacity to what continues to be a challenging international environment for US carriers. High levels of competitive capacity growth, a weak macroeconomic environment and foreign currency volatility continue to impact American’s revenues, says Kerr.
The airline faces the greatest headwinds across the Atlantic and the Pacific, while performance in its largest international segment Latin America appears to be improving, adds Kirby.
American has yet to release 2017 system capacity guidance but reduced 2016 guidance by half of a percentage point to a roughly 2% increase today.
In May, Delta Air Lines deferred four of its A350-900 deliveries to 2019 and 2020 from 2017 to better match widebody capacity with the expected international demand environment.
American has not identified where it plans to fly the A350, however, based on the 325-seat standard three-class configuration from Airbus it could replace either Airbus A330-300s or Boeing 777-200s in its fleet.
The carrier has already said that it will remove its nine A330-300s by 2018.
Source: Cirium Dashboard
