A closer look at American’s orders

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Large narrowbodies, regionals, and a smattering of deferrals

American Airlines posted a big order this week – 85 A321neo, 85 737-10, and 90 E175 aircraft. Much has already been said regarding this order, but of course, that doesn’t dissuade us from sharing what we think has been overlooked.

Within the details of the order emerges a clearer picture of what the airline is accomplishing with its narrowbody fleet growth. While the addition of 260 aircraft is certainly interesting, we also find the reduction in deliveries in 2025 and 2026 equally as interesting.

It’s no secret that both Airbus and Boeing have had difficulty meeting production targets on their narrowbody platforms. Some airlines maintain delivery outlooks that will clearly not materialize (reference United’s 2023 10-k and the 80 planned 737-10 deliveries in 2024. Based on an engine anti-ice redesign, the 737-10 will not enter service until 2025, at the earliest). American, on the other hand, has already negotiated updated delivery streams as part of a new aircraft order.

A total of 49 narrowbodies have been moved from 2025 and 2026 into 2027 and beyond. 30 737 MAX aircraft will now be delivered in 2028, at the earliest, and 19 A321neo aircraft will find their way into 2027 deliveries.

Despite some serious chart crimes in the investor deck, American has a cohesive strategy that offers differentiation from its competition. The investor presentation was a bit vague on how, but we think it’s there. Put another way: placed in their shoes, we’d be satisfied with what we had to work with.

Take the competition, for instance. United wants as many big narrowbodies as possible – big deals to corner the market with as many Boeing aircraft as possible because what could possibly go wrong? (see above parenthetical regarding 80 737-10 aircraft slated for 2024 delivery. Now… not so much).

Delta has taken the uniquely Delta approach of opportunistic buying, leveraging the small narrowbody to maintain connectivity and service without flooding the market. Incremental ordering at strategic intervals for good deals.

American, on the other hand, has been focused on reducing capital expenditures and replenishing the balance sheet. Big deals, multiple OEMs, lumpy fleet profiles. This deal abruptly changes the cap-ex-or-bust strategy, but we see as inevitable and largely welcome.

With this new order, American has moved on both Boeing and Airbus narrowbodies in what few can refute is a prudent hedge. At the same time, near-term deliveries which have the greatest chance of delay were pushed out to fill in later positions, a move that likely produced negotiating advantages for the new aircraft, better aligned with the controlled cap-ex strategy. The benefit to the OEMs is relieved pressure for both Airbus and Boeing in the delayed production ramp-up years. The benefit to American is whatever the OEMs offered in return for their benefit.

But, it is the order for 90 E175s that most sets American’s new strategy apart from its legacy competitors. While Delta shifts regional fleets to small narrowbodies and United shifts to large narrowbodies, American is deploying a strategy that has worked for them in the past: regional jets.

American’s unique scope clause will easily allow the addition of 90 E175 aircraft over the next six years, accommodated by the yet-to-be-replaced Mesa CRJ900 fleet, early E175 aircraft that will eclipse 20 years during the delivery stream, and a growing narrowbody fleet from which allowed large regional jets are calculated.

This ability to deploy more large regional jets than both Delta and United was widely accepted as an advantage prior to the pandemic; however, has not been fully appreciated since. Indeed, this advantage is tangible for American, allowing the airline to offer increased connectivity and flight options for a middle market that has experienced a precipitous decline in connectivity since 2019 (see our now-free analysis from August: U.S. reliance on large narrowbody orders showing first signs of stress).

Viewed through the lens of Delta and United’s strategies, American’s move to split a large narrowbody order, proactively defer aircraft, and move on regional jets appears out of line. But this is why we like it. It’s a different strategy full of logic that works for American. The problem is the outside lens, not the inside strategy. American made a move that worked for American; not one that simply looked like other strategies.

Granted, risks still exist. American was first to double regional pilot pay, a move that put extreme economic pressure on the segment. Further, American playing the rational player in an irrational game of “buy all the things!” brings its own challenges. Finally, the traditional focus on business passenger connectivity conflicts with the recent gutting of the Airline’s corporate sales team – a self-inflicted injury that may prove to be costly considering this fleet strategy.

Still, we have a hard time denying it is a fleet and network strategy unique to American, playing on American’s strengths. If only the sales strategy aligned…

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