USAir places big order for European jets 120 to 400 aircraft could be supplied by Airbus Industrie

Potential value $18 billion

Standardized fleet expected to lower costs of operation

November 07, 1996|By Greg Schneider | Greg Schneider,SUN STAFF

USAir Group Inc. launched a major effort yesterday to improve its fleet and cut costs, announcing that it would purchase at least 120 medium-sized aircraft from Airbus Industrie.

The deal -- which includes conditions and options that could push it to 400 planes -- is the largest order ever for Airbus. It has a potential value of about $18 billion, but undisclosed discounts will push it lower.

The European Airbus consortium is in a crackling race with Seattle-based Boeing Co. for aircraft sales worldwide, and beating out both Boeing and McDonnell Douglas Corp. for the USAir contract is a major coup.

The deal marks USAir's determination to lower its industry-leading costs by purging several types of aircraft from its fleet and replacing them with standardized Airbus models. The new models will seat between 122 and 168 passengers.

"Basically, by reducing the number of types [of aircraft and engines] in your fleet, you can reduce maintenance costs, the cost of spares, the cost of training, and you get greater cross-utilization of people," a spokesman said at USAir headquarters in Arlington, Va.

Reducing those costs will help the nation's sixth largest air carrier compete with cut-rate East Coast fares charged by other airlines, USAir Chairman and Chief Executive Officer Stephen M. Wolf said.

Southwest Airlines, for instance, is a tough rival because it operates with a low cost per available seat-mile, which means the cost of moving one seat one mile. Southwest's cost is about 7.5 cents; USAir's is around 12 cents.

The Airbus purchase "will give us cost-efficient planes of the right size at the right time to compete aggressively in this changing market," Wolf said.

first blush, I would have to say it appears to be a good move for them," said industry analyst Alex C. Hart of Ferris, Baker Watts Inc. in Baltimore.

Hart cautioned, though, that the long-slumping airline industry may not be robust enough yet to sustain such a big order.

A USAir spokesman laughed off the note of caution, pointing out that the company's earnings have been up for two years. The carrier also announced this week that overall traffic for October 1996 was up 11.2 percent over the same month last year.

Officials at Airbus said the deal ratchets up the company's presence in the North American market.

"I think it is extremely significant for us," said David C. Venz, vice president for communications at Airbus Industrie of North America.

"USAir was one of the last remaining major carriers that had never purchased or operated Airbus aircraft. This means that I think they are perhaps counting on us to be their supplier of choice" into the future.

Based in France, Airbus Industrie is a consortium that includes England, Germany and Spain. It had about 37 percent of the world passenger jet market for the first half of this year, with Boeing grabbing 57 percent and McDonnell Douglas just over 5 percent. That's down slightly for Boeing, which had been averaging more like 60 percent.

Boeing hated to see the USAir contract fall to a rival. "We gave it our best shot. We're disappointed," spokeswoman Liz Verdier said.

Boeing still hopes to sell widebody aircraft to USAir, Verdier said. A USAir spokesman confirmed that his company may eventually be in the market for jumbo planes.

Verdier said Boeing does not feel particularly threatened by the Airbus incursion into the U.S. market, and pointed out that more than 300 orders for Boeing 737s -- the narrow-body plane comparable to the ones USAir is buying -- have been placed this year alone.

In fact, Boeing's busy production lines could have been an obstacle to the USAir order. The carrier wants a speedy delivery rate: six planes next year, 22 the year after that, 29 in 1999, 37 in 2000 and as many as 48 a year through 2009. All of that is contingent on USAir working out a cost structure and exercising all of its options.

At catalog prices of between $40 million and $55 million for each plane, the confirmed order of 120 would amount to about a $5 billion purchase. The options would push that closer to $18 billion. But as Airbus spokesman Venz put it, "nobody pays the catalog price" for such a large order.

The sale involves 120 firm orders for Airbus A319s, A320s and A321s; another 120 orders for the same planes to be reconfirmed later; and options for 160 more.

All three models are narrow-bodied, single-aisle planes. Only the A321 seats more than 150 passengers, at 168. USAir will determine later what mix of planes it wants to buy.

Pub Date: 11/07/96

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