Boeing, Airbus to split TWA's $3.9 billion lease deal Order revives program for Boeing 717s and lets Airbus start building A318

December 10, 1998|By BLOOMBERG NEWS

ST. LOUIS -- Trans World Airlines Inc. split an estimated $3.9 billion order for short-range jets between Boeing Co. and Airbus Industrie, stretching the resources of a carrier that hasn't made an annual profit since 1988.

The St. Louis-based airline announced yesterday that it ordered 50 Boeing 717s valued at about $1.4 billion, with options for 50 more.

It also ordered 75 Airbus planes, including 50 A318s and 25 from the A320 family, with options for 75 others. TWA would not discuss financing terms except to say it would lease, not own, the planes.

The order comes as the carrier tries to upgrade one of the industry's oldest fleets, betting it can lower costs and attract higher-paying business travelers.

Even with favorable leasing terms, the transaction will tax TWA, which has had two brushes with bankruptcy this decade and has junk-rated credit.

"I have questions about TWA's viability and its ability to take these aircraft," said Chris Partridge, associate director of aerospace finance at Deutsche Bank. "In the long-term consolidation of the industry, they're probably not a survivor."

TTC The airline has had just two profitable quarters in two years. Its third-quarter loss before charges was $923,000, bigger than expected.

Moody's Investors Service rates its senior unsecured debt as noninvestment grade "Caa1."

TWA's move revives Boeing's 717 program, which had not won a major airline order in three years, and lets Europe's Airbus begin building its competing 100-seater, the A318. It also gives United Technologies Corp.'s Pratt & Whitney unit, maker of the A318's PW6000 engines, its first airline customer.

"It's undoubtedly true that TWA got a stunning deal to launch two aircraft programs and an engine program," Partridge said.

TWA could have received a discount of as much as a third off the jets' list price of $30 million to $35 million, he said.

Boeing also may have granted "walk-away" leases that allow TWA to return the jets within a year or two, said Keith McMullan, director of the London consulting firm Aviation Economics Ltd.

TWA said it split the order because the Boeing planes were available sooner.

The carrier needs new planes to replace 24 old Boeing 727s by 2000, when tougher federal noise restrictions take effect. The Airbus 318 is still on the drawing board.

Deliveries of the 717s will begin in 2000 and the A318s will start to be delivered in 2003. The earliest Airbus could produce an A318 will be in 2002.

TWA shares rose 50 cents, to $5.625, while Boeing rose 12.5 cents, to $34.5625. Airbus is not publicly traded.

Pub Date: 12/10/98

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