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jayunited
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UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 5:36 pm

I a recent town hall meeting at LAX Scott Kirby had a lot to say about UA's future plans at LAX I won't discuss that in this thread because we already have a thread devoted to UA's future plans at LAX. But what I found extremely interesting is when Kirby decided to talk about UA's current order book and why UA has been ordering more Boeing narrow body aircraft than no Airbus narrow bodies. According to Kirby he has order more Airbus aircraft for U.S. airlines than any other person here in the U.S. that is in his position. He does admit to employees that Airbus's A320/21 aircraft is a great airplane an extremely capable aircraft, however one of the reasons why UA choose the 737-10MAX is because of a clause in the contract Airbus has with American Airlines. According to Kirby AA pay a pretty penny for their Airbus's and those aircraft were order prior to AA filing bankruptcy which Airbus knew AA would be filing bankruptcy. Although Airbus would not give in on the price AA insisted and Airbus agree to a me to clause which in according to Kirby states that if a carrier get a lower rate then Airbus would have to write AA a check and refund the difference. Kirby didn't specify if the clause applied to U.S. carriers only or all airlines world wide. So the price UA wanted the A321's for Airbus couldn't accept it because AA would automatically get all of their Airbus's A319/12's at the exact same price and it is a retroactive clause. Kirby wouldn't disclose what AA payed for their aircraft all he would say is they paid a high price more than UA was willing to pay. Boeing stepped in and offered UA a deal for the 737-10MAX and the rest is history.

My question is how long is this me to clause that AA secured in effect? Kirby may it clear the door to Airbus is not closed, UA may at some point order Airbus narrow body aircraft but we will not pay what AA paid for their aircraft.

A condensed version of the LAX town hall is available on Flying Together however only UA employees have access to that cite as far as I know there is no public website that has posted this information so I have no public link to paste here to confirm this. However any UA employee who was at the town hall or with access to Flying Together can confirm what Kirby stated.
 
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ikolkyo
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 5:42 pm

Exact scenario Boeing is hoping gain customers for the MAX 10 with. Come in with a better deal while Airbus charges a premium for the A321.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 5:51 pm

Sounds like a win win to me, for Airbus Boeing and UA.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:10 pm

This is what happens when you have only 2 vendors to choose from. Like others have said, this is a win for Boeing and UA, and it is Airbus can still keep the A321 premium.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:23 pm

Wow, I have never heard of such a contract clause before, but congratulations to AA for being able to get that clause. It means that none of their competitors will be getting A321s for lower prices. That's big for AA and a smart move.

Back when AA signed that contract, Airbus probably thought higher prices on the A321 were find and would remain since they were confident that their airplane outclassed the 737-900ER/737-9. Now that Boeing has an airplane in the same size category, the A321 has a real competitor, but Airbus is still charging a premium price as if it didn't have a competitor. That contract language could explain why the 737-10 launch was so successful. It sounds like a good deal for AA and bad deal for Airbus to have. They probably never expected a 737-10 back when that A321 deal was signed 5 years ago.
 
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william
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:31 pm

I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:35 pm

william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.


I don't know about that. AA's clause is incredibly brilliant. They blocked any of their competitors for getting airplanes for cheaper than they did. That means that Delta, Spirit, Frontier, Virgin America, etc all were getting roughly the same prices. Delta may want the best deal for themselves, but blocking your competitor from getting better deals has its advantages too.

John Leahy was waltzing around telling everyone how the A321 is the best airplane around and was charging high prices because it was the biggest narrowbody with the lowest CASM. Now Airbus is stuck with those high prices and has a direct competitor with the 737-10 willing to undercut them and Airbus lost its leverage. Smart move for AA and a gift for Boeing.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:41 pm

There was a lot of debate on this page following the 737-10 launch about how successful the program really was because a large number of the orders were actually conversions from the 737-8/-9 models. That, combined with the fact that Boeing will have to sell the 737-10 at a much lower price (and presumably a much lower profit margin) to take advantage of this Airbus clause means Airbus might not actually be losing anything in this arrangement. I could be totally wrong though.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:42 pm

Newbiepilot wrote:
Wow, I have never heard of such a contract clause before, but congratulations to AA for being able to get that clause. It means that none of their competitors will be getting A321s for lower prices. That's big for AA and a smart move.

Back when AA signed that contract, Airbus probably thought higher prices on the A321 were find and would remain since they were confident that their airplane outclassed the 737-900ER/737-9. Now that Boeing has an airplane in the same size category, the A321 has a real competitor, but Airbus is still charging a premium price as if it didn't have a competitor. That contract language could explain why the 737-10 launch was so successful. It sounds like a good deal for AA and bad deal for Airbus to have. They probably never expected a 737-10 back when that A321 deal was signed 5 years ago.


It's called a "most favored nation" clause.
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:44 pm

I'd love to see that contract and see what effect, if any the bankruptcy had on the ability to enforce that clause. UA needed a narrow body people mover. It's likely Boeing gave very attractive prices and Airbus didn't, regardless of the AA clause. Airbus has a massive order book for the 32xNEO series so what incentive do they have to give a huge discount at this point?
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:45 pm

I agree with you, for a company that was on the verge of bankruptcy, very savvy.

If Delta gets a good deal on some A321s, cheaper than what AA is paying then AA gets a refund check from Airbus for the difference Delta is paying. I am just saying AA may be happy with the refund, but Delta could care less as long as they got a good deal on some A321s.

Airbus can compete on price with the A321 in campaigns with Boeing, its just going to cost them..............twice.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:48 pm

ikramerica wrote:
Newbiepilot wrote:
Wow, I have never heard of such a contract clause before, but congratulations to AA for being able to get that clause. It means that none of their competitors will be getting A321s for lower prices. That's big for AA and a smart move.

Back when AA signed that contract, Airbus probably thought higher prices on the A321 were find and would remain since they were confident that their airplane outclassed the 737-900ER/737-9. Now that Boeing has an airplane in the same size category, the A321 has a real competitor, but Airbus is still charging a premium price as if it didn't have a competitor. That contract language could explain why the 737-10 launch was so successful. It sounds like a good deal for AA and bad deal for Airbus to have. They probably never expected a 737-10 back when that A321 deal was signed 5 years ago.


It's called a "most favored nation" clause.


I've never heard of it applied to an airplane sale before. I've heard of it in the medical industry
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:49 pm

Newbiepilot wrote:
ikramerica wrote:
Newbiepilot wrote:
Wow, I have never heard of such a contract clause before, but congratulations to AA for being able to get that clause. It means that none of their competitors will be getting A321s for lower prices. That's big for AA and a smart move.

Back when AA signed that contract, Airbus probably thought higher prices on the A321 were find and would remain since they were confident that their airplane outclassed the 737-900ER/737-9. Now that Boeing has an airplane in the same size category, the A321 has a real competitor, but Airbus is still charging a premium price as if it didn't have a competitor. That contract language could explain why the 737-10 launch was so successful. It sounds like a good deal for AA and bad deal for Airbus to have. They probably never expected a 737-10 back when that A321 deal was signed 5 years ago.


It's called a "most favored nation" clause.


I've never heard of it applied to an airplane sale before. I've heard of it in the medical industry


We run into it a lot on the corporate aviation side, especially with fuel contracts.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:52 pm

ikramerica wrote:

It's called a "most favored nation" clause.


It's a pretty good deal and only the big dogs get it which is why no one really knows a lot about it unless you have a career in sourcing. Either way, more power to both AA and UA.

I'm more interested in how UA plans on using it and how it will be configured vs. how much it cost.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 6:59 pm

Such a clause if it exists in the AA contract would probably have an expiration date and a specific configuration ie probably doesn't apply to the NEO
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:17 pm

MFN (most favored nation) clauses typically only occur when the purchasing party has a incredible amount of leverage. I am not sure that pre bankruptcy AA qualified. It's more likely that there were four or five carriers who were offered this contract as a sweetheart deal, and for the exact same amount of money (within the scope of the contract). I've seen companies often try to sneak something that looks like MFN terms in, and any lawyer worth their salt will catch it, and reject it explicitly unless that was explicitly agreed to.

This sounds exactly like the type of contract Leahy would write. It's a brash, in your face type of contract that closes the sale, but leaves Airbus in a riskier position should the market not develop as forecast.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:19 pm

william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.

Of course DL wouldn't care about what clause AA had with Airbus. Airbus does however, and it would effect what price they are willing to offer Delta.

VS11 wrote:
Such a clause if it exists in the AA contract would probably have an expiration date and a specific configuration ie probably doesn't apply to the NEO

It probably does have an expiration date but it would most certainty effect the NEO. That is would have been the A321 involved in Kirby's story, and remember AA ordered Neos at the same time they placed their Ceo order.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:20 pm

Flighty wrote:
Sounds like a win win to me, for Airbus Boeing and UA.


Just one 'loser' in the equation...
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:21 pm

airfrnt wrote:
MFN (most favored nation) clauses typically only occur when the purchasing party has a incredible amount of leverage. I am not sure that pre bankruptcy AA qualified. It's more likely that there were four or five carriers who were offered this contract as a sweetheart deal, and for the exact same amount of money (within the scope of the contract). I've seen companies often try to sneak something that looks like MFN terms in, and any lawyer worth their salt will catch it, and reject it explicitly unless that was explicitly agreed to.

Pre bankruptcy AA may not have been financially strong, but Airbus also really wanted to break into the fleet (which remember, consisted of 0 Airbuses) of what was still one of the largest airlines in the world.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:29 pm

william wrote:
I agree with you, for a company that was on the verge of bankruptcy, very savvy.


As was reported upon and well discussed at the time, AA worked the 2011 fleet dealings with Boeing and Airbus very smartly given the seemingly weak position in which the company found itself at the time. The original investor presentation from July 2011 is still available online - it, and the commentary that accompanied it at the time, expounded upon what a good "deal" AA was able to work with both OEMs. AA executives spoke at length about the favorable terms for financing, initial support, training, etc.

airfrnt wrote:
MFN (most favored nation) clauses typically only occur when the purchasing party has a incredible amount of leverage. I am not sure that pre bankruptcy AA qualified.


AA absolutely did have an "incredible amount of leverage." AA had essentially two cards to play - and apparently played them brilliantly. One was volume, and the other was symbolism.

AA's RFP was of a scale very rare, even in the airline industry - the airline set out to turn over essentially its entire domestic fleet, replacing hundreds of MD80s, 757s and 767s. That alone was motivation for Boeing and Airbus to "deal." But beyond that, AA's order also represented incredible strategic and symbolic value for both OEMs. AA's order gave credibility to Boeing's belated move to launch the 737 re-engine, and AA's order represented a massive win for Airbus in poaching what had been one of Boeing's largest "captive" customers.

As the saying going around at the time put it - in essence - "AA basically got Boeing and Airbus to bid aggressively against each other over who could offer the best deal, and then AA took both deals."
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 7:42 pm

william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.


Ironically, AA's 'most favored nation' status with Boeing was cited as a reason Airbus was able to snag AA in 2011. AA's 1996 20-year exclusive supplier provision was invalidated following the Boeing-MDC merger, but AA/CO/DL each sought MFN status with Boeing, essentially securing pricing parity going forward. For that reason, Boeing was probably unwilling to offer especially attractive terms to AA at the time, so Airbus went a step further with AA, offering a retroactive payment to the extent Airbus would undercut AA's pricing in the future.

To your point, for Delta, they were clearly willing to pay what AA paid for its Airbii, while United apparently was interested, but only at a lower price point. Airbus was thus unwilling to match due to its potential exposure to retroactive payments to AA.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 8:42 pm

codc10 wrote:
william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.


Ironically, AA's 'most favored nation' status with Boeing was cited as a reason Airbus was able to snag AA in 2011. AA's 1996 20-year exclusive supplier provision was invalidated following the Boeing-MDC merger, but AA/CO/DL each sought MFN status with Boeing, essentially securing pricing parity going forward. For that reason, Boeing was probably unwilling to offer especially attractive terms to AA at the time, so Airbus went a step further with AA, offering a retroactive payment to the extent Airbus would undercut AA's pricing in the future.

To your point, for Delta, they were clearly willing to pay what AA paid for its Airbii, while United apparently was interested, but only at a lower price point. Airbus was thus unwilling to match due to its potential exposure to retroactive payments to AA.


Refreshing/wonderful to see some folks know/remember the actual history.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 8:49 pm

ikramerica wrote:
Newbiepilot wrote:
Wow, I have never heard of such a contract clause before, but congratulations to AA for being able to get that clause. It means that none of their competitors will be getting A321s for lower prices. That's big for AA and a smart move.

Back when AA signed that contract, Airbus probably thought higher prices on the A321 were find and would remain since they were confident that their airplane outclassed the 737-900ER/737-9. Now that Boeing has an airplane in the same size category, the A321 has a real competitor, but Airbus is still charging a premium price as if it didn't have a competitor. That contract language could explain why the 737-10 launch was so successful. It sounds like a good deal for AA and bad deal for Airbus to have. They probably never expected a 737-10 back when that A321 deal was signed 5 years ago.


It's called a "most favored nation" clause.


Yep, we have the same thing in Hollywood with regard to some actors and producers. I'm sure its common in most industries.
BA IB ET JM EA GK PA VS AA SN HP CO WN NW DL UA AC US LH LX OS JL QF QR WY MH CX U2 EK 9W UK TP VY VN LO OK OZ UL SQ LA KL

707 727 L10 732-NG 741 742 743 744 752 753 762 763 772 773 787 DC8 DC9 DC10 M80 M11 100 AB3 310 318 319 320 321 330s 340s 350 380
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 9:10 pm

How would AA know what prices other airlines are paying for their orders though?
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 9:12 pm

Great discussion. I am learning a lot and glad it isn't a A vs B dogfight.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 9:39 pm

airzona11 wrote:
This is what happens when you have only 2 vendors to choose from. Like others have said, this is a win for Boeing and UA, and it is Airbus can still keep the A321 premium.


Only 2 vendors? Clearly you're forgetting about all the wonderful high quality options from the Russian and Chinese manufacturers. :lol:
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 9:54 pm

And wasn’t the 737max a result of the AA narrow body RFP?
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 10:14 pm

VS11 wrote:
Such a clause if it exists in the AA contract would probably have an expiration date and a specific configuration ie probably doesn't apply to the NEO

Perhaps the deal ONLY impacts the NEO, which is why DL isn't impacted. Isn't the DL 321 order strictly CEO, not NEO? That might be one way around it.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 11:20 pm

A couple questions:
1. Is AAs clause just for CEOs, NEOs, or both?
2. Is the clause limited to only US/North American carriers (AC made the jump to the MAX post AA Airbus order) or carriers all over the world?
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 11:27 pm

Newbiepilot wrote:
Great discussion. I am learning a lot and glad it isn't a A vs B dogfight.


Agreed. very interesting thread.
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Continental767
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Re: UA's Kirby Explains why UA order 737-10MAX

Wed Oct 04, 2017 11:50 pm

commavia wrote:
william wrote:
I agree with you, for a company that was on the verge of bankruptcy, very savvy.


As was reported upon and well discussed at the time, AA worked the 2011 fleet dealings with Boeing and Airbus very smartly given the seemingly weak position in which the company found itself at the time. The original investor presentation from July 2011 is still available online - it, and the commentary that accompanied it at the time, expounded upon what a good "deal" AA was able to work with both OEMs. AA executives spoke at length about the favorable terms for financing, initial support, training, etc.


Could you provide a link? I would like to see that presentation.
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 12:43 am

So in a nutshell one of the persons who knows all the details involved in an aircraft purchase is saying that the finances / financials is more important than the technical merits of the aircraft involved in the RFP.

I would like to suggest the MODS make this thread or at least his comments a "stickey" to avoid the contentious back and forth for the next thread involving a major purchase from either OEM.

On the actual topic I would guess that the stipulation only applies to USA carriers, similar to the pilots contracts.
A question to ask is does this elevate the value of the USA market, Airbus customer base is broad, the A321 is their current hot seller, I can see smaller carriers being denied but there are a few larger carriers outside the USA, one wonders how this was not confidential and could only be revealed by some legal action.
 
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LAXintl
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 1:29 am

Story on topic.

United Complains Airbus Won’t Give It Competitive Prices
https://skift.com/2017/10/04/united-com ... ve-prices/

=
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aklrno
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 2:39 am

par13del wrote:
So in a nutshell one of the persons who knows all the details involved in an aircraft purchase is saying that the finances / financials is more important than the technical merits of the aircraft involved in the RFP.



An airline is a business. Assuming equal safety and if there is no political influence, the ONLY thing that matters is financials. Technical issues revolve around what will make the most money for the airline
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 3:16 am

codc10 wrote:
william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.


Ironically, AA's 'most favored nation' status with Boeing was cited as a reason Airbus was able to snag AA in 2011. AA's 1996 20-year exclusive supplier provision was invalidated following the Boeing-MDC merger, but AA/CO/DL each sought MFN status with Boeing, essentially securing pricing parity going forward. For that reason, Boeing was probably unwilling to offer especially attractive terms to AA at the time, so Airbus went a step further with AA, offering a retroactive payment to the extent Airbus would undercut AA's pricing in the future.

To your point, for Delta, they were clearly willing to pay what AA paid for its Airbii, while United apparently was interested, but only at a lower price point. Airbus was thus unwilling to match due to its potential exposure to retroactive payments to AA.


Would not be surprised if Delta held out. Its not Delta's problem that Airbus will have to cut AA a check for a lower price. We know how thrifty Delta is in large aircraft purchases, why would Delta change in this case? All I am saying is that I bet AA got some refund checks on those Delta A321 OEOs.

Wow, just wow! Kudos to AA's management team for a brilliant contract and they knew Airbus would be hungry enough to go for it. Who needs exclusive contracts when one has a contract like this? Not crying for Airbus, they will make plenty of money on service contracts.

Final note, Airbus can't be to happy with Kirby spilling their business in the streets like this. And Boeing wandering,"why didn't we think of this?"
 
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NeBaNi
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 3:17 am

LAXintl wrote:
Story on topic.
United Complains Airbus Won’t Give It Competitive Prices
https://skift.com/2017/10/04/united-com ... ve-prices/

This new piece to the puzzle and this topic is interesting to me in general for three reasons:
1) Scott Kirby used to be an AA guy. I wonder if he regrets being not being able to buy A321s for UA now because of a tactical brilliance on his old company's part (the brilliance in which he may or may not have had a role).

2) Scott Kirby is in a unique role in the aviation industry, having jumped ship from one of the largest airlines in the world to another one of the largest airlines in the world. He must cause Airbus/ Boeing/ other OEMs/ suppliers some headache simply because of the stuff he knows. His experience and knowledge about deals is immensely valuable, and I wonder if UA realized how valuable it would be when it hired him.

And on a slightly different note:
3) I wonder if UA converting/adding on to its 35 A350-1000 order to 45 A350-900s was majorly or minorly influenced by this clause. IIRC, UA was conducting a widebody fleet review before it ordered the 737-MAX10. Some of the speculation at the time was that UA would convert its A350-1000s to a sizable order for A321s/A321neos. I wonder if this clause may have played a role in UA not getting pricing good enough to do that conversion instead of what it actually ended up doing.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 3:51 am

This is good news for those of us who still would like to see A321s eventually in United's fleet. UA bought 737s mainly because of pricing. Perhaps later they'll come back to the table with Airbus and negotiate a deal for a sub-fleet of A321s and utilize them on transcons and hub-to-hub premium routes similar to what AA does with their premium arranged A321s.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 5:01 am

On thing that doesn't make sense though, is how would American know what price any competitor paid?

It's not like they'd put it on a billboard. How could that clause ever be enforced by AA?



Polot wrote:
william wrote:
I don't thiink Delta would play this game. They would want the best price period for their A321s and could care less what clause AA had with Airbus.

Of course DL wouldn't care about what clause AA had with Airbus. Airbus does however, and it would effect what price they are willing to offer Delta.

...'course, that doesn't stop DL from counteroffering and/or walking away. At some point, whatever agreement Airbus has with AA would have to reach a threshold against current/future orders lost; if UA/DL/etc really wanted to play hardball.
I myself, suspect a more prosaic motive... ~Thranduil
 
Varsity1
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 5:04 am

I wonder how many other airline fleets Airbus has broken into with this most favored nation clause?
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 5:14 am

NeBaNi wrote:
LAXintl wrote:
Story on topic.
United Complains Airbus Won’t Give It Competitive Prices
https://skift.com/2017/10/04/united-com ... ve-prices/

This new piece to the puzzle and this topic is interesting to me in general for three reasons:
1) Scott Kirby used to be an AA guy. I wonder if he regrets being not being able to buy A321s for UA now because of a tactical brilliance on his old company's part (the brilliance in which he may or may not have had a role).

2) Scott Kirby is in a unique role in the aviation industry, having jumped ship from one of the largest airlines in the world to another one of the largest airlines in the world. He must cause Airbus/ Boeing/ other OEMs/ suppliers some headache simply because of the stuff he knows. His experience and knowledge about deals is immensely valuable, and I wonder if UA realized how valuable it would be when it hired him.

And on a slightly different note:
3) I wonder if UA converting/adding on to its 35 A350-1000 order to 45 A350-900s was majorly or minorly influenced by this clause. IIRC, UA was conducting a widebody fleet review before it ordered the 737-MAX10. Some of the speculation at the time was that UA would convert its A350-1000s to a sizable order for A321s/A321neos. I wonder if this clause may have played a role in UA not getting pricing good enough to do that conversion instead of what it actually ended up doing.


The Airbus order was done before US had taken over so Kirby did not have anything to do with that order. I think he may regret it a little, but the MAX10 does give them a lot and then there's the MoM which will do even more. If it was really that big of a deal, they would just buy them and have AA receive a check.

And in the town hall he mentioned the increase in size was just for efficiency purposes of having a larger fleet for crews, parts, etc. He also did say deferring it was so they can hold an RFP with Boeing for the replacement of the 777's but it wasn't time for that yet so they deferred them. The way he worded it, it still doesn't sound like a for sure thing they are going to with them considering he wants to still put it up against what Boeing will offer. Which doesn't make much sense considering they already have deposits down for them, but that's just what he said.
 
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 6:09 am

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bunumuring
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 6:10 am

Hey guys,
Yes, this is a fascinating thread and thanks to all who have contributed to it.
My question: is anyone aware of any other airlines who have such a clause?
I was interested by the speculation around Delta's last MAX order which I believe was somehow 'forced' by Boeing, and the speculation elsewhere about Air Canada's Dreamliner options (and apparently fantastic pricing) expiring soon and Boeing apparently forcing that issue as well.... And now this. Snippets of information like what Kirby has exposed have made the whole 'back room wheeling and dealing' more fascinating!
Cheers,
Bunumuring.
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VS11
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 7:19 am

We shouldn't overestimate the impact of such a clause. While it is a nifty strategy on AA's part, aircraft manufacturers have a pretty deep and comprehensive market intelligence and know very well what airlines are close to buying new planes (even on a.net there are replacement cycle discussions all the time). Only DL and UA are of similar size to AA so all other US carriers would get higher pricing than AA anyway, Also, both DL and UA are already Airbus operators so chances of them ordering more not-steeply-discounted Airbus planes are still substantial. Airbus knew their order book and decided giving a deep discount to UA wasn't worth it.
 
RalXWB
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 8:00 am

Smart move to disclose a contract clause he shouldn´t know in the first place. Anyway, Airbus will be perfectly fine without United.
 
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Polot
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 10:23 am

RalXWB wrote:
Smart move to disclose a contract clause he shouldn´t know in the first place. Anyway, Airbus will be perfectly fine without United.

Kirby was basically second in command at AA before moving to UA last year. He knows a lot about AA’s contracts and thus how UA’s compare.
 
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seahawk
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 10:43 am

The only facts I see is that Boeing underbid Airbus. If AA got a deal that is barley making money for Airbus, it might define the bottom line for Airbus and winning tenders for less, is simply not a good deal for them.
 
Newbiepilot
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 10:58 am

par13del wrote:
So in a nutshell one of the persons who knows all the details involved in an aircraft purchase is saying that the finances / financials is more important than the technical merits of the aircraft involved in the RFP.

I would like to suggest the MODS make this thread or at least his comments a "stickey" to avoid the contentious back and forth for the next thread involving a major purchase from either OEM.

On the actual topic I would guess that the stipulation only applies to USA carriers, similar to the pilots contracts.
A question to ask is does this elevate the value of the USA market, Airbus customer base is broad, the A321 is their current hot seller, I can see smaller carriers being denied but there are a few larger carriers outside the USA, one wonders how this was not confidential and could only be revealed by some legal action.


Technical merits of airplanes are important, but the 737 and A320 are so close in operating costs that which one is better really comes down to the operating environment of the airline and purchase price.

And in regards to your hot seller comment. The A320 outsells the A321 by a significant margin. Airbus has had some comments implying they intend to shift to 50% A321s but that hasn't happened yet. Perhaps being overpriced could be one reason.
 
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Revelation
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 11:05 am

par13del wrote:
So in a nutshell one of the persons who knows all the details involved in an aircraft purchase is saying that the finances / financials is more important than the technical merits of the aircraft involved in the RFP.

I would like to suggest the MODS make this thread or at least his comments a "stickey" to avoid the contentious back and forth for the next thread involving a major purchase from either OEM.

On the actual topic I would guess that the stipulation only applies to USA carriers, similar to the pilots contracts.
A question to ask is does this elevate the value of the USA market, Airbus customer base is broad, the A321 is their current hot seller, I can see smaller carriers being denied but there are a few larger carriers outside the USA, one wonders how this was not confidential and could only be revealed by some legal action.

The post right after yours has a quote that confirms your post:

We as a company are going to be completely agnostic about airplanes,” Kirby said last week. “We are not going to to be a Boeing airline or an Airbus airline. We are going to be with whoever gives us the best deal.”
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Newbiepilot
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 11:18 am

VS11 wrote:
We shouldn't overestimate the impact of such a clause. While it is a nifty strategy on AA's part, aircraft manufacturers have a pretty deep and comprehensive market intelligence and know very well what airlines are close to buying new planes (even on a.net there are replacement cycle discussions all the time). Only DL and UA are of similar size to AA so all other US carriers would get higher pricing than AA anyway, Also, both DL and UA are already Airbus operators so chances of them ordering more not-steeply-discounted Airbus planes are still substantial. Airbus knew their order book and decided giving a deep discount to UA wasn't worth it.


What Airbus didn't know 6 years ago was that Boeing would eventually build a 737-10. Well what I find intriguing are the comments that AA didn't get that great of a price from Airbus. It sounds like they were concerned that they were overpaying so they got this clause in the contract to ensure they weren't overpaying what other airlines were. 6 years ago Airbus was trying to convince everyone that the 737-900ER couldn't compete with the A321. Keesje has posted the A321 marketing points many times. I think Airbus genuinely believed they had the best product and didn't see the 737 MAX competing directly with the A321neo. I suspect they were charging high prices and earning high margins on A321 sales. Given their views of the 737, they probably felt comfortable. Despite the A320 being more popular than the A321, Airbus marketing has been pushing the A321 hard. I suspect because it has a higher profit margin.

Then Boeing comes in and finds a way to stretch the 737MAX into a viable A321 competitor matching its capacity. This will have a detrimental impact to Airbus because if they have high margin sales at high prices, there is a lot of room for Boeing to undercut them on price. If Airbus does come down on price on an order for United for 100 A321s, then they have to pay American and lose twice. I wonder if Airbus has entered into similar contracts in other regions.

I think there is a reason John Leahy and Airbus marketing people were trying to downplay the 737-10 by calling it the MADMAX. It represents a real problem for Airbus that they may never have expected to face when signing the American deal. This cat and mouse game is incredibly fascinating.
 
Newbiepilot
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Re: UA's Kirby Explains why UA order 737-10MAX

Thu Oct 05, 2017 11:33 am

Revelation wrote:
par13del wrote:
So in a nutshell one of the persons who knows all the details involved in an aircraft purchase is saying that the finances / financials is more important than the technical merits of the aircraft involved in the RFP.

I would like to suggest the MODS make this thread or at least his comments a "stickey" to avoid the contentious back and forth for the next thread involving a major purchase from either OEM.

On the actual topic I would guess that the stipulation only applies to USA carriers, similar to the pilots contracts.
A question to ask is does this elevate the value of the USA market, Airbus customer base is broad, the A321 is their current hot seller, I can see smaller carriers being denied but there are a few larger carriers outside the USA, one wonders how this was not confidential and could only be revealed by some legal action.

The post right after yours has a quote that confirms your post:

We as a company are going to be completely agnostic about airplanes,” Kirby said last week. “We are not going to to be a Boeing airline or an Airbus airline. We are going to be with whoever gives us the best deal.”


For what it is worth, whoever gives us the best deal doesn't mean cheapest price. If Airbus is trying to win and A330neo vs 787 order, if Airbus comes in at 1% lower price, the best deal may be from Boeing because the 787 fuel burn advantage offsets the price. Similarly the A321 has always had higher prices than the 737-9, but Boeing had to be much cheaper to offset the capacity difference. The best deal could have been higher priced A321s.

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