IAG sticks with Airbus to revamp short-haul fleet
LONDON (Reuters) - IAG (ICAG.L), the owner of British Airways, Iberia and newly acquired Spanish budget airline Vueling, has picked Airbus EADS.PA again for the latest stage of its fleet modernization, planning to acquire up to 220 A320s worth $20 billion to renew and expand its short-haul fleet.
The move is the latest major deal to be agreed between the International Consolidated Airlines Group and Airbus, rather than British Airways' long-time partner Boeing (BA.N), and follows the arrival in London last month of its first Airbus A380 jet.
The acquisition of the world's biggest commercial aircraft was heralded as a centerpiece of the group's fleet renewal plan, aimed at cutting fuel bills and giving the airline an edge particularly in the lucrative long-haul business travel market.
But equally analysts said the latest deal for the A320s was in line with IAG's long-envisaged move towards operating a single type of aircraft on its short-haul routes, a normal industry practice which keeps costs down both in the running of the aircraft and the initial procurement.
BA has been running down its Boeing 737 fleet ever since it placed its first major order for a fleet of A320s in 1998 but remains a big operator of Boeing aircraft on its long-haul routes and took delivery of its first new lightweight 787 Dreamliner aircraft in June.
For its short-haul routes IAG said it currently operates 231 planes from the Airbus A320 family and only 18 Boeing 737s.
"There are big cost benefits for the group of having the same fleet on the short-haul space, particularly now that Vueling, which is an all-Airbus airline is part of the mix," Goodbody analyst Donal O'Neill said.
"I think it was a function of the price they were able to achieve rather than any particular bias against Boeing."
IAG said late on Wednesday it had placed firm orders for 62 A320s and taken options on a further 58 aircraft for Vueling and 100 which could be deployed anywhere within the group -- British Airways, Iberia or Vueling.
IAG said it had negotiated "a very substantial discount" on the list price for the aircraft, which would total $5.4 billion for the 62 firm orders and nearly $20 billion for all 220 aircraft.
"The benefits that the merger (of BA, Iberia and Vueling) brings to all our airlines are highlighted once again," IAG Chief Executive Willie Walsh said.
"In addition to the Vueling order, we have also been able to secure a further 100 A320neo options for all the airlines in the group".
The Vueling planes on firm order are due to be delivered between 2015 and 2020, subject to approval from IAG's shareholders, and will replace some of Vueling's existing fleet of 70 A320s as well equip the low-cost carrier's continued expansion.
"Vueling has managed to successfully expand its business profitably by targeting both growth markets and those areas where weak competitors are reducing capacity," Walsh said.
"These new aircraft will enable Vueling to continue that expansion and replace some of its older fleet with modern, fuel efficient aircraft, leading to further unit cost reductions."
IAG earlier this month reported a second-quarter operating profit of 245 million euros compared with a 4 million loss a year ago.
(The story adds missing first mention of Vueling to first paragraph)
(Editing by Greg Mahlich)
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