* Ryanair agrees to buy 175 Boeing current generation 737s
* Irish airline to grow capacity 25 pct in next five years
* A win for Boeing after defection of Lion Air to Airbus
By Conor Humphries and Adam Kerlin
DUBLIN/NEW YORK, March 19 Budget Irish airline
Ryanair handed Boeing its largest European order ever on
Tuesday, a deal for 175 jets worth $16 billion at list prices
that boosts the U.S. planemaker's fortunes and strengthens the
Irish carrier's domination of Europe's low-cost market.
The provisional deal marks a significant commitment from
Europe's largest discount carrier in the face of fresh concerns
about the economy, highlighted by a looming bailout in Cyprus.
The order for current-generation Boeing 737-800s will
increase Ryanair's fleet to 400 planes from 300 at present, as
75 old planes are retired in coming years, allowing the carrier
to increase passenger numbers by 25 percent over the next five
years as rivals plan capacity cuts.
The deal, which must be confirmed and then approved by
Ryanair shareholders, maintains the Irish airline as one of the
few remaining all-Boeing carriers. It also is a welcome lift to
Boeing after Indonesia's Lion Air on Monday picked European
rival Airbus in a $24 billion firm mega-order.
Lion Air had been an exclusively Boeing customer
The industry benchmark 737-800, a 189-seat jet whose main
competitor is the Airbus A320, is worth $89.1 million at list
prices, but large orders attract steep discounts and industry
appraisers value the plane closer to $40 million.
"This deal embeds our cost advantage and pricing advantage
over our European competitors," Ryanair Chief Executive Michael
O'Leary told Reuters in a telephone interview.
"Hopefully it will help refocus people's minds on the fact
that Boeing continues to deliver great aircraft and is growing
strongly, rather than a minor issue on the 787," he said.
O'Leary, who has a reputation for securing bargain aircraft
orders during industry slumps, declined to say how much of a
discount he obtained for the order. But he said Boeing's
struggles with the 787 had created an opportunity for both
And, having placed a big order for current-generation 737s,
O'Leary said Ryanair could place another order for Boeing's
forthcoming 737 MAX, an even more fuel-efficient model.
The current 737 deal gives the Irish airline "breathing
room" to talk to Boeing about orders for the 737 MAX, O'Leary
told a New York news conference. He added that Ryanair likes the
737 MAX and would place an order if terms were right.
Reuters reported exclusively in late January that Ryanair
was closing on a deal for at least 150 current-generation 737
jets to be completed within weeks. Ryanair denied the story at
Boeing Commercial Airplanes Chief Executive Ray Conner said
Boeing has not had any difficulty closing major aircraft orders
despite the ongoing battery problems with its 787 passenger jet.
"We compartmentalize that. We have a lot of people working
on the 787 situation ... We're working on producing 787s as we
get the battery situation solved," Conner said at the news
conference on Tuesday.
Conner said the Ryanair deal fills up Boeing's 737
production "pretty significantly" until 737 MAX assembly starts
in the next few years, with first delivery slated for 2017.
Boeing is now producing 38 737s a month.
Ryanair shares were up almost 4 percent at 1415 GMT at 6.03
euros. Boeing shares were up nearly 0.3 percent at $85.44.
"This order puts Ryanair back on track for growth at a time
when many European airlines are shrinking," said Donal O'Neill,
an analyst with Goodbody Stockbrokers in Dublin.
"For Boeing it keeps a major customer on board and helps
position it to hook Ryanair for an order of the
(next-generation) 737 MAX in a few year's time."
O'Leary said Ryanair has set up a senior team to examine the
operating efficiencies of the 737 MAX and the benefits of
Ryanair being "a lead customer" with a large order for the jet.
"The minimum order would be 100 and we have asked that team
to try to conclude its review before the end of calendar 2013,"
The current deal will allow Ryanair to extend its lead in
the Europe's low-cost travel market, which has grown sharply
since the start of the euro zone crisis as flag carriers
struggle and business passengers downgrade.
Ryanair has aggressively shifted its capacity to fill gaps
left by reductions in short-haul flights by flag carriers such
as Iberia, and by the collapse of others such as Malev.
"We have more growth opportunities in Europe than we can
handle," O'Leary said.
The airline, which had just six jets when O'Leary was hired
as deputy chief executive in 1991, now flies more international
scheduled passengers than any other airline, according to the
International Air Transport Association.
The Ryanair deal is a timely boost to Boeing, which last
week won U.S. approval for test flights for its new 787
Dreamliner, which has been grounded for two months after
batteries burned on two of the jets in January.
The U.S. Federal Aviation Administration last week approved
Boeing's plan for testing a revamped battery system for the
plane, including tests Boeing had helped develop but not
Boeing predicted the plane would be back in service in
weeks, not months. But its biggest 787 customer, All Nippon
Airways, said that prediction was too uncertain for it to base
Boeing and Airbus are upgrading their medium-haul passenger
models to offer about 15 percent fuel savings from the middle of
the decade, raising the prospect of bargains on the outgoing
models to help manufacturers ensure steady production.
O'Leary said the fact that the 737 provided nine more seats
than the A320, which is due to be revamped with fuel efficient
engines in 2016, was more important to Ryanair than any possible
To pay for the new jets, O'Leary said Ryanair would use
internally generated cash flow and debt, avoiding the need to
tap shareholders for capital. He said the airline aims to have
the average age of planes in its fleet at less than five years
once all of the new planes are delivered.
He said most of the 737s would be delivered in 2017 and
2018, with about 50 arriving each year.