July 26, 2012 / 9:54 AM / 7 years ago

Aeromexico places $11 billion order with Boeing

MEXICO CITY (Reuters) - Mexico’s largest airline Aeromexico on Wednesday placed an $11 billion provisional order with Boeing (BA.N), in what the company said was the biggest aircraft investment by a Mexican airline in that country’s history.

A Boeing 787 Dreamliner aircraft is seen during a media preview at the Aeromexico hangar in Mexico City March 8, 2012. AeroMexico has purchased seven of the Dreamliner, which are expected to be delivered in the next three years. REUTERS/Edgard Garrido

The order is for 90 737 MAX 8 planes and 10 787-9 Dreamliners, Aeromexico (AEROMEX.MX) said in a statement that did not provide specifics on financing arrangements.

The deal could allow Aeromexico to overhaul its existing fleet of 110 aircraft over the next decade, a trend among carriers worldwide as they seek to reduce fuel bills.

Airlines need to place orders far in advance in the expectation that it will put them in a better position to face eventual increased demand.

“This is an important order for Aeromexico’s expansion plans in the next few years, although at first glance it seems very aggressive,” said Vector Casa de Bolsa analyst Marco Montanez.

“This will definitely help them roll out new routes and take advantage of operating efficiencies - fuel and maintenance savings - over the medium and longer term,” he added.

Aeromexico, which went public last year, said the Dreamliners will begin arriving in the summer of 2013 and the 737 MAX 8 aircraft will be delivered starting in 2018.

“Over the mid-term, we want to own half of our fleet and lease the other half. Down the road we could reach 70 percent of company-owned fleet to have a more solid balance sheet,” Jose Luis Barraza, head of Aeromexico’s board, told Reuters.

The decision to buy was based mainly on bets Mexico’s economy will remain robust in coming years, Aeromexico’s Chief Executive Andres Conesa told a news conference in Mexico City.

The company will make its first pre-delivery payment of $40 million before the end of the year, when it expects to sign the purchase agreement. Aeromexico can easily finance that with its cash position, Conesa said on an earlier call with analysts. The next important payment will be in 2015, he added.

The company will have time to evaluate financing options for the later payment, Vector’s Montanez said, adding it could consider cash or debt or a mix of the two.

The latest order comes on top of a 20-aircraft package that Aeromexico announced last year, for 10 Embraer (EMBR3.SA) jets and 10 Boeing 737-8 NG.

Delta Air Lines (DAL.N) in June bought a 4 percent stake in Aeromexico for $65 million. The Aeromexico spokesman did not say whether the U.S. airline would contribute toward payment for the order. A Delta spokesman declined to comment.

Aeromexico increased its market share after rival Mexicana ceased operations before filing for bankruptcy in 2010.

The Mexican airline’s shares dropped 0.3 percent to 21.6 pesos shortly before the closing bell.


Boeing, which posted better-than-expected results on Wednesday, is on track to overtake rival Airbus EAD.PA in plane deliveries this year.

Boeing is in the midst of booking orders for the revamped 737 as it catches up with the latest version of Airbus’ A320, which produced great demand and redrew the battle lines between the world’s top planemakers last year.

Both aircraft achieve fuel savings of around 15 percent due to new engines and other enhancements.

Raymond Conner, the recently appointed head of Boeing’s commercial division, said winning the deal had not been easy.

“We faced very stiff competition ... yes, we competed with Airbus,” he told Reuters.

General Electric (GE.N), which competes with Rolls-Royce (RR.L) to power the 787, said it had won a deal worth $400 million to provide the engines for the 10 Dreamliners.

A joint venture between GE and France’s Safran (SAF.PA) is the sole engine supplier for the 737.

Mexico City-based Aeromexico, which operates some 600 flights a day, on Tuesday said revenue during the second quarter rose 15 percent to 9.9 billion pesos from 8.6 billion pesos in the same period last year.

The firm’s profit dropped 73 percent to 152.9 million pesos from 583.5 million pesos in the year-earlier period because of a pickup in expenses and financing costs.

Additional reporting by Tim Hepher in Paris; Editing by Maureen Bavdek, Gunna Dickson, Sofina Mirza-Reid, Leslie Gevirtz and Marguerita Choy

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