The Boeing Company (BA), United Continental Holdings Inc (UAL) & Air Lease Corp (AL): One Big Win for Airbus Might Actually Be a Loss

Reading the tea leaves
It is therefore not a coincidence that shortly after United agreed to order 20 787-10 airplanes, the company switched its Airbus order from the similarly sized A350-900 to the larger A350-1000. The A350-1000 will primarily replace United’s 23 Boeing 747 jumbo jets. Meanwhile, United has already begun replacing its older 767s with the smaller versions of the Dreamliner. United’s new 787-10 orders suggest that the company intends to use that plane to replace its fleet of 74 Boeing 777s. (United’s 777s are similar in size to the 787-10.)

As of the end of 2012, United operated 158 widebodies, of which 135 were within the size range of the three Dreamliner models; only the Boeing 747s are larger. While Airbus has locked in 35 A350 orders from United, The Boeing Company (NYSE:BA) is likely to corner the vast majority of United’s fleet replacement orders. After all, once United introduces the 787-10 as a Boeing 777 replacement, it will be hard to justify ordering similarly sized A350-900s; it would add unnecessary complexity to operate two different aircraft types that are the same size.

Stealing a march
While Airbus gained 10 A350 orders from United last week, this wasn’t really a win for the company. The Boeing Company (NYSE:BA)’s timely decision to stretch the Dreamliner has positioned it to win almost all of United’s widebody replacement business over the next 10-15 years. By contrast, Airbus will primarily provide replacements for the largest jets in United’s fleet: a lower-volume segment.

United is just one airline, albeit a big one with 158 widebodies as of late 2012. However, if other airlines — especially those that have already ordered smaller versions of the Dreamliner — also decide that the 787-10 meets their needs, Airbus could lose a lot of business that it would otherwise have won with the A350-900.

Adam Levine-Weinberg is short shares of United Continental Holdings Inc (NYSE:UAL) and long Sep 2013 $33 Puts on United Continental Holdings Inc (NYSE:UAL). The Motley Fool has no position in any of the stocks mentioned.

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