3 Links I Love: IAG Orders (and Renames) the MAX, Giving Clarity to MH370, Major Merger Restrictions

This week’s featured link:

IAG signs letter of intent for 200 Boeing 737-8 and 737-10 – IAG Newsroom
There is so much to say about this that I don’t even know where to start.

  • Note that the word MAX is not mentioned anywhere in the release. Get ready for a branding change, I’d say.
  • Kudos to IAG for taking full advantage of Boeing’s weakness. I can’t imagine how little IAG will have to pay for these airplanes.
  • Boeing was desperately in need of an order, and it had to be willing to pay even more to flip an established company that only operates Airbus narrowbodies. Boeing must have paid dearly for this, and IAG is the perfect company to take full advantage.
  • The fact that this is only a letter of intent gives Boeing two bangs for the buck. It can announce it now and steal a little thunder from Airbus at this week’s Paris Air Show. Then the order can be finalized once the airplane is flying again safely and get more press for it then.
  • The release says these airplanes are destined for LEVEL, Vueling, and BA’s Gatwick operation. That says these will be outfitted in a high density leisure configuration. It won’t be comfortable, but IAG doesn’t care. The economics will be outstanding.
  • Even if the order is never finalized, I’m sure IAG will get a screaming deal on other Boeing airplanes as a “thank you” for helping.

Great job by IAG undoubtedly extracting massive value from Boeing here. I had pegged Delta to be the one to make the move, but it looks like IAG got there first.

Image of the Week: “N501AA”by Benmellgren is licensed under CC BY-SA 2.0
I didn’t realize until this week that this is the last of the MD-80s delivered to American that’s still flying for the airline. (There are still 27 ex-TWA airplanes that are still going.)

The old Douglas birds are still scheduled to be retired in early September though American won’t officially confirm the details yet.

Two for the road:

What Really Happened to Malaysia’s Missing AirplaneThe Atlantic
William Langewiesche has once again put together a masterpiece of a story. This time he focuses on the disappearance of Malaysia 370 so many years ago. After reading this lengthy article, it’s hard to imagine this happening any differently. The only question in my mind is… why would the captain have stayed alive and just continued to fly toward certain doom? Why not end things earlier? I suppose it’s futile to try to understand the rationale of someone who, if things actually played out as suggested, had serious mental problems.

Restrictions on the Merger of First Air and Canadian NorthGovernment of Canada
Both of these airlines serve the far north of Canada, and I imagine much of the flying is government subsidized. So, what is the government requiring to approve the merger? It’s pretty crazy. Fares can’t increase more than costs, load factors can’t exceed a certain amount… read the rest for yourself.

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10 Responses to 3 Links I Love: IAG Orders (and Renames) the MAX, Giving Clarity to MH370, Major Merger Restrictions

  1. Jorg says:

    About the merger: is it just me, or does it really say (point 6) that the combined airline has a maximum load factor?

    • Mario PY says:

      Point 6 IMHO actually says that when the monthly average load factor consistently exceeds the threshold, the capacity has to be increased. The implied baseline for the load factor seems to be 01 April 2019.

      In any case, this requirement aplies to all pairings served by the parties as of 01 April 2019, as operated or published.

    • CF says:

      Yeah, there is a max load factor. I think the idea is to force more capacity if planes get full. And since they have no leverage in changing fares, they can’t adjust supply to match demand. It’s a weird thing.

  2. Jon Snow says:

    “Fares can’t increase more than costs, load factors can’t exceed a certain amount.” So… drop the authorized level to 80% of capacity per flight? It’s better to turn late-arriving passengers away from empty seats than it is to have the flights be too crowded?

  3. Nick says:

    I might be missing something, but I think DL only has 1-2 739’s left to be delivered from Boeing. Everything else is Airbus (260+ planes).

    Did DL or Boeing let bad blood (IMEX Bank, C-Series, cancelling 787 order, etc) get in the way of business?

    I could easily see DL not wanting to offer an Olive Branch or wanting discounts even deeper than IAG.
    I could just as easily see Boeing selling them to IAG instead of DL even if the deal wasn’t as good as thumb in the eye for any of the previously mentioned slights.

    Or is DL’s long term (20+ years) strategy to move to all Airbus? Unlikely, but it’s been since 2011 since Delta ordered from Boeing.

    • CF says:

      Nick – I think Delta’s long term strategy remains to simply buy the airplanes that make the most sense every time. The company is opportunistic, and this could have been the ultimate opportunistic play.
      We’ll never know if Delta was even in the hunt or not, but it would certainly have fit their MO.

      • Matt D says:

        Which probably means they are a nightmare to work for. I worked for a company like that….where their long term strategy was to chase whatever short term opportunities they could. It was a very myopic, hand-to-mouth, day-to-day operation where planning for anything beyond literally one day was virtually impossible. The word “proactive” wasn’t even in their vocabulary. It was utter chaos. But….it worked. Some companies like this one….and apparently Delta too…can make a go of that.

        Most companies that try this strategy however, are lacking in vision and that type of business model fails more than it succeeds.

        • Melvin_In_MSP says:

          Oh. They are straight up awful to work for. DL was my 3rd carrier. I left after only a year.

  4. chris says:

    Delta now has the distinct advantage as the only big airline in the country without MAX, that is a valuable position to be in, and I don’t see why they would abandon that.

  5. Soccerguy243 says:

    I will avoid flying in any 737 max8 or whatever they rebrand it to. The pilots themselves are asking for more training.

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