American Airlines Group Inc. (NASDAQ: AAL) has chosen jet engines from CFM International, a 50-50 joint venture between General Electric Co. (NYSE: GE) and France’s Safran Group, to power a new fleet of single-aisle, narrow-body A320neo planes made by Airbus Group. London-traded EasyJet is also reported to have selected CFM as the engine supplier for its fleet of 100 A320neos.
American Airlines’ order is valued at $2.6 billion at list prices for the CFM Leap-1A, and the EasyJet order, which includes 35 engines for the current generation A320, would be worth about $3 billion. EasyJet is Europe’s second-largest low-cost carrier behind Ryanair Holdings PLC (NASDAQ: RYAAY), which flies the 737 from Boeing Co. (NYSE: BA).
Sunday’s announcement comes from the Farnborough International Airshow, which officially begins Monday, just outside London. We expect to hear announcements of new orders from both Boeing and Airbus, as well as regional jet makers Embraer S.A. (NYSE: ERJ) and Toronto-traded Bombardier. Airbus is also expected to announce a go/no-go decision on an A330neo during the show.
The A320neo is a re-engined version of Airbus’s best-selling A320 single-aisle, narrow-body jet. (The neo designation means new engine option.) The A320 competes directly against the Boeing 737, and the A320neo will go head-to-head with Boeing’s 737 MAX family. The list price of the A320neo is $102.8 million, compared with $85.7 million for the 737 MAX 7 and $103.7 million for the 737 MAX 8.
The currently available version of the A320 carries a list price of $94 million. The additional $8.8 million for the A320neo includes the more fuel-efficient engines, the wing sharklets and other refinements to the time-tested A320 aircraft.
Boeing took a page out of the Airbus book when it chose to re-engine its 737 rather than design a new plane from scratch. The Chicago-based company correctly figured out that a completely new plane would take at least twice as long to deliver and the company could not afford to let Airbus have that big a lead on sales, no matter how good the result turned out to be.
The order book for the A320neo already has 2,088 orders from 52 customers. The plane seats 150 passengers in two classes. The maximum range on the plane is about 4,250 miles, compared with around a 3,800-mile range for the A320.
The apparent loser in the competition for the announced engine contracts is Pratt & Whitney, a division of United Technologies Inc. (NYSE: UTX). American Airlines has already ordered CFM’s Leap-1B for its fleet of new Boeing 737 MAX aircraft. Both the A320neo and the 737 MAX are scheduled for delivery to American Airlines beginning in 2017.