Are Airlines at Odds With Trump, Boeing?
In a meeting last Thursday between President Trump and executives of several U.S. airlines, the headline outcome was Trump’s proposal to fix a “totally out of whack” revamping of the Federal Aviation Administration’s (FAA) overhaul of the country’s air traffic control system. The president was sympathetic to changing the FAA’s behind-schedule and over-budget upgrade while at the same time making no promises.
Trump also sidestepped another issue that has roiled U.S. carriers: the Obama administration’s refusal to take the carriers’ side in a dispute over the Open Skies agreement that allows three Middle Eastern airlines to fly disputed routes to the United States. U.S. legacy carriers United Continental Holdings Inc. (NYSE: UAL), American Airlines Group Inc. (NASDAQ: AAL) and Delta Air Lines Co. (NYSE: DAL) used the occasion of the meeting with Trump to make their case for imposing limits to the Open Skies deal.
While the President was again sympathetic, he also was aware of the impact on Boeing Co. (NYSE: BA) of reducing flights — and future purchases of new aircraft — for Emirates Airlines, Etihad Airlines and Qatar Airways. According to a report in Politico this was Trump’s response:
“I know you’re under pressure from a lot of foreign elements and foreign carriers. I’ve been hearing that a little bit,” Trump said at the start of the discussion. “At the same time, we want to make life good for them, also. They come with big investments. In many cases, those investments are made by their governments. But they are still big investments.”
The airlines and the pilots union are also unhappy with the Ireland-based subsidiary of Norwegian Airlines, which plans to begin transatlantic flights later this year at a rumored one-way fare of $75. The airline plans to fly from second-tier airports on both sides of the Atlantic and to use both its current fleet of Boeing 787s and new 737-9s that are scheduled for delivery beginning this spring.
The pilots union has complained about the makeup of flight crews, but the airline has said that 50% of its crews and pilots are or will be U.S.-based. This issue did not come up at the airlines’ meeting with Trump, according to Politico.
The U.S. Travel Association, an industry group representing “all components of the travel industry,” sent a letter to Secretary of State Rex Tillerson last Friday supporting the existing Open Skies agreement:
By reducing government interference in air travel, [Open Skies] agreements have led to hundreds of thousands of new American travel and manufacturing jobs, billions in U.S. economic growth, lower airfares for travelers, more flights to airports to and beyond major gateways, and new opportunities for U.S. airlines. … While their arguments are couched in compelling terms, the Big Three airlines are not seeking a level playing field to compete. Instead, they are lobbying for government intrusion that would benefit themselves, but hurt American manufacturing jobs, threaten U.S. economic growth and undermine U.S. national security interests.
Norwegian, Emirates and Qatar Airways are among Boeing’s top 10 customers. Emirates currently has unfilled orders for 174 aircraft, 24 of the existing 777-300ER and 150 of the 777X scheduled for deliveries beginning in 2020. Norwegian has 144 undelivered planes on Boeing’s order book: 125 of both current generation and 737 MAX planes and 19 787-9s. Qatar Airways is awaiting delivery of 105 planes: 75 777s, including 60 of the 777X and 30 787-9s.
These planes total well over $100 billion in new orders. If the orders are cut or cancelled, it could be difficult, if not impossible, for Boeing to replace them and that could mean thousands of lost manufacturing jobs in the United States. It is highly unlikely that President Trump will sign up for that.