Today Ryanair ordered 175 Boeing 737 jets, which are valued at $15.6bn in list price. Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) (LON:RYA) expects to receive the first airplane at the end of 2014. Ryanair is currently a Boeing aircraft operator and operates 305 737-800 aircraft. The last time Ryanair placed a significant aircraft order was in February 2005 for 140 Boeing 737 aircraft (70 firm and 70 options). According to the airline, it will be paying higher prices compared to the 53% discount received from the 2005 order. BAML views this order as positive as the Ryanair order could fill more of the assembly line capacity in Renton, Washington as the 737 MAX production begins. The news is a welcome development after Boeing’s 787 has been repeatedly delayed over safety concerns, which many suspect has to do with the battery of the plane.
Ultimately, the Lion Air order shows increased competition in Indonesia which historically was a stronghold for The Boeing Company (NYSE:BA). The Airbus order may have stemmed from a strategic move by Lion Air to diversify its fleet or aircraft supplier base. Additionally, current order does not specify which engine Lion Air will choose (either the CFM LEAP or UTC GTF). However, considering the added long-term maintenance expense in having a mixed fleet, analysts at BAML ‘wonder’ what kind of pricing incentives may have been offered to sweeten the deal. Although healthy competition between The Boeing Company (NYSE:BA) and Airbus is generally a good thing for the airlines, a pricing war is never in the best interest of both aircraft suppliers.
Deliveries are scheduled from Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) (LON:RYA)’s FY15 (beginning April 2014) to FY19 with a peak of 50 p.a. in FY17-18. Ryanair also said it continues to evaluate the benefits of the MAX. RBC’s Transport team suggests that the -800 order could be funded entirely from free cash flow, so the balance sheet would appear to have firepower for a MAX follow-on.