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Boeing’s Breakthrough Max Deal Signals Hope for Travel Rebound

(Bloomberg) — This year’s biggest jetliner deal signals there’s a growing sense of optimism that travel demand will come roaring back from a historic collapse once coronavirus vaccines are widely available.

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Betting that a recovery is on the way, Ryanair Holdings Plc ordered 75 high-density versions of Boeing Co.’s 737 Max in a transaction valued at about $7 billion, said Ryanair Chief Executive Officer Michael O’Leary. As rivals shrink fleets and postpone aircraft purchases, Europe’s largest budget carrier sees an opportunity and is accelerating delivery plans so that it takes all of its 210 Max jets on order by December 2024.

“Travel is going to snap back very strongly,” O’Leary said Thursday in a joint interview with Boeing CEO Dave Calhoun on Bloomberg TV. “This is an order not for next summer. This is for the next five years, the next decade across Europe.”

The deal is a breakthrough for Boeing as it works to bring back the Max after a 20-month grounding prompted by two crashes that killed 346 people. With the plane poised to start flying again after intense scrutiny by global regulators, Ryanair is providing a crucial boost to Boeing’s plans to ramp up work at its 737 factory near Seattle while also starting to clear an inventory of about 450 Max jets that were built during the grounding.

“The forecast for depleting that inventory is roughly a two-year time frame,” Calhoun said. “We are confident that can be done.”

Boeing surged 6% to $237.20 at the close in New York, the highest price since early March, just before the virus forced consumers around the world to isolate at home and nations to seal their borders. Ryanair climbed 2.7% to 16.23 euros in Dublin.

Short-Term Weakness

Any airline recovery will come in the wake of an increasingly grim winter travel outlook. As Boeing and Ryanair were touting the coming rebound, Delta Air Lines Inc. warned that it may burn more cash than expected this quarter while Southwest Airlines Co. told more than 6,800 employees that their jobs are at risk in early 2021.

“We all know we’ve got a rough couple of months ahead of us,” Calhoun said. “But that vaccine distribution will change the psychology of the flying public.”

As bookings start to rebound ahead of the summer holiday season in the U.S., “airlines will want to re-establish their leading competitive positions,” he said. “So that usually results in orders.”

Regulators in the U.S., Europe and Brazil have endorsed software revisions and a new pilot training course for Boeing’s best-selling jet. Commercial flights are set to restart next week, with Brazil’s Gol Linhas Aereas Inteligentes SA planning service on Dec. 10. United Airlines Holdings Inc. confirmed that it would take the first post-grounding delivery of the Max.

Ryanair’s commitment gives new sales momentum to Boeing, which had been losing share to rival Airbus SE in the crucial market for single-aisle jets even before the Max tragedies.

The deal is the largest firm Max order booked by Boeing since December 2018. The sale more than doubles the 67 gross orders that Boeing had notched this year against more than 1,000 net cancellations.

O’Leary said he’s already looking forward to a potential order for an even larger version of the plane, the Max 10, which he said Ryanair would need by 2024 or 2025.

While O’Leary joined the chorus of CEOs who criticized Boeing for its handling of the crisis last year, he said he was won over by Calhoun’s no-nonsense approach, starting with a January meeting in Chicago.

“After a year of drift, particularly with the regulatory and safety issues, there was a determination to get the aircraft back in the air to address all the concerns of the FAA here in America and EASA in Europe,” O’Leary said. “The new management have the ‘get the job done’ mentality and we were very keen.”



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Moving Up

O’Leary has a reputation for driving hard bargains, but he played coy when asked if he was getting the Max at bargain-basement prices. The concessions were “modest,” he said.

Boeing doesn’t intend to “discount its way into the marketplace,” in re-establishing the Max, Calhoun responded.

While Ryanair is confident in the safety of the Max following the unprecedented safety review, O’Leary conceded that some customers may have qualms. The budget carrier will allow flyers nervous about the Max to rebook on the next available flight that uses an earlier model of the 737, he said.

“In the history of aviation, airfares have conquered almost every known fear of air travel,” O’Leary added. “Customers will convert to these aircraft very quickly.”

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