More Bad News for Boeing

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UAL Corp (Nasdaq: UAUA  ) has agreed to merge with Continental Airlines (NYSE: CAL  ) . Much as we wish it weren't so, this means bad news is brewing for Boeing (NYSE: BA  ) .

Why? UAL Corp, aka United Airlines, has dominated the headlines in recent months. Before its tie-up with Continental, there was the ill-fated merger attempt with US Airways (NYSE: LCC  ) . But before that, United played the villain to Boeing shareholders when it held up the company at metaphorical gunpoint, demanding that the plane maker enter into a bidding war with archrival Airbus for the right to sell United up to 150 new wide-body airplanes.

Ultimately, neither side agreed to play ball, and United ended up splitting its order between the two manufacturing giants. But it's going to be a whole lot tougher for Boeing to play coy next time around. UAL was the company doing the hunting, will end up with 55% of the new company, and as indicated by the fact that post-merger, will retain the United name.

All mergers are equal, but some are more equal than others
However, things might not be so bad for Boeing seeing as how Continental's CEO, Jeff Smisek, is the one keeping his job as head of the new airline. Continental is currently all Boeing, all the time. UAL operates a diverse fleet and in terms of backlog it's actually the other way around. While it split the wide-body order last year, United has nearly three times the number of Airbus planes on order than it has undelivered Boeing's waiting in the wings -- and the Airbus orders are worth more than twice the dollar value flowing to Boeing.

Now here's where things get potentially really bad for Boeing: As usual in deals like this one, the key participants are promising to present their shareholders with "synergies" from the merger. Translated into English, that means "cost cutting and fewer flights." And more pertinent to Boeing shareholders, it could mean both fewer planes purchased, and more hardball negotiating on the purchase price. Will the combined enterprise need 50 new 787 Dreamliners? With Boeing now having one fewer customer in its order book, United's negotiating position is going to get a whole lot stronger post-merger.

Foolish takeaway
Investors are bidding up Boeing shares post-merger news. But it looks to me like they're boarding the wrong plane.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2010, at 4:35 PM, FBEditorial wrote:

    As usual, you spin this completely wrong. The CO fleet is newer and needs replacing much LATER than than that of UA.

    UA has jets like the A350 which will not enter service until 2016. Its far easier to dump those, just as UA wrote off the 43 Airbus A320s it deferred for years on end too.

    So, Airbus has, according to you, twice the value to lose from this deal, not Boeing.

    Further, 50 Boeing 787s replacing 757s and 767s and CO is probably not enough - there will likely be more, not less 787s ordered.

    If the 787 prices too are renegotiated, it wont be without penalties - Boeing 787 slots are more lucrative than you think - and of course, you fail to refer to this even once:

    Your selective Boeing bashing is losing you credibility - had this been Lufthansa merging with CO, I would agree with the points you raise, but the plain fact is you have presented nothing but hyperbole and wasted bandwidth for readers.

    Stop your one-trick pony bashing brigade of Boeing and inject facts, not your biased baloney.

  • Report this Comment On May 03, 2010, at 5:10 PM, FlyingKnignt wrote:

    Well said FBE.. Seems like MF is always does drama queen reporting on Boeing. i.e. doesn't just report the facts and data but always adds this is really bad for Boeing line without really researching it.

  • Report this Comment On May 03, 2010, at 11:32 PM, baldheadeddork wrote:

    Do you even bother to look at the numbers before you write this stuff?

    United and Continental have a 100% Boeing widebody fleet. Neither airline has any Airbus A330/A340's either in service or on order. The first Airbus widebody in the combined company will be the A350-900 - which is still at least three years from first flight testing. United/Continental will have a couple dozen 787's in service before the first A350 enters the fleet.

    On the narrowbody front, the combined airline will have 384 Boeing 737 and 757's, and 152 Airbus A319 and A320. There are also 53 737NG on order (CO) and no Airbus narrow bodies.

    Now since Boeing will have 2.5 times as many narrow bodies as Continental if the 737 orders are filled, since the 757 can do ETOPS, and since the Continental Boeings are newer and more fuel efficient than the United Airbuses - which brand do you think has the upper hand when it's time to create synergies?

    Never mind.

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