With the way domestic airlines have been taking it on the chin in recent months, the last thing I'd expect is to see an airline tout spending billions to -- gulp -- grow. But that's exactly what Continental Airlines (NYSE: CAL ) has in mind.
Yesterday, the nation's fifth-largest airline ordered 10 of Boeing's (NYSE: BA ) new 7E7 aircraft at an estimated price of $1.3 billion. The so-called "Dreamliner" is built with composite materials and, according to Boeing, will serve as a long-haul jet, serving principally international routes. And therein lies the reasoning behind Continental's commitment, according to a statement. In it, outgoing CEO Gordon Bethune said that the 7E7 "will become an important part of Continental Airlines' international growth strategy."
OK, but what about the here and now? Delivery of the 7E7 isn't expected before 2009, and Continental is on track to lose $200 million this year alone. The airline also says that it needs $500 million in additional concessions from its union workers to break even in 2005. And it's not like Continental's spending begins and ends with the 7E7. The airline has also agreed to lease eight 757-300s that have been in service with bankrupt ATA Holdings and accept earlier delivery of six 737-800s it had previously ordered.
Still, the airline's spend-to-grow strategy makes sense. For one, it speaks of confidence in the business plan. That's important because it is unlikely employees would agree to concessions without some hope of seeing long-term benefits. It's also bold. I mean, really, can you name another major carrier besides UAL Corp.'s (OTC BB: UALAQ) United that is pursuing expansion during these darkest of days for the industry as a whole? You could say Southwest (NYSE: LUV ) and AirTran (NYSE: AAI ) , of course, but I'm really talking about the U.S. airlines that have made a business of going global.
Sure, there are plenty of reasons to doubt all of the domestic airlines, but it's hard not to love the boldness of Continental's move. More to the point, there will be winners in the airline industry. Fool co-founder and Motley Fool Rule Breakers chief analyst David Gardner advocated JetBlue (Nasdaq: JBLU ) for Motley Fool Stock Advisor subscribers. He could be right, of course. But I'm convinced one of the biggies will also emerge. If Continental brokers an agreement with its labor force, it's as good a candidate as any.
For related Foolishness:
- What did you think of AirTran's Chicago move?
- Would you surf and talk at 35,000 feet if you could?
- Boeing has commitments for more than 120 7E7s. So why is its stock in a holding pattern?
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Fool contributor Tim Beyers wonders what the "E" stands for in 7E7. Perhaps that's why he hasn't invested in Boeing, or in any of the other companies mentioned in this story. You can find out what's in Tim's portfolio by checking out his Fool profile, which you can find here.