United Airlines (NASDAQ:UAL) is one of the biggest customers for Boeing's (NYSE:BA) troubled 737 MAX family of single-aisle jets. Through a series of orders and conversions, the global airline has accumulated 171 firm orders for the 737 MAX -- mainly for the largest model, the 737 MAX 10 -- in addition to the 14 737 MAX 9s already in its fleet. By contrast, as of the end of last quarter, it had no orders for the competing Airbus (OTC:EADSY) A320neo family.
That changed earlier this month, as United Airlines ordered 50 Airbus A321XLRs, the longest-range version of the A321neo. Nevertheless, Boeing is well positioned to maintain its primacy in United's fleet for the foreseeable future.
United picks its 757 replacement
The A321XLR jets that United ordered earlier this month will mainly replace the carrier's aging Boeing 757 fleet on longer-haul routes, mainly trans-Atlantic ones. Their superior range and lower fuel burn will also allow United to open new routes that weren't viable previously.
This order was expected, because the Airbus A321XLR is by far the closest replacement for the 757. While the 737 MAX 10 is similar in size, it doesn't have true trans-Atlantic range. Meanwhile, the 787-8, the next largest plane in Boeing's lineup, is dramatically bigger than the 757 and built to fly twice as far, which adds unnecessary costs on 3,500-4,000 mile trans-Atlantic routes.
The big question for investors is whether the A321XLR order will pave the way for additional A320neo family orders. Back in early 2016, it seemed possible that United was on its way to phasing out all of its Airbus narrow-body jets by the mid-2020s, moving to an all-737 narrow-body fleet. Now, it is clear that the A320neo family will be part of United's fleet for decades, which could justify additional orders to gain scale in that fleet type.
Why United will probably remain (mostly) loyal to the 737 MAX
In this context, it's noteworthy that United Airlines' A321XLR order wasn't combined with orders for other members of the A320neo family. If United had been looking to diversify away from the 737 family, especially the 737 MAX, placing a larger order with Airbus, including standard A321neos and A320neos -- and possibly even A319neos -- would have made a ton of sense.
Instead, it appears that the 737 MAX will be the main tool for replacing older and smaller jets in United's fleet and for supporting growth in the domestic market.
The fleet replacement need is substantial. While the A321XLR will replace about half of United's 75 Boeing 757s, the other half operate shorter routes, mainly transcontinental flights, and are likely to be replaced by the 737 MAX 10. Additionally, the carrier's 99 Airbus A320s are more than 21 years old on average and are starting to reach retirement age. United has dozens of 737s that have surpassed 20 years of age, too.
Airbus' massive order backlog -- it had more than 6,100 unfilled orders for A320neo jets as of the end of November -- means that United can't rely on Airbus A320neos for any near-term fleet renewal or expansion needs. In fact, when Spirit Airlines negotiated an order for 100 A320neo-family jets in October, it was only able to lock down a handful of delivery positions in 2022, 2023, and 2024. Most of the aircraft it is ordering won't arrive until 2025 and thereafter.
Boeing has a large backlog as well, but it's not booked out as far as Airbus. Furthermore, some airlines are probably looking to get out of their 737 MAX orders, which will make additional delivery slots available. The Airbus A320neo family may warrant a bigger place in United's fleet eventually, but realistically, that will be a post-2025 development.
Boeing dominates on the wide-body side, too
The United Airlines A321XLR order announcement also contained a separate piece of good news for Boeing. Specifically, United has deferred its Airbus A350 deliveries by about five years. It now plans to take the first of its 45 A350-900s on order in 2027. Some pundits believe this deferral could be a precursor to canceling the order altogether.
Regardless of whether the A350 orders are being deferred or canceled, the result is that United Airlines has only one wide-body delivery scheduled between 2021 and 2026, a Boeing 787. It's very unlikely that United really plans to halt its expansion in long-haul markets after 2020. Additionally, the carrier has 21 Boeing 767-300ERs that were built between 1991 and 1993. These jets need to be replaced relatively soon, and the 787 is the most logical replacement available for United.
If United Airlines wanted to use the A350, or even the A330neo, for any of its near-term fleet renewal or expansion plans, there would have been no reason to defer its A350 deliveries. The fact that it deferred those aircraft anyway means that more 787 orders are probably on the way for Boeing.
United Airlines hasn't taken delivery of a single new aircraft from Airbus in more than a decade and a half. That will finally change in 2024. However, Boeing is poised to remain United's main aircraft supplier for many years to come.