I'll give the Russians this much: They've got chutzpah.
After years of frenetic plane-buying by major airlines like Delta (NYSE:DAL) and Continental (NYSE:CAL), the airplane biz is in a bit of a slump. So taking a page from UAL's (NASDAQ:UAUA) playbook -- and taking advantage of the buyer's market -- Russia's new "Rosavia" airline is making Boeing (NYSE:BA) an offer that, Rosavia hopes, Boeing cannot refuse.
Specifically, Rosavia is looking to buy somewhere between 50 and 120 new aircraft. Ideally, the airline would start off with 50 firm orders for aircraft to be delivered between 2010 and 2016, plus an option for 15 more. But with Rosavia hoping to acquire 120 new aircraft by 2020, there's a good chance that the winner of this competition could take pole position in the race to win a follow-on order nearly as big.
Who will that winner be? Rosavia says it's agnostic on whether it buys from Boeing or Airbus, and is inviting both companies to submit their best offers. If Boeing wins, this could go a long way toward curing its 2009 sales slump -- and do similar wonders for parts suppliers like Honeywell (NYSE:HON) to United Tech (NYSE:UTX) to Spirit AeroSystems (NYSE:SPR).
There are just a few hitches with this plan, though.
Hello? Yes? Who may I say is calling?
First and foremost: There's no such thing as Rosavia. Not yet. The fruit of a 2008 Kremlin plan to merge and streamline multiple money-losing airlines (Samara Airlines, KrasAir, and Rossiya to name a few), Rosavia's formation was put on hold earlier this year. Accordingly, it was not the company itself that invited bids from Boeing and Airbus yesterday, but rather its majority shareholder, Russian Technologies (Rostekhnologii).
Cash, check or, IOU?
Also of crucial importance is the reason Rosavia doesn't yet exist. Namely, the exceedingly weak finances of the zombie airlines that are to be merged to create Rosavia. This is not a cash-rich buyer that Boeing would be courting. Rosavia must drive a hard bargain in order to survive; and even then, it's probably a poor credit risk despite government backing.
Make me an offer
Third and finally, because Rosavia lacks cash, Rostekhnologii is reportedly angling for a price of $45 million to $50 million per plane. That's lower than the lowest sticker price on even the cheapest Boeing 737 model. Clearly, Rosavia's playing hardball.
Sure, that still adds up to perhaps $6 billion in revenue if Rosavia maxes out its orders through 2020. I'm sure Boeing's tempted to bid. But everything else about this "deal" stinks. Boeing should turn up its nose, and walk away.
What's worse than losing a sale? Losing a labor dispute. Read all about Boeing's struggles with Big Labor in:
