American Seeks Replacement Jet For Old MD80s

American Airlines is talking to Airbus SAS and Boeing Co. about when they will offer new single-aisle aircraft so that the carrier can replace 310 MD80s, which are 16 years old on average.

"We've had discussions with both Airbus and Boeing about what they're thinking about for the next generation single-aisle plane," said American CEO Gerard Arpey. "That's both on timing, and on what kind of step change it would represent in terms of maintenance costs and fuel savings."

Fort Worth-based American, which has lost more than $8 billion during the past five years, has grounded 54 MD80 aircraft since January as high jet fuel prices continue to take a toll. Arpey said last month in Tulsa that American will not purchase additional aircraft until the company is profitable.

Although American is adding two new Boeing 777s this year, its next scheduled aircraft purchase is not until 2013, Arpey said.

"The MD80 air frame is really good," Arpey told employees at the President's Conference in Tulsa, where the twin-jet is maintained at the airline's Maintenance & Engineering Center. "In the long run we need to think about where we're going with our narrow-body fleet."

American, along with Delta Air Lines and United Airlines, have been absent from the market for new planes since 2001 as their losses mounted, so Boeing and Airbus have relied on Asian and European carriers for most of their sales.

An order for 310 jets from American Airlines might be worth more than $21 billion at today's list prices.

With a total fleet of 683 planes, American has 74 Boeing 737 aircraft, which seat about 160 passengers, compared with 150 for MD80s.

American may prefer to buy the next generation planes rather than more 737s. A new plane might be 10 percent to 15 percent more efficient.

"One of our principal considerations is whether we want to take some number of current generation aircraft, or do we want to wait for new generation aircraft," Arpey said Sunday on the eve of a conference of the International Air Transport Association in Paris. "Given the amount of capital involved, you'd want to see a step change in productivity of 15 percent from the existing generation of technology we're looking at."

Boeing and Airbus have resources tied up in developing planes for the wide-body market. Boeing is spending about $8 billion to bring out the 787, which will seat 250 to 300 passengers, and Airbus is planning to invest as much as $10 billion for a rival model, the A350, three people familiar with the plans told Bloomberg News.

The planemakers say they may introduce new single-aisle planes within a decade, depending on demand.

Arpey said American is focusing on profitability, and until the airline is financially strong, it doesn't want to commit to plane purchases.

American employees agreed to $1.8 billion in concessions in 2003. The airline had a net loss last year of $861 million.

Arpey said that any aircraft the airline buys must help the airline meet a goal that it has defined for itself: "Consistently earning pretax margins of 5 to 10 percent."

The younger an airline's fleet is, the lower fuel costs as a percentage of total costs. Fuel accounts for about 27 percent of American's operating expense.

American's 310 MD80s represent 45 percent of its fleet.



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