How American Airlines’ $30bn Bet Reduced Its Exposure To Boeing’s Fallout

Summary

• American Airlines focuses on supply chain issues over Boeing for Q1 troubles.
• Despite industry-wide disruptions, American insulates itself with fleet investments.
• Large existing orderbook provides breathing room amidst supply chain challenges.

American Airlines has had a tricky start to 2024, performing slightly worse than expected in Q1, and revising guidance for the rest of the year. While other airlines have laid the blame for poor performance at Boeing’s feet, American has done quite the opposite.

Since the start of May, the US airline has wound back controversial changes to its loyalty program, indicated it will review its strategy for where it sells tickets, and fired one of its biggest movers and shakers. While external factors played a part, many of American’s issues were self-generated, and it’s keen to put things right.

Supply chain issues are more significant than Boeing

Speaking today at the 2024 Annual Meeting of Shareholders, CEO Robert Isom noted Boeing’s issues, but said that, for American Airlines at least, supply chain issues were still a major problem.

“We have to make sure that Boeing is delivering quality aircraft every time. But our suppliers also had a dramatic impact on the industry’s ability to produce capacity, and they have fallen behind consistently.”

Recovery from the pandemic has seen shortages of everything, from planes and engines to pilots and infrastructure. The complexities of the aviation industry mean that when one link in the chain becomes weak, ripples are felt throughout.

While the general consensus is that supply chain issues are not getting any worse, they’re not exactly improving quickly either. IATA’s director general Willie Walsh noted to CNA this week that he expects the situation to impact airlines throughout this year and next, and “probably into 2026.”

It’s a pain point all airlines are feeling; Delta’s CEO told Bloomberg this week that the supply chain is “not where it needs to be,” while other airlines have had to make tough decisions on everything from seats to fleet to routes as a result. As Isom concluded,

“These supply chain constraints are impacting everyone.”

Avoiding the impact of Boeing’s problems by being an early mover

Despite headwinds from the supply chain challenges, American’s CEO feels the airline has somewhat mitigated some of the negative impacts from Boeing’s issues that its competitors are feeling.

Delivery delays and MAX 9 issues have been blamed for poor results at United Airlines, while Southwest had to revise its flight schedule due to delayed aircraft arrivals. Other airlines pointed fingers at the manufacturer too.

But Isom believes American Airlines is insulated from some of this chaos, thanks to investments made over the last decade.

“What puts American in the best position is the work that we’ve done in our fleet renewal program. Since 2014, we have spent nearly $30 billion on new aircraft. That’s part of the reason we’re more leveraged than our competitors.

“It also puts our capital expenditures in a good position moving forward.”

From 2014 onwards, American had a great few years for aircraft deliveries. According to data from ch-aviation, 2015 was its biggest year for deliveries on record, with 70 aircraft entering the fleet, including 30 A321s, 18 737-800s, three 777s, and its very first 13 Dreamliners.

Between 2014 and 2017, American took delivery of almost 250 aircraft. From 2018 onwards, deliveries slowed but remained consistent, and 150 aircraft arrived up to the end of 2023. That’s almost 400 airplanes, 40% of its total fleet of 1,003.

Some will have been for growth, of course, but many will have been replacing older aircraft. And that’s without even considering the renewals that have been going on at its regional subsidiaries Envoy, Piedmont and PSA.

What aircraft are left to deliver?

Remaining in American’s orderbook, according to data from ch-aviation, are still hundreds of aircraft. There are Boeing products in there, specifically:

• 737 MAX 8: 40
• 737 MAX 10: 115
• 787-9: 25

None of the widebodies are due to deliver anytime soon; indeed, the carrier deferred some deliveries for at least five years in late ‘23.

The 737 MAX 8s are delivering at a rate of around 2 to 3 aircraft per month. The delay on the MAX 10 is of no issue to American’s capacity, as just three are set to deliver in late 2026, with the rest coming in 2028 and beyond.

On the Airbus side, American has orders for:

The neos are trickling in about one per quarter until mid-next year, when they begin to ramp up to around one per month. The XLRs are tentatively scheduled for around one every two months from December this year.

The lack of urgency for aircraft orders has given American Airlines a bit of breathing room in this hectic time. Isom clarified,

“We’ve already done the heavy work. We’re not dependent on a lot of new aircraft deliveries.”

Robert Isom further noted the strong maintenance operation at American, which he feels is more than capable of supporting the fleet. He added that American has more licensed mechanics in its employ than any other airline, concluding,

“I feel incredibly confident about our team’s ability to support the airline that we need to run.”