IAG Still Considering Boeing 737 Max for Fleet Renewal

 - February 26, 2021, 11:36 AM

International Airlines Group CEO Luis Gallego did not confirm whether the company remained in active negotiations with Boeing over an order for the Boeing 737 Max, though he described it as a model the group must “consider for the future.” Former IAG boss Willie Walsh stunned the industry when he unveiled a letter of intent for 200 Max jets, a combination of Max 8s and Max 10s, at the Paris Airshow in June 2019, just months after global authorities grounded the passenger airliner following two fatal crashes. Speaking during a full-year results call with analysts on Friday, Gallego said the group still considers the Max a “good aircraft.” The FAA and the European Union Aviation Safety Agency (EASA) recently issued return to service airworthiness directives for the 737 Max, and Australia’s Civil Aviation Safety Authority on Friday followed suit.

Gallego said he hopes that demand in 2023 will return to the levels the group recorded in 2019. “In the meantime, we have to adapt the size of our fleet to that demand,” he stressed. The Max commitment—valued at $24 billion at list prices—formed part of IAG’s pre-Covid plans to replace 225 short-haul aircraft, starting in 2022. IAG had requested Max delivery slots between 2023 and 2027.

In response to the fall in demand and travel restrictions due to the pandemic, IAG last year deferred the delivery of 68 aircraft—11 long-haul and 57 short-haul aircraft—to reduce its capital expenditure. The group trimmed capital expenditures for this year to €1.7 billion from the €1.9 billion foreseen at the end of the first half of 2020. The bulk of it, €1.3 billion, relates to the fleet, said IAG CFO Steve Gunning. IAG still expects to take delivery of five short-haul and 10 long-haul aircraft.

The addition of 15 new aircraft comes in spite of uncertainty over demand and how much capacity it will deploy.  Gunning refrained from giving full-year capacity guidance “because we are just not certain enough how the pandemic will evolve, how government restrictions and quarantine requirements will evolve.” IAG’s airlines expect to fly just a fifth of 2019’s schedule in the first quarter of this year. Last year, the group operated 33.5 percent of 2019’s passenger capacity, measured in available seat kilometers (ASKs). That led to a 75 percent fall in passenger revenues, to €5.51 billion for 2020.

Conversely, 2020 stands as a record year for IAG’s cargo revenue as it operated additional flights to transport essential equipment and supplies. It operated some 4,000 additional cargo-driven flights and cargo revenue increased 16.9 percent year-over-year.

IAG’s full-year operating loss of €7.4 billion marked its worst result since the group formed, by merging British Airways with Iberia, in 2011. That compares with a profit of €2.6 billion in 2019. On a per-airline basis, Iberia performed relatively better than sister airlines BA, Vueling, and Aer Lingus. Gallego said Iberia felt the least effect—operating margin was negative 33.6 percent—in part owing to strong domestic traffic flows in Spain and revenue derived from diversification with MRO and handling. Barcelona-based LCC Vueling finished the year as the group’s worst performer, with a negative operating margin of 108.5 percent. Gallego attributed this dismal performance to the fact that Vueling operates a point-to-point network, that it benefits from no diversified revenue streams such as cargo, and that it mainly operates in countries worst affected by Covid and travel restrictions.