Ryanair scraps Boeing 737 MAX 10 order plans

Last December, Ryanair (NASDAQ: RYAAY) given Boeing (NYSE: BA) a big boost by ordering 75 additional 737 MAX 200 jets. This made it the first airline to place a large order for the struggling family of aircraft after a nearly two-year lull, driven by the 737 MAX downtime and the COVID-19 pandemic.

Adding to the enthusiasm of Boeing shareholders, Ryanair CEO Michael O’Leary said the European airline giant hoped to place a second large order (including the 737 MAX 10) within 12 to 18 months. However, last week Ryanair announced that it had ended talks with Boeing over an upcoming 737 MAX 10 order as the two sides were unable to agree on pricing.

Ryanair teases a second order

The order placed by Ryanair at the end of 2020 brought its order book from 737 MAX to 210 units. Deliveries are scheduled until 2025, helping the airline grow its fleet from around 470 aircraft last year to 600 by summer 2025.

With this order, Ryanair has satisfied its needs for new aircraft for the coming years. But it will undoubtedly want to continue to develop and replace older aircraft after 2025. Given the low-cost airline’s clear preference for operating a fleet of 737s to simplify operations and reduce costs, the interest of Ryanair to place a follow-up order was absolutely not surprising.

Image source: Boeing.

In 2021, Ryanair continued to express interest in placing a large order for the 737 MAX 10. However, management has always stated that the order is dependent on obtaining favorable prices. More recently, O’Leary said in late August that he did not expect to finalize an order until 2022, but added that Ryanair could order up to 250 737 MAX 10 if Boeing lowers its asking price.

Stepping away from the negotiating table

On Monday, Ryanair took the unusual step of issuing a press release stating that it had ended negotiations with Boeing over a possible 737 MAX 10 order. O’Leary commented: “We are disappointed that we were unable to reach an agreement with Boeing on an order for MAX10. However, Boeing has a more optimistic view of aircraft prices than we do, and we have a disciplined history of not paying high aircraft prices. “

O’Leary noted that Boeing recently lost to Airbus on orders from Delta Airlines and Jet2.com. He felt that Boeing was underestimating the continuing impact of the pandemic on the global airline industry and that the aircraft manufacturer should be more motivated to secure additional orders. The CEO of Ryanair has indicated that he is prepared to wait many years for better prices before placing a new order.

For its part, Boeing said it values ​​Ryanair’s business but also pledged to remain disciplined when it comes to pricing. In short, the two long-time partners are at an impasse.

Boeing needs more customers

Diversifying away from the 737 family would be so costly for Ryanair that it would be impractical for the next decade. This means that the carrier will eventually have to expand its order book by 737 MAX. That said, by keeping his 737-800s longer and slowing his growth rate slightly, he could potentially delay placing a new order for several years.

Image source: Ryanair.

Ultimately, Ryanair’s ability to negotiate better prices with Boeing depends on which company despairs of a new order the earliest. For now, Ryanair seems to have the advantage.

Indeed, while Boeing recorded 524 gross 737 MAX orders in the first seven months of 2021, United Airlines and Southwest Airlines accounted for nearly 75% of these orders. Including cancellations, these two customers represent well over 100% of Boeing’s net orders since the start of the year for the 737 MAX family.

However, United and Southwest have now placed orders covering most of their aircraft needs until the end of the decade. They won’t order as many planes over the next few years as they do in 2021.

So Boeing must get other customers to start ordering more 737 MAXs – and soon. If he doesn’t, his order backlog will decline rapidly as his delivery rate accelerates over the next two years. This would practically force it to lower its prices to encourage Ryanair to order more planes. On the other hand, if Boeing can prove (via an acceleration in 737 MAX order activity) that it does not desperately need additional orders, Ryanair will eventually have to give in and accept Boeing’s asking price for the 737 MAX 10. .