Ryanair talks the “deal of the year”

Ryanair has opened talks with Boeing and Airbus about ordering up to 300 more aircraft in a deal that would make the low-budget carrier more than double the size of British Airways.

Ryanair has opened talks with Boeing and Airbus about ordering up to 300 more aircraft in a deal that would make the low-budget carrier more than double the size of British Airways.

Ryanair has fared better than most airlines in the recession and has managed to expand its business as passengers shun BA. The low-cost carrier aims to take 100 million customers by 2012 โ€“ three times the number flown by BA last year.

The Dublin-based airline is considering splitting its plane order into two phases, with the first order comprising 100 aircraft followed by up to 200 more later. If Ryanยญair adds another 300 aircraft to its fleet by 2016, it would have just under 600 planes in total compared with BA’s current fleet of 248. Southwest, the pioneering US low-cost airline, owns more than 500 planes.

Jim McNerney, Boeing’s chief executive, described the potential order as “the deal of the year”. Ryanair is one of Boeing’s biggest customers and in 2007 it acquired 27 Boeing 737-800s at a combined list price of $1.9bn (ยฃ1.15bn), though the airline is thought to have secured a significant discount.

Speaking ahead of the Paris Air Show, which takes place this week, McNerney said discussions had already opened with Ryanair. “I know there are some discussions. It is a very important order and it is something we would have to pay very close attention to.”

A Ryanair spokesman confirmed discussions had started on ordering aircraft that would be delivered from 2012 onwards. The airline operates about 190 Boeing aircraft, rising to 301 in 2012 when its latest order is completed.

“We are in negotiations. We are now looking at ordering 100 aircraft first because it might be more advantageous from a price point of view to stretch our requirements over two orders,” he said.

Michael O’Leary, Ryanair chief executive, has set an informal target of 150 million passengers by 2016, compared with the 67 million customers that the airline expects to carry this year. In the medium term, it aims to carry 100 million passengers by 2012 โ€“ treble the amount carried by BA last year.

However, analysts cautioned that some of the aircraft ordered from 2012 onwards could be replacement planes for older aircraft earmarked for disposal, which would leave Ryanair with a smaller fleet.

Ryanair’s aggressive expansion plans have been questioned by Sir Stelios Haji-Ioannou, the founder of its arch-rival, easyJet, who also believes that his own carrier is growing too quickly. But it could be a good time to buy.

Andrew Lobbenberg, analyst at Royal Bank of Scotland, said: “It is very smart timing because the manufacturers do not have scent of a large aircraft order or delivery at the moment. They are concentrating on stopping customers from cancelling or deferring. There is a trough in orders and mManufacturers are hungry for more customers.”

Ryanair has proved doubters wrong so far, not least over the past 12 months when it has managed to expand traffic despite a Europe-wide recession. The airline recorded its first annual loss in two decades last year, but it was dragged into the red by an ill-fated investment in its Irish rival Aer Lingus and made a profit at the operational level. Ryanair’s last pre-tax annual loss was in 1989, when it was a full-service carrier that flew 644,000 passengers per year, which is now lower than the average amount of customers it carries per week.

“They have always been ambitious and their reach has not exceeded their grasp so far,” said Douglas McNeill, analyst at Blue Oar Securities. “They are making money even now when most airlines are not. They have got a formula that seems to work. It is possible to envisage a future where there are fewer airlines so Ryanair would be gaining market share from other carriers as well as expanding the existing market.”

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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