British Airways Parent Company IAG Strikes $21bn Deal for 32 Boeing and 21 Airbus Aircraft
The parent company of British Airways, International Airlines Group (IAG), has secured a $13 billion deal to purchase 32 new Boeing 787-10 planes, following a trade agreement between the UK and US that reduced tariffs on the aerospace industry.
The deal, announced just a day after the US and the UK signed a trade deal, includes an option for IAG to purchase 10 additional aircraft. This agreement is part of a broader move to modernize the British Airways fleet, enhancing its long-haul travel capabilities.
Additional Aircraft Orders from Airbus
In addition to the Boeing deal, IAG also reached a near $8 billion agreement with Airbus for 21 Airbus A330-900neo aircraft, which will serve Iberia, Aer Lingus, and other IAG subsidiaries. This deal includes an option to order up to 13 more A330-900neo aircraft, further bolstering IAG’s fleet modernization.
Trade Deal Impact
The announcement comes a day after the US agreed to lift tariffs on Rolls-Royce jet engines, which are used in both Boeing and Airbus aircraft. The tariff elimination positively impacted the share price of Rolls-Royce, which surged nearly 4% on Thursday. Despite this, IAG clarified that the Boeing aircraft would be powered by General Electric engines, meaning the deal was not affected by the tariff changes, even if the UK-US trade deal had not been finalized. The Airbus aircraft will be powered by Rolls-Royce engines.
Aircraft Pricing and Discount
IAG disclosed that the list price for each Boeing 787-10 is approximately $397 million based on current US dollar exchange rates, with the total deal valued at $12.8 billion. Meanwhile, the list price for each Airbus A330-900neo is about $374 million. However, IAG confirmed that it successfully negotiated a substantial discount on both orders, lowering the overall financial commitment.
Strategic and Financial Implications
Luis Gallego, IAG’s Chief Executive, emphasized the significance of the deal as part of the airline group’s transformation strategy. “This order marks another milestone in our strategy and transformation program and underlines our commitment to strengthening our airline brands and enhancing our customer proposition,” said Gallego.
IAG also mentioned that despite some recent softness in economy ticket sales among US holidaymakers, there has been strong demand for premium tickets such as business class, which helped offset the slowdown. IAG remains confident in the strength of air travel demand, particularly for premium cabins, despite ongoing macroeconomic challenges.
Financial Performance
In terms of financial performance, IAG reported a 9.6% rise in first-quarter revenue, reaching €7 billion (£5.9 billion). Operating profit also increased by €130 million, bringing it to €198 million.
Aarin Chiekrie, an analyst at Hargreaves Lansdown, noted that IAG shows no signs of slowing down. “Demand for its routes remains strong despite the current pressure on consumers’ incomes. Tariffs had been weighing on sentiment toward the travel sector, but with 80% of flights for the second quarter already booked, the outlook is brighter than many expected,” Chiekrie said.
IAG’s $13 billion deal for 32 Boeing 787-10 aircraft is a significant step forward in its fleet modernization efforts, ensuring that British Airways and its subsidiaries maintain a competitive edge in the global aviation market. The $8 billion Airbus deal further solidifies IAG’s commitment to enhancing its long-haul capacity, with a focus on delivering high-quality customer experiences. The UK-US trade agreement has also played a crucial role in facilitating this major investment, and IAG’s continued expansion demonstrates its resilience in the face of challenging market conditions.
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Sources: AirGuide Business airguide.info, bing.com, theguardian.com