Boeing nears Max deal with Ryanair in win for embattled jet

Ryanair Holdings Plc is near an agreement to order more Boeing Co. 737 Max aircraft, giving the U.S. planemaker a shot in the arm as the single-aisle jet comes off an unprecedented 20-month grounding.

An announcement could come as early as Thursday, according to the people, who asked not to be named before a deal is finalized. Ryanair, Europe’s biggest discount airline, has 135 Max jets on order and options to bring the total to 200 or more.

A significant purchase from a marquee customer like Ryanair would bolster confidence in the Max, and help replenish a Boeing backlog that’s been depleted since the start of the Covid-19 crisis. The jet’s prolonged grounding deepened the impact of the air-travel slump on the U.S. planemaker by giving cash-strapped airlines and leasing firms negotiating leverage to cancel orders rather than just defer them.

“A Ryanair order would be a great sign—an outstanding sign, really,” said George Ferguson, an analyst with Bloomberg Intelligence. He added that Ryanair Chief Executive Officer Michael O’Leary “will get a significant discount.”

Beyond the bargain pricing, an added Max order would position Ryanair to expand in coming years as passenger traffic returns and financially weaker competitors nurse their balance sheets back to health. O’Leary has called the Max a game-changer that will allow the airline to add capacity while reducing fuel burn.

Worldwide Grounding

The Max was grounded worldwide in March 2019, after two fatal crashes that killed a total of 346 people. It was cleared to fly again by the Federal Aviation Administration last month, and European regulators expect to allow the plane to fly in the region by mid-January.

“The key question will be if the company plans to accelerate its near-term deliveries beyond 40-50 aircraft per year,” said Daniel Roeska, an analyst with Sanford C. Bernstein, said of Ryanair. He expects the a top-up of the Irish carrier’s order, combined with a renegotiation of the existing terms.

Ryanair operates a fleet of all-Boeing jets and has said it’s in talks for a follow-on order. The Irish carrier declined to comment on what it called speculation. Chicago-based Boeing declined to comment.

Ryanair shares were up less than 1% as of 4:30 p.m. in Dublin. They have gained 8% this year—one of the few airline stocks to see an increase. Boeing advanced 2.5% in New York. The stock has lost 33% this year, in the worst performance on the Dow Jones Industrial Average.

Narrow-Body Race

It’s significant for Boeing that both Ryanair and U.S. discounter Southwest Airlines Co. stood by the model despite the bruising grounding, Ferguson said. “It’s a great thing when core customers come back for more of a product.”

Boeing lost hundreds of orders for the Max this year, ceding ground to European rival Airbus SE after the coronavirus pandemic wrecked airline balance sheets.

While both planemakers have been in intense negotiations with their customers, the U.S. manufacturer has had to contend with the added burden of resolving compensation claims for deliveries that were postponed due to the idling of the Max.

The Max’s lengthy grounding has allowed customers to walk away from contracts after delivery was delayed for more than a year. The company has also been searching to find new homes for about 100 white tails—jets built during the hiatus and later abandoned by buyers.

There have been a handful of small orders for the Max since its grounding, and a letter of intent for 200 planes by IAG SA that was reached last year, before the virus hit. It hasn’t been finalized.

Order Book

The Max has likely fallen behind Airbus’s A320neo model for good, said Nick Cunningham, an analyst with Agency Partners in London.

“New Max production has to compete with more than 800 Maxes in inventory or at the airlines but grounded, which will all come back into service over the next few years,” Cunningham said. “It’s very unlikely that Max will ever catch up.”

Ryanair first ordered the Max in 2014, and currently has orders for 135 of a specialized version of the plane that can carry more passengers than the standard Max 8.

O’Leary has been a vocal supporter of Boeing’s best-selling jet during the crisis, and has previously said the airline would look to buy more of the model. He said last month that Ryanair plans to take delivery of 30 737 Max 200 jets by next summer, plus a further 60 planes for the peak season in 2022.

While the coronavirus pandemic has decimated travel, and carriers including Ryanair have slashed capacity, O’Leary expects the availability of a vaccine will help melt away travel restrictions that would allow traffic to return to near-normal levels by summer—and possibly by Easter, which falls in early April.