.British Airways told staff it could close its London Gatwick base, raising questions about the 200 Boeing 737 MAX aircraft that the airline’s parent, IAG, signed a letter of intent to buy.
Gatwick was due to receive the first part of the MAX aircraft from IAG’s LOI placed last summer and still valid as of February, the group said.
Unlike airlines now deferring aircraft deliveries, IAG’s MAX aircraft are not due in the immediate future. IAG requested delivery slots between 2023-2027. That could see the MAX arrive after IAG expects markets to finally rebound from the coronavirus downturn.
IAG previously expected its airlines to need 215 narrowbody aircraft between 2023-2029.
The plan included flexibility as 62 of the deliveries would allow IAG to accelerate retirement of medium-life aircraft it did not necessarily need to withdraw. The capital expense of newer aircraft had to be weighed against the unit cost and environmental advantages.
Under the LOI for 200 MAX aircraft, the first batch were allocated to British Airways at London Gatwick. They cannot be transferred to British Airways’ larger base at Heathrow, which requires baggage be loaded via containers.
Baggage has to be loaded individually onto the 737 MAX, unlike the A320 that can accept containers. British Airways uses the A320 family at Heathrow.
IAG also provisionally allocated MAX aircraft to Vueling and said the group could deploy MAX aircraft to its other airlines. IAG did not disclose the exact number for Vueling or British Airways. But it is unclear if other IAG carriers could absorb the Gatwick-bound aircraft.
“We suspended our Gatwick flying schedule at the start of April and there is no certainty as to when or if these services can or will return,” said an internal British Airways memo and reported by local media.
British Airways publicly announced it was seeking “up to 12,000” job redundancies. Actual redundancies could be fewer depending on negotiations with unions, which British Airways said it was starting.
All 12,000 reductions would impact over a quarter of its workforce. Having even half of the 12,000 reductions would still leave British Airways with its smallest workforce in over 30 years.
British Airways operates around 140 A320 family aircraft and 22% of its A320 pilots are based at Gatwick, according to a separate recent memo from management to pilots. That suggests around 31 A320 aircraft are based at Gatwick.
The same post-coronavirus economic outlook that impacts the Gatwick base could also affect other IAG units and see them taper new aircraft delivery plans.
There are various fleet scenarios within IAG before considering greater complexity from Air Europa.
After IAG’s LOI for the MAX aircraft, it announced plans to purchase Air Europa. The Spanish carrier was due to receive 25 737 MAX aircraft from 2020 to 2025.
Or the LOI could lapse, but it may be too good to pass up.
Financial terms of IAG’s LOI with Boeing are not disclosed, but it is widely expected IAG received higher than normal discounts and flexibility. IAG was the first blue-chip customer to do a deal for the MAX after the type’s grounding in March 2019.
Boeing also won over IAG, which earlier replaced 737 classics with A320s and not 737 NGs. Airframers especially prize “flipping” customers from a competitor supplier.
IAG also saw value in ending sole sourcing of short-haul aircraft from Airbus.
“One of the key factors for us in the 737 MAX is not only getting a good price, but it is also making sure that the supply is being competed over both Airbus and Boeing,” IAG CFO Steve Gunning said last November. “In a world where you have a duopoly and you convert it into a monopoly because you do not deal with both [Airbus and Boeing] on the short-haul aircraft, that does not seem strategically to make sense.”
IAG will eventually need new aircraft. The question is if IAG wants to spend capital in the medium-term on a good deal. Consumer advice may hold. A sale is not a sale unless you wanted the item in the first place.