March 22, 2018 / 5:47 PM / in 5 months

Boeing loyalist Ryanair to fly first Airbus with Austria deal

DUBLIN/BERLIN (Reuters) - Ryanair’s plan to buy Laudamotion will add Airbus planes to the Irish low-cost carrier’s fleet for the first time and could herald an improvement in relations with the European planemaker.

FILE PHOTO: A Laudamotion Airbus A320 plane is seen at the airport in Vienna, Austria, March 20, 2018. REUTERS/Leonhard Foeger/File Photo

The acquisition by one of the world’s biggest airlines, which now operates 430 Boeing 737s, marks an unusual step in the low-cost business, where carriers tend to stick to a single aircraft type to keep costs down and operations simple.

The move to buy 75 percent of Vienna-based Laudamotion could also signal a shift to form a multi-airline group in the low-cost business, mirroring traditional operators such as IAG and Lufthansa that each run several carriers.

But Chief Executive Michael O’Leary is starting small with Airbus, although he said he had harboured aspirations to develop an Airbus fleet at Ryanair for “some years”.

The Laudamotion deal gives Ryanair 15 Airbus A320, with plans to double that in three years. By comparison, Ryanair aims to have 570 Boeing 737s in five years, ensuring it stays one of the biggest clients for the Seattle-based firm even as it forms a new link with the European manufacturer.

“This obviously gives them more bargaining power,” said Mark Simpson, an analyst at broker Goodbody, which has a “buy” rating for Ryanair. “If they are going to 600 aircraft, do you have 400 Boeing and 200 Airbus? It gives them flexibility.”

To keep costs down, Ryanair could choose to operate either Boeing or Airbus out of each base but not mix them, he said.

Ryanair’s ties with Airbus have been strained over the years. Former Airbus sales chief John Leahy, who retired at the end of 2017, was furious at O’Leary for giving the impression he was about to sign a deal for 100 aircraft in 2002 before squeezing a better deal from Boeing.

O’Leary has always declined to comment on the issue.

But the departure of Leahy, who refused to pitch to O’Leary for a big 200-plane order in 2009, might change the dynamics.

“Airbus never wanted to play ball with Ryanair, but it could be a new start with changes to the Airbus sales team and top management,” aviation consultant John Strickland said.

FILE PHOTO: Ryanair CEO Michael O'Leary holds a news conference in Brussels, Belgium, March 6, 2018. REUTERS/Yves Herman/File Photo

“VALUED CUSTOMER”

Ryanair has ordered 40 737s and 200 737 Max aircraft, part of plans to carry 200 million passengers a year by 2024.

A Boeing spokesman did not comment on O’Leary’s remark that he had long aspired to an Airbus fleet, saying: “We look forward to continuing to meet the requirements of a valued customer.”

O’Leary, who has donned a Seattle Seahawks American football shirt and delivered rousing speeches to Boeing workers, is credited for saving hundreds of jobs at the U.S. planemaker when he put in the order for 100 aircraft in 2002.

Airbus may yet balk at trying to win O’Leary into a big order, in a bid to avoid a price war that might anger its own top buyers, like easyJet, if they believed a rival low-cost carrier was securing a better deal for aircraft.

But the growing size and clout of low-cost carriers means Ryanair is not alone in building bridges beyond traditional suppliers. Industry sources say a top easyJet executive was the guest speaker at a recent internal Boeing event.

“It’s not about today, but it is about keeping networks intact,” one industry official told Reuters.

Building broader relationships in the industry would make sense if Ryanair or easyJet ever moved to add wide-body jets to their fleet. Ryanair has previously said it would launch long-haul routes if it secured the right aircraft at the right price.

O’Leary said on Tuesday that Laudamotion would operate as a separate entity in the Ryanair group, a move he also proposed when trying to acquire former Irish flag carrier Aer Lingus, another Airbus operator. The airline eventually went to IAG.

An investment banker who has advised Ryanair and IAG at different times said he expected O’Leary to build up a group of several airlines, starting with Ryanair, Laudamotion and Ryanair Sun, which is a charter carrier based in Poland with five planes.

“You create a group of airlines to compete with each other intensely - a kind of an IAG for low-cost carriers,” he said.

Ryanair is not alone in facing more complexity with an acquisition. All-Boeing operator Alaska Airlines bought Airbus operator Virgin America in 2016 for $2.6 billion (£1.8 billion).

Still, some industry experts expect Alaska to switch back to Boeing, albeit when the Virgin America leases for Airbus planes expire in about 2022-2024. Similarly, they say O’Leary is unlikely to shift to Airbus with a big deal soon.

“But it serves as a reminder to Boeing,” Strickland said, “never to become complacent.”

Reporting by Conor Humphries, Victoria Bryan and Tim Hepher; Editing by Edmund Blair

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