United CFO Sees Value In Uniform Fleet

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Published: May 9, 2012

United Airlines, which is planning a major aircraft purchase soon, can cut maintenance costs and reduce schedule disruptions by buying planes mainly from a single manufacturer, the new chief financial officer of the airline’s parent United Continental said.

United, which became the world’s largest carrier in 2010 following a merger with Continental Airlines, currently flies planes made by Boeing and Airbus.

Sources have said the airline is putting the finishing touches on an order for at least 100 Boeing 737 narrow-body jets potentially worth USD$ 10 billion at list prices. Some industry watchers had expected an order split between Boeing and Airbus.

CFO John Rainey declined to comment on the upcoming deal, saying the company always talks to both manufacturers before placing an order. But he said there are clear benefits from a fleet composed primarily of planes from one maker.

“It helps from a maintenance perspective. It helps from a scheduling perspective,” Rainey said in an interview at the company’s Chicago headquarters.

A common fleet type — featuring many similarly sized planes with identical seating capacity — cuts the chances that passengers will be displaced if the airline needs to take a plane out of service for unscheduled maintenance, he said.

An all-Boeing order would be a coup for the US plane maker as it races its European rival to amass orders for this year. Boeing trailed in the order race last year, including losing part of a high-profile American Airlines order to Airbus.

CONTROLLING CAPACITY

Rainey replaced Zane Rowe as CFO in mid-April. He said he is not an aviation “geek,” but was attracted to the airline business by the financial challenges.

“I can’t ever see myself leaving this place,” he said.

Before becoming CFO, he was senior vice president of financial planning and analysis for United. He joined Continental in 1997.

United, which splits its capacity almost evenly between domestic and international routes, plans to trim the number of seats for sale in 2012.

“What I think everyone is starting to accept is, no, that capacity is not going to be added back, because we realize how volatile fuel can be,” Rainey said.

United Continental posted a USD$ 448 million net loss for the first quarter on high fuel prices. The company said its fuel bill rose 21 percent from the year-ago quarter.

Rainey said the company also copes with volatile fuel costs with hedging, paying down debt and investing in technologies that save fuel.

He said United has no plans to follow in the footsteps of Delta Air Lines, which said last week it is buying an idled Pennsylvania refinery for USD$ 180 million, becoming the first air carrier to make such a move in a bid to gain more control over fuel costs.

Delta said the purchase would allow it to cut USD$ 300 million annually in fuel costs as it saves on the expense of refining jet fuel, which has been rising in the wake of US refinery shutdowns.

“It’s certainly a bold idea,” Rainey said.

“That said, as we look at our priorities at United Airlines, that’s not the next best use of a hundred to two hundred million dollars of cash,” he said.

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