IAG SA announced its biggest order yet for widebody jets, doubling down on long-haul demand with a $10 billion fleet investment that aims to help sustain its earnings momentum.
The company is buying 32 Boeing Co. 787-10 aircraft for British Airways and 21 Airbus SE A330neo planes for its Aer Lingus, Iberia or LEVEL brands. There’s a top-up option for as many as 10 additional Boeing 787s and up to 13 additional Airbus A330neos. IAG also disclosed a previous purchase of planes that it had placed in March.
IAG disclosed the accord as it reported first-quarter adjusted operating profit of €198 million ($222 million), beating the estimate of €144.9 million. Sales of €7.04 billion also beat estimates of €6.8 billion. The company maintained its outlook, saying it’s “continuing to see good demand for air travel across our core markets and for our brands.”
Bloomberg News reported on Thursday that Boeing was poised to win an order from IAG, in a deal tied to US President Donald Trump’s new trade agreement with the UK. The Boeing portion of the accord marks a political win for Trump, whose tariff barrage has shaken global markets and tested the strong outlook for transatlantic routes that have bolstered major airlines such as BA.
IAG rose as much as 1.9% to 295.9 pence. The shares have lost 3.2% this year.
The company said the new order comes on top of previous widebody deal placed a few weeks ago, which it disclosed only now. That accord includes six each of the Boeing 777-9, the Airbus A350-1000 and the smaller A350-900, bringing the new widebody commitments to 71 units.
While the Trump administration teased the deal on Thursday and tied it into a UK-US trade accord that it announced at the White House, IAG Chief Executive Officer Luis Gallego said the tender process began last year, when the company began working on what turned into its biggest aircraft order since its formation in 2011.
While British Airways receives the Boeing planes under the new US-UK trade agreement, IAG’s European units will get the Airbus jets. The European Union has said it plans to impose retaliatory tariffs on US exports if trade talks with the White House fall through.
“It’s good news that we are not going to have tariffs on Boeing products,” Gallego said on Friday during a call with analysts. “We will continue working with the government to see if we can expand this to all the supply chain.”
The airline group said that the majority of the new orders will be to replace existing aircraft, such as BA’s older 777s, while some will be used to grow in its main markets. IAG didn’t disclose a value for the deal. Based on estimates from Ishka Global, which tracks aircraft valuations, the accord has a volume of about $9.9 billion.
IAG, which has about 600 aircraft, has 240 jets in its orderbook of which two thirds are replacements of older, less efficient aircraft.
Some airlines have noticed a drop-off in passengers flying between the US and Europe since Trump imposed tariffs on dozens of countries. IAG said on Friday that it’s “being mindful of the geopolitical and macroeconomic uncertainty.” Demand for premium travel across the North Atlantic has been robust, which has mitigated some softness in economy leisure from the US, IAG said.
“On the North Atlantic, we see little cause for concern,” Alex Irving, analyst at Berstein, wrote in a note. “If demand were really weak, the company would almost certainly be highlighting this in its near-term comments on Q2.”
Air France-KLM and Deutsche Lufthansa AG both said they’re seeing a slight softness in economy cabins for flights to and from the US. Virgin Atlantic Airways, BA’s UK based rival, said it’s seeing weakness in demand from the US.
At the same time, falling oil prices have helped to protect airline profits, given fuel is one of the single biggest expenses for carriers. –BLOOMBERG
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