Air France-KLM mulls splitting huge order for narrow-body jets

Air France-KLM is deep in negotiations with Airbus, Boeing and engine makers vying for a huge jet order and could split the narrow-body purchase between suppliers, CEO Ben Smith says. 

The deal will include at least 80 firm orders and 60 to 80 options, with a decision coming soon, Smith said at an event on Wednesday in Paris.

Air France-KLM said in July that it was seeking 160 single-aisle jets for the Transavia discount division and European operations at Dutch arm KLM. The contest pits Boeing’s 737 Max against the Airbus A320neo series.

“We are hoping to make a decision in the next months,” Smith said. 

The CEO is renovating the debt-laden carrier’s fleet even as the coronavirus pandemic is still depressing travel demand. With airlines under pressure to improve fuel efficiency and lower carbon emissions, Smith said he will also try to simplify more of the fleet, with ageing Airbus A330s and A320/321 single-aisles at Air France coming up for replacement over the next few years. The company is still weighing options to shore up its balance sheet, he said. 

The narrow-body contest would appear to favour Boeing, since KLM and Transavia both use its 737 single-aisle family, and it is more expensive to train, maintain and operate a mixed fleet. Transavia, in particular, is key to Air France-KLM’s push to compete with Ryanair and Wizz Air.

However, some analysts have suggested Airbus may have an edge, given the French state’s role as a top shareholder in both the airline and the Toulouse-based aircraftmaker. Air France-KLM owes its survival to successive bailouts from the French and Dutch governments that have left it with a heavy debt burden.

A split order is one potential outcome, Smith said. 

“It’s not necessary to have one supplier,” he said. “With an order of a minimum of 80 planes, this gives us the possibility to have this option if it makes sense.”

Talks with engine-makers CFM International and Pratt & Whitney will also play an important role. 

“We’ll put all this together to make a decision,” Smith said. “What’s important for the French state is that Air France makes a good choice and is in a strong position going out of this crisis.”

Paris ceremony

The carrier group could bump its existing commitment to Airbus’s smallest passenger jet, the A220, to as many as 120, Smith said.

He was speaking a ceremony in Paris for the delivery of the first of the regional model that is part of a 60-aircraft order. Air France has options for 30 more A220s and purchase rights for 30 beyond that, and has called for Airbus to make a stretched version.

The airline is still interested, and a higher-capacity A220 could factor into the A320 and A321 replacement plans coming later, he said. 

The lightweight, carbon fibre-winged aircraft lower fuel costs and carbon emissions by about one-fifth vs an A320, Smith said. Air France will take about a dozen A220s a year, including six more in 2021 and 15 in 2022. 

They will be used on regional European routes, starting with Berlin in October, followed by cities including Madrid and Venice, Smith said from the event, held at a hangar at Paris-Charles De Gaulle Airport that was built to house the outgoing A380 superjumbo, Airbus’s largest aircraft.

“It’s very chic,” Air France unit CEO Anne Rigail said at the event. The airline has configured the A220 with 148 seats — fewer than on a typical A320 or Boeing 737 Max — including business class. 

Bloomberg News. More stories like this are available on bloomberg.com