Another neo conversion

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Last week we saw a conversion from the A319neo to the A320neo by Avianca.  Today comes news that EasyJet is also doing a conversion; it is converting 30 A320neos to the larger A321neo.  This means a switch from 186 seats to 235 seats.  Vertical Research notes the arrangement with Airbus means the agreement will be cash neutral, so it appears EasyJet has exercised deferral rights as part of the deal.  EasyJet is exercising 33 options and two purchase rights for A320ceos under its existing Airbus contract. These 35 aircraft are to be delivered between 2015 and 2017 and leaves the airline with a six options and 29 purchase rights under that contract.

EasyJet also agreed on a new Airbus contract for 100 A320neos for delivery between 2017 and 2022 plus 100 purchase rights for any A320neo family aircraft, through 2025. The deal states A320neo family so can be converted to the A319neo or A321neo.

The airline has selected the CFM LEAP engine.  It also noted the switch to the A321neo means a saving of ~9% per seat over the A320ceo and ~12% below the A319ceo.

EasyJet CEO Carolyn McCall told Bloomberg the deal will help EasyJet exploit opportunities presented by a bankruptcy filing at Alitalia, the break up of Air Berlin and growth curbs at Norwegian Air Shuttle and IAG’s Vueling.  Readers will note these are all EU airlines. Given Brexit, UK-based EasyJet is working hard to secure an EU-AOC.  Word is the airline should announce its new EU-based AOC after the summer.  The airline is also looking for 450 more pilots.

The deal announced today comes after an 18-month study. The study looked at three OEMs plus both engine makers.  An intriguing aspect of the study was considering the C Series. EasyJet decided the C Series is too small for its 180-seater requirement (A320).  EasyJet will reconsider the C Series for its a 150-seater (A319) replacement from 2021 onwards. CFO Chris Kennedy noted that the CSeries “looks like a very good aircraft. It’s a new airframe so it does give substantial cost savings over and above the offers from Airbus and Boeing. There will always be a need for a smaller aircraft we think in the fleet, but it’s not until much later. It was just too difficult actually to come to a commercial arrangement when your first delivery is going to be ten years from now.”

This decision provides interesting guidance.  First, Bombardier is in the race, even with LCCs, and is considered a realistic option.  Second, the C Series is seen as offering cost savings over Airbus and Boeing aircraft.  Third, the need for an aircraft with lower seating than the A320 or 737 is needed – but Airbus and Boeing are not really in that segment anymore.  Fourth, probably much to Bombardier’s annoyance, the 180-seat consideration is going to relight talk about a potential CS500.

© 2017, Addison Schonland. All rights reserved.

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