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July 28, 2011

An academic's view point of American's plane purchase

We've had a couple of posts here on Sky Talk quoting industry analysts about American Airlines' large plane deal, many offering opinions within a day of the announcement.

But Bill Swelbar, an MIT researcher and who has worked in the airline industry for over 25 years, decided to take a week to digest American's news and wrote this insightful blog post, titled "Thinking About American's Contrarian Path to Transformation."

Swelbar posits that American will immediately save $236,000 per month per airplane in fuel costs versus its MD80 fleet if fuel is $3 per gallon. He also criticizes Wall Street analysts for their knee-jerk reaction that American's plane order is bad for the carrier's balance sheet.

"The point I think the Street is missing is American’s re-fleeting isn’t about six months from now or even next year. It’s about transforming a Robert Crandall vintage 1983 airline spending nary a dime," Swelbar writes. "American’s MD80 fleet has basically been around since the earth cooled. And it shows."

-Andrea Ahles


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Well it can't be bad for the "balance sheet" if we're not paying for the planes up front and the planes save us money as soon as we start flying them. If that isn't a winner of a deal I don't know what is.

John S

I've read some of Swelbar's stuff on his blog. He's a smart guy.

Despite the inaccurate "you can afford planes but not raises" line put out by the unions, it's hard to argue with a deal that has little cash outlay up front and starts saving the company money as soon as the aircraft enter service.

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