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. Last Updated: 07/27/2016

EasyJet, Airbus Deal a Major Blow to Boeing

LONDON -- Europe's largest no-frills airline easyJet PLC said Monday it had chosen Europe's Airbus SAS instead of current supplier Boeing for a multibillion-dollar order to supply up to 240 planes.

The deal, a big blow to Boeing, breaks open the European low-cost airlines market to Airbus for the first time, although some industry insiders worried that the costs of integrating the new Airbus planes with easyJet's garish orange fleet of Boeing 737s could hurt the airline's performance.

Low-cost airlines, which have enjoyed rapid growth in Europe, usually choose to operate a single type or family of aircraft to reduce the costs of maintenance and pilot training.

EasyJet and its newly acquired former rival Go-Fly Ltd. both operate Boeing 737s, with a combined fleet of 64 aircraft, as does its biggest European rival Ryanair and most other budget airlines.

But easyJet said it investigated the economics of running two types of aircraft and eventually decided that the benefits of the discounted deal outweighed the challenges of having to integrate the new planes into the fleet.

EasyJet named French-based Airbus, a unit of European aerospace firm EADS, as preferred supplier for 120 A319 aircraft with options for another 120 -- the biggest order this year.

The two sides have 45 days to agree on a contract.

The deal, excluding options, would be worth roughly $6.2 billion based on catalogue prices. But Airbus will have offered significant discounts in order to win its first order from the airline.

The news is a shot in the arm for European planemaking. The industry has been slashing jobs and scaling back production to cope with a slump in demand for air travel.

"This is a stunning deal. I don't think this type of deal has been done before," easyJet chief executive Ray Webster said.

EasyJet declined to give any financial details of the deal, but Webster said in a CNBC interview that the company paid about 30 percent less than it would have several years ago.

"I would estimate Airbus is offering 40 to 45 percent discounts on the planes," an analyst said.

Airbus was understood to be offering more price concessions to break Boeing's dominance and was willing to cover the cost of spares, training and other charges associated with operating a mixed-type fleet.

The combination of the Sept. 11-related fall-off in air travel, problems in the airline industry overall and the dearth of aircraft buyers put easyJet in the driver's seat during the negotiations, the analyst said.

Airbus has been trying to break Boeing's stranglehold on the European no-frills market, raising the prospect of big discounts on aircraft prices. Airbus has cracked the U.S. budget market, with its A320 being used by JetBlue Airways Corp.

EasyJet will introduce the first Airbus planes in Switzerland from August 2003 to ensure a smooth transition into the fleet, Webster said.

The deal comes amid reports that Boeing is expected to ratchet down jet production through at least 2004, a year longer than originally anticipated.

Boeing Co. has shied away from predicting how many deliveries it will make in 2004, but in recent weeks senior executives have hinted that, at best, deliveries of new planes will remain flat with the level of 2003, The Wall Street Journal reported in its online edition Monday.