If it seems like aircraft buyers, whether airlines or leasing firms, are placing bigger orders than ever, you’re probably right. Boeing Co. (NYSE: BA) recently firmed up a $27 billion order for 175 of its 737 single-aisle planes and Airbus signed a memorandum of understanding for 430 passenger jets with private equity firm Indigo Partners valued at nearly $50 billion.
Those deal values are given at list prices, and neither of the orders will be for amounts anywhere near that. Boeing and Airbus typically discount sales anywhere from 30% to 40%, but orders of these sizes are likely going to close at discounts of 50% to 60% of list price.
Retiring Airbus sales chief John Leahy told The Wall Street Journal that airlines have simply gotten better at negotiating. He also added that this is “frustrating to any supplier.”
The Airbus order from Indigo Partners, for example, cobbled together a group of four midsize carriers and the private equity firm convinced them to make a joint purchase of roughly identical airplanes in order to get both a better price and a faster delivery schedule. Most important, perhaps, was convincing the carrier to walk away if Airbus would not meet their price and place the order with Boeing.
Why did Airbus take the order? Certainty. The company’s assembly line will continue to run at full blast for 10 more years and that lowers production costs and boosts cash flow. Leahy told The Wall Street Journal, “Those airlines got a good deal but so did Airbus.”
The art of the deal, it appears, is not about bullying but about negotiating a transaction that results in a win for both sides. Funny how that works.
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