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UAL Corp. (UAUA)
UAL Corp.'s United Airlines Looking to Purchase 150 New Jets
This morning, UAL Corp., parent company of United Airlines, made one announcement that was along the same lines as the recent announcements made by many of the other major airlines, including AMR. Corp's (AMR: Charts, News, Offers) American Airlines and JetBlue Airways Corp (JBLU: Charts, News, Offers). However, United Airlines has drawn additional focus due to their other announcement, one that no one was expecting. On the surface, the two announcements appear almost clashing, so when all is said and done, why are United Airlines' investors excited about what's to come?
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Along with the retail reports of same store sales, many airlines this morning were reporting their monthly traffic figures for May. And as expected, airline traffic is continuing to fall. United Airlines reported a 12% drop in traffic, and passenger figures only reaching 80% capacity. American Airlines traffic fell almost 12% as well, while Southwest Airlines (LUV: Charts, News, Offers) traffic fell less than 4%. These losses were expected, and most airline companies have been taking measures to counteract this.
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But in a move that seems to contradict, rather than counteract, United Airlines other big announcement, which was announced in the Wall Street Journal this morning, was that they are seeking to purchase up to 150 new jets. The airline company has contacted both Boeing (BA: Charts, News, Offers) and Airbus to come up with a bid, which may be valued at up to $10 billion. This move is in opposition to many other companies, who have been refusing to make purchases during this difficult time.
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However, United Airlines has some reasons for moving forward with such a large purchase. First of all, tough economic conditions often make it a buyer's market. United Airlines is surely capitalizing on this, in order to try and work out a deal that is heavily in their favor. Both Boeing and Airbus have been struggling to receive any business, and both will likely compete hard against each other to receive United's business, which United Airlines hopes will result in the best deal for them.
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United's plan hopes to bring in as many as 150 new aircraft, which will be used mostly to replace a portion of its existing 400 craft fleet, which is currently comprised of both Boeing and Airbus jets. The age of their fleet is slightly older than the U.S. average, at 13 years, versus the average of 11 years. Unlike many other companies, United has held off from purchasing new crafts recently, and is hoping that this move pays off for them. United hasn't purchased any aircraft since 2001, and even then, they were only purchasing 2 jets. United appears to be in a good position to make this deal go through, and if one of the manufacturers proposes a good deal, and if United is able to justify and arrange the financial details, this could be a win-win situation for all parties involved.
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