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United Air CFO sees value in uniform fleet

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05/09/2012 | 02:02am CET

United Airlines, which is planning a major aircraft purchase soon, can cut maintenance costs and reduce schedule disruptions by buying planes mainly from a single manufacturer, the new chief financial officer of the airline's parent United Continental Holdings Inc (>> United Continental Holdings, Inc.) said on Tuesday.

United Airlines, which is planning a major aircraft purchase soon, can cut maintenance costs and reduce schedule disruptions by buying planes mainly from a single manufacturer, the new chief financial officer of the airline's parent United Continental Holdings Inc (>> United Continental Holdings, Inc.) said on Tuesday.

United, which became the world's largest carrier in 2010 following a merger with Continental Airlines, currently flies planes made by Boeing Co (>> The Boeing Company) and Airbus (>> EADS).

Sources have told Reuters the airline is putting the finishing touches on an order for at least 100 Boeing 737 narrowbody jets potentially worth $10 billion at list prices. Some industry watchers had expected an order split between Boeing and Airbus.

CFO John Rainey declined to comment on the upcoming deal, saying the company always talks to both manufacturers before placing an order. But he said there are clear benefits from a fleet composed primarily of planes from one maker.

"It helps from a maintenance perspective. It helps from a scheduling perspective," Rainey told Reuters in an interview at the company's downtown Chicago headquarters.

A common fleet type -- featuring many similarly sized airplanes with identical seating capacity -- cuts the chances that passengers will be displaced if the airline needs to take a plane out of service for unscheduled maintenance, he said.

An all-Boeing order would be a coup for the U.S. plane-maker as it races its European rival to amass orders for airplanes this year. Boeing trailed in the order race last year, even losing part of a high-profile American Airlines order to Airbus.

CONTROLLING CAPACITY

Rainey, an avid runner and biker, replaced Zane Rowe as company CFO in mid-April. He said he is not an aviation "geek," but was attracted to the airline business by the financial challenges.

"I can't ever see myself leaving this place," he said.

Before becoming CFO, he was senior vice president of financial planning and analysis for United. The Texas native, who has bachelor's and master's degrees in business administration from Baylor University, joined Continental in 1997.

Rainey said the key to managing the industry's challenges is controlling capacity and matching the right sized plane to demand.

The airline industry has been battered in the last decade by soaring fuel costs and economic turmoil that has drained travel demand. Carriers fought back in 2008, slashing capacity on unprofitable routes. As a result, carriers fly fuller planes and can charge more for tickets.

United, which splits its capacity almost evenly between domestic and international routes, plans to trim the number of seats for sale in 2012.

"What I think everyone is starting to accept is, no, that capacity is not going to be added back, because we realize how volatile fuel can be," Rainey said.

United Continental posted a $448 million net loss for the first quarter on high fuel prices. The company said its fuel bill rose 21 percent from the year-ago quarter.

Rainey said the company also copes with volatile fuel costs with hedging, paying down debt and investing in technologies that save fuel.

He said United has no plans to follow in the footsteps of Delta Air Lines (>> Delta Air Lines, Inc.), which said last week it is buying an idled Pennsylvania refinery for $180 million, becoming the first air carrier to make such a move in a bid to gain more control over fuel costs.

Delta said the purchase would allow it to cut $300 million annually in fuel costs as it saves on the expense of refining a barrel of jet fuel, which has been rising in the wake of U.S. refinery shutdowns.

"It's certainly a bold idea," Rainey said.

"That said, as we look at our priorities at United Airlines, that's not the next best use of a hundred to two hundred million dollars of cash," he said.

(Reporting by Kyle Peterson; Editing by Patricia Kranz and Carol Bishopric)

By Kyle Peterson

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Financials ($)
Sales 2016 40 104 M
EBIT 2016 5 887 M
Net income 2016 2 983 M
Debt 2016 19 892 M
Yield 2016 0,85%
P/E ratio 2016 9,04
P/E ratio 2017 10,60
EV / Sales 2016 1,12x
EV / Sales 2017 1,13x
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NameTitle
William Douglas Parker Chairman & Chief Executive Officer
Robert D. Isom President
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