Ryanair's expansion plans on ice as Boeing talks fail

Published on Friday 18 December 2009 21:25

NO-FRILLS airline Ryanair yesterday said it had terminated talks with Boeing over a multi-billion-dollar order for up to 200 aircraft in a striking sign of retrenchment in the downturn afflicting the industry.

The decision will result in a radical shift in strategy by Michael O'Leary's Irish airline, which revealed it had no plans to open discussions with other aircraft manufacturers.

Ryanair instead said it now aimed to cut capacity growth from 2011 and return surplus cash to shareholders between 2012 and 2015.

O'Leary, Ryanair's chief executive, said: "We regret that our prolonged negotiations with Boeing have failed to reach a mutually acceptable conclusion.

"While we reached agreement with Boeing on pricing for 200 aircraft deliveries during the 2013-16 period, Boeing were unwilling to incorporate some other terms and conditions from our existing agreement into this new order."

The airline said the breakdown of negotiations would not alter its plans for receiving 112 Boeing aircraft from 2010 to 2012.

Ryanair had already said a deal on ordering B737-800 aircraft for 2013-16 delivery was unlikely because the US planemaker wanted to change delivery conditions.

O'Leary said: "Ryanair has made clear to Boeing that we will not order aircraft if we believe that either the pricing or the other contractual terms and conditions will be inferior to those which we currently enjoy."

The budget airline has thrived on business and leisure customers trading down in the recession, and O'Leary previously expressed interest in launching a long-haul airline, although it was thought it would be likely to be separate from Ryanair.

The budget carrier has a track record of achieving attractive deals with manufacturers, most notably in 2001 when it bought new planes from Boeing at a time of industry turmoil following the 11 September terrorist attacks.

"We have no plans to reopen discussions with Boeing or any other aircraft manufacturers," O'Leary said.

"Instead, we will focus our efforts on maintaining Ryanair's strong traffic and new route growth into 2010".

On the probable alternative capital returns to shareholders, O'Leary said: "I believe it is appropriate to return these surplus funds to shareholders, if we cannot use them to purchase aircraft on terms which enable us to meet our demanding return on capital targets.

"In the meantime we will continue to work with our partners in Boeing on the 48 deliveries which Ryanair is scheduled to take in 2010 and perhaps in future there may be other opportunities for Ryanair and Boeing to work together to our mutual benefit during the period from 2013 onwards."

Analysts said the airline would fail to meet its long-term earnings target if growth slowed or ended after 2012, forcing it to eventually increase average fares.

"Given the already low cost base, further significant unit cost savings will be difficult to deliver," Arbuthnot said in a note.