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Air Canada inks deal with Boeing

Fresh out of bankruptcy, Air Canada will spend at least US$6 billion to burnish its image and operations by purchasing new Boeing aircraft that are more modern and fuel efficient than its current planes.

The agreement includes firm orders for 18 777s and 14 787s -- Boeing's newest jet, the Dreamliner. Air Canada, which emerged from bankruptcy protection in October, has options and purchase rights for 46 more 787s and 18 more 777s.

Robert Milton, chairman and CEO of ACE Aviation Holdings, the Montreal-based parent company of Air Canada, said the new fleet would save the company hundreds of millions of dollars by lowering its fuel costs and eliminating the need to upgrade its current wide-bodies, which are more than 20 years old, on average.

"I am confident no one has ever done better on a deal," said Milton, who intends to dedicate the aircraft primarily to flights between Canada and various destinations in Asia, including Beijing, Shanghai and New Delhi.

Milton said the company also plans to boost its international cargo service, eliminating costly stopovers in Alaska.

Boeing Co valued the firm orders at about US$6 billion at list prices and said it would be the largest deal so far for its new Dreamliner model, assuming Air Canada buys all 60.

The 787 Dreamliner, which seats between 217 and 289 passengers, is scheduled to debut in 2008.

Air Canada said the bulk of the financing would be guaranteed by the Export-Import Bank of the US, in Canadian dollars. The airliner also recently secured US$642 million in US financing and officials said they had negotiated a "progressive payment schedule" so that Air Canada would not be forced to put all the cash for the deal up front.

Milton said that the plan for expanding in Asian and European markets is estimated to bring in an additional US$300 million of improved annual profitability by 2010. And he said the company would save US$5 million per aircraft on upgrades once designated for the older jets.

Air Canada did not say why it opted for the Boeing rather than rival Airbus for its investor-demanded fleet renewal. Milton noted that Air Canada would continue to use the Airbus for its narrow-body fleet and that the company has one of the world's largest Airbus fleets.

He praised the sleek design and fuel efficiency of the two-engine Boeing models.

Deliveries of the new planes will begin in 2007 and extend through 2009.
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