American Airlines makes its largest aircraft purchase in over ten years

American Airlines (AAL.O) announced its most significant plane order since 2011, revealing plans to purchase 260 new aircraft from Airbus (AIR.PA), Boeing (BA.N), and Embraer (EMBR3.SA) to capitalize on the surge in demand for premium travel and bolster earnings.

The order comprises 85 Airbus A321neo jets, 85 Boeing 737 MAX 10s, and 90 Embraer E175 aircraft, with additional options and purchase rights for 193 more planes. CEO Robert Isom highlighted the resurgence in travel demand during an investor conference, signaling optimism for the industry’s recovery.

The deal marks a notable endorsement for Boeing, especially following the recent incident involving a door plug detachment from a 737 MAX plane. Notably, American Airlines’ order includes the MAX 10 variant for the first time, demonstrating confidence in Boeing’s product line despite ongoing certification concerns.

Devon May, American’s CFO, underscored the flexibility the order provides, offering alternatives to the existing Airbus A321 fleet. The first delivery of the MAX 10 is scheduled for 2028, with contingencies in place in case of delays, including options to convert orders to MAX 8 or MAX 9.

While rival United Airlines (UAL.O) explores options with Airbus amid Boeing’s challenges, May expressed confidence in Boeing’s ability to address certification issues, albeit acknowledging that it may take time.

Following the announcement, American Airlines’ shares experienced a 5.4% decline, closing at $14.81 on Monday, reflecting market uncertainties.

The new aircraft acquisition is poised to enhance American Airlines’ capacity for high-margin premium seats on domestic and short-haul international routes, aligning with industry trends driven by increased post-pandemic demand for premium travel.

Moreover, American Airlines aims to boost revenue from its co-branded credit card programs, leveraging them as a lucrative source of income through the sale of miles to third-party partners.

With expectations of a profit margin increase to 15%-18% by 2026, up from the estimated 14% for the current year, American anticipates generating a free cash flow exceeding $3 billion, signaling confidence in its growth trajectory.