Air France-KLM Makes $27 Billion Order

Air France-KLM (EPA:AF) announced Friday that it had placed orders for 110 aircraft, including options, in a deal potentially worth $27 billion at list prices. Seeking to upgrade its long-haul fleet and reduce fuel costs, the Franco-Dutch airline has split its orders between France’s Airbus, a unit of the European Aeronautic Defence & Space Co. NV (EPA:EAD), and Boeing (NYSE:BA), both of which typically offer substantial discounts on such large orders.

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According to an Air France-KLM spokesperson, the new aircraft will allow a more than 15% reduction in fuel consumption. With the price of fuel, an airline’s single-largest expense, remaining stubbornly high, airlines are determined to keep costs under control after they saw dozens of carriers go out of business in 2008 and 2009. The purchases will be financed with cash flow generated from the airline’s own operations.

With airlines have been seeking more fuel efficient planes, Airbus has had considerable success in winning orders with its fuel-efficient version of its A320 line. The updated plane, called the A320neo for “new engine option”, helped the plane maker to a record 730 aircraft orders and commitments at the Paris Air Show this summer.

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Air France-KLM has placed orders for 25 Airbus A350-900 jets, and signed an option for 35 more. The A350-900 jets have a list price of $268 million. The airline has also ordered 25 Boeing 787-9 Dreamliners and signed an option for 25 more with a list price of $218 million each. The first Airbus 350-900 will begin operating for air France in 2018, while the first Boeing Dreamliner will begin flying for KLM in 2016. Ultimately, both airlines will use both models.

Boeing and Airbus aren’t the only ones to benefit from Air France-KLM’s huge order, as the airline has selected Rolls-Royce Holdings PLC’s (LON:RR) Trent XWB engine to power all of its A350-900s. The order is Air France-KLM’s first through Rolls-Royce.

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