Ryanair’s Ambitious Plan to Purchase 400 Aircraft

The Irish low-cost air carrier, Ryanair, plans to expand its fleet of short-haul aircraft substantially over the next few years despite a worldwide economic downturn, an intense credit crunch, and the ever-present risk of increased fuel prices.  Their current fleet of 181 planes will grow to a much larger stable of approximately 581 planes by 2012 if this extremely ambitious purchase plan is realized.  Ryanair’s longtime and exclusive supplier Boeing, which provided the current fleet of 181 Model 737-800 aircraft, has been pitted against arch-rival Airbus for “one of the biggest orders ever placed by a carrier anywhere in the world” (Jones, 2009).

Despite numerous negative economic crosscurrents that currently exist, Ryanair chief executive Michael O’Leary has grand visions of expansion for his budget airline.  In his mind, this current worldwide economic crisis must present a golden opportunity for bargain-priced planes similar to the opportunity he seized shortly after the 9/11 attacks of 2001.  Following that watershed catastrophe and its widespread and severe economic effects, “Mr. O’Leary struck a bargain with aircraft manufacturers facing a dearth of orders” (Arnott, 2008).

A potential order for 400 planes should command intense interest from the world’s two largest passenger aircraft manufacturers, Boeing and Airbus.  And, a legitimate and feasible commitment to buy those aircraft should give Ryanair tremendous negotiation leverage.  The two principal manufacturers have battled each other this entire decade, and have received orders for approximately the same number of planes over that time p.  Following the 9/11 attacks, yearly orders for each manufacturer averaged approximately 300 planes for the years 2002 through 2004 (Centre for Aviation, 2009).  That economic valley should have many similarities for the air travel industry and its struggles given the current worldwide economic malaise.  Therefore, a commitment for 400 planes from a single carrier in 2009 presents a tremendous sales opportunity for Boeing and Airbus.

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However, this opportunity for a huge aircraft order presents economic benefits coupled with significant risks for the three parties involved.  It will be incumbent upon the carrier and the two competing suppliers to negotiate fiercely and wisely.  Ryanair can exert significant pressure on its former exclusive supplier, Boeing.  The carrier’s Chief Executive O’Leary laid down the gauntlet when he stated, “We’ve been trying to talk to Boeing about orders beyond 2012 but their prices are too high” (Arnott, 2008).  The last thing that any manufacturer wants is to lose a major order from a current customer to their archrival.  Boeing’s desire to maintain their relationship with Ryanair, coupled with the uncertainties of future aircraft demand in a difficult economy, should give the carrier tremendous leverage over Boeing.  And, it’s safe to presume that Airbus would like nothing better than to take this very substantial order from their rival.

Both manufacturers should do a very thorough assessment of the feasibility of this huge order that will take Ryanair’s fleet from 181 planes to 581 planes.  The carrier’s financial standing, current and future, must be evaluated extremely rigorously to determine if they will be able to make this major expenditure.  Penalties for cancelled or deferred orders should be negotiated by the manufacturer into the purchase contract.  And, the manufacturers could also provide incentives to Ryanair for taking delivery of planes on time and paying on time.

Assuming their finances and their growth will allow Ryanair to complete this large order, they should have the upper hand in the negotiations with Boeing and Airbus.  The price of the aircraft, delivery arrangements that give them priority over other carriers, wing design options that enhance fuel efficiency, and volume discounts should all be viable negotiating factors.

References

1. Arnott, S. (2008, August 8). Ryanair plans a major aircraft order. Businessweek.com.
2. (2009, January 9). Boeing and Airbus face cancellations. Centreforaviation.com.
3. Jones, D. (2009, February 4). Ryanair plans a spending spree as credit crunch bites. Liverpooldailypost.co.uk.

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