Boeing's tentative deal to sell up to 200 737 Max jets to Europe's International Air Group came with steep discounts — 60 percent or more off the estimated $24 billion list price, aerospace analysts said.
The Chicago-based jet maker surprised the aerospace world at the Paris Air Show last week with the commitment from IAG, owner of British Airways, Ireland's Aer Lingus and Iberia of Spain. The deal was unexpected because IAG airlines operate mostly Airbus single-aisle jets.
Though airlines and jet makers rarely discuss them, big airlines often secure discounts of up to 50 percent of the list price on orders from companies like Boeing and its French-German rival Airbus.
"We suspect the order was done at a deep discount to list price, but likely validates the aircraft over the long-term," Cowen and Company airline analyst Helane Becker told clients.
IAG Chief Financial Officer Enrique Dupuy de Lôme revealed in a securities filing that IAG "negotiated a substantial discount from the list price" in the Boeing deal.
Boeing and IAG haven't detailed the actual number of each aircraft model included in their agreement, but IAG committed to buy a mix of 737 Max 8s and 737 Max 10s. If the sale is finalized, the 737 Maxs, assembled in Renton, will be delivered between 2023 and 2027.
Aerospace analyst Dhierin Bechai said in a report that to secure a potential megaorder, the typical discount rises from 50 percent to roughly 60 percent, bringing the actual sales price closer to between $9.7 billion and $10.7 billion, depending on the mix of 737 Maxs ordered.
"On top of that, the airline group could have negotiatedup to 5-6 percent (an additional price cut on top of 60 percent discount) since it is a key customer of Airbus for it single-aisle jets," Bechai wrote.
Bainbridge Island analyst Scott Hamilton wrote on his Leeham aerospace analysis web site that discounts of 50 to 60 percent off list prices are "common knowledge.
"Leeham is aware of some deals in which discounts run as high as 65 (percent)," he wrote. "You can bet IAG is at least in this ballpark."
Boeing did not respond to a request for comment. Its 737 Max 8 lists for $121.6 million. The 737 Max 10, still under development, has a $134.9 million sticker price.
Steep discounts were likely necessary, given sales challenges for the 737 Max because the plane has been grounded globally since March after two crashes killed 346 people, said Seattle-based analyst Michel Merluzeau.
"It's still a tentative deal but is good news for the Max and Boeing can now start to see the light at end of the long tunnel," Merluzeau said.
Airbus cried foul.
“We would like a chance to compete for that business,” Airbus Chief Commercial Officer Christian Scherer told reporters at the air show,
Reuters reports.
Schere said IAG never issued a formal call for bids before unveiling its deal with Boeing.