United Airlines expects spending spike to cover new aircraft deliveries

787 on the runway after landing

United Airlines’ (NASDAQ: UAL) 2020 capital spending will jump 40% from 2019’s level largely because of a planned influx of new widebody airplanes. Company officials told securities analysts Wednesday that adjusted capital expenditures this year will be about $7 billion, up sharply from 2019’s approximately $5 billion.

The bulk of the $7 billion — roughly $5 billion — will be spent on new aircraft, with the rest earmarked for non-aircraft capital costs. The airline expects to take 15 Boeing 787-9s and -10s this year and two more 777-300s. By the end of the year, the mainline fleet is expected to number 828 planes, including 95 777s and 63 787s.

In December, United placed an order for 50 Airbus A321XLRs. The new aircraft will begin to arrive in 2024 and replace the carrier’s remaining 757-200s. The XLRs are 30% more fuel efficient than the 757, and their longer range could open up new destinations, executives said.

The 757-200 is a popular aircraft for passenger-to-freighter conversions after being sold on the secondary market.

United also planned to take delivery of 28 737 MAX aircraft this year, but that now depends on how long the Federal Aviation Administration takes to lift its flight ban and how quickly Boeing can then resume deliveries. United currently has 14 MAXs and was supposed to take 16 more in 2019. United’s fleet plan shows its MAX fleet remaining static for the year, according to its latest investor guidance.

The company’s full-year 2020 capital expenditure level is also contingent on how many MAXs are delivered. “In that [$7 biillion] number, we are assuming delivery of some MAX aircraft,” United CFO Gerry Laderman said. “If we receive no MAX aircraft, we would expect that number to come down a little bit.”

Boeing doesn’t receive payment for planes until customers receive them.

United reported strong earnings on Tuesday despite the MAX grounding and other headwinds, including a longer-than-expected government shutdown early in the year and geopolitical issues in China, Iran and Pakistan, among other places.

United currently is forecasting first-quarter 2020 earnings of 75 cents to $1.25 per share and full-year earnings per share in the $11-13 range. Executives said revised guidance will be issued in March.

Virus risk

Early 2020 challenges include Boeing’s announcement that the MAX flight ban could last until midyear and reports from China about the potentially significant spread of a fatal new strain of coronavirus.

On Wednesday, multiple news outlets reported that all outbound flights and trains from Wuhan, the city in central China where the virus originated, will be halted and that the city’s public transportation system will be closed.

As many as 17 people have died after contracting the virus.

“We can’t sit here and tell you how long the MAX will be grounded or what the impact of the Asian coronavirus will be,” said United President Scott Kirby. He said the airline is coordinating closely with the Centers for Disease Control and Prevention and will take all necessary steps. Health authorities are not recommending any travel restrictions.

On Wednesday, the International Air Transport Association said it is monitoring developments and is actively engaged with the CDC, the World Health Organization and the International Civil Aviation Organization.

“We have, in the past, effectively managed situations like this one to keep our people safe,” Kirby said. “Managing through uncertainty is something every airline has to do.”

The news from China comes just as United has seen revenue improvement in its Beijing, Shanghai and Hong Kong markets.