BA takes off with biggest order in decade

British Airways kicked off the overhaul of its long-haul fleet yesterday, agreeing to buy a significant number of state-of-the-art aircraft, including 12 of the new Airbus superjumbos and 24 Boeing Dreamliners, at what is likely to be a knockdown price.

It is the biggest order the airline has placed in nearly a decade and provides the company with some good news in the wake of a difficult summer due to the strikes and wave of criticism at Heathrow airport, and the record fines levied against the operator by UK and US regulators over fuel surcharge price-fixing. The company has also secured an option to buy a further seven Airbus superjumbos and 18 Boeing 787s as part of the deal and will continue to consider the alternatives to upgrade its fleet further.

BA said the list price of the 36 planes – about $320m per Airbus A380 and $180m for the Boeing 787s – totalled $8.2bn (£4.1bn). However, the airline has picked up the aircraft at a heavily discounted price due to problems developing the Airbus A380 that have delayed the launch of the world's largest passenger aircraft by two years, and the fierce competition between the two aircraft manufacturers. Deliveries of the new aircraft will begin in 2010.

Andrew Fitchie, an analyst at Collins Stewart, said BA is likely to have paid about £3bn, representing a 25 per cent saving on list prices. At that level, he said the cost of purchasing the new aircraft is in line with BA's guidance that it will spend around £900m a year in capital expenditure. BA has already secured $1.5bn in debt financing to fund its firm orders to the end of 2011.

Willie Walsh, BA's chief executive, said the deal had been dependent on resolving the company's large pension fund deficit but that the timing of the contract had worked out well.

The long-awaited move by Europe's third-largest airline represents a coup for EADS, Airbus's parent company. BA has previously only used Boeing for its long-haul fleet and the decision to split the order between the two rivals came as a surprise. It is the first order from a new customer that Airbus has won in almost two years and, according to Airbus's chief executive Tom Enders, was a "breakthrough" deal. The two cont-racts were also good news for Rolls-Royce, which will supply engines to both aircraft types.

Mr Walsh said the decision to order both the giant Airbus A380 superjumbos and the smaller Boeing 787 Dreamliners to replace its ageing fleet of 747 jumbos, represented a "perfect fit" with the company's growth strategy. He expects the new aircraft to increase the airline's capacity by about 4 per cent a year, helping the company keep pace with growth at rivals such as Virgin Atlantic. He said that diversifying its fleet was important given the different dynamics of certain routes. He said the Airbus superjumbos would better serve routes between London and destinations such as Hong Kong, Los Angeles and South Africa, where it needs to maximise its capacity, whereas the Dreamliners would better suit routes such as New York where the frequency of flights is important.

Mr Walsh said the added flexibility of using different aircraft would help the company better exploit its slots at Heathrow after Terminal 5 is opened. The new aircraft are the most fuel efficient on the market and also the quietest, he said.

The BA chief executive denied he had been under any political pressure to place an order with Airbus to safeguard UK manufacturing jobs, arguing that there had been no contact with the Government during the process.