United Continental Holdings Inc (UAL) on the Move: A New Strategy?

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Legacy carrier United Continental Holdings Inc (NYSE:UAL) was busy at last week's Paris Air Show. The annual air shows are a forum for aircraft manufacturers like The Boeing Company (NYSE:BA), Airbus, and Embraer SA (ADR) (NYSE:ERJ) to show off their latest airplanes and market them to major airlines and leasing companies. Many aircraft purchase deals are typically signed and announced at the air shows each year. This year, United signed two new deals, giving business to both Boeing and Airbus.

United Continental Holdings Inc (NYSE:UAL)

Doubling down on the Dreamliner First, on Tuesday, United Continental Holdings Inc (NYSE:UAL) became the North American launch customer for Boeing's new stretched version of the 787 Dreamliner, called the 787-10. United upgraded 10 of its existing DreamlinUnited Airlineser orders to the new version, while adding another 10 orders for a total of 20. United has now agreed to acquire 65 Dreamliners (across all three versions), six of which have already been delivered.

The 787-10 is larger than the initial two variants of the Dreamliner, and is comparable in size to the Boeing 777-200. United Continental Holdings Inc (NYSE:UAL) has a fleet of 74 Boeing 777-200 aircraft (including extended range models), the oldest of which is 18 years old. By the time the 787-10 planes begin arriving in 2018, United may be ready to start to retiring its oldest 777s. In other words, the additional aircraft are probably being ordered for replacement purposes, not growth.

Throwing a bone to Airbus Interestingly enough, the 787-10 is similar in size to the Airbus A350-900, another new technology plane scheduled to enter production next year. Rumors had been floating around in the aviation community since late last year that United was planning to switch its A350 order to the larger A350-1000 variant. Given the similar size of the 787-10 and A350-900, United's 787-10 order seemed to confirm the airline's intention to upgrade its Airbus order.

Indeed, United Continental Holdings Inc (NYSE:UAL) announced on Thursday that it would be upgrading all of its A350-900 orders to the larger A350-1000 model, and would be increasing its order total from 25 to 35. The A350-1000 will replace the Boeing 747 in United's fleet after deliveries begin in 2018. United currently has 23 747s, with an average age of almost 18 years, and these planes will be ripe for retirement by the end of the decade.

Stretching capital? In a series of previous articles, I have argued that United Continental Holdings Inc (NYSE:UAL) has become a little too free with its capital expenditures recently. United is spending billions of dollars each year to buy state-of-the-art, new airplanes and upgrade IT systems, whereas competitor Delta Air Lines, Inc. (NYSE:DAL) has managed to "do more with less", allowing it to begin returning cash to shareholders.

At first glance, United Continental Holdings Inc (NYSE:UAL)'s latest move to upgrade its The Boeing Company (NYSE:BA) and Airbus orders to larger (and more expensive aircraft) while taking an additional 10 planes from each manufacturer seems to be another step down this path. United recently disclosed that its total capital commitments have ballooned to $23.6 billion, up from $17.7 billion at the end of March.

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