Would United Airlines Really Buy More Boeing 767s?

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On Monday, The Wall Street Journal confirmed a rumor that has been making the rounds in the past month: Airline giant United Continental (NYSE: UAL) is interested in buying more 767-300ER jets from Boeing (NYSE: BA). (The airline hasn't made a final decision yet.)

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Buying heavily discounted older models has become a common cost-saving technique among U.S. airlines in recent years. Even so, United would be entering uncharted waters by buying more 767s. The 767-300ER entered service nearly three decades ago, and the design hasn't changed much since then. Furthermore, Boeing hasn't built one since 2014.

Considering that Boeing could launch an all-new midsize aircraft in the next year or two, it seems particularly odd that United would double down on an old model. Let's take a look at the potential rationale.

United is a major 767 operator

35 years ago, United Airlines became the first airline to fly the 767. (Its first one was a smaller, shorter-range version called the 767-200.) Today, it remains one of the largest operators of the 767 family in the world.

United currently flies 51 Boeing 767s, consisting of 35 767-300ERs and 16 767-400ERs. The 767-400ERs were all built between 2000 and 2002, so they should still have at least a decade of life left. By contrast, the 767-300ERs are older -- 21 were built between 1991 and 1993, while the rest were built between 1998 and 2001.

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United Airlines is in no hurry to retire even its oldest 767s. In fact, it just retrofitted its oldest 767-300ER with a brand-new interior. But by the early 2020s, the 21 older 767s in its fleet will start to reach 30 years of age. It would probably be prohibitively expensive to keep them flying much beyond that point.

None of the current options are ideal

Unfortunately, there isn't a good modern replacement for the 767-300ER right now. Even the smallest version of the Boeing 787 is expensive to acquire, and it is optimized for long-range routes of 5,000-8,000 miles. By contrast, the 767-300ER is ideally suited to shorter transatlantic flights that average about 4,000 miles.

The options from Airbus are just as bad. The A350 is far larger than the 767-300ER, as is the A330-900neo. Meanwhile, the A330-800neo has more range than necessary and isn't very competitive on unit costs -- which explains why Airbus has barely sold any. Lastly, the A321LR doesn't have the size or range to be an adequate replacement for the 767-300ER.

The "797" concept that Boeing is currently studying could be an ideal 767 replacement. It would seat more than 200 passengers (in line with the 214-seat configuration United is installing on all of its 767-300ERs) and fly up to 5,200 miles. However, there's no guarantee that Boeing will go ahead with building it -- and it wouldn't be ready until around 2025, anyway.

The 767 fills a need, but it's still a risky move

Compared to all of the other options, the most straightforward 767-300ER replacement could be new 767-300ERs. The planes aren't especially fuel efficient, but if oil prices remain "low forever," that may not be a problem. Additionally, United may be able to buy 767s for as little as $70 million per aircraft -- a bargain price that would offset their higher fuel consumption.

However, buying a bunch of new 767-300ERs in the early 2020s could backfire in the long run if oil prices eventually do return to $80 a barrel or more. And even if fuel prices remain near current levels, United will face a severe unit cost disadvantage relative to rivals that are adopting larger, more modern planes for transatlantic routes, including Delta Air Lines.

The biggest downside to buying more 767-300ERs would be the lost opportunity if Boeing does go ahead with the 797 concept. As an all-new design, the 797 could potentially offer a 25%-30% fuel efficiency improvement over the 767-300ER. It would also likely be cheaper to maintain. Furthermore, the targeted price of $70 million-$80 million wouldn't be much more than what United would pay for 767-300ERs.

If Boeing kills the 797 concept, ordering more 767s could be United Airlines' best move. But if the 797 is coming in 2025, United should try to find a stopgap measure -- perhaps used 767s or A330s -- to tide it over until it can adopt the 797 as its long-term 767 replacement.

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Adam Levine-Weinberg owns shares of Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.