Malaysia Aircraft Purchase Is Less Than Was Touted -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 14, 2017).

President Donald Trump this week lauded what he described as a deal to sell between $10 billion and $20 billion worth of aircraft and jet engines to Malaysia's flag carrier, in comments that highlight the opaque business of selling jetliners.

Mr. Trump made the announcement Tuesday at the White House alongside Malaysian Prime Minister Najib Razak. The prime minister estimated the potential deal at $10 billion. But by Tuesday evening, a tentative deal as outlined by Boeing Co. and Malaysia Airlines Bhd came to around $3 billion -- before the discounts airlines usually secure for large aircraft purchases -- plus an unspecified amount of maintenance work.

The disparity between the sale value described by the political leaders and the actual deal being worked out between Boeing and Malaysia Airlines Bhd reflects a number of sometimes complicated factors in the aircraft industry, including existing sales agreements, potential future agreements, the options covered under each and the schedule of aircraft deliveries.

On Wednesday, the White House said the deal was worth a potential $4 billion. It didn't explain the discrepancy with Mr. Trump's earlier comments.

The earlier, more favorable portrayal by Mr. Trump mirrored a similar gap after the White House said it brokered $110 billion in military sales to Saudi Arabia during a state visit in May. Many of those deals were already in the works, or remain unaccounted for by defense companies or the Trump administration.

Mr. Trump also has claimed credit for helping lower the cost of the Lockheed Martin Corp. F-35 combat jet, even though the latest batch of planes matched pricing largely agreed upon before he took office. He declared the cost of planes to replace the presidential Air Force One was too high, but Air Force officials in a contract awarded Wednesday didn't spell out how they would reduce the price.

Commercial aircraft sales, subject to frequent price fluctuations, often are announced at meetings of government leaders following months or years of talks between plane makers and customers, reflecting their large dollar value and the broader importance of the aerospace and airline industries to national economies.

The sale of planes to Malaysia Airlines, which was taken over by the Southeast Asian nation's government in 2014 after the loss of two aircraft led to the death of more than 500 passengers, had a number of unusual features.

"We're talking about trade -- very large trade deals," Mr. Trump said Tuesday at the White House. "We're working on one deal where between 10 and 20 billion dollars' worth of Boeing jets are going to be purchased, General Electric engines will be purchased, and many things."

His description bore little resemblance to the airline's own fleet plan, which included selecting a number of wide-body jets from rival offers by Boeing and Airbus SE, based on descriptions by executives.

Boeing said late Tuesday that it had reached a memorandum of understanding to sell Malaysia Airlines eight of its 787-9 Dreamliner long-range jets with a total list price of $2.2 billion, as well as eight 737 Max single-aisle planes.

However, the potential order involved converting eight of a previous order of 25 Boeing 737 jets reached last year into orders for the Dreamliner, plus the right to buy eight more of the smaller planes.

Malaysia's Mr. Najib said at the White House that the airline could seek 25 more of the 737 jets over the next five years, plus options on 25 more, with a combined list price of around $5.6 billion.

Malaysia Airlines has been looking to order around 30 wide-body jets and has been negotiating with Boeing for the 787 and Airbus for its A330neo jet.

While airlines typically trumpet new jet deals, Malaysia Airlines said this week it will "be able to share more details on the Dreamliners once the deal is finalized."

In emailed comments, airline officials said the company is still actively looking for secondhand A330 jets and has "very attractive offers from [some] bankrupt European airlines." It's also meeting jet leasing firms this week to explore potential deals.

Airbus declined to comment.

The conversion of orders for the smaller 737 jets into those for the larger 787 is unusual, as most airlines have been trimming wide-body purchases for smaller aircraft, for which there is a six-year waiting list.

The last big airline deal linked to Mr. Trump was the potential sale announced in May of up to 16 Boeing twin-aisle jets to SaudiGulf Airlines. Boeing hasn't finalized any deal, or identified the model or potential delivery dates, for a class of jet whose sales have been sluggish over the past two years.

The potential deal was part of $110 billion in aerospace and defense transactions announced by the State Department during the president's official visit.

Boeing said at the time that it picked up a potential $50 billion in deals during the visit, while Lockheed Martin Corp. said it amassed $28 billion in new business. Neither company has broken out all of the potential sales and both said the negotiating process continued.

U.S. officials have said the defense deals include proposed sales and final approvals for purchases that have been in the works for many years. Most hinge on further government-to-government talks, with the Pentagon then contracting with U.S. defense companies to supply the equipment.

Write to Doug Cameron at doug.cameron@wsj.com and Gaurav Raghuvanshi at gaurav.raghuvanshi@wsj.com

(END) Dow Jones Newswires

September 14, 2017 15:40 ET (19:40 GMT)