Buying airplanes, the Ryanair way

As airplane manufacturers gear up to pitch their products at the annual Paris Air Show, they're uncomfortably aware that the market for new airplanes is at its lowest in years. The realities of the tough market conditions aren't lost on Ryanair chief Michael O'Leary, either. But while Airbus and Boeing are struggling with a significant drop in orders, O'Leary is figuring that now's the time to open up the wallet, much as United is planning on doing; he knows that he's likely to get a better deal out of them when they're desperate for customers.

So the recent report that Ryanair is looking at ordering 300 new airplanes from either Airbus or Boeing should come as no surprise. That's a lot of aircraft - without a doubt, Boeing CEO Jim McNerney is salivating at the prospect of what he's labeled "the deal of the year." Ryanair is one of Boeing's best customers, operating a fleet of almost 200 Boeing 737-800s. CEO O'Leary, notoriously brash with his public statements, has told a group of Boeing employees that he would help them "kick the shit out of Airbus," and later told them that they "make the best goddamn aircraft in the world." "We love Boeing," he said. "Fuck the French."

So then why did Ryanair mention that it is considering an Airbus product? It has made fleet standardization one of the key points to its success, and there's no chance that it would operate both the 737 alongside the A319 or A320. And Airbus itself has said that it's not in talks with Ryanair; sales chief John Leahy told Dow Jones that "we're not negotiating," saying that Ryanair had set price expectations that were "unrealistically low."

The answer comes down to the fact that Michael O'Leary has always driven a hard bargain. He waited to order the initial batch of 737s until 2002, when Boeing was struggling after 9/11. But the order for Boeing was never a foregone conclusion; instead, he brilliantly played Airbus and Boeing off of each other, reportedly faxing the latest offer he received from Airbus over to Boeing and vice versa, in an attempt to get a lower price. Airbus offered to sell him A320s at half price, and O'Leary had apparently even shaken hands with the Airbus CEO before switching at the last minute to order from Boeing at even lower prices. O'Leary didn't mince words when recounting how he managed to get a spectacular deal from Boeing, saying: "We raped the fuckers."

But O'Leary can't fall back on competition between Boeing and Airbus to get a good deal anymore. Boeing knows that at the end of the day, barring some unforeseen tectonic shift, O'Leary will continue to be a devoted Boeing customer. And so it will be interesting to see how Ryanair will try to continue to get low, low prices on its new airplanes.

photo by Drewski2112 from Flickr, licensed under the Creative Commons