United CEO says it might be time to order new planes

United Airlines uaua, which hasn't ordered any planes in 11 years, appears poised to place a huge order — maybe.

CEO Glenn Tilton, who long had maintained that United wouldn't buy planes until it could earn a sufficient return on the investment, told employees in a letter on Wednesday that management likely will place an order to replace at least some of its 113 wide-body jets and 97 narrow-body 757s.

But the USA's No. 3 carrier lost $5.4 billion in 2008 and an additional $579 million in the first quarter, excluding one-time accounting items. And passenger demand has plummeted, especially among the high-fare-paying business travelers United targets.

Some analysts warn that United also faces a possible cash crunch and default on its loan covenants if market conditions worsen later this year.

Depending on the total number and mix of planes ordered, the sticker price could approach $30 billion in face value, though airlines the size of United never come close to paying sticker prices.

A big order would also be a major shift for United, which has refused to order new planes in the past and shrank its fleet by 34% this decade, from 604 at the end of 2000, to 396 planes as of March 31.

"We have consistently said ... we will not invest in aircraft until we believe we can generate a return on our investment," Tilton said, then added: A year-long analysis "suggests that time may be now."

Boeing and Airbus likely are eager to land a big customer like United, despite huge order backlogs, because they've had a number of order cancellations, and sales this year have been weak.

"This is a good time to buy planes," says Adam Pilarski, analyst and consultant at Avitas, a Chantilly, Va., aviation consulting firm. "Nobody's buying planes this year, and the backlog is not as solid as some people believe."

But analysts say there's more to United's change of mind than the current market weakness.

"United's facing reality," says Scott Hamilton, a Seattle-based aviation consultant. "Their fleet is getting old. Even if you order today, you're actually talking about not getting new planes in significant numbers for another five to seven years.

"The second reality is that they're not going to sell the airline," he says.

A sale or merger, perhaps even with a foreign carrier, has long been Tilton's goal. But Congress has refused to change the law limiting foreign ownership. And its merger opportunities within the U.S. industry have all but dried up.

"They once had 47 747s, now they have 26," Pilarski says. "They had 54 767s, now they have 35. And when you add the DC-10s that were retired, they have had a huge reduction in their wide-body fleet.

"If they want to stay in this business — even if they still want somebody to eventually buy them out — they have to have at least a pretense of a viable ongoing operation."