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American Airlines Gives Fleet a Makeover

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Carrier to buy host of new energy-efficient planes.

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At last, some good news from the airline industry.

American Airlines (AMR) said it would speed up the purchase of new 737s from Boeing (BA) in an effort to modernize its fleet with more energy-efficient planes. The new fleet will replace the 300 MD-80, American's jet of choice for domestic travel, which burns a painful 35% more fuel than the new 737s.

The move comes in response to surging fuel prices that have crippled many carriers' bottom lines. According to the Wall Street Journal, Jet fuel will cost airlines $61.2 billion this year, compared with only $20 billion in 2007. Modernizing fleets isn't just good for the environment, it also makes sound business sense.

Not that it will come cheap. The market price for a 737-800 is about $65 million; American will purchase 87 by 2013. Although the airline has an agreement with Boeing for lower prices, the deal could cost $5.6 billion.

American said it secured a financing option to fund about two-thirds of the total cost - impressive considering how tight credit is for most industries. As for the remaining $1.85 billion, perhaps it should take a cue from JetBlue (JBLU) and start charging $7 for pillows. It would only need to sell 264 million.

For more on the airline industry, check out Hoofy and Boo's always astute report.

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