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Airlines unite to cut purchasing costs

Updated:
Supply exchange Web site to handle $32 billion of jet fuel, other needs

Six major airlines said Thursday that they will form an Internet site designed to reduce their purchasing costs, forming the second online cooperative effort in the normally cutthroat industry.

Fort Worth-based American Airlines Inc. and five of its rivals plan to operate a Web site in which they will purchase $32 billion worth of jet fuel, engine parts and maintenance services from suppliers.

At least initially, aircraft won't be one of the products included.

The new business-to-business supply exchange is expected to significantly lower the carriers' purchasing costs by reducing transaction, processing and inventory expenses.

The other carriers involved include United Airlines Inc., Delta Air Lines Inc., Continental Airlines Inc., British Airways PLC and Air France SA.

"We are all competitors," said American spokesman John Hotard. "There will certainly be all the necessary walls needed."

The announcement of the as-yet-unnamed Internet site comes six months after the formation of a travel Web site now being planned by 27 airlines, including American.

The travel site is expected to begin operating during the next two months with the supply site's launch coming later this year. Both will be run by independent management teams.

The airline industry's joint effort follows the lead of the automotive, retail, aerospace and other industries in which competitors have recently banded together to set up online purchasing exchanges.

The catalyst behind this cooperation: fears that new Internet companies will grab all the action at the expense of longtime industry stalwarts.

Already, airlines can participate in several online supply exchanges not owned by a major carrier, including Aviation X and TradeAir.com.

The supply exchange will be open to all airlines and aviation suppliers, American's Mr. Hotard said.

Each of the founding airlines will hold an equity stake in the new company. The six airlines represent about 30 percent of the global airline market.

American estimates that the new Web site will reduce the $6 billion it spends annually on nonaircraft purchases by about 5 percent after several years.

The other domestic carriers said Thursday that it was too early for them to quantify what savings they will achieve.

Noticeably absent from the new Web site: Northwest Airlines Inc. and Dallas-based Southwest Airlines Co.

A Northwest spokeswoman said the carrier is exploring alternative options. Southwest said it is evaluating all the online purchasing exchanges before it makes a decision.

Lufthansa AG and other European and Asian carriers are forming their own online supply exchange.

Aviation suppliers, such as Dallas-based Aviall Inc., said they would be interested in talking to the airlines about the supply exchange.

Aviall, which distributes and services aviation parts, currently operates its own electronic marketplace and has experienced cost savings from this venture, said David Leedy, Aviall's director of investor relations.

Although the company offers free shipping for online purchases, prices are not lower than off-line, he added.
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