Delta Air Lines Is Going Shopping

The past few years have been great for major aerospace manufacturers such as Boeing (NYSE: BA  ) and Airbus Group (NASDAQOTH: EADSY  ) as airline profits surged, leading aircraft purchases to boom.

But during this era of big orders, Delta Air Lines (NYSE: DAL  ) has mostly avoided the aircraft purchasing arena and has used the money saved to reduce net debt, buy back shares, and initiate a small dividend.

Alternatives to new aircraft purchases
New aircraft are very expensive and can saddle airlines with high debt loads, interest payments, or lease obligations. But Delta has come up with new ways to keep costs down and efficiency up without driving away flyers.

First of all, Delta, like any airline, does need aircraft. But unlike many other carriers, Delta's been buying up used planes on the cheap. A couple of years ago, Delta picked up 49 MD-90 aircraft for a small fraction of the cost of new aircraft. The planes were still in good working order and the MD-90 does not lag too far behind on fuel consumption. Delta has also signed an agreement to lease the 88 Boeing 717 aircraft Southwest Airlines acquired in its merger with AirTran Airways.

Not wanting its older aircraft give off a rundown vibe, Delta has been renovating the aircraft to bring the passenger experience up to par with rivals. In January, the airline announced it would spend $770 million through 2016 to "to refresh the interiors on its Boeing 757-200 [and] 737-800 [and] Airbus A319 and A320 aircraft to provide power at every seat, add new slim-line seats with adjustable headrests, [update] lavatories, [and] add more efficient galleys and additional features to improve passenger comfort." That seems like a lot of money, but by renovating existing aircraft, Delta can refresh over 200 aircraft for an amount of money that may be able to purchase 20 new aircraft on a good day.

By retaining or taking ownership of aircraft as opposed to leasing them, Delta can also park planes without incurring lease expenses. Delta currently owns nearly 80% of its fleet (592 out of 743 aircraft), a level rather high for a major airline, giving it an edge in this department.

Back in the market
Delta's approach is not so much about being anti-new-aircraft as it is about being pro-financially responsible. The airline has already purchased 100 Boeing 737-900 aircraft new but kept costs down by taking the older version.

The next thing on the airline's shopping list is a replacement for its Boeing 747-400 aircraft and much of the Boeing 767-300ER fleet. Delta is issuing a request for proposals with Boeing and Airbus seen as the top candidates. An article in Aviation Week estimates the size of the order to be around 50 aircraft based upon the sizes of the 747 and 767-300ER fleets. So far, it looks like Boeing is being considered for its three models of the 787. Delta is looking at a greater variety of Airbus models including the A350-900, A350-1000, A330, and an A330NEO if it's offered. The airline has ruled out the Boeing 777X, with Delta CEO Richard Anderson saying "We are not interested in it."

Delta's current fleet is about as diverse as it gets among U.S.-based airlines, making it difficult to draw connections between ownership of current aircraft and future purchasing decisions. The airline has narrowbodies from Boeing and Airbus, widebodies from Boeing and Airbus, some McDonnell Douglas aircraft, and even some leftover DC-9 aircraft. (The DC-9s have been retired from service.)

A purchase from a frugal shopper
Delta has been doing what it can to keep aircraft costs down, but sometimes purchasing new equipment does actually make the most sense. In the case of this widebody replacement, Boeing and Airbus will compete for an order of around 50 aircraft and a greater presence in the Delta fleet. Delta has expressed some particular interest in an A330NEO aircraft, so if Airbus offers one, Airbus could gain the upper hand. Otherwise, this is still very much an open order, and Delta will be delighted to have two rival manufacturers compete for the order.

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  • Report this Comment On April 03, 2014, at 8:17 AM, SheilaDikshit wrote:

    ide like to see Delta and United buy boeing 777-9x as well as Virgin Australia and air new Zealand and Qantas too

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