Last year, Boeing (NYSE:BA) strained its relationship with U.S. airline giant Delta Air Lines (NYSE:DAL) by attempting to have big tariffs imposed on Delta's purchase of CSeries jets from Bombardier. Many pundits saw Boeing's trade complaint as a risky move that could alienate a key customer -- especially after Delta ordered the Airbus (NASDAQOTH:EADSY) A321neo last December instead of Boeing's 737 MAX 10.
However, these fears weren't justified. Delta isn't going to make bad business decisions just to punish Boeing. In fact, Delta Air Lines CEO Ed Bastian wants the carrier to be a launch customer for Boeing's proposed "middle-of-the-market" jet, according to Bloomberg.
Indeed, this proposed jet -- which would likely be called the 797 in Boeing's numbering scheme -- would fill a crucial gap in Delta's future fleet. Thus, it's not surprising that management wants to get this plane into the fleet as quickly as possible.
What the 797 will be
Boeing has confirmed that it's studying a possible middle-of-the-market jet, but it's still in the process of talking to customers and building the business case. As a result, nothing about the future 797 program is set in stone.
That said, the broad outlines of Boeing's plan have come to light. It's envisioning a twin-aisle aircraft with an elliptical fuselage to improve fuel efficiency. The 797 would have two variants: One could hold 225 seats in a typical international configuration, with 5,000 nautical miles of range, while the other could seat 275 and fly up to 4,500 nautical miles. Boeing is targeting a 30% unit-cost improvement over its aging 757 and 767 models.
Based on these parameters, the 797 would be an ideal aircraft for routes from the East Coast and Midwest to Europe. It would also work well for the busiest transcontinental routes and for some routes to Latin America.
Why Delta needs the 797
Boeing intends the 797 to be a much-needed replacement for its 757 and 767 jets. It would be somewhat larger than the 757, with more range, while being similar in size to the 767, albeit with somewhat less range. Delta Air Lines is the largest operator of both of those older models, which explains its enthusiasm for the 797.
To be fair, the A321neos that Delta recently ordered can replace the 757s that it uses on domestic routes. If Delta upgrades some of those orders to Airbus' new A321LR, it would also be able to replace 757s used for longer routes -- primarily to Europe. That said, one big disadvantage of the A321LR is that its auxiliary fuel tanks take up a lot of space that could otherwise be used for cargo.
On the other hand, the alternatives for replacing Delta's roughly 80 767s are far from ideal. In late 2014, the carrier ordered 25 A330-900neos from Airbus to replace some of its older 767s. However, while the A330-900neo will have much lower unit costs than the planes it will replace, it will probably have about 40% more seats than Delta's 767-300ERs.
Some of Delta's 767 routes may be able to handle the additional capacity. For others, 300 seats would be way too much capacity and would undermine unit revenue. The 797 would be far better than any other option for international routes that can't handle a 300-seat aircraft.
There could be a big rush to be first
If Boeing decides to go ahead with the 797 project, the jet would probably be ready to enter service around 2025. That's perfect timing for Delta, which will need to replace most of its 757 and 767 fleets during the late 2020s, based on a typical 25-30 year aircraft-replacement cycle.
However, Delta Air Lines won't be the only airline vying for early delivery slots. The majority of the Boeing 757s and 767s that are still flying were built during the 1990s. Production dropped off dramatically after 2001. Thus, by 2025, most of the remaining 757s and 767s will be due for replacement -- if they haven't already been retired.
This urgent replacement demand means that if Boeing starts selling the 797 this year, it could get a huge number of launch orders. Many airlines simply won't have the luxury of waiting for the new aircraft to prove itself before placing an order.