Shares of Boeing (NYSE:BA) fell more than 6% on Thursday morning after Delta Air Lines (NYSE:DAL) said it was permanently retiring its fleet of Boeing 777 aircraft by year's end. The announcement only confirmed what we already know -- that airlines are shrinking -- which might explain why Boeing's shares recovered somewhat after the open. But even if it isn't a complete surprise, the news is not good for Boeing.
Airlines have been hard hit by the COVID-19 pandemic and subsequent quarantine, which has caused travel demand to fall to near zero. Delta and other carriers have responded by shrinking their schedules and grounding planes. Some of those groundings are temporary, but if traffic takes two years or more to return to prepandemic levels, some of them will become permanent.
In a regulatory filing Thursday, Delta said it has decided its fleet of 18 Boeing 777s will not be returned to service, joining the company's MD-90 aircraft in retirement.
"These decisions are intended to better align our network with lower passenger demand stemming from the COVID-19 pandemic, streamline and modernize our fleet, and generate cost savings," Delta wrote in the filing. "Our A330s and A350-900s, which are more fuel-efficient and cost-effective, will perform long-haul flying as international demand returns."
The "A" in those designations is short for Airbus (OTC:EADSY), Boeing's archrival in plane sales, and it reflects a continued move from Delta toward Airbus and away from Boeing. In this case, it's not really a fair fight, as the Airbus jets in question are newer than the 777s they are replacing. But with the MD-90 also a legacy Boeing program, that's fewer Boeing jets -- and fewer spare part sales -- in the fleet.
The news was not all bad for Boeing. Delta said it has already reached its end-of-quarter goal to reduce daily cash burn to $50 million ahead of schedule. What Boeing needs most is for Delta, and all of the airlines, to survive the crisis and the recession that is likely to follow.
Based on recent comments from Boeing's CEO, the company apparently doesn't believe airline survival is a given. So any signs that airlines are coping better than feared should be viewed as good news. That said, I see no reason to buy into Boeing shares for the foreseeable future.