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Delta Orders Even More Airbus A321neos

By Adam Levine-Weinberg – Aug 26, 2021 at 8:20AM

Key Points

  • Delta retired over 100 mainline aircraft last year and plans to retire more than 250 mainline jets in total between 2020 and 2025.
  • The company has adopted a multipronged strategy to rebuild its fleet as demand has recovered faster than expected.
  • Delta recently ordered more Airbus A321neos for the second time this year and is likely to continue placing incremental orders with Airbus over the next few years.

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The airline giant is aggressively modernizing its fleet, and Airbus has won the bulk of its orders.

In late 2019, Delta Air Lines (DAL 1.04%) revealed plans to gradually simplify its fleet while shifting toward larger aircraft over the course of a decade or so. The COVID-19 pandemic encouraged the airline to dramatically accelerate its fleet simplification and upgauging plans by retiring hundreds of aircraft ahead of schedule.

U.S. air-travel demand has recovered strongly this year. As a result, Delta has needed to retool its order book to replace all of the aircraft it has retired (or intends to retire in the near future). As part of that effort, the full-service airline recently firmed up orders for 30 more Airbus (EADSY 1.06%) A321neos.

Delta accelerates fleet retirements

Entering 2020, Delta Air Lines' fleet included 47 MD-88s averaging nearly 28 years of age, along with 30 MD-90s that were nearly 23 years old, on average. It planned to retire all of the MD-88s during 2020 and the MD-90s by the end of 2022.

Soon after the pandemic struck, Delta decided to accelerate the MD-88 and MD-90 fleet retirements to early June of 2020. Later in the year, the airline retired its 18 Boeing 777s and its 10 737-700s. Delta also announced that its 91 717s and 56 767-300ERs would all exit the fleet by the end of 2025. Lastly, it retired a handful of aging Airbus A320s and set plans to phase out all of its remaining 50-seat jets by the end of 2023.

Together, these retirements will eliminate seven mainline subfleets and three aircraft types (for pilot scheduling purposes) by the end of 2025. That will unlock substantial productivity gains and maintenance cost savings, on top of the usual fuel-efficiency gains and other cost benefits of next-generation aircraft.

A Delta Air Lines Boeing 767-400ER plane climbing after takeoff.

Image source: Delta Air Lines.

More aircraft needed

These fleet simplification moves caused Delta Air Lines to end 2020 with 750 mainline jets in its fleet -- including temporarily parked aircraft -- down from 898 a year earlier. That figure included 84 717s and 767-300ERs that remain on track for retirement by 2025.

Meanwhile, air-travel demand snapped back faster in 2021 than many industry figures had expected. To be fair, demand has sagged a bit lately, due to the surge in COVID-19 cases and hospitalizations associated with the Delta variant. Nevertheless, the strong rebound earlier this year suggests that demand will come roaring back as soon as case numbers start to decline again. That means Delta Air Lines needs to get its fleet back to full strength sooner rather than later.

After deferring many deliveries last year, Delta Air Lines ended 2020 with 33 mainline aircraft scheduled for delivery in 2021, followed by 39 deliveries each in 2022 and 2023. Even with no additional aircraft retirements, this delivery schedule would not have returned Delta's mainline fleet to its pre-pandemic size until at least 2024.

A multipronged strategy

Delta Air Lines has implemented several strategies to address this issue. First, it has returned a handful of 717s, 767s, and A320s it retired in 2020 to active service.

Second, last month, Delta announced agreements to buy 29 used 737-900ERs and lease seven used A350-900s, capitalizing on the favorable prices available for used jets. All 36 planes will enter its fleet by the summer of 2023.

Third, the carrier has expanded its order book for the Airbus A321neo. In April, Delta firmed up 25 A321neo orders to replace some of the aircraft it retired recently. This week, it exercised another 30 purchase options, bringing its A321neo firm order tally to 155. Airbus plans to hand over Delta's first A321neo in the first half of 2022, with deliveries now stretching to 2027.

An Airbus A321neo in the Delta Air Lines livery.

Image source: Delta Air Lines.

Together, these three initiatives should enable Delta Air Lines to get its fleet back to full strength by 2023, while cutting costs by reducing the number of aircraft types it operates and shifting the fleet toward larger, more modern aircraft.

Plenty more where this came from

Delta Air Lines now has 288 aircraft purchase commitments, up from 223 at the beginning of 2021. But it would need to acquire over 200 planes through 2025 just to maintain its mainline fleet at pre-pandemic levels.

Furthermore, Delta's 100 Boeing 757-200s are 24 years old, on average, while its 55 A320s are over 25 years old, on average. Most of these planes will need to be replaced by the mid-late 2020s.

Including replacements for other older aircraft in the fleet, additional small narrow-bodies to replace the 50-seat regional jets Delta is phasing out, and overall fleet growth, the company will likely need to buy 400 to 600 mainline jets over the next decade. As a result, investors should expect Delta to continue placing incremental aircraft orders in the years ahead.

After this week's order, the airline still has 120 options with Airbus for 50 A220s and 70 A321neos. That puts Airbus in great position to keep winning additional business from Delta.

Adam Levine-Weinberg owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Delta Air Lines Stock Quote
Delta Air Lines
DAL
$34.97 (1.04%) $0.36
Airbus Stock Quote
Airbus
EADSY
$28.54 (1.06%) $0.30

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