Globally, Boeing's (BA +1.95%) troubled 737 MAX family trails the rival Airbus (EADSY +5.19%) A320neo aircraft family by a wide margin on orders and deliveries. But in its home market, Boeing still has the upper hand. Four of the five largest U.S. airlines operate at least one variant of the 737 MAX, and the model's top two customers are Southwest Airlines and United Airlines.
For Boeing, Delta Air Lines (DAL +2.62%) was the one that got away -- until now. On Monday, the two companies announced a Delta firm order for 100 737 MAX 10s, with options for 30 more.
A long courtship
Delta has been kicking the tires of Boeing's 737 MAX for years. In 2017, the airline giant conducted a head-to-head competition between the 737 MAX and Airbus' A320neo family. Delta ultimately ordered 100 A321neos, bucking most pundits' expectations. Through option exercises, Delta Air Lines has subsequently expanded its A321neo firm order book to 155 airplanes.
NYSE: DAL
Key Data Points
In 2020, the two companies resumed talking about a potential 737 MAX order, as Delta began to sketch out its post-pandemic fleet plan. While Delta Air Lines has outstanding firm orders for nearly 200 Airbus narrow-body jets, the carrier accelerated the retirement of dozens of medium narrow-body aircraft during 2020. So far, it hasn't replaced all of them. Furthermore, Delta's fleet still includes hundreds of older aircraft that it plans to retire over the next decade.
That paved the way for this week's order announcement. Delta chose the largest variant of the MAX family: The Boeing 737 MAX 10. It plans to configure the jets with 182 seats, including a generous mix of first class and extra legroom seats.
What it means for Delta
On the company's recent second-quarter earnings call, CEO Ed Bastian said that Delta was interested in expanding its order book for large narrow-body jets in the 2025 to 2027 timeframe. The 737 MAX order will fill this need. Deliveries are scheduled to run from 2025 to 2029.
Image source: Delta Air Lines.
Delta may use some of the earlier 737 MAX 10 delivery slots to retire the rest of its legacy Airbus A320 fleet. The A320s are nearly 27 years old on average. Over half of Delta's A320s were built between 1990 and 1993, making them some of the oldest planes still in use at a major U.S. airline. Even Delta's newest A320 was built in 2003, making a full retirement of this model by 2030 likely.
The airline also expects to use 737 MAX 10 deliveries to replace aging 737-800s and for fleet growth. While Delta's 737-800 fleet isn't as old as its A320 fleet, nearly all of the carrier's 737-800s were delivered between 1998 and 2002, making them ripe for replacement in the late 2020s.
In addition to boasting state-of-the-art engine technology, Delta's 737 MAX 10s will have about 15% more seats than the A320s and 737-800s exiting the fleet. As a result, the MAX 10s will be 20% to 30% more fuel efficient than the planes they replace. That will aid Delta's efforts to keep its costs down.
What it means for Boeing
Boeing ended June with 3,431 firm orders in its backlog for the 737 family. That's a respectable number, but it's far short of the 4,708 firm orders the program had at the end of 2018 (prior to the 737 MAX grounding).
NYSE: BA
Key Data Points
Delta's 737 MAX order will make a small but important contribution to Boeing's effort to boost 737 production to pre-crisis levels within a few years. The Delta order could also help Boeing rally support for delaying the implementation of new aircraft certification rules that have put the 737 MAX 10 variant's development in jeopardy.
Under current law, if -- as expected -- the 737 MAX 10 doesn't receive FAA certification by year-end, Boeing would need to add a modern cockpit alerting system. That would further delay the model's entry into service while adding costs and creating major training problems for customers. Boeing CEO Dave Calhoun recently said that the company would probably cancel the 737 MAX 10 if it cannot be certified as currently designed.
Delta executives are publicly supporting Boeing's position, saying that maintaining commonality between the 737 MAX 10 and other 737 variants is essential. Delta's stance makes Boeing's threat to cancel the variant outright more credible. That, in turn, could force lawmakers' hands, reducing the risk that Boeing would have to abandon a key member of the 737 MAX family.
