Atlanta-based Delta Air Lines
France-based Airbus and Boeing have been battling each other in a neck-and-neck race for the order from Delta. Both companies had made presentations to Delta recently, and it seems Boeing has emerged victorious since Delta's directors would vote on the purchase of its aircraft.
Boost for Boeing
This is good news for Boeing since the company had recently lost its exclusive ties with AMR's
The 787 Dreamliner nightmare
Boeing is expecting government approval for its new fleet of 787 aircraft soon. Boeing has reportedly accumulated a mind-blowing $16 billion worth of 787 inventories in the past three years, waiting for regulatory approval and subsequent delivery as early as next month. The company manufactured so many of these jets that it ran out of room and had to park the extra aircraft at leased space close by and at a facility in Texas.
Even if you take the regulatory approval as a done deal, Boeing's production costs are still set to increase because the planes would still be there for weeks and perhaps months to come.
Recently, Delta had reported lower-than-expected earnings as the airline company faced increasing pressure from rising fuel costs that have outstripped revenue growth. Delta's net income dropped from $467 million in the year-ago quarter to just $198 million this quarter. Quarterly revenue increased by 12% to $9.15 billion, while operating revenue increased by 19%. Fuel and related costs increased by an astounding 36%.
Rising fuel costs aren't worrying Delta alone. In the second quarter, US Airways Group
As with its competitors, costs are now forcing Delta to reduce expenses through different means, such as reducing aircraft traffic where demand has not kept pace with rising fuel costs and discontinuing loss-making services to small cities such as Butte, Mont.
In order to boost revenue, Delta has invested in improving the customer experience by buying new airplane seats and offering better food and wine on board.
The Foolish bottom line
With an increasingly competitive environment and rising costs, Delta has to defend its bottom line. Delta's new fleet would increase overall fuel efficiency and reduce maintenance costs. However, in the short run, I would say that Delta could do more to effectively control costs while boosting revenue.
As for Boeing, I think this is great news for the American aircraft manufacturer since this would come as a boost after bleeding business to rival Airbus. Besides that, Boeing would finally be able to unwind its record inventory and recover much of its working capital. Both Delta and Boeing, in my opinion, would be interesting stocks to watch out for.
- Click here to add Delta Air Lines to your watchlist.
- Click here to add Boeing Airlines to your watchlist.
- Click here to add AMR Airlines to your watchlist.
- Click here to add US Airways to your watchlist.
- Click here to add Southwest Airlines to your watchlist.
- Click here to add United Continental to your watchlist.
Keki Fatakia does not hold any shares in the above mentioned companies. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.