As the global airline industry continues to recover from the pandemic, confidence in the future has recently translated into a number of large and high-profile major aircraft orders. Air India placed a massive order for more than 500 aircraft that was split between the two global airframe manufacturers with a slight advantage for Airbus (OTCPK:EADSY). Saudi Arabia’s sovereign wealth fund placed an order for more than 75 Boeing (BA) 787 aircraft to be split between two of the country’s airlines, one existing and a new one that is in the process of being formed. And United Airlines (UAL) placed a massive order for 100 Boeing 787 aircraft on top of its existing orders for hundreds of narrowbody aircraft – predominantly composed of the 737 MAX family – as part of that airline’s fleet modernization and growth strategy.
One of the expected orders that has not been announced is an order for a large widebody twin aircraft from Delta (DAL). During employee meetings last fall, as reported by Delta employees on internet chat forums and as I discussed in this Seeking Alpha article, Delta’s President reported said that Delta had asked for board approval to purchase 20 Airbus A350-1000s, the largest aircraft currently in production at the European aerospace consortium. While the comments were made during pilot negotiations, which have since resulted in a new contract with large pay increases and incentives for international growth, there is ample reason to believe that the aircraft order might still be coming and might be larger than previously expected. Recent indications suggest that the order might no longer be a given for Airbus and the A350-1000. In order to understand the developments in this potential order, it is necessary to look at Delta’s current fleet and its orders as well as the recent competitive environment.
Delta's Current Fleet and Orders
As of December 31, 2022, Delta operated a fleet of 156 international widebody aircraft out of a fleet of 902 total mainline aircraft. Delta’s international fleet consists of 3 versions of the Airbus A330 including the A330-900NEO (new engine option) which is the newest version of Airbus’ most popular widebody aircraft that includes an advance technology Rolls-Royce (OTCPK:RYCEY) engine. Delta also has a fleet of 28 Airbus A350-900 aircraft, 19 of which were ordered directly by Delta in 2014 and began to enter service for the Atlanta-based airline in 2017; during the pandemic, Delta acquired 9 used copies of the same jet model with all of those jets to enter service by this summer. Delta is one of the largest operators of Airbus widebodies in the world.
Delta’s Boeing widebody fleet includes two versions of the B767, making Delta the largest passenger operator of the 767 in the world. Delta is also the largest passenger operator of the Boeing 757, the narrowbody sister model of the 767 that was introduced in the 1980s. Delta’s 767 fleet is more than 25 years old on average but composes more than 40% of Delta’s widebody fleet.
Delta retired approximately one dozen Boeing 767s during the pandemic along with its fleet of 18 Boeing 777 aircraft including 10 777-200LRs, which was then the longest-range commercial jet in the world. The 777LR was powered by the largest jet engine in the world, made by General Electric. While the 777LR’s range and performance allowed it to serve routes which no other aircraft could serve, it, along with the 777-200ER in Delta’s fleet had become the least fuel-efficient widebody aircraft among western airliners.
While Delta introduced the A350-900 into its fleet several years before the pandemic, Delta’s decision to retire its 777 fleet thrust Airbus’ advance technology widebody into the position as Delta’s flagship. While international traffic was greatly depressed during the pandemic, the second half of 2022 saw a huge resurgence in international traffic demand, esp. to and from Asia, just as had occurred in the U.S. domestic market a year ago. Many global airlines have seen very strong international traffic since markets reopened after the pandemic and that is true with Delta, primarily led by its transatlantic network.
A look at Delta’s aircraft orders shows that the rumors of a major widebody order are likely not just because of the likely need to replace large portions of the B767 fleet during the latter half of the current decade but also because Delta’s current widebody orders are to be completely delivered by 2026, with most of the remaining 18 A330NEO and 16 A350-900s to be delivered in the next two years. In addition, Delta is the only one of the ten largest global airlines in the world that does not operate a large twin engine aircraft such as the largest versions of the Boeing 777 or Airbus A350 or have a quadjet such as the Boeing 747 or Airbus A380 in its fleet. Delta, like United, operated the Boeing 747 until 2018 when federal regulations made it no longer cost effective for U.S. airlines to operate the type. United, like American (AAL) purchased late production Boeing 777-300ERs but Delta stuck with its B777-200s as well as its new A350-900s, both of which carried around 300 passengers.
A Challenging Winter of A350 Operations
The airline industry, esp. in the U.S., generates enormous amounts of data, much of which becomes public at some point in time. In order to determine how well an airline’s fleet is serving it and provide indications of potential fleet needs, analysis of airport and route specific data can be done using several types of government data. In addition, fleet usage analysis including of specific aircraft can be obtained from aviation tracking sites. Finally, all aircraft manufacturers and other industry sources provide performance data for their aircraft including regarding maximum allowable weights and fuel burn rates. The intersection of these types of data provide insight into how well the A350-900s serve Delta.
With the return of international travel demand, Delta’s fleet of 19 original order A350-900s as of December 2022 was stretched across a network that spanned from S. Africa to N. America, across the Atlantic to Europe and across the Pacific to Japan, S. Korea, China, and to Australia. Industry schedule analysis shows that Delta’s fleet of A350s flies, on average, further than nearly any other global airline’s fleet of any aircraft type.
Analysis of fleet operations data from flight tracking sites as well as airport boarding data from various governmental sources indicate that some of the routes that Delta serves with its A350-900 fleet pushes the aircraft to and perhaps beyond the limits of that aircraft type. Before looking at problematic routes based on data analysis, it is important to note that Delta’s fleet of original order A350s (not including the used aircraft it acquired, some of which have still not been placed in service) span several levels of capability based on when each specific aircraft was built. Somewhat differently than Boeing, Airbus regularly increases the performance of its aircraft and makes those improvements available to its operators. When the A350 first entered service, it was capable of a maximum takeoff weight of about 590,000 pounds which is 35,000 pounds less than the current, most capable versions. Most of Delta’s A350 fleet likely has a maximum takeoff weight of approximately 612,000 pounds based on the capabilities that Airbus included in the A350 when each of those aircraft were built for Delta. Airbus later made changes to the A350 wing which improved performance further and Delta has several aircraft that add several thousand more pounds of capability. Last year, Airbus introduced yet another enhancement as part of what they termed the A350 New Production Standard which replaced some of the parts on the aircraft with lighter materials and moved some structures on the aircraft adding up to another 7000 pounds of capability as well as improved takeoff performance. Based on fleet data, Delta only has two of the most capable A350s even though all of its future deliveries should include the highest levels of capability that Airbus offers on the A350-900.
All aircraft are certified to carry pre-determined maximum weights which include the weight of the aircraft and its fuel as well as passengers, baggage and cargo; operators can carry more or less passengers and fuel but the total weight of everything must not exceed the certified weight limits. In addition, flight-specific factors might reduce the allowable weight that can be carried such as weather conditions at any point during the flight including at takeoff as well as the altitude of the airports and runways involved. In many cases, these flight-specific factors reduce the allowable weight that can be carried from the pre-determined maximum weights that apply under optimal conditions for a specific or group of a specific aircraft type.
Delta’s original order fleet of A350-900s has 306 seats on each aircraft spread across four classes ranging from its luxurious Delta One suites with doors to Premium Select (Delta’s premium economy cabin); Delta’s economy cabin is subdivided to include an extra legroom class. The used A350s which Delta acquired do not feature the same cabins and seats and are to be renovated for Delta by Airbus Services in the next few years, dependent on the availability of cabin fixtures.
Data analysis including airport and government passenger loads at the flight level indicate that three groups of routes might have proven operationally problematic, resulting in Delta not being able to carry a full load of passengers based on the number of seats it has on its A350s; anonymous internet postings including by airline employees confirms these as problematic flights. Problematic routes for the A350 in Delta’s operations over the past several years including its routes to Atlanta from both Johannesburg and Cape Town, South Africa; its routes from Atlanta and Detroit to Seoul, S. Korea; and its route from Los Angeles to Sydney, Australia. Note that payload restrictions often exist in only one direction of a route. There are specific reasons why each of those routes could be problematic for Delta and they highlight the limitations of the A350-900.
Delta’s routes from both Johannesburg and Cape Town to Atlanta are the longest routes by any airline from both of those two airports. United serves S. Africa from its hubs at Newark and Washington Dulles using the Boeing 787-9 and there are indications that United experiences some but not all of the same issues; Delta’s routes to Atlanta are longer than United’s. Airport and route specific boarding data indicate that Delta has rarely filled its flights from S. Africa to their full capacity and esp. in the S. African summer (which is opposite of the U.S. since S. Africa is in the southern hemisphere); that data indicates that Delta likely has to leave from 75-100 empty seats on its flights from S. Africa during the S. African summer. Johannesburg airport is at 5500 feet above sea level; the air is thinner the higher above sea level one is and higher altitudes reduce the lift that a wing produces. Delta’s flights from Johannesburg are some of the most operationally challenging flights for any airline in the world considering also their length – which regularly exceed 16 hours in the air – not including taxi time. The Boeing 777LR which Delta previously used on the route was not only the longest range aircraft in the world at the time but also had the most powerful jet engines in the world as provided by General Electric and yet there were days when it had to divert enroute for fuel. However, Cape Town is at sea level and Delta recently added nonstop service to/from Cape Town in hopes of being able to add a stop in Cape Town on some of its flights from Johannesburg back to Atlanta. Data indicates that, while Delta is able to fill more seats from Cape Town than it does from Johannesburg, it likely regularly restricts the number of seats it can sell on both of its flights from S. Africa. In contrast to Johannesburg, Cape Town is at sea level but its longest runway is only 10,000 feet long, sufficient for most flights but with little margin for Delta’s flight to Atlanta. Because of winds, the flights from S. Africa to Atlanta exceed those in the opposite direction by an hour or more.
A specific characteristic of the A350-900 might provide insight. The A350 is powered exclusively by two Trent XWB engines built by Rolls-Royce, each producing up to 84,000 pounds of thrust at takeoff. In comparison to other long-range widebody aircraft, the A350-900 has one of the lowest engine thrust to takeoff weight ratios. Even the A350-1000 with its 97,000 pound thrust engines of the same model result in higher thrust and would likely result in better takeoff performance.
Like Boeing, Airbus publishes performance data for its aircraft and their data indicates that the A350-900 could lose 30,000 pounds of allowable weight or more due to summer temperatures in S. Africa– even at night - considering the long flights, the elevation of the airports, and the runway length. Airbus’ performance charts indicate that Delta could face a weight penalty of 100 passengers on its flights from S. Africa which appears to coincide with the maximum numbers of passengers that Delta carries on average during the S. African summer on its flights to Atlanta.
The next group of routes that likely proved difficult for Delta during the winter is its routes from its hubs in Atlanta and Detroit to Seoul, S. Korea where it shares a hub with its joint venture partner, Korean Airlines. Flight tracking data shows that Delta’s flights from the eastern US to Seoul have regularly exceeded 16 ½ hours of flying time in the winter, again excluding taxi time, during the winter. Part of the reason for the extended flight times is the embargo on the use of Russian airspace which adds up to an hour of additional flying time to some routes to S. Korea in addition to the usual strong winter winds across the Pacific and Alaska. Airbus performance data indicate that the A350-900 likely suffers passenger limitations on flights of that length given the configuration that Delta has on its A350s.
The final route that has likely proven problematic for Delta is its route from Los Angeles to Sydney. Although flight tracking data shows that flight often is in the air between 15 and 15 ½ hours, it is known that alternate airports on the route are limited for international aircraft of the size of the A350, necessitating higher fuel loads and limiting the ability to carry passengers. Interestingly, government boarding data indicates that Delta has recently carried close to the full capacity of its aircraft while it did not for a number of years. Flight tracking data provides insights.
As previously mentioned, Delta has only 2 A350s that have the highest level of capabilities and Delta is using those two aircraft on its LAX to Sydney route. The latest updates by Airbus apparently are allowing Delta to operate flights that could be airborne including reserve fuel for well above 16 hours. In contrast, Delta is using its less capable A350s on its Atlanta and Detroit to S. Korea flights as well as its flights from Atlanta to S. Africa. There are a couple possibilities as to why Delta might be using its A350 fleet as it is. Delta’s flights to S. Korea are all part of its joint venture with Korean Airlines; while Delta’s pilot contract has limits on the amount of passengers that can be carried on joint venture partners, Delta does not appear to have performance issues on its flights to S. Korea from its Minneapolis or Seattle hubs; Korean Airlines also flies from Atlanta to Seattle and currently uses a Boeing 747-8 so Delta and Korean continue to have a large presence in the market even if Delta’s flights are restricted from carrying full loads. It should be noted from flight tracking data that winds over the Pacific are easing as winter fades, flight times are shortening and Delta is likely able to carry more passengers. Looking at Airbus performance data, the most capable versions of the A350-900 should allow Delta to operate all of its routes to S. Korea without any restriction on a year round basis and Delta has more than one dozen of those new, most capable aircraft due for delivery over the next 3 years. In contrast, Delta’s decision not to use its most capable A350-900s to/from S. Africa likely indicates that a newer, more capable A350-900 won’t be able to significantly improve Delta’s ability to carry more passengers, indicating that the relatively low thrust of the A350-900 is a limiting factor and Airbus/Rolls-Royce are not offering a more powerful engine option even on newer A350-900s.
Before drawing more conclusions, it is worth looking at how other airlines use their A350-900s. Flight tracking data shows that Singapore Airlines operates the longest A350-900 flights on its New York City to Singapore roundtrip flights; those flights are also the longest commercial flights in the world on any aircraft type. However, Airbus worked with Singapore Airlines to increase the ability to carry more fuel while the airline configures the specific A350s used on those routes to carry only 161 passengers in a business class/premium economy only configuration. However, Airbus has now surpassed the capabilities of those specially configured A350s and extended them to “normal” A350s which Singapore Airlines uses to operate its Los Angeles to Singapore route; those flights are in the air for over 17 hours during the winter; the airline’s configuration for those aircraft seats 253 passengers, proving that the A350 is capable of very long operations with the most capable aircraft.
Part of the solution to Delta’s operational limitations might be to reduce the number of seats on its A350-900s and some internet chat forums indicate that the airline is planning to do that, increasing the number of premium seats in the process. Data indicates that Airbus does offer A350-900s that can fly even further than what Delta is currently doing and which are capable of addressing most of the operational challenges which Delta faces with its current fleet other than the very specific issues it faces from S. Africa.
Competing Aircraft
At look at competing aircraft which Delta might consider includes the A350-1000. While Airbus has delivered over 450 A350-900s, there are just 70 A350-1000s in service. The larger A350 carries 30-50 more passengers but is actually more capable than the smaller -900 which is usually not the case with commercial aircraft programs where larger versions of the same aircraft family are often less capable. The more powerful engines and greater range, however, likely decrease the incremental gain in efficiency that comes from larger versions in the same aircraft family. Nonetheless, Delta execs previously stated that they were comfortable with their strategy of sourcing their widebodies from Airbus which explains their statement that they were seeking approval to buy A350-1000s made sense.
The A330NEO, of which Delta operates 20 of the -900 model, seats about 20 less passengers and flies several hours less; Delta’s use of the A330-900 is on shorter transpacific routes as well as from the U.S. to Europe.
The primary reason why there has been a long pause in the announcement of the expected Delta A350-1000 order is that Boeing appears to be engaged in an aggressive sales campaign at Delta to convince Delta that Boeing’s products might be better for Delta than the A350-1000 and perhaps the A330NEO.
Boeing’s widebody lineup includes the 787 family which is in production and of which there are over 1000 in service and the 777X which remains in development and is expected to enter service in 2025.
Like the Airbus A350, the Boeing 787 is built from carbon fiber reinforced polymers with the wings and fuselage almost entirely of the lightweight metal replacement. The 787 has suffered a number of issues including being grounded due to problems with the electrical system and later with production problems at Boeing’s relatively young Charleston, SC plant.
The 787 started with the 787-8, the smallest member of the family which Boeing positioned as a replacement for the 767 family. Delta inherited an order for 787-8s in its merger with Northwest but cancelled the order after assessing that the 787-8s which Northwest had on order – some of the earliest copies of the new jet – were too heavy and didn’t offer enough cost savings. In fact, cost data provided by American and United indicates that the total operating costs for the 787-8 are not lower than what United and Delta spend to operate their 767s including ownership costs. Sales of the 787-8 slowed significantly once the larger 787-9 became available. American has ordered 787-8s as replacements for its 767 fleet which was retired during the pandemic. United says that it will use some of its 787 orders to replace 767s but it is not known if UAL will use 787-8s or -9s because United does not provide detail by aircraft type submodel to investors. It is not likely that Delta will order the 787-8 since Delta was a large proponent of the New Midsize Aircraft that Boeing has now said would not be built before 2030 and likely much later than that; while Boeing could reduce the acquisition price of the 787-8 to make it economically competitive, Delta appears more interested in upgauging to larger aircraft than to replace the same size aircraft with minimal cost savings.
The next aircraft in the 787 family is the 787-9 which is the longest range and best-selling model of the family – similar to the 767 model. In comparing to the A350-900, the 787-9 is smaller in size and does not offer a range advantage. Since it has more powerful engines relative to the maximum takeoff weight, the 787-9 has better performance at critical airports but there simply are not that many airports that Delta serves to justify adding the 787-9 in addition to the A350-900.
The 787-10 is the largest aircraft in the family and it is the aircraft that Delta would likely be interested in if it acquires 787s. The 787-10 seats approximately 310-320 seats in a Delta-style configuration, larger than the A350-900 but less than the A350-1000. However, the 787-10 does not have the range of either A350 submodel and therefore weighs less, resulting in some of the best operating costs per seat among new generation widebody aircraft. Not all routes need the most capable aircraft and the 787-10 could be a very efficient aircraft for Delta’s transatlantic route system. United operates nearly two dozen 787-10s and its order for 100 787s likely will include dozens more of the largest 787 model. One of the longest routes that the 787-10 currently operates is UAL’s route from Chicago to Tokyo/Haneda, demonstrating that the 787-10 could operate a number of routes that Delta operates across the Pacific at lower seat mile costs than anything else in Delta’s fleet. Boeing is also reportedly working on enhancements to the entire 787 family that would increase the takeoff weight, potentially adding an hour or more of additional flight time.
Boeing is also offering the 777X to Delta and that is where the sales pitch could become even more interesting. Although Delta previously operated the 747-400, it did not replace the 747 with a similar sized aircraft; American and United each acquired approximately 20 late production 777-300ERs which Boeing reportedly aggressively discounted. Delta’s 747s heavily served its hub at Tokyo Narita; the future of that hub was cloudy when the 747 was retired and has since been disbanded, replaced by new access at Tokyo Haneda just for the local market and a joint venture hub with Korean Airlines at Seoul.
The 777X is the latest generation of the 777, Boeing’s best-selling widebody, and began to be designed at about the same time as the A350-1000; however, delays with the 777X due in part to challenges with the 787 allowed Boeing to refine the 777X. The 777X has an all-new carbon fiber wing but retains the aluminum fuselage of other 777s, making the 777X a technological hybrid compared to the B787 and A350. The 777-9 will become the world’s largest twin engine aircraft, able to fly up to an hour further than the 777-300ER while adding 3 more rows of seats or up to 30 more passengers. Boeing claims that the 777-9 will reduce operating costs per seat by more than 20% compared to the 777-300ER and best the A350-1000 by 10%, largely because of the larger number of seats. In a configuration comparable to what Delta might use, the 777-9 should seat between 360 and 390 seats, several dozen more than what the A350-1000 might seat. The A350-1000 should be able to fly further than the 777-9 but Boeing is also promising to build the 777-8 which should seat approximately the same number of seats as the A350-1000 and fly just as far; Boeing says the 777-8, due to enter service several years after the 777-9, should beat the A350-1000s cost per seat by a low single digit percentage. The operational advantage of the 777-8 would be that it would be, like the 777-200LR, very generously powered by new generation General Electric (GE) engines allowing the 777-8 to operate the most operationally challenging routes in the world including Delta’s routes to and from S. Africa.
Before looking at several comparative factors that could shape Delta’s aircraft purchase decision and Airbus’ ability to retain its advantaged position as a supplier to Delta, let’s consider some characteristics that have defined Delta’s aircraft purchase strategies. First, Delta is opportunistic in its fleet purchase decisions. While some airlines order large numbers of a specific aircraft model years in advance, Delta tends to order smaller quantities and do so more often, likely allowing it to obtain more aggressive pricing. U.S. DOT data indicates that Delta has one of the lowest ownership costs per seat mile for its fleet among U.S. airlines. Second, Delta embraces fleet complexity rather than simply chases fleet simplicity. While it is clear that fewer fleet types reduce operating costs, Delta uses its fleet complexity to best match aircraft capabilities to route needs and to increase its maintenance capabilities which it then markets to other airlines. Third, Delta is a tough negotiator. When it acquired the fleet of Boeing 717s which Southwest gained as part of its acquisition of AirTran Airways, Delta negotiated for Southwest and Boeing to cover the cost of retrofitting those aircraft before LUV disposed of them. More recently, Delta negotiated an engine maintenance agreement as part of its purchase of 100 737 MAX 10 aircraft along with a provision for Boeing to retrofit the cabins of dozens of used 737-900ERs which Delta bought from an Asian airline. Fourth, Delta has shown that it is willing to buy used aircraft with a preference for narrowbody aircraft while buying newer technology widebody aircraft, saying that the cost of retrofitting cabins on used widebody aircraft often diminishes the value of buying those aircraft used. Further, new generation widebody aircraft usually have greater improvements in operating costs per seat than narrowbody aircraft, making it worth buying new generation widebody aircraft. In addition, Delta’s fleet strategy has been focused on upgauging, or increasing aircraft size, using improved aircraft and engine efficiencies to allow more passengers to be carried at the same or lower costs as previous generation aircraft, reducing costs per seat while increasing revenue. Delta has upgauged its domestic fleet so that it has a higher average aircraft size than American or United but still has scores of smaller widebodies in its 767 fleet. Delta’s rich new pilot contract significantly increases labor costs esp. for international flights but using larger aircraft helps offset the cost increases per passenger. Finally, Delta likes to be a follower in aircraft purchase campaigns; by allowing other airlines to go first in their buying decisions, Delta is able to tailor its fleet purchases to maintain its competitive cost and revenue generation advantages.
Engine Manufacturers Might Make or Break the Deal
A final consideration that will be play in this order is the role of the engine manufacturers’ willingness to negotiate with Delta which operates the largest airline maintenance, repair and overhaul - MRO - operation in the western hemisphere. Delta Tech Ops not only repairs and maintains Delta’s fleet of 900 aircraft as well as some components for its regional carriers but also does repairs for other airlines. The focus of Delta Tech Ops’ services is aircraft engine maintenance; Delta recently opened one of the largest jet engine test cells in Atlanta where it overhauls hundreds of engines per year for other airlines at profit margins that exceed what Delta makes for air transportation. DAL does not break out revenues for Delta Tech Ops but says it wants to grow revenues from that division by billions of dollars in the coming years.
Delta is unique among U.S. airlines and even among major global competitors in having the rights to maintain and overhaul every engine on every new aircraft it has on order; those rights include the licenses to repair and overhaul the Pratt and Whitney Geared Turbofan which powers most new generation narrowbody aircraft except for the B737 MAX as well as all of Rolls-Royce’s new generation engines powering many widebody aircraft including exclusively all new generation Airbus aircraft and as a choice on the Boeing 787. Delta also has overhaul rights on some older GE engine models.
Delta stated when it placed its current order for the A330NEO and A350-900 that Rolls-Royce’s selection of Delta as an authorized maintenance provider for new generation Rolls-Royce engines was a major factor in Delta’s choice of Airbus over Boeing for new generation aircraft – which at the time included the Boeing 787 family. Rolls-Royce had a rocky initiation for its Trent 1000 engine that powers the 787 with dozens of new aircraft having to be removed from service in order for components to be repaired and replaced. As an authorized Rolls-Royce repair facility, Delta has repaired engines that power the 787 even though Delta does not operate that specific engine or airframe. Delta’s engine maintenance contracts not only allow Delta to reduce the cost of maintaining its own engines but also to essentially subsidize its own engine maintenance costs with work from other airlines. The Rolls-Royce engine that powers the A330NEO is closely related to Rolls-Royce’s engine on the 787 but has not suffered the same problems as the Trent 1000.
While Delta is usually very reserved in making public comments about its aircraft or engines, other operators have noted that the Rolls-Royce Trent XWB which powers the A350, although reliable, is requiring overhauls much sooner than expected. As an A350 operator for more than five years and with access to Rolls-Royce maintenance data, Delta is certainly able to confirm if that is true. If true, Delta, while careful to not harm its relationship with the British engine maker, is certain to be looking for compensation even at a time when Rolls-Royce is trying to restructure its business and overcome almost $2 billion in losses related to engine repairs under warranty and lost revenue during the pandemic.
General Electric engines exclusively power the Boeing 777-200LR and -300ER and will power the 777X. As the leading engine maker in the world, GE has the largest market share on the 787 where its engines are also an option. Delta does not operate any of GE’s latest generation engines and does not have the right to service any of them. GE does more of its engine overhauls in-house than Pratt and Whitney or Rolls-Royce but does have relationships with other companies and airlines that are authorized to service its engines, including its latest generation models. Delta won the right to service the LEAP engines that power the 737MAX as part of Delta’s order for 100 MAX 10s.
It is certain that a deal for Delta to acquire the Boeing 777X hinges on Delta’s ability to not only maintain engines on its own fleet of 777X, if acquired, but also to make money repairing other airlines’ engines. While Rolls-Royce does offer engines on the 787, Delta could very well want to acquire GE engines for the 787s if it acquires those aircraft in order to be able to gain a new revenue stream for contract engine maintenance. From a technical standpoint, Delta is in a unique position to know the strengths of each engine. Finally, it is worth noting that Delta’s current CFO and EVP, Dan Janki, who joined the company in 2021, came to Delta after 25 years at General Electric where he was in a number of leadership positions. Whether Delta orders Boeing widebodies very likely hinges on negotiations with General Electric.
In determining whether Airbus can hold onto Delta as one of its largest customers for widebody aircraft (American is currently the largest Airbus operator in the world but does not operate any Airbus widebody aircraft), several factors will likely shape Delta’s purchase decision and determine whether Airbus remains as Delta’s exclusive provider of widebody aircraft, whether Airbus splits a deal with Boeing for additional aircraft, or whether Boeing wins Delta’s widebody business for the first time in nearly two decades.
First, Delta has seen the strength of the recovery develop over the past six months since news of the potential A350-1000 order emerged, esp. to and from Asia. While the A350-1000 might have seemed like the largest aircraft Delta would have considered at the time, the larger B777-9 might be appropriate for Delta’s expected route development. The A350-1000 might also provide a nice step up in size and increased capability between Delta’s current and future A350-900s and a potential addition of the Boeing 777X. Airbus resolved a nasty dispute with Qatar Airways, the launch customer for both A350 models, after the Middle East airline grounded parts of its A350 fleet based on safety accusations related to degradation of the A350s paint. Reinstatement of Qatar Airways remaining orders as well as new orders from other airlines has reduced Delta’s ability to negotiate for discounts on the A350-1000.
Second, Boeing’s ability to correct problems with the 787 and to further development of the 777X has progressed in the past six months. While the A350 is a proven aircraft with known performance and economics, Boeing’s ability to convince Delta that its products will be available when Delta needs them and offer industry-leading economics and performance has increased.
Third, as one of the largest and most profitable airlines in the world, Delta is certainly sensitive to the political considerations involved in its aircraft decisions. While Airbus builds A220 and A320 family narrowbody aircraft in the United States, all Airbus widebody aircraft are assembled in Europe, even though all commercial aircraft have major components that are sourced from around the world. With the possibility of being able to acquire a new generation small and medium sized widebody from Boeing being eliminated for perhaps a decade, Delta might at least internally believe there is a need for it to buy some widebodies from Boeing esp. as it inevitably begins retiring its U.S. built 767 fleet over the next five years.
Fourth, while Delta might have originally been planning to order just 20 A350-1000s, a relatively modest number for a widebody fleet of over 150 aircraft, the possibility of ordering from two Boeing models and also gaining maintenance rights might be forcing Delta to increase the size of the order significantly, leading to greater analysis before making a much larger financial commitment.
Fifth, it is also worth noting that most of the global airlines that have ordered the Boeing 777X are also operators of the Airbus A350 in one or both of its two sizes. While fewer global airlines also operate the A330NEO, Delta could decide to continue purchasing the A330NEO, for which Delta is already the largest customer, while buying larger aircraft from Boeing.
Finally, it is noteworthy that not a single airline from the western hemisphere has ordered the 777X. Unless Boeing sells the 777X to an airline in North or South America in the next two years when the 777X is expected to enter service, the 777X will become the first aircraft model in Boeing’s history that has not been ordered by a U.S. airline – and U.S. airlines have launched many of Boeing’s jetliner models.
With the smallest widebody order book after 2025 among global carriers, the pending retirement of scores of 767s later this decade, and a booming international travel market, Delta will have to make decisions about fleet spending. While Airbus might have seemed like a shoe-in just a few months ago, Delta is now once again also considering Boeing widebodies which might provide better operating economics as well as provide new high-margin maintenance revenues – if all of the pieces of multiple negotiations can fall into place.
Airbus is a Buy With or Without Delta
While Airbus is selling and delivering more narrowbody aircraft and has led Boeing in widebody deliveries because of the grounding and delivery delays of the Boeing 787, Boeing still leads Airbus in widebody aircraft backlogs. Airbus' finances, while stronger than Boeing, could use a significant boost from a large Delta order. Airbus stock remains a strong buy based on the limited U.S. analyst coverage and a buy from Seeking Alpha analysts although the Seeking Alpha Quant rating yields only a Hold weighed down by earnings revisions and growth.
Delta reports its earnings on April 13, 2023, providing yet another opportunity for the company to provide insight on its fleet plans and see if Airbus is any closer to signing up Delta for more widebody jets.
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Tim Dunn
Focus on multinational transportation companies. Mercosur economies.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of GE, DAL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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