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Delta Chooses Airbus over Boeing for 40-plane Order

Wednesday, 04 September 2013 05:01 PM

Delta Air Lines Inc announced an order for Airbus jets on Wednesday worth $5.6 billion at list prices, softening its reliance on Boeing for the first time in two decades as it looks for plane bargains.

The order, crowning a months-long competition between the transatlantic plane-making rivals, includes 30 A321 narrowbody planes to be used on domestic flying as well as 10 A330-300 widebody aircraft for international routes. Deliveries will be between 2015 and 2017.

Analysts said Delta may have won a steep discount after holding out longer than most of its rivals for lower prices as Europe's Airbus seeks to expand recent successes in Boeing's home market.

"I would be surprised if Delta didn't get a phenomenally good deal," said Adam Pilarski, senior vice president at U.S.-based aviation consultants Avitas.

Both the aircraft types and the delivery schedule – between 2015 and 2017 when both major plane makers are keen to keep up production of existing models before switching to new variants – underscores the probability of competitive pricing, he said.

Airbus sales chief John Leahy said competition for the deal had been tough but denied the price was abnormally low.

"This was a competitive price, but I don't believe it was any different from normal. We don't talk about detailed pricing," he told Reuters in a telephone interview.

Delta declined to comment on pricing but said it also considered the 777-300 and 737-900ER models from Boeing in its decision. Boeing said it had tried to secure a deal that made sense for Delta and itself.

Shares of Delta closed up 2.4 percent at $20.31.

In Paris, Airbus parent EADS rose almost one percent, outperforming a fractionally firmer blue-chip index.



Atlanta-based Delta operates Boeing and Airbus aircraft. The latest deal is the first major Airbus order under the Delta brand since the 2008 acquisition of Northwest.

However, Delta has yet to join an industry-wide stampede for a new generation of narrowbody jets with fuel-saving engines due to enter service from the middle of the decade.

Its executives say they prefer to keep a lid on aircraft ownership costs and manage exposure to high fuel prices partly through its own recently acquired oil refinery. Delta, which earlier this year restarted a dividend and launched a share buyback, said the Airbus planes will help it improve return on invested capital from the time they go into service.

Chief Executive Richard Anderson told Reuters in May that Delta would wait for the upcoming generation of revamped jets to prove themselves before ordering any.

Analysts say Airbus and Boeing are, meanwhile, offering attractive end-of-the-line prices for the corresponding existing models such as the "A321ceo," which seats around 190 people.

In 2011, Delta ordered 100 similar Boeing 737-900 extended range models due to be delivered starting later this year.

The current A321 sells for $104 million at list prices, about 9 percent less than its re-engined version due to enter service from late 2015. The jet is part of the European manufacturer's A320 family that competes with the Boeing 737.

In practice, jet aircraft typically sell for about half their catalog value for favored clients, analysts say.

Like the A321, the larger long-haul A330 is also part of Airbus's existing portfolio, competing on price and availability with Boeing's modern carbon-composite 787 Dreamliner.

More than three years of delays getting the 787 into service allowed Airbus to improve the A330, analyst Scott Hamilton, of Leeham Co, said in a review of Delta's fleet purchases.

The expectation of the 787 killing the A330 "hasn't worked out," he said.

Delta has deferred its delivery of the 18 787s it has on order to 2020-2022. Those jets were ordered in 2005 by Northwest Airlines before it merged with Delta.

Barclays analyst Carter Copeland said he didn't see Delta's Airbus order as a "any particular big blow" for the 787 or the revamped 737, both of which have sizable backlogs.

© 2020 Thomson/Reuters. All rights reserved.

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Delta Air Lines announced an order for Airbus jets on Wednesday worth $5.6 billion at list prices, softening its reliance on Boeing for the first time in two decades as it looks for plane bargains.
Wednesday, 04 September 2013 05:01 PM
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