Clinging to the Present: Other big airlines are joining Delta in forsaking big next-gen jets for current models
More and more, large airlines in North America and Europe, in particular, are changing their thinking about buying planes. They’re sticking to commitments for future generation models, yes, but simultaneously acquiring an appetite for current-generation ones too.
Delta, the pioneer of many now-common industry tactics and strategies, was the first global giant to make present-generation planes sexy again, after years of extreme fuel price volatility caused most carriers to buy only the most efficient next-generation aircraft. Airbus and Boeing could barely keep up with all the NEO and MAX orders. B787s, A350s and future B777-Xs generated equal zeal on the widebody side. Many of these orders, moreover, were giant transactions for more than 100 units. New and future was hot. Used and present was not.
Enter Delta, whose CFO Paul Jacobson discussed the carrier’s unusual fleet strategy at a Raymond James investor conference in New York last week. After merging with Northwest, he explained, Delta’s scale and buying clout became so amplified as to change its negotiating leverage with aircraft manufacturers. But this time, that didn’t mean even bigger orders in exchange for even better per-unit prices. Back in the 1990s, to secure the very best discounts and very best terms and conditions from Boeing, Delta agreed to a long-term exclusive buying agreement with the plane builder, involving years of heavy commitments. But more recently, after becoming the world’s largest airline by some measures, it could secure those same favorable prices and terms even while ordering more modestly. In 2011, Delta placed a rather big order for 100 B737-900ERs, but it also more or less canceled its B787 order (18 B787-8s technically remain on the books but are deferred many years into the future). Nor did it order any future-generation MAXs or B777-Xs. So in a sense, even the -900ER order was modest for an airline of Delta’s scope and size. The story is similar with Airbus. Delta ordered no NEOs—not even A330-NEOs, which it encouraged—nor A350s. Instead, in 2013 it signed a deal for 30 A321s and 10 A330-300s, thank you very much. Delta has not a single future-generation unit of anything on order with either manufacturer.
Ostensibly, Delta was holding back on airplane buying to reduce its capital spending, en route to improving what was once a horribly scarred balance sheet. But as Jacobson explained, the approach had another important…
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