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Delta to Airbus and Boeing: Sell us your old model jets

Delta doesn’t want ‘game changing’ jets. It apparently wants bargain basement new copies of existing jets. And is big enough to make Airbus and Boeing compete in a way they would rather not have to.

According to reports Delta has set Airbus and Boeing a fascinating challenge.

It has asked them to bid for an order for a batch of,  some say 30, brand new copies of their ‘old’ or ‘current’ technology 737s or A320s for deliveries starting in 2017 or 2018.

Which is several years after Airbus is supposed to begin deliveries of its high tech, or new engine option A320 family, and about the same time Boeing brings on its competing offer, the 737 MAX family.

Both jet makers are currently aggressively competing to sell current technology jets for current use, often in conjunction with orders for the new tech versions, as already seen AirAsia, Jetstar, and Silk Air for example. But they are not competing to sell what is available today for delivery well after their newest replacement versions of those jets come on line.

Delta wants to lock in the best jets on offer today at a much lower price than the new versions, for delivery in four to five years time. If they get their way, that is like setting up a guaranteed operating advantage over rivals with newer fleets well into the future.

The question then arises as for how long the benefits of a much lower purchase price per 737 and A320 will deliver more to the profit and loss accounts for the airline than the more costly buy will return in lowered fuel consumption and maintenance costs.

This isn’t a question that the sales teams at Airbus or Boeing would really like to address in terms of Delta’s requirements, but Delta is the world’s biggest airline, and a deal is a deal, and there is always a future order to consider from a carrier so large than outsourcing its maintenance has never made sense, since it can always do it for less, and with total control over the quality of the work, in its own hangars.

In a way this is a problem Airbus notably faces with its current A330 line. The jets are well understood, reliable and thrifty, especially the -300 on routes like Sydney-Hong Kong with a flight time usually of around 8.5 hours. Their natural competitor is not just the Boeing 787, but Airbus’s own, and slightly larger A350 family. But one of these newer competitors, the 787, is grounded, and the other yet to fly, but also fitted with the same lithium ion batteries that are the focus of so much Dreamliner angst at the moment.  Both the 787s and A350s promise huge advantages in operating costs over the A330s, yet according to some analysis are not actually doing, or going to do so over certain range-payload flights. The A330 keeps being refined to narrow the gap between itself and the new types, and might actually equal or surpass them for some operational purposes if new tech engines were also fitted to its wings.

There is little room to doubt that the newer jets will render the established jets, whether current 737s, A320s or A330, obsolete over time.  But how much time? If the buyer of an A330 in 2015 is going to churn it back to the leasing company in six years time, before the maintenance bills climb, it might be that by 2021 the Dreamliners and A350s only had a convincing upper hand when purchase price and operating costs are taken into account for the last two years of the lease. The benefits of new jet types are often only bankable as the design and its operations mature. New types can have ‘bugs’, as the 787 is already proving.

The old model jet might then have delivered a far better return than the newer but more expensive jet despite all the reductions in fuel burn and engineering support.

Its a quandary that quite a few airlines might be contemplating today, as they juggle the dazzle of brand new 737 MAXs and A320NEOs or 787s and A350s against known, less expensive, and  reliable available airliners.

If there is one term that is overworked, and dangerously so, it is ‘game changer’. ‘Game winner’ has a much better ring to it.

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  • 1
    Slingshot
    Posted January 24, 2013 at 2:16 pm | Permalink

    It makes you wonder why qantas didn’t push hard for a batch of 777s when the first delay of the 787s occurred. Instead, the attractiveness of the cash paid by boeing was too hard to go past for the smartest guys in the room.
    The alternative would have needed a proactive approach by qantas management and be of the mindset that qantas premium passengers and the product they desire, were worth investing in. Sadly the corporate ideaology doesn’t extend beyond blowing millions in fighting with staff and trying to sell muffins on jq to make a billion dollar profit.
    What a different place it may have been, if such a plan was hatched.

  • 2
    TT
    Posted January 24, 2013 at 3:09 pm | Permalink

    I would like to think Boeing might be in a better position than Airbus to score such deal. On paper, there are multiples final assembly lines for both B737/A320 (2 for B737 going to 3 lines in a few years; I think there are fourth A320 lines just added in China), for which Boeing/Airbus can keep one line open to produce current models and the rest for MAXs/NEOs in a few years’ time for Delta (or other airline) orders.

    However, to keep an assembly line open for 30 “legacy” models a few more years just after the new models start production? That might not be economical on paper, given their current rate of production is roughly 20 B737/A320 per month per assembly line (obviously Boeing/Airbus can and would slow rate the production rate). Unless they can secure other customers for such “legacy” models after the new models made available, than the sums might not add up.

    However, Boeing has an advantage that the same assembly line will be used for producing P-8 Poseidon (same airframe as current B737-NG or BBJ), so they would naturally have one assembly line still open for B737-NG). If Boeing is smart enough to manage their production slots between P-8 and Delta’s order effectively, Boeing would probably ended up with more savings than Airbus than. I don’t think Airbus have that many military variants of their A320 in their pipeline as Boeing does.

  • 3
    Aidan Stanger
    Posted January 24, 2013 at 5:35 pm | Permalink

    Looks like a bad strategy on Deltas part. What’s the point of buying new aircraft when you can get identical used (but still airworthy) ones much cheaper?

  • 4
    keesje
    Posted January 24, 2013 at 7:55 pm | Permalink

    I think we are looking at the A321 here. Delta, Boeing and Airbus know it’s has more payload range capability and better airfield perfromance the the 737-900ER’s Delta ordered in 2011. In the Caribbean and other hot places it makes a big difference.

    Airbus wants to get back into Delta deliveries, Boeing wants to keep them out. Delta knows what it needs and wants to get rid of some smaller RJs. Delta has taken no decision on MAX vs NEO so longer term strategy is also on the agenda.

    UA/CO isn’t a done deal either IMO after their MAX order. They have a huge 757/762 fleet and the GTF A321 NEO is the best deal around. With a well filled order backlog Airbus is asking a premium.
    http://www.airbus.com/presscentre/corporate-information/key-documents/?eID=dam_frontend_push&docID=14849

    Savvy smart Delta/NWAC isn’t into premiums..

  • 5
    Achmad Osman
    Posted January 24, 2013 at 8:07 pm | Permalink

    The complication is that the re-engined jets value comes from the new engines. That is, Air-framers would make the same profits irrespective of the engines, current or new. However, the development costs of fitting the the new engines have to be amortised.
    So it would not really matter to either air-framer whether they sell the old or new if the volumes are sufficient.
    I can fully appreciate Delta’s plan as the re-engined jets may not necessary be more fuel efficient on every mission. The additional weight of the new engines require longer journeys to claw back cost savings over it’s lighter ancestor.

  • 6
    ghostwhowalksnz
    Posted January 25, 2013 at 12:32 pm | Permalink

    Wouldnt the issue be the flight and engine management software. if you make additional airframe changes to accomodate the larger diameter engines could you just leave off the engines but still use the old software.
    Maybe there is an opening here for the A320 Chinese production line ( which would suit airbus keeping back its latest technology)

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