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Jan 24, 2013

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.

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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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