Boeing Lands Delta Deal Airline To Purchase Up To 644 Jetliners
Delta Air Lines’s announcement Thursday that it will buy at least 106 planes from Boeing Co. in an exclusive 20-year agreement was described by analysts as part of an industrywide trend of standardizing fleets to trim costs.
Delta President Ronald W. Allen said the company has agreed to buy 106 planes for a list price of $6.7 billion by the year 2006, with an option to buy an additional 538 planes over the next two decades at a set price.
The airline also placed an $800 million order for CFM56-7 engines to power 70 Boeing 737 jets, Cincinnati-based CFM International said Thursday.
The agreement with Seattle-based Boeing allows Delta to change its order and switch the type of aircraft, such as from a wide-body airplane to narrow-body, Allen said.
“This flexible and disciplined fleet acquisition plan gives us the right aircraft at the right time and at the right price to build on Delta’s competitive advantages,” he said.
The deal is similar to one between Boeing and American Airlines that was signed last year. American committed to buying 103 jets worth $6.6 billion by 2001, and in exchange it has the option to buy another 527 at locked-in prices as they are needed over the next 20 years. That was a switch from the rigid delivery schedule that had characterized typical airplane deals.
Delta, which carries more passengers than any other airline, had been shopping around for jets to replace all 55 of its L-1011s, about 10 percent of its jet fleet, and add additional aircraft to expand it routes in the west and north.
As recently as last week, the airline said it hadn’t yet ruled out buying the planes from Airbus Industrie - a European consortium.
The deal with Boeing includes 737s, 757s, 767s and an option on the 777, the largest two-engine jet ever built. It seats about 360 people.
The move allows Delta - which currently has aircraft from six types - to simplify its fleet to three, making it easier to stock parts and make repairs, said Harry Alger, Delta’s vice president of operations.
“This time around the airlines are being conservative. A big part of Delta’s order is meant to be replacement aircraft,” said Raymond E. Neidl, an analyst with New Yorkbased Furman Selz.
Julius Madlutis, an analyst with Salomon Brothers in New York, said Delta was simply modernizing its fleet, “just like the rest of the airline industry.”
Historically, “boom and bust” cycles have plagued airlines and aircraft makers. Airlines typically order planes during a financial bonanza and none during down periods.
Boeing spokeswoman Janice Hayes said the company was equipped to meet the needs of both Delta and American. Boeing has an agreement to acquire McDonnell Douglas, which would provide many new workers.
“Boeing is feeling confident it can keep a lid on its cost-structure,” Neidl said.