Saturday, April 19, 2014

Delta's Purchase Philosophy For Wide Bodies

Analysis of Delta’s Widebody Replacement Options for 767-300ER and 747-400 presents talking points and analysis of what  Delta may do when it comes to fleet wide body renewal. I will offer some counter points for its interpretations of buying older proven technology vs all new technology, when it scraps the aging Delta wide body fleet.

Delta strategy and philosophic channeling for Capitalization is a key part of its focus.  Buy cheaper older proven technologies, while avoiding high purchasing prices and follow-on high interest costs generated by the newest technology purchasing premium. That strategy will buy a lot of fuel and make up for lost efficiency when using proven current technology purchases like the A350 or 777's. Its a Ryan Air-like approach. On the table are those RFP aircraft from both Boeing and Airbus that are in play as charted below from Airchive,com web site.

Our (Airchive) full analysis is displayed below.

AircraftBoeing 777-9XA350-1000Boeing 777-300ERBoeing 747-400
Fuel Cost$92,739$80,619$95,937$116,084
Maintenance Costs$13,837$12,282$16,687$20,859
Crew Costs$20,447$19,257$19,257$19,257
Navigation and Landing fees$11,286$10,791$11,039$11,694
Total Operating Cost$138,309$122,949$142,920$167,894
Cost per Aircraft Mile$25.15$22.35$25.99$30.53
Number of Seats – 3 Class407350360376
Operating Cost per Seat Mile$0.0618$0.0639$0.0722$0.0812
Capital Cost$41,387$37,037$24,780$12,181
Total Operating Cost$179,696$159,986$167,700$180,075
Total Cost per Aircraft Mile$32.67$29.09$30.49$32.74
Total Operating Cost per Seat Mile$0.0803$0.0831$0.0847$0.0871

The A330 NEO is a pending consideration for Delta as it needs further information about the aircraft.

Secondly, it does not fit its philosophy of venturing too far out from the development box, as it did when purchasing the 787 order. Even though they like the idea of going low-ball on the A330-NEO, and obtain an early place in the A330 NEO first delivery line, is a no start issue. The paper efficiency for a A330 NEO is questionable as Airbus has not made its mind up on whether to scrape the A350-800 project or go NEO for an interim period of time, until they get it right for the A350-800.

Delta would would like assurance on aircraft performance and reliability. A proven design is requested on this proposal. Airbus has dumbed down the A350 as it strives to deliver a fault free A350-900. They will thumb its nose at Boeing if it does. Boeing will have close to 200 787-8s and 9s flying by years end, and say it is the most advanced aircraft in the world, while Airbus only can copy with a simpler A350. Both taunts are lost on customers. Airbus would like Delta to stay true to its mantra of only flying what is proven. Boeing has made up tremendous ground with its 787 as proven ground. It will be in service for three years soon.

Back to the prize, the 777X and A350-1000 battle for Delta.  Neither the A350-1000 or 777X have flown. The 747-400 is getting old. What has not been considered in the Airchives article, is the economic and proven ability of the 747-8i. Snap, that fits Delta's own philosophy of sticking to the basics with high reliability. The 747-8i is a dark horse rising. You hear no Lufthansa grips and complaints. Delta could sneak on more than four hundred passengers on this bird, and pass the fuel bill over to the Accounts Payable division, where they may not even notice that 747-8i fuel cost at Delta. Go ahead replace the 747-400 with 8i's they may arrive sooner rather than later with its proven track record, where even the  A350 can't even muster a record, since it hasn't been built or delivered. The 747-8i is not on the above chart. I would like to see the comparison rather than the 747-400 unit costs. It would make an interesting horse race with its many more per seat cost per mile. Delta then could wait for its 777X RFP as it develops. It will receive is 787-8's and find out how well this aircraft operates. Boeing customers have used these 787's during the last three years as Boeing has executed  a frantic catch-up of reacting its proposed value for a Wonder-Plane. The press can't write hardly an article without reaching back reminding the public of its past glitches from the firs two years.

Delta could surprise everyone with 787-10 and 747-8i's orders.     It would have relative position for both production lines and meet its expectations on reliable aircraft sporting the newest efficiencies. Doe this kill the A330 NEO and the A350-900 or 1000? Yes ,on all three counts. Delta meets its strategic goals as well as keeping its vision intact by buying a Boeing suite of proven aircraft while shocking the airline world.