Wednesday, April 12, 2017

What A Delta-Airbus Order Cancellation Means

Delta Airlines back in the year (2014) gave way to Airbus’ charms and ordered up $14 billion worth of wide bodied aircraft. It ordered 25 of A-350-900’s in a disastrous November month for Boeing during 2014. It turns out the order maybe just Airbus eye candy as Delta ponders future growth and types for its fleet. The same Ground Hog Day prognosticators have beckon forth a prediction for wide bodied sales taking a dip back into its hole.

Image result for shrugging delta Airlines shrugs

Boeing not being discourage over the ground hog’s tunnel scat kept churning out the 787 as fast as they could. Many-many customers have 787’s and are making money using the aircraft. The A-350-900 have delivered 77 units and Delta appears to blink over the whole ordeal.

Now for some ground hog updates from "Winging It" in some kind logical blather. What has changed and what will come is the core of all future blather. Delta is finally exhaling on its wide body order status. There are several conditions which may turn Delta into a new heading.

Modify the Airbus order with:
  • Cancellations,
  • Deferrals,
  • Or a tip towards the 787-10.

A combination for all three exist for Delta as Airbus squirms at all three options listed above. Cancellations bode badly for both Airbus and Boeing as it will be unlikely Boeing will spin some sales under that situation with Airbus trouble.

Deferrals is a manipulative move by Delta waiting for fuel price increases before ordering more Wide Body such as the A-350 product. The Delta decision making dilemma is an internal matter where Airbus could be thrown under the “bus” in various combinations of a purchase order changing. The bus stop does not help Boeing at all as it will apply only to whatever wide body product Delta is tampering with during this decision period. The best Boeing can hope for is complete cancellation and another go at Delta in 2020. The market experience will influence Delta more than any sales pitch from either Boeing or Airbus at that time. Once again by 2020, the 787-10 will be in service strutting its stuff and Boeing has a reload shot at Delta who may also have a hidden agenda by seeking something other than the A350-900.

The A-350-900 may fly beyond Delta’s market structure. Rather than have a 306 seat aircraft flying 8,000 miles it could use better a 330 seat aircraft within its market footprint. Otherwise the A-350-900 maybe too much aircraft for a Delta market place. 

The more efficient 787-10 maybe just right for Delta planning when filling seats under 6,000 mile range above 80% capacity goal. It will be hard to find customers going in the 7,000 mile range for every 306 seat flight. The A-350-900 is wasted space flying that far. It pushes too much weight when having an empty seat syndrome for its bottom line. Delta is a prime candidate for drawing a 6,000 mile circle from corporate headquarters from Atlanta, Georgia. This would include South America, The Pacific Rim and Europe. Not a bad market to fill from Atlanta.

Having said the above argument, it is easy to see the 787-10 as a replacement aircraft for Delta’s market schemes. During 2014 when Delta sought Airbus for its a-350-900 the 787-10 was just talk and the year 2018 was too far out for any real commitment with Boeing. Now the market is imploding on wide body orders and Boeing looked at its prognosticating models and concluded the 787-10 would be the right aircraft at the right time. Boeing had such a big backlog and it could keep churning out 787-8’s and -9’s for five years without hesitation.

The market is cyclic and the wide body division is the most vulnerable, but Boeing was rapidly filling long range routes with its 787-8 and -9’s. Airbus hasn’t yet reached its production output for its A350-900 and the A380 is all but game–over status. Boeing scores high on gamesmanship and Airbus scores high on too much too late with its blundering airframes. The A-380 won’t make Airbus money no matter how it cooks its books. At least Boeing dumped its losses into a deferred 787 cost pit. A deferred costs opine gives every blogger a chance to write about Boeing without thinking too hard, my self-included.

Delta is huddled in meetings with its lawyer’s, board members and key stock holders at this time. The decision is what to do with its 25 A350-900’s on order. The wide body market is evaporating during 2017, right within Delta’s wide-body delivery schedule. The First one arrives at Delta this late summer and will carry its first route passenger in the fall of 2017. It will fly the Pacific Rim.

The summary conclusion is for Delta to stick with its Airbus order with a half dozen deferrals. It may look at Boeing product for its fleet replacement model while not using all its A-350-900’s in a one for one replacement scheme, but it will introduce models that fit exactly Delta’s capacity and range requirements. This infers that its fleet expansion is on hold until the wide body reignites sometime after 2018.