Delta’s wide-body fleet plan: could it include used 777-200ERs?

Delta Air Lines is supposed to make a decision on its Request for Proposals for 50 wide-body aircraft before the end of this year, perhaps as early as next month. The competition is hot between the Airbus A330-900, the A350-900 and the Boeing 787-9.

Delta is understood to use the aircraft to beef up its growing Seattle hub across the Pacific; for its Detroit hub, also to Asia; and its New York JFK trans-Atlantic hub.

In addition, Delta is phasing out the last 14 of its Boeing 747-400s inherited from its merger with Northwest Airlines by the end of next year.

The A330-900 is viewed as a trans-Atlantic airplane, while the others are viewed as largely, but not necessarily solely, trans-Pacific aircraft, according to our information.

But there could be another wrinkle. On Delta’s third quarter earnings call, CEO Richard Anderson made some intriguing comments that could raise another possibility: acquisition of used Boeing 777-200ERs.

To put this in context, recall that Anderson and Delta actively seek out inexpensive used aircraft which, while hardly competitive at high fuel prices when comparing operating costs vs new aircraft, provide low capital acquisition costs and low ownership costs.

Here’s the exchange on the earnings call, as recorded by Seeking Alpha’s transcript:

Julie Yates – Credit Suisse
[C]an you guys update us on the outstanding wide body RFP? Do you still expect to make a decision by the end of the year?
Richard Anderson – CEO
We’re still working diligently on evaluating both the Airbus and Boeing option. They both have very strong viable options, as do the engine manufacturers Rolls-Royce and GE. And we are in the midst of a very heated competition to see which of those will bring to the table the best economics for our owners. Remarkably right now, it’s an interesting development in the wide-body market because there is so many orders out there the used market is really heating up and the pricing for 10 year-old wide-bodies is about 30% of what you’d otherwise pay. So it’s going to be a very interesting process because the most important thing about this for us is not operating cost its ownership costs and I think that’s how candidly the whole industry are focused on ownership cost. (Emphasis added.)
Jamie Baker – JPMorgan
Richard, just as a follow-up on the aircraft question, has fuel’s recent decline had any impact on the RFP negotiations or pricing, or how you even think about the new orders that reside in your pipeline at the moment?
Anderson
No, we’re relatively short tailed because — and the problem with big airplane orders is escalation clauses and PDPs. You don’t want to get way out in front of an order or you end up giving up all the competitive economics of the fly off. So we tend to build long-term models that put pretty high fuel prices in because I don’t think, if you take the last 10 years of fuel prices in the industry, there has been a lot of variability but the line has been an upward sloping line. And so we have used very conservative assumptions when we build our financial models to determine what to buy. So from that standpoint, we aren’t going to change our price per gallon assumption over the next 30 years as a result of the short-term changes in crude prices.

777-200ER values

Boeing 777-200ERs are beginning to become available in large numbers at values that make sense to a carrier like Delta Air Lines, which often buys used aircraft at low capital and ownership costs and less emphasis on the latest technologies for fuel efficiency. Sources: Ascend, Aviation Specialists. Leeham Co. Chart. Click image to enlarge.

Anderson didn’t specify the 777-200ER, but this aircraft fits most but not all of Delta’s requirements. It’s long range (if not ultra-long range), it has good capacity, it’s got cheap acquisition costs and it’s becoming available in large numbers. A combination of -200ER and new airplanes would lower Delta’s capital costs if this becomes the driving factor, as suggested on the earnings call.

Boeing faces a potential flooding of the market for used 777-200s/200ERs and in a few years the -300/300ERs. There appears to be little potential in the secondary markets for these, or most other, wide-bodies. As Boeing attempts to fill the skyline of the new 777-300ER in advance of the 777-9 EIS in 2020, it may well find itself competing with relatively inexpensive 777-300ERs.

777-300ER CMV

With Middle Eastern carriers a big user of the Boeing 777-300ER, typically on 12-15 year leases or fleet “flips,” a large number of -300ERs should start hitting the market in 2018-2020 and beyond–just about the time Boeing has real problems with the 777 Classic production gap. Source: Ascend, Aviation Specialists. Leeham Co. Chart. Click on image to enlarge.

A large number of -300ERs should begin hitting the secondary market by 2018, at a time when Boeing’s 777 Classic production gap will be a real issue. While -300ER values for 12-15 year airplanes will be +/- $80m compared with a list price of $330m and current offer prices as low as $120m, according to our Market Intelligence (with few takers). But cabin refurbishment and reconfiguration, airframe and engine overhauls of a -300ER can tack on $50m, depending on how fancy the cabin becomes. Thus, it’s conceivable that Boeing’s new -300ER could be less than a refurbished -300ER in some circumstances. On the other hand, it may be a tough sell for an airline to spend that kind of money on either option for an airplane that will likely economically obsolete in the second half of the 2020 decade. Unlike the new life Airbus has breathed into the A330 with the neo option, the 777X is the Boeing neo–making the future for the -300ER appear dim.

27 Comments on “Delta’s wide-body fleet plan: could it include used 777-200ERs?

  1. A used 777-200ER might be cheap but is it cheaper than a new A330CEO out of the production gap? From Seattle Delta reaches important parts of Asia like Japan or Shanghai with the A330-300. Los Angles to Sydney is a little to far for the A330-300.

    On the other side, what is the price for an used A330?

    For me Delta is one of the candidates to acquire used A380s from Emirates.

    • For a 747-400 replacement used A340-300/600s from Lufthansa could be far cheaper than used 777-200ER. It is a mixed calculation…

      • Can we bet on a package by OEM ?
        A mix of Old + new (777-200Er + 787 or A340-600 + A330NEO or A350 ?)
        For sure, the 777-200Er is still a good plane !

      • Lufthansa wants to use those A340 for a low cost product to leasure destinations. No first class, small business cabin, mostly premium eco and eco. Negotiation with the cabin staff union to shelve staff costs costs for that product have been concluded already. Those planes are written off, so capital cost is zero.

        • A D-check is not for free.
          Lufthansa is going to replace many A340-300s before their next D-check. 5 A340-300 are already parked in the desert. Lufthansa expects a rather slow passenger increase and therefore many of the 25 ordered A350-900 will replace A340s from 2016 on just like the 34 B777-9X from 2020 on. Together these are more aircraft than Lufthansa’s current A340 fleet.

          Lufthansa just expects about 1.5 % passenger increase. So until 2020 just 10 % more than today. Lufthansa also has 30 options for A350 and about the same number for B777-9X. Lufthansa ordered new 777F instead of converting parked A340 to freighters.

          An “A340 for a low cost product” only works with corresponding fuel prices. Low prices work together with new aircraft e.g. Ryanair.

          • You don’t need to believe me, but you sure don’t want to dispute their own press release, do you? 😉
            http://www.lufthansa.com/mediapool/pdf/42/media_1496919242.pdf

            I have to correct myself however, they won’t use all A340 for that, only up to 14. The D-Check may be not for free, but the money “stays inside the family” when done by Lufthansa Technik.

            Regarding fuel prices: they are currently going down.
            Many longhaul leasure destinations are currently served from Germany by Condor using 767s. Condor has even been making enough money to expand their long haul fleet. Why should Lufthansa be unable to duplicate that?

            “Low prices work together with new aircraft e.g. Ryanair.”
            That’s a bad example, first Ryanair is short-haul and second Ryanair is a whole different story. Their success is based on
            – Ultralow aquisition cost through a golden opportunity in the middle of the last crisis when Boeing was really desparate
            – High utilisation through quick turnarounds
            – Squeezing their staff like lemons (there is a reason pilots call that company “the cancer of aviation”)
            – Unscrupolous pricing deception by use of ultra low fares in combination with loads of extra charges (which the average joe only notices after deciding to fly with them). Other airlines are often cheaper when considered the full price including all charges.
            – Extensive indirect subsidiation by regional politicians overeager to have their own regional airport

          • “nofly”, you know why Lufthansa’s pilots are still on strike?
            The idea is cheap aircraft (A340-300) with a crane on vertical stabilizer, cheap crew and cheap pilots both paid not according to Lufthansa standards. Maybe Eurowings will take the A340-300s. So Lufthansa’s pilots dispute Lufthansa’s press release.

  2. I wonder how many good used 777-200ERs are on the market. At the top of their payload range, on heavy flights from hot Asian places they are still the backbone of many operations.

    In the future they will be replaced by A350-900/-1000s or 787-9s if you want to cut capacity/ 787-10s for shorter/lighter flights.

    The A350-1000 seems the best replacement from an efficiency / capacity viewpoint, but expensive and far away. Thinking about it a few more 777-200s for DL the next 8 yrs wouldn’t be to bad, if they are cheap. ER would have to be RR powered (BA, SQ) LR’s (Cargo capable) GE11x (QR) Dl will probably replace the LHR and AMS 772s with new A333s, giving them extra Pacific capacity too.

    http://www.deltamuseum.org/docs/site/aircraft-pages/delta_boeing_777_fleet_list_09-01-2013.pdf?sfvrsn=2

    • Not enough 777-200s to start a conversion program to freighters as was projected.

      It looked like Singapore might let theirs go but then pulled them back in house for the Scoot fleet I think it was and hard telling about the rest.

      On the other hand, there are some great bargains coming up on 777s to fill the production gap.

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  4. I have noticed in the Delta Sky magazine for the last few months showing the 777’s at 294 seats instead of the current 269 as they are currently configured. I am thinking Delta will go to 10 abreast in Y and use the 777 -200’s to replace the 747’s. The 787-9 or the A350-900 will replace the 767’s ? Maybe Delta is passing on the 330neo because they don’t perform as well on the short segments and don’t have the range of 787/A350?

    • I am thinking Delta will go to 10 abreast in Y and use the 777 -200’s to replace the 747’s.

      That would mean cutting passenger capacity by 25% on many daily flights from booming Asian markets while reducing comfort, on those 12-15 hour flights.

      “Maybe Delta is passing on the 330neo because they don’t perform as well on the short segments and don’t have the range of 787/A350?”

      We have to remember Delta inherited the A330 fleet and 787 slots from NorthWest. After studying both, their network ambitions and finances, the 787s were deffered for a decade and they ordered additional A330s instead. That’s where they stand.

      The 787-9 seems an excellent aircraft to me, but for replacing 767 it seems a large bump up in payload-range, the A359 even more so. The A333NEO and 787-10 will be contenders for the Atlantic it seems. For the Pacific there are the A350-1000, 777-9i and A380 to choose from. Regardless off what Delta selected to communicate at some stage.

      • SYD-SEA not really a viable market. Air Canada does Vancouver-Sydney with 777W and Delta will likely stick with LAX to Australia

  5. Lol, I am sure they are secretively can’t snide ring ordering a380/.

    7779x maybe, perhaps some sort of trade in guarantees on 767s, and even 747s too for bcf or other consideration. I don’t think they’re retiring any a330s soon but if I’m wrong maybe that too.

  6. Fascinating,why are ab and b cutting each others throats when they have huge backlogs?how much does a “d” check cost?are carbon planes cheaper to run for longer?why would emirates scrap their 380s early when they could just run them on for a few more years for nothing?something dos’nt make sense.obviously old 777s aren’t actually going to cost the same as discounted new ones, O’learys distressed sale may come sooner than anyone thinks.

    • Emirates wants to have a premium airline look. After 10 years an in-flight entertainment system looks rather old and other things too. For premium standard Emirates would need complete new interior. Add d-check costs with about 50,000 man-hours or even more for such a big aircraft, replacement parts, …

      According to Mr. Clark even without selling them this type of aircraft it is profitable for Emirates. Emirates for sure will sell their A380s or keep them going. Emirates could scrap some 777 instead.

      The only A380 scrapped today is the static test frame. Just one out of three A380 owned by Airbus is stored.

      “are carbon planes cheaper to run for longer?” – Maybe. Corrosion is less a problem but other things could happen. We will see.

  7. The skies are getting crowded with A380s from airlines that would Never order them or just maybe a few for a few citypairs. Looking at current fleets and network requirements produces better forecasts then the Never statements.

  8. Funny, as I write this I am being victimized by Delta’s low capital cost and strict capacity discipline philosophy.

    My flight from Boston to MSP was delayed due to maintenance issues with the MD-88, causing us to miss our connection, then overbooked flights to our final destination result in a 5 hour wait in the oh so comfy gate seats… So instead of dinner with the family, it will be a midnight arrival

    Thanks Delta

    • This is a problem with statistics.
      Flying is relatively save. Delta TechOps does a real good job but 100 % are impossible. You hit the jackpot:-(

      I did it a long time ago. 747 engine error with a huge jet of flame at sunset. Never again I was on an aircraft so quite for a few minutes. The service disaster happened after that … After nearly two hours of burning fuel close to Sardinia we went back to Rome. It was a surprise to them that we did come back! No workers to unload the luggage… I took them three hours to unload the aircraft and another two to get all the passengers on buses to hotels. Due to some celebrations at the Vatican all hotels in Rome were already over bocked. 10 hours after take off we had a hotel room at 6 o’clock in the morning. After all I knew why the Pope kisses the earth after traveling with Alitalia. This was not even half of the story.

      So thank Delta for a story 😉
      Btw. it was on my honeymoon trip.

    • So Delta should just have airplanes on standby ready for your dinner plans? Planes break….they fixed it….end of story.

      Get real if you thinkmany airline has planes (assets) just laying around as spares. If they did, your ticket price will go up. Its a business and not public transit.

      • Actually, there are planes on standby. When we went to Brazil to see EMB, our brand-new 777-300ER with brand new GE90 engines wouldn’t start. AA trotted out a replacement 300ER to continue the journey.

  9. I still think it makes the most sense for Delta to acquire the A330Neo for medium to long range. For ultra long range and higher density routes, either a mixed bag of used 777-200 and -300ER’s or 787-9, A359, A351. Like someone else posted earlier, the A350, and 787- are too much plane to replace the 767’s standard missions.

    A mixed bag of the HGW A330 on order and A330-900/800’s will make an excellent, efficient,and reliable fleet of new planes with range versatility, commonality, and shared parts. The 787-10 would also work very well here but would be an costly new addition to the fleet.

    If fuel prices continue to drop, the A330 looks even better and better against the 787 and the used 777’s look better and better against the 787-9 and A350’s.

  10. A cabin refurbishment only costs 50m USD if all parties cash out maximum profits.
    An A330-300 costs between 7-10m USD for all cabin items, there is probably another 1-5m USD for the engineering (only counts once) and another 1m USD for the installation (usually pretty quick).

    For an “order” of 10 used B777-200ER, the total refurbishment cost would be around 10m USD per aircraft. 50m USD may be true for an A380 with some fancy stuff and all engineering incurred on few airframes.

  11. Dear All,

    Sorry to resurrect an old thread but I came across this article in my research and thought I would reach out to the community.

    I am not an aircraft broker and have no experience. However the nature of my business sometimes throws out some strange requests and on this occasion I have been asked to advise and support the sale of two used and refurbished 777’s.

    I am therefore hopeful that the clear experts on this forum might offer guidance on how to approach such a task, equally it might give me confidence that there is a market and demand for these aircraft in a used condition at the moment.

    I am more than happy to hear people’s opinions and suggestions openly or you can PM me at bravoapapa@gmail.com.

    Thank you all in advance for your help. As a long time aviation fan I think I am going to enjoy this project!

    Regards,
    Ben

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