A few weeks back Delta Air Lines CEO Richard Anderson made waves when he suggested that he was shopping for used Boeing 777s at a price point around $10 million. Lessors and analysts insisted that the number was far too low and that a more reasonable rate is something near $40 million. Speaking in an investor briefing this week Anderson admitted the mistake, “I was wrong on $10mm on 777-200.” How he finished that thought, however, was something of a surprise. Anderson indicated that the carrier has signed a Letter of Intent to acquire a used 777-200 for only $7.7 million, furthering the idea that the market is soft, something he also mentioned when talking about the $10mm planes.
Read More: The curious case of the $10mm 777s
There are scant few details available on where the 777 is coming from, how long it has been in service or what its condition is. In fact, there is a decent chance that the plane is decently beat up. But Delta is not too worried about that. In fact, it likes such aircraft. Also mentioned during the investor briefing is Delta’s newly established Delta Material Services division, a group which will work in the higher margin spare parts side of the business. Anderson indicated that its Tech Ops group and DMS are already realizing significant advantages over the competition in terms of managing spare parts and other resources more efficiently; Delta maintains only ~6% spares on engines, half of what the OEMs recommend and still has a spectacularly high dispatch rate. He noted that the company has no qualms about taking on older aircraft and capturing the residual value out of them, essentially riding them to the very end of their useful life as a whole unit and then parting them out internally to continue realizing that value. At that price point the new $7.7mm 777 could simply be a short-term operator which will convert to spare parts in the not too distant future.
Read More: Delta’s Big Profits and Shopping Plans
Or maybe the plane is in tip-top shape and ready to fly another 20+ years. I’ve asked Delta for more details but they have not yet been forthcoming.
Beyond the cheap 777 Delta also announced this week that it will acquire 20 new 737-900s and up to 20 used Embraer 190 aircraft. The deal is a redo of a similar purchase announced earlier in the year but which was also contingent on pilots approving a new contract; the pilots rejected that deal. The new version of the order is not contingent on pilot negotiations and, while slightly smaller, was described by Anderson as having “even better economics” than the prior iteration. Seems that Delta has become incredibly good at negotiating aircraft acquisitions.
Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.
Any chance this 772 is the burnt BA frame at LAS?
Any chance? Sure. But highly unlikely IMO.
Leeham News says this is a run-out 772 owned by Boeing Capital Corp.
Word is the 777 purchase does not come with the engines or interior. This combined with DL’s recent purchase of 20 739ERs (we will give you a knockoff price for that 777 if you order more 737s), if the lack of engine/interior information is accurate, the $7.7 million price tag will make a lot of sense.
I see very little upside for both Delta and Boeing with Delta bragging obnoxiously about this deal. You got a plane for $7.7 million that you can eke out a nice profit margin by reselling the parts or save a decent chunk of money replacing parts on your own plane. The “win” will be reflected on the balance sheet and pat yourself on the back then move on to the next thing. Richard Anderson is a lot like Akbar Baker when it comes to seeking attention.
I wouldn’t be surprised that Boeing will be more firm when a MRO contract comes up or when DL tries to order more planes through Boeing. Hey, when you burn a strong business partner of 50+ years, expect the cozy relationship to become a colder one.
I did ask the question yesterday did these 777 come with engines and no one answered. Of course the engines won’t be cheap and adding a interior will be in the 100,000s as well I am sure. Do you know how many they bought ?
772 interior refurb costs 7-8 million US$ itself.
Comments are closed.