Lucky Sevens: Delta’s $7.7mm 777 deal

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.