Delta and the MD-90
Last week, Delta announced that it had agreed to buy 9 Boeing (McDonnell Douglas) MD-90 aircraft from JAL. After these aircraft are refurbished, they’ll start entering Delta’s fleet next January. Delta’s President, Ed Bastian, refers to these aircraft as “capital efficient” for Delta and it does simply add to Delta’s existing fleet of 19 aircraft. In fact, Delta now plans to add a total of 39 MD-90 aircraft going forward. These will primarily replace aging and inefficient DC-9-50 aircraft.
Capital efficient means that the cost to acquire these aircraft combined with the remaining lifecycle costs including fuel makes them worth operating for Delta. In addition, these aren’t your grandfather’s DC-9s. These aircraft have current generation IAE V2500 engines that are fairly fuel efficient compared to brand new aircraft presently. They also replace fuel guzzlers and represent a net gain going forward as long as fuel prices remain somewhat stable (and by stable I mean out of the $4/gallon territory.)
Delta has so far pursued a strategy of making do with what it has and employing older aircraft longer and this is somewhat in conflict with most other airlines’ strategies. As fuel has climbed in price over the past 4 years, airlines have, if anything, accelerated their purchases of newer, more efficient aircraft.
Is this the right strategy for Delta? Well, as an interim strategy, it works. These aircraft are good for a variety of routes that can largely transit 3 timezones out of 4 in the continental United States. There are a finite number of them available (only a bit over 100 were ever built) and in the near future I suspect that many won’t be worth buying when considered against a new Boeing or Airbus aircraft. From a financial standpoint, these are good buys for Delta and should work for them well over the next 4 to 8 years.
Delta’s fleet is pretty varied since its merger with Northwest Airlines a few years ago and while they have made an excellent show of managing this fleet, there are a number of types that could be pared down over time. Reducing the number of fleet types would allow Delta to be even more flexible with its crew resources and more cost efficient when it comes to maintenance needs. Remember that every fleet type requires an inventory of parts and employees trained to service that fleet type.
This doesn’t mean that I advocate that Delta buy Boeing only or any other manufacturer exclusively either. With its fleet size, it could quite rationally settle on both the Airbus A320 and Boeing 737 aircraft and operate them simultaneously. The same is true for long haul aircraft. It could probably employ both Embraer and Bombardier regional jets as well. However, for each category (regional jets / single aisle / medium to long haul aircraft), there should be at most two basic fleet types.
In fact, by working with multiple manufacturers, it can speed deliveries, fit the most perfect aircraft to a variety of routes and maintain efficiencies in maintenance and repair at the same time. What I don’t see happening is Delta operating Boeing and Bombardier CSeries as mainline aircraft. I think Delta will play it smart and use the manufacturers that have proven products in each category.
I think that over time, we’ll see Delta order Airbus A320NEO aircraft to replace existing aging Airbus A320s. I think we’ll see an order for Boeing 737 replacement when and if Boeing offers a replacement officially. I think we’ll see Bombardier CRJ900/1000 aircraft come online to replace older CRJ700/900 aircraft and I think we may well see Embraer E170/190 jets for other areas of the country such as shuttle-like operations. In the long haul category, it’s not inconceivable to see 787 orders pulled forward again but for a mix of both 787-8 and -9 aircraft. I think we’ll see them pick either Airbus A350s or 777s for their larger trunk and long haul routes. I might give the 777 an advantage here to become a single type for that category as Delta could very efficiently operate both 777-200LRs and 777-300ERs in a nice mix. They’ve already got very new 777-200LRs (and ERs) that are using the same GE engines the -300ER would use. I’m not sure the Airbus A350 quite fits in as well as one would like it to when it comes to the trunk route / long haul category. I do believe firmly that the 747s will ultimately go away and not be replaced.
Look for Delta to be making more and more announcements about its fleet over the next 2 years. I believe its strategy will be incremental rather than huge orders for a particular family of aircraft and it will be done with strong emphasis on preserving its capital going forward into the next few years.
The Delta purchase of MD-90’s is interesting. Consider the fact that Delta talked about using the unducted fan engines (UDF) in the 80’s as the reason to purchase the MD-88.
I would not be surprised if Delta reengines some of its newer MD-88’s with the IAE V2500 engine. It seems this engine does not require much or any changes to be mounted in different configurations. Delta, Boeing & IEA could figure out the requirements. This would ALSO be cheaper than buying new A320NEOs or 737.
Delta is presently selling new 737-800s it receives from Boeing. So I think saving cash is their main focus.
I agree that it is all about preserving cash. However, I don’t believe the IAE V2500 would ever make it on an MD-88. They are considerably heavier than the Pratts.
The MD-90 is a decent aircraft with a current generation engine and that alone makes some sense if the cost to acquire them is cheap enough. As an interim solution, it fits well if you would rather not buy current generation aircraft. If they can hold out for a few years, they can make a huge leap in fuel efficiency.
The one thing that could tear such a strategy apart is fuel continuing to rise in price year after year.