* Economics better as jet production matures, Anderson says
* Carrier can convert 40 of existing 737 order to new MAX
(Adds analyst comment, Delta quotes)
By Karen Jacobs
May 22 Delta Air Lines is letting a wave
of orders for the newest planes on the market roll by, giving
the jets time to prove themselves before buying, its chief
executive told Reuters on Wednesday.
While other airlines have ordered more than 3,000 of the
next generation narrow-body models, the Boeing 737 MAX and the
Airbus A320neo, Delta says it is playing it safe.
"We'd rather get toward the end of a production line" and
buy the jet after it has the kinks worked out and has been
lengthened to hold more passengers, Chief Executive Officer
Richard Anderson said in an interview at Reuters' New York
The economics of stretched planes, he said, "are always
better than the original economics."
Delta stands out its willingness to take a different tack
than its rivals. On Friday, it will unveil a $1.2 billion
overhaul and expansion of its passenger hub at New York's John
F. Kennedy Airport that, along with new interiors on older jets,
will make its offering more competitive in that key market.
But as it grows globally, Delta faces rising pressure from
tougher U.S. peers and from foreign airlines that are
aggressively buying new planes, often with help from the U.S.
Robert Mann, an airline consultant in Port Washington, New
York, said Delta has been able to focus on improving its
business as United Continental, US Airways Group
and American Airlines are distracted by mergers. But he expects
competition among the major U.S. carriers to ramp up once the
restructurings are completed.
Delta "has enjoyed a multi-year lead and they've capitalized
well on it, but competition doesn't stand still," Mann said.
Delta said buying planes later in the production cycle
allows time for technical problems, such as batteries that
grounded Boeing's 787 Dreamliner, to be solved and prices fall.
"Our ideal solution for buying airplanes is to compete
Boeing against Airbus against used airplanes; compete GE
against Pratt and Rolls-Royce so that we always
have multiple engine manufacturers and multiple airframe
manufacturers at the table," Anderson said.
In 2011, Delta ordered 100 Boeing 737-900ER models due to be
delivered starting later this year, but it has not bought either
the Boeing 737 MAX or the Airbus A320neo.
U.S. rivals United, Southwest Airlines and AMR
Corp's American, which plans to merge with US Airways
this year and form the world's biggest carrier, have already
placed orders for the re-engineered jets that are due for
delivery over the next few years.
Anderson said Delta's deal with Boeing allowed it to convert
the last 40 of the 737-900ER aircraft it has on order to the
newer MAX model.
"We will evaluate it, but we would rather see some other
people fly that engine around for a while," Anderson said. CFM
International, a joint venture of General Electric and France's
Safran, makes engines for the 737 MAX.
"We would rather see proven products that have cash-on-cash
returns from the moment we take delivery," Anderson said. "That
is much more important."
Delta has made headlines since Anderson became CEO in 2007.
It started the wave of major U.S. airline mergers with its 2008
purchase of Northwest Airlines. It made an usual swap with US
Air, giving up landing slots at Washington National airport in
exchange for slots at New York's LaGuardia. Last year, it
surprised competitors by purchasing a refinery to lower its fuel
costs. And it acquired 49 percent of Virgin Atlantic to gain
more gate access at London Heathrow, a key business market.
It has also taken an activist role on behalf of the U.S.
airline industry in opposing U.S. Export-Import Bank loan
guarantees that allow foreign carriers to buy big planes
Anderson, who was accompanied to Reuters by company
President Edward Bastian, said Delta is only targeting wide-body
aircraft purchases by state-owned companies that have access to
market loans. Delta itself benefits from export credits for
smaller, Bombardier CRJ900s jets.
"They do have to pick the target carefully because they do
get some benefit associated with some program," Mann said.
Anderson said Delta would give up those credits if all
export guarantees were removed.
The Atlanta-based carrier, No. 2 in traffic behind United
Continental Holdings, expects to post its fourth
straight annual profit this year. Earlier this month, it said it
would pay its first dividend in a decade as part of a plan to
return $1 billion to shareholders over the next three years
"We will continue to be opportunistic" in managing the
business, said Anderson.
"Every business has to have both that organic strategy and
what I call inorganic strategy, which is joint ventures, asset
purchases, vertical integration and other creative transactions
to be certain that you are keeping an advantage over the
competition," Anderson added.
HARD BARGAIN ON 787
Airbus recently began talking up the lower ownership cost of
its A330 wide-body jet as it defends the model against a
proposed new stretched version of Boeing's Dreamliner called the
787-10X. Airbus told a U.S. industry conference in March that
the A330, whose sales have held up better than expected due in
part to 787 delivery delays, could compete with the 787,
implying price discounts to outweigh higher fuel consumption.
"We operate 33 A330s and were a launch customer in the
U.S.," Delta's Anderson said. He added that should Boeing hope
that its stretched 787 will take sales from the A330, "its
prices have to come way down."
Anderson declined to comment on reports that Delta is
looking at placing orders for around 20 narrow-body jets and 20
current-generation, wide-body A330s or Boeing 777s.
Shares of Delta rose 0.3 percent to $18.18 on Wednesday.
(Reporting by Karen Jacobs in Atlanta, additional reporting by
Tim Hepher in Paris; Editing by Alwyn Scott, Leslie Gevirtz and