Delta Air Lines could deal $5 billion blow to Airbus in recovery
Delta Air Lines recently shared that it had made a loss of $24 million in the last quarter, and it had gone to $18 million in September and was expected to reach $10 million per day by the end of the year. The airline was expected to accept the delivery of 250 aircraft by December 31st, 2019, and 80 per cent of the deliveries was expected to be through 2022 but that may not be needed anymore due to the Covid-19 pandemic, according to a recent report in Seeking Alpha.
Interestingly, Delta Air Lines has provided a value for the purchase commitments at $14.2 billion. However, Seeking Alpha using their Airbus Backlog Visualiser have estimated the value to be at $14.3 billion, which was around 0.2 per cent or $30 million higher, as it did not account for the CRJ-900 aircraft delivery. However, after checking the values, it estimates to be at $14.215 billion compared to the $14.3 billion, suggesting a difference of $15 million, which is estimated at 0.1 per cent and hence almost matches, according to the report.
The pandemic has also led to a 33 per cent fall in demand for the front load profile, which was earlier at 80 per cent of the units and 75 per cent of the aircraft purchasing commitment value to be undertaken in the next three years. It is simply because the growth and fleet renewal has been affected due to the current situation. While the purchasing commitments were expected to peak in 2021, that has now shifted to 2024, which is when the market is expected to recover.
Delta was scheduled to receive four more A330-900neo and two A350-900 in 2020. Interestingly, since all the A330-900 and A350-900 are in service, it does not hint at a demand to pay for the scheduled deliveries. Even though the airline is currently in the process of phasing out its six Boeing 777s, the frequencies of the A350 to come down along with a delay in the resumption of flights to Cape Town, which makes it ideal to delay the deliveries. It is different with the A321ceo of which 24 have been ordered by Delta Air Lines as there are already 25 of them parked and not in use, making them a needless purchase along with the single A321neo which is expected to be delivered this year.
Reducing the deliveries of the A321 would help Delta cut $1.3 billion in aircraft purchase with another $600 million and $100 million saved by deferring wide-body and the CRJ900 deliveries. It is not only these but also the 10-15 deferrals of the A220 that Seeking Alpha estimates to add $350 million to $550 million, which would all total to $2.2 billion - $2.55 billion in delivery value reduction which could save $1.5 billion in final delivery payment. Delta will have to also focus on reducing its fleet of Airbus A320ceos, Boeing 717 and Boeing 767. However, only focusing on cutting down the fleet could create problems for recovery especially because of the A321neo which is a part of the 2021 purchase commitment.
While the payments for the delivery in 2022 may have already started, deferring them would mean a penalty but would help Delta Air Lines with near-term cash commitments. It also says that given the current amount of demand it has with Airbus, it will be ideal to accept the penalties and stretch the deliveries. However, this means that for Airbus which has almost $14 billion worth delivery with Delta Air Lines, it could mean a $5 billion blow in the next few years.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect those of STAT Media Group.
(This piece is written by Dhieren Bechai and was originally published on SeekingAlpha.com)