Delta Orders Boeing Planes, Stalls Embraer and Bombardier (DAL, BA, EADSY, ERJ, BDRPF, GE, FAA)

Delta Air Lines Inc. (NYSE: DAL) has confirmed an order to Boeing Co. (NYSE: BA) for 100 new 737-900ER aircraft. Word got out earlier this week that Delta would choose the Boeing plane over the competing Airbus A320 from European Aeronautic Defence and Space Co. (OTC: EADSY). What was not anticipated was a deferral on another Delta order for 100 smaller, regional jets from either Brazil’s Embraer SA (NYSE: ERJ) or Canada’s Bombardier Inc. (OTC: BDRPF).

In its announcement Delta said that it would replace Boeing 757s and 767s, as well as Airbus A320s with the new 737-900ER. Delta lists a total of 183 of the 757 models and 95 of the 767s in its fleet. There are also 126 Airbus 319s and 320s in Delta’s fleet.

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The new 737s use an updated version of an engine made by CFM International, a 50-50 joint venture between General Electric Co. (NYSE: GE) and France’s Snecma, part of Safran Group. Boeing ordered 200 of the engines (2 for each plane) at a list price totaling $2.2 billion.

Both Embraer and Bombardier are left hanging by Delta’s decision to purchase the Boeing jets. Embraer, especially, has been in talks with Delta to add up to 100 smaller, narrow-body jets to its fleet. A decision from Delta on the order is not expected now until sometime next year.

Delta will begin taking delivery of the new planes in the second half of 2013 and deliveries will continue into 2018. The list price for each plane is about $86 million, but Delta will receive a discount to that price.
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Still unsolved is whether the 737 will get a new, more efficient engine in an upgrade that would allow the plane to replace the discontinued Boeing 757 or whether Boeing will choose to design a replacement from the wheels up. Airbus has opted to put a new engine on its A320 and dubbed the new aircraft the A320neo. Delta alone owns and operates more than 300 757s, so there is still some money to be made here if the airlines decides to replace the whole 757 fleet.

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Delta shares are down about -5%, at $6.88, in a 52-week range of $6.41-$14.54. Boeing’s shares are also down, about -1%, at $61.18, in a 52-week range of $56.01-$80.65. Embraer’s shares are down about -2%, at $23.13, in a 52-week range of $20.98-$35.41. The lightly owned and lightly traded Guggenheim Airline ETF (NYSE: FAA) is also down about -1.3% just before noon at $26.81, in a 52-week range of $26.19-$43.64.

Paul Ausick