Delta Reaps Benefits from Boeing's MAX Orders Halt

News Delta Air Lines took delivery of the last Boeing aircraft it had on order, a 737-900ER, earlier this week. As the only one of the big four US carriers not to order the 737MAX, instead focusing on the Airbus A321 family, Delta is not facing the flight cancellation issues that have plagued American, Southwest, and United. This has enabled Delta to continue to grow while its major competitors have seen capacity reductions due to the MAX grounding, News reports today indicate that Delta is not tempted by potentially favorable deals for the MAX. The industry rumor mill suggests that Boeing is facing a number of cancellations and re-negotiations after the grounding. Analysis Delta’s second quarter earnings are strong, and the carrier has recorded five of the ten record revenue-generation days within the last month. The full year profit forecast has been raised from $6-7 per share to $7.25. The grounding of the MAX offered Delta a “marginal benefit” on domestic summer capacity, and is enabling Delta to gain market share over its rivals. Delta’s second quarter net profits are up to $1.5 billion, a 24% increase from $1.2 billion last year. Second quarter operating revenue grew by 8.7%, with load factors a record 88%. The company will increase its dividends and could repurchase shares to return capital to is investors. Combined with the American Airlines labor problems that have been grounding flights, Delta finds itself in a position to capitalize on its competitors misfortune to gain market share. Insight Delta is in a favorable competitive position as a result of its fleet planing decision to focus on the A321 and shun the Boeing MAX. That decision has turned out to be profitable. Delta is already well underway in a fleet renewal process covering 1/3rd of its fleet, has announced retirements of the MD-90 and will phase out the MD-80 models as well. It has also remodeled terminals in New York and Los Angeles, and continues to invest in its on-board product. The company is well positioned to grow at the expense of its competition in the remainder of this year while the MAX remains grounded, and should continue its exceptional performance. Delta’s recent move towards Airbus products has paid off in the short-term. But Delta, which still operates more then 500 Boeing aircraft, prevents it becoming a one-OEM airline. The company understands the risks of putting all its eggs in one basket, and will likely be a launch customer for the Boeing NMA to replace aging 767-300ER models, once Boeing gives the go-ahead for the new model. Having introduced the A330-900 this week, if Boeing fails to decide on launching the NMA by the Farnborough Air Show a year from now, however, Delta may need to alter its fleet plans. Delta needs a strong Boeing to play off against Airbus, and Boeing needs a launch order for a new airplane from Delta. Don’t be fooled by the “all Airbus” headlines regarding Delta, as this company understands the risks associated with putting all its eggs in one basket. We fully expect Delta to be the launch customer for the NMA when Boeing decides to move forward.

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