UPDATE – Delta Airlines confirmed earlier media reports that it would be ‘opportunistically’ sourcing second-hand aircraft to grow and renew its fleet. The carrier said on July 13 that it will acquire 29 Boeing 737-900ERs and lease seven Airbus A350-900s. Today, Delta announced a $652 million net profit for Q2. Delta confirms second-hand aircraft deals.
Delta’s aircraft deal was first reported by The Air Current in June and further analyzed by Airinsight. Now, the airline has provided a few details but only a few. The seven A350s are to be leased from AerCap and will become available to Delta in Q3 and Q4. The lessor isn’t providing additional information, but five of them are most likely transferred from LATAM which has most aircraft in storage since March last year.
PR-XTE, XTH, XTI, XTJ, and XTL are all withdrawn from service, the last one only last weekend. Planespotters is showing that XTF and XTL have been leased on to Delta only since June 22 and July 9 respectively. If they are part of the new agreement is unclear.
Delta has fifteen A350s in service, two parked, and twenty more on order.
The ‘vintage’ 737-900ERs are direct purchases with funds from Castlelake L.P., a global private investment firm that has a managed fleet of over 350 aircraft. It has partnered with over 90 airlines since its inception in 2005. Castlelake’s assets also include over 37.000 real-estate objects in the US and Europe.
Through AirCastle, the company has leased the Boeings to Indonesian low-cost carrier Lion Air which has a fleet of 65 -900ERs although Planespotters shows 78, of which only 21 are in active service. The oldest aircraft is from 2006, with the majority delivered until 2014.
The ex-Lion Air aircraft will join Delta from the first quarter of 2022 over a 24-months period. Delta already has a fleet of 130 -900ERs that were delivered between September 2013 and June 2019. Forty aircraft are leased, the rest is owned.
Subject to closing conditions, the purchase of the A350s and 737-900ERs is a smart way by Delta of acquiring relatively young aircraft at a substantially lower price. It is in contrast with United Airline’s recent buying spree for 270 brand-new MAX and Airbus A321neo’s announced on June 29, which is additional to previous commitments for the MAX and A321XLR. Although Delta ordered 25 A321neo’s in April, the latest aircraft purchase provides the airline with additional assets that still have a long life in them.
As Delta said, the A350s are 21 percent more fuel-efficient per seat than the (eighteen) Boeing 777-200LRs that have been retired last year. The newer wide-bodies also help reduce unit costs. While not offering such a step, the 737-900ERs are also a huge improvement over the retired McDonnell-Douglas MD-88s and MD-90s.
The plan will potentially add seven points in capacity (Available Seat Miles) from 2022 but Delta has the flexibility to adjust this. It could retire its Boeing 717s and 767s or bring back aircraft out of retirement, President Glen Hauenstein said during the Q2-results webcast.
Q2 produces profit again, but HY1 still loss-making
During Q2 this year, Delta produced its first profit since Q4 2019. It reported a net profit of $652 million, which compares to a $5.717 billion loss in the same period of 2020 and a $1.443 billion profit in 2019. Interestingly, Delta only compares its 2021 results with those of 2019 and completely disregards 2020, so we checked the numbers ourselves. The adjusted pre-tax loss for the June quarter was $881 million, with adjusted operating revenues of $6.3 billion. Total passenger revenues were $5.339 billion (2020: $678 million), cargo revenues $251 million ($108 million).
The first six months still produced a $525 million net loss, compared to a $6.251 billion loss in the same period of 2020 and a $$2.173 billion profit in 2019. The operating loss was $582 million ($ 5.225 million loss in 2020), with total operating revenues of $11.276 billion versus $10.060 billion.
US Domestic travel has fully recovered to 2019 levels, says Delta, with operating revenues up 76 percent compared to the March quarter. Daily net cash sales were doubled compared to the first three months and were twenty percent higher than anticipated. They are back to seventy percent of 2019 levels. Passengers tend to book premium seats more on short and medium-haul journeys, with premium outperforming the main cabin by five to ten percentage points.
Corporate travel has also picked up from twenty percent in Q1 to forty percent in Q2. Corporate customers have expressed confidence in returning to fly during Q3. Delta is happy to have gained corporate market share during the pandemic.
International/long-haul travel is still lagging behind but is also showing signals of recovery. Hauenstein is pretty optimistic about the transatlantic as he expects the US to reopen for Europeans, while Latin America and the Pacific are likely to stay behind for some time. The carrier is mindful that the recovery of the industry might be fragile as new Covid-variants spread, which could impact the third-quarter results.
Cost performance was strong, although were up as Delta accelerated maintenance, hiring, and training to prepare for the summer 2020 season. Non-fuel consolidated unit costs were up nine percent compared to 2019 to $11.42. Free cash flow was a positive $1.5 billion, having turned positive in March. Debts and lease obligations increased by $7.8 billion since December to $29.1 billion. Delta ended June with $17.8 billion in liquidity, which includes $2.6 billion in an unused revolving credit facility. It received $1.4 billion under the Payroll Support Scheme.
For the current quarter that ends in September, Delta expects capacity to be 28-30 percent down on Q3 2019 and total revenues by 30-35 percent. Higher fuel costs will be compensated by the better fuel efficiency of the fleet compared to 2019. Capital expenditures will be around $800 million, thanks to the acquisition of the ex-Lion Air aircraft. Net debt will be slightly up to $19 billion.
On July 15, Delta announced it plans to buy back $1.0 billion in senior secured notes and other notes in a tender that expires on August 11.
