Premium #303 – Old aircraft and the example of Delta Air Lines

Delta Air Lines is well known for its commitment to older aircraft. Delta has a world-class MRO in Atlanta. Even with such an MRO, it must be tough to keep that big fleet at work. We decided to take a look at delays, and searched the US Department of Transportation on-line database. Delta Airlines operates older aircraft, and appears to take more delays than its counterparts. The following table shows the average carrier delay for 2016 for domestic operations. Delta is at the bottom of the list. Delta is the worst performer, suggesting that there may be a connection between older aircraft and delays. After all, these airlines are all serving the same markets and having to face the same conditions. But Delta is the only airline devoted to keeping older aircraft in service. We have previously noted that this strategy was smart as fuel prices rose, leading to an industry order spurt. Delta sat out the last wave of orders, only selectively making buys when it secured attractive deals. We also noted that this strategy had limit, as mechanical objects eventually require more maintenance that will make newer aircraft more cost effective. To analyze this further, we took a look at delays in more detail, and the specific aircraft with the highest delays to test the theory that older aircraft take more delays. For each of the months reported to date for 2016 from the US DoT “On-Time Database” we extracted and compiled this list. This data needs to be qualified: it includes all air carrier operations having destinations within the 50 United States, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands, but does not include other international operations. The following table lists the top 25 tail numbers at Delta with the greatest delay minutes for the period January through August 2016. Those 25 tail numbers represent about 3% of the fleet. We used the metric called Carrier Delay, which is reported in minutes. There is no detailed information in the carrier delay definition that explains what caused the delay. There are other delay reasons (weather, ATC, security and late aircraft arrival). We selected carrier delay is the area of focus for this story. The table lists the top 25 Delta tail numbers that incurred the most average delays for the period January through August 2016. These 25 aircraft represent about 3% of the total Delta fleet. We can see some very new aircraft on the list that had serious delays. There are 11 aircraft that had substantial delays reported twice in the period evaluated. These tend to be aircraft over a decade old, except for N812NW. Seven of the aircraft listed are Boeing 767 models. Note the fleet average delay compared with the numbers reported for the specific aircraft. Taking the same data, but now looking at the sum of delayed minutes rather than average, we see a different aspect of Delta’s performance. The tail numbers change too. Even though we still have about 3% of the fleet in the top 25, we can see that, typically, the top 25 generate twice as much delay time as one would expect. These aircraft are clearly a greater users of Delta’s MRO resources than average. Note these 25 aircraft are older than those listed under the average table. What is eye-catching here is the number of ex-AirTran 717s, Delta’s MD-88s and the MD90s, many of which were acquired from various sources. Boeing defined an airline operating minute cost at $125 for a very large carrier. The following table indicates what those Carrier Delays are worth through August. Delta is near the top. The data suggests that perhaps Delta’s strategy has run its course, especially on the smaller single aisle aircraft. Specifically, the 717s. Delta has ordered Bombardier CS100s, and these will take some time to be delivered. In the meantime, Delta’s MRO will need to continue to patch and fix its aging fleet. Although the 717s are not old by Delta standards, it seems they are breaking more frequently than other aircraft. Are they merely being patched until they are going to be replaced? Quite probably. The same applies to the 767s. Rather than hasten the replacement of older aircraft with a tendency to cause delays, Delta has pushed back deliveries. Four A350s have seen deliveries delayed. Delta said it would hike its dividend by 50%, to 81 cents from 54 cents, and step up the pace of its $5 billion share buyback, now to be completed by May 2017. Capital is being deployed to satisfy Wall Street. Is this wise? Delta’s rivals, American and United are not delaying deliveries of new aircraft. They are taking deliveries of aircraft ordered when Delta sat out the order frenzy. American is retiring all its MD-80s as quickly as it gets new 737s. Even though we now have a consolidated industry, passengers still have a choice. If Delta starts to earn a reputation for being unreliable, the outcome will eventually hurt the Wall Street crowd. As we have seen in the press lately, Allegiant has developed a reputation for having a fleet with four times the national average for mechanical breakdowns. Allegiant is another airline determined to rely on older aircraft. Saving money today is always smart. But there is a limit to this strategy, as delays are quite costly.

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