Bloomberg News

Delta Buys 40 Bombardier Regional Jets in Embraer Rebuff

December 06, 2012

Delta Air Lines Inc. (DAL:US) agreed to buy 40 regional jets from Bombardier Inc. (BBD/B) as the world’s second-largest carrier broadens its replacement of older, inefficient planes.

The firm order for CRJ900 NextGen aircraft has a catalog value of about $1.85 billion, and options for 30 more would boost it to $3.29 billion, Bombardier said today. The airline held talks with both Bombardier and Brazil’s Embraer SA for the order, Chief Executive Officer Richard Anderson said in October.

The purchase lets Atlanta-based Delta expand its use of more fuel-efficient 76-seat regional jets as it sheds versions that carry only 50 passengers and cost more to operate. It is Bombardier’s third major aircraft order since June.

“If you’re trying to get rid of old, obsolete Bombardier planes, maybe you get a better deal by sticking with the same company for your order,” Fred Lowrance, an Avondale Partners LLC analyst, said in an interview. “Bombardier is going to help out in taking Delta’s old CRJ200s back. All else being equal, I’m sure that was the deciding factor.”

Lowrance, based in Nashville, Tennessee, rates Delta shares market outperform.

The new regional jets are part of a restructuring of Delta’s U.S. fleet that also includes orders for 100 Boeing Co. (BA:US) 737-900ERs to replace older models and the sublease of 88 Boeing 717s from Southwest Airlines Co. Getting rid of older aircraft is one element of Delta’s $1 billion cost-cutting program.

Bombardier Orders

NetJets, a unit of Warren Buffett’s Berkshire Hathaway Inc. (A:US), agreed to buy as many as 275 Challenger aircraft worth $7.3 billion from Bombardier in June, and luxury air-charter company VistaJet Holding SA ordered as many as 142 Global-series planes with a value of $7.8 billion in November.

Airlines typically negotiate discounts from list prices.

Delta Connection carriers now fly 466 CRJ-series aircraft, including 286 CRJ200s, 79 CRJ700s and 101 CRJ900s, making it the world’s largest CRJ fleet, Montreal-based Bombardier said.

“We are delighted,” said Mike Arcamone, president of Bombardier Commercial Aircraft. “Delta has been a steady Bombardier CRJ customer and has been a major contributor to the worldwide success of the CRJ.”

Embraer (EMBR3), the world’s fourth-largest plane maker, declined 3.3 percent to close at 13.10 reais in Sao Paulo. Bombardier Class B shares rose 1.5 percent to C$3.33 in Toronto, while Delta climbed 3.2 percent to $10.02 in New York.

Free Cocktails

The regional jet purchase was allowed under a new pilot contract that lets Delta add as many as 70 of the 76-seat planes as it retires older, cramped 50-seat aircraft. The bigger regional jets will have dual-class cabins that bring in higher fares and are prized by business travelers for the extra legroom and amenities such as free cocktails.

Delta will begin receiving the CRJ900s in the last half of 2013 as it phases out 60 CRJ200s. The airline said the change won’t affect its current capacity. The smaller jets have fallen out of favor with carriers as jet-fuel prices have lingered between $2 and $3 a gallon during the past four years.

“The economics and customer features of the Bombardier CRJ900 made it the right aircraft to add to our Delta Connection fleet,” Delta President Ed Bastian said in a statement. “Combined with the removal of 50-seat aircraft, this opportunity bolsters our ongoing fleet restructuring program.”

Delta ordered 40 CFM34-8C5 engines built by GE Aviation for the CRJ900s, parent General Electric Co. said in a statement. The engines have a list value of about $320 million.

The airline had a fleet of 775 planes with an average age of 15.6 years at the end of 2011, according to a regulatory filing. That compared with an average of 11 years among a dozen North American carriers, according to data compiled by Bloomberg.

Delta also had 550 regional jets flown by partners such as SkyWest Inc. and Pinnacle Airlines Corp. (PNCLQ:US) as of the end of 2011, four-fifths of them made by Bombardier.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • DAL
    (Delta Air Lines Inc)
    • $37.68 USD
    • -0.51
    • -1.35%
  • BA
    (Boeing Co/The)
    • $122.32 USD
    • -0.74
    • -0.6%
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