AirKarp

Winners and losers from Delta’s CSeries order

by Aaron Karp
May 03, 2016

“There’s no question this is an industry-accepting order,” Bombardier SVP Colin Bole said.

There are aircraft orders, and there are aircraft orders. Even with the valuable assets involved in commercial aircraft transactions—planes worth tens of millions of dollars or more—most orders are relatively routine. But a handful can rightly be described as “game changing” with wide reverberations. Last week, one of those kinds of aircraft orders came along when Delta Air Lines placed a firm order for 75 Bombardier CS100 aircraft plus 50 options. Here are the winners and losers from the deal:

Winners

Bombardier: “We’re ecstatic,” Bombardier Commercial Aircraft SVP Colin Bole, the Canadian manufacturer’s top commercial aircraft salesperson, said last week while standing aboard a CS100 aircraft in Atlanta. Bole and a handful of senior Bombardier executives flew down to Delta’s headquarters in Atlanta on the CSeries aircraft after Delta placed the crucial order.

“There’s no question this is an industry-accepting order” for the CSeries, Bole said. Yes, Air Canada committed to the CSeries in February, but a major US airline has always been the big prize for Bombardier. Air Canada’s commitment is not insignificant, but the airline and Bombardier share Montreal as a headquarters city, so it is not surprising Air Canada would commit to the CSeries, even if there was no overt domestic political pressure to do so. But Delta ordering 75 aircraft—and this is especially important after United Airlines ordered Boeing 737-700s over the CSeries—means that the CSeries will be operated in a significant way on mainline service by one of the world’s largest and most successful airlines.

It means that the CSeries is now definitely in play as airlines around the world make choices when buying low-end (size-wise) narrowbody aircraft.

Delta: The airline is famous for making opportunistic aircraft orders and it seized on Bombardier’s need to establish the credibility of the CSeries to get what was undoubtedly a huge bargain on the $5.6 billion list price for the 75 firm aircraft. Delta will take at least 35 CS100s and can then start converting to the larger CS300 model—the airline has already negotiated and agreed to a firm price for both models with Bombardier.

Given the aircraft’s fuel efficiency, expected maintenance-cost savings and the relatively low price Delta paid, it’s no wonder Delta execs were exuberant about the CSeries during the airline’s April 29 media day in Atlanta. The economics of the CSeries “are very, very compelling for us,” Delta SVP-supply chain management and fleet strategy Greg May said.

US domestic airline passengers: Delta is planning to use the CS100 on domestic routes now operated with 50-seat or 76-seat regional aircraft, so the quality of the flight experience for Delta passengers on these routes will greatly improve. “It is an absolute widebody feel on a narrowbody,” Delta CEO Ed Bastian said of the CS100, which will start being delivered to Delta in 2018.

Delta plans to configure its CS100s with 110 seats. Standard economy-class seats will have a 31-inch pitch and be at least 18.5 inches wide, according to May. With a 3-2 format planned for economy, all but 17% of the seats on the aircraft will be window or aisle seats, he said.

“I think it’s going to be one of the most comfortable aircraft we’ll have in our fleet, if not the most comfortable,” Delta president Glen Hauenstein said.

Losers

Embraer: The Brazilian manufacturer has been trying to get its E190/195 aircraft into US mainline fleets, and the Delta CSeries order was a double blow. First, Delta chose the CSeries over the E190. Second, it said the 20 used E190s it had been planning to add to its mainline fleet will no longer be added. The order was by no means a devastating blow for Embraer, which continues to win orders for both current and next-generation E-Jets, but it is a blow nonetheless.

Boeing and Airbus: At least Airbus had the solace of winning an order for 37 additional A321s from Delta the day after the CSeries order and having Delta launch A321 service this week. But Boeing and Airbus had, until last week, kept Bombardier from getting an “industry-accepting” CSeries order by discounting prices on 737-700s and A319s. That strategy seems to have played out and the world’s two largest commercial aircraft manufacturers may have to figure out an actual response to Bombardier. “What [Delta’s order] in particular establishes is that there is a need for an aircraft in the 100-150-seat size range in the market,” Bole said. “Some of our competitors had denied that.”

United: Does United regret choosing the 737-700 with current-generation engines over the CS100 or CS300 with next-generation engines now that rival Delta has chosen the CSeries? In, say, 2019, if a United 737-700 goes head-to-head with a Delta CS100 on a domestic route, you’d probably have to give the operating economics advantage to Delta.

US regional airlines: Because of pilot contract scope-clause restrictions, US regional airlines can’t operate aircraft with more than 76 seats. “Where you see the 76-seat aircraft today, that’s going to be the best opportunity [for the CSeries],” Bastian said. This means that capacity at major markets like New York LaGuardia now being operated by regional carriers under the “Delta Connection” brand will move to CSeries aircraft operated by mainline Delta. Business is already tough for US regional airlines, and it looks like it will only get tougher. 

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