Airbus Scores a Point With Delta Air Lines, Inc. (DAL)

Earlier this year, Delta CEO Richard Anderson told Reuters, “Our ideal solution for buying airplanes is to compete Boeing against Airbus against used airplanes; compete GE against Pratt and Rolls-Royce so that we always have multiple engine manufacturers and multiple airframe manufacturers at the table.”

In other words, Delta believes that price trumps almost everything else when deciding which aircraft to buy. Therefore Delta is very opportunistic in the aircraft market. In this case, Airbus is transitioning from the A330 to the more advanced A350 and is about to update the A321 as the A321 NEO. While Airbus has seen solid demand for both new aircraft types, it also needs to keep assembly lines running until it completes the transition of its product portfolio.

As a result, Delta probably received very favorable pricing from Airbus for this deal (although the terms of the deal are confidential). With lower aircraft costs, Delta can justify the complexity of operating multiple fleet types in the same size range. Furthermore, by not being tied to just a few aircraft types, Delta can continue to pit Boeing and Airbus against each other to negotiate low purchase prices.

Foolish bottom line
Boeing may have won the previous round at Delta, but Delta’s recent agreement with Airbus shows that it’s not interested in being “exclusive” to one manufacturer. Boeing will have to continue to fight hard and offer compelling pricing to win future orders from Delta.

So far, this strategy of encouraging robust competition between Boeing and Airbus has worked well for Delta. Delta has highly competent maintenance and operations staffs, and so it can manage the complexity of multiple fleet types. It then reaps the benefits of lower capital outlays. This unusual fleet strategy has already allowed Delta to begin returning cash to shareholders. In all likelihood, it will continue contributing to Delta’s position at the head of the U.S. airline industry.

The article Airbus Scores a Point With Delta originally appeared on Fool.com is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines.

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