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Delta's Boeing order doesn't rule out Bombardier

The Bombardier Inc. C Series plane is still in the running for a major order from Delta Air Lines Inc. , even though the U.S. airline has signed an $8.5-billion (U.S.) deal with Boeing Co. , for 100 737 aircraft.

Delta will replace aged Boeing 757 and 767 and Airbus A320 planes with 737s to be delivered beginning in 2013, but has delayed a decision on replacing smaller, single-aisle jets, some of which are even older than the 757s and 767s that will be phased out between 2013 and 2018.

Bombardier's C Series is in contention for another 100-plane Delta order to replace those smaller jets, including 32 DC-9s with an average age of 33 years and 117 MD-88s that are 21 years old on average and are owned or leased by the Atlanta-based airline. Bombardier is up against Embraer SA of Brazil for that order.

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The order for smaller planes was put off likely because of worries about the state of the U.S. economy and it's a decision Delta does not need to make immediately, said one industry source.

"A key component of Delta's strategy is making prudent investments for the future while maintaining our financial and capacity discipline," Richard Anderson, Delta's chief executive officer, said in a statement.

A Delta purchase of 100 C Series planes would have been a major shot in the arm for the $3.4-billion Bombardier program, almost doubling the order book, which now stands at 133 firm orders.

But it would also have been a cost of about $6-billion (based on list prices for the C Series) for Delta, which is committed to reducing the debt on its balance sheet and, along with other airlines, has cut capacity in recent months amid a stagnant U.S. economy.

The delay is not a loss for the C Series, which seats between 100 and 149 passengers, industry analysts said. The 737-900s Delta has ordered seat about 180 passengers.

"The biggest replacement requirement is in the 757 fleet and therefore it will be given priority in replacement," said industry analyst Addison Schonland, a partner at consulting firm AirInsight. The 757 carries 200 or more passengers.

It will be a loss for C Series if Delta opts for Embraer planes or the smaller 737-700 to replace its older and smaller narrow-bodied aircraft.

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Putting off that decision gives the airline "more time to evaluate Bombardier and Embraer offerings and possibly see if Airbus or Boeing might have something that works as well on the smaller jet side," noted Michael Derchin, who follows Delta for CRT Capital Group LLC of Stamford, Conn. But Mr. Derchin does not see Delta ordering smaller planes soon.

Delta began the process of assessing new planes earlier this year, but the landscape has changed dramatically since then.

The cost of fuel has risen, forcing airlines to impose surcharges and find ways to slash their fuel use, which typically represents about one-third of total costs.

The number of airplane options for reducing fuel consumption has risen because Boeing has announced it will put new, more fuel-efficient engines on the 737 later this decade, matching what Airbus is doing with its A320 family. Those two planes dominate the narrow-bodied market and are the only choice for airlines seeking single-aisle airplanes seating more than 150 people.

The A320 with more fuel-efficient engines has been a spectacular success for Airbus, effectively forcing Boeing to respond with new engines for the 737, instead of waiting until the end of the decade when it would be able to offer a completely new plane in the segment.

Delta is not buying the 737 with new engines, but it said that the version it is buying offers an improvement of 15 to 20 per cent in fuel consumption per seat.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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