Delta CEO predicts 777 sales slump as aircraft bubble takes a hold

With Boeing’s Q3 earnings due to be released tomorrow (October 21), the industry is busy feeding off rumours of an “aircraft bubble”, falling widebody prices and a slump in 777 sales.

And it is Delta’s CEO Richard Anderson who is behind the headlines following a statement he made in the US airline’s 3Q earnings conference call on October 14. During the call he stated that: “we’re seeing a huge bubble in excess wide-body airplanes around the world”.

It’s this very bubble that he believes will present airlines with huge buying opportunities as the market will experience an increase in the number of mid-life widebody aircraft available in the market but a fall in demand.

And, Anderson’s comments have definitely made their mark on Boeing, as the OEM’s share prices have experienced a drop since the story broke.

Indeed, Boeing has to sell more current 777s to make its production rate work for the OEM and in a sense win business from the older 777s that are becoming available at lower costs.  

As low fuel prices keep mid-life widebodies inflight for longer, airlines don’t have to invest in models like the current day 777 to run cost-effective fleets. And, with many new next-generation models soon to intercept the market, the 777 is not at the top of an airline’s wish list.

Anderson’s opinion is that the increased availability of mid-life widebodies will have a knock on effect on demand for the current day 777. After all, there is still a lot of life left in a 10 year old 777, so you would expect operators to take advantage of this lower level investment rather than forking out $339.6million for a new 777-300ER.

Delta’s experts say that “a large number of leased widebody aircraft are being returned to lessors and manufacturers, causing a glut in the market”. And, some of these mid-life aircraft, according to Anderson, are selling for as little as $10m, meaning they’re the perfect investment for airlines.  Anderson expects prices to get even lower and commented that “you wouldn’t strike a deal now.”

However, this price tag of $10m for a mid-life 777 has attracted some sniggers, as it is just a fraction of the price the aircraft is first sold at. But he may have a point when it comes to there being little room for the current 777.

Speaking on the decline in demand for the 777, Greg May, Delta SVP says: “There was a time when the 777 had that market all to itself… With the A350 and the 787 that’s no longer the case, so it’s not as attractive.”

Plus, cheap financing has also made it possible for airlines to invest in models such as the 737MAX and A330neo.

So, as the order book for the 777 currently stands at just 54 orders from six customers in 2015, it will be all eyes on Boeing tomorrow when it announces its Q3 earnings.

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