Delta Air Lines Inc. Chief Executive Officer Richard Anderson said Boeing Co. executives offered him used wide-body jets for $10 million, defending his comment a month ago that he sees a bubble in long-haul planes.
Anderson surprised some in aviation when, in an Oct. 14 earnings call, he said Delta had been offered a 10-year-old Boeing 777-200 for that price. Analysts quickly challenged Anderson’s comment, suggesting a more appropriate price is around $40 million. However, in a recorded message for employees, Anderson on Friday fingered Boeing as having made the offer to Delta.
“We got that value from Boeing executives who had offered us those airplanes at that price,” Anderson said on the recording. He went on to say, “We were pleased that Boeing offered Delta used 777s for $10 million.”
Boeing had no response to Anderson’s message Friday, said spokesman Doug Alder. Following the initial comments last month, Boeing CEO Dennis Muilenburg suggested the Delta chief’s valuation was off-base. New 777s sold for $170 million 10 years ago.
“I’ll say just based on our understanding of the marketplace and what we
understand from our customers, that number is the wrong order of magnitude,”
Muilenburg said. “And, frankly, the value of the 777 is holding up very well in the marketplace. It is a unique airplane. In that 365-seat category, there is no competing aircraft out there. It’s a unique value proposition for our customers.”
Buying Opportunities
In his recorded message Friday, Anderson said the used aircraft bubble for now is confined to the market for wide-body jets, those planes with two aisles primarily used for international routes. That bubble will create buying opportunities for Delta, Anderson said.
“We can buy those airplanes and take parts off of them even if we don’t end up flying them,” Anderson said Friday of the used wide-bodies on the market.
He suggested that newer jets, including the Boeing 787, tend to be less reliable than the older jets Delta maintains with its in-house mechanics, citing its fleet of Boeing MD-88s, which average more than 25 years in age. Delta is known for flying a fairly old fleet, which it says reduces capital expenses when kept up properly.
JPMorgan Chase & Co. analyst Jamie Baker in October estimated the value of a decade-old 777 at $43 million, higher than Anderson’s valuation, but less than the average appraised value of $56 million favored by the planemakers.
Aircraft lessors, too, have taken aim at Anderson’s comments, saying a $10 million price might apply to a few run-down jets but aren’t representative of most models changing hands.
“Prices that he indicated simply don’t exist in the market for normal aircraft that are well-maintained,” John Plueger, president and chief operating officer of Air Lease Corp., told analysts earlier this month.
Anderson’s comments a month ago helped send Boeing shares down more than 4 percent on Oct. 14, the manufacturer’s biggest drop in almost a year, when it closed at $134.22. The stock has since rebounded, rising 0.1 percent today to close at $149.40.
Bloomberg Business