Delta Air Lines, announcing one of the biggest orders for airliners in history, said Tuesday that it will spend up to $10 billion for 160 of McDonnell Douglas Corp.'s new MD-90 jetliners and 100 of Boeing Co.'s 737s.
The McDonnell Douglas order will enable that company to begin development of the new MD-90 series of airliners at its Douglas Aircraft unit in Long Beach, Calif.
The $5-billion-plus order for Douglas planes, one of the largest in the manufacturer’s history, adds to an already mighty commercial aircraft backlog that will extend production at Long Beach until at least the year 2002. Douglas has firm orders and options worth more than an estimated $70 billion.
Boeing also has a huge backlog and will not deliver some of Delta’s new planes until 2001.
The Delta order will not result in any direct addition to Douglas’ national work force of 48,000, but it will mean that the 40,000 jobs at the Long Beach and Torrance facilities will be guaranteed further into the future, Douglas Vice President John D. Wolf said. The Douglas operation has grown from a low point of about 12,000 in the early 1980s.
The total order announced Tuesday is Delta’s second in the last two years for about $10 billion. The largest such order in U.S. history was made last year by United Airlines, when it ordered $15.74-billion worth of planes from Boeing.
Atlanta-based Delta already has the youngest fleet of any of the nation’s major air carriers. Even before it placed the orders that it announced Tuesday, it had on file orders and options for 259 planes, worth $13 billion. With the new order, it will have 519 planes on order or option. Delta now operates a fleet of 405 aircraft.
“These orders and options for new aircraft,” said Ronald W. Allen, Delta’s chairman, “highlight our plans for international and domestic growth and reconfirm our policy of operating the most modern fleet of aircraft available.” Allen spoke at a news conference in Atlanta.
Delta said that the 519 planes on order and option will be used for expansion of the airline and as replacements for older aircraft. (An option is a tentative order that an airline may cancel without losing its deposit; orders are firm commitments.)
“Delta will clearly be thought of as a leader in modernization and technology,” said Paul Karos, airline analyst with First Boston Corp., a New York-based investment firm.
Louis Marckesano, airline analyst with Janney Montgomery Scott, a Philadelphia brokerage firm, added: “American, Delta, United, Northwest and USAir, all of which have many planes on order, will now clearly dominate the field.
“The weak sisters--Pan Am, Continental, Eastern and TWA--will fall further behind just by standing still. It means there clearly needs to be some more consolidation in the airline industry, even though the government does not look favorably on mergers these days.”
The airline placed firm orders with McDonnell Douglas for 50 MD-90s and took options on 110 more, with deliveries to begin in late 1994. Sixty of the options represent conversions of options that the airline had previously announced for McDonnell Douglas’ older MD-88s. In the configuration ordered by Delta, the MD-90s will carry 153 passengers and cost about $30 million each, Douglas executives said.
Delta already operates one of the largest fleets of Boeing aircraft in the world, including 727s, 737s, 757s and 767s. On Tuesday, Delta placed orders for 50 more 737s and took options on another 50. The Boeing 737-300s ordered by Delta will seat 120 passengers. All told, Delta has seven different types of planes on order or option.
Allen said at the Atlanta news conference that Delta would pay about $40 million for each of the MD-90s and $29 million each for the 737s.
However, there was some doubt about how much money Delta will actually pay for the new planes. Paul Turk, a spokesman for Avmark Inc., an Arlington, Va., consulting firm that specializes in airplane sales and prices, said that the airline was “grossly overstating” the total cost of Tuesday’s orders to McDonnell Douglas and Boeing. He said it will be closer to $8 billion than $10 billion.
Turk said that, because Delta is a so-called launch customer, one that enables production on a plane to begin, the airline “will get rock-bottom prices” on the MD-90 as an incentive. He said each MD-90 will cost Delta closer to $30 million than the $40-million price cited by Allen.
Turk said that Avmark lists 737s as costing $21 million each. “Delta is a good Boeing customer,” he said. “It (is) a good credit risk, and Boeing would like to sell it more airplanes.”
This has been a record year for Seattle-based Boeing. Before the new Delta order, it had written orders for 809 planes valued at $43.3 billion. Last year, the previous record year, it had orders for 632 planes worth $29.6 billion. Its order book, although not completely filled, had orders extending through 1998 even before Delta placed its new order, and the company is essentially sold out for the next five or six years, a spokesman said.
Douglas’ Wolf said that development of the MD-90, which is derived from the older Douglas MD-80, would begin immediately and cost “less than $400 million.” The company expects to obtain government certification of the aircraft and to begin deliveries in 1994.
The launching of a new class of aircraft usually is a painstaking and slow process that can take years, but the MD-90 class has come into existence with lightning speed, Douglas spokesmen said. The program was disclosed only last month, and the company had little hope that it would be ready to start development this early, Wolf said.
He added that Douglas had formally offered the MD-90 to Delta a month ago and received approval from McDonnell Douglas’ board of directors on Oct. 27 to proceed with the sale.
Despite the speed with which Douglas is moving on the MD-90, Wolf said that, before the company begins production of the aircraft for Delta, it would modify an existing MD-80 jetliner to the new MD-90 configuration and conduct flight tests on it to verify the design.
This conservative approach is intended to avoid manufacturing problems that result when a new aircraft is designed and produced concurrently.
Douglas will offer the MD-90 in three models with different passenger capacities. The model Delta has ordered, designated the MD-90-30, will carry 153 passengers and have a range of about 2,300 nautical miles. The MD-90-10 model is designed to carry 114 passengers and the MD-90-40 will carry 180.
The new MD-90 family will differ from the MD-80s primarily in the use of the new International Aero Engines V2500 turbo jet engine, which is built by an international consortium that includes the American manufacturer Pratt & Whitney and the British firm Rolls-Royce. Other participants in the project include West German, Italian and Japanese firms.
Kim Still, Douglas vice president for commercial marketing, said that the engine is quieter, more fuel efficient and less polluting than existing jet engines on Douglas aircraft. Last month, Douglas said that the new engines would increase fuel efficiency by about 15% over existing engines.
The MD-90’s fuselage will be 57 inches longer than the MD-80’s, which will allow 10 additional passenger seats.
Douglas will continue to offer the MD-80 family of jetliners for sale. The company has orders and commitments for 1,565 of the aircraft. In addition, it has orders and options for 308 of its new wide-bodied MD-11.
Also, the firm has two major military programs worth well over $50 billion in potential business.
Still said that Delta has little concern that Douglas’ current production delays would be a long-term problem. The company has fallen behind schedule in deliveries of MD-80s but is now meeting its goal of delivering 2.5 aircraft a week and expects to increase its rate to 3.3 aircraft in future years, company officers said.
Robert E. Dallos reported from New York and Ralph Vartabedian from Long Beach.