Last week, Bloomberg reported that Delta Air Lines (NYSE: DAL) is speaking with aircraft OEMs about replacing its aging MD-88 fleet. Other reports indicate the competition is primarily between Embraer (NYSE: ERJ) and Bombardier (OTCQX:BDRAF) (OTCQX:BDRBF). Delta is not saying anything - as one would expect.
Delta's MD-88 seats 149. This is a size that puts it most closely to the Airbus (EPA: AIR) A320 with 150 seats. This size is too large for the Embraer E-Jet 195-E2. Yet it appears they are in the race. In terms of Boeing (NYSE: BA), the 737-700 and MAX7 are too small at ~130 seats, while the 737-800 or MAX8 at 162 seats is much larger. Bombardier has the CS300 which offers 130 seats in standard configuration, but can allow more by re-configuring.
If Delta focuses on price alone, and this may be the case, Airbus and Boeing are in a class of their own and will swamp Embraer and Bombardier.
But it appears Delta is playing its usual cagey game when it comes to fleet acquisitions. The airline may not be focused on the ~150 seat category. In fact, the company seems to be presently looking at the 100 seat segment. If this is indeed correct, then Airbus and Boeing are outclassed regardless of price. They have nothing to offer in this market - and Delta will not be seduced by the siren song of "up-gauging" as so many other airlines have been.
Indeed, in the 100 seat segment, Embraer and Bombardier are the only two with viable products. Embraer has its brand new E-Jet 190-E2 which is currently in flight test. Bombardier has the brand new CS100 which was seen at Delta's headquarters last week for a second visit.
If the competition underway now is truly 100 seat focused, Embraer and Bombardier will be pulling out every trick they have to win. For Embraer this would be a great win. For Bombardier though, this is a must win. The recent loss at United (NYSE: UAL) was painful - but there was nothing Bombardier could offer to win there. Boeing was going to price their way in to ensure no foothold for Bombardier.
Right now, there is no public information about where Delta's decision process is. But some history might be helpful. Many years ago, Bombardier was deep into a campaign at Delta when it first launched the CSeries. Its leadership then balked at Delta's pricing requirements. It was a mistake and the current leadership at Bombardier will not make the same mistake. Delta went on to buy the airTran 717 fleet instead - seen by many as an interim solution.
Crucially, one of the items Delta asked for was a three-member family. What Bombardier had to do was not only offer a rock bottom price, it also had to agree on a growth model beyond the CS300 - the ostensible CS500.
If Delta is still thinking this way, then Bombardier may actually be at an advantage. It has the CS100 and the CS300 and could offer a CS500. That allows it to bracket from 100 seats to, say, 160 if the CS500 were to be a stretch that far. Embraer cannot stretch their E-Jet E2 beyond the 130 seat E-Jet 195-E2. Airbus and Boeing also have family solutions but nothing credible starting at 100 seats.
Before one starts to get excited by the prospect of an advantage for Bombardier, bear in mind Airbus and Boeing will practice a scorched earth campaign. They will stop at nothing to keep Bombardier out. A win for them is not making money at Delta; it is keep Bombardier out. The stakes are very high for all the players. Even Delta will not have an easy time with its choice. But if Delta does select the CSeries, that program gets a major edorsement. For Bombardier, the stakes could not be higher.
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