The second-largest U.S. airline, Delta Air Lines Inc. (DAL), is set to order 100 Boeing (BA) 737 planes in a bid to replace its older fleet with more advanced and fuel-efficient aircrafts. The order is estimated to be valued at approximately $8.6 billion.
Delta initiated the plan to replace older fleet two years ago. The company sent proposals to many aerospace companies including Airbus, Embraer (ERJ) and Bombardier (BBD.B) and Boeing for delivering approximately 200 planes including large, medium and small single-aisle planes for U.S. routes.
Given the steeply rising oil prices, fuel-efficient aircrafts are in high demand and carriers are rapidly replacing their older fleet with the more fuel-efficient ones. Recently AMR Corp's (AMR) American Airlines ordered 460 single-aisle planes from Boeing and Airbus. Further, United Continental Holdings (UAL) plans to deploy its first Boeing 787 Dreamliner aircraft in early 2012, representing the first of the 50 Dreamliners that the company intends to deploy.
Going forward, Delta continues to invest in the existing domestic mainline fleet by installing winglets to increase fuel efficiency and expanding the First Class cabin to more fleets. In the international transoceanic aircraft, the company is installing full flat-bed seats in BusinessElite and adding in-seat audio and video across all cabins.
Delta is further investing to add First Class to the 70 and 76 seat regional jets in its regional aircraft. Delta expects capital investment of more than $2 billion for these infrastructural development through FY13, including an expanded international terminal in New York-JFK, in the air and on the ground.
We are currently maintaining our long-term Neutral rating on Delta. The stock retains a Zacks #3 Rank (Hold) for the short term (1–3 months).
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