Why Delta's Ultra-Cheap Used 777 Jet Wiped Out Boeing Stock Gain

  • Airline says it has preliminary agreement to pay $7.7 million
  • CEO's tweet follows tussle with planemaker over jet value

Boeing Co. fell after Delta Air Lines Inc. revealed it is purchasing a used 777 jetliner for $7.7 million, reviving concerns that plunging values for some wide-body models signal that the market is glutted.

Delta Chief Executive Officer Richard Anderson has sparred with the planemaker, analysts and lessors over the values for decade-old 777-200 family jets, a version of Boeing’s best-selling twin-aisle model. Anderson said in October that Delta had been offered the jets for as little as $10 million, and said later that the proposal came from Boeing.

“I was wrong when I said used 777s were on market for $10M,” Delta posted in a tweet Thursday, citing a comment by Anderson at a presentation to investors in New York. “It was actually $7.7M. We just signed a letter of intent to buy one.” The airline didn’t name the would-be seller and didn’t immediately return a request for details.

The public spat over plane values highlights Delta’s quest to find hidden value in older aircraft and gain leverage with its suppliers, including planemakers Boeing and Airbus Group SE. “Today we call the OEMs and tell them to come down to Atlanta, we might want to buy a few airplanes if the price is right,” Anderson said Thursday. “Same with lessors.”

Immediate Reaction

Boeing immediately slumped on news of the purchase, declining 1.7 percent to $145.56 at the close in New York and erasing an earlier gain. The shares had risen as much 1.1 percent after Boeing landed a $10 billion order from Asia’s largest carrier. Boeing spokesman Doug Alder declined to comment.

Following Anderson’s initial comments in October, Boeing CEO Dennis Muilenburg suggested that his price tag was off-base. New 777-200ERs sold for $170 million 10 years ago. Factory-fresh versions list for $277.3 million before the discounts that are customary in the industry.

“That number is the wrong order of magnitude,” Muilenburg said at the time. “In that 365-seat category, there is no competing aircraft out there.”

While prices are higher for the largest 777s, they’ve plunged to as low as $35 million for older -200ER models with used Rolls Royce engines, according to JPMorgan Chase & Co. analyst David Perry. Most airlines want new jets to take advantage of better financing, improved fuel economy and lower maintenance costs, he wrote in a Dec. 2 note.

The number of 777-200ERs in storage surged almost sixfold to 34 in November from a year earlier, another symptom of market weakness, according to a report Thursday from Deutsche Bank AG’s Douglas Runte. Another long-range plane cited by Anderson as proof of a glut -- Airbus’s A330-200-- has been parked in even greater numbers, almost tripling to 46 over the same period.

With a growing number of twin-aisle jets coming off lease, “pressure on the wide-body market seems destined to continue for the near to intermediate term,” Runte said. “While not as catastrophically weak as suggested by Delta Air Lines, the wide-body market is certainly soft.”

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