Delta in Talks to Defer 40 Airbus Jet Deliveries Beyond 2020

Delta Air Lines Inc. is in talks with Airbus SE to delay at least 40 aircraft deliveries set for this year, as the carrier grapples with a travel market stricken by the coronavirus pandemic, said people familiar with the matter.

At the same time, Delta plans to bolster its cash stockpile by raising $750 million from a sale-leaseback deal for nine of the remaining Airbus jetliners scheduled to be handed over, said the people, who asked not to be named because the discussions are private. The two transactions aren’t linked, meaning one could get done without the other, they said.

The financing involves five Airbus A321 planes, two A350 aircraft and two A330neo jets, the people said. Both deals follow through on Delta Chief Executive Officer Ed Bastian’s July pledge to tamp down capital expenditures on aircraft at least through the end of this year as the company works to stem losses from the collapse in demand for flights.

Airbus shares fell as much as 6% on Thursday, after Bloomberg reported on the deferrals.

The belt-tightening measures by one of the world’s best-capitalized airlines underscores the pressure on Airbus and its U.S. rival, Boeing Co. Both manufacturers have been working furiously to preserve orders at a time when airlines have little need for new aircraft and undelivered jetliners are stacking up outside their factories.

‘Intensive Contact’

“We’re in intensive contact with customers, and Delta is no exception,” said Airbus spokesman Stefan Schaffrath. “Agreements remain confidential.” Delta declined to comment.

The Atlanta-based airline has vowed to reduce capital spending by $3.5 billion this year, in part by working with plane and engine manufacturers to “optimize the timing of our future aircraft deliveries,” according to a Delta filing in July.

A breakdown of the jets likely to be deferred wasn’t immediately available. In a research note, analysts at Citigroup estimated about 14 plane deliveries for 2020 remained potentially at risk, including A220 and A321 single-aisle models.

Airbus declined 2.7% as of 9:26 a.m. in Paris. The shares have lost 54% of their value this year. Delta dropped 2.2% in New York on Wednesday.

As of June 30, the airline held $14.2 billion in commitments for aircraft purchases, including $2.35 billion in the second half of this year. The filing didn’t provide the number of jets to be handed over during the last six months of 2020.

Almost all of Delta’s outstanding orders are for Airbus planes, and the scheduled deliveries for all years includes 100 of the A321neo, 27 of the A321, 64 A220s, 32 of the A330neo and 22 of the A350 jetliners. Most of the airplanes on order are due to be added to the carrier’s fleet through 2022.

U.S. airlines are slashing spending and parking some jets as domestic passenger totals languish at about a third of last year’s levels. With the coronavirus pandemic also slamming demand for international travel, carriers have fortified their cash stockpiles as well.

Delta borrowed $9 billion against its SkyMiles loyalty program in a deal announced last week. The airline, which had close to $16 billion in cash at the end of June, is burning through about $750 million a month, Chief Financial Officer Paul Jacobson said on Sept. 17.

Delivery Dilemma

The squeeze on cash has thrown airlines into intense negotiations with Toulouse, France-based Airbus and Chicago-based Boeing over whether and when to take delivery on new jetliners that were ordered before the pandemic hit.

Both planemakers have slashed jobs and production rates, though some analysts have said they’ll need to scale back further.

Sale-leasebacks and other financing tools have helped bridge the gap in some instances, allowing carriers to reap cash upfront from lessors, often in exchange for higher monthly rent payments.

Inventory Glut

To date, Airbus has managed to largely avoid order cancellations by postponing handovers or allowing customers to switch to jets that better suit their post-pandemic needs.

CEO Guillaume Faury said in July that almost no customers were taking deliveries as expected six months ago, and that the manufacturer was turning to promissory notes or advance payments in some cases to ensure airlines remained committed.

Airbus’ own outlook is worsening, with Faury stepping up warnings this week that the company may have to make forced job cuts as it targets the elimination of 15,000 positions.

With airlines holding onto cash, the main variable for Airbus “appears to be inventory and the timing of its release,” Sandy Morris, an analyst at Jefferies International wrote in a research note. “Sooner is better than later, but sustaining production at an optimal level for the medium-term is the key, in our view.”

©2020 Bloomberg L.P.

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