It’s been a couple of weeks since news emerged that Delta was yet again expanding its fleet of MD-90 aircraft by purchasing nine of the aircraft from JAL, but I wanted to share a few thoughts on the move.
The Atlanta-based carrier now has 58 of the aircraft either flying, in modification, or to be delivered. But Delta had been operating only sixteen of the type for over a decade until it began tapping the used market to expand the fleet, so what’s changed? I started digging into the history of this fleet type, and it’s pretty interesting (in this dork’s humble opinion).
Photo Credit: Paul Filmer.
Launch Customer
While Delta ended up with only 16 MD-90s before its recent purchases, that number was far from the carrier’s original plans. In 1989, Delta became the launch customer for the aircraft, with 50 orders and 110 options. The type was originally slated to replace Delta’s aging fleet of 727s. (In the middle of 1995, when the first MD-90s were arriving, Delta operated over 130 727s, with an average age over 18 years.)
According to Delta’s fiscal 1994 annual report (the earliest available online) Delta was slated to take deliveries of 55 MD-90s, with deliveries beginning the following fiscal year:
But later annual reports indicate a reduction in the planned size of the MD-90 fleet. For example, in mid-1996, Delta had 12 MD-90s in service with a further 23 on order, for a fleet of only 35 aircraft. One year later, Delta had 16 MD-90s flying with 15 more on order, the carrier reported in its fiscal 1997 annual report.
Delta Goes Sole-Source
The figures presented above, however, excluded the effects of Delta’s March 1997 order with Boeing, including 70 orders for the 737 Next Generation, which had flown for the first time only weeks before the order. As explained in Delta’s annual report, the agreement included a sole-source arrangement with Boeing:
The understanding provides, subject to certain conditions, that Boeing will be the provider of new aircraft for Delta for 20 years, and that Delta may switch orders among these aircraft types and defer firm orders. The understanding would also accelerate the delivery dates for certain of Delta’s existing orders, terminate all of Delta’s existing options and cancel Delta’s remaining MD-90 orders.
For context purposes, the merger between McDonnell Douglas and Boeing was announced in December 1996, though the deal did not close until August 1997. The agreement between Boeing and Delta was not enforced due to competitive concerns raised by the European Union in response to the Boeing merger.
Delta also announced at this time that it would phase out the MD-90 from its fleet. A 1997 article from World Airline News noted:
Aircraft valuations experts are reconsidering their estimates of MD-90 values and preparing to adjust them downward as a result of Delta Air Lines’ announcement that it would phase out that model of aircraft from its fleet over the next 20 years. Delta still has 15 of the McDonnell Douglas aircraft on order. The MD-90 phase-out is part of Delta’s long-term fleet plan, which the carrier announced last week with its decision to make Boeing {BA} the sole provider of Delta’s aircraft over the next two decades.
By deciding to phase out the MD-90, and later cancelling its remaining orders, did Delta drive down MD-90 values? And if so, did Delta unintentionally make secondhand MD-90s cheaper to purchase over ten years later?
An Orphan Fleet No More
Following Delta’s 1997 fleet moves, the MD-90 fleet remained at 16 aircraft, and the airline was still planning to eliminate the type completely. The company’s fiscal 2000 annual report notes that Delta had “decided to accelerate the planned retirement of our 16 MD-90 aircraft and 8 owned MD-11 aircraft as part of our fleet simplification strategy,” and that it would retire the “MD-90 fleet and owned MD-11 aircraft over the next seven to nine years.”
And while the MD-11 left Delta’s fleet a few years ago, the MD-90 remained, and in 2009 reports began surfacing that the carrier was looking to expand the fleet. Why expand a fleet of older aircraft?
I’m willing to wager a big factor was cost. While the MD-90 isn’t necessarily the latest and greatest in terms of technology (compared to, say a 737-800), Delta can probably compensate for this with relatively low purchase price. Further, it’s interesting that Delta is growing this fleet while it is also removing old Northwest DC-9s along with smaller regional aircraft.
With that in mind, the MD-90 isn’t exactly terrible when it comes to unit cost. The aircraft’s unit cost performance should be aided by the fact that Delta is increasing the number of seats on the aircraft, from 150 to 160. Below is a chart utilizing data from the DOT, with cost data from Schedule P.5-2 of Form 41 and ASM data from the T2 summary data.
What’s also interesting is that the MD-90, of late, has been redeployed in the Delta network as the carrier has made adjustments in response to its merger with Northwest. In December 2009, for example, 23.5% of departing MD-90 seats came from Salt Lake City, with 19.5% from Atlanta. One year later, 45% of departing MD-90 seats left from Minneapolis. MD-90s have been oft-used on flights to the West from the hub acquired from its merger partner, to cities like Salt Lake City, San Diego, Los Angeles, San Francisco, and Denver. The move to MSP could possibly be attributed to a better matching of aircraft capabilities, with the MD-90′s more limited range making it better-suited for mid-con flights out of Minneapolis.
It appears that the MD-90 has found a comfortable home in Delta’s network, and we’ll have to see how the type is further deployed as Delta increases the size of this fleet in the coming months and years.
Photo Credit: Brandon Farris.
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