Delta and Bombardier are close to completing a deal for 75 C Series jetliners with the possibility of an additional 50 units to replace the airline’s MD-88 fleet.
Delta and Bombardier are not giving official comments but a person familiar with the negotiations indicated that the companies are nearing the final talks. The deal would be the biggest single order for Bombardier’s carbon-fibre aircraft and would legitimize the aircraft manufacturer’s entry into the narrow-bodied segment of the large commercial jet market. If pushed through, the order would almost be equal to 50% of Bombardier’s current orders.
Based on the $82 million list price of the CS300, the pact for 75 planes would reach $6.15 billion, but industry analysts are speculating that the deal could involve large discounts at the 50% level or more, with Bombardier not only fighting off tough bids from top airplane manufacturers but also having to accommodate Delta’s costs for adjusting to the new aircraft units such as pilot training and the build-up of new spare parts.
Some think that Bombardier conceding to the lowering of prices may set a precedent for its future dealings and compromise profitability of the model. But the Delta deal is a must win for Bombardier, and it is willing to take the gamble.
Bombardier is bidding against Airbus Group SE, Boeing Co. and Embraer SA for the Delta deal. Pricewise, Airbus and Boeing may have the advantage. Goldman Sachs reported that Boeing offered comparable 737-700 units to United Airlines for only $22 million. Besides, it is in Airbus and Boeing’s interests to prevent a promising player like Canada-based Bombardier from getting established in the market, and could go into a price war.
If not price, then what could be the allure of Bombardier? Analysts speculate that Delta is actually going for planes with smaller capacities that can accommodate only a hundred, something that Airbus and Boeing do not have. Embraer and Bombardier both have new offerings for the 100 seater single aisle segment, the E-Jet-190-E2 and the CS100, respectively. Bombardier’s edge is the wide range of scope that its product offerings possess. If Delta opts for a mixed package, Bombardier could also provide the CS 300 which can seat 130 and the CS500 which covers the 160 range.
Aside from this, Delta has had a history of taking chances on new entrants, with its forerunner Northwest Airlines actually being the doorway of Airbus to the US market by the purchase of the Airbus 320. What Delta is not known for is taking on technology that is not yet thoroughly tested, as mandated by retiring CEO, Richard Anderson. Bombardier’sCSeries boasts of fuel-sipping efficiency and composite frame. However, its development was two years delayed with more than $ 2 billion in cost overrun. It was first commercially operated by Latvia’s Air Baltic, who seemed satisfied with it and had ordered an additional seven units. Delta might be relaxing its stance on the consideration with the entry of new CEO, Ed Bastian. With a volume as large as this one, though, Delta could spread its risk and opt to split its orders to the different manufacturers.