Boeing Plunges as Delta Sees `Bubble’ of Used Wide-Body Jets

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Boeing Co. tumbled the most in almost a year after Delta Air Lines Inc. Chief Executive Officer Richard Anderson said there was a surge of wide-body models coming off lease, creating investor concern that the planemaker faces pressure on pricing for new aircraft.

A used-jet glut would pinch Boeing on planes like the twin-aisle 777, one of the company’s biggest sources of profit, said George Ferguson, senior air transport analyst with Bloomberg Industries. Boeing may also find it tougher to generate 777 sales needed to sustain output at 8.3 jets per month as it transitions to an upgraded model known as the 777X, he said.

The situation is “causing concerns about new model pricing,” Ferguson said in an e-mail. The issues also heighten “the risk that Boeing has to cut 777 production rates very soon, even late next year.”

Anderson, speaking on a Delta earnings call, said he sees a “huge bubble” for used wide-bodies while also signaling his interest in eventually adding secondhand long-haul jets. Aerospace companies make money by building planes to order, so they would risk losing business from airlines restocking their fleets with recent-vintage aircraft.

Biggest Plunge

Boeing fell 4.3 percent to $134.22 at the close in New York, itsbiggest plunge since Oct. 22, 2014. The decline was the second-largest among the 30 members of the Dow Jones Industrial Average.

Delta, whose fleet choices are widely copied, is exploring adding used versions of the Boeing and Airbus Group SE jets most popular on long, international routes, including the 777-200ER and A330-200, Anderson said.

“The aircraft market is going to be ripe for Delta over the course of the next 12 to 36 months,” Anderson said. “Prices are going to get lower.”

Anderson’s remarks came amid fretting by some investors that airliner demand has peaked and that Boeing and Airbus risk over-producing jets as they plot production-rate increases for single-aisle jets like the Boeing 737 and Airbus A320, and the wide-body Boeing 787 Dreamliner.

“Considering the jitters around the commercial aerospace cycle, it does not take much for the market to react,” Ken Herbert, a San Francisco-based analyst with Canaccord Genuity, said in a note to clients Wednesday. He rates Boeing as buy. While he sees 777 output being cut to five or six jets a month, Herbert doesn’t expect wide-body “weakness” to spread to the narrow-body market.

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