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Delta Air Lines to Add Airbus A350-900 & A330-900neo

Delta Air Lines Inc. (DAL) recently awarded Airbus Group a contract worth $14 billion involving Airbus A350-900 and A330-900neo. The first lot of 25 Airbus A350-900 planes are scheduled to arrive at the start of the second quarter of 2017, while the rest are to be delivered in 2019.

Both the range of aircraft are powered with Rolls Royce Trent 7000 engines and will help in bringing down operating costs per seat by 20% against the present Boeing 767-300ER aircraft. This contract will also help Delta Air Lines boost its margins by retiring its present fleet of aging aircraft, Boeing 747 and 767.

Delta maintains a fleet of 11 A330-200s and 21 A330-300s carriers along with 10 Boeing 777-200LRs and eight 777-200ERs. The airline company has decided to buy 787-9 Dreamliner and five 777-200LRs from The Boeing Company (BA). However, Boeing’s failure to make timely delivery has compelled Delta to select Airbus over Boeing.

Notably, Delta has adopted a three-pronged approach to improve margins. Under the strategy, the company has decided to gradually dispose ageing carriers by 2017 which is expected to result in incremental operating profits of $100 million by 2015-end. Hence, the buying of 50 Airbus planes is very well in line with this strategy.

In the recently concluded third quarter of 2014, the company achieved 4% growth in airline traffic. Capacity or available seat miles increased 3.2% year over year, while load factor moved up 40 basis points year over year to 86.4%.

Delta is expected to generate higher revenues going ahead on domestic market strength, capacity discipline, route expansion, cost-control measures and customer-focused initiatives. Apart from this, the company is leveraging from its joint venture with Virgin Atlantic and strong demand within the New-York London route.

Delta currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Other stocks worth considering in this sector include American Airlines Group Inc. (AAL) and Alaska Airlines Group Inc. (ALK), both of which have a Zacks Rank #2 (Buy).

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