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UPDATE 2-Planemaker shares fall after Delta warns of surplus
October 15, 2015 / 11:19 AM / 2 years ago

UPDATE 2-Planemaker shares fall after Delta warns of surplus

(Adds Airbus shares, Paris trader, analyst quote)

By Jeffrey Dastin and Tim Hepher

Oct 15 (Reuters) - Shares in the world’s two leading planemakers fell after Delta Air Lines Inc warned of a surplus of second-hand widebody planes, raising concerns about their ability to command good prices for new aircraft.

Shares in European planemaker Airbus Group fell 2 percent on Thursday, catching a downdraft from a steeper 4.3 percent drop in rival Boeing’s stock overnight.

Boeing slid after Delta’s Chief Executive Richard Anderson said he expects prices for used twin-aisle jets to fall.

Modern aircraft are built to stay in service for 25 years or more but are often traded between airlines throughout their lives, providing values that serve as a barometer for old and new jets alike.

Low fuel prices have also encouraged some airlines to think twice about spending billions of dollars on new fuel-saving models.

Anderson, whose airline has recently ordered both second-hand and new planes, told a conference call on Wednesday that the used wide-body market was a “bubble” and “ripe” for purchases by Delta over the next 12 to 36 months.

“Part of the statement is obviously true, even if Delta is well known to be a great fan of (buying) second-hand aircraft ...but this is a risk for Airbus,” a Paris trader said.

Suppliers were also in the spotlight after U.S.-based Spirit AeroSystems fell 5.5 percent on Wednesday, though Cowen & Co called the fall in Boeing and Spirit shares “overdone”.

Anderson said leases of used Airbus A330-200 aircraft would be five times cheaper than new ones and that decade-old 777-200 aircraft from Boeing would cost $10 million, versus around $300 million at list prices for new ones.

Aircraft appraisers on average value those decade-old Boeing jets at more than $50 million, market sources said.

Old planes from the likes of Singapore Airlines Ltd are expected to be available soon, Anderson said.

“We get calls all the time,” Anderson said about used widebody planes, adding that no deal is in the works. “Prices are going to get lower. You wouldn’t strike a deal now.”

“We think that weakness in that aircraft bubble in widebodies is going to spread to narrowbodies, and that there will be some huge buying opportunities,” he said.

Manufacturers have been reassuring the industry recently over market prices for their long-range twinjets, while acknowledging some pressure on the oldest and smallest variants.

A European conference heard growing concerns last week over values of 250-300-seat jets, dozens of which are expected to come on the market in coming months.

“As a consequence we have seen significant pressure on Boeing 777-200ER values and generally they are down by more than 20 percent over the past 12 months,” Rob Morris, head of consultancy at Ascend Flightglobal, said.

Traders say A330-200 prices have also weakened.

Canaccord Genuity Inc analyst Ken Herbert said in a research note that he believes a production cut on the 777 is coming on the heels of a recent cut in Airbus A330 rates.

“But we do not believe the (widebody) weakness will spread to the (narrowbody) market, and we remain bullish on (Boeing‘s)stock” he said. “We believe Delta’s comments were also somewhat self-serving.”

Delta’s partner Virgin Atlantic Airways Ltd is looking to acquire around 20 777s, Herbert said. (Additional reporting by Alwyn Scott in New York; Editing by Andrew Hay and Keith Weir)

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