Delta Air Lines is likely to issue new debt to finance upcoming deliveries of Boeing 737-900ER and Bombardier CRJ900 aircraft during the second half.
"We expect that the 2013 investments will be funded through cash from operations and new financings," according to a stock exchange filing by the Atlanta-based carrier on 1 August. It has not issued any new debt to date this year.
Delta has $775 million in aircraft purchase and lease commitments due in the second half, which is when deliveries of both the 737s and CRJ900s begin, the filing shows.
The airline has historically tapped the capital markets for aircraft financings. It has used enhanced equipment trust certificate (EETC) issues for the majority of its recent aircraft debt transactions, with the nearly $480 million 2012-1 notes in June 2012 for 31 Airbus and Boeing jets its most recent deal.
"The EETC market is, by far, the deepest and most efficient market that exists today," says Kostya Zolotusky, managing director of capital markets, leasing and aircraft financial services at Boeing Capital, during a briefing on 7 August. "Airlines like Delta or American or United are currently borrowing money on longer tenors and at much cheaper costs than any airline in the world."
EETCs are popular due to their low cost of capital, despite the recent rise in base rates. All-in interest rates are between 4% and 5% with spreads between 150bp and 200bp over 10-year US treasury notes, as demonstrated by the 156bp spread on the $720.4 million A tranche of United Airlines' 2013-1 EETC on 1 August.
The yield on 10-year treasury notes was 2.61% on 7 August, which is up more than 40% from 1.86% at the beginning of the year.
Competitors American Airlines, Hawaiian Airlines, United and US Airways have all issued new EETCs this year.
Delta did not comment on its financing plans.
The carrier has 12 737-900ER deliveries as well as 12 CRJ900 deliveries to its wholly-owned subsidiary Endeavor Air (formerly Pinnacle Airlines) scheduled in the second half, Flightglobal's Ascend Online database shows. It is also scheduled to take 16 Boeing 717-200s on lease from Southwest Airlines and Boeing.
The first 717 will arrive in August and the 737s and CRJ900s in September, according to the airline.
Delta has an additional 19 737-900ER and 28 CRJ900 deliveries scheduled for 2014, according to Ascend. It has $1.4 billion in aircraft purchase and lease commitments that year.
The airline could combine some or all of these deliveries into an EETC that would benefit from the tight spreads.
In addition to the new aircraft, the maturity of the Northwest Airlines 2002-1 senior G-1 EETC in May 2014 will leave 20 Airbus and Boeing aircraft in its fleet unencumbered. This provides Delta with additional collateral that it could include in a new EETC.
The G-1 tranche had $109 million in outstanding principal in June, according to Moody's. This is due to be fully repaid by maturity.
Delta used cash to fund the $985 million in capital expenditures, including the $360 million that Delta paid for a 49% stake in Virgin Atlantic Airways, during the first half.