Last Friday, Delta Air Lines cut its profit forecast by nearly a quarter. The reason fits in one number: its fuel bill is about $6 billion higher this year. Jet fuel on the Gulf Coast hit $4.34 a gallon on October 8, roughly double where it stood a year ago.
Here is the part that doesn’t fit the story. The same report showed record revenue, up 16% on flat capacity, and Delta’s CEO said travelers are still booking in every cabin. Airlines are paying far more to fly, and passengers keep showing up anyway.
So the airlines are stuck. They would love to swap their thirstiest planes for newer ones, and they can’t. As of March, Airbus and Boeing together had more than 15,000 unfilled orders, roughly a decade of production at current delivery rates. Industry data puts the average passenger jet at about 15 years old, up from 13 before the pandemic.
Follow that chain and it leads somewhere less obvious than the airlines. If new planes can’t arrive and old planes can’t stop flying, someone has to keep the old ones airworthy. Every extra year in service means more parts, more component repairs and more heavy checks in hangars that are already scarce. That spending doesn’t depend on whether fuel is $2 or $4. The plane has to be fixed either way.
You would expect a company sitting in the middle of that to be having a good autumn. One is not. It sells new aircraft parts, repairs components, maintains whole airframes, and supports the U.S. military. Last quarter its sales rose 24%. Its new-parts distribution business grew 23% without any acquisitions. Management said it sees no slowdown in parts orders, and raised its full-year sales growth outlook to the low teens.
On the same day, it announced a deal to buy a majority stake in a business with an enterprise value of about $4 billion, which happens to be about the same as the whole company’s stock market value. The shares fell more than 7% the next session and kept sliding. They now sit about 35% below the August peak, and the slide actually began before the deal was announced.
So is the market looking at a broken business, or a good business that just made a very large bet? Those two stories lead to very different stock prices.
