NEW YORK (TheStreet) -- Boeing (BA - Get Report) , JPMorgan Chase and possibly even American (AAL) aren't buying Delta (DAL - Get Report) CEO Richard Anderson's assessment that the used aircraft market is glutted with used Boeing 777s and becoming more so.
Anderson made the suggestion on Delta's Oct. 14 earnings call, declaring that he sees "a huge bubble in excess-wide-body airplanes around the world," creating a market for 10-year old 777-200s at about $10 million.
Anderson's comments rocked Boeing shares, which fell 4% to close Oct. 14 at $134.22. The damage was not lasting. On Thursday, the day after Boeing reported earnings, shares rose 5%. They closed Friday at $146.70.
Delta and Boeing are not best friends. They are publicly separated by Delta's opposition to the Export-Import Bank's historic practice of providing below-market financing to wealthy foreign airlines which buy Boeing aircraft. And it is hard to imagine that Boeing welcomed the battle, initiated by Delta, over subsidies to the three Gulf carriers, all major Boeing customers.
Included in the pushback last week against Anderson's comments were remarks on Boeing's earnings call Wednesday by CEO Dennis Mullenburg, an assessment issued Friday by JPMorgan and also a remark by American CEO Doug Parker on American's earnings call on Friday.
As the final question on American's earnings call, a reporter asked Parker his view regarding "statements that a glut in the market for used wide-body airplanes may be approaching." Parker responded: "We're not confirming that comment, not sure we agree. But happy to talk about the American Airlines fleet plan and where we are."
Later, the reporter sought clarification, asking, "Would you say that the belief that a glut is approaching in the used-wide-body market is exaggerated, or you can't comment?" Parker responded, "I'm not commenting on that."
On the Boeing call, like the American call, the last question addressed the 777 glut. Mullenburg responded with a reference to "the note around $10 million 777s that might be available.
"I'll say just based on our understanding of the marketplace and what we understand from our customers, that number is the wrong order of magnitude," Mullenburg said. "And, frankly, the value of the 777 is holding up very well in the marketplace. It is a unique airplane. In that 365-seat category, there is no competing aircraft out there."
In a note issued Friday, JPMorgan analyst Jamie Baker wrote that Anderson's "commentary regarding a pending wide-body glut and attendant pressure on used B777/A330 values created turbulence for investors across aerospace and aircraft leasing.
"Based on recent data and our associated channel checks, reality falls somewhere between the most bearish interpretation of Delta's comments and continued bullish rhetoric from [Airbus and Boeing]," Baker said.
Baker said he believes a more accurate EIS cost for a 10-year-old B777 is $43 million, while Boeing and Airbus prefer to cite the average appraiser EIS of $56 million. "The health of the used market clearly warrants debate but Delta's comments were taken out of context, in our view, though had directional merit given appraisals that increasingly appear too robust," he said.
Delta, however, was not backing away.
In a story posted Oct. 19 on its Web site, the airline buttressed Anderson's remarks, listing three key points. First, "a large number of leased widebody aircraft are being returned to lessors and manufacturers;" secondly, "economic softness in Asia and Latin America has caused many foreign airlines to tamp down growth plans," and thirdly, "cheap financing created a demand for new aircraft, lowering the value of used jets."
Airlines often turn in new planes when the lease ends, usually after seven to 10 years. Those aircraft often end up on the used aircraft market. The returns have recently been exacerbated because airlines waited out a four-year delay for Boeing 787s, which are now being delivered.
"One aircraft in particular -- the Boeing 777-200ER powered by Rolls-Royce (RYCEY) Trent engines -- will be entering the used market in significant numbers over the next couple years," Delta said.
Ed Lohr,Delta managing director of fleet strategy, likened the wide-body jet bubble to the housing bubble that burst in 2008.
"Why did we have a real estate bubble?" Lohr said. "Because anyone and his brother could get a loan. It's the same story with new airplanes."