Friday, June 24, 2016

Southwest Airlines delays delivery of 67 Boeing 737 Max planes as fleet plans shift

Southwest Airlines will delay the delivery of 67 Boeing 737 Max planes by four to five years as part of a restructuring of its aircraft order book, company executives said Thursday.

The airline says the moves will help it balance its fleet growth and maintain capital flexibility. The change will defer $1.9 billion in planned capital spending beyond 2020 but will not affect the company’s overall target of expanding its fleet by 2 percent per year through 2018, chief financial officer Tammy Romo said during a presentation to investors in New York City.

“It supports our fleet modernization efforts … and provides significant flexibility as we manage our strategic growth opportunities over the long term,” Romo said.

The changes follow an April announcement that the company will accelerate the retirement of its remaining “Classic” 737-300s to phase the plane out of its fleet by the third quarter of 2017.

Those planes are being phased out earlier than planned to simplify the pilot training process, leading to a temporary dip in Southwest’s fleet size that the company will partially offset with the addition of two pre-owned 737-700s in 2016 and the accelerated delivery of six 737-800s from 2018 to 2017.

Southwest expects to end 2016 with 723 aircraft and dip to about 700 aircraft in 2017 before growing to between 730 and 750 planes in 2018, depending on the exercise of purchase options, Romo said. The 67 planes affected by Thursday’s announcement were scheduled for delivery between 2019 and 2022 but will now be delivered in 2023 through 2025.

The company still expects the first delivery of the new, more fuel-efficient 737 Max-8s in 2017, with the planes expected to enter service around October of next year.

Whether Southwest’s pilots will agree to fly those new planes remains to be seen. The pilots union, which is in year four of protracted contract negotiations with Southwest, argues that its current contract does not cover the 737 Max-8 and has said its pilots won’t fly the latest model until a new contract is reached.

Southwest executives disagree with this interpretation, prompting a federal lawsuit by the pilots union that is currently pending.

The rest of the investor presentation detailed the company’s growth over the last five years and plans for the future.

The company has undergone a tremendous amount of change, CEO Gary Kelly said, including the acquisition of AirTran Airways, an expansion at Love Field and the launch of international service.

“One of the goals that we’ve had for 2015 and 2016 is to allow our network, our systems, our people all time to mature and stabilize,” Kelly said. “In the meantime we’ve also been, in the background, if you will, investing for the future and preparing for another surge of change that is coming for 2017.”

Those changes include the launch of a new reservation system, which will be put in place starting in late 2016, the completion of a new international terminal at the Fort Lauderdale-Hollywood International Airport and the introduction of the 737 Max-8.

(Conor Shine - The Dallas Morning News)

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