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Southwest's Kelly Pushes for Boeing Decision on New 737 Engines

Southwest Airlines Co. increased pressure on Boeing Co. to upgrade its top-selling 737 model with more fuel-efficient engines, as Airbus SAS did with a competing plane, because waiting a decade for an all-new jet is too long.

“When you talk about something that’s 10 years from now, that’s not a solution, that’s an idea,” Southwest Chief Executive Officer Gary Kelly said in an interview in New York. “Who among us is to say it won’t be 15 years from now? In the meantime, we’re going to spend $40 billion on fuel.”

Southwest is the biggest operator of the single-aisle 737, a competitor of the Airbus A320, which Boeing has said may not be replaced with an all-new model before 2020. While Airbus said Dec. 1 that it would offer new engines on its narrow-body plane, Boeing has delayed a decision on the 737 until 2011 after initially planning an announcement this year.

Southwest’s fleet of 544 aircraft, which Kelly plans to maintain by retiring older planes as new ones are added, consists solely of 737s. The CEO said that he’s willing to wait “to a point” for Boeing to decide on offering a new engine before he looks at alternatives.

“I don’t feel any issue today, that we have to have an answer today,” he said. “In the meantime if there are real things that are alternatives, one is forced to look at that. We are very supportive of their efforts. There is no implied criticism here. At all.”

Capacity Increase

Fuel accounted for 33 percent of Southwest’s total operating expenses in the first nine months of 2010, and a plane with about 15 percent higher fuel efficiency would help cut costs.

The Dallas-based carrier will increase capacity 3 percent to 5 percent in 2011, excluding the fleet from its acquisition of AirTran Holdings Inc., Kelly said in a speech today in New York. Southwest said it has completed plans to convert 20 existing aircraft orders to Boeing 737-800s from -700s, with initial deliveries expected in 2012.

The more fuel-efficient and larger -800 will enable Southwest to carry more people on high-demand routes and allow flights to destinations such as Hawaii, Central America and the Caribbean.

Chief Operating Officer Mike Van de Ven said in October that Southwest was “indifferent” on whether Chicago-based Boeing chose to offer an all-new successor to the 737 or a modified version with new engines. That was before Airbus unveiled its plan for the upgraded A320, which it called the A320 NEO.

‘Material Event’

“The Airbus NEO announcement is a material event and that has to be factored in,” Kelly said. “We may need to understand -- may being a key word -- in depth what that’s all about.”

Boeing has said it would prefer to focus on a new jet because customers don’t see a business case for the interim- engine step.

“We’ll do our studies, work with customers, see what their requirements are, and at such time that we’re satisfied we’re doing right by our customers and by the market, then we’ll make that decision,” Tom Brabant, a Boeing spokesman in Seattle, said today.

“If we decide that re-engining is the way to go, that would be in service around the middle of the decade,” Brabant said. “We’ve heard both ways from customers, that some are in favor of a new engine and some in favor of a new airplane.”

‘Something Gary Kelly Likes’

Whatever decision Boeing makes, it will be “something that Gary Kelly likes,” Jim Albaugh, chief of Boeing’s commercial airplanes division, said in July.

The new power plants Airbus is offering are made by United Technologies Corp.’s Pratt & Whitney and CFM International, a joint venture between General Electric Co. and France’s Safran SA.

Bombardier Inc.’s new CSeries, which seeks to compete with the smallest of the A320 models, also offers the new Pratt & Whitney engine, the PurePower geared turbofan. The 737 now operates on only CFM engines.

While new engines promise to cut fuel consumption by about 15 percent, the savings on direct costs to airlines would translate into just half that amount as fuel is only part of the cost in operating planes. Another compromise is a likely cut to payload or range, because the new engines are heavier.

Landing Gear

Fitting different engines under a 737’s wing would be more challenging for Boeing because the aircraft already sits so close to the ground that the landing gear would need to be redesigned to allow enough clearance.

The planemaker began testing tweaks to its existing 737 last month that would make the plane 2 percent more fuel- efficient by the middle of next year.

“We want something better than we’ve got,” Kelly said. “Pratt & Whitney has an engine that’s more fuel efficient. GE has an engine that’s not far behind. What’s the plan? You’ve got an answer from Airbus, you’ve got an answer from Bombardier. And we need a means to reduce our fuel bill and our carbon emissions.”

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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