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Southwest to Unload AirTran’s Boeing 717s With Delta Leases

Southwest Airlines Co. (LUV) will unload its Boeing Co. (BA) 717 jets, returning the discount carrier to flying just one type of plane, under a tentative sublease agreement with Delta Air Lines Inc. (DAL)

Delta will become the biggest operator of the 717, a model out of production since 2006, as it takes the 88 jets Southwest acquired in buying AirTran Holdings Inc. in 2011. Atlanta-based Delta said today the planes will replace less-efficient jets.

Shifting back to flying only Boeing 737s will help Dallas-based Southwest curb training and maintenance expenses, and dropping the smaller 717 also rids the airline of a plane that costs more to fly on a per-seat basis. Southwest is the largest customer for the 737, the world’s most widely flown jetliner.

“It returns us to a single fleet type and improves our overall economics,” Chief Operating Officer Mike Van de Ven said in an interview. “It improves our scheduling flexibility and our ability to recover when operations go awry.”

Delta will use the 717s to replace 50-seat regional jets and older DC-9s targeted to be removed from its fleet. The purchase extends the airline’s strategy of adding used planes, such as the Boeing MD-90s bought in April, to help retire some of its aging aircraft.

Neither airline disclosed financial terms.

Southwest Drops

Southwest fell 0.8 percent to $8.27 at the close in New York, while Delta slipped 0.4 percent to $10.54.

Boeing made only 156 of the twin-engine 717s in seven years of deliveries that ended in 2006. By comparison, the 737 has amassed more than 9,300 orders since its first one in 1965, and the best-selling variant made today can seat about 160 people, according to Boeing’s website.

The 117-seat 717s would move to Delta over three years starting in the second half of 2013 through 2015, Southwest said in a statement. The airline has said it expects to end 2012 with about 692 planes, including the 717s. Boeing Capital Corp. holds the 717 leases and is a party to the Delta accord.

When Southwest agreed to acquire AirTran in September 2010, the airline said it saw a role for the 717 in serving smaller cities. The AirTran purchase closed in May 2011, and Southwest said in August it wanted to drop the planes, after fuel prices climbed 48 percent in the previous 11 months.

‘Made Sense’

“If there was one factor that influenced the economics of the airplane more than anything else, it was rising fuel prices,” Van de Ven said. “At that point, it made sense for us to try to get back to a single fleet.”

Once talks began with Delta, Southwest didn’t search for any other carriers to sublease the planes, Van de Ven said. Southwest’s leases extend through 2018 to 2024.

Delta’s acquisition of the 717s is contingent upon its pilots approving a tentative agreement to cover the aircraft. Voting will conclude June 30 on the accord, which also allows Delta to add as many as 70 two-class, 76-seat regional jets.

“These actions pave the way for us to restructure and up-gauge our domestic fleet, which will lower our costs, provide more pilot jobs and improve the onboard experience for our customers,” Chief Executive Officer Richard Anderson said in a statement.

Southwest plans to keep its fleet count largely unchanged as the 717s move to Delta at a rate of three a month starting in mid-2013. Delta said the 717s won’t alter its seating capacity.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

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

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