Photographer: Patrick T. Fallon/Bloomberg

Southwest Defers Smallest Boeing 737 Max, Adds Larger Planes

Updated on
  • Max 7 delays to as late as 2024 cast doubt on variant’s future
  • Airline keeps pledge to use tax money to buy more aircraft

Southwest Airlines Co. delayed orders for 23 of Boeing Co.’s 737 Max 7 aircraft, casting doubt on the future of the smallest Max variant even as the discount carrier said it would buy more of a larger model of the upgraded single-aisle jet.

Pushing most of its Max 7 deliveries out until 2023 and 2024 probably means that Southwest is trying to decide whether it wants to keep any of its pending orders for the plane, said George Ferguson, a Bloomberg Intelligence analyst. The Dallas-based airline, Boeing’s largest 737 customer, will take only seven Max 7 jets in 2019 -- down from the 15 that had been expected as of October.

“When your most important customer, and the one you probably built the airplane for, doesn’t want it anymore, it’s a bad day,” Ferguson said in an interview. “When they defer the 7 out that far, it means they are trying to figure out if they ever want the 7.”

Southwest also converted options to firm orders for 40 Max 8 planes, a larger model, giving life to Chief Executive Officer Gary Kelly’s statements last month that the carrier would buy more planes because of the recent reduction in U.S. corporate tax rates. Taking the additional Max 8 planes in 2019 and 2020 means Southwest will receive some of that model every year through 2025.

The order of Max 8 planes carries a list price of almost $4.5 billion, before the discounts that are customary for aircraft purchases.

Fleet Rebuilding

Moving up the Max 8 orders will help Southwest rebuild its fleet after retiring 30 of its oldest, least fuel-efficient planes at the end of September as it began receiving its first Max aircraft. The carrier has helped cover the gap by flying its existing planes more. The new delivery schedule means Southwest will spend less than $1 billion on aircraft this year and an average of $1 billion per year in 2019 through 2022, the airline said.

Southwest outlined the decisions at the end of a statement in which it said it would give employees $1,000 cash bonuses to “celebrate” recent legislation providing a corporate tax cut. The measure will cost $70 million. The carrier expects to record a non-cash credit of $1 billion to $1.5 billion in the fourth quarter as a result of the tax changes, the airline said in a regulatory filing late Tuesday.

The deferral piles additional pressure on the smallest Max 7, a variant that has struggled to gain customers while airlines opt for planes with more seats. Carriers are moving to larger planes to save on operating costs, Ferguson said.

The Max 7 also has faced competitive threats from aircraft of about the same size built by Bombardier Inc. The U.S. Commerce Department slapped Bombardier’s C Series jet with import duties of about 300 percent after Boeing accused the Canadian company of selling the plane at “absurdly low prices” to Delta Air Lines Inc.

Max 7 Assembly

“We’re excited that Southwest is adding 40 more Maxs to its fleet, bringing its total Max orders to 240,” Doug Alder, a Boeing spokesman, said in an email. The first Max 7 test airplane is being assembled, and Southwest’s changes don’t affect the program, he said.

While the deferrals may represent a setback for the Max 7, they could benefit Boeing in the long run if the orders are converted to larger models, said aviation consultant George Hamlin.

“Boeing is happy to deliver any of the family members in that program,” Hamlin said.

The orders of Max 8 jets don’t affect Southwest’s plans for capacity growth this year, the Dallas-based airline said. It didn’t comment on expansion plans in the years beyond 2018.

Southwest on Tuesday also moved up delivery dates on another 23 Max 8 aircraft that it was scheduled to receive in 2023 and 2024. Twenty-one of those planes will now arrive in 2021, and two in 2022.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE