Southwest Airlines has revised its delivery schedule and order with Boeing to shift more of its new aircraft purchases to the more fuel-efficient 737-7 MAX, and reduce some near-term capital spending.
The low-cost carrier also agreed to acquire 10 used Boeing 737-700 aircraft for delivery in 2014 and 2015 to fill the hole created by delivery schedule deferrals and keep its fleet from shrinking.
Southwest continues to shop for more used aircraft. “We will continue to monitor the pre-owned market for attractive opportunities,” Chairman, President and CEO Gary Kelly said at the airline’s annual shareholder meeting on May 15. Those aircraft that Southwest has already agreed to purchase have about the same average age as the rest of the carrier’s fleet, which is 8-9 years, and Kelly says the airline will strive to keep its average fleet age in that range when considering future used aircraft acquisitions.
“We can buy very good airplanes with 10-15 years of remaining useful life,” which then would be replaced with the MAX, he added. Southwest, which is the launch customer for the 737-7, would prefer to acquire only new aircraft, but the MAX is not available until after 2017, Kelly noted. The airline also needs aircraft before 2017 to fill some gaps created while AirTran Airways aircraft are in maintenance for conversion to the Southwest brand.
Kelly confirms that the 737-7 is intended to replace the carrier’s 143-seat 737-700s. With the Boeing order restructuring, Southwest will—eventually—be getting a lot more of them. The airline previously planned to receive 150 Boeing 737-8 aircraft between 2017-2022. Under the new schedule it still will get those on an altered timetable (2017-2024), but also will take delivery of 30 737-7s: 15 in 2019, 14 in 2020 and one in 2021.
Southwest was able to make that shift by converting 30 Boeing 737NG firm orders in 2017 and 2018 to MAX firm orders, deferred to 2019-2021. It also converted 12 737NG options in 2014 and 2015, and 29 in 2017 and 2018 to 737 MAX options, with delivery deferred beyond 2024. The order changes increase Southwest’s 737 MAX options from 150 to 191.
The airline also has the right to revise its MAX order.
For 2014, five Boeing 737-700 firm orders have been converted to 737-800s, five options were exercised for 737-800 deliveries from Boeing, and five options to purchase Next Generation aircraft were relinquished. Five options in 2015 were also relinquished.
The restructured aircraft delivery schedule will reduce the airline’s capital spending for firm orders through 2018 by more than $500 million. It also defers nearly $2 billion in potential capital spending on option aircraft deliveries beyond 2018.