Southwest moves up Boeing Max orders, defers small jets

epa02666771 A Southwest Airlines plane taxis after landing at Love Field in Dallas, Texas USA, 02 April 2011. Media reports state that Southwest Airlines announced it was canceling hundreds of flights on 02 April 2011 as inspectors look at their planes after a flight from Phoenix to Sacramento suffered a rapid loss of cabin pressure due to a hole in the top of the fuselage.  EPA/LARRY W. SMITH

Bloomberg

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 as it adds 40 Max 8 deliveries valued at nearly
$4.5 billion.
Pushing most of its Max 7 orders out until 2023 and 2024 probably means that the carrier is trying to decide whether it wants to keep any of its pending orders for the plane, said George Ferguson, a Bloomberg Intelligence analyst. It also could eventually convert the orders to another version of the Max, said George Hamlin of Hamlin Transportation Consulting.
“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.”
Converting options on the 40 Max 8s to firm orders gives life to Chief Executive Officer Gary Kelly’s statements in December 2017 that the airline would invest benefits from the recent corporate tax rate reduction into buying more planes. Taking the additional Max 8s in 2019 and 2020 means Southwest will receive some of that model every year through 2025, based on an order schedule from the carrier, Boeing’s largest 737 customer.

Pressure Building
Southwest mentioned the decisions at the end of a statement announcing that it would spend $70 million in $1,000 cash bonuses for employees to “celebrate” recent legislation providing a corporate tax cut.
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.
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. Airlines are opting to move 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.
“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 programme, he said.
While the deferrals may further imperil the Max 7, they may actually benefit Boeing in the long run if the orders are converted to larger models, Hamlin said. “Boeing is happy to deliver any of the family members in that programme.”
The 40 Max 8s carry a list price of nearly $4.5 billion, although airlines often receive discounts when ordering multiple aircraft. The plane orders 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.

epa03968179 Southwest Airlines planes sit on at gates outside at Dallas Love Field Airport on the day before Thanksgiving in Dallas, Texas, USA, 27 November 2013.  The day before the Thanksgiving holiday, travel could be snarled by a winter storm moving up the Eastern seaboard of the United States.  EPA/LARRY W. SMITH

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