Southwest Airlines to cut Boeing 737 MAX deliveries in half

Felipe Sanchez

Southwest Airlines (LUV) , an all Boeing 737 operator and the U.S. plane maker’s “arguably best customer”, in its CEO’s words, is still having high hopes for the 737 MAX. But as the industry is wept by the coronacrisis, the airline’s executives told investors they were in talks with Boeing to defer around half of previously arranged deliveries for 2020-2021. 

Southwest Airlines to slow down Boeing 737 MAX deliveries

“When it is time to bring the aircraft back into published flying schedules, our most cost-effective aircraft to fly is the MAX,” Southwest Airlines (LUV) chairman & CEO Gary Kelly told investors on April 28, 2020.

Prior to the 737 MAX grounding in March 2019, Southwest Airlines (LUV) had received 34 aircraft of the type. While the airline is engaged in discussions with the manufacturer about the compensation for the financial losses it incurred because of the grounding, it nevertheless sees the type as a cornerstone for its future fleet. 

Just three months ago, Southwest was still planning to boost its fleet by 123 new Boeing 737 MAX (of which 107 aircraft would come directly from the manufacturer and 16 from lessors) by the end of 2021. Despite the fact that exact numbers are not yet agreed upon, now the carrier expects to take from Boeing only about half of that number or “at least” 59 aircraft less, according to Tammy Romo, Southwest Airlines Chief Financial Officer. 

While the two companies are still working out the specifics of the aircraft delivery between April 2020 and the end of 2021,  the U.S. carrier management indicated wanting to take no more than 48 planes. The cut-down could also affect a further 27 aircraft that have been built for Southwest, but have not been delivered and currently remain stored in Boeing’s facilities. 

“[…] Boeing has 27 of our MAX aircraft that have been billed and produced,” Romo explained. “And so at this point, […] we’re planning to take less than those 27. Again, we haven’t worked through those details with Boeing, so those discussions are ongoing.”

This year, Southwest Airlines (LUV) reportedly received the first installment of financial compensation from Boeing for the 737 MAX grounding. The manufacturer has paid $428 million of a $828 million compensation for lost profit in 2019, according to Forbes. 

Commenting about the compensation question, Kelly refrained from discussing the exact amount, but said the airline does not feel negative consequences at the moment, as it does not even need the aircraft that it has. 

“In fairness, we don’t need the MAX right now, said Kelly. “We don’t need all the airplanes that we have. So it’s hard for me to argue to them that we’re being damaged by MAX delays here in April, to be brutally honest.” 

How Southwest Airlines manages its grounded planes?

Due to coronacrisis, Southwest grounded around a third of its massive, 740 aircraft-fleet (based on data). The airline uses a combination of long-term storage and parking programs to manage the grounded planes. 

The operator moved 140 aircraft to long-term storage. These aircraft include all 34 Boeing 737 MAX and 106 737 NG, that were selected based on their age and proximity to an upcoming significant heavy maintenance requirement. It will take no less than 3-4 days (likely more) to bring them back to service.

Further 250 737 NGs are in short-term parking. Contrary to the storage option, these aircraft do not remain on the ground for long and are rotated in and out of active flying ‒ something that Southwest finds highly beneficial, a, among other things, it helps to save on storage costs, according to Kelly. 

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