Southwest Airlines restructures its Boeing order book

Southwest Airlines (WN, Dallas Love Field) has announced that it has reached an agreement with Boeing to restructure its B737 MAX delivery schedule with significantly fewer aircraft planned to arrive in 2020 and 2021.

"In light of the current environment, Boeing agreed to an arrangement allowing the Company to take delivery of no more than 48 aircraft through December 31, 2021. The Company is currently planning to take delivery of less than the twenty-seven MAX aircraft previously expected from Boeing in 2020, and is evaluating the need to temporarily remove or retire additional aircraft from its fleet," Southwest Airlines said in its quarterly report.

The plan to take at most 48 aircraft from Boeing by the end of 2021 represents a cut of 55% compared to previous. The 27 aircraft referred to by the airline have already been manufactured by Boeing but cannot be delivered due to the type's grounding.

The LCC's contractual commitments for deliveries, as of March 31, 2020, but before this revised agreement, included seven B737-7s and fifty-five B737-8s due to deliver directly from Boeing in 2020, as well as an additional sixteen B737 MAX 8s from lessors. Forty out of these 78 aircraft were originally scheduled to deliver in 2019 but were deferred due to the grounding of the type. In 2021, Southwest planned to take forty-five B737 MAX 8s from Boeing.

Southwest Airlines said that the contracts for the 16 aircraft due to for delivery from lessors remain binding for the time being.

The airline said it did not expect B737 MAX to resume flying prior to October 30, 2020. Southwest Airlines has taken deliveries off thirty-five B737 MAX 8s so far.

Southwest Airlines said that it "had flexibility" regarding the retirement of its B737-700s (of which it operates 498, according to the ch-aviation fleets advanced module). The airline owns the majority of its B737-700s, with just 102 on operating leases.

"We've got a programme to retire a fair number of airplanes in 2020 and 2021, that we were holding back on because of the delays with the MAX deliveries. So I think we're looking more aggressively at that," Chief Executive Gary Kelly added during an investor call.

Kelly underlined that the deferral did not amount to a cancellation of any part of the order at this point.

"In the long-term of Southwest Airlines, it will be in our best position to bring that airplane [MAX] into the fleet. So we have a lot of flexibility with a Boeing order book and right now we have so many airplanes on the ground, it doesn't make a lot of sense to go bring additional airplanes in from Boeing," Chief Operating Officer Michael Van de Ven added.