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Southwest orders 150 of Boeing's more efficient 737 MAX

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By Michelle Dunlop
Herald Writer
Published:
Southwest Airlines has placed the first order for the Boeing Co.'s 737 MAX with a request for 150 of the re-engined planes.
The order makes Southwest the launch customer for Boeing's new 737 MAX, a more fuel-efficient aircraft that the jet maker launched in August. Although Boeing has received tentative commitments for hundreds of 737 MAX aircraft from carriers, it didn't have a firm order until Southwest signed its deal on Tuesday. Southwest will take the first 737 MAX to be delivered in 2017.
"This a thrilling day for us," said Jim Albaugh, Boeing's president of commercial airplanes. "It truly is Christmas come early for the Boeing Co."
Southwest also placed an order for 58 of Boeing's current 737 jets. The Dallas-based carrier's order for 208 aircraft is Boeing's largest in terms of the number of aircraft ordered and dollar value, roughly $19 billion at list prices, Boeing said.
The companies declined to say how much Southwest would pay per plane, but it will be less than the list price. Southwest chief operating officer Mike Van de Ven said, "It's a lot like buying a car -- you get to negotiate a discount."
Van de Ven said Southwest would spend an average of $1.2 billion a year from 2012 through 2022 on the new planes, which would top $13 billion.
Michael Derchin, an analyst with CRT Capital Group, said Southwest generates enough cash that, together with its cash on hand of $1 billion, can pay for the aircraft while maintaining its investment-grade credit rating.
"They needed to do this," Derchin said. "Their labor costs are on the high side because they're prosperous, so when you look at how they can reduce unit costs further, you have to look at more fuel-efficient aircraft."
Southwest is the largest operator of Boeing's 737 aircraft. The airline's president, Gary Kelly, has been urging Boeing to introduce a revamped single-aisle aircraft before the end of the decade. Kelly had hinted Southwest would look to Boeing's rival, Airbus, if Boeing didn't come through.
Airbus launched its A320 new engine option aircraft, or A320neo, last December. The European company has won more than 1,200 orders for the A320neo. Airbus will introduce its re-engined single-aisle jet by the end of 2015. Boeing said its 737 MAX will have a 7 percent operating cost advantage over the competition.
"Today's environment demands that we become more fuel efficient and environmentally friendly, and as the launch customer of the Boeing 737 MAX, we have accomplished both," Southwest's Kelly said in a statement. "Today's announcement will allow us to maintain our position as a low-cost provider in the years ahead."
With Southwest's order, Boeing said it has more than 900 orders and commitments from 13 customers for the 737 MAX. Boeing's shares rose $1.29 to close at $72.19 on Tuesday.
Last week, Boeing's Machinists approved a four-year contract that ensured the aerospace company will build the 737 MAX in Renton, where the existing 737 is assembled. Boeing has been building the short- and medium-range 737 since the late 1960s and has sold about 7,000 of them, making it the company's most popular plane ever.
On Tuesday, Boeing emphasized its 40-year relationship with Southwest Airlines, which was the launch customer for Boeing's 737-300, 737-500 and 737-700 next generation jets.
"Southwest is a special Boeing customer and has been a true partner in the evolution of the 737," Albaugh said. "As launch customer for the 737 MAX, Southwest, Boeing and the 737 continue that legacy."
The Associated Press contributed to this report.
Story tags » 737Airline OrdersMachinists

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