Southwest says slowed delivery of Boeing 737 MAXs could slip more

Gary Kelly, CEO of Southwest Airlines, Boeing’s largest customer for the 737 MAX, said Thursday that while he hopes the plane will fly in passenger service in late December, “given the history of delays, it certainly could slide into the first quarter.”

Kelly also said the airline remains fully committed to the MAX, though it has pushed out many of its early MAX deliveries and the schedule remains changeable.

The word Thursday from another big MAX customer was brighter: American Airlines said it is working with Boeing to firm up financing for the 17 MAXs it expected to have delivered this year, and is close to doing so.

Kelly commented extensively on the MAX during a second-quarter earnings conference call.

“At some point, we’ll need to adjust 2020 and 2021 deliveries down and shift delivery slots by year,” he said.

“Basically, where we go from here needs to be negotiated, period. It’s almost like we don’t have a firm contract for deliveries,” Kelly said. “All of that has to
be completely reset because Boeing is out of compliance with their contract.”

He added that “we have not canceled any of our orders or options with Boeing over the life of the agreement.”

At the beginning of this year, Southwest had projected deliveries of 78 MAXs in 2020 and 45 more in 2021. In late April, the airline came to an agreement with Boeing to take a maximum of 48 of the planes in this year and next year combined.

Chief Operating Officer Michael Van de Ven said Thursday that 48 deliveries is “the maximum” and that “we probably have a need for something less than that.”

And in case the collapse in air travel from the pandemic does not ease as fast as hoped, Kelly said, the agreement with Boeing “gives us time and flexibility to continue monitoring demand” and adjust airplane deliveries as needed.

Southwest took delivery of 34 MAXs before the jets were grounded. These are now parked in the desert at Victorville, Calif.

It has a further 249 firm orders with Boeing and options for 115 more. It also has commitments for an additional 16 MAXs to be acquired in leases from various third parties.

Airlines need financing to take MAXs

This week, an announcement by the Federal Aviation Administration indicated the milestones ahead before the MAX can be cleared to fly again, and people familiar with the process said it will likely take until at least mid-October to accomplish what remains to be done.

Kelly said it will take at least a couple of months from the date the FAA formally ungrounds the aircraft for it to fly in revenue service. Southwest will need that much time to install updates, perform maintenance on its parked MAXs, and conduct readiness flights.

Southwest has nine MAX flight simulators. Kelly said it will take 9 to 10 weeks to run the airline’s approximately 9,700 pilots through the required training.

“We remain committed to the MAX ,” Kelly said. “We look forward to its return to service. It is our most cost-effective airplane.”

American too is fully committed, though Chief Financial Officer Derek Kerr made clear Thursday that the airline depends upon finding financing to take the aircraft — a task that is now much tougher due to the pandemic-induced downturn.

American took delivery of 24 MAXs before the jet was grounded. In an earnings conference call, Kerr was asked about the 17 MAXs that were previously due for delivery this year, 13 already built by Boeing and 4 more to come.

“We totally plan on taking those aircraft,” Kerr said. “We’re working with Boeing to make sure that those are financed.”

“We don’t plan on taking any aircraft that aren’t financed, but we’re working well, and we’re also looking at the ’21 and ’22 aircraft,” Kerr added. “Our plan would be to still take all 100 aircraft we have on order over time.”