Southwest Airlines blew away any doubts Tuesday about whether Boeing is firmly committed to build the 737 MAX, becoming the plane's launch customer and placing the largest firm order in Boeing history.
Southwest Airlines blew away any doubts Tuesday about whether Boeing is firmly committed to build the 737 MAX, becoming the plane’s launch customer and placing the largest firm order in Boeing history.
Just last week, Airbus sales chief John Leahy told journalists of rumors among suppliers and airline customers that Boeing still could reverse course and decide on an all-new airplane instead of putting a new engine on the 737. The implication was the MAX wasn’t gaining enough sales momentum.
But Southwest’s order for 150 of the new version of Boeing’s workhorse single-aisle jet gives a seal of approval from the 737’s largest operator and most important customer.
For good measure, the Dallas-based airline also ordered 58 current model 737s.
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Southwest’s solid backing is a huge boost for the MAX, which is badly trailing the rival Airbus A320neo in orders.
In a Dallas news conference, Boeing Commercial Airplanes CEO Jim Albaugh said the MAX now has orders and commitments for 948 airplanes from 13 customers and that “by the end of next year we could easily have 1,400 or 1,500 firm commitments.”
If so, the pipeline of work for Renton’s 737 plant will fill up fast. Boeing last week committed to build the MAX in Renton after ratification of a deal with the Machinists union.
Southwest is the first customer to finalize an order for the 737 MAX. It will take the first delivery of the new aircraft in 2017.
“We’ve always been an all-Boeing airline,” said Southwest Chairman and CEO Gary Kelly. “It’s a real treat to be able to extend that string.”
Boeing’s largest order
The firm order is Boeing’s largest, both in dollar value and in the number of airplanes.
The value of all 208 jets in the order totals nearly $19 billion at list prices.
After standard discounts, based on data from aircraft-valuation firm Avitas, the real market value of the order is estimated at about $10.5 billion.
However, Southwest must have negotiated an even better deal to launch Boeing’s new program.
Southwest Chief Operating Officer Mike Van de Ven, who negotiated the deal with Boeing, said the new order adds to 142 firm orders for 737s already on Southwest’s books, for a total 350. The airline will pay $13.2 billion for the lot over an 11-year period through 2022, he said.
Even allowing for relatively small prepayments already made on the previous 142 orders, that still works out at less than $40 million per airplane.
The current 737-800 has a list price of $84 million.
In addition to its 350 firm orders for 737s, Van de Ven said Southwest has options to buy 242 more if it sees growth opportunities.
Southwest already is the largest domestic carrier, carrying more U.S. passengers than any other airline.
With this order, it may grow even bigger, and Kelly indicated that expansion is likely.
John Hamilton, Boeing vice president and 737 chief project engineer, conceded that detailed specifications for the 737 MAX are not fully defined, and indeed the final configuration won’t be finalized until mid-2013.
Southwest’s requirements largely will determine the plane’s final definition.
“We’re still dialing in some of the details,” Hamilton said. “We’ll make sure this product delivers exactly what Southwest wants.”
Southwest said it will take only four 737 MAXs in 2017, then 15 more the following year and more than 30 in each of the next four years.
Boeing’s Albaugh noted Southwest placed its first 737 order 40 years ago and has been the launch customer on three earlier versions: the 737-300, 737-500 and the Next-Generation 737-700.
“This is a thrilling day for us,” Albaugh said to the assembled Southwest executives in Dallas. “And 80,000 employees in Puget Sound want to add their thanks.”
Kelly said the 737 MAX’s fuel efficiency will reduce costs, now a Southwest priority.
In a message last week to employees after the bankruptcy of American Airlines, Kelly warned Southwest must now compete against U.S. competitors that essentially have transformed into low-cost airlines through bankruptcy.
“One of the main challenges we face is high fuel costs,” Kelly said. “We are very much in need of new technology to reduce the fuel burn.”
Southwest presented slides stating that the 737 MAX will be 10 to 11 percent more fuel efficient than the current 737-800NG.
The Airbus A320neo, launched a year ago and scheduled to enter service two years earlier than the MAX, has won almost 1,500 orders and commitments from 26 customers. It received a massive lift at the Paris Air Show in June when AirAsia ordered 200 of the jets.
With the Southwest order, Boeing is beginning to catch up. It first declared in July it would modernize its 737 with new engines rather than launching an all-new replacement plane.
Van de Ven said Southwest had done an “extensive analysis” of the neo versus the MAX and found the Boeing plane “a better fit.”
He said the primary factor was maintaining commonality with the airline’s current fleet of 737s.
In addition, he said, the 737 is a lighter airplane than the A320, so it will be better for flying into Southwest destinations with shorter runways, such as Midway International Airport in Chicago.