Southwest Air postpones delivery of 30 Boeing 737s

The Seattle Times
SEATTLE – Southwest Airlines, Boeing’s biggest customer for single-aisle jets, on Wednesday postponed 20 deliveries of 737s due in 2013 and 10 deliveries in 2014, pushing all 30 deliveries out by four years.

Boeing spokesman Tim Bader said Boeing over-books its delivery slots, so despite the deferrals “there are no holes” in its jet delivery schedule from the Renton, Wash., 737 final assembly plant.

Boeing is churning out 35 single-aisle 737s per month, and plans to hike that up to 38 per month a year from now.

At Southwest’s annual shareholders’ meeting in Texas on Wednesday, chief executive Gary Kelly said the deferrals will save more than $1 billion in capital spending through 2014.

“Until we hit our return on capital target, we don’t plan to grow our fleet,” Kelly said. “We will keep our fleet roughly flat and maybe slightly down (in) 2012.”

The airline will still take delivery of 29 jets next year to replace older jets that it will retire.

Southwest is the largest operator of Boeing’s 737. As of the end of March, it operates 558 of the jets.

The deferral means those 30 orders will likely become orders for Boeing’s planned 737 MAX.

The larger U.S. legacy airlines have cut their labor costs below Southwest’s, threatening the Texas airline’s status as a low-cost carrier.

In the first quarter, Southwest reported a loss of $18 million excluding gains from some special one-time accounting items. It blamed a $478 million increase in fuel costs compared to the same quarter last year.

The deferrals by Southwest come while deliveries to Boeing’s other big 737 customer, Ryanair of Ireland, are about to dry up.

Ryanair took 37 of the jets last year, to Southwest’s 18, and has taken an additional 16 in the first four months of this year to Southwest’s five. But as of the end of last month, the Irish carrier – which has ordered 348 Boeing 737s over the years – had just 11 unfilled orders left.

Ryanair had been negotiating a follow-on order for about 200 airplanes back in 2009, but broke off talks with Boeing because it was dissatisfied with the price.

David Fintzen, airline analyst with Barclays Capital, said Ryanair is not growing as it has in the past and can hold out for a better deal on price from either Boeing or Airbus.

“Ryanair has said they’ll stop growing for a couple of years,” said Fintzen. “If Ryanair moves (to place a new order), it’ll come because Boeing budged, not Ryanair.”