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Southwest moves up some Boeing Max orders, defers smallest mode
[NEW YORK] Southwest Airlines delayed orders for 23 of Boeing Co.'s 737 Max 7 aircraft, casting doubt on the future of the smallest Max variant as it adds 40 Max 8 deliveries valued at nearly US$4.5 billion.
Pushing most of its Max 7 orders out until 2023 and 2024 probably means that the carrier is trying to decide whether it wants to keep any of its pending orders for the plane, said George Ferguson, a Bloomberg Intelligence analyst. It also could eventually convert the orders to another version of the Max, said George Hamlin of Hamlin Transportation Consulting.
"When your most important customer, and the one you probably built the airplane for, doesn't want it anymore, it's a bad day," Mr Ferguson said in an interview. "When they defer the 7 out that far, it means they are trying to figure out if they ever want the 7."
Converting options on the 40 Max 8s to firm orders gives life to chief executive officer Gary Kelly's statements last month that the airline would invest benefits from the recent corporate tax rate reduction into buying more planes.
Taking the additional Max 8s in 2019 and 2020 means Southwest will receive some of that model every year through 2025, based on an order schedule from the carrier, Boeing's largest 737 customer.
Southwest mentioned the decisions at the end of a statement announcing that it would spend US$70 million in US$1,000 cash bonuses for employees to "celebrate" recent legislation providing a corporate tax cut. The carrier expects to record a non-cash credit of US$1 billion to US$1.5 billion in the fourth quarter as a result of the tax changes, the airline said in a regulatory filing Tuesday.
The deferral piles additional pressure on the smallest Max 7, a variant that has struggled to gain customers while airlines opt for planes with more seats. Airlines are opting to move to larger planes to save on operating costs, Mr Ferguson said. The Max 7 also has faced competitive threats from aircraft of about the same size built by Bombardier.
"We're excited that Southwest is adding 40 more Maxs to its fleet, bringing its total Max orders to 240," Doug Alder, a Boeing spokesman, said in an email. The first Max 7 test airplane is being assembled, and Southwest's changes don't affect the program, he said.
While the deferrals may further imperil the Max 7, they may actually benefit Boeing in the long run if the orders are converted to larger models, Mr Hamlin said. "Boeing is happy to deliver any of the family members in that program."
The 40 Max 8s carry a list price of nearly US$4.5 billion, although airlines often receive discounts when ordering multiple aircraft. The plane orders don't affect Southwest's plans for capacity growth this year, the Dallas-based airline said. It didn't comment on expansion plans in the years beyond 2018.