DBEA55AED16C0C92252A6554BC1553B2 Clicky DBEA55AED16C0C92252A6554BC1553B2 Clicky
May 30, 2024
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I published this analysis earlier today on GLG News, and have reproduced it here for our readers.

Southwest’s acquisition of AirTran provides several benefits, including international service, more modern information technology, and a major hub operation in Atlanta. It also brings up the question of fleet growth, and Boeing’s strategy to counteract the Airbus A320 NEO which is expected in mid-October.

Prior to the acquisition of AirTran, Southwest indicated that it is examining the Boeing 737-800 for potential addition to its fleet, and that it had obtained the approval of its pilots and flight attendants for such a move. With the acquisition of Air Tran, also a major 737 operator, that becomes more likely.

Post acquisition, Southwest will operate 487 737-700s, 173 737-300s, and 25 737-500s, in addition to 86 717s. With an average age of under 10 years, Southwest’s fleet will be fairly young, but also include a significant number of aircraft that will need replacement for economic reasons over the next few years. In particular, the 737-300s and 737-500s are significantly less fuel efficient than the -700, and will be more than 20% less fuel efficient than the PW1000G powered CSeries from Bombardier when introduced in 2013.

AirTran’s fleet of 86 Boeing 717s, 55% of the 156 built, are relatively young aircraft and fit a market niche. More importantly, that fleet is leased to AirTran by Boeing, and Southwest will almost certainly utilize its leverage as Boeing’s largest narrow-body customer to re-negotiate more favorable lease rates for those aircraft, particularly give the dramatic operating cost differential it will face once the CSeries comes into service.

Southwest adding the 737-800 would confirm that Boeing plans only minor improvements that yield 3-4% operating cost improvements to the 737 while it waits for a new technology replacement. Boeing faces decisions on both the 777, which faces stiff competition from the A350XWB (and is also Boeing’s highest margin aircraft) as well as competition from the re-engined Airbus NEO, Bombardier CSeries, Embraer ESeries+, Comac C919 and Irkut MS-21 in the narrow-body regime.

In evaluating whether to attack a market with one competitor or five, I would focus on the wide body market in the near term, and wait to see if unducted fan technologies promised by GE and Rolls Royce become feasible before committing to an all new narrow-body aircraft. If the new technology works, the design can move in one directions, and if it doesn’t, the PW GTF promised continued growth in efficiency to near UDF levels over the next decade.

If Boeing were to launch a new technology narrow body into the market soon , Southwest would be unlikely to acquire the 737-800, as that would result in the aircraft becoming economically obsolete within a decade when compared with an all new technology alternative promising 20% operating cost improvements, which it would need to beat the CSeries.

Bottom Line: Southwest moving forward with the 737-800 means Boeing won’t likely have a 737 replacement until the 2020 timeframe, and that Boeing will wait for new engine technology from GE, RR and PW before making its decision.

1 thought on “Southwest Acquisition of AirTran will lead to 737-800 Order

  1. By my count SW has about 107 737-700s on order yet to be delivered and AT has about 41. See Orders/Deliveries User Defined Reports at www. Boeing.com. What SW does with these may also indicate Boeing’s intentions.

    The article suggests SW will use the 86 717s to replace some of the 198 737-300s and -500s as they take delivery of new 737-700s. SW has been clear that they intend to use the 717s on lower-density routes. I don’t know the delivery rates for the -700s for each carrier, but the combined monthly total must be high, perhaps 6-8? At that rate they could replace the 86 of the older 737s in 18-20 mos. I wonder how the 717 compares to CSeries typs? Any one know?

    IMO, Boeing and SW will have to start making plans soon for how they transition from 737 to replacement plane production, regardless of whether Boeing delivers the new plane in 5 years or 10. Albaugh wants to build the new plane in Renton and Boeing are right now evaluating that line to see how much of the 737 tooling etc could be used for the new plane. Albaugh’s ideal goal seems to be that the first new plane follows right behind the last 737; some period of dual production is more likely, IMO. This is not two problems. It is holistic and requires that Boeing and SW work to decide how they together deal with this transition so that it is in the best interests of both.

    The key point to me is that in SW Boeing has a partner with which it can work out these things on a massive scale so the solution will also work for all of other Boeing’s 737 customers, even the small ones.

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