Southwest Airlines Places Huge Boeing 737 MAX Order

Southwest Airlines has placed a huge a huge new Boeing 737 MAX order: 100 Boeing 737 MAX 7 aircraft, Southwest also converted 70 MAX 8 orders to MAX 7 orders, and added 155 options for MAX 7 or 8 aircraft.

The airline now has 200 MAX 7 and 19 MAX 8 orders and 270 options. More than half of its MAX orders are expected to replace older Boeing 737-700 aircraft “over the next 10 to 15 years”

Before the pandemic Southwest didn’t have enough planes and struggled to expand in the face of the MAX’s grounding. But it’s even ore important for Boeing that it retained its all-737 customer. CEO Gary Kelly said during the carrier’s October 2019 earnings call that the board had directed him to look at aircraft other than the Boeing 737.

Looking at other planes gave Southwest leverage. Boeing has become increasingly desperate. Southwest is no doubt getting the deal of the century.

Southwest has been a mostly Boeing 737 operator since its founding, though for a time they leased Braniff Boeing 727s. This was largely the result of serendipity. The 737-200 was always on the table for the airline when it launched, since Southwest’s business model was based on PSA in California and they were a 737 operator.

The first big investor in Southwest wanted the airline to fly Boeing 707s with skylights so passengers could look up towards the heavens. In fact, the airline considered six different planes: the Boeing 737-100, Boeing 737-200, DC-9-30, DC-9-10, BAC-111-400, and the Caravelle.

Board member Rollin King and founding President Lamar Muse were in a meeting at Douglas when Muse placed a call to Boeing and pressured them to do a deal within the hour or else they’d buy from Douglas.

As the Douglas meeting got underway, Boeing called back accepting the deal. Southwest went out and hired pilots from Purdue Airlines which was going out of business. Since Purdue was a DC-9 operator they had to pay to send the pilots who weren’t type-certified to fly the Boeing 737 to the United Airlines training facility in Denver.

Boeing had new 737-200s sitting without a buyer, since their intended customers weren’t expanding after the recession of 1969-1970. They had completed interiors but hadn’t been painted in any livery.

Here are the terms Southwest offered Beoing for its first 737s:

  1. Southwest would take 3 parked Boeing 737-200s and an option on a fourth
  2. They’d pay $4 million apiece with no money down, $50,000 payments per month per aircraft for 60 months, and a balloon payment on the balance after five years
  3. 50% down on spare engines, parts, and equipment necessary to operate the planes, with the other 50% due in 24 months.

Southwest will surely pay more than they did for those first 737-200s, but with Boeing desperate to retain Southwest’s business they’ll also surely pay less than the customary half of list price.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. wow, is it safe now?
    I mean, FAA approved before, and they still crashed…
    I guess, i may still feel uneasy if they tell me I am on the MAX plane…

  2. What this really demonstrates is that the bailout money to airlines served as a stealth subsidy to Boeing where direct payments would have been politically untenable, and a gift to stockholders. Retaining jobs was only a small fraction of the where the cash went.

  3. @Johnny – the CARES Act included a direct carveout for Boeing (which they didn’t take) so I’m not sure a Boeing bailout was untenable. Besides Boeing’s access to cheap financing – along with that of other companies – came by the grace of Federal Reserve easy money.

  4. Now that’s two airlines I don’t intend to use – Southwest and Alaska – both of whom have gone all-in on the 737 MAX.

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