(Bloomberg) -- Southwest Airlines Co. is in advanced talks with Boeing Co. and aircraft lessors to acquire as many as thirty 737 Max “white tails,” or new jets that have lost their original buyers, said people familiar with the matter.
Any of the aircraft that Southwest accepts from storage at Boeing would replace a similar number of the 249 planes that the airline has already ordered, said the people, who asked not to be identified as the discussions are confidential. In other words, the largest Max customer isn’t looking to pad its order book amid a market depressed by the coronavirus pandemic.
The discussions are part of a broader push by Boeing to reap cash from its best-selling jet, which has been grounded since March 2019 after two fatal crashes. The strapped planemaker has also approached United Airlines Holdings Inc., Alaska Air Group Inc. and Delta Air Lines Inc. about taking some of the planes that lack buyers, the people said. Of the 450 or so Max built during the flying ban, nearly a quarter are white tails, one of the people said.
While pandemic-battered carriers aren’t eager to add new jets, those able to strike deals now would gain advantageous terms for models that will lower fuel and maintenance costs ahead of the eventual rebound in commercial flying.
“Although we have nothing new to share today regarding fleet plans, we’ve publicly shared that Southwest is currently working with Boeing to refresh our order book,” the airline said in a statement. The company declined further comment.
Boeing declined to comment, as did United and Delta. Alaska said only that it continues to track the Max’s regulatory certification process closely while maintaining contact with manufacturers. Any white tails placed at United or Alaska would probably replace existing orders, and wouldn’t mean incremental new sales for Boeing, one of the people said. Delta hasn’t ordered the Max.
Southwest said last month that it’s holding wide-ranging talks with Boeing about the price and timing of its 737 Max order. While the Dallas-based carrier is scheduled to receive 48 Max jets through the end of next year, the company said Oct. 22 that it didn’t need those aircraft at a time when a big chunk of its fleet is out of use because of the pandemic.
But Southwest may be willing to take white tails provided Boeing picks up the cost of reconfiguring the cabins to match the rest of the airline’s fleet, the people said.
For airlines and lessors that have already invested in the 737 Max, there’s a side benefit to striking deals for the white tails, which are so named because they lack a buyer’s logo. Doing so would help avert desperation deals for the model that could drag down market values and undermine the Max’s attractiveness as an investment.
“If you’re an owner of the Max and you want to preserve value in the fleet, then you wouldn’t want a lot of them floating around the secondary market,” said Bloomberg Intelligence analyst George Ferguson. Airlines such as Southwest have an interest in seeing Boeing clear its logjam “in an orderly fashion.”
Boeing faces a complicated puzzle in trying to clear its storage lots of unclaimed planes, a critical step in its financial turnaround.
The Chicago-based company kept 737 production running at high speed after the grounding, betting that regulatory approval was just around the corner. Boeing eventually paused production this year with about 450 aircraft valued at about $20 billion in inventory, only to see the market collapse because of the Covid-19 outbreak.
As the manufacturer maps out plans to deliver about 225 of those new Max jets next year, it faces an added risk because of the lengthy grounding, which is expected to end in the coming weeks. Airlines and lessors have an opportunity to walk away when an aircraft’s delivery has been delayed more than a year. More than 1,000 Max orders have either been canceled or are considered to be in jeopardy.
Some lessors that don’t have customers lined up for Boeing Max jets in future delivery years are exploring taking white tails, which they would place with Southwest in a swap for older 737 models, one of the people said. In exchange, Boeing would cancel their future Max orders.
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