Southwest to Delay Delivery of 67 Boeing 737s

Southwest Airlines Co. (NYSE: LUV) will postpone delivery of 67 new 737 MAX-8 airplanes from Boeing Co. (NYSE: BA) until at least 2023. Southwest is Boeing’s launch customer for the 737 MAX and placed a firm order for 150 of the planes in December of 2011, along with an order for 58 existing 737 models. The $19 billion order was Boeing’s largest ever both in dollar value and number of new aircraft.

The first delivery of the 737 MAX-8 is expected in the first quarter of 2017, about six months ahead of schedule. The bulk of Southwest’s order called for deliveries of the new planes beginning in 2019 and running through 2022. According to a report at Bloomberg, Southwest has delayed the start date for deliveries until 2023, with the final planes arriving in 2025.

According to Boeing’s latest report Southwest has 243 unfilled orders for 737s, the only plane that the airline flies. Southwest has taken delivery of nearly 700 Boeing 737s over the years.

The delay may be partly due to a long-running dispute between Southwest and its pilots’ union. The union is currently seeking a court order prohibiting Southwest from flying the 737 MAX planes until the plane is added to the union contract.

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The federal Railway Labor Act, which also applies to airlines, requires that during contract negotiations both sides maintain the status quo. The union maintains that because the new planes are not listed in the expired contract, the new model 737s cannot be flown until a new contract is negotiated.

The airline maintains that the new 737 MAX 8 is no different from other planes already listed in the previous contract except for their new engines. Therefore, the new planes do not need to be specifically named in a new contract.

The delay in deliveries does not change the total planes on order, but it could have a significant impact on cash flow unless Boeing can move some other orders forward. That could be complicated by the availability of not-very-old 737s coming off leases and entering the market at substantial discounts to the $110 million list price of a new 737 MAX 8.

A 17-year old 737-800, for example, is priced at $12 million at website Controller, and a buyer like Southwest may be able to get the plane for even less. Bloomberg notes that Southwest “has become one of the biggest customers of cheap, middle-aged 737s coming on to the market as airlines globally retrench or upgrade to new versions.”

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Boeing’s stock traded up about 1% in the mid-afternoon Thursday at $133.21 in a 52-week range of $102.10 to $150.59.

Southwest’s stock traded down about 2% at $39.44 in a 52-week range of $31.36 to $51.34.