Boeing Co. (NYSE: BA | BA Price Prediction) and Southwest Airlines Co. (NYSE: LUV) announced Monday that the airline has placed an order for 100 of Boeing’s 737 Max jets and an additional 155 options on two models of the plane. The 737 Max had been grounded from March of 2019 to December of last year, following two fatal crashes within six months that killed 346 people.
Southwest has flown only Boeing 737s since its founding nearly 50 years ago. The airline has acquired a total of 1,080 planes during those years, including 38 737 Max 8s that are currently in service. All told, the airline has 625 737s in service as of Monday and the average age of the planes is 12.4 years, according to Planespotters.
In December, Alaska Airlines announced an order for 23 new 737 Max 9 aircraft, lifting its total orders and options for the 737 Max family of jets to 120. That order essentially killed any chance that Airbus had of adding to the A319 and A320 jets in Alaska’s fleet as a result of the 2016 acquisition of Virgin America.
Now Southwest has affirmed its commitment to Boeing with this latest order, again shutting out Airbus, which was thought to have had a chance to replace the 737-700s in Southwest’s fleet. That is not going to happen now.
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The order announced Monday includes 737 Max 7 (737-7) and 737 Max 8 (737-8) models. The Max 7 seats fewer than 150 passengers, while the Max 8 is designed for around 175 passengers.
Southwest’s order book on Boeing now amounts to 200 737-7s and 180 737-8s, of which more than 30 already have been delivered. Southwest also has acquired 270 options for either of the two models, taking the carrier’s direct-buy commitment to more than 600 airplanes. The airline also plans to lease more of the planes.
Gary Kelly, Southwest’s board chair and CEO, commented, “Today’s commitment to the 737 MAX solidifies our continued appreciation for the aircraft and confirms our plans to offer the Boeing 737 series of aircraft to our Employees and Customers for years to come. We are proud to continue our tradition of being the world’s largest operator of an all-Boeing fleet.”
The head of Boeing’s commercial division, Stan Deal, said, “Southwest Airlines has long been a leader and bellwether for the airline industry and this order is a big vote of confidence for commercial air travel. As vaccine distribution continues to pick-up, people are returning to the skies and fueling hopes for a full recovery and renewed growth across our industry.”
The list price for 737-7 is $99.7 million, and a 737-8 lists for $121.6 million. Normally, a large customer like Southwest could expect a discount in the 40% to 50% range. Given how desperate Boeing is to return to profitability, it is likely that the discounts to list price may have been even greater. The reality is that Boeing could not afford to lose Southwest’s business and would have done nearly anything to keep it.
Boeing stock traded up more than 2% in Monday’s premarket, at $250.50 in a 52-week range of $113.89 to $278.90. The consensus price target on the stock is $242.18.
Southwest stock traded up about 0.5% to $61.60, in a 52-week range of $22.47 to $62.76. The consensus price target is $60.89.
Both Boeing and Southwest have suspended their dividends.
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