Southwest pilot contract good news for Boeing

Sept. 1, 2016, © Leeham Co.: The lucrative labor contract agreement for Southwest Airlines pilots agreed this week is good news for Boeing.

Why?

Because under the previous contract, Southwest pilots—who had been in negotiations with management for about four years—claimed they didn’t have to fly the new

Boeing 737-7 MAX. Southwest Airlines is the launch operator of the 737-8 MAX. Boeing photo via Google images.

Boeing 737-7 MAX. Southwest Airlines is the launch operator of the 737-8 MAX. Boeing photo via Google images.

737 MAX. The terms limited the number of types of 737s that could be flown, they claimed.

Management took a different view, but the issue was serious enough that WN accelerated retiring 737 Classics in part because of this issue. Retire the Classics, and a fleet type is eliminated, paving the way to accept and operate the MAX.

First operator

Southwest is the first operator for the MAX. The first airplane is supposed to be delivered next March—some three or four months ahead of the previously planned July date. (Boeing will only say the first delivery will be in 1H2017.) Even the July date was an acceleration of the October EIS date announced when the program was launched.

Under the accelerated retirement of the Classics, Southwest still was faced with operating this aircraft when next March comes around.

According to LNC’s information, the Southwest 737-8 MAXes could have wound up sitting at the Boeing flight line, paid for by Southwest but undelivered. Or these might have been flown to a storage facility in the desert, also paid for.

The latter is what Southwest did after 9/11: it took delivery of new 737s but flew them straight to the desert until the market recovered enough to put them into service.

But all this appears to be sorted out now in the new contract.

Analyst reaction

Jamie Baker, the often-entertaining airline analyst for JP Morgan, wrote yesterday in a note:

Southwest’s agreement-in-principle with its pilots suggests an outcome far closer to SWAPA’s ask than anticipated, and appears to dash our optimism that 2017 labor escalation for all three unions could be limited to $550 million.

Southwest and its pilots have reached an agreement in principle, salient components including a 15% date of signing increase and 3% annual steps. This appears surprisingly close to SWAPA’s ask of 18% with 3-4% steps. 737MAX issues reportedly resolved, with a B-plan/retirement outcome also close to SWAPA’s ask. We’d note that revisions to profit sharing still appear to be under negotiation.

A silver lining for Delta? – Interestingly, proposed Southwest senior 737 wage rates emerge at an estimated $250/hr, consistent with what Delta aviators rejected last year and well below DALPA’s $266/hr ask. If anything, Southwest’s outcome may strengthen Delta management’s resolve to resist DALPA’s unprecedented ask. Note Delta management recently countered with an offer believed to be ~$254/hr.

17 Comments on “Southwest pilot contract good news for Boeing

  1. Embraer and Mitsubishi will be looking for any sign that unions are willing to change scope clauses. Any sign of hope here for them? I know SW is not involved in E-175-2 and MRJ operators but does is this a sign of a general swing to agreement? Or as it seems to be regarded as a bit of a pilot’s victory could it be a bad sign?

  2. I believe there are already at least two Southwest MAXes that have been produced (maybe more now), as Boeing has opened the MAX production line in its Renton facility some time ago.

    • Update: Commentary from over at Airliners.net indicates 3 for Southwest, and 1 for Lion Air have already been produced–all sitting on Renton ramp, sans engines. Ongoing MAX line production was indicated as one per month currently. Engines will be installed early next year, near their delivery dates.

  3. How on earth did this come about? I’m not flying that plane, that would make too many different types in company! Before I started reading leeham I was under the impression that the US was the land of the free market, now I think it’s as bad as the French for union lunacy.

    • Its NOT union lunacy as the rules are their to protect the big airlines from competition from smaller carriers.
      of course the unions will higlight differences for their wage bargaining, they do it for every conceivable thing about a plane. Its no different from companies who write tight contracts to protect their interests. A union wage agreement is just a form of contract.
      You did know grubbie that US agriculture is just as protected and subsidised as the French. US airlines are protected agianst foreign buyouts.
      And Boeing got plenty of state aid via the Exim bank ( until recently), thats not counting state and local aid

      • “Exim Bank is a form of state aid to Boeing? How is that exactly.” It is true that this bank would facilitate the purchase of Boeing planes by offering to finance the purchase to an airline that might be hard to get finance out on the open market, but whether that is a strait aid to Boeing is hard for me to understand. By the way, the US Exim Bank was actually making money of these transactions as airlines (and other forms of businesses as well) were for the most parts paying back the amount borrowed plus interest.

      • Yeah, but how on earth did that clause get into the wage agreement in the first place?

      • Careful now. The EXIM Bank does not provide loans, it only guarantees payback, which results in slightly lower interest rate for operators who need it, so they are the ultimate beneficiaries. FYI, Airbus uses similar loan guaranty facilities.

        • Andy:

          So Emirates needs it?

          Delta could use it then but can’t use it as its not allowed.

  4. Without going into details, the SW pilot contract is very different from a typical ALPA contract. Combined with SW’s efficient crew scheduling and high airplane utilization, crew productivity is high, and annual pay is high. SW is the most efficient and consistently profitable airline on this planet, with only one year of operating losses in their history. From a start with four 737s more than 40 years ago, SW now operates 700+ 737s, carries over 100 million pax/year and is now the largest US domestic airline (in terms of pax/yr). All other LC carriers try to copy SW, but none has been as successful.

  5. Delta is not an “export” customer. I have no info on Emirates, or their creditworthiness.

    • Emirates is the shining example of why some reforms (but not dissolution) of ExIm is required. EK is wholly creditworthy and should not have been able to avail itself of ExIm financing.

  6. Fine, as long as Airbus customers are forced to play by the same rules. All EXIM does is to guarantee the loan so that the buyer gets a lower interest rate. How many customers with EXIM guaranteed loans have defaulted?

    It’s no big deal and EXIM helps all US exports, as needed, and not only Boeing exports.

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