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