Pontifications: Southwest to evaluate splitting airplane supplier next year

Oct. 28, 2019, © Leeham News: Gary Kelly, the chairman of Southwest Airlines, told CNBC Thursday that next year, the company will review whether to source airplanes from another manufacturer besides Boeing.

This, of course, means Airbus.

The prolonged grounding of the Boeing 737 MAX is the reason. Southwest says the grounding already has cost nearly $500m in lost revenues.

Kelly said the analysis won’t be for “smaller” airplanes, but he didn’t specify to CNBC what this means.

Southwest has 500 Boeing 737-700s seating 143 passengers at 30-31 inch pitch.

The Airbus A220-300 seats 145 at 32 inches in the Air Baltic one-class configuration.

The Embraer E195-E2 seats 146 passengers, but in a 28-inch pitch. At Southwest’s preferred 31-32 inch pitch, the E-Jet seats 132 passengers.

Since the context was the 737-8 MAX, did Kelly mean, not smaller than the -8? This isn’t known.

Clearly angry with Boeing

Kelly always measures his words carefully. He made it clear he’s angry with Boeing. He had strong praise for Kevin McAllister, who was released as CEO of Boeing Commercial Airplanes, and his successor, Stan Deal.

He was noticeably muted about Dennis Muilenburg, CEO of The Boeing Co.

Kelly, along with American Airlines officials, are adamant that Boeing will have to pay for the ~$1bn in damages the two airlines claim they’ve suffered from the MAX grounding.

48 Years

How can Boeing placate these two carriers?

For Southwest, it’s been exclusively buying from Boeing for 48 years. A shift to a split fleet with Airbus, either for the A220-300 or the A320neo family, would be a huge blow to Boeing.

Southwest evaluated the A320neo against the MAX, so it already has some familiarity with what was then the paper airplane comparisons. For the most part, Southwest’s interest was considered mostly of the stalking horse variety, with little chance Airbus could win an order.

But, to be frank, there are reasons other than MAX for Southwest to have considered long ago a split fleet strategy.

It got very little attention, but it was reported here that in 2012 the Boeing 737 NGs operated by Southwest suffered cracking along the crown skin. Major repairs were required across most of the fleet. This followed similar cracking in the 737 Classic. Southwest no longer flies the Classic.

Southwest airplanes were illustrated in the Boeing documents issued at the time.

Then there are the “pop top” incidents with two Southwest NGs. These are the two flights, two years apart, where a section of the top of the fuselage popped open, depressurizing the planes and requiring emergency descents and landings.

One of the two Southwest Airlines “pop top” incidents in which a small section in the top of a Boeing 737NG fuselage popped open. The plane depressurized and an emergency descent and landing was required.

Now the grounding of the MAX.

One could argue that the Classic and NG incidents should have been enough to prompt exclusive 737 operators, including Southwest, to diversify their fleets.

Now, with the MAX grounding about to enter its eighth month, perhaps the skeptics are seeing the wisdom of having two baskets for their eggs instead of one.

Better pricing

Then there is the benefit of pricing competition.

I’ve never been a fan of sole-source pricing. I’ve never believed you get the best price without the benefit of competition.

It is true that Southwest (along with American, Delta and Continental Airlines) had “most-favored nation” deals with Boeing.

This meant that no other airline could obtain a better price than the MFN price. If any deal produced a lower price, those customers with MFN are supposed to get a check from Boeing.

    A crack in the crown skin of a Boeing 737-300.

(Airbus has some similar deals. United Airlines president Scott Kirby has been public about this.)

But how can these airlines with purported MFN deals be sure their price is the best? The airlines have to rely on assurances from Boeing.

John Leahy, the former COO-customers from Airbus, told me the story upon his retirement of competition at Delta, a Boeing-MFN customer.

Boeing, he said, offered Delta one price, saying it was the best it could do and fell into MFN. Airbus nevertheless countered with a lower price. Lo and behold, Leahy said Boeing came back with a lower price and won the deal.

So much for relying on sole-sourcing for the best price.

What’s the best alternative?

With a large fleet of 500 737-700s (and orders for only 30 737-7 MAXes), there clearly is an opportunity to consider the equally-sized A220-300 and the slightly smaller E195-E2.

Airbus would have to be especially aggressive in pricing.

Boeing, once the joint venture with Embraer is consummated, could offer very aggressive pricing on the E2. (As of September’s Regional Airline Assn. convention. Embraer said Southwest wasn’t looking at the E2. But that was then.)

LNA’s Bjorn Fehrm recently completed a series examining the cash operating costs between the A220-300 and the E195-E2. Depending on the mission, each has its advantages over the other.

Both airplanes’ COCs are better than the 7 MAX, by our numbers. But the 7 MAX is a straight-forward shrink of the 8 MAX and has commonality with the latter, a plus for Southwest. Still, a shrink is a shrink and shrinks aren’t the best optimization of a design.

Both the E195-E2 and A220-300 suit the Southwest network as both have better field performance than the 737-700 and the 737 MAX 7. This is important for airports like Denver where the high altitude will create payload restrictions during hot summer days otherwise.

It also means the operation from other challenging airports in the Southwest network will run with fewer restrictions than with the existing fleet.

61 Comments on “Pontifications: Southwest to evaluate splitting airplane supplier next year

  1. Since most of Southwest’s fleet is comprised of 737-700’s the choice of the A220-300 as an alternative seems like a no-brainer to me. The A220 has better performance, economy, a passenger-pleasing interior and none of the stigma that I believe will follow the 737-max for the rest of its life. Rightly or wrongly I know that I would have qualms flying on a 737-max and I’m sure I’m not alone.

    As a Canadian I would love to see Southwest go with the A220. Of course the FAL would be in Mobile Alabama but it would still mean lots of work for Mirabel considering the low-level nature of the Mobile FAL (major fuselage sub-assemblies arrive from Mirabel mostly finished on the interior ) .

    If Southwest does go with the A220 could we see the launch of a A220-500? I could see Southwest as the launch customer.

  2. Just wondering if they might not be now contemplating something larger than they have now? If they are going to Change the model, why not go all out?

    If that is true, what does that bring into Play?

    Or is there some deep fundamental principle which prevents them from going larger?

    • I was just thinking the same. This would mean that the -700 could be replaced with A320s and the -800 with A321s.
      Going larger should help with slot restrictions and pilot shortages.
      I wonder if SW has a clear preference regarding the engines. In case they’d like to stick to CfM, that would be another reason to go A320. But maybe they would also take the same strategic approach here and also diversify the engine supplier by introducing P&W.
      Then there is the issue of availability. My take is that it would be a lot easier to up the production of the A320 for which they just might find more supply in the US (Spirit?) for the Alabama FAL.
      The production of the CFRP wings of the A220 is probably a lot harder to increase. But maybe Airbus already has an idea about a second wing factory (in Canada or the US?) and are only looking for a big order to get that started.
      Finally pricing: I believe that production cost of the A220 are still equal or even above the A320. So my bet is on the A320/A321.

    • IIRC SWA did not like a discounted 787 some days ago.
      I think Widebody is not the way to go. But since it’s not easy to get Single Aisle now, maybe it’s worth to think about Widebodies for a transitional time.

      I personally don’t like 3-3 single aisle seeting as a passenger, did that once with a 757 transatlantic. But I wonder if a 767 with 4-4 single aisle seeting would be allowed.

      • Four abreast would not allowed be per 14 CFR 25.817 Amdt 25-15 which states the following:

        Sec. 25.817

        Maximum number of seats abreast.

        On airplanes having only one passenger aisle, no more than 3 seats abreast may be placed on each side of the aisle in any one row.

        Cheers

        • RCAFBrat

          Thanks for the info, I thought of that, otherwise some airlines would have done it already. So it might be

          A) the length till reaching the aisle and
          B) how many passengers will use one aisle.

          But in the end only important might be how fast passengers can exit. So if many exits are available, i.e. an exit at every 5th row on both sides, would a 4-4 single aisle seeting be allowed?

          • A better option would be to do very narrow aisles to add an additional seat. Some charter airlines do this for the 767 I believe. Certainly not comfortable through.

  3. Does the most favoured nation status only apply to the purchase prices of planes, or does it include all Boeing products/services?

    I can imagine a slightly higher purchase price combined with a huge discount on Boeing Global Services makes the planes effectively cheaper.

  4. Boeing should know how high tech the A220-300 is compared to the 737MAX and would probably give SWA engineering second thoughts on the technology on their 737MAX’s.

    Hence Boeing will bid hard for the ERJ195E2’s and probably Airbus will do their pitches and leave the negotiation quickly after first round of best and final offers as they know they will loose it, just being polite and squeeze Boeing a bit without annoying its present US customers. Boeing can throw in so much discounts on 737MAX’s, 737NG spares and services. As SWA traffic increases they would logically fly the 737-10’s they have not yet ordered.

    • Is it possible that the field performance of the 737-10 is not good enough for SWA’s needs? I don’t think the A321 is so restricted. Or have the landing gear changes on the 737-10max nullified this?

      Part of the point to be considered is whether SWA want aircraft from a different manufacturer, or a different family of aircraft from the same manufacturer. My understanding is the former, but I guess that could be negated by a killer deal.

      • 1 in 100 ?

        What chances do you prefer?
        A : you are saved in 99% of cases
        B: you are saved in 1% of cases.

        B as in Boeing isn’t far removed from certain death.:-))
        ( you should stop astro turfing, IMHO )

        • @Uwe:
          I really have no idea what your A/B comparison means. Personally I have spent almost 40 years implementing technology (keeping in mind that what was high technology in 1980 is often considered low, or at least lower, tech today) in a variety of industries – not aerospace, but including both aeroderivative and cleansheet gas turbines – and I have come to the realization that some of the ‘old tech’ we ripped out and replaced with great enthusiasm 40, 30, 20 years ago was better designed and performed its function better than the new-and-shiny [Now! With touchscreen!] that the Kidz These Days(tm) prefer. Not all of it of course.

          Your ad hominem jab is just that, devoid of content, and further indicates you haven’t read my posts on this topic with much comprehension. Nice try though.

          • @sPh

            You’re right. Boeing 40 or 20 years avo was designing far better aircraft then today. Shiny screens in MAX doesn’t help in quality design.

    • I believe the 737-10 cannot take off from Midway, or at least struggles with it at full load.. And that’s why they ruled it out.

      • If you only fill her up for a 1-3 hrs flight then a full load of pax is a bit off MTOW. A plus 100F day will put limitations on TOW and you might want to avoid schduling the 737-10 at short runways during that time of the year, but SWA should be able to use the 737-10 on >97% of the year if you don’t push the range. They might get a throttle push option with engine LLP life reduction. Boeing could twist GE’s arms to give a 5-8% increase in Max Thrust and N1 limit.

  5. SWA would have to wait long time for an A220-300, the E195-E2 could fly earlier but then SWA would still have to deal with Boeing management.

    SWA should send a letter for 300 A220-500 or even much more. There is no downside.

    • Do you mean that they would need to wait a long time for an A220-500, rather than the A220-300?

      • The A220-300 is sold out for years. I know some of these orders would jump to A220-500.
        I thought that a A220-500 could be used earlier than waiting for the A220-300, but that might not be true because the parts are mostly the same.
        Airbus needs more plants.

  6. Despite Boeing stretching the -7 specially for Southwest (in 2016) https://www.flightglobal.com/news/articles/farnborough-boeing-details-range-boosting-737-7-red-427468/, Southwest already carefully sidelined the 737-7 before the crashes (Jan 2018).

    SW investing in a big fleet of 737-7 has become very unlikely, probably unacceptable at this stage.
    https://www.bloomberg.com/news/articles/2018-01-02/southwest-moves-up-40-max-737-8-orders-delays-23-max-7-planes

    Maybe Airbus would be willing to fully optimize the A220 for Southwest too, giving it 2-3 rows extra for 149 passengers, decent, spacey lavatories, ergonomic galley work area and 2-3 relocating crew member seats. The MTOW was already bumped so wings, engines, landing gear are ok. https://www.forbes.com/sites/marisagarcia/2019/05/21/airbus-extends-range-of-a220-in-bid-to-dominate-regional-market/

    No doubt Boeing will go far to secure the E-jets for the SW 737-700 replacement program though, fully supported by the most-favored nation. https://www.airliners.net/forum/viewtopic.php?t=1410405

    • Isn’t what you describe here actually an “A220-500”, a minor stretch of of the A223 to facilitate and optimize a per the wish list?

    • 737-MAX7 Mk2 was created to (A) get away from a large amount of bespoke parts and (B) move away from a product slot not selling.
      The “A” has more weight than the “B” as it did not much improve selling but strongly reduced the pain associated with all that extra work not selling. ( same for 788 transplanted with 789 parts.)

  7. i have flown a few times now in the A220-100 between Houston and Minneapolis with Delta. Compared with the EB 170 or 175, it’s a much better aircraft for passengers.

    Sure, the comparison is unfair as the EB were not E-2s.

    Being mad vs. economies of scope+scale (single fleet) is still an unbalanced tradeoff. Losing 500M$ is of course more substantial. But over 20 years, that’s peanuts.

    The ‘diversification’ is like for Ryanair… nothing more than a plot to go after the 1B$ in damage, and more from BA.

    Still very unlikely. Then of course, let’s see what Boeing revelations that keep comping up will entail. Ultimately though, they will fix the plane and it will be a fine one. People will move on. Facebook is there to remind them everything is now fickle and tomorrow is another day.

    The NMA is a current collateral victim. Too bad. They need to build a new airplane for so many reasons. And doing a single aisle is non-sense given the existing backlog.

    Like with IBM’s hollowing out/undoing over the past 25 years, you see the impact of what real financial engineering can do. (very substantial) short term $$ gains vs. long term health. The balance is always uneasy but over 3-4 years the tipping has been a hard one for Boeing. It took 10-15y for IBM.

    But all is not lost. BA can come back as they did with the 787. And it’s a very large, diversified company, that can still do things. The C suite, board will get cleaned up. It’s a bit too early for the full C suite strategically. They need to let him burn and once the major issues are dealt with, bring in someone else. That’s the tried and true pattern.

    • “” Ultimately though, they will fix the plane “”

      The question is WHEN …
      with the movement I notice now from Congress and others, FAA will be closely watched. FAA can’t make a mistake when other regulators could decide different.

  8. As a canadian, I would prefer the A220-300, but I think the A320neo would be a better 737-700/-7 replacement for SWA. The A320neo has a similar MTOW than 737-7 (79K vs 80K kg) but more seats capacity. In addition, they could also use the A321neo (all versions) for other missions that 737-9/-10 can’t do well or just can’t do. Even the A319neo could be used for specifics missions where smaller capacity with good takeoff performance is needed.

    So more flexibility and more possibility with the A320neo family than A220.

    • That’s seems to be the naked truth for why the A220 doesn’t sell like hot cakes, although being a very capable aircraft. The A320Neo seems to be the real no brainer at these sales campaigns, specially when you have two engine manufacturer options. Airbus will pitch the A320Neo over the A220 at anytime, because the manufacturing costs of the A320 platform is already amortized. The A220-100/300 and 190/195E2 are right sizing aircraft, and for that they are niche aircraft. I believe that we might see a A220-500 eventually, but nothing bigger than that.

      • Airbus picked up the A220 for $1 (or something like that). I don’t think amortization is much of an issue. They got a multi-billion program for next to nothing.

        • “They got a multi-billion program for next to nothing.”

          It’s still only halfway through its outlay afaics.

          Bit similar to Airbus RLI vs Boeing “tax gifts”
          RLI and the CSeries are “opportunity”.
          But Boeing wanted a gift.:-)

        • This is true for the Non-Recurring costs. But for the recurring costs, as manufacturing costs and parts prices, are still there, and are not small for the A220.

  9. FYI, Gary Kelley stated in this CNBC interview: “They are not interested in wide-bodied aircraft.” As far as MAX 9s or 10s, I think he implied their study was to look for an aircraft in addition to their MAX orders.

  10. At the time the 737 was engineered nobody could anticipate the flight conditions of today. It was not constructed to be in the air so frequently like the reality is today. Often less than an hour at the airport and then up in the sky again. This means a much higher stress to material and structural elements of the plain. The third basic reengineered version of the 737 mounted to a disaster for Boeing. More pressure from competition, more pressure from the management in profitability, more risk in the sales strategy. But the technical changes have been immense and they requested deeper instructions and informations to pilots and service people. Fuel saving engines need higher landing gears and new wing positions and that requested software installations to prevent risky flight behaviour. Not informing pilots and customers about this fundamental changes and what it means for manoeuvre this airplane for the merit of easier, quicker and profitabler sales is close to a criminal act.

    • SW aircraft are at the gate longer today than they used to be in the pre 9/11 environment. I believe 30 minutes used to be the max allowed to gate agents.

      https://www.cnbc.com/id/43768488

      More over aircraft life including the airframe is calculated in cycles (and or hours where relevant). Should make no difference how quickly those cycles are accumulated.

  11. One fleet strategy and cost are unbeatable. Southwest has never have one aircraft type. The 200 , classic and NG are all very different technically by the people who operates them.

  12. Its pretty clear what he means. They have no interst in going smaller then then 700 NG, the 700 Max is not great ecnomically and they have a lot of NGs to replace. If Southwest cannot operate a 500 plane subfleet with the same economics, then they are downright incompetent. The A220 is a no brainer for them.

    • Pretty much. They’re going to be up against the A220 in very large quantities from Delta, Jet Blue, and others.

  13. I saw the CNBC interview last week. They have a fiduciary responsibility to look at all types of planes from all vendors.

    I don’t see anything new here.

  14. Is hell started to freeze? I don’t think so. Southwest is eying to E2-195 and is waiting for Embraer purchase to be finalised, so next year decision.

    • Agree Boeing Brasil won’t give up without a major campaign / fight pulling all stops & strings

      Southwest is one of the few customers that needs hundreds and can kick start the E195/E200 -E2 program, or whatever Boeing will baptize it (Boeing 636 ? 😉 ) .

    • For SWA’s business model you don’t want a complex fleet but see them possibly going for E-195E2’s and A321N for specific applications (100 each?). The bulk will be 737-8’s and (<100 x) 737-7's?

      End of the day it will take a lot before SWA buys anything else than Boeing.

  15. Since I can’t find any mention with a Google search, I’m wondering if I am dreaming this.

    I distinctly remember that a long time ago WN entered into negotiations with Airbus, but Airbus required a $50M deposit before they would get serious about it. In the end WN forfeited their deposit, presumably having more than made up for it by better prices from Boeing.

    Does anybody else have any memory or information about this ?

    • @ Wilkinson: I don’t know of and never heard of anything about a deposit. I doubt WN would agree to that.

  16. Kelly was “was noticeably muted about Dennis Muilenburg, CEO of The Boeing Co.”

    That’s……not a surprise. I’ve been down on Muileburg since he decided to attach himself to Trump’s hip and align himself (and by default, Boeing) to Trump after Trump’s Charlottesville comments. I think that showed a completel lack of integrity and moral fortitude, because he apparently placed profits and “business opportunities” for Boeing ahead of, of I don’t know, coming out strongly against racists and fascists and those who would attempt to murder hundreds of people by driving cars into crowds and killing one woman. Muilenburg showed he didn’t have the mindset, courage, or values of the other CEOs who bailed out once Trump decided to say racists were “good people”. Boeing should’ve booted him then.

    Then he compounded it when, after the 737Max MCAS “cat” was COMPLETELY OUT OF THE BAG, he implored Trump to save his bacon and cajole the FAA not to ground the 737, which, if Muilenburg were smart, he would’ve voluntarily said to the airlines “Hey, we’ve got a problem we have to investigate. Could you limit 737Max operations until we get to the bottom of it?” Nope, had to try to use his relationship with “a good man” (Muilenburg’s words, not mine) to tilt the playing field…..improperly, I might add (IMO).

    I think Kelly is posturing for a couple of things: compensation, and a bit of a board shakeup. Can’t see him or Southwest loading up on Airbus any time soon, but the thought of Southwest “contemplating it” has to send Boeing’s bankers running for their ledgers…

  17. If SWA cancels their 737-7 Max orders, is the airplane dead? I believe only Westjet has ordered it and in very small numbers.

    That would send a clear message to Boeing!

  18. Again I note decisions depend on routes and strategies like milk-run or non-stop, and distance, and pax demand.

    SWA has the advantage of a large fleet thus it’s easier to have multiple gages, but OTOH a long strategy of fewer variations.

    (‘Funny’ story about the days of regulation and non-stop desires.

    Sometimes Pacific Western had enough business to send two airplanes YVR-YLW-YYC at peak departure times, an approved routing.

    So logically it tried to put Calgary-only passengers in one airplane that would go direct to YYC.

    The feds were not appreciative of such efficiency.)

  19. Good for Southwest 🙂
    Next up: Ryanair and Alaska.
    With the horrendous costs and penalties that Boeing has to bear, it won’t be in much of a position to viably offer sharp discounts any time soon.
    Boeing can send the cancelled MAXs over to Willie Walsh at IAG…I’m sure Willie will be delighted to receive them early 😉

  20. As per the CNBC interview, and the above heading that: SW is clearly angry with Boeing; one might ascertain that they are not interested in getting the Embraer plane. Because then they would still be getting planes from a single source – Boeing set to own 80% of Embraer in the near future. They might be doing a reverse play here. Kicking the tires of the E195-e2 to get a better deal on the A220.

  21. If Southwest decides to order another type of aircraft, it would be better to choose one that is at the cutting edge of technology, modern and recent as the A220. Choosing a plane like the A320, which is over 32 years old and will be replaced within 10 years by a new aircraft, is far from optimal. By choosing the A220 they will have the plane of the right size. It is not for nothing that SW have 500 737-700 and only 200 737-800. They need a 143-seat aircraft, not 168. Air Canada, Air France, Delta and Jet Blues claim that this aircraft will open new destinations at the same cost as the A320. Moreover in a few years, there will be the A220-500 that can replace the 737-800. In a few years the reduction in production costs will make it very attractive for Airbus. The fact that the A220 has more than 50% US content and the fact that it is the only aircraft available to replace the 737-700 will play in its favor. The A320 family is the sworn enemy of the 737, not the A220.

  22. Here comes what I have been saying/predicting/proposing all these months, Boeing cancelling the NMA and instead launching a new single aisle, dubbed FSA (Future Small Airplane) though it won’t be small at all, clearly heading for the upper end of single-aisle with around 200 seats for the base model.

    https://theaircurrent.com/aircraft-development/boeings-nma-in-doubt-as-airlines-take-fresh-look-at-737-max-757-replacement/

    Now it the fun really starts: How much CFRP will it sport (tail, wings, fuselage), which engine options (RR, CfM, P&W)?

    Though the news are still bad, it appears that Boeing might indeed get their feet back on the ground.

  23. Who says Southwest won’t want to upsize if they switch to a new manufacturer? Everyone else is upsizing…every other day we hear of order adjustments where A321s are substituted for A320s (or A320s for A319s). In Europe, Easyjet and Wizzair are starting to incorporate more A321s into their fleets, and JetBlue / American Airlines in the US are taking similar action. Just because Southwest stuck for so long with the 737-700 doesn’t necessarily mean that they continue to be happy with that size of aircraft.
    Although the A220 is a magnificent aircraft, it can’t take (present-day) containerized cargo units in its hold [as far as I know…correct me if I’m wrong]. But LCCs don’t seem to be interested in cargo, so that argument is probably moot in the current instance.

    • Maybe Airbus have a plan to increase the A320/A321 production rate: they have a huge hangar in Hamburg that will be vacated once A380 production ceases., and they have room to expand in Mobile.
      Maybe CFM will reduce the production rate of LEAP 1Bs (for the MAX) and increase the production rate of LEAP 1As (for the A320).
      Who knows?
      Small correction: the 300-order was from IndiGo (the Indian airline) rather than Indigo Partners (the US private equity firm.

  24. Talking about splitting suppliers, P&W is the only engine supplier for the A220, E2’s and M-Jets. We see there are problems with this engine on the A320/1N’s and A220’s, this will hopefully be sorted out but the current situation is not great.

    Maybe AB wants to increase A220 output but can P&W supply enough engines for that? If P&W can get the engines reliable and produce enough alternatives must be looked into.

    At the moment I think the carrot for CFM to develop an 20-25KLb LEAP variant with 73″ fan is bigger than an engine for an NMA. The agreement between P&W and BBD for P&W as sole supplier is just a piece of paper if they can’t produce?! Not sure if there is such an agreement between P&W and EMB for the E2’s engines?

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