By Rajesh Kumar Singh and Allison Lampert
CHICAGO/MONTREAL (Reuters) -Southwest Airlines expects aircraft deliveries from Boeing (NYSE:BA) this year to come in at only about half of the airline's estimate in March of 46, putting further pressure on the U.S. budget carrier's growth plans, three people familiar with the matter said.
Boeing's overall deliveries fell by half in March as 737 MAX production slumped on increased quality checks and regulatory audits as it grapples with a safety crisis sparked by a January mid-air cabin panel blowout on an Alaska Air (NYSE:ALK) flight.
The jetmaker's woes have rippled throughout the industry, but Southwest, which operates an all-Boeing fleet, is one of the hardest-hit. The Dallas-based airline has already warned of a reduction in full-year capacity due to lack of aircraft. It has stopped hiring pilots and is spending more to repair older planes even as it seeks to rein in costs.
Southwest originally planned on receiving 85 Boeing MAX jets this year. That estimate has already been slashed twice.
It now expects only about 20 deliveries this year, compared with 46 estimated last month, said the sources, who spoke on the condition of anonymity, adding that the number could change.
The airline received just five aircraft from Boeing in the first quarter, down from 29 a year ago, according to the planemaker's delivery data.
In a statement to Reuters, Southwest said it remains in close contact with Boeing as the manufacturer continues to refine its delivery schedule. Boeing was not immediately available for comment.
PRODUCTION CURBS
The U.S. Federal Aviation Administration (FAA) has capped 737 MAX production at 38 jets a month following the Jan. 5 Alaska Air incident. However, Boeing's monthly output is well below that level and in late March fell as low as single digits, Reuters reported last week.
Southwest had plans to start operating 150-seater MAX 7 aircraft - the smallest version of MAX planes - this year. But the plane's FAA certification is now mired in uncertainty after Boeing withdrew a request for a safety exemption.
The airline does not expect to receive any MAX 7 aircraft this year. The certification delays have forced it to convert some of those orders into the larger 175-seater MAX 8 variant, which some analysts say is too large for some of its markets.
In January, Southwest planned to increase capacity by 6% year-on-year in 2024 to capitalize on a travel boom, but last month it warned that Boeing's delays could cut the estimate by 1 to 1.5 percentage points. Southwest reports quarterly earnings on April 25.
The latest delivery estimates could mean an even bigger cut to its capacity plans, said one of the sources, adding the airline is examining options to offset the delays.
The company had plans to retire 49 planes this year. But it is considering keeping more than a dozen in service, said two of the sources, adding the plan will require heavy maintenance checks and cost the company millions of dollars.
That will likely worsen Southwest's cost problem. The company reported an adjusted profit of $1.56 per share in 2023, but has forecast a net loss for the first quarter of 2024.
In January, it estimated full-year non-fuel costs would be 6%-7% higher in 2024 from the previous year.
Last month, CEO Bob Jordan said Southwest wanted to avoid additional maintenance costs, saying the airline was "urgently focused on further cost reductions."
Southwest is not the only carrier that has had to rework its operational plans. United Airlines paused pilot hiring for May and June and offered voluntary unpaid leave to its pilots. The company's pilot union has told members that additional cost-saving efforts are expected in the summer and possibly in autumn.
Southwest has stopped hiring pilots and flight attendants. While the company has not announced any furloughs, one of the sources said it may consider measures similar to United's.