Southwest Airlines Sells 20 Boeing 737s For $815 million

***Update 05/10/2020 @ 12:29UTC - BOC Aviation confirms it has entered into an agreement with Southwest Airlines for these 20 Boeing 737s***

Southwest Airlines has entered into an agreement to sell 10 Boeing 737-800s and 10 Boeing 737 MAX 8 aircraft. The airline announced the sale in a filing on May 8th. However, these planes will not exit the fleet. Rather, Southwest will leaseback the aircraft. This agreement will give the airline $815 million in cash.

Southwest enters a sale-and-leaseback agreement

The airline will receive $815 million in a sale-and-leaseback agreement for 10 Boeing 737-800s and 10 Boeing 737 MAX 8 aircraft. The airline did not include information about which lessors the airline is working with for this agreement nor which specific aircraft are part of the deal.

Southwest's fleet

The Southwest Airlines fleet consists entirely of Boeing 737 Next Generation and 737 MAX aircraft. The MAX planes are currently grounded pending recertification by the FAA. All of Southwest's planes are in an all-economy configuration. As of March 31st, 93 of the airline's active 737 Next Generation planes are in long-term storage due to the decline in demand.

There are 742 planes in Southwest's fleet. Per the most recent filing, Southwest had 501 737-700s in its fleet with an average age of 16 years. These planes have 143 seats onboard.

Then there are 207 Boeing 737-800s in the fleet with 175 seats. These are an average of only five years old.

The 737 MAX and 737-800 seat the same number of passengers. Photo: Southwest Airlines

Lastly, there are 34 Boeing 737 MAX 8s, also with 175 seats. These planes are an average of two years old. Although, the grounding has meant these planes haven't flown for over a year.

We're still waiting to see if the airline's new Boeing 737 MAX will fly some of these routes as re-certification of the type is underway. Photo: Southwest Airlines

622 of these planes are outright owned while 120 are leased. Of the 120 leased aircraft, 110 are 737-700s, while seven are 737-800s, and the last three are 737 MAX 8s. These agreements take those numbers to 17 leased 737-800s, and 13 leased MAX 8s for a total of 130 leased planes.

In terms of orders, the airline has just under 250 aircraft on order with another 115 options. The airline has worked with Boeing to alter its delivery schedule. Through December 31st, 2021, Southwest will take a maximum of 48 Boeing 737s– once the grounding ends. Some of these aircraft are scheduled to be delivered on lease.

Southwest airlines grounded boeing 737 MAX getty Images — If Southwest has to restructure, expect a radically different industry. Photo: Getty Images

What will this mean for Southwest?

Leasing an aircraft adds to a company's overall cash expenses in the long-term. However, in the short-term, sale-and-leaseback agreements are giving airlines some much-needed cash. In the first quarter of 2020, Southwest lost $94 million. Although not as much as other airlines, things may get worse for the carrier if it has to send more aircraft into storage or sell fewer seats onboard planes. In addition, the airline is investing on the ground to keep its employees safe.

Southwest boeing 737 max grounded getty images — Southwest is targeting a MAX return to service by the fourth quarter of 2020. Photo: Getty Image

Passengers will not notice any difference on a leased aircraft. Southwest will be able to maintain its interior branding and configurations.

Overall

Southwest is joining a list of airlines that have agreed to sale-and-leaseback agreements. United Airlines sold 22 planes to BOC Aviation for leaseback, Cathay Pacific entered into a sale-and-leaseback deal for six 777s, also as a result of this crisis.

$815 million will help secure Southwest's short-term future. However, if the airline has to enter into additional sale-and-leaseback agreements, it could indicate broader struggles at the airline.

What do you think about Southwest selling 20 Boeing 737s? Let us know in the comments!