737 Max grounding tests Southwest’s relationship with Boeing

Southwest kicks the tires on the Airbus A220 in Europe.

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Release Date
April 23, 2019
737 Max grounding tests Southwest's relationship with Boeing
As Southwest Airlines neared delivery of the first 737-700 in the 1990s, late-founder and Chairman Emeritus Herb Kelleher made a deal with Boeing that was never written down. No airline on Earth would pay less for 737s than Southwest. And if they did, Boeing owed Southwest a check “no questions asked,” recounted a retired Boeing executive and confirmed by a second. “Just a handshake and it was honored.”

Southwest isn’t just a customer to Boeing. It has closely guided the 737’s incremental development, serving as launch buyer for the last two generations, but it is also a strategic governor for Boeing, cushioning the company’s peaks and valleys in production. In much the same way that the purpose of the once-functional U.S. Export-Import Bank offered a financial cushion to non-U.S. airlines who would otherwise be forced to cancel their orders during downturns as financing got tight, Southwest is that backstop for Boeing.

Since 1971 when Southwest took delivery of three unwanted 737-200s, 777 737s (of all generations) have been directly from Boeing. The count goes far higher when factoring in aircraft that were leased or those acquired and refurbished on the second-hand market. According to its financial filings, Southwest today has 383 orders and options for 737 Max aircraft with Boeing and lessors, far surpassing any single customer.

“I doubt that there’s any relationship like it in the history of the airline industry,” Kelleher told The Wall Street Journal in 2016.

That unique partnership has let Boeing grow when it needed without increasing production. Kelleher in that same WSJ interview said that Boeing regularly asked Southwest “to relinquish some of our delivery positions, so they could offer 737s to other new airlines. We were very happy to cooperate in that respect.” The carrier would also phase out older 737s to offer them to other airlines that needed them sooner also at Boeing’s request.

Related: Southwest & Emirates close the book on the planes that built their airlines

The aircraft on which Southwest built its existence 48 years ago, Boeing’s 737, today hangs in an uncertain balance. The crisis with the 737 Max now stretches through its second month since the jet was grounded in the U.S. on March 13 following the crashes of Ethiopian Airlines flight 302 and Lion Air 610.

It also threatens to unravel one of the most enduring relationships in business.

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