Yesterday, Alaska Airlines announced they will lease 13 Boeing 737-9 in addition to the 32 737MAX aircraft already on order with Boeing. The 737MAX aircraft was cleared by the FAA on November 18, 2020, to resume flying. Alaska expects to have its first 737MAX flying in March 2021.
“Proudly All Boeing”
Before the acquisition of Virgin America, Alaska Airlines was like Southwest, an all 737 fleet operator. Alaska Airlines had a close relationship with Boeing since Boeing’s headquarters was formerly in Seattle and the 737 production line is in nearby Renton, WA. Alaska Airlines had the words “Proudly All Boeing” painted on the nose of their 737 aircraft.
At the time of the acquisition, Virgin America had a fleet of Airbus A319/320/321 aircraft with the A321NEO on order. The majority of the Virgin America Airbus fleet were leased aircraft. Alaska Airlines wanted the Virgin America routes, gates and landing slots. The acquisition brought the Airbus fleet to Alaska which made the airline a mixed-fleet operator.
Having both 737 and A320 type aircraft negates the cost savings from:
- Common pilot training and certification,
- Common flight attendant training and certification,
- Common aircraft maintenance technician training and certification,
- Common spare parts.
Operating a single-type fleet can substantially save on airline operating costs. Southwest Airlines does this really well by only operating Boeing 737 aircraft.
The New Fleet Plan
Alaska Airlines took a while to determine which direction they wanted to go – All Boeing, All Airbus or continue as a mixed fleet operator. The answer became clear about a year ago when Alaska ordered two 737MAX simulators to be delivered to their Seattle operations center. These simulators were to prepared pilots for the 32 737MAX aircraft on order. Full-motion simulators cost around $7-8 million per simulator. This kind of investment definitely demonstrates a commitment to operate the 737MAX.
The problem with purchasing new aircraft is what to do with the aircraft that are being replaced. Before the pandemic, an airline would put these aircraft for sale on the used aircraft market or make Boeing or Airbus take them in on trade. That was before the glut of used airliner around the world. Alaska wanted to purchase new 737MAX aircraft in a way they could dispose of old aircraft without taking a beating.
The MAX aircraft are 20 percent more fuel-efficient and generate 20 percent less carbon emissions per seat than the A320s they will replace. The aircraft is also able to fly 600 miles farther than Alaska’s current A320, which opens the possibility of additional nonstop routes and new destinations.
The airline will keep its current and yet-to-be delivered A321 NEO aircraft for their long-distance routes.
The Solution
While Virgin America leased the majority of its Airbus fleet, Alaska owned the majority of their 737 aircraft. In this case, leasing became the obvious answer.
The existing leased Airbus aircraft could be returned to the lessor and Alaska could walk away from those airplanes. The older A320s that were purchased needed to be disposed of. Alaska worked with Air Lease Corporation (ALC) to facilitate the increase in 737MAX aircraft.
Alaska Airlines announced a transaction yesterday that continues the optimization of its mainline fleet. As part of the agreement, Alaska will sell 10 Airbus A320s to Air Lease Corporation, and subsequently lease 13 new Boeing 737-9 MAX aircraft from them. The 13 737-9 MAX aircraft will be delivered from fourth quarter 2021 through 2022. Alaska will lease the A320s back from Air Lease for a short period of time after the transaction closes.
This is a brilliant strategy that gets Alaska the aircraft they need sooner than later while disposing of their older A320 aircraft. This arrangement gives Alaska a cash infusion while the airline does a short-term lease with ALC for those aircraft. It allows Alaska to continue flying the older A320s until the additional 737MAX units are delivered.
The 13 leased aircraft are in addition to the 32 MAX Alaska currently has on order with Boeing – five of which are expected to be flying by summer 2021. Alaska will begin flying the 737-9 MAX in March 2021.
“We are honored and pleased to renew our long association and partnership with our friends at Alaska Airlines,” said Steven F. Udvar-Házy, executive chairman of Air Lease Corporation. “These leased Boeing 737-9 aircraft from ALC will fill an important role on Alaska’s diverse route network, bringing the most technologically advanced and environmentally attractive aircraft type into Alaska’s fleet, just in time as we expect the airline industry will undergo a sustainable recovery starting in 2021.”
Final Thoughts
Alaska Airlines CEO, Brad Tilden negotiated a brilliant deal for the airline. This leasing arrangement solved some key problems for Alaska:
- Speed up delivery of new 737MAX units,
- Reduce operating costs with the more fuel-efficient 737MAX,
- Dispose of the used A320 aircraft without taking a beating and
- Bring in some cash from the immediate sale of the retiring A320’s.
This strategy will also allow more route flexibility for the airline along with the capability to fly to new and possibly more distant destinations.
This is a major win-win arrangement for Alaska Airlines.
