Southwest Airlines (NYSE:LUV) delivered some good news to Boeing (NYSE:BA) shareholders earlier this month, announcing it would exercise options to buy 34 additional 737 MAX 7 airplanes on top of the 100-plane order it had announced back in March.
Southwest has been one of Boeing's key customers since the airline's inception, and the order is a welcome relief for Boeing after what has been a tough stretch for the 737 MAX, and this smaller variant in particular. On this clip from Motley Fool Live, recorded on June 10, Motley Fool contributor Lou Whiteman talks with "Industry Focus" host Nick Sciple about what the order means for both Southwest and Boeing.
Nick Sciple: Then when you look at Southwest, they've always been a key partner for Boeing. What do you make their move to just keep pressing in on the 737 Max? You think that's been a good strategy from their perspective?
Lou Whiteman: This was a plane that they couldn't decide if they wanted to take. This was a real concern for Boeing because the smaller Max isn't necessarily the plane they want. Boeing doesn't have a good 120-160 seater right now. They were going to get that through a joint venture with Embraer (NYSE:ERJ) but that fell through during the pandemic. There is an Airbus (OTC:EADSY) plane that is a great fit for this market. Southwest actually flirted with Airbus there which would have been a huge symbolic blow. It's good to see Southwest doing the initial deal, it's good to see them hanging on. I will say this, the reason Southwest is who they are and is the stock that it's been, is they take advantage of downturns. I think these deals are probably good for Boeing because they are moving metal and they are reaffirming a very important relationship. I'm willing to bet Southwest is getting a steal and a half on these planes. The fact that they are recommitting to it where they're not going to get deliveries for years out, that just tells me that this is a price where it may not quite be BOGO. [laughs] Buy one, get one free. But it's getting toward those levels. It probably makes sense for Boeing anyway. You need to rebuild this line, you need to establish the partnerships, you need to move inventory after the Max is grounded for 18 months. But economically, I don't think it's the home-run that we would have imagined prior to the grounding, a 100-plus plane order for the Max.
Nick Sciple: The leverage shifted during that period.
Lou Whiteman: Very much.
Nick Sciple: With Boeing, it was "I have this huge back in me to get your piece of this backlog." Now, it's Boeing. "I need to sell these planes, I need to get these off of my lot and actually to customers" and that mistake with the 737 Max totally shifted the negotiating dynamics in the industry away from Boeing's favor.