Southwest Airlines Flags a New Boeing Risk in 10-K Annual Report

Global airlines are reassessing their exposure to Boeing. Even one of the plane manufacturer’s most loyal customers, Southwest Airlines, is looking again at the risks.

The carrier made a small, and perhaps obvious, change to its 10-K annual report filed earlier this week. But it is an adjustment that highlights the industry’s concerns.

Under operational risks, Southwest said as it did last year that it was dependent on Boeing as the sole manufacturer of its aircraft. But it then altered the wording from its previous annual 10-K filing.

“If the MAX aircraft were to become unavailable for the company’s operations, or if the company were to experience prolonged delivery delays of MAX aircraft, the company’s business plans, strategies, and results of operations could be materially and adversely affected,” it said.

The first part is new. Last year, Southwest made no mention of the MAX aircraft becoming “unavailable” for operations, instead focusing on the risk of prolonged delays to the MAX-7 being certified by the Federal Aviation Administration. It recently removed the yet-to-be-certified jet from its 2024 capacity plans.

Southwest and Boeing didn’t immediately respond to requests for comment early Friday.

If the MAX can’t fly, then Southwest will be badly affected. It had 223 MAX 8s, out of its 817-strong fleet as of Dec. 31 and has 495 firm orders—307 MAX 7s and 188 MAX 8s—for 2024 through 2031.

That risk has always been there, but the airline probably didn’t feel the need to spell it out until recently. That is has done so highlights how airlines are reassessing the risks of their exposure to Boeing in light of its problems.

At the top of the list is the investigation into how an emergency-door plug on a MAX-9 blew out in midair on an Alaska Airlines flight last month. That accident led to the jet being grounded by the FAA for three weeks.

The company said earlier this week that it discovered new problems with its 737 MAX fuselages, leading it to delay the delivery of 50 planes.

Southwest is sticking by Boeing. “The best thing we can do is work with Boeing to make them an even better company, which is exactly what’s happening,” CEO Bob Jordan said on the company’s fourth-quarter earnings call last month. “We’ve got great confidence in the MAX 8 and we’re eager to get the MAX 7.”

United Airlines, however, said it is rethinking longer-term plans for the Boeing MAX 10 aircraft, which also needs to be certified. CEO Scott Kirby said United has taken the MAX-10 out of its internal plans, although he clarified the carrier hasn’t canceled its order for 277 of the jets through the rest of the decade.

United’s chief financial officer, Michael Leskinen, said on the company’s conference call last month that the MAX-9 grounding was the “straw that broke the camel’s back with believing that the MAX 10 will deliver on the schedule we had hoped for.”

The president of Emirates airline Tim Clark said Boeing was in a “last chance saloon” following what he described as a “progressive decline” in standards, in an interview with the Financial Times earlier this week.

But with Airbus the only major alternative, and both companies sitting on order backlogs of 10-plus years at current production rates, airlines may not have much choice about where they get their jets.

Write to Callum Keown at [email protected]