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Virgin Australia says it has delayed the arrival of its first Boeing 737 MAX aircraft by about 20 months to July 2021 as part of a restructured order book for the type.
The new delivery timetable for the 737 MAX was announced in a regulatory filing to the Australian Securities Exchange (ASX) on Tuesday and is one of Virgin Australia chief executive Paul Scurrah’s first moves since taking over from John Borghetti on March 25 2019.
Under the restructured order book, Virgin Australia’s first 737 MAX will be the 737 MAX 10, with 25 of the type to start entering the fleet from July 2021.
While deliveries of the 737 MAX 10 has been moved forward by about six months, Virgin Australia has pushed back the introduction of 23 737 MAX 8s to February 2025.
Previously, the first of 38 737 MAX 8s were due to enter the fleet in November 2019, while 10 of the larger 737 MAX 10s were due from January 2022 onwards.
Scurrah said the revised timing would lead to a number of positive commercial benefits for the airline group, which also includes low-cost carrier Tigerair Australia and Virgin Australia Regional Airlines.
“This includes a significant deferral of capital expenditure by extending the use of existing aircraft given the relatively young age of our fleet along with providing the group earlier access to the superior operational economics of the MAX 10 aircraft,” Scurrah said.
In recent times, Virgin Australia has been focused on strengthening its balance sheet as part of its three-year transformation program known as “Better Business” that got underway in 2016 and targeted $400 million in annualised net free cash flow savings. It was is due to conclude on June 30 2019 and be replaced by “Better Business 2”.
The program has focused on paying down debt, improving its financial leverage – which it defined as the adjusted net debt to earnings before interest, tax, depreciation, amortisation and and aircraft rentals (EBITDAR) ratio – and achieving operational efficiencies through fleet simplification.
Virgin Australia said in its 2018/19 first half results its financial leverage at December 31 2018 was the strongest in 10 years.
A restructured delivery timetable for the Boeing 737 MAX was flagged in February 2018, when Virgin Australia said in its 2017/18 first half results presentation the airline was “working with Boeing to further optimise the delivery timing of Boeing 737 MAX”, adding that a “positive impact on the balance sheet” was expected in 2018/19.
“We are always in constant contact with Boeing on the delivery dates on the whole order book, including those lead aircraft,” Virgin Australia chief financial officer Geoff Smith said at the time.
At December 31 2018, Virgin Australia and its low-cost carrier unit Tigerair Australia had 85 Boeing 737-700/800 aircraft. The last 737-800 was delivered in January 2018, while the oldest 737s in the fleet rolled off the Boeing production line in 2003.
737 MAX 10 the largest member of the MAX family
Launched at the Paris Airshow in 2017, the 737 MAX 10 is the fifth and largest variant of the 737 MAX family of aircraft.
Powered by two CFM LEAP-1B engines, the aircraft will have a range of 3,300nm (with one auxiliary tank) and can carry up to 230 passengers in a single-class layout, according to figures on the Boeing website.
The flight test program for the 737 MAX 10 was expected to begin before the end of calendar 2019, with entry into service in 2020.
“The 737 MAX 10 aircraft is the ideal fleet type to meet many of the Virgin Australia Group’s commercial and market needs,” the Virgin Australia statement said.
Virgin Australia’s 737 MAX deferrals comes at a time when the 737 MAX 8 remains grounded more than a month after a fatal accident involving an Ethiopian Airlines flight.
That crash, as well as one involving a Lion Air flight with the same aircraft type in October 2018, has put the 737 MAX 8 under the spotlight, given the apparent similarities of the two incidents that have left more than 300 people dead.
While Scurrah did not directly refer to the two accidents in the announcement regarding the airline’s new delivery stream for the 737 MAX, the chief executive reiterated that safety was “always the number one priority for Virgin Australia”.
“As we have previously stated, we will not introduce any new aircraft to the fleet unless we are completely satisfied with its safety,” Scurrah said.
“We are confident in Boeing’s commitment to returning the 737 MAX to service safely and as a long-term partner of Boeing, we will be working with them through this process.”
Virgin Australia’s MAX order has a long history
Virgin Australia’s initial order for 23 737 MAXs made in July 2012 had the aircraft being delivered from 2019 to 2021. In August 2014, Virgin Australia brought forward first delivery to 2018.
The airline group then converted orders it held for 17 737-800s into 737 MAX 8 orders, lifting its total order book for the type to 40 frames, in August 2015.
Then in February 2017, Virgin Australia decided to postpone first delivery of Boeing’s next generation narrowbody to the final quarter of the the 2019 calendar year.
Most recently, Virgin Australia announced in August 2018 plans to take delivery of 10 737 MAX 10s from 2022 for use on “important business routes”.
“The innovative interior of the MAX 10 aircraft has a larger cabin and number of seats and an extended range, offering flexibility to our network and greater efficiency for slot-constrained airports,” chief financial officer Smith said at the time.
The 737 MAX represents Virgin Australia’s only outstanding aircraft order. The airline took its last new 737-800 on order in late January 2018.
Boeing’s other two 737 MAX customers in Oceania are Air Niugini, which put pen to paper in February 2016 for four MAX aircraft arriving from 2020, and Fiji Airways, which has two 737 MAX 8 in its fleet and three more due for delivery.
Meanwhile, Qantas is expected to run a competition between the 737 MAX and A320neo at some future point for the replacement of its existing 737-800 fleet.
Virgin Australia’s new Boeing 737 MAX delivery schedule
Aircraft Type |
Previous order |
New restructured order |
|
737 MAX 8 |
38 aircraft – deliveries commencing November 2019 |
23 aircraft– deliveries commencing February 2025 |
|
737 MAX 10 |
10 aircraft – deliveries commencing January 2022 |
25 aircraft – deliveries commencing July 2021 |
Source: Virgin Australia
VIDEO – A Boeing 737 MAX performs at an airshow routine in this 2016 video from the Boeing YouTube channel.
Ben
says:MAX10 because it’s not a MAX8? Although I can see some logic here. MAX10 allows the 330 to come off domestic/short haul International entirely. Possibly they are also looking to the A220 to fill the F100/B737-700 (and possibly -800) and even A320 replacements? A220-100/-300 mix and MAX10 would provide the sizes to fill most of the roles VA does. Although A220 economics may not suit the FIFO market… until the fuel prices rise again.
Dee
says:Ben, I think that VA will probably stick to an all Boeing fleet, and use the now B/EM 190 or such, and replace the A300’s and B777’s with a mix of B 787 9/10’s for long haul international. The 737-10’s would be an ideal fit for East/west domestic, utilising their yet to be released single aisle business class.
Julius Grafton
says:Real smart, Boeing’s woes gave VA a loophole, wait until well after the Max is sorted, then start with the 10. – Julius
Patrickk
says:So much for the president of the Virgin pilots association outrageous claim that the 737Max 8 was marvellous prior to its grounding. Very smart for wiser heads to allow a lot of space before virgin goes anywhere near a Max8. The max10 May even be renamed prior to Virgin seeing it in a couple of years
James B
says:Typical CEO decision, smart in some sense, but horrible as it still keeps the MAx-8!!!
The A/C is aerodynamically unstable! Thats why there is a MCAS!!!! Jesus, where does “bean counting” stop and safety come first?
I will never fly on the Max aircraft, never.
Quite frankly, the MILLIONS wasted at Tiger Air by swapping to OLD Boeing’s and doing it badly at that, instead of taking up NEO Airbus’s or even late model standard 320’s is a FOOLISH decision, and a typical CEO bonus chasing move!
Skystar
says:With the 737 max receiving so much publicity its understandable that they are pushing back the deliveries as there would be a lot of nervous passengers even though the average punter could not say what aircraft type they were on,social and digital media is a lot harder to escape now days compared to earlier times when aircraft suffered crashes such as the DC-10s and rudder hardovers on 737 classics.
Interesting to see which way QF go and if the 737 max had the edge as their narrowbody replacement prior to the two crashes and if it may have now tipped it back in favour of the A320neo but one would think Boeing would pull out all stops not to lose out on the order.