Sees Streamlined Fleet Necessary For Continuing
Transformation
Alaska Airlines
announced Monday the Alaska Air Group Board of Directors has
authorized a plan to transition the airline to a fleet of
all-Boeing 737 aircraft by the end of 2008. The board's action will
accelerate the retirement of the airline's current fleet of
MD-80s.
To accomplish the transition, Alaska now anticipates taking
delivery of 39 737-800s between 2006 and 2008, including the two
aircraft that have already been delivered in 2006. In addition to
these airplanes, Alaska has firm commitments for 13 aircraft,
options for 24 and purchase rights for 27 in 2009 and beyond.
"This decision represents a major milestone in our
transformation and moves us significantly along the path toward
becoming an undisputed leader in our industry. Having a common
fleet and growing with next-generation, fuel-efficient Boeing 737s
will make a major difference in our operating costs, fleet
reliability and the onboard experience for our customers," said
Bill Ayer, Alaska's chairman and chief executive officer. "This
move represents a significant upfront investment and will continue
our momentum toward sustained profitability, growth and long-term
job security and career opportunities for our employees."
The plan to retire the airline's 26 MD-80 aircraft by the end of
2008 will require an investment of approximately $750 million.
Alaska expects to save more than $115 million per year in operating
expenses once the transition is complete -- primarily by lowering
costs for fuel, maintenance, training and crew scheduling.
"This level of investment requires that we continue our
transformation and keep delivering on our cost goals and profit
objectives," Ayer said. "Our employees are a crucial part of that
equation, and we need to continue working together to provide
optimum value for our customers."
The acceleration of the conversion plan, when combined with the
purchase of new aircraft, will expand Alaska's fleet to 114
aircraft from 110 at the start of 2006, and is expected to increase
available seat miles (ASMs or the number of seats available per
mile flown) by 18 percent by the end of 2008.
With an average fleet age of eight years following the
transition, Alaska will have one of the youngest fleets in the
industry.
Alaska currently flies a mix of 737 variants. The carrier lists
12 737-900s in its fleet, five 737-800s, 22 737-700s, 40 737-400s,
and two 737-200 "Combis" (bottom).
The new agreement with Boeing, as well as a December 2005 equity
offering that raised $200 million, were key elements in
accelerating the fleet changeover. The equity offering strengthened
Alaska's balance sheet, helping to offset the charge to equity
associated with the early retirement of the MD-80 (file photo of
type, below) fleet.
Expected Exit Costs And Impairment Charges
Alaska Airlines representatives tell Aero-News the airline
expects to take a financial hit during the first quarter of 2006,
by reducing the carrying value of its 15 owned MD-80 aircraft to
fair market value. Although the amount of the special charge has
not been finalized, the airline expects it to be between $130
million and $150 million before tax (or between $80 million and $95
million after tax).
Alaska Airlines also has 11 leased MD-80s. The airline is unable
to determine the amount or timing of future charges associated with
its leased MD-80 aircraft, but expects the total of these charges
also to be in the range of $130 million to $150 million before tax
(or between $80 million and $95 million after tax). These charges
will be recognized in future periods as the disposition plans are
finalized.
Combined, the airline expects total special charges to its
income statement to be between $160 million and $190 million after
tax.
Alaska Airlines and sister carrier, Horizon Air, together serve
88 cities through an expansive network throughout Alaska, the Lower
48, Canada and Mexico.