Southwest overture stirs Airbus jet order hopes

PARIS/CHICAGO Thu Aug 4, 2011 6:12am EDT

A Southwest Airlines 737-700 taxis at Bob Hope Airport in Burbank, California April 4, 2011. REUTERS/Mario Anzuoni

A Southwest Airlines 737-700 taxis at Bob Hope Airport in Burbank, California April 4, 2011.

Credit: Reuters/Mario Anzuoni

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PARIS/CHICAGO (Reuters) - Southwest Airlines (LUV.N) and Airbus EAD.PA have begun a "warm" top-level exchange, prompting hope at the European planemaker that Boeing's (BA.N) top buyer may no longer be out of its reach, sources close to the matter said.

The world's largest low-cost airline, which celebrated its 40th anniversary in June, has for decades flown only Boeing (BA.N) 737s and has usually shut the door to Europe's Airbus.

But after Airbus dominated June's Paris air show with sales of an upgraded A320 with fuel savings, Southwest Chief Executive Gary Kelly congratulated Airbus counterpart Tom Enders in what some see as a discreet but carefully calibrated overture.

"We are exchanging friendly correspondence which is a new dimension," a source close to Airbus told Reuters.

A second source stressed that while evoking Airbus's success in marketing the A320neo, the letters did not address specifics or do much more than break the ice between the two companies.

As yet it is too early to talk of negotiations and no offers have been made or sought for Airbus jets, the sources said.

But the move is stirring interest as the industry closely watches Southwest to see which way it will move as Boeing and Airbus wrestle over tens of billions of dollars of new orders.

Airbus snagged an order for 260 narrow-body A320 planes from AMR Corp's AMR.N American Airlines, an all-Boeing customer, in July, and is jockeying for more sales as other U.S. carriers look to refresh their fleets to drive down fuel bills.

The sources declined to be identified because the letters are confidential.

Airbus declined to comment, and a Southwest spokeswoman said "we haven't heard any rumors of any Airbus talks."

The exchange came after the Paris air show at a time when Boeing was in flux over product strategy but before the pivotal American deal which forced Boeing to respond, the sources said.

Boeing is seen likely to go all-out to keep Southwest.

MOMENT TO STRIKE

Some industry experts have raised questions over how fully Southwest was kept in the loop on Boeing's sudden decision to offer American a version of its 737 featuring a new fuel-efficient engine to avoid getting locked out of the deal.

The surprise move won Boeing an order for 200 737s from American and split the $40 billion order with Airbus, which had already committed to fitting its A320 with a new engine. But it also may have annoyed Southwest, which built its business around the 737.

"This is definitely a moment for Airbus to strike because there may be bruised feelings at Southwest," said aerospace consultant Richard Aboulafia of Virginia-based Teal Group.

"Southwest played a key role in designing the 737 Classics and a very key role in the 737 Next Generation," he said. "Boeing's traditional way of developing airplanes is to get customers on board first, and this didn't happen."

An Airbus sale to Southwest, which has long preferred the simplicity and cost savings of owning one aircraft type, would be an even bigger coup.

Boeing declined to comment on the exchange of letters but said the company aims to please its "valued customer."

Southwest CEO Gary Kelly said earlier this year the carrier could one day add different types from other makers.

Canada's Bombardier (BBDb.TO) said in June that it, too, had made a pitch to Southwest in hopes of gaining new business for its CSeries planes, but up until now there have been few public signs of exchanges between Southwest and Boeing's chief competitor Airbus.

Dallas-based Southwest, which acquired low-cost rival AirTran Holdings this year, is due to report second-quarter earnings later on Thursday.

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