Virgin Australia to delay taking Boeing 737 MAX jets to cut spending

SINGAPORE (Reuters) - Virgin Australia Holdings said on Tuesday it would delay taking the first deliveries of Boeing Co 737 MAX jets for nearly two years to reduce capital spending and give it time to be satisfied with the model’s safety.

A Boeing 737-800 aircraft from Australia's second largest airline, Virgin Australia, is seen on the tarmac at the domestic terminal of Sydney Airport in Australia, August 19, 2018. Picture taken August 19, 2018. REUTERS/David Gray

New chief executive Paul Scurrah, who started his role five weeks ago, said the agreement with Boeing to delay the planned arrival of around 15 planes would give the carrier greater spending flexibility and could boost its credit rating.

“It was certainly the first priority I walked into the business with when I got here,” he told Reuters of the order delay in a phone interview.

The airline expects to save around A$1 billion ($705 million) over three financial years by deferring the purchases, according to a person familiar with the matter.

Scurrah declined to comment on the estimate or on whether the savings would be used for other investments.

The move comes as other 737 MAX customers, including Norwegian Air Shuttle ASA and Indonesia’s Lion Air, have also delayed deliveries in the wake of a global grounding of the plane following fatal crashes in Indonesia and Ethiopia.

Virgin had planned to take its first Boeing 737 MAX 8 in November, making Australia’s no. 2 airline the first operator of the model in the country.

Scurrah said the airline would not introduce any new 737 MAX aircraft to its fleet until it was completely satisfied with its safety.

“We are confident in the assurances that (Boeing) have given us around their commitment to safely return the MAX to service,” he said. “As a long term partner we are looking to work with them through that process.”

Boeing CEO and Chairman Dennis Muilenburg promised on Monday to win back the public’s trust after facing tough questions following two fatal crashes.

Virgin said on Tuesday it would convert another 15 of its 48 737 MAX jets on order to the larger 737 MAX 10 version. The first of 25 737 MAX 10s will be delivered from July 2021 and the first of 23 737 MAX 8s from February 2025.

Scurrah said the higher capacity and longer range of the 737 MAX 10 would give the airline additional route flexibility. Virgin plans to extend some leases on older 737s and keep some planes it owned longer in the meantime, he said.

Larger rival Qantas Airways Ltd plans to decide on a newer, more fuel-efficient replacement for its 75 older 737s next year, CEO Alan Joyce told Reuters in February.

Reporting by Jamie Freed in Singapore; additional reporting by Rushil Dutta in Bengaluru; Editing by James Dalgleish and Sonali Paul