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Boeing Gets Rise From Midwest's Order

April 11, 2001|PETER PAE | TIMES STAFF WRITER

Midwest Express Airlines said Tuesday it plans to buy up to 50 Boeing 717s, giving a much-needed boost to the Long Beach-based program that has struggled in recent years to garner sales of the 106-seat airplane.

In a deal valued at $750 million, the Milwaukee-based airline said it signed a memorandum of understanding placing firm orders for 20 717s, as well as agreeing to an option to purchase 30 more at a later date.

The order is the largest single deal for Boeing's smallest jetliner since Trans World Airlines ordered 50 planes three years ago, and should help prolong the life of Southern California's last remaining commercial airplane making facility. About 5,000 people work at the Long Beach 717 complex.

"This is very good," Boeing spokesman John Thom said. "We haven't had a big order in quite some time."

Selling the 717 has been a struggle for Boeing, which inherited the program when it acquired McDonnell Douglas Co. in 1997. A derivative of McDonnell Douglas' MD-95, the 717 had received 154 orders--mostly during the plane's launch--and was not able to sign up a major airline since then.

In a filing with the Securities and Exchange Commission last year, Boeing suggested it would need to sell at least 200 to break even.

Boeing began building the airplane on a moving assembly line last fall, a first for the industry, in hopes of bolstering sales and improving prospects by cutting production costs. Under the new process, Boeing said it hoped to churn out a plane every 20 days, a significant gain on the 65 days the old system required.

At that rate, the Midwest deal, including both firm orders and options, should give Boeing an additional three years of production time. So far, Boeing has delivered 51 of the 154 airplanes on order.

The Midwest announcement culminates a remarkable three weeks in which the 717 went from near moribund status to a program whose prospects now appear solid.

Three weeks ago, in the first good news for the 717 program in a while, AMR Corp.'s American Airlines said it will honor Trans World Airline Inc.'s contract to purchase the airplanes even after it acquired the St. Louis-based airline. The fate of the contract had been uncertain and analysts had speculated that American would cancel TWA's orders after completing the merger, dealing a major blow to the 717 program.

A week later, Joe Leonard, chairman of AirTran Holdings Inc. said the company will probably exercise options for at least 35 more 717s on top of the 50 it had already placed. If AirTran carries out the orders, it would represent a $1.2-billion bonanza for Boeing.

In addition to prolonging the life of the program, the Midwest order represented a morale boost in Boeing's ongoing battle with its archrival Airbus Industrie.

Midwest, one of the more profitable airlines, considered buying Airbus' 318 during a head-to-head competition that an airline spokesman described as going "down to the wire."

But in the end, Midwest said it chose the 717 because it was "designed for the short-range, high-frequency routes Midwest Express typically flies."

Aerospace analysts, however, said the 717 was a better fit for the airline because it was already operating other McDonnell Douglas jets, including older DC-9s that the 717 was designed to replace.

Pilots and mechanics would have had to undergo extensive cockpit retraining or maintenance recertification with an Airbus airplane.

Unlike other airlines that have ordered 717s with 110 to 120 seats, Midwest said it will have the airplanes configured to seat 88 passengers so that it can continue to provide two-by-two business-class type seating arrangements throughout the airplane.

Delivery of the new planes will begin in February 2003 and continue into 2006 at a rate of one airplane every other month, Midwest said.

In addition to the 717 order, Midwest said it also was ordering 20 Brazilian Embraer regional jets, with an option for 20 more. The jets seat between 37 and 50 passengers and are used to fly short routes.

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