It's early retirement for Alaska's MD-80s; more 737s are on the way

With fuel prices hovering near record highs and more than three dozen new Boeing planes on order, Alaska Airlines has decided to retire its fleet of 26 MD-80 jets by the end of 2008 — nine years earlier than planned.

Alaska executives said the move will save the carrier hundreds of millions of dollars by reducing fuel, training and maintenance costs.

It also allows Alaska to usher out an airplane that has been involved in the airline's most serious safety failures, although airline executives said that was not a factor in the decision.

Alaska's board of directors voted March 9 to phase out the MD-80s in less than three years, rather than by 2017 as originally planned. The Seattle-based company announced its decision Monday.

It is an expensive one.

Accelerating the MD-80 retirement schedule will cost $750 million, including up to $150 million in penalties for returning nine of the jets ahead of schedule to airplane lessors renting the planes to Alaska.

Alaska also expects to reduce its pre-tax earnings by up to $150 million for selling 15 of the MD-80s that it owns outright; it does not expect to make enough on the sales to recoup what it paid for them.

Nonetheless, Alaska believes the benefits will outweigh the costs, particularly as it takes delivery of 39 larger and more fuel-efficient 737-800s by the end of 2008.

"This should be very positive news for our people, our customers and our shareholders," Chief Executive Bill Ayer said. "This move further accelerates our progress toward sustained profitability, growth and long-term job and retirement security for our employees."

Alaska executives strongly denied that Monday's announcement was triggered by any real or perceived safety shortcomings of Alaska's MD-80 fleet.

An Alaska Airlines MD-83 crashed into the ocean off Southern California in January 2000, killing 88 people. Faulty lubrication of the plane's jackscrew, which controls the horizontal stabilizer, was found to be the cause.

Last December, an MD-82 on its way to Burbank, Calif., made an emergency return to Seattle-Tacoma International Airport after a hole ripped open in the plane's fuselage. The jet had been damaged on the ground when a ramp worker hit it with a baggage loader and failed to report the incident. No one was injured.

"The MD-80 is one of the safest airplanes in the industry," said Kevin Finan, Alaska's executive vice president of operations. "What we're driving toward is efficiency and simplification and reliability. We don't really have a concern about the safety of the aircraft."

Brad Tilden, Alaska's chief financial officer, said eliminating the MD-80s will produce savings of $118 million per year if the price of oil drops to $40 per barrel.

If oil remains closer to its current level — it closed Monday at $61.77 per barrel — the savings will exceed $130 million per year.

The early reviews from Wall Street were positive.

"It's going to reduce their cost structure and make it a more efficient airline," Calyon Securities analyst Ray Neidl told Bloomberg News.

The news did little for Alaska's stock price, however. Alaska shares closed Monday at $30.29, down 5 cents.

Once the MD-80s are gone, Alaska will have nothing but 737s in its fleet. It will trumpet the fact by painting the words "Proudly All Boeing" on its jets.

That is a nice bit of public relations for Alaska's hometown neighbor, but the move is much more about a Texas competitor than it is about Boeing.

Southwest Airlines thrived by pioneering the practice of flying only 737s on its routes.

By owning just one type of plane, Southwest only had to train its pilots and mechanics how to work with one type of plane. Likewise, it only had to stock spare parts and outline maintenance programs for one type of plane.

Those advantages have made Southwest the most profitable U.S. airline, and the model has been copied far and wide by airlines such as Ryanair in Ireland, WestJet in Canada and Gol Airlines in Brazil.

Southwest is also one of Alaska's fiercest competitors, and Alaska executives said Monday that the carrier must continue to lower its cost structure to remain competitive.

Ayer said the new 737-800s will be 20 percent cheaper to operate per trip than the MD-80s.

"Adopting a single aircraft type has proven to be a key success factor at other profitable and growth-oriented carriers," Ayer said.

Monday's announcement also included good news for Boeing: Alaska plans to exercise eight options and "find one more" of the 157-seat jets to achieve its fleet-modernization plan, according to Tilden.

Alaska currently has 36 737-800s on firm order, according to Boeing's Web site.

David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com