Southwest Airlines Co. said Thursday that it expects to pay $100 million to refurbish 88 planes that it will lease to Delta Air Lines Inc.
That's twice as much as Southwest expected to spend on makeovers if it had kept the planes. Officials said it still made sense to lease the planes because Southwest will earn more money using bigger jets in their place.
The Boeing 717 jets were operated by AirTran Airways, which Southwest bought last year. Southwest wanted to replace the 117-seat planes with larger Boeing 737s, and Delta agreed to lease them beginning with 16 planes next year and the rest by the end of 2015.
Southwest will repaint the jets in Delta's colors and reconfigure the interiors, Chief Financial Officer Laura Wright said Thursday during a conference call with analysts. She said Southwest had expected to pay about $50 million to remodel them as Southwest aircraft.
Asked why the spending went up, CEO Gary Kelly said it was just part of making a deal with Delta.
"We just amazingly found a home for all 88 of those aircraft," he said.
Kelly said that Southwest will earn so much more money flying the bigger 737s on the same routes that "we will pay for that conversion cost in the first six months."
Wright estimated the benefit of using bigger planes at $200 million per year once all 88 have gone to Delta.
Southwest will take a $140 million accounting charge in the third quarter, with the gap between the charge and cost of the job due to financial help from the manufacturer.
Delta plans to use the 717s to replace 50-seat regional jets that are unprofitable to operate at current high fuel prices and some DC-9 aircraft that came over with the acquisition of Northwest Airlines.