New Virgin Oz boss scores a win in deal to delay MAX deliveries

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April 30, 2019
Scurrah
Former Virgin Australia CEO John Borghetti (left) with successor Paul Scurrah. Photo; Virgin

New Virgin boss Paul Scurrah has scored an early win after negotiating a deal with Boeing to delay the arrival of Boeing 737 MAX aircraft until 2021 and switching 15 planes from the controversial  MAX 8 to the bigger MAX 10.

Deliveries of the MAX 8, currently tainted by its involvement in two fatal crashes in less than five months, will be pushed back to 2025.

While public perception about the safety of the MAX played a part in the deal,  Scurrah was keen to emphasize its commercial and operational benefits.

“Getting a better commercial outcome for the group’s MAX order has actually been one of my biggest single priorities since starting just over a month ago,’’ Scurrah told AirlineRatings Tuesday.

“So on that note, I’m incredibly pleased that we’ve come to an agreement with Boeing to restructure the order.

“What that means commercially is a significant capital expenditure deferral, which is a really good outcome for the group.’’

Virgin Australia had 38 MAX 8s and 10 Max 10s on order and was due to take the first MAX 8 in November this year.

READ: MAX a factor in Scoot route cancellations

It was widely tipped to be among a number of airlines to move to renegotiate their order s as a result of the Boeing MAX crisis.

It was also known to be keen to have more time to address the public perception issue about the safety of MAX aircraft.

Scurrah conceded safety and public perception about the MAX 8 was a factor in the decision to delay deliveries but expressed confidence in Boeing’s ability to address the issues affecting the planes.

He said safety was a top priority for Virgin and pointed to a previous statement that the group would not introduce new aircraft to its fleet unless it was completely satisfied with the safety.

“And that position remains intact,” he said.

“We are a long-term partner of Boeing, we’ve been together for over 20 years, and we’re confident in the commitment they’ve given us.

“They’ve assured us of their commitment to re-enter the MAX aircraft into service and we’re looking forward to working with them through that process.”

The deal means the first MAX plane the airline receives in July, 2021, will be a MAX 10 and it also sees 15 MAX 8 orders converted to the bigger plane.

That brings forward the delivery of MAX 10s — which can carry more passengers and have lower costs per seat – from the originally scheduled start date of January, 2022. and boosts the number to 25.

Max 8 deliveries are pushed back to February, 2025, and the order is reduced to 23 planes.

Scurrah said the long-term impact of the restructure allowed Virgin to access the better economics of the MAX 10, which was better in terms of capital cost per seat, was a higher capacity aircraft and could fly further.

He said the airline was mindful that the plane would suit some routes it currently flies and potentially open up new routes but it had not yet looked at that in detail.

It was also not keen to flag its strategy to the opposition.

While there was an operation impact in not having the more efficient planes sooner, he said that capital deferral made the deal overwhelmingly positive.

The deal also allows the airline can take advantage of the relatively young age of its 737 fleet — about eight years —and extend the use of existing aircraft.

The new Virgin chief said this could mean some lease deals would need to be renegotiated.

“We have a fleet plan that covers a multitude of options for us and allows us to continue to meet the market demands and continue to provide the capacity that we need to provide,’’ he said.

After a month at the helm, Scurrah said he had discovered a passion within the business and “a positivity in its DNA” that set it apart from the competition.

“We also have great ideas within the business about what we need to improve to become the strong player that we want to be, so that’s good,’’ he said.

Scurrah said when he took the helm at Virgin that he had come to the job with ideas.

He said Tuesday these were solidifying but he wanted to make sure they were calibrated with those from within the business.

A leadership team was headed away from the office this week to map out a path forward and understand what were “the quick wins” and what could be done to make the group stronger.

But it was too early to say what this would mean in terms of changes.

“I mean there will be changes,’’ he said. “We operate in the domestic market and we’ll continue to operate, so that won’t be dramatic.

“I have been on the record on the past saying I intend to continue operating in all of the playing fields that we’re on  —  full service, the low-cost end and selected international (routes).

“So really what I want us to focus on is how do we make sure that a great airline is a great business and making sure we deliver for the three stakeholder groups that are very important for us: our people, our customers and our shareholders.”