Delta to lease Southwest's 717s from Boeing

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Delta Air Lines has reached an agreement in principle with Southwest Airlines to sublease all of its 88 117-seat Boeing 717-200 aircraft, beginning next year with all of the aircraft transitioned by 2015.

The Atlanta-based carrier's 12,000 pilots represented by the Air Line Pilot Association must first approve a new contract, which will be voted on next month, and an agreement reached between Delta, Southwest and 717 lessor Boeing Capital Corporation before the transaction can be finalised.

Delta will use the aircraft to replace 50-seat Bombardier and Embraer regional jets that are operated by regional carriers under capacity purchase agreements and older 125-seat Boeing DC-9-50 aircraft, according to a statement. The deal will be capacity neutral.

The airline had 364 50-seat regional jets under contract and 24 DC-9-50s in its fleet at the end of December 2011, according to Delta's annual report.

Larger regional jets may be Delta's real target. The airline can add up to 70 76-seat regional jets, which include the Bombardier CRJ900 and Embraer 175, at its Delta Connection partners as long as it buys new mainline aircraft under its new pilots contract. This allows the airline to increase the number of these aircraft to 223 from the current 153.

Larger regional jets and mainline narrow-body aircraft have lower costs per available seat mile than the smaller regional jets and older narrow-body aircraft that they would replace.

"In many markets where Delta and Northwest operated separately, 50-seat jets made sense," says Robert Mann, an airline industry analyst at RW Mann & Company. "But when you combine the networks, there are a lot of markets where a 70- or 76-seat jet makes sense."

The number of 70-seat regional jets, which include the CRJ700 and ERJ170, would be capped at its current 102 under the new contract.

Compass, ExpressJet Airlines, Mesaba, Pinnacle, SkyWest Airlines and Shuttle America operate the CRJ700, CRJ900, E-170 and E-175 for Delta.

Delta said in March that it was also considering used Airbus A319s to replace the DC-9s and 50-seat regional jets.

Southwest's fleet could shrink following the agreement. The airline is scheduled to receive 85 Boeing 737-700 and 737-800 next generation jets between 2013 and 2015 while it would sublease the 88 717s to Delta during the same period. This would result in its fleet shrinking by three aircraft.

Gary Kelly, chief executive of Southwest, said capacity at the airline would be flat or slightly down for the next few years during a meeting with shareholders last week.

Southwest must also make a decision on whether or not to retire 161 737-300 and 25 737-500 classics in its fleet.

The 717s are operated by Southwest's subsidiary AirTran Airways.