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AirTran may defer another seven 737-700 deliveries

AirTran Airways is discussing deferring up to another seven Boeing 737-700s as it looks to further reduce the size of its fleet in 2009 and 2010.

CFO Arne Haak disclosed during a conference call today to discuss the low-cost carrier's third quarter earnings that talks are underway with Boeing about moving back the seven 737-700s currently slated for delivery in 2010.

"We're currently in discussions with Boeing about our fleet plan needs for 2010 and may defer some or all of our 2010 positions based on the current economic outlook" Haak told analysts.

He adds these deferrals would be in addition to the 22 737-700s AirTran deferred in April of this year. These 22 aircraft were pushed back from between 2009 and 2011 to between 2013 and 2015.

Haak told ATI following the conference call that the original deferral deal left untouched one delivery slot for the first quarter of 2009, one for the second quarter of 2009, one for the first quarter of 2010, one for the second quarter of 2010 and five for the second half of 2010. He says it is too late to defer the 2009 aircraft as metal has already been cut but Boeing is now willing to consider deferring the remaining 2010 aircraft.

"I think there's an opportunity to move them," Haak says.

He adds that the ongoing machinist strike is prompting Boeing to look for ways to catch up on production.

AirTran currently operates 53 737-700s along with 86 Boeing 717s and has 53 additional 737-700s on outstanding order. AirTran has already completed deals to sell three of its 53 737-700s in the fourth quarter, which will give it a fleet of 50 737-700s and 86 717s aircraft at year-end.

Haak says it also has completed agreements to sell two new 737-700s that were originally slated for delivery in December but have been pushed back until the first quarter of 2009 due to the machinist strike.

He adds that AirTran is also now talking to potential buyers for the two 737-700s it is slated to take in the first and second quarters of next year, which Haak expects will also be pushed back by one quarter due to the ongoing strike. "A couple of people are looking at them," Haak says.

He adds if AirTran in unable to complete deals for these two new aircraft the carrier may instead sell two of its used 737-700s and keep the new aircraft.

AirTran has been aggressively trying to sell and defer aircraft since early this year, when it decided to drop previous plans for double-digit capacity growth in 2008 and further growth in 2009. The carrier originally planned to end 2008 with 147 aircraft, 11 more than the current plan.

The carrier has already sold five 737-700s this year, including three in the third quarter which generated a $10.4 million gain.

The aircraft sales and deferrals is enabling AirTran to cut capacity by between 6% and 7% in the fourth quarter and a 6% in the first quarter of 2009. It expects to reduce capacity for all of 2009 by between 3% and 7%, depending on how many additional aircraft it is able to sell.

"Under the right circumstances we would be willing to further reduce our fleet size," Haak says.

AirTran CEO Robert Fornaro told analysts that to achieve the 7% capacity reduction figure for 2009 would "probably require a few more aircraft sales" and "at the right price we will do additional sales".

He adds: "Our preference is to get rid of airplanes, get rid of fixed costs and ultimately run the most efficient airline we can. If we can sell some more airplanes at the right price we'll do it because our priority for the next 18 months is to prune the balance sheet versus growth."

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