Southwest paying to convert planes for Delta

Southwest Airlines is paying $140 million to convert planes for rival Delta Air Lines, part of the price of offloading the Boeing 717 jets it acquired through the 2011 acquisition of AirTran Airways.

Dallas-based Southwest has long had an all-Boeing 737 fleet, and in order to keep it that way, it was eager to relieve itself of the smaller 717 jets from AirTran's fleet of 737s and 717s. To that end, Southwest recently reached a deal for Delta to lease all 88 of the Boeing 717s by 2015.

After financial assistance from the manufacturer, Southwest's net cost to convert the planes for Delta is $100 million — $50 million higher than it would have cost Southwest to convert the planes for its own fleet. That will also increase Southwest's costs of acquiring and integrating AirTran by $50 million.

"For us to make a deal with Delta, we agreed to pay those conversion costs," said Southwest chief executive Gary Kelly during a conference call on his company's quarterly financial results. "We just amazingly found a home for all 88 of those aircraft," he said, likening the conversion costs to a "volume discount" Southwest was willing to offer.

Delta said it will have new seats installed on the planes, along with a full first class cabin, in-flight power, new galleys and other improvements throughout the 717s.