They Don't Need It Now, But May Need It Later

It's a financial conundrum: the best time to borrow money is when you don't particularly need to, and the worst time to do it is when you need the extra cash the most. Southwest Airlines -- arguably the healthiest of all US airlines right now, in terms of profitability -- took that advice to heart this week, and borrowed $600 million to bolster its already healthy financial reserves.

The carrier borrowed the money from Citibank, and seven European banks, as a hedge against economic uncertainty and soaring fuel prices. The loan was secured by 21 of the carrier's newest Boeing 737-700 planes.

BusinessWeek reports Southwest wouldn't comment on the exact reason for the loans, though spokeswoman Beth Hardin did strongly imply it was due to the weakening US economy, tight credit markets and the high price of fuel.

"We thought it would be wise to bolster our cash position," she said.

Aided by fuel hedges that cap the price Southwest pays for fuel at about half the market rate, the Dallas-based low-cost carrier hasn't reported a quarterly loss in 17 years, though it came uncomfortably close to doing so earlier this year -- posting "only" a $34 million profit, as other carriers lost hundreds of millions of dollars (and some, billions.)

Southwest still wholly-owns 83 percent of its fleet, or about 427 aircraft. The airline reported $2.98 billion in cash available, and another $140 million in short-term investments, as of March 31 -- and posted a 5.7 increase in passenger traffic for April.

FMI: www.southwest.com