Fri, Dec 26, 2008
Sells Five 737-700s On Leaseback To Raise Cash
We might be witnessing the dawn of a new era for Southwest
Airlines... one in which the successful airline needs to be
especially creative to hold onto its streak of
profitability.
BusinessWeek reports the Dallas-based low-cost carrier is a long
way from being in as dire straits as many of its legacy
competitors, including cross-town rival American Airlines... but
Southwest is nevertheless taking some fairly drastic steps to
minimize its losses in the face of ever-changing market
conditions.
At the top of Southwest's hit list are its profitable fuel
hedging programs. Just six months ago, analysts applauded
Southwest's hedging strategies, which would allow the carrier to
purchase fuel throughout 2009 at the equivalent of about $75 per
barrel... close to half the going rate this past July. But then a
funny thing happened: the bottom fell out of the oil market, and
today a barrel of crude is trading for under $40.
No one in their right mind expects the price of oil to stay that
low for much longer... but in the near term, dipping oil prices
have devastated Southwest's bottom line,
resulting in a Q3 2008 net loss of $120
million.
As a result, Southwest has modified some of its hedge
agreements, and has sold back some others. The carrier now expects
to pay about $1.80 per gallon of Jet-A in 2009, before taxes,
resulting in an estimated savings of around $1.4 billion... about
half what the airline had expected to save versus its rivals in
July.
In related news, Southwest has followed other airlines in
selling off some of its planes, then operating them on leaseback.
In a filing to the Securities and Exchange Commission on Tuesday,
Southwest disclosed it has sold five of its Boeing 737-700s to a
third party aircraft lessor, to be leased back to the airline...
trading short-term profit gains for added expenditures down the
line.
The deal includes similar arrangements down the line on five
more 737s, BusinessWeek added.
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