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Thu, Jan 15, 2009

Southwest Completes 737 Leaseback Transaction

LCC Raises $350 Million In Short-Term Profit

Southwest Airlines confirmed Wednesday it has completed the second half of a leaseback transaction designed to raise $350 million in cash, by selling off 10 of its Boeing 737s.

As ANN reported, the first five planes were sold to an undisclosed leasing company back in December, in a deal which came to light in a filing with financial regulators.

The Dallas Morning News reports the first half of the deal committed the company to lease back, operate and maintain the first five planes sold for a period of 12 years, and the ones transferred on January 8 for 16 years.

The airline will make payments of about $260,000 per month for each of the first five planes, and $253,000 per month on each of the aircraft in the latest transaction. Both payments may be adjusted for market conditions after six months.

Southwest is reportedly using the leaseback arrangement to bolster its short-term cash reserves to cover losses related to its fuel hedges. While buying fuel months and years in advance gave Southwest a considerable competitive edge when crude oil prices were skyrocketing, the hedges became a liability when jet fuel prices collapsed late in 2008.

In December, the airline raised another $400 million through the sale of senior debt instruments.

FMI: www.southwest.com

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