Southwest sells aircraft, modifies fuel hedges

ATLANTA — Discount carrier Southwest Airlines sold five aircraft for $175 million and agreed to lease the planes back from the buyer for 12 years.
The Dallas-based airline also modified its fuel hedge portfolio to limit its exposure from falling oil prices.

The disclosures were made in a Securities and Exchange Commission filing late Tuesday.

The company said it entered into a two-part sale and leaseback transaction with an unidentified third party aircraft lessor for the sale and leaseback of Boeing 737-700 aircraft.

Under the first part of the deal, which closed Tuesday, the airline sold five of the aircraft and agreed to lease them back and continue to operate them and maintain them. Southwest will make monthly payments totaling roughly $7.8 million for the five aircraft for the first six months of the leases. The payments will be reset every six months.

Southwest expects to close the second part of the transaction in the first quarter of next year. It provides for the sale and 16-year leaseback of five more Boeing 737-700 aircraft on similar terms, including proceeds, as the first part of the deal.

Southwest also said it modified its fuel hedge portfolio, minimizing fuel hedging losses related to further oil price declines.

The airline estimates its 2009 economic fuel costs per gallon, excluding fuel taxes, to be around $1.80, resulting in an estimated savings of approximately $1.4 billion compared to the 2009 fuel price guidance provided by the company in July.

Southwest said its current unhedged estimate for 2009 fuel costs per gallon is roughly $1.60.

As of Sept. 30, Southwest held roughly $2.5 billion of cash collateral from fuel hedge counterparties. Due to the decline in oil prices during the fourth quarter, as of Monday, the airline had posted roughly $230 million in cash as collateral for fuel hedges with counterparties.

Southwest’s cash balance, net of collateral posted, as of Monday was roughly $1.3 billion.