Southwest Airlines 1998 Annual Report Download - page 33

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33
SOUTHWEST AIRLINES CO. ยค SIX STORIES OF FREEDOM
On August 1, 1997, the Company signed a ten-year engine maintenance contract with
General Electric Engine Services, Inc. (General Electric). Under the terms of the
contract, Southwest will pay General Electric a rate per flight hour in exchange for
General Electric performing substantially all engine maintenance for the CFM56-3
engines on the 737-300 and 737-500 aircraft. The Company has a similar agreement
with General Electric with respect to the engines on the 737-700 aircraft. Maintenance
on the Pratt & Whitney JT8-D engines on the 737-200 aircraft will continue to be
performed by General Electric on a time and materials basis. By consolidating its
engine repair work and committing to ten years, Southwest believes it will spend
substantially less over the course of the contract versus what it would have spent
absent this new agreement. (The immediately preceding sentence is a forward-looking
statement which involves uncertainties that could result in actual results differing
materially from expected results; such uncertainties include the number of unscheduled
engine removals, labor rates, and competition in the engine overhaul market.)
Agency commissions per ASM remained unchanged in 1997, when compared to
1996, as the mix of commissionable sales was relatively unchanged.
Aircraft rentals per ASM decreased 4.3 percent in 1997, compared to 1996, primarily
due to a lower percentage of the aircraft fleet being leased.
Depreciation expense per ASM decreased 2.2 percent in 1997, compared to 1996,
due to an increase in the average life of depreciable assets.
Other operating expenses per ASM decreased 4.0 percent in 1997, compared to
1996, primarily due to lower credit card processing costs, insurance rates, passenger
costs, communications costs, and favorable results from numerous other Companywide
cost reduction efforts.