Southwest Airlines 2008 Annual Report Download - page 51

The following table aggregates the Company’s material expected contractual obligations and commitments
as of December 31, 2008:
Obligations by period (in millions)
Contractual obligations 2009
2010 -
2011
2012 -
2013
Beyond
2013 Total
Long-term debt (1) ........................ $ 58 $1,028 $ 523 $1,879 $ 3,488
Interest commitments (2) ................... 188 376 271 668 1,503
Capital lease commitments (3) ............... 16 27 — — 43
Operating lease commitments ............... 376 573 355 728 2,032
Aircraft purchase commitments (4) ........... 393 937 1,135 769 3,234
Other purchase commitments ................ 50 117 52 — 219
Total contractual obligations ............ $1,081 $3,058 $2,336 $4,044 $10,519
(1) Includes current maturities, but excludes amounts associated with interest rate swap agreements
(2) Related to fixed-rate debt
(3) Includes amounts classified as interest
(4) Firm orders from Boeing
In addition to the above contractual fixed obligations, the Company also had estimated obligations at
December 31, 2008, related to its fuel derivative positions for the years 2009 through 2013 (based on the
contractual settlement date of those derivative instruments). Although the fair value of these positions can
fluctuate significantly based on forward market prices for crude oil, heating oil, and unleaded gasoline, the
following table displays these estimated obligations as of December 31, 2008 (in millions):
2009 2010 2011 2012 2013 Total
Fuel derivative obligations ................... $246 $239 $236 $146 $125 $992
Available to the Company at December 31,
2008, was cash on hand and short-term investments
totaling $1.8 billion, present and future internally
generated funds, and $200 million remaining under
its $600 million bank revolving line of credit. The
Company’s October 2008 $400 million borrowing
under its revolving credit facility is being used for
general corporate purposes and was done in order to
enhance the Company’s liquidity as a result of the
current instability of the credit market. Unless
extended or renewed, the revolving credit facility
expires and would require full repayment by August
2010. Subsequent to December 31, 2008, the
Company executed the second tranche of a sale and
leaseback transaction generating approximately
$173 million in cash for the Company. In addition,
the Company will also consider various borrowing or
leasing options to maximize earnings and supplement
cash requirements. Notwithstanding current
economic conditions and the current liquidity
environment, the Company believes it has access to
financing arrangements because of its current
investment grade credit ratings, unencumbered
assets, modest leverage, and consistent profitability,
which should enable it to meet its 2009 capital and
operating requirements. However, given the current
environment, interest rates on borrowing are
significantly higher than levels experienced in recent
history. As of December 31, 2008, the book value of
the Company’s unencumbered aircraft totaled
approximately $7.5 billion.
Standard & Poor’s and Fitch both recently
downgraded the Company’s credit rating from “A-”
to “BBB+” based on the volatility of fuel prices,
current economic conditions, and a more negative
assessment of the long-term fundamentals of the U.S.
airline industry. While the Company’s credit rating
remains “investment grade,” as defined, the lower
rating will likely result in a slight increase in its
borrowing costs on a prospective basis. Moody’s has
also recently reaffirmed the Company’s “Baa1”
rating, which is also considered “investment grade.”
In 2006 and 2007, the Company’s Board of
Directors authorized five separate programs for the
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