Southwest Airlines 2008 Annual Report Download - page 76

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Leases
The Company had nine aircraft classified as capital leases at December 31, 2008. The amounts applicable to
these aircraft included in property and equipment were:
2008 2007
(In millions)
Flight equipment ....................................................... $168 $168
Less accumulated depreciation ............................................ 144 133
$24 $35
On December 23, 2008, the Company entered
into a two tranche sale and leaseback transaction with
a third party aircraft lessor for the sale and leaseback
of ten of the Company’s Boeing 737-700 aircraft.
Under the first tranche of the transaction, which
closed on December 23, 2008, the Company sold five
of its Boeing 737-700 aircraft for a total of
approximately $173 million and immediately leased
the aircraft back for twelve years. The leases are
accounted for as operating leases. Under the terms of
the lease agreements, the Company will continue to
operate and maintain the aircraft. Payments under the
lease agreements will be reset every six months based
on changes in the six-month LIBOR rate. The lease
agreements contain standard termination events,
including termination upon a breach of the
Company’s obligations to make rental payments and
upon any other material breach of the Company’s
obligations under the leases, and standard
maintenance and return condition provisions. Upon a
termination of the lease upon a breach by the
Company, the Company would be liable for standard
contractual damages, possibly including damages
suffered by the lessor in connection with remarketing
the aircraft or while the aircraft is not leased to
another party. The first tranche of the sale and
leasebacks resulted in a deferred gain of $11 million,
which will be amortized over the twelve-year term of
the leases. The Company closed the second tranche
of the transaction, providing for the sale and 16-year
leaseback of the remaining five Boeing 737-700
aircraft upon similar terms (including proceeds), in
January 2009.
Total rental expense for operating leases, both aircraft and other, charged to operations in 2008, 2007, and
2006 was $527 million, $469 million, and $433 million, respectively. The majority of the Company’s terminal
operations space, as well as 82 aircraft, were under operating leases at December 31, 2008. Future minimum
lease payments under capital leases and noncancelable operating leases with initial or remaining terms in excess
of one year at December 31, 2008, were:
Capital leases Operating leases
(In millions)
2009 .................................................... $16 $ 376
2010 .................................................... 15 324
2011 .................................................... 12 249
2012 .................................................... — 203
2013 .................................................... — 152
After 2013 ............................................... — 728
Total minimum lease payments ............................... 43 $2,032
Less amount representing interest ............................. 4
Present value of minimum lease payments ...................... 39
Less current portion ........................................ 14
Long-term portion ......................................... $25
57