Southwest Airlines 2003 Annual Report Download - page 27

Firm Orders and Options to Purchase Boeing 737-700 Aircraft
Delivery Year Firm Orders Options Purchase Rights
2004 47* - -
2005 28 6 -
2006 22 12 -
2007 25 9 20
2008 6 25 20
2009-2012 - - 177
Totals 128 52 217
*Includes one leased aircraft to be delivered new from a third party.
Ground Facilities and Services
Southwest leases terminal passenger service facilities at each of the airports it serves, to which it has
added various leasehold improvements. The Company leases land on a long-term basis for its maintenance
centers located at Dallas Love Field, Houston Hobby, Phoenix Sky Harbor, and Chicago Midway, its training
center near Love Field, which houses six 737 simulators, and its corporate headquarters, also located near
Love Field. The maintenance, training center, and corporate headquarters buildings on these sites were built
and are owned by Southwest. At December 31, 2003, the Company operated nine reservation centers. The
reservation centers located in Little Rock, Arkansas; Chicago, Illinois; Albuquerque, New Mexico;
Oklahoma City, Oklahoma; and Salt Lake City, Utah occupy leased space. The Company owns its Dallas,
Texas; Houston, Texas; Phoenix, Arizona; and San Antonio, Texas reservation centers. The Company
recently announced that it intends to close its Dallas, Salt Lake City, and Little Rock reservations centers on
February 28, 2004.
Southwest has entered into a concession agreement with the Town of Islip, New York which gives the
Company the right to construct, furnish, occupy, and maintain a new concourse at the airport. Once all
phases of the project are completed, the concourse could have up to a total of eight gates. Phase I of this
project, which is expected to be ready for operations in mid-2004, includes four gates. Phase II construction,
which includes an additional 4 gates, could, at the Company’s election, begin immediately upon the
completion of Phase I and could be completed in 2005. When all phases of construction are complete, the
entire new concourse will become the property of the Town of Islip. In return for constructing the new
concourse, Southwest will receive fixed-rent abatements for a total of 25 years; however, the Company will
still be required to pay variable rents for common use areas and manage the new concourse.
The Company performs substantially all line maintenance on its aircraft and provides ground support
services at most of the airports it serves. However, the Company has arrangements with certain aircraft
maintenance firms for major component inspections and repairs for its airframes and engines, which
comprise the majority of the annual aircraft maintenance costs.
Item 3. Legal Proceedings
The Company is subject to various legal proceedings and claims arising in the ordinary course of
business, including, but not limited to, examinations by the Internal Revenue Service (IRS). The IRS
regularly examines the Company's federal income tax returns and, in the course of those examinations,
proposes adjustments to the Company's federal income tax liability reported on such returns. It is the
Company's practice to vigorously contest those proposed adjustments that it deems lacking of merit. The
Company's management does not expect that the outcome in any of its currently ongoing legal proceedings
or the outcome of any proposed adjustments presented to date by the IRS, individually or collectively, will
have a material adverse effect on the Company's financial condition, results of operations or cash flows.