Southwest Airlines 2004 Annual Report Download - page 54

SOUTHWEST AIRLINES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
nated Öights at Chicago's Midway Airport. Sales of the cient to retain 100 percent of its eligible grant following
code share Öights began January 16, 2005, with travel additional audits or reviews, should they occur.
dates beginning February 4, 2005. On April 16, 2003, as a result of the United States
war with Iraq, the Emergency Wartime Supplemental
Upon ATA's emergence from bankruptcy, South-
Appropriations Act (Wartime Act) was signed into
west has committed to convert the debtor-in-possession
law. Among other items, the legislation included a
Ñnancing to a term loan, payable over Ñve years. Addi-
$2.3 billion government grant for airlines. Southwest
tionally, Southwest has committed to invest $30 million
received $271 million as its proportional share of the
in cash into ATA convertible preferred stock, which
grant during second quarter 2003. This amount is
would represent 27.5 percent of the new ATA. The
included in ""Other (gains) losses'' in the accompanying
stock will be nonvoting, and it is the Company's intent
Consolidated Income Statement for 2003. Also as part
to liquidate those shares in an orderly manner over time.
of the Wartime Act, the Company received approxi-
mately $5 million as a reimbursement for the direct cost
3. Federal Grants of reinforcing cockpit doors on all of the Company's
aircraft. The Company accounted for this reimburse-
As a result of the September 11, 2001 terrorist
ment as a reduction of capitalized property and
attacks, President Bush signed into law the Air Trans-
equipment.
portation Safety and System Stabilization Act (Stabili-
zation Act). The Stabilization Act provided for up to 4. Commitments
$5 billion in cash grants to qualifying U.S. airlines and
freight carriers to compensate for direct and incremental The Company's contractual purchase commit-
losses, as deÑned in the Stabilization Act, from Septem- ments primarily consist of scheduled aircraft acquisitions
ber 11, 2001, through December 31, 2001, associated from Boeing. The Company has contractual purchase
with the terrorist attacks. Each airline's total eligible commitments with Boeing for 34 737-700 aircraft
grant was determined based on that airline's percentage deliveries in 2005, 26 scheduled for delivery in 2006, 25
of available seat miles (ASMs) during August 2001 to in 2007, and 6 in 2008. In addition, the Company has
total eligible carriers' ASMs for August 2001, less an options and purchase rights for an additional
amount set aside for eligible carriers for whom the use 259 737-700s that it may acquire during 2006-2012.
of an ASM formula would result in an insuÇcient The Company has the option, which must be exercised
representation of their share of direct and incremental two years prior to the contractual delivery date, to
losses. substitute 737-600s or 737-800s for the 737-700s. As
of December 31, 2004, aggregate funding needed for
In 2001, the Department of Transportation Ñrm commitments is approximately $2.3 billion, subject
(DOT) made a determination of the amount of eligible to adjustments for inÖation, due as follows: $920 million
direct and incremental losses incurred by Southwest, and in 2005, $709 million in 2006, $523 million in 2007,
the Company was allotted 100 percent of its eligible and $105 million in 2008.
grants, totaling $283 million. The Company recognized
$235 million in ""Other gains'' from grants under the In November 2001, in response to decreased de-
Stabilization Act during the second half of 2001 and mand for air travel following the terrorist attacks, the
recognized an additional $48 million as ""Other gains'' Company modiÑed its schedule for future aircraft deliv-
from grants under the Stabilization Act in third quarter eries to defer the acquisition of 19 new 737-700 aircraft
2002 coincident with the receipt of its Ñnal payment. that were either already in production at Boeing or were
Representatives of the DOT or other governmental scheduled to be built through April 2002. The Com-
agencies may perform additional audit and/or review(s) pany accomplished this by entering into a trust arrange-
of the Company's previously submitted Ñnal application, ment with a special purpose entity (the Trust) and
although no reviews had been performed as of Decem- assigned its purchase agreement with Boeing to the
ber 31, 2004. While the Stabilization Act is subject to Trust with respect to the 19 aircraft originally scheduled
signiÑcant interpretation as to what constitutes direct for delivery between September 2001 and April 2002.
and incremental losses, management believes the Com- Southwest subsequently entered into a purchase agree-
pany's eligible direct and incremental losses are suÇ- ment with the Trust to purchase the aircraft at new
36