Southwest Airlines 2009 Annual Report Download - page 74

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
8. LEASES
The Company had nine aircraft classified as capital leases at December 31, 2009. The amounts applicable to
these aircraft included in property and equipment were:
(In millions) 2009 2008
Flight equipment ....................................... $168 $168
Less accumulated depreciation ............................ 154 144
$14 $24
On April 2, 2009, the Company closed the first tranche of a two tranche sale and leaseback transaction with
a third party aircraft lessor for the sale and leaseback of six of the Company’s Boeing 737-700 aircraft. In the
first tranche, the Company sold three of its Boeing 737-700 aircraft for approximately $105 million and
immediately leased the aircraft back for approximately 12 years. On May 19, 2009, the Company sold an
additional three of its Boeing 737-700 aircraft for approximately the same amount and upon similar terms as in
the first tranche. The proceeds received from the sale of these aircraft approximated the net book value of the
aircraft.
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
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. These two sale
and leaseback transactions resulted in deferred gains of $21 million, which are being amortized over the terms of
the leases.
All of the leases from these sale-leasebacks 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 LIBO 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.
66