Southwest Airlines 2011 Annual Report Download - page 101

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The net book value of the assets pledged as collateral for the Company’s secured borrowings, primarily
aircraft and engines, was $2.6 billion at December 31, 2011. In addition, the Company has pledged a total of up
to 49 of its Boeing 737-700 aircraft as collateral in the case that it has obligations related to its fuel derivative
instruments with counterparties that exceed certain thresholds. See Note 10 for further information on these
collateral arrangements.
As of December 31, 2011, aggregate annual principal maturities of debt and capital leases (not including
amounts associated with interest rate swap agreements, interest on capital leases, and amortization of purchase
accounting adjustments) for the five-year period ending December 31, 2016 and thereafter, were $627 million in
2012, $188 million in 2013, $537 million in 2014, $207 million in 2015, $550 million in 2016, and $1.5 billion
thereafter.
8. Leases
The Company (including AirTran) had seven aircraft classified as capital leases at December 31, 2011,
compared to five aircraft classified as capital leases at December 31, 2010. Amounts applicable to these aircraft
that are included in property and equipment were:
(in millions) 2011 2010
Flight equipment ......................................... $177 $132
Less: accumulated amortization ............................. 132 125
$45$7
During 2009, the Company entered into sale and leaseback transactions with a third party aircraft lessor for
the sale and leaseback of a total of 11 of the Company’s Boeing 737-700 aircraft, resulting in proceeds received
of $381 million. These transactions resulted in net deferred gains of approximately $9 million, which are being
amortized over the terms of the respective leases, which range from 12 to 16 years. All of the leases from these
sale and leaseback transactions 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 due to 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.
95