Southwest Airlines 2013 Annual Report Download - page 98

overseeing and managing the project, it will be considered the owner of the project for accounting purposes. As such,
in the Consolidated Balance Sheet, the Company is expected to record an increase in Assets constructed for others as
the project is built (with a corresponding cash outflow in Investing activities in the Consolidated Statement of Cash
Flows), and an increase to Construction obligation (with a corresponding cash inflow in Financing activities in the
Consolidated Statement of Cash Flows) as reimbursements are received from Broward County.
The Company entered into a Memorandum of Agreement (“MOA”) with the City of Houston (“City”),
effective June 2012, to expand the existing Houston Hobby airport facility. As provided in the MOA, the
Company and the City have entered into an Airport Use and Lease Agreement (“Lease”) to control the execution
of this expansion and the financial terms thereof. Per the MOA and Lease, this project provides for a new five-
gate international terminal with international passenger processing facilities, expansion of the existing security
checkpoint, and upgrades to the Southwest ticketing counter area. The project is estimated to cost $156 million,
and the Company has agreed to provide the funding for, as well as management over, the project. In return, the
Company will receive a monthly credit for the capital cost portions of the international terminal, from the date of
initial occupancy of the terminal until expiration of the Lease. Additionally, some portion of the project is
expected to qualify for rental credits that would be utilized upon completion of the facility against the
Company’s current lease space at the airport. At any time after the completion of the project, the City may buy
out the Company’s investment in the international terminal for the then-unamortized cost of the project.
Construction began during third quarter 2013 and is estimated to be completed during the second half of 2015.
As a result of its significant involvement in the Houston Hobby project, the Company has evaluated its
ongoing accounting requirements in consideration of accounting guidance provided for lessees involved in asset
construction, and has determined that it qualifies as the accounting owner of the facility during the construction
period. As such, during construction, the Company records expenditures as Assets constructed for others in the
Consolidated Balance Sheet, along with a corresponding outflow within Payments for purchase of property and
equipment, net, in the Consolidated Statement of Cash Flows. The amounts recorded for 2013 were not material.
In March 2013, the Company executed an agreement with Los Angeles World Airports (“LAWA”), which
owns and operates Los Angeles International Airport. Under the agreement, the Company will oversee and
manage the design and construction of the airport’s Terminal 1 Modernization Project at a cost not to exceed
$400 million. The Company and LAWA are currently working on how the project will be funded, which may
include, but is not limited to, the funding being provided by the Company (for which it would be reimbursed
upon completion of different project phases, as defined, or from an external source). Although construction on
the project is not expected to begin until the middle of 2014, the Company believes that due to its agreed upon
role in overseeing and managing the project, it will be considered the owner of the project for accounting
purposes. However, since the source of funding for the project has not yet been decided upon, the final
accounting treatment will be determined at a later date.
During 2008 the City of Dallas approved the Love Field Modernization Program (“LFMP”), a project to
reconstruct Dallas Love Field (“Airport”) with modern, convenient air travel facilities. Pursuant to a Program
Development Agreement with the City of Dallas and the Love Field Airport Modernization Corporation (or
“LFAMC,” a Texas non-profit “local government corporation” established by the City of Dallas to act on the
City of Dallas’ behalf to facilitate the development of the LFMP), the Company is managing this project. Major
construction commenced during 2010. New ticketing and checkin areas opened during fourth quarter 2012, and
11 new gates and new concessions opened in April 2013. Another new gate opened in July 2013, and full
completion of the project is scheduled for second half 2014. The project consists of the complete replacement of
gate facilities with a new 20-gate facility, including infrastructure, systems and equipment, aircraft parking
apron, fueling system, roadways and terminal curbside, baggage handling systems, passenger loading bridges and
support systems, and other supporting infrastructure.
It is currently expected that the total construction costs associated with the LFMP project will be
approximately $519 million. Although the City of Dallas has received commitments from various sources that
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