Southwest Airlines 2014 Annual Report Download - page 77

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The Company’s liquidity could be impacted by this project to the extent there are instances in
which the Company chooses to make payments to contractors prior to receiving initial payment from
Broward County, although the Company currently does not expect this to occur often based on its past
experience with smaller projects conducted at the airport. The project is not expected to have a
significant impact on the Company’s capital resources or financial position. Construction on the project
is not expected to begin until mid to late 2015.
Houston William P. Hobby Airport
The Company has committed to oversee and manage the construction, at Houston William P.
Hobby Airport, of 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 Company and the City of Houston (“City”) entered into an Airport Use and Lease
Agreement (“Lease”) to control the execution of this expansion and the financial terms thereof. 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 via a cash payment for the then-unamortized cost
of the project.
The Company’s liquidity will be impacted by this project from the point of initial funding until
the time at which it receives monthly credits upon completion, and whether or not the City chooses to
buy out the Company’s investment prior to the full amortization of the project. The project is not
expected to have a significant impact on the Company’s capital resources or financial position.
Construction began during third quarter 2013 and is estimated to be completed during the second half
of 2015.
Los Angeles International Airport
In March 2013, the Company executed a lease agreement with Los Angeles World Airports
(“LAWA”), which owns and operates Los Angeles International Airport. Under the lease agreement,
which was amended in June 2014, the Company will oversee and manage the design, development,
financing, construction and commissioning of the airport’s Terminal 1 Modernization Project (the
“Project”) at a cost not to exceed $525 million. The Project will be funded using the Regional Airports
Improvement Corporation (“RAIC”), which is a quasi-governmental special purpose entity that will act
as a conduit borrower under a syndicated credit facility provided by a group of lenders. Loans made
under the credit facility will be used to fund the development of the Project, and the outstanding loans
will be repaid with the proceeds of LAWA’s payments to purchase completed Project phases. The
Company has guaranteed the obligations of the RAIC under the credit facility.
The Company’s liquidity could be impacted by this project under certain circumstances;
however, the Company does not expect this to occur based on its past experience with other projects.
The project is not expected to have a significant impact on the Company’s capital resources or
financial position. Construction on the project began during fourth quarter 2014.
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