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Southwest Sells Aircraft, Adjusts Fuel Hedges  
User currently offlineTugger From United States of America, joined Apr 2006, 5428 posts, RR: 8
Posted (5 years 7 months 1 week 3 days 14 hours ago) and read 11622 times:

Fair use:

Quote:
Discount carrier Southwest Airlines Co. sold five aircraft for $175 million and agreed to lease the planes back from the buyer for 12 years.

The Dallas-based airline also modified its fuel hedge portfolio to limit its exposure from falling oil prices.

The disclosures were made in a Securities and Exchange Commission filing late Tuesday.

http://www.businessweek.com/ap/financialnews/D95944QG0.htm

I can imagine that the fuel costs are getting to be a bit of an issue but investments are meant to be managed and it allows them to have some predictability on their fuel costs. On the leaseback, I thought that Southwest owns all its planes. Is this a first or does WN have this arrangement with other aircraft as well?

Tugg


I don’t know that I am unafraid to be myself, but it is hard to be somebody else. -W. Shatner
31 replies: All unread, showing first 25:
 
User currently offlineCAL764 From United States of America, joined May 2008, 376 posts, RR: 0
Reply 1, posted (5 years 7 months 1 week 3 days 14 hours ago) and read 11621 times:

Well, at least their staying tactical...Fuel hedging is a game of Russian Roulette.


1. Fly to Win 2. Fund Future 3. Reliability 4. Work Together CO: Work Hard, Fly Right...
User currently offlineUnited1 From United States of America, joined Oct 2003, 5930 posts, RR: 9
Reply 2, posted (5 years 7 months 1 week 3 days 14 hours ago) and read 11542 times:



Quoting Tugger (Thread starter):
I thought that Southwest owns all its planes. Is this a first or does WN have this arrangement with other aircraft as well?

I'm sure this number is different now but their 2007 annual report states that they lease 95 aircraft and own 425.

I'm sure they are doing what all the other airlines are doing raising some cash to offset fuel hedging losses as well as try to get out from some of the hedges. The last bit of info I got on WNs hedges for next year was that they are 75% hedged at $73 a barrel...oil is trading for $37.38 a barrel right now.



Semper Fi - PowerPoint makes us stupid.
User currently offlineWedgetail737 From United States of America, joined Aug 2003, 5891 posts, RR: 6
Reply 3, posted (5 years 7 months 1 week 3 days 14 hours ago) and read 11519 times:
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Selling airplanes then leasing them back is good financially strategic move to raise additional cash. What airplanes did they sell?

User currently offlineScxmechanic From United States of America, joined Dec 1999, 534 posts, RR: 1
Reply 4, posted (5 years 7 months 1 week 3 days 13 hours ago) and read 11035 times:



Quoting Wedgetail737 (Reply 3):
What airplanes did they sell?

Most likely the five or so that have been on Speednews.com N78somethings if I recall...


User currently offlineRafflesKing From Singapore, joined Mar 2007, 314 posts, RR: 0
Reply 5, posted (5 years 7 months 1 week 3 days 8 hours ago) and read 9265 times:

Interesting.

Sale/leasebacks are not only a good way to raise cash, but generally also intended as exit strategies from assets.

As such, it would make sense to do this with the -300s since 12 years from now they'd be pretty far down their life cycle, but at $35m a plane, I'd assume it's the -700s too like United1 deduces.


User currently offlineMrSkyGuy From United States of America, joined Aug 2008, 1214 posts, RR: 3
Reply 6, posted (5 years 7 months 1 week 3 days 7 hours ago) and read 8983 times:

This is all very interesting to see. Naturally Im sure there's plenty of folks out there who will rant and rave about SWA's youth relative to the rest of the industry but I staunchly disagree.

An airline such as Independence Air or Air Florida is a new airline--airlines that improperly outfitted themselves and/or were unable to effectively compete in the long term. The market in which all airlines play effectively was given a blank slate in and around the deregulation of the late 70s and early 80s, and SWA was most definitely an active airline at that time fighting both old and new carriers.

SWA flies aircraft that cost a tremendous amount of money to operate (like all airlines) and is fighting in what I believe could best be called a new era. I'd say SWA is doing quite well, all things considered. And as Mel Brooks (trivia alert) said in a very funny movie, "nobody ever expects a Spanish inquisition."



"The strength of the turbulence is directly proportional to the temperature of your coffee." -- Gunter's 2nd Law of Air
User currently offlineJetjeanes From United States of America, joined Oct 2004, 1430 posts, RR: 1
Reply 7, posted (5 years 7 months 1 week 3 days 7 hours ago) and read 8610 times:

Southwest may be haveing a cash problem. Selling 5 planes leaseing them back and then spending 40 million bucks to upgrade cockpits hmmm,,
.
They have a differnt type of clients who right now are finacially strapped. This may hurt an lcc
with the no frills and cattle car atmosphere i dont get on Delta or American.



i can see for 80 miles
User currently offlineDTWAGENT From United States of America, joined Jan 2006, 1283 posts, RR: 0
Reply 8, posted (5 years 7 months 1 week 3 days 6 hours ago) and read 8140 times:

I wonder if WN is having cash problems? No I don't mean going out of business type issues. Has anyone heard anything about that?

User currently offlineFlyglobal From Germany, joined Mar 2008, 573 posts, RR: 3
Reply 9, posted (5 years 7 months 1 week 3 days 5 hours ago) and read 8028 times:



Quoting RafflesKing (Reply 5):
Interesting.

Sale/leasebacks are not only a good way to raise cash, but generally also intended as exit strategies from assets.

Simple farmers math will show that over long time it is not good to sell your assets and then go to lease them. The leasing company profit margin would be yours otherwise, so you have to gain more operative. So it is not good!

Doing this I can only share others opinion that SW needs cash and can't get it at acceptable interests.

regards

Flygobal


User currently offlineAlessandro From , joined Dec 1969, posts, RR:
Reply 10, posted (5 years 7 months 1 week 3 days 5 hours ago) and read 7990 times:

Flyglobal, yes, it seem more like a desperate move to raise cash if they still need the aircrafts.
"to limit its exposure for falling fuelprices", well, falling fuelprices isn´t as bad as raising ones....


User currently offlineSPREE34 From United States of America, joined Jun 2004, 2241 posts, RR: 9
Reply 11, posted (5 years 7 months 1 week 3 days 4 hours ago) and read 7575 times:



Quoting Jetjeanes (Reply 7):
They have a differnt type of clients who right now are finacially strapped. This may hurt an lcc
with the no frills and cattle car atmosphere i dont get on Delta or American.

Unless you are in Business/First, Southwest has a far superior product to DL or AA.



I don't understand everything I don't know about this.
User currently offlineMrSkyGuy From United States of America, joined Aug 2008, 1214 posts, RR: 3
Reply 12, posted (5 years 7 months 1 week 3 days 2 hours ago) and read 6803 times:

This thread is cracking me up..

Quoting Jetjeanes (Reply 7):
They have a differnt type of clients who right now are finacially strapped. This may hurt an lcc
with the no frills and cattle car atmosphere i dont get on Delta or American.

What a joke.. I fly religiously for business to the tune of at least once a week. I have never felt more like I was on a "cattle car" than when I flew American Airlines flights. Delta had a good thing going, but sadly the prices don't always compare to Southwest and I suspect that's going to be more of the same with the NWA absorption. So before you pull out your "LCC hatchet" be sure to remember that SWA doesn't make any bones about being a "no frills" airline--these days, no frills is par for the course. If you are going to play favorites, just say so.. but don't try to hide behind ambiguous half-hearted cliche statements.

Quoting Flyglobal (Reply 9):
Simple farmers math will show that over long time it is not good to sell your assets and then go to lease them. The leasing company profit margin would be yours otherwise, so you have to gain more operative. So it is not good!

Doing this I can only share others opinion that SW needs cash and can't get it at acceptable interests.

You couldn't be more wrong, Flyglobal. Right now interest rates are at an all-time low. This wasn't likely an all cash deal. I'm sure those aircraft came encumbered, so SWA likely paid the balance to the title holders and used the additional cash to raise money. EVERYONE is doing this.. American, Continental, US Airways, Frontier, everyone. Right now the answer to reduced numbers is simply reducing capacity. Taking under-utilized assets and converting them into cash now is most definitely a responsible strategy and hardly the "grim reaper's" perspective you are giving it. Bone up on your finance before you post something like that with such affinity.

Quoting Alessandro (Reply 10):
Flyglobal, yes, it seem more like a desperate move to raise cash if they still need the aircrafts.
"to limit its exposure for falling fuelprices", well, falling fuelprices isn´t as bad as raising ones....

Desperation is selling 30 planes. Raising cash is selling a few. All businesses sell underutilized (surplus) assets for cash.. especially when they have the most value (new).

Quoting SPREE34 (Reply 12):
Unless you are in Business/First, Southwest has a far superior product to DL or AA.

Smartest thing I read in this thread, seconded to Wowpeter's contribution.



"The strength of the turbulence is directly proportional to the temperature of your coffee." -- Gunter's 2nd Law of Air
User currently offlineDLflynhayn From United States of America, joined Apr 2008, 420 posts, RR: 1
Reply 13, posted (5 years 7 months 1 week 3 days ago) and read 6268 times:



Quoting Wowpeter (Reply 11):
less service then Southwest...

No way you get service on SWA?


User currently offlineMaverick623 From United States of America, joined Nov 2006, 5570 posts, RR: 6
Reply 14, posted (5 years 7 months 1 week 2 days 23 hours ago) and read 6144 times:



Quoting DLflynhayn (Reply 14):
No way you get service on SWA?

Not sure if that's supposed to be tongue-in-cheek, but only FL has given me better service than WN... and that's probably because I actually paid full price for my AirTran ticket.



"PHX is Phoenix, PDX is the other city" -777Way
User currently offlineScottB From United States of America, joined Jul 2000, 6713 posts, RR: 32
Reply 15, posted (5 years 7 months 1 week 2 days 23 hours ago) and read 6084 times:



Quoting MrSkyGuy (Reply 13):
I'm sure those aircraft came encumbered, so SWA likely paid the balance to the title holders and used the additional cash to raise money.

For the most part, SWA's owned aircraft are unencumbered. In this case, I do suspect it was done simply to raise cash.

Quoting Flyglobal (Reply 9):
Simple farmers math will show that over long time it is not good to sell your assets and then go to lease them. The leasing company profit margin would be yours otherwise, so you have to gain more operative. So it is not good!

Doing this I can only share others opinion that SW needs cash and can't get it at acceptable interests.

Simple farmer's math doesn't take into account favorable tax treatment given to lease payments. The implied interest rate underlying the leases may be lower than the rate they'd have to pay to borrow cash.


User currently offlineMymorningsong From United States of America, joined Sep 2005, 98 posts, RR: 0
Reply 16, posted (5 years 7 months 1 week 2 days 22 hours ago) and read 5845 times:

Most aircraft are financed anyways, including most new WN 737's I believe. Could be a bunch of reasons why they decided to do this, none of which are necessarily WN specific...falling interest rates, reduced access to capital, etc. Since it's only effecting 1% of its fleet, tough to make any judgement off this decision. Maybe we'll see more of this as they plan on the 737 successor coming into the fleet at a certain date.

User currently offlineFlybyguy From United States of America, joined Jun 2004, 1801 posts, RR: 1
Reply 17, posted (5 years 7 months 1 week 2 days 21 hours ago) and read 5741 times:

I wonder if Southwest and other airlines are buying fuel hedges like mad now... despite taking deep loses when doing so when oil was at its peak? I figure oil may fall a little more but may end up being right back where it was in a year or two.

[Edited 2008-12-25 01:03:21]


"Are you a pretender... or a thoroughbred?!" - Professor Matt Miller
User currently offlineFlyglobal From Germany, joined Mar 2008, 573 posts, RR: 3
Reply 18, posted (5 years 7 months 1 week 2 days 21 hours ago) and read 5708 times:



Quoting ScottB (Reply 16):
For the most part, SWA's owned aircraft are unencumbered. In this case, I do suspect it was done simply to raise cash.

Quoting Flyglobal (Reply 9):
Simple farmers math will show that over long time it is not good to sell your assets and then go to lease them. The leasing company profit margin would be yours otherwise, so you have to gain more operative. So it is not good!

Doing this I can only share others opinion that SW needs cash and can't get it at acceptable interests.

Simple farmer's math doesn't take into account favorable tax treatment given to lease payments. The implied interest rate underlying the leases may be lower than the rate they'd have to pay to borrow cash.

Your have a point and I agree with this.

Quoting MrSkyGuy (Reply 13):
Quoting Flyglobal (Reply 9):
Simple farmers math will show that over long time it is not good to sell your assets and then go to lease them. The leasing company profit margin would be yours otherwise, so you have to gain more operative. So it is not good!

Doing this I can only share others opinion that SW needs cash and can't get it at acceptable interests.

You couldn't be more wrong, Flyglobal. Right now interest rates are at an all-time low. This wasn't likely an all cash deal. I'm sure those aircraft came encumbered, so SWA likely paid the balance to the title holders and used the additional cash to raise money. EVERYONE is doing this.. American, Continental, US Airways, Frontier, everyone. Right now the answer to reduced numbers is simply reducing capacity. Taking under-utilized assets and converting them into cash now is most definitely a responsible strategy and hardly the "grim reaper's" perspective you are giving it. Bone up on your finance before you post something like that with such affinity.

If it wasn't likely an all cash deal we may miss something. Ok.

However I can not follow your second part regarding capacity. If you want to reduce capacity, why not sell the planes and get the money. No need to lease back then.
Leased back, the planes would still be underutilized. This doesn't help any, just some differently tweaked numbers in some cost breakdowns over some time. If all airlines do this, this doesn't necessarily mean its right, but I remember others are more reducing capacity by cutting flights and ground planes, rather then sell, lease back and keep them in the air.

regards

Flyglobal


User currently offlineSwatpamike From United States of America, joined May 2004, 581 posts, RR: 0
Reply 19, posted (5 years 7 months 1 week 2 days 16 hours ago) and read 4967 times:

Hello All

Maybe raising cash to buy someone?

Cheers

swatpamike


User currently offlineJetJeanes From United States of America, joined Oct 2004, 1430 posts, RR: 1
Reply 20, posted (5 years 7 months 1 week 2 days 11 hours ago) and read 4256 times:

Wn stock has been takeing a beating and is not the darling of wallstreet any longer neither is jet blue. Wn stock is under 10.00 , it was like 7.75 the other day. I always have to fly first class due to my heighth and surprisingly Airtrans has been very good especially on cross country flights.I like the xm radio much more than some silly movie like willie wonka


i can see for 80 miles
User currently offlineGothamSpotter From United States of America, joined Jan 2005, 586 posts, RR: 0
Reply 21, posted (5 years 7 months 1 week 2 days 10 hours ago) and read 4124 times:

OMG SOUTHWEST IS GOING OUT OF BIDNIZZ!

People need to relax. This is just a sign of the times. Credit is still frozen despite the President's claim that it is "thawing." Even behemoths like GE are paying 10% or more to borrow cash.

Based on the first 6 months of lease payments totaling $7.8 million, total payments would add up to $187,200,000. If this were a traditional loan, that would be about 8% interest.

But wait: the payments are reassessed every six months. It's reasonable to expect that as credit becomes cheaper and these planes get older, the payments will decrease. Southwest's total cost for this cash infusion might end up being only a few percent of the sale price.

Seems like a good business move to me. Hardly a "desperate" move as many of you are claiming.


User currently offlineMrSkyGuy From United States of America, joined Aug 2008, 1214 posts, RR: 3
Reply 22, posted (5 years 7 months 1 week 2 days 9 hours ago) and read 4013 times:

Agreed, well said Gotham.


"The strength of the turbulence is directly proportional to the temperature of your coffee." -- Gunter's 2nd Law of Air
User currently offlineMaverick623 From United States of America, joined Nov 2006, 5570 posts, RR: 6
Reply 23, posted (5 years 7 months 1 week 2 days 4 hours ago) and read 3748 times:



Quoting JetJeanes (Reply 20):
Wn stock has been takeing a beating

Pray tell, what stock hasn't taken a beating?



"PHX is Phoenix, PDX is the other city" -777Way
User currently offlineSXDFC From United States of America, joined Dec 2007, 2298 posts, RR: 19
Reply 24, posted (5 years 7 months 1 week 2 days 3 hours ago) and read 3695 times:

Does anyone know the tail numbers that are supposedly being sold off?


ALL views, opinions expressed are mine ONLY and are NOT representative of those shared by Southwest Airlines Co.
25 FFlyer : Unless you are in Business/First, Southwest has a far superior product to DL or AA Ok, I have never flown Southwest. They don't fly to NYC airports, b
26 Robsawatsky : Fuel hedging is not Russian Roulette, if done for strategic reasons as a user of the item being hedged. If done as a stand-alone business attempting
27 MrSkyGuy : WN operates to Long Island airport, as well as Albany and Philadelphia (Philly is only an hour and change drive to Jersey/NYC). YES * Does SW offer t
28 FFlyer : Thanks MrSkyGuy. Somebody above just mentioned that the SW product is better than AA or DL product. "Product" is the whole thing from the reservation
29 Wwtraveler99 : So are you saying that BoB is a benefit? Is it really that hard to buy something in the terminal and take it on board. In that regard WN does have Bo
30 Post contains images Atrude777 : Are you really in a position to judge something you have never personally tried then? They will commence service to NYC in June via LGA. So disregard
31 Silver1SWA : SAN - BWI still exists, so yes WN does offer (a) Transcon flight. There used to be quite a few transcons but most have been discontinued.
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