As discussed in Note 2, in connection with the acquisition of AirTran, the Company became the holder of $1.1 billion of debt previously issued by AirTran Holdings. Subsequent to the acquisition date, holders of all of the approximately $70 million (par value) in 5.5% convertible notes due 2015 converted such securities receiving $73 million in cash and 6.2 million shares of Southwest Airlines common stock. All of the approximately $5 million (par value) of 7.0% convertible notes due 2023 were called by Southwest and fully repaid with cash. In addition, the Company terminated AirTran's $100 million combined revolving credit and letter of credit facility. As of September 30, 2011, the following debt remained outstanding (in millions):

(In millions)		September 30, 2011
B737 Aircraft Purchase Financing Facilities:

Floating-rate aircraft notes payable through 2020, 1.91 percent
weighted-average interest rate as of September 30, 2011	$	616
Fixed-rate aircraft notes payable through 2018, 7.02 percent
weighted-average interest rate as of September 30, 2011		43

Fixed-rate B717 aircraft notes payable through 2017, 10.43 percent
weighted-average interest rate as of September 30, 2011		78
5.25% convertible senior notes due 2016		119
Total long-term debt		856
Less current maturities of long-term debt		(75)
Long-term debt less current maturities	$	781

As discussed further in Note 5, a portion of the above floating-rate debt has been effectively converted to a fixed rate via interest rate swap agreements which expire between 2016 and 2020.

As of September 30, 2011, aggregate principal maturities of AirTran debt and capital leases (not including amounts associated with interest rate swap agreements and interest on capital leases) were $24 million for the remainder of 2011, $66 million in 2012, $77 million in 2013, $76 million in 2014, $90 million in 2015, $193 million in 2016, and $320 million thereafter.

At September 30, 2011, the net book value of the assets pledged as collateral for the AirTran B737 and B717 aircraft notes payable, primarily aircraft and engines, was $922 million.

For purposes of financing the future acquisition of B737 aircraft from Boeing, AirTran has previously entered into aircraft purchase financing facilities. As of September 30, 2011, a total of 30 aircraft were financed under these debt facilities.

As of September 30, 2011, 27 B737 aircraft were financed under floating-rate facilities. Each note is secured by a first mortgage on the aircraft to which it relates. The notes bear interest at a floating rate per annum equal to a margin plus the three or six-month LIBOR in effect at the commencement of each semi-annual or three-month period, as applicable. Payments of principal and interest under the notes are payable semi-annually or every three months as applicable. As of September 30, 2011, the remaining debt outstanding may be prepaid without penalty under all aircraft loans provided under such facilities with the exception of two aircraft loans. Under the aircraft loans for such two aircraft, the right to prepay without penalty commences on the second anniversary, March 2012, or third anniversary, January 2013, of the date such loans were made. The notes mature in years 2016 to 2020.

As of September 30, 2011, three B737 aircraft were financed under a fixed-rate facility. Each note is secured by a first mortgage on the aircraft to which it relates. Payments of principal and interest under the notes are payable semi-annually. The remaining debt outstanding may be prepaid without penalty. The notes mature in years 2016 to 2018.

As of September 30, 2011, eight B717 aircraft were pledged as collateral for the obligations related to enhanced equipment trust certificates (EETCs). Principal and interest payments on the EETCs are due semi-annually through April 2017.

In October 2009, AirTran completed a public offering of $115 million of convertible senior notes due in 2016. The net proceeds from the offering were used for general corporate purposes. Such notes bear interest at 5.25 % payable semi-annually, in arrears, on May 1 and November 1. As a result of the acquisition, the 5.25% convertible senior notes are convertible into AirTran conversion units of 164.136 per $1,000 in principal amount of such notes. This is equal to shares of Southwest Airlines common stock at a conversion rate of 52.6877 shares and $615.17 in cash per $1,000 in principal amount of such notes. This conversion rate is subject to adjustment under certain circumstances such as: granting of stock and cash dividends, a make-whole fundamental change of ownership provision, the issuance of rights or warrants, and/or a distribution of capital stock. Subsequent to the acquisition, holders of $5 million in principal amount elected to convert their notes. Remaining holders may convert their 5.25% convertible senior notes into shares of common stock at their option at any time. The 5.25% convertible senior notes are not redeemable at the Company's option prior to maturity. The holders of the 5.25% convertible senior notes may require the Company to repurchase such notes, in whole or in part, for cash upon the occurrence of a fundamental change, as defined in the governing supplemental indenture, at a repurchase price of 100 percent of the principal amount plus any accrued and unpaid interest.

As a result of triggering the fundamental change of ownership provision in the 5.25% convertible senior notes and as a result of the acquisition, an embedded conversion option is deemed to exist. In accordance with applicable accounting guidance, the embedded conversion option is required to be separated and accounted for as a free-standing derivative. A fair value calculation, utilizing similar market yields and the Southwest Airlines common stock price, was performed for the debt with and without the equity to measure the equity component. The value allocated to the conversion option of $35 million is classified as permanent equity. The estimated premium associated with the notes excluding the equity feature was $10 million, and is being amortized to interest expense over the remaining life of the notes.

The dilutive effect of the shares that would be issued if the convertible notes were converted is included in the Company's dilutive net income per share calculation, unless such conversion would be considered antidilutive. See Note 4.