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SUBSEQUENT EVENTS
3 Months Ended
Jun. 30, 2012
Notes to Financial Statements [Abstract]  
LEASES [Text Block]

8. SUBSEQUENT EVENTS

 

On July 9, 2012, the Company announced that it had signed an agreement with Delta Air Lines, Inc. (“Delta”) and Boeing Capital Corp. to lease or sublease all 88 of AirTran's Boeing 717-200 aircraft (“B717s”) to Delta, with the first delivery expected to occur in August 2013, at a rate of approximately three B717s per month. A total of 78 of the B717s are on operating lease, eight are owned, and two are currently classified as capital leases. Since the eight owned B717s and two of the B717s on operating lease are pledged as collateral for the obligations related to enhanced equipment trust certificates (EETCs) held by the Company, the leases and subleases related to these aircraft are subject to noteholder approval. The Company has reported that the B717s add complexity to the Company's operations, as Southwest Airlines has historically operated an all-Boeing 737 fleet. From a fleet management perspective, the transition of the B717s to Delta at the rate of approximately three B717s per month beginning in August 2013 allows the Company to minimize the impact of this transaction on operations. This is because the B717 capacity lost will be replaced through the capacity gained as a result of the Company's modification of the retirement dates for a portion of its 737-300 and 737-500 aircraft, and its receipt of new 737 deliveries from Boeing.

 

The Company will lease and/or sublease all 88 of the B717s to Delta at agreed-upon lease rates. In addition, the Company will pay the majority of the costs to convert the aircraft to the Delta livery and to perform certain maintenance checks prior to the delivery of each aircraft. The agreement to pay these conversion and maintenance costs is a “lease incentive” under applicable accounting guidance. The sublease terms for the 78 B717s currently on operating lease and the two B717s currently classified as capital leases coincide exactly with the Company's remaining lease terms for these aircraft from the original lessor, which range from approximately six years to approximately twelve years. The lease terms for the eight B717s that are owned by the Company are for a period of seven years, after which Delta will have an option to purchase the aircraft at the then-prevailing market value. The Company will account for each of the lease and sublease transactions with Delta as operating leases, except for the two aircraft classified by the Company as capital leases. The sublease of these aircraft will be accounted for as direct financing leases. There are no contingent payments and no significant residual value conditions associated with the transaction.

 

This transaction will be accounted for based on the guidance provided for lease transactions. As such, once all components to this transaction are finalized and the lease inception has occurred, which the Company currently anticipates will be during third quarter 2012, the Company expects to record a charge of approximately $140 million, which represents the remaining estimated cost of the lease of the 78 B717s that are currently accounted for as operating leases, and including the conversion, maintenance, and other contractual costs to be incurred, net of the future sublease income associated with these aircraft. The majority of the Acquisition and integration costs in the Company's unaudited Condensed Consolidated Statement of Comprehensive Income, and the corresponding liability for this transaction will be included as a component of Other noncurrent liabilities in the Company's unaudited Condensed Consolidated Balance Sheet. See Note 2 for further information on the Company's Acquisition and integration costs. The Company may also incur other costs associated with this transaction, such as contract termination costs with certain aircraft maintenance vendors. Any such charges would be recorded at the time of contract termination.