This article is published in Aviation Daily part of Aviation Week Intelligence Network (AWIN), and is complimentary through Jan 15, 2025. For information on becoming an AWIN Member to access more content like this, click here.
Executing on a fleet strategy announced during its recent investor day, Southwest Airlines has entered into a sale-leaseback transaction for 36 Boeing 737-800s.
The transaction with Babcock & Brown Aircraft Management (BBAM) was announced Jan. 7, with lease terms ranging from 26-37 months. The aircraft will be owned and leased to Southwest by BBAM aviation investment fund Incline Aviation III.
“By opportunistically monetizing surplus value from a portion of our existing all-Boeing 737 fleet, Southwest is generating significant cash to drive fleet modernization and offset capital expenditures in support of our capital allocation strategy,” Southwest CFO Tammy Romo said.
Transactions are complete for 35 of 36 aircraft, with the final arrangement expected to occur later in January. For the sale-leaseback of the 35 aircraft, Southwest received gross proceeds of $871 million and expects to record realized gains of $92 million within other operating expenses. As a result, the carrier anticipates a reduction of its cost per available seat mile (CASM) for the fourth quarter (Q4) and full year 2024. The airline had previously projected Q4 CASM-X to increase 11-13% year-over-year, pressured by costs and a 4% reduction in year-over-year capacity. Southwest will report its Q4 and full-year earnings on Jan. 30.
The new transaction will increase ownership costs, the carrier notes in a filing, “by approximately $2.6 million per aircraft, annually, as aircraft rental expense will exceed previous depreciation expense levels.”
Part of the carrier’s three-year plan for transformation detailed to investors in September 2024 included unlocking value from the existing fleet and orderbook by pursuing direct sales and sale-leasebacks. Proceeds are expected to help fund a future fleet modernization, as it aims to operate an all-MAX fleet by 2031.
“Our plan supports a complete fleet renewal to an all -7 and -8 fleet by the end of 2031 with an average age of five years,” Romo said in September.
Southwest operates an in-service fleet of 768 737s including 192 -800s and 335 -700s, according to the Aviation Week Network Fleet Discovery database. The airline has 241 737-8s in service, Fleet Discovery shows, with 201 remaining on order, in addition to orders for 303 of the yet-to-be-certified MAX 7 variant.
Related Content
