Southwest execs tout financial stability in face of COVID-19

Southwest Airlines expects to receive $326 million in its final installment of payroll support under the US government’s CARES Act this week.

The carrier previously received three of four installments totaling $2.9 billion and has also reached voluntary early leave agreements with 17,000 employees. It expects the federal support and the voluntary separations will enable it to avoid any additional staff cuts through the end of 2020.

“We were very well prepared for this,” chairman and CEO Gary Kelly told analysts on a recent conference call. “We're prepared for a prolonged war against this pandemic. Our people have literally done all they have been asked and I could not be more proud. And I have never seen anything like this in my life. But after these many months of battle, I am more confident than ever that we will not just survive, but we will thrive.”

Kelly said Southwest has $15.5 billion in liquidity, which should enable it to get through the COVID-19 crisis. The airline ended the second quarter with 737 Boeing 737 aircraft in its fleet.

If necessary, Southwest has also signed a letter of intent with the US Treasury Department for an additional $2.8 billion loan as part of the CARES Act. “We are not committed to taking this loan, and we haven't decided that we will take the loan yet,” CFO Tammy Romo said. “Signing the letter of intent was just part of the process to keep this loan as a backstop, should we determine we need it down the road.”

Kelly added: “The terms of the government loan are pretty onerous, including a significant file of warrants. So yeah, I think we would much rather avoid those. And I think what's near and dear to shareholders' hearts—it puts restrictions on dividends, which I object to, and share repurchases. I object to that as well.”

Kelly emphasized that Southwest is not “buying back shares now … But obviously, we'd like to have that flexibility in the future.”

The CEO said Southwest’s cash balance appears “to be more than enough to see us through,” adding: “We've got a pristine balance sheet, still low overall interest carrying. So that's all good.”

Photo credit: Joe Pries

Aaron Karp

Aaron Karp is a Contributing Editor to the Aviation Week Network.