Southwest Airlines enters sale/leaseback deal for 36 jets

Southwest Airlines said on Tuesday it had entered into a deal to sell and lease back 36 of its Boeing 737-800 aircraft from Babcock & Brown Aircraft Management, helping the carrier raise cash and ease the pressure on its balance sheet.

A sale and leaseback transaction includes a carrier selling its used or newly acquired jets to leasing firms and renting them back for their own use.

These transactions have traditionally been a method for airlines worldwide to raise quick funds and strengthen their financial positions.

Sale-leaseback deals have become even more popular after the pandemic as demand and prices for jets surge due to a shortage of new aircraft.

According to the deal, Southwest completed the sale and leaseback of 35 aircraft in late December and received proceeds of $871 million and also expects to realize $92 million in gains in the fourth quarter of 2024.

By capitalizing on the surplus value of its existing all-Boeing fleet, Southwest is generating significant cash to fuel fleet modernization and offset capital expenditures, Southwest Chief Financial Officer Tammy Romo said.

The lease terms for the jets will range from 26 to 37 months, during which the airline will have to pay rents on these aircraft.

The cost of ownership is also expected to rise by around $2.6 million per aircraft annually, as rental expenses would surpass previous levels of depreciation expense, Southwest said.

The deal comes as part of Southwest's previously announced plan, which includes partnerships, vacation packages and aircraft sale-leaseback deals, to shore up sagging profits.