Southwest Airlines to Sell and Lease-back 20 Boeing 737s

By Ankur Deo | May 10, 2020

The COVID-19 pandemic has hit aviation to an extent, that even the major players, the once influencers and leaders, have had to take austere actions to ensure that business stays afloat. In a recent report, the Dallas based carrier, Southwest Airlines, has signed agreements to sell and lease back twenty Boeing 737 aircraft in a transaction which is expected to generate $815mn in proceeds for the airline in these afflicting times. 

The twenty aircraft covered by the deal include ten Boeing 737-800s and ten Boeing 737 MAX 8s. According to the ‘sale-leaseback’ transaction in securities filing (on May 8, 2020), these funds shall be utilised for general corporate purposes.

Southwest Airlines has 742 Boeing 737s in their fleet, the largest fleet of 737s globally. ©DallasTimes

Given the fact that most of the airlines and aviation companies around the world are adopting a lean business model in the current challenging times, below steps are most commonly seen to be taken by these entities:

  1. Job cuts (Virgin Atlantic, GE Aviation)
  2. Reduction in salaries of employees (Almost every global airline)
  3. Retiring old and inept aircraft (KLM, Qantas Selling their 747s, Lufthansa retiring their quad-engine jets)
  4. Cancelling new aircraft orders (Boeing has suffered through numerous 737 MAX order cancellations)

Accordingly, step taken by Southwest Airlines seems appropriate from the current business standpoint. Monthly lease payments can lead to a substantial increase in a carrier’s operating expenses. If the aircraft are going to be parked on the tarmac, without being in operation and generating any revenue, it only makes sense to sell the unused and on-lease aircraft, given that, for now, staying alive in these times is more critical than making profit.

Monthly lease rates for Southwest Airlines currently stand at $150k-$320k for 737-800s, depending on the age of aircraft, and $265k-$300k for the Boeing 737 MAX 8s. Thus, not having to pay these amounts for ten aircraft each for upcoming months, shall save a substantial amount, approximately $5mn, for the airline. This move is expected to help Southwest save significant amount of cash when other U.S. airlines, on an average, are collectively burning more than $10bn a month in fleet maintenance and storage. Moreover, selling these aircraft shall also give the airline $815mn in cash. 

Southwest has not yet released details about which specific aircraft shall be a part of this deal, or which lessors the airline is working with. We are following this deal closely, and shall update as soon as any more details are released. 

What do you think about this step from Southwest? Do you see more airlines following Southwest’s footsteps, and selling aircraft in order to remain solvent? Let us know in the comments!

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