The first step in the fleet monetization plan! Southwest Airlines (LUV.US) signs aircraft sale-leaseback agreement

The Zhitong Finance App learned that Southwest Airlines (LUV.US) will earn $92 million by selling and leasing back 35 Boeing (BA.US) 737-800 aircraft, which is the first step in the airline's broader plan to partially monetize its large fleet and large aircraft orders.

Southwest Airlines said in a statement on Tuesday that the airline received total revenue of US$871 million from the deal completed with Babcock & Brown Aircraft Management in December last year. Revenue of $92 million will be recorded in the fourth quarter of 2024. The airline said the sale and leaseback of the other aircraft is expected to be completed in January.

Currently, Southwest Airlines is striving to derive additional value from its more than 800 Boeing 737 aircraft and nearly 700 aircraft already ordered, as part of the airline's comprehensive reforms to improve returns to investors that have lagged behind their peers in recent years. Other initiatives include abandoning the traditional model and offering premium fares with reserved seats and more legroom.

The fleet deal is aimed at capitalizing on the surge in aircraft demand and prices, as Boeing and Airbus (EADSY.US) are currently facing production challenges, limiting the supply of new airliners. The sale-leaseback agreement allows the airline to sell some of its 737-800 medium aircraft to lessors and then lease them back within a fixed period of time, for a period of 26 to 37 months. The deal would increase the airline's annual rent payments by $2.6 million.

The airline said it may also directly sell its fleet and some of the new 737 Max aircraft received from Boeing. The company doesn't currently need these aircraft, and if it doesn't accept the ordered aircraft, it will lose existing credit points that have delayed deliveries in the past. Southwest Airlines' Boeing orders will last until 2031.