Airfinance Journal reports: (hat tip to curbcrusher on FlyerTalk for the heads up on this one)
Southwest Airlines has closed a $123.5 million loan. The transaction is underwritten by joint lead arrangers BNP Paribas and Calyon. The 10-year facility will finance five 737-700s.
(Note: the article links to the “full article,” which requires a free trial subscription, and all that adds is the author’s e-mail address.)
The article is a bit misleading, as it makes it sound like the loan is to accept delivery of five shiny new 737s from Boeing, but they are just being used as collateral. (Thanks to Southwest’s Chris Mainz for clearing that up.)
The article also notes that Southwest took out a $332 million loan in May.
Southwest, like other carriers, has done a few things to boost its cash, such as some sale-leasebacks paired with an offering of notes back in December. And, based on last quarter’s conference call, it has also drawn down $400 million from its $600 million line of credit.
My question now is – why take out these loans? I’m no expert, but Southwest doesn’t seem to be in all that horrible of a cash position. Is this money supposed to help pay for something coming? (Yes, I have donned my tin foil hat.) 
Or is this just a “cash is king” situation and Southwest decided to grab money when it could? (For what?) That might be the answer, but the former is so much more exciting. But seriously, with this extra debt, how will this affect the company in the future? (Unless, of course, the company wants to buy some new toys that will produce revenue, which would be a much more exciting situation for me to write about.)
Oh well. All things that will hopefully become clearer during the earnings call later this month.
Sometimes it’s just a good idea to have extra cash on hand. I recall reading that Ford did that back in 2006 by taking out some loans, and everyone was scratching their heads when that happened. I think the loans helped them avoid some of the trouble that Chrysler and GM are now facing.
It adds debt, sure, but securing cash now rather than later might be a smart move for Southwest. It’s going to be a dismal summer (look at their recent sale) and the odds are that the winter season isn’t going to be much better.
If you believe that interest rates are at a low point now, and that they will only rise as the Fed attempts to stave off inflation and remove its stimulus, then they have locked in an incredible deal. Whenever there is high inflation, the borrower is rewarded and the lender is penalized. The borrower pays back the loan with cheap dollars. Few companies can actually borrow now, and if there is a cash crunch and a ratcheting up of rates, this could play into a seriously wise pre-emptive act against weak competitors.
Can you start another one of those SW acquires AirTran rumors for us?
I’d guess they’re looking to make sure they have some cash for this fall which right now is looking like it’s going to be slower for business than they previously figured.