Southwest Airlines borrows $600 million

[JA'd]

http://biz.yahoo.com/ap/080512/southwest_airlines_loan.html?.v=2


Talk amongst yourselves.

 

[Colonel Savage]

Talk amongst yourselves.

Loading up while they can...

 

[Tail Gunner Joe]

its just hedging

DALLAS (AP) -- Southwest Airlines Co. said Monday it borrowed $600 million from Citibank and seven European banks to bolster its cash position in the face of economic uncertainty and soaring fuel prices.

It is a different kind of hedge.

Borrow dollars from european banks today and tommorow pay them back in cheaper inflated dollars,
as the US dollar continues its freefall vs. the EURO.

 

[Dizel8]

Might something be for sale soon or are they going to war?

 

[StaySeated]

It is a different kind of hedge.

Borrow dollars from european banks today and tommorow pay them back in cheaper inflated dollars,
as the US dollar continues its freefall vs. the EURO.

Don't take this as a personal attack, but if you borrow money from any bank (European, asian, african,...) and pay interest on that loan in US dollars than you are not hedging anything. The name on the front of the bank is meaningless, the denomination of the currency is rather important. It is that exact reason that derivatives on the US dollar are not allowed. You can purchase a future contract on every currency in the world except the Us dollar.

SWA, with $3 billion in cash, does not need $600 million to bolster their position. While I do not have an "impartial" view, being a F9 pilot, i would not be surprised if this was a move to acquire significant assets in denver in a rapid fashion. SWA very rarely acts quickly, but the landscape in the industry is changing and they see an opportunity in Denver.

 

[StaySeated]

Out of curiosity I clicked on the 8k document and read this little gem.

"The loans bear interest at the LIBO Rate (as defined in the Loan Agreement) plus 0.95%, and interest is payable on the loans at the end of each three-month interest period, commencing August 9, 2008.
The Loan Agreement and the related mortgages contain no financial covenants."

The cut and paste contains a typo, they are missing an R after LIBO (LIBOR). The fact that SWA can get LIBOR plus 95 basis points is simply astonishing. I am aware of another DEN airline looking for financing and they are currently being offered something in the range of LIBOR plus 1300 basis points. That is not a typo.

The wheels are in motion.

 

[General Lee]

Anything Southwest buys now will NOT be covered in their hedging program. It currently covers 70% of their CURRENT flying. That doesn't cover any new expansion, or if they buy someone else. Anything they buy will cost them more in fuel for that entity.


Bye Bye--General Lee

 

[Whataburger]

Anything Southwest buys now will NOT be covered in their hedging program. It currently covers 70% of their CURRENT flying. That doesn't cover any new expansion, or if they buy someone else. Anything they buy will cost them more in fuel for that entity.


Bye Bye--General Lee

Thanx for the turd in the punch bowl.
I think we are buying 700,000,000 shares of Mesa.

 

[TWA]

I am aware of another DEN airline looking for financing and they are currently being offered something in the range of LIBOR plus 1300 basis points. That is not a typo.

That is a higher interest rate than most credit cards.

 

[General Lee]

Thanx for the turd in the punch bowl.
I think we are buying 700,000,000 shares of Mesa.

Am I WRONG? Nope. Gary Kelly said he didn't want to merge with anyone, and that could be a reason why----fuel prices would not be hedged for the new acquisition. It is great when you have an advantage, but it doesn't grow with you.


Bye Bye--General Lee

 

[OurMoney1]

They've blostered their cash position before with loans, witness the recession of the early 90's and 9/11. So dont read into this, they are ensuring that they are covered and obviously they have alot of experince doing this.

 

[Bdfg1]

Good thing an airline has the credit history to be able to borrow 600 million.

 

[Diesel]

600 million really doesn't go far in the big scheme of things.

Looks like they are setting up for an acquisition.

 

[jetflier]

Hmmmmmm, let's see....Nwa and DAL, Ual/USA how about AMR/SWA ? Uh no.

I got it ! SWA and CA !

 

[B727Driver]

Maybe when UAL doesn't get the financing they want, they may shrink just like CAL did. That would leave DEN wide open for not only domestic expansion but also some international destinations.

 

[ASADFW7]

Gen, is correct GK has made statements about not expanding uncovered with fuel hedges. Perhaps if we do expand the loan is a short term cushion to cover excess fuel costs?

 

[DrunkIrishman]

Is SWA interested in purchasing international routes from anyone?

 

[fngswa]

Spinning info

Or MAYBE, they are borrowing money due to uncertain times due to fuel costs...just as they said!

 

[Kugelblitz]

I hope this thread isn't suggesting Southwest did something in error. You all know the price for criticizing Southwest Airlines, you jealous, lower tier pilots......

 

[737 Pylt]

Good thing an airline has the credit history to be able to borrow 600 million.

Say it with me Steven............:bawling:
N - N - N - N - Nic award!

737

 

[On Your Six]

Why all the fuss? Interest rates are low now and SWA wants to add low-cost debt as a cushion. That is what any responsible company should do - you borrow when rates are low and you don't need the cash (at least have it available). The problem typically ocurrs when you have to borrow when you actually need the cash (i.e., credit crunch).

SWA is doing the right thing given that interest rates are low now...

 

[contrail67]

Or MAYBE, they are borrowing money due to uncertain times due to fuel costs...just as they said!

They are not immune to high fuel costs...no matter what they may think..

 

[contrail67]

Is SWA interested in purchasing international routes from anyone?

They will need aircraft to do those routes first.

 

[General Lee]

Gen, is correct GK has made statements about not expanding uncovered with fuel hedges. Perhaps if we do expand the loan is a short term cushion to cover excess fuel costs?

You may be correct.


Bye Bye--General Lee

 

[Bdfg1]

Say it with me Steven............:bawling:
N - N - N - N - Nic award!

737

Ok...N - N - N - 6.7 BA BA BILLION! :laugh:

 

[navigatro]

I can't even afford to borrow $6 for lunch....

 

[Fubijaakr]

Only partly true, General. LUV could buy AS and inherit their fuel hedges. AS is the second most hedged airline in the US behind LUV.

 

[General Lee]

Only partly true, General. LUV could buy AS and inherit their fuel hedges. AS is the second most hedged airline in the US behind LUV.

That is true. Alaska has 50% hedged at $75 a barrel I believe (talked to an Alaska pilot recently). But, you will still inherrit some extra flying that was not hedged, which could be expensive in the long run. Hey, I think your hedges are GREAT, and I wish we had a fraction of that. But, any extra expansion on your part will cost you somehow. Is it a good risk? It might be.


Bye Bye--General Lee

 

[Tanker Clown]

Maybe the money is to patch up the -300s.

 

[Eagle757shark]

AirTran just raised their cash to 500 million dollars in the bank. Could Southwest possibly look at acquiring AirTran for around 500-600 million and then turn around and pay back that loan with the 500 million AirTran has in the bank? This was sort of what AirTran was attempting to do with Midwest initially. Midwest then had around 250 million in the bank and AirTran offered around 290 million for Midwest really only amounting to a purchase of around 40 million when you take the cash that Midwest had in the bank. Shall be interesting times ahead.

Or could Southwest see a United/US Airways merger as being just around the corner and are loading up to pick up what assets are shed along the east coast?