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Press release from PR Newswire

Southwest Airlines Returns Value To Shareholders

Wednesday, May 15, 2013

Southwest Airlines Returns Value To Shareholders

11:14 EDT Wednesday, May 15, 2013

Declared 147th Consecutive Quarterly Dividend
Increased Quarterly Dividend & Share Repurchase Authorization
Announces Accelerated Stock Repurchase Program
Enhanced Fleet Modernization

DALLAS, May 15, 2013 /PRNewswire/ -- Southwest Airlines (NYSE: LUV) (the "Company") returns value to Shareholders.  Southwest Airlines' Board of Directors, at its meeting held today, significantly increased the Company's quarterly dividend to $.04 per share from $.01 per share.  Annualized, this amounts to over $100 million.  The increase in the quarterly dividend will begin with the 147th consecutive quarterly dividend declared today to Shareholders of record at the close of business on June 5, 2013 on all shares then issued and outstanding.  The dividend will be paid on June 26, 2013.  The Board also increased the Company's existing $1 billion share repurchase authorization to $1.5 billion.  Of the remaining share repurchase authorization, an initial $250 million of Southwest common stock will be repurchased under an accelerated stock repurchase program.

Gary C. Kelly, Chairman of the Board, President, and CEO, stated: "Over the past 24 months, we have returned over 20 percent of our operating cash flows, or approximately $770 million, to Shareholders through share repurchases and dividends. I am pleased to announce several actions taken today by our Board that follow through with our commitment to deploy free cash flow1 to our Shareholders. The Board authorized an increase in our quarterly dividend payment to $.04 per share from $.01 per share.  Based on yesterday's closing stock price of $13.98, this would provide an approximate one percent annual dividend yield to our Shareholders.  The Board also increased our existing $1 billion share repurchase authorization to $1.5 billion.  To date, $725 million in share repurchases of the $1.5 billion authorization have been completed since August 2011.  This means we have the authority to repurchase an additional $775 million of our common stock.  We intend to execute an agreement today to repurchase $250 million of our shares under an accelerated stock repurchase program, which, upon implementation, will immediately bring shares back into the Company. 

"As the only investment-grade rated U.S. airline, our balance sheet and liquidity remain strong.  Our cash and short-term investments are approximately $3.5 billion2, and we have a fully available unsecured revolving credit line of $1 billion. With modest debt levels, and an additional $150 million of debt payments planned for the remainder of this year, our debt-to-capital leverage is estimated to fall below 40 percent by yearend, including off balance sheet aircraft leases.  The Board's actions today are in recognition of our strong financial position and performance, strong cash flow outlook, and commitment to create value for our Shareholders."

As a component of its AirTran integration, fleet modernization initiatives, and careful capital management, the Company has revised its aircraft delivery schedule.  For 2014, five Boeing 737-700 firm orders have been converted to 737-800s, five options were exercised for -800 deliveries from Boeing, and five options to purchase Boeing Next Generation (NG) aircraft were relinquished.  Five options in 2015 were also relinquished.  Separately, the Company has agreed to purchase ten pre-owned 737-700s for delivery in 2014 and 2015. Twelve 737NG options held by the Company in 2014 and 2015, as well as 29 options in 2017 and 2018, were converted to 737 MAX options and deferred beyond 2024.  The Company also converted 30 Boeing 737NG firm orders in 2017 and 2018 to MAX firm orders and deferred them to 2019 through 2021.  See accompanying tables included in this release for more information on the revisions made to the Company's delivery schedule.

Gary continued, "Our objectives with respect to today's fleet announcement are to efficiently and aggressively manage our invested capital, shift the mix of new aircraft to the MAX, and replace more than 100 Boeing 717s and Boeing 737s being retired over the next three years with more economical aircraft.  To accomplish that and still maintain a relatively flat fleet, we will augment our Boeing deliveries with pre-owned aircraft.  For 2014 and 2015, combined, we have relinquished ten 737 Boeing delivery options, and we have agreed to purchase ten pre-owned 737-700 aircraft.  Consistent with our fleet modernization efforts, we converted and deferred 30 firm orders and 41 options for Boeing's NG aircraft over the next five years to firm orders and options for the 737 MAX aircraft.  Further, following the expected delivery of Boeing's 737 MAX 8 in 2017, we are thrilled to announce that Southwest Airlines and Boeing have entered into an agreement for Southwest to be the launch customer for the Boeing 737 MAX 7 series, with deliveries beginning in 2019. Building on the strengths of today's Next-Generation 737-700, the 737 MAX 7 incorporates the latest CFM International LEAP-1B engines and is expected to reduce fuel burn and CO2 emissions by an additional 12 percent over today's most fuel-efficient single-aisle airplane.

"Our restructured aircraft delivery schedule will reduce our capital spending for firm orders through 2018 by more than $500 million.  Further, it defers nearly $2 billion in potential capital spend on option aircraft deliveries beyond 2018.  This reduction follows last year's deferral of approximately $1 billion in capital spend in 2012 through 2014. 

"We are committed to achieving our 15 percent pre-tax return on invested capital (ROIC) goal, preserving our financial strength, and generating Shareholder value.  We plan to keep our fleet roughly flat in 2013 and 2014, as compared to yearend 2010 (including AirTran's fleet of 140 aircraft).  Thereafter, we will have the flexibility with our fleet plan to pursue growth opportunities, dependent on our ROIC performance and outlook." 

The Company's restructured aircraft delivery schedule brings its annual firm aircraft capital commitments down to approximately $1 billion to $1.2 billion, on average, through 2024.  For full year 2013 and 2014, firm aircraft capital commitments are estimated to approximate $900 million and $1.2 billion, respectively.  Total capital expenditures are expected to be approximately $1.4 billion for 2013. 

Through May 14, 2013, the Company had repurchased approximately 82 million shares for a total of approximately $725 million under its previous $1 billion share repurchase authorization.  This has reduced its shares outstanding by over ten percent since the August 2011 authorization.  As a result of the Board's authorization to increase the share repurchase by $500 million, the Company can repurchase an additional $775 million in its common stock.  The Company intends to execute an agreement to implement the $250 million accelerated stock repurchase program today.  The remaining $525 million of authorized share repurchases will be made in accordance with applicable securities laws in open market, private, or accelerated repurchase transactions from time to time, depending on market conditions, but may be discontinued at any time.

Southwest Airlines has approximately 723 million2 shares of common stock outstanding.

1 Free cash flow is a non-GAAP financial measure.  The Company believes free cash flow is a meaningful measure because it demonstrates the Company's ability to service its debt, pay dividends and make investments to enhance Shareholder value.  Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ.  The Company calculates free cash flow as operating cash flows less capital expenditures.

2 As of May 13, 2013

Cautionary Statement Regarding Forward-Looking StatementsThis news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Specific forward-looking statements include without limitation statements related to (i) the Company's financial plans, goals, and expectations; (ii) the Company's expectations with respect to liquidity and capital expenditures; (iii) the integration of AirTran and the Company's related financial and operational expectations, including expected benefits and costs associated with the integration; (iv) the Company's fleet plans and initiatives, including its fleet modernization plans and expectations, and related financial and operational goals and expectations; (v) the Company's financial outlook and targets and projected results of operations; and (vi) the Company's network and growth plans, opportunities, and expectations. These forward-looking statements are based on the Company's current intent, expectations, and projections and are not guarantees of future performance.  These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them.  Factors include, among others, (i) the impact of the economy on demand for the Company's services and the impact of fuel prices, economic conditions, and actions of competitors (including, without limitation, pricing, scheduling, and capacity decisions and consolidation and alliance activities) on the Company's business decisions, plans, and strategies; (ii) the impact of governmental action and regulation related to the Company's operations; (iii) the Company's ability to successfully integrate AirTran and realize the expected synergies and other benefits from the integration; (iv) the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (v) the Company's ability to timely and effectively prioritize its strategic initiatives and related expenditures; (vi) the Company's dependence on third parties with respect to certain of its initiatives, in particular its fleet initiatives; and (vii) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Southwest Airlines Co.

737 Delivery Schedule

As of May 14, 2013

The Boeing Company

The Boeing Company

737 NG

737 MAX (2)

-700 Firm Orders

-800 

Firm  Orders

Options

Additional

 -700s

-7

Firm Orders

-8

Firm

Orders

Options

Total

2013

?

18

?

2

?

?

?

20

(3)

2014

?

36

?

5

?

?

?

41

2015

36

?

?

5

?

?

?

41

2016

31

?

12

?

?

?

?

43

2017

15

?

12

?

?

14

?

41

2018

10

?

12

?

?

13

?

35

2019

?

?

?

?

15

10

?

25

2020

?

?

?

?

14

22

?

36

2021

?

?

?

?

1

33

18

52

2022

?

?

?

?

?

30

19

49

2023

?

?

?

?

?

14

23

37

2024

?

?

?

?

?

14

23

37

2025

?

?

?

?

?

?

36

36

Through 2027

?

?

?

?

?

?

72

72

92

(1)

54

36

12

30

150

191

565

 

Previous schedule as of April 24, 2013

The Boeing Company

The Boeing Company

737 NG

737 MAX (2)

-700 Firm Orders

-800 Firm Orders

Options

Additional

 -700s

-7

Firm Orders

-8

Firm

Orders

Options

Total

2013

?

18

?

2

?

?

?

20

(3)

2014

5

26

15

?

?

?

?

46

2015

36

?

12

?

?

?

?

48

2016

31

?

12

?

?

?

?

43

2017

30

?

25

?

?

4

?

59

2018

25

?

28

?

?

15

?

68

2019

?

?

?

?

?

33

?

33

2020

?

?

?

?

?

34

?

34

2021

?

?

?

?

?

34

18

52

2022

?

?

?

?

?

30

19

49

2023

?

?

?

?

?

?

23

23

2024

?

?

?

?

?

?

23

23

2025

?

?

?

?

?

?

23

23

Through 2027

?

?

?

?

?

?

44

44

127

(1)

44

92

2

?

150

150

565

(1)

The Company has flexibility to substitute 737-800s in lieu of 737-700 firm orders.

(2)

The Company has flexibility to accept MAX 7 or MAX 8 deliveries.

(3)

Includes nine 737-800s and two leased 737-700s delivered through April 24, 2013 and May 14, 2013.

SOURCE Southwest Airlines

For further information: Investor Relations, +1-214-792-4415

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