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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the quarterly period ended June 30, 2022
 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________ to ________
Commission File No. 1-7259
luv-20220630_g1.jpg

SOUTHWEST AIRLINES CO.
(Exact name of registrant as specified in its charter)
Texas74-1563240
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
P.O. Box 36611
Dallas,Texas75235-1611
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:  (214) 792-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock ($1.00 par value)LUVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No x
    Number of shares of Common Stock outstanding as of the close of business on July 28, 2022: 593,350,161


TABLE OF CONTENTS TO FORM 10-Q

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2022 and December 31, 2021
Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2022 and 2021
Condensed Consolidated Statement of Stockholders' Equity as of June 30, 2022 and 2021
Condensed Consolidated Statement of Cash Flows for the three and six months ended June 30, 2022 and 2021
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
SIGNATURES
2
Table of Contents
SOUTHWEST AIRLINES CO.
FORM 10-Q
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Southwest Airlines Co.
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)

June 30, 2022December 31, 2021
ASSETS  
Current assets: 
Cash and cash equivalents$13,234 $12,480 
Short-term investments3,197 3,024 
Accounts and other receivables1,389 1,357 
Inventories of parts and supplies, at cost751 537 
Prepaid expenses and other current assets825 638 
Total current assets19,396 18,036 
Property and equipment, at cost:
Flight equipment21,598 21,226 
Ground property and equipment6,563 6,342 
Deposits on flight equipment purchase contracts637 — 
Assets constructed for others12 6 
28,810 27,574 
Less allowance for depreciation and amortization13,216 12,732 
 15,594 14,842 
Goodwill970 970 
Operating lease right-of-use assets1,495 1,590 
Other assets847 882 
 $38,302 $36,320 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$1,908 $1,282 
Accrued liabilities1,587 1,624 
Current operating lease liabilities242 239 
Air traffic liability6,312 5,566 
Current maturities of long-term debt1,662 453 
Total current liabilities11,711 9,164 
Long-term debt less current maturities8,877 10,274 
Air traffic liability - noncurrent2,206 2,159 
Deferred income taxes2,072 1,770 
Noncurrent operating lease liabilities1,220 1,315 
Other noncurrent liabilities1,096 1,224 
Stockholders' equity:  
Common stock888 888 
Capital in excess of par value3,966 4,224 
Retained earnings16,311 15,774 
Accumulated other comprehensive income805 388 
Treasury stock, at cost(10,850)(10,860)
Total stockholders' equity11,120 10,414 
 $38,302 $36,320 
    
See accompanying notes.
3
Table of Contents
Southwest Airlines Co.
Condensed Consolidated Statement of Comprehensive Income
(in millions, except per share amounts)
(unaudited)

 Three months ended June 30,Six months ended June 30,
 2022202120222021
OPERATING REVENUES:    
Passenger$6,119 $3,569 $10,254 $5,282 
Freight47 50 89 92 
Other562 389 1,079 686 
Total operating revenues6,728 4,008 11,422 6,060 
OPERATING EXPENSES, NET:    
Salaries, wages, and benefits2,220 1,825 4,450 3,395 
Payroll support and voluntary Employee programs, net— (740)— (2,187)
Fuel and oil1,636 803 2,640 1,272 
Maintenance materials and repairs210 222 420 395 
Landing fees and airport rentals388 403 733 716 
Depreciation and amortization325 315 649 627 
Other operating expenses791 586 1,523 1,049 
Total operating expenses, net5,570 3,414 10,415 5,267 
OPERATING INCOME1,158 594 1,007 793 
OTHER EXPENSES (INCOME):  
Interest expense93 116 186 229 
Capitalized interest(11)(8)(20)(19)
Interest income(28)(2)(31)(4)
Other (gains) losses, net68 (14)212 (61)
Total other expenses (income)122 92 347 145 
INCOME BEFORE INCOME TAXES1,036 502 660 648 
PROVISION FOR INCOME TAXES276 154 178 185 
NET INCOME$760 $348 $482 $463 
NET INCOME PER SHARE, BASIC$1.29 $0.59 $0.83 $0.78 
NET INCOME PER SHARE, DILUTED$1.20 $0.57 $0.77 $0.76 
COMPREHENSIVE INCOME$674 $544 $899 $723 
WEIGHTED AVERAGE SHARES OUTSTANDING   
Basic593 591 593 591 
Diluted635 615 640 612 
See accompanying notes.
4
Table of Contents
Southwest Airlines Co.
Condensed Consolidated Statement of Stockholders' Equity
(in millions, except per share amounts)
(unaudited)
  
Common StockCapital in excess of par valueRetained earningsAccumulated other comprehensive incomeTreasury stockTotal
Balance at December 31, 2021$888 $4,224 $15,774 $388 $(10,860)$10,414 
Cumulative effect of adopting Accounting Standards Update No. 2020-06, Debt (See Note 3)— (300)55 — — (245)
Issuance of common and treasury stock pursuant to Employee stock plans— — — — 7 7 
Share-based compensation— 16 — — — 16 
Comprehensive income— — (278)503 — 225 
Balance at March 31, 2022$888 $3,940 $15,551 $891 $(10,853)$10,417 
Issuance of common and treasury stock pursuant to Employee stock plans— 10 — — 3 13 
Share-based compensation— 16 — — — 16 
Comprehensive income (loss)— — 760 (86)— 674 
Balance at June 30, 2022$888 $3,966 $16,311 $805 $(10,850)$11,120 


  
Common StockCapital in excess of par valueRetained earningsAccumulated other comprehensive income (loss)Treasury stockTotal
Balance at December 31, 2020$888 $4,191 $14,777 $(105)$(10,875)$8,876 
Cumulative effect of adopting Accounting Standards Update No. 2016-01, Financial Instruments— — 19 (19)— — 
Issuance of common and treasury stock pursuant to Employee stock plans— (8)— — 8 — 
Share-based compensation— 14 — — — 14 
Stock warrants— 23 — — — 23 
Comprehensive income— — 116 64 — 180 
Balance at March 31, 2021$888 $4,220 $14,912 $(60)$(10,867)$9,093 
Issuance of common and treasury stock pursuant to Employee stock plans— 11 — — 2 13 
Share-based compensation— 16 — — — 16 
Stock warrants— 22 — — — 22 
Comprehensive income (loss)— — 348 196 — 544 
Balance at June 30, 2021$888 $4,269 $15,260 $136 $(10,865)$9,688 
    See accompanying notes.
5
Table of Contents
Southwest Airlines Co.
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
Three months endedSix months ended
June 30,June 30,
 2022202120222021
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income$760 $348 $482 $463 
Adjustments to reconcile net income to cash provided by operating activities:   
Depreciation and amortization325 315 649 627 
Impairment of long-lived assets15 — 31 — 
Unrealized mark-to-market adjustment on available for sale securities4 — 7 — 
Unrealized/realized (gain) loss on fuel derivative instruments(20)(17)15 (23)
Deferred income taxes272 (30)174 (26)
Loss on partial extinguishment of convertible and unsecured notes43 — 116 — 
Changes in certain assets and liabilities:   
Accounts and other receivables439 (563)105 (797)
Other assets(1)16 (45)5 
Accounts payable and accrued liabilities328 989 506 923 
Air traffic liability(92)946 793 1,546 
Other liabilities(103)(64)(209)(186)
Cash collateral received from (provided to) derivative counterparties(101)48 284 86 
Other, net37 17 69 32 
Net cash provided by operating activities1,906 2,005 2,977 2,650 
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures(987)(95)(1,497)(190)
Assets constructed for others(3)— (6)— 
Purchases of short-term investments(1,545)(1,651)(2,470)(2,975)
Proceeds from sales of short-term and other investments980 1,277 2,280 2,495 
Net cash used in investing activities(1,555)(469)(1,693)(670)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from Payroll Support Program loan and warrants— 625 — 1,136 
Proceeds from Employee stock plans13 13 19 26 
Payments of long-term debt and finance lease obligations(53)(43)(146)(109)
Payments for repurchases and conversions of convertible debt(178)— (409)— 
Other, net3 22 6 28 
Net cash provided by (used in) financing activities(215)617 (530)1,081 
NET CHANGE IN CASH AND CASH EQUIVALENTS136 2,153 754 3,061 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD13,098 11,971 12,480 11,063 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$13,234 $14,124 $13,234 $14,124 
CASH PAYMENTS FOR:
Interest, net of amount capitalized$141 $150 $161 $167 
Income taxes$7 $176 $11 $177 
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Adoption of Accounting Standards Update 2020-06, Debt (See Note 3)$— $— $245 $— 
Right-of-use assets acquired under operating leases$3 $12 $27 $230 
Flight equipment acquired against supplier credit memo$— $207 $— $512 
Assets constructed for others$— $(341)$— $(309)
See accompanying notes.
6
Table of Contents
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation
2. Worldwide Pandemic
3. New Accounting Pronouncements
4. Financial Derivative Instruments
5. Comprehensive Income
6. Revenue
7. Net Income Per Share
8. Fair Value Measurements
9. Supplemental Financial Information
10. Commitments and Contingencies
11. Financing Activities
7
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


1.    BASIS OF PRESENTATION

Southwest Airlines Co. (the "Company" or "Southwest") operates Southwest Airlines, a major passenger airline that provides scheduled air transportation in the United States and near-international markets. The unaudited Condensed Consolidated Financial Statements include accounts of the Company and its wholly owned subsidiaries.

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements. The unaudited Condensed Consolidated Financial Statements for the interim periods ended June 30, 2022 and 2021 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. This includes all normal and recurring adjustments and elimination of significant intercompany transactions. Financial results for the Company and airlines in general can be seasonal in nature. In many years, the Company's revenues, as well as its Operating income and Net income, have been better in its second and third fiscal quarters than in its first and fourth fiscal quarters. However, beginning in early 2020, as a result of the COVID-19 pandemic, the Company's results have not always been in line with such historical trends. See Note 2 for further information. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics such as COVID-19, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control. These and other factors, such as the price of jet fuel in some periods, the nature of the Company's fuel hedging program, and the periodic volatility of commodities used by the Company for hedging jet fuel, have created, and may continue to create, significant volatility in the Company's financial results. See Note 4 for further information on fuel and the Company's hedging program. Operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2022. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
8
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


2.    WORLDWIDE PANDEMIC

As a result of the rapid spread of the novel coronavirus, COVID-19, throughout the world, including into the United States, on March 11, 2020, the World Health Organization classified the virus as a pandemic. The speed with which the effects of the COVID-19 pandemic changed the U.S. economic landscape, outlook, and in particular the travel industry, was swift and unexpected. The Company experienced significant disruptions in travel and reduced bookings throughout the remainder of 2020 and for the entirety of 2021 as a result of the pandemic and subsequent variants of COVID-19. Following a significant negative impact to revenues and bookings in January and February 2022, which included increased trip cancellations and staffing challenges associated with the Omicron variant, the Company saw improvements in revenue trends in March 2022 and throughout second quarter 2022 as COVID-19 cases significantly trended downward and bookings for summer travel accelerated. The Company continues to monitor demand for air travel and proactively adjust its published flight schedules and capacity.

Since the start of the pandemic, the Company entered into definitive documentation with the United States Department of the Treasury ("Treasury") with respect to payroll funding support ("Payroll Support") pursuant to three separate Payroll Support programs: the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"); the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021; and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued a promissory note in favor of Treasury (classified as a component of Long term debt less current maturities in the unaudited Condensed Consolidated Balance Sheet) and entered into a warrant agreement with Treasury (classified as a component of Stockholders' equity in the unaudited Condensed Consolidated Balance Sheet). The following table provides the details from the PSP1, PSP2 and PSP3 Payroll Support programs:

(dollars in millions, shares in thousands)GrantPromissory NoteWarrants Total Payroll Support ProceedsWarrants (shares)Warrant strike pricePromissory Note Maturity Date
PSP1$2,337 $976 $40 $3,354 2,676 
$36.47/share
April 19, 2030
PSP2$1,393 $566 $27 $1,987 1,223 
$46.28/share
January 15, 2031
PSP3 $1,310 $526 $18 $1,852 899 
$58.51/share
April 23, 2031
Total$5,040 $2,068 $85 $7,193 4,798 
In connection with the receipt of Payroll Support, the Company is subject to certain restrictions, including the elimination of share repurchases and dividends through September 30, 2022; and limits on executive compensation until April 1, 2023.

Under each of the three Payroll Support programs, funds received were used solely to pay qualifying employee salaries, wages, and benefits. All grant portions of the Payroll Support programs received had been allocated and classified as a contra-expense line item in the Company's financial statements by the end of 2021, including approximately $724 million and $1.9 billion for the three and six months ended June 30, 2021, in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income.

On June 1, 2020, the Company announced Voluntary Separation Program 2020 ("Voluntary Separation Program"), a voluntary separation program that allowed eligible Employees the opportunity to voluntarily separate from the
9
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


Company in exchange for severance, medical/dental coverage for a specified period of time, and travel privileges based on years of service. A total of over 4,200 Employees elected to participate in Voluntary Separation Program.

In conjunction with Voluntary Separation Program, the Company also offered certain contract Employees the option to take voluntary Extended Emergency Time Off ("Extended ETO"), for periods between six and 18 months, with the exception of Pilots, who could elect to take Extended ETO for periods of up to five years, all subject to early recalls. Approximately 12,000 Employees participated in the Extended ETO program in 2020 and 2021 combined. The Company had no Employees remaining on Extended ETO past March 31, 2022.

The purpose of Voluntary Separation Program and Extended ETO was to maintain a reduced workforce to operate at reduced capacity relative to the Company's operations prior to the COVID-19 pandemic. In accordance with the accounting guidance in Accounting Standards Codification ("ASC") Topic 712 (Compensation — Nonretirement Postemployment Benefits), the Company accrued charges related to the special termination benefits described above upon Employees accepting Voluntary Separation Program or Extended ETO offers. The Company accrued expenses totaling $1.4 billion for its Voluntary Separation Program and Extended ETO program in 2020, which are being reduced as program benefits are paid. For both the Voluntary Separation Program and Extended ETO programs combined, approximately $60 million of the liability balances were relieved during the first six months of 2022 through payments to Employees, leaving a balance of $269 million as of June 30, 2022. The liability associated with the Extended ETO program was fully relieved at March 31, 2022. During the first six months of 2021, the Company determined that it was no longer probable that the remaining portion of the Employees on Extended ETO would remain on such leave for their entire elected term. Therefore, a portion of the accruals previously recorded were reversed, resulting in a net $130 million credit to expense during the first six months of 2021. Both the initial charge and the partial reversal were classified within Payroll support and voluntary Employee programs, net, in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income.

In response to flight schedule adjustments due to the effects of the COVID-19 pandemic, a number of aircraft were taken out of the Company’s schedule beginning in late March 2020, and placed in short-term storage, as well as some in a longer term storage program. As of June 30, 2022, four Boeing 737-700 aircraft remained in storage, all of which were retired from the Company's fleet in July 2022.

3.    NEW ACCOUNTING PRONOUNCEMENTS
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, and the standard was adopted and applied prospectively by the Company as of January 1, 2022, but the adoption and application did not have a significant impact on the Company's financial statements and disclosures, including interim periods.

On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). This new standard provides optional temporary guidance for entities transitioning away from London Interbank Offered Rate ("LIBOR") to new reference interest rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions with Topic 848. These amendments do not apply to any contract modifications made after December 31, 2022, any new hedging relationships entered into after December 31, 2022, or to existing hedging relationships evaluated for effectiveness existing as of December 31, 2022, that apply certain optional practical expedients. This standard was effective immediately and may be applied (i) on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (ii) on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be
10
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


issued. The Company had no material LIBOR-related contract modifications during the six months ended June 30, 2022.

On August 5, 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This new standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock, made targeted improvements to the disclosures for convertible instruments and earnings-per-share ("EPS") guidance, and amended the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. This standard is effective for fiscal years beginning after December 15, 2021, and the Company adopted this standard as of January 1, 2022, utilizing the modified retrospective method. Under the modified approach, the Company applied guidance to all financial instruments that were outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. Upon adoption, the Company reclassified the remaining equity component of $300 million, from Additional paid-in capital to Long-term debt associated with its 1.25% Convertible Senior Notes due 2025 (the “Convertible Notes”), and no longer records amortization of the debt discount to Interest expense. The cumulative effect from prior period amortization of the debt discount that has been recorded to Interest expense, offset by reductions to Capital in excess of par value related to the requisition of the equity component through previous repurchases, resulted in a $55 million adjustment to the opening balance of Retained earnings upon adoption. The new standard requires the use of the if-converted method to calculate diluted EPS, which is generally more dilutive, rather than the treasury stock method as was the Company's policy pre-adoption. For the three and six months ended June 30, 2022, the impacts of adopting this new standard were decreases to the Company's Net income in the amounts of $21 million, or $0.20 per diluted share, and $57 million, or $0.21 per diluted share, respectively, as a result of higher losses recognized on the Company’s extinguishment transactions following the elimination of the equity component of the Convertible Notes, partially offset by the elimination of the non-cash interest expense associated with the prior debt discount amortization. See Note 7.

11
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


4.    FINANCIAL DERIVATIVE INSTRUMENTS

Fuel Contracts
Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices. Furthermore, jet fuel and oil typically represents one of the largest operating expenses for airlines. The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through its fuel hedging program. Although the Company may periodically enter into jet fuel derivatives for short-term timeframes, because jet fuel is not widely traded on an organized futures exchange, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future. However, the Company has found that financial derivative instruments in other commodities, such as West Texas Intermediate ("WTI") crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility. The Company does not purchase or hold any financial derivative instruments for trading or speculative purposes.

The Company has used financial derivative instruments for both short-term and long-term timeframes, and primarily uses a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio. Although the use of collar structures and swap agreements can reduce the overall cost of hedging, these instruments carry more risk than purchased call options in that the Company could end up in a liability position when the collar structure or swap agreement settles. With the use of purchased call options and call spreads, the Company cannot be in a liability position at settlement, but does not have coverage once market prices fall below the strike price of the purchased call option.

For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company evaluates its hedge volumes strictly from an "economic" standpoint and thus does not consider whether the hedges have qualified or will qualify for hedge accounting. The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting. The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments. For example, the Company may enter into "out-of-the-money" option contracts (including "catastrophic" protection), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price. Therefore, even though the Company may have an economic hedge in place for a particular period, that hedge may not produce any hedging gains at settlement and may even produce hedging losses depending on market prices, the types of instruments held, and the strike prices of those instruments.
12
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)



As of June 30, 2022, the Company had fuel derivative instruments in place to provide coverage at varying price levels. The following table provides information about the Company’s volume of fuel hedging on an economic basis:

Maximum fuel hedged as of
June 30, 2022Derivative underlying commodity type as of
Period (by year)(gallons in millions) (a)June 30, 2022
Remainder of 2022610 WTI crude oil, Brent crude oil, and Heating oil
2023769 WTI crude oil and Brent crude oil
2024358 WTI crude oil
(a) Due to the types of derivatives utilized by the Company and different price levels of those contracts, these volumes represent the maximum economic hedge in place and may vary significantly as market prices and the Company's flight schedule fluctuate.

Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges. Qualification is re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges are recorded in Accumulated other comprehensive income ("AOCI") until the underlying jet fuel is consumed. See Note 5.

If a derivative initially does not qualify or ceases to qualify for hedge accounting, any change in the fair value of the derivative instrument since the last reporting period would be recorded in Other (gains) losses, net, in the unaudited Condensed Consolidated Statement of Comprehensive Income in the period of the change; however, any amounts previously recorded to AOCI would remain there until such time as the original forecasted transaction occurs, at which time these amounts would be reclassified to Fuel and oil expense. Factors that have and may continue to lead to the loss of hedge accounting include: significant fluctuation in energy prices, significant weather events affecting refinery capacity and the production of refined products, and the volatility of the different types of products the Company uses in hedging. Certain types of derivative instruments do not qualify for hedge accounting, including those that result in a net sold position (sold gallons exceeding purchased gallons). Increased volatility in certain commodity markets for an extended period of time, especially if such volatility were to worsen, could cause the Company to lose hedge accounting altogether for the commodities used in its fuel hedging program, which would create further volatility in the Company’s GAAP financial results. However, even though derivatives may not qualify for hedge accounting, the Company continues to hold the instruments as management believes derivative instruments continue to afford the Company the opportunity to stabilize jet fuel costs. When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel derivative instrument portfolio, any subsequent changes in fair value of those positions are marked to market through earnings. Likewise, any changes in fair value of those positions that were offset by entering into the sold positions and were de-designated as hedges are concurrently marked to market through earnings. However, any changes in value related to hedges that were deferred as part of AOCI while designated as a hedge would remain until the originally forecasted transaction occurs. In a situation where it becomes probable that a fuel hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings.

During 2021, as a result of the drop in demand for air travel compared with 2019 due to the pandemic, the Company was in an estimated "over-hedged" position and was required to de-designate a portion of its fuel hedges for hedge accounting purposes. However, the impact of such de-designations was not material to 2021 financial results.

All cash flows associated with purchasing and selling fuel derivatives are classified as Other operating cash flows in the unaudited Condensed Consolidated Statement of Cash Flows. The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:
13
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)



  Asset derivativesLiability derivatives
 Balance SheetFair value atFair value atFair value atFair value at
(in millions)location6/30/202212/31/20216/30/202212/31/2021
Derivatives designated as hedges (a)     
Fuel derivative contracts (gross)Prepaid expenses and other current assets$797 $409 $— $— 
Fuel derivative contracts (gross)Other assets372 287 — — 
Interest rate derivative contractsOther assets11 — — — 
Interest rate derivative contractsOther noncurrent liabilities— — — 4 
Total derivatives designated as hedges$1,180 $696 $— $4 
Derivatives not designated as hedges (a)     
Fuel derivative contracts (gross)Prepaid expenses and other current assets$125 $— $167 $— 
Total derivatives $1,305 $696 $167 $4 
(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties. See discussion of credit risk and collateral following in this Note 4.

In addition, the Company had the following amounts associated with fuel derivative instruments and hedging activities in its unaudited Condensed Consolidated Balance Sheet:

 Balance SheetJune 30,December 31,
(in millions)location20222021
Cash collateral deposits held from counterparties for fuel contracts - currentOffset against Prepaid expenses and other current assets$297 $80 
Cash collateral deposits held from counterparties for fuel contracts - noncurrentOffset against Other assets162 95 
Receivable from third parties for fuel contractsAccounts and other receivables125 8 
 
All of the Company's fuel derivative instruments and interest rate swaps are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging. The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt. For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty. The Company has elected to utilize netting for both its fuel derivative instruments and interest rate swap agreements and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the unaudited Condensed Consolidated Balance Sheet. If its fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments. As of June 30, 2022, no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements.

14
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


The Company has the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:

Offsetting of derivative assets
(in millions)
(i)(ii)(iii) = (i) + (ii)(i)(ii)(iii) = (i) + (ii)
June 30, 2022December 31, 2021
DescriptionBalance Sheet locationGross amounts of recognized assetsGross amounts offset in the Balance SheetNet amounts of assets presented in the Balance SheetGross amounts of recognized assetsGross amounts offset in the Balance SheetNet amounts of assets presented in the Balance Sheet
Fuel derivative contractsPrepaid expenses and other current assets$922 $(464)
(b)
$458 $409 $(80)$329 
Fuel derivative contractsOther assets$372 $(162)$210 (a)$287 $(95)$192 (a)
Interest rate derivative contractsOther assets$11 $— $11 (a)$— $— $— (a)
(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 9.
(b) Includes the current portion of cash collateral deposits held from counterparties and derivative liability associated with fuel contracts.


Offsetting of derivative liabilities
(in millions)
(i)(ii)(iii) = (i) + (ii)(i)(ii)(iii) = (i) + (ii)
June 30, 2022December 31, 2021
DescriptionBalance Sheet locationGross amounts of recognized liabilitiesGross amounts offset in the Balance SheetNet amounts of liabilities presented in the Balance SheetGross amounts of recognized liabilitiesGross amounts offset in the Balance SheetNet amounts of liabilities presented in the Balance Sheet
Fuel derivative contractsPrepaid expenses and other current assets$464 $(464)
(b)
$— $80 $(80)$— 
Fuel derivative contractsOther assets$162 $(162)$— (a)$95 $(95)$— (a)
Interest rate derivative contractsOther noncurrent liabilities$— $— $— $4 $— $4 
(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 9.
(b) Includes the current portion of cash collateral deposits held from counterparties and derivative liability associated with fuel contracts.
15
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2022 and 2021:

Location and amount recognized in income on cash flow and fair value hedging relationships
Three months ended June 30, 2022Three months ended June 30, 2021
(in millions)Fuel and oilOther operating expensesFuel and oilOther operating expenses
Total$(306)$2 $12 $1 
(Gain) loss on cash flow hedging relationships:
Commodity contracts:
Amount of (gain) loss reclassified from AOCI into income(306)— 12 — 
Interest contracts:
Amount of loss reclassified from AOCI into income— 2 — 1 

Location and amount recognized in income on cash flow and fair value hedging relationships
Six months ended June 30, 2022Six months ended June 30, 2021
(in millions)Fuel and oilOther (gains)/losses, netOther operating expensesFuel and oilOther (gains)/losses, netOther operating expenses
Total$(508)$— $3 $28 $6 $2 
(Gain) loss on cash flow hedging relationships
Commodity contracts:
Amount of (gain) loss reclassified from AOCI into income(508)— — 28 6 — 
Interest contracts:
Amount of loss reclassified from AOCI into income— — 3 — — 2 


Derivatives designated and qualified in cash flow hedging relationships
 (Gain) loss recognized in AOCI on derivatives, net of tax
 Three months ended
 June 30,
(in millions)20222021
Fuel derivative contracts$(140)$(192)
Interest rate derivatives(7)6 
Total$(147)$(186)

16
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


Derivatives designated and qualified in cash flow hedging relationships
 (Gain) loss recognized in AOCI on derivatives, net of tax
 Six months ended
 June 30,
(in millions)20222021
Fuel derivative contracts$(792)$(275)
Interest rate derivatives(12)(4)
Total$(804)$(279)


Derivatives not designated as hedges
 (Gain) loss recognized in income on derivatives 
  
 Three months endedLocation of gain recognized in income on derivatives
 June 30,
(in millions)20222021
Fuel derivative contracts$(20)$(12)Other (gains) losses, net


Derivatives not designated as hedges
 (Gain) loss recognized in income on derivatives 
  
 Six months endedLocation of (gain) loss recognized in income on derivatives
 June 30,
(in millions)20222021
Fuel derivative contracts$15 $(16)Other (gains) losses, net


The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three and six months ended June 30, 2022 and 2021. Gains and/or losses associated with fuel derivatives that qualify for hedge accounting are ultimately recorded to Fuel and oil expense. Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) and losses, net. The following tables present the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income during the period the contract settles:

 Premium expense recognized in income on derivatives  
  
 Three months endedLocation of premium expense recognized in income on derivatives
 June 30,
(in millions)20222021
Fuel derivative contracts designated as hedges$26 $14 Fuel and oil
Fuel derivative contracts not designated as hedges— 10 Other (gains) losses, net

17
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


 Premium expense recognized in income on derivatives 
  
 Six months endedLocation of premium expense recognized in income on derivatives
 June 30,
(in millions)20222021
Fuel derivative contracts designated as hedges$53 $29 Fuel and oil
Fuel derivative contracts not designated as hedges— 21 Other (gains) losses, net

The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties. Included in the Company’s cumulative unrealized gains from fuel hedges as of June 30, 2022, recorded in AOCI, were approximately $545 million in net unrealized gains, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to June 30, 2022.

Interest Rate Swaps
The Company is party to certain interest rate swap agreements that are accounted for as cash flow hedges, and has in the past held interest rate swap agreements that have qualified as fair value hedges, as defined in the applicable accounting guidance for derivative instruments and hedging. Several of the Company's interest rate swap agreements qualify for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly effective at origination, and, thus, there was no ineffectiveness to be recorded in earnings.

For the Company’s interest rate swap agreements that do not qualify for the "shortcut" or "critical terms match" methods of accounting, ineffectiveness is assessed at each reporting period. If hedge accounting is achieved, all periodic changes in fair value of the interest rate swaps are recorded in AOCI.

Credit Risk and Collateral
Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date. At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty. At June 30, 2022, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating. The Company also had agreements with counterparties in which cash deposits and letters of credit were required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds. In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion.

The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of June 30, 2022, at which such postings are triggered:

18
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


 Counterparty (CP) 
(in millions)ABCDEFGOther (a)Total
Fair value of fuel derivatives$289 $148 $264 $95 $131 $85 $92 $23 $1,127 
Cash collateral held from CP356 7 37 — 40 19 — — 459 
Option to substitute LC for cashN/AN/A
 (b)
 (b)

 (b)
N/A
 (b)
  
If credit rating is investment
grade, fair value of fuel
derivative level at which:		     
Cash is provided to CP
>(100)
>(50)
>(75)
>(125)

>(40)
>(65)
>(100)
  
Cash is received from CP
>0(c)
>150(c)
>250(c)
>125(c)
>100(c)
>70(c)
>100(c)
  
If credit rating is non-investment
grade, fair value of fuel derivative level at which:		     
Cash is received from CP
 (d)
 (d)
 (d)
 (d)
 (d)
 (d)
 (d)
  
(a) Individual counterparties with fair value of fuel derivatives < $12 million.
(b) The Company has the option to substitute letters of credit for 100 percent of cash collateral requirement.
(c) Thresholds may vary based on changes in credit ratings within investment grade.
(d) Cash collateral is provided at 100 percent of fair value of fuel derivative contracts.

19
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


5.    COMPREHENSIVE INCOME

Comprehensive income includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting, unrealized gains and losses on certain investments, and actuarial gains/losses arising from the Company’s postretirement benefit obligation. The differences between Net income and Comprehensive income for the three and six months ended June 30, 2022 and 2021 were as follows:
 Three months ended June 30,
(in millions)20222021
NET INCOME$760 $348 
Unrealized gain (loss) on fuel derivative instruments, net of
  deferred taxes of ($29) and $61
(95)201 
Unrealized gain (loss) on interest rate derivative instruments, net of
  deferred taxes of $3 and ($1)
9 (5)
Total other comprehensive income (loss)$(86)$196 
COMPREHENSIVE INCOME$674 $544 

 Six months ended June 30,
(in millions)20222021
NET INCOME$482 $463 
Unrealized gain on fuel derivative instruments, net of
  deferred taxes of $122 and $92
403 301 
Unrealized gain on interest rate derivative instruments, net of
  deferred taxes of $5 and $1
14 6 
Other, net of deferred taxes of $— and ($13)
— (47)
Total other comprehensive income$417 $260 
COMPREHENSIVE INCOME$899 $723 


A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and six months ended June 30, 2022:
(in millions)Fuel derivativesInterest rate derivativesDefined benefit plan itemsDeferred taxAccumulated other comprehensive income
Balance at March 31, 2022$1,141 $(50)$66 $(266)$891 
Changes in fair value182 10 — (45)147 
Reclassification to earnings(306)2 — (a)71 (233)
Balance at June 30, 2022$1,017 $(38)$66 $(240)$805 


(in millions)Fuel derivativesInterest rate derivativesDefined benefit plan itemsDeferred taxAccumulated other comprehensive income
Balance at December 31, 2021$492 $(57)$66 $(113)$388 
Changes in fair value1,033 16 — (245)804 
Reclassification to earnings(508)3 — (a)118 (387)
Balance at June 30, 2022$1,017 $(38)$66 $(240)$805 

20
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)



The following table illustrates the significant amounts reclassified out of each component of AOCI for the three and six months ended June 30, 2022:
Three months ended June 30, 2022
(in millions)Amounts reclassified from AOCI
Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized gain on fuel derivative instruments$(306)Fuel and oil expense
(71)Less: Tax expense
$(235)Net of tax
Unrealized loss on interest rate derivative instruments$2 Other operating expenses
— Less: Tax expense
$2 Net of tax
Total reclassifications for the period$(233)Net of tax

Six months ended June 30, 2022
(in millions)Amounts reclassified from AOCI
Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized gain on fuel derivative instruments$(508)Fuel and oil expense
(119)Less: Tax expense
$(389)Net of tax
Unrealized loss on interest rate derivative instruments$3 Other operating expenses
1 Less: Tax expense
$2 Net of tax
Total reclassifications for the period$(387)Net of tax





6.    REVENUE

Passenger Revenues

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided.

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following table provides the components of Passenger revenue recognized for the three and six months ended June 30, 2022 and 2021:
 Three months ended June 30,Six months ended June 30,
(in millions)2022202120222021
Passenger non-loyalty$5,118 $2,875 $8,482 $4,230 
Passenger loyalty - air transportation821 549 1,445 826 
Passenger ancillary sold separately180 145 327 226 
Total passenger revenues$6,119 $3,569 $10,254 $5,282 

As of June 30, 2022, and December 31, 2021, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:
 Balance as of
(in millions)June 30, 2022December 31, 2021
Air traffic liability - passenger travel and ancillary passenger services$3,634 $2,936 
Air traffic liability - loyalty program4,884 4,789 
Total Air traffic liability$8,518 $7,725 

The balance in Air traffic liability - passenger travel and ancillary passenger services also includes unused funds that are available for use by Customers and are not currently associated with a ticket, although they remain reusable, for a period of time, in the form of a flight credit that can be applied towards the purchase of future travel. These flight credits are typically created as a result of a prior ticket cancellation or exchange. Rollforwards of the Company's Air traffic liability - loyalty program for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Three months ended June 30,Six months ended June 30,
2022202120222021
Air traffic liability - loyalty program - beginning balance$4,884 $4,623 $4,789 $4,447 
Amounts deferred associated with points awarded842 656 1,579 1,121 
Revenue recognized from points redeemed - Passenger(821)(549)(1,445)(826)
Revenue recognized from points redeemed - Other(21)(11)(39)(23)
Air traffic liability - loyalty program - ending balance$4,884 $4,719 $4,884 $4,719 

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date. Rollforwards of the amounts included in Air traffic liability as of June 30, 2022 and 2021 were as follows (in millions):

 Air traffic liability
Balance at December 31, 2021$7,725 
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)11,086 
Revenue from amounts included in contract liability opening balances(3,029)
Revenue from current period sales(7,264)
Balance at June 30, 2022$8,518 

 Air traffic liability
Balance at December 31, 2020$7,133 
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)6,851 
Revenue from amounts included in contract liability opening balances(1,600)
Revenue from current period sales(3,705)
Balance at June 30, 2021$8,679 

During 2020 and in parts of 2021, the Company experienced a significantly higher number of Customer-driven flight cancellations as a result of the COVID-19 pandemic. See Note 2 for further information. As a result, the amount of Customer flight credits held in Air traffic liability that are estimated to be redeemed for future travel as of June 30, 2022, remains much higher than historical levels. The amount of such Customer funds represents approximately 5 percent and 16 percent of the total Air traffic liability balance at June 30, 2022, and December 31, 2021, respectively, compared to approximately 2 percent of the Air traffic liability balance as of December 31, 2019. In order to provide additional flexibility to Customers who hold these funds, the Company significantly relaxed its previous policies with regards to the time period within which these funds can be redeemed, which is typically twelve months from the original date of purchase. For all Customer flight credits created or that would have otherwise expired between March 1 and September 7, 2020 associated with flight cancellations, the Company previously extended the expiration date to September 7, 2022. At June 30, 2022, $1.1 billion of extended Customer flight credits with a September 7, 2022 expiration date remained in Air traffic liability, although the Company has estimated that a portion of those will not be redeemed. As a result, recognition of these flight credits as flown revenue, refunds, or breakage revenue has created more volatility over the life of these funds compared to periods in which these extended funds did not exist.

On July 28, 2022, the Company announced that all existing Customer flight credits as of that date, as well as any future flight credits issued, will no longer expire and will thus remain redeemable by Customers. This announcement is considered a contract modification under applicable accounting guidance and the Company will account for such change prospectively beginning in third quarter 2022. The Company’s balance of existing Customer flight credits as of the modification date was approximately $1.9 billion, including the extended funds that had been set to expire on September 7, 2022. As the Company continues to believe that a portion of Customer flight credits will not be redeemed, it expects to continue to estimate and record breakage associated with such amounts, although the amount of breakage realized on a prospective basis is expected be lower and more stable than it has been during the pandemic. Flight credits result from canceling reservations and previously were valid for no longer than one year from the date of original purchase. Flight credits for non-refundable fares will be issued as long as the flight is cancelled more than 10 minutes prior to the scheduled departure.

Recognition of revenue associated with the Company’s loyalty liability can be difficult to predict, as the number of award seats available to Members is not currently restricted and they could choose to redeem their points at any time that a seat is available. The performance obligations classified as a current liability related to the Company’s loyalty program were estimated based on expected redemptions utilizing historical redemption patterns, and forecasted flight availability and fares. The entire balance classified as Air traffic liability—noncurrent relates to loyalty points that were estimated to be redeemed in periods beyond the twelve months following the representative balance sheet date. Based on historical experience as well as current forecasted redemptions, the Company expects the majority of loyalty points to be redeemed within approximately two years of the date the points are issued.

All performance obligations related to freight services sold are completed within twelve months or less; therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for freight shipments.

Other revenues primarily consist of marketing royalties associated with the Company’s co-brand Chase® Visa credit card, but also include commissions and advertising associated with Southwest.com®. All amounts classified as Other revenues are paid monthly, coinciding with the Company fulfilling its deliverables; therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for such services provided.

The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase, within Other operating revenues. For the three months ended June 30, 2022 and 2021, the Company recognized $522 million and $352 million, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized $1.0 billion and $632 million, respectively.

The Company is also required to collect certain taxes and fees from Customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis. These taxes and fees include foreign and U.S. federal transportation taxes, federal security charges, and airport passenger facility charges. These items are collected from Customers at the time they purchase their tickets, are excluded from the contract transaction price, and are therefore not included in Passenger revenue. The Company records a liability upon collection from the Customer and relieves the liability when payments are remitted to the applicable governmental agency.    

7.    NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in millions, except per share amounts). For the three and six months ended June 30, 2022, an immaterial number of shares related to the Company's restricted stock units and stock warrants were excluded from the denominator because inclusion of such shares would be antidilutive. For the three and six months ended June 30, 2021, an immaterial number of shares
21
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


related to the Company's restricted stock units were excluded from the denominator because inclusion of such shares would be antidilutive.
Three months ended June 30,Six months ended June 30,
 2022202120222021
NUMERATOR:
Net income$760 $348 $482 $463 
Add: Interest expense4 (a)— 8 (a)— 
Net income attributable to common stockholders764 348 490 463 
DENOMINATOR:
Weighted-average shares outstanding, basic593 591 593 591 
Dilutive effects of Convertible Notes 41 (a)22 (b)46 (a)19 (b)
Dilutive effect of stock warrants— 1 — 1 
Dilutive effect of restricted stock units1 1 1 1 
Adjusted weighted-average shares outstanding, diluted635 615 640 612 
NET INCOME PER SHARE:
Basic$1.29 $0.59 $0.83 $0.78 
Diluted$1.20 $0.57 $0.77 $0.76 

(a) As of January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method. The standard requires the Company to apply the if-converted method for purposes of Net income per share. Using this method, the numerator is affected by adding back interest expense and the denominator is affected by including the effect of potential share settlement, if the effect is more dilutive, regardless of the type of settlement. For the three and six months ended June 30, 2022, all shares issuable on conversion were included in the denominator. See Notes 3 and 11 for further information regarding the new standard and the Convertible Notes.
(b) Prior to the adoption of ASU 2020-06, the Convertible Notes were accounted for using the treasury stock method for the purposes of Net income per share. For the three and six months ended June 30, 2021, the average market price of the Company's common stock exceeded the conversion price per share of $38.48 and as such, the common shares underlying the Convertible Notes were included in the diluted calculation.

8.    FAIR VALUE MEASUREMENTS

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2022, the Company held certain items that are required to be measured at fair value on a recurring basis. These included cash equivalents, short-term investments (primarily treasury bills and time deposits), interest rate derivative contracts, fuel derivative contracts, and available-for-sale securities. The majority of the Company’s short-term investments consist of instruments classified as Level 1. However, the Company has certificates of deposit, commercial paper, and time deposits that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets. Equity securities primarily consist of investments with readily determinable market values associated with the Company’s excess benefit plan.

The Company’s fuel and interest rate derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. Fuel derivative instruments currently consist solely of option contracts, whereas
22
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


interest rate derivatives consist solely of swap agreements. See Note 4 for further information on the Company’s derivative instruments and hedging activities. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these swap contracts as Level 2. The Company’s Treasury Department, which reports to the Chief Financial Officer, determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts. The option pricing model used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties). The inputs to this option pricing model are the option strike price, underlying price, risk free rate of interest, time to expiration, and volatility. Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company has categorized these option contracts as Level 3. Volatility information is obtained from external sources, but is analyzed by the Company for reasonableness and compared to similar information received from other external sources. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party valuations. If any significant differences were to be noted, they would be researched in order to determine the reason. However, historically, no significant differences have been noted. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

Included in Other available-for-sale securities are the Company’s investments associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available. These plans are non-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended. The distribution timing and payment amounts under these plans are made based on the participant’s distribution election and plan balance. Assets related to the funded portions of the deferred compensation plans are held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plans. The Company records changes in the fair value of plan obligations and plan assets, which net to zero, within the Salaries, wages, and benefits line and Other (gains) losses line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Income.

23
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022, and December 31, 2021:
  Fair value measurements at reporting date using:
Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputs
DescriptionJune 30, 2022(Level 1)(Level 2)(Level 3)
Assets(in millions)
Cash equivalents:    
Cash equivalents (a)$12,964 $12,964 $— $— 
Commercial paper270 — 270 — 
Short-term investments: 
Treasury bills2,432 2,432 — — 
Certificates of deposit90 — 90 — 
Time deposits675 — 675 — 
Fuel derivatives: 
Option contracts (b)1,294 — — 1,294 
Interest rate derivatives (see Note 4)11 — 11 — 
Equity Securities225 225 — — 
Total assets$17,961 $15,621 $1,046 $1,294 
Liabilities    
Fuel derivatives:
Option contracts (b)$(167)$— $— $(167)
(a) Cash equivalents are primarily composed of money market investments.
(b) In the unaudited Condensed Consolidated Balance Sheet amounts are presented as a net asset. See Note 4.
  Fair value measurements at reporting date using:
Quoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputs
DescriptionDecember 31, 2021(Level 1)(Level 2)(Level 3)
Assets(in millions)
Cash equivalents:   
Cash equivalents (a)$12,340 $12,340 $— $— 
Commercial paper90 — 90 — 
Time deposits50 — 50 — 
Short-term investments:    
Treasury bills2,399 2,399 — — 
Time deposits625 — 625 — 
Fuel derivatives:    
Option contracts (b)696 — — 696 
Equity Securities288 288 — — 
Total assets$16,488 $15,027 $765 $696 
Liabilities    
Interest rate derivatives (see Note 4)$(4)$— $(4)$— 
(a) Cash equivalents are primarily composed of money market investments.
(b) In the unaudited Condensed Consolidated Balance Sheet amounts are presented as an asset. See Note 4.

24
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2022, or the year ended December 31, 2021. The following tables present the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2022:
Fair value measurements using significant unobservable inputs (Level 3)
(in millions)Fuel derivatives
Balance at March 31, 2022$1,273 
Total gains for the period
Included in earnings20 (a)
Included in other comprehensive income182 
Sales(16)(b)
Settlements(332)
Balance at June 30, 2022$1,127 
The amount of total gains for the period
  included in earnings attributable to the
  change in unrealized gains or losses relating
  to assets still held at June 30, 2022
$20 (a)
The amount of total gains for the period
  included in other comprehensive income attributable to the
  change in unrealized gains or losses relating
  to assets still held at June 30, 2022
$115 
(a) Included in Other (gains) losses, net, within the unaudited Condensed Consolidated Statement of Comprehensive Income.
(b) The sale of fuel derivatives is recorded gross based on the structure of the derivative instrument and whether a contract with multiple derivatives was purchased as a single instrument or separate instruments.

Fair value measurements using significant unobservable inputs (Level 3)
(in millions)Fuel derivatives
Balance at December 31, 2021$696 
Total gains (losses) for the period
Included in earnings(15)(a)
Included in other comprehensive income1,033 
Sales(26)(b)
Settlements(561)
Balance at June 30, 2022$1,127 
The amount of total losses for the period
  included in earnings attributable to the
  change in unrealized gains or losses relating
  to assets still held at June 30, 2022		$(15)(a)
The amount of total gains for the period
  included in other comprehensive income attributable to the
  change in unrealized gains or losses relating
  to assets still held at June 30, 2022		$672 
(a) Included in Other (gains) losses, net, within the unaudited Condensed Consolidated Statement of Comprehensive Income.
(b) The sale of fuel derivatives is recorded gross based on the structure of the derivative instrument and whether a contract with multiple derivatives was purchased as a single instrument or separate instruments.

The significant unobservable input used in the fair value measurement of the Company’s derivative option contracts is implied volatility. Holding other inputs constant, an increase (decrease) in implied volatility would have resulted in a higher (lower) fair value measurement, respectively, for the Company’s derivative option contracts.

25
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


The following table presents a range and weighted average of the unobservable inputs utilized in the fair value measurements of the Company’s fuel derivatives classified as Level 3 at June 30, 2022:
Quantitative information about Level 3 fair value measurements
 Valuation techniqueUnobservable inputPeriod (by year)RangeWeighted Average (a)
Fuel derivativesOption modelImplied volatilityThird quarter 2022
28-68%
48 %
Fourth quarter 2022
44-65%
53 %
2023
38-58%
50 %
2024
34-48%
39 %
(a) Implied volatility weighted by the notional amount (barrels of fuel) that will settle in respective period.

The carrying amounts and estimated fair values of the Company’s short-term and long-term debt (including current maturities), as well as the applicable fair value hierarchy tier, at June 30, 2022, are presented in the table below. The fair values of the Company’s publicly held long-term debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized these agreements as Level 2. All privately held debt agreements are categorized as Level 3. The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.
(in millions)Carrying valueEstimated fair valueFair value level hierarchy
2.75% Notes due November 2022
$300 $300 Level 2
Pass Through Certificates due August 2022 - 6.19%
33 33 Level 2
4.75% Notes due 2023
1,247 1,259 Level 2
1.25% Convertible Notes due 2025
1,795 2,121 Level 2
5.25% Notes due 2025
1,549 1,582 Level 2
3.00% Notes due 2026
300 281 Level 2
3.45% Notes due 2027
300 282 Level 2
5.125% Notes due 2027
1,944 1,963 Level 2
7.375% Debentures due 2027
115 126 Level 2
2.625% Notes due 2030
500 423 Level 2
1.000% PSP1 due 2030
976 900 Level 3
1.000% PSP2 due 2031
566 510 Level 3
1.000% PSP3 due 2031
526 470 Level 3


26
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


9. SUPPLEMENTAL FINANCIAL INFORMATION
(in millions)June 30, 2022December 31, 2021
Trade receivables$59 $58 
Credit card receivables166 83 
Business partners and other suppliers541 432 
Taxes receivable (a)219 699 
Fuel hedging and receivables125 8 
Other279 77 
Accounts and other receivables$1,389 $1,357 
(in millions)June 30, 2022December 31, 2021
Derivative contracts$221 $192 
Intangible assets, net295 295 
Other331 395 
Other assets$847 $882 
(in millions)June 30, 2022December 31, 2021
Accounts payable trade$395 $156 
Salaries payable340 287 
Taxes payable excluding income taxes318 200 
Aircraft maintenance payable69 42 
Fuel payable260 170 
Other payable526 427 
Accounts payable$1,908 $1,282 
(in millions)June 30, 2022December 31, 2021
Voluntary Separation Program$79 $92 
Profitsharing and savings plans154 262 
Vacation pay463 451 
Health231 152 
Workers compensation155 141 
Property and income taxes58 65 
Interest96 46 
Deferred supplier payments (b)— 80 
Other351 335 
Accrued liabilities$1,587 $1,624 
(in millions)June 30, 2022December 31, 2021
Voluntary Separation Program$190 $233 
Postretirement obligation334 330 
Other deferred compensation302 369 
Other270 292 
Other noncurrent liabilities$1,096 $1,224 
27
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


(a) This amount includes approximately $472 million as of December 31, 2021 associated with a significant cash tax refund expected as a result of the CARES Act allowing entities to carry back 2020 losses to prior periods of up to five years, and claim refunds of federal taxes paid. The refund was received by the Company during second quarter 2022. These amounts as of June 30, 2022 and December 31, 2021 also include excise taxes remitted to taxing authorities for which the subsequent flights were canceled by Customers, resulting in amounts due back to the Company.
(b) Represents amounts owed at December 31, 2021 for aircraft deliveries received that will be relieved via future payments to supplier.

For further information on fuel derivative and interest rate derivative contracts, see Note 4.

Other Operating Expenses
Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, and other operating costs, none of which individually exceeded 10 percent of Operating expenses.

10.    COMMITMENTS AND CONTINGENCIES

Dallas Love Field
During 2008, the City of Dallas approved the Love Field Modernization Project ("LFMP"), a project to reconstruct Dallas Love Field with modern, convenient air travel facilities. Pursuant to a Program Development Agreement with the City of Dallas and the Love Field Airport Modernization Corporation (or the "LFAMC," a Texas non-profit "local government corporation" established by the City of Dallas to act on the City of Dallas' behalf to facilitate the development of the LFMP), the Company managed this project. Major construction was effectively completed in 2014. During second quarter 2017, the City of Dallas approved using the remaining bond funds for additional terminal construction projects, which were effectively completed in 2018.

Although the City of Dallas received commitments from various sources that helped to fund portions of the LFMP project, including the Federal Aviation Administration ("FAA"), the Transportation Security Administration, and the City of Dallas' Aviation Fund, the majority of the funds used were from the issuance of bonds. The Company guaranteed principal and interest payments on bonds issued by the LFAMC (the "Series 2010" bonds and the "Series 2012" bonds). Given the Company’s guarantee associated with the bonds issued to fund LFMP, the remaining debt service amount was considered a minimum lease payment under the adoption of ASC Topic 842, Leases, and therefore was recorded as a lease liability with a corresponding right-of-use asset within the Company’s unaudited Condensed Consolidated Balance Sheet.

All of the outstanding Series 2010 bonds, in the principal amount of $310 million, were redeemed by LFAMC on September 28, 2021 (Redemption Date). As the Series 2010 bonds have been fully repaid following the Redemption Date, the Company's guarantee associated with the Series 2010 bonds no longer exists.

As of June 30, 2022, $79 million of principal remained outstanding associated with the Series 2012 bonds. The net present value of the future principal and interest payments associated with the Series 2012 bonds was $88 million as of June 30, 2022, and was reflected as part of the Company's operating lease right-of-use assets and lease obligations in the unaudited Condensed Consolidated Balance Sheet.

Contractual Obligations and Contingent Liabilities and Commitments

During second quarter 2022, the Company entered into supplemental agreements with The Boeing Company ("Boeing") to replace the majority of its 2022 Boeing 737-7 ("-7") firm orders with Boeing 737-8 ("-8") firm orders, among other adjustments to its near-term contractual order book. The Company also exercised 20 -8 options for delivery in 2022, exercised four -7 options for delivery in 2023, exercised three -8 options for delivery in 2023, and accelerated and exercised 17 2023 -8 options for delivery in 2022.

While the Company is contractually scheduled to receive 114 MAX deliveries, including options, this year, a portion of its deliveries are expected to shift into 2023 due to Boeing's supply chain challenges and the current
28
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


status of the -7 certification. Based on recent discussions with Boeing regarding the pace of expected deliveries for the remainder of this year, the Company is currently estimating it will receive a total of 66 -8 aircraft deliveries and no -7 deliveries in 2022. The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize. Given the current supply chain and aircraft delivery delays, the Company will continue working with Boeing on the Company's contractual order book with focus on 2022 and 2023. Additional information regarding the Company's contractual order book is included in the following table as of June 30, 2022:
The Boeing Company
-7 Firm Orders-8 Firm Orders-7 or -8 OptionsTotal
202214 95 5 114 (c)
202386 — 4 90 
202430 — 56 86 
202530 — 56 86 
202615 15 40 70 
202715 15 6 36 
202815 15 — 30 
202920 30 — 50 
203015 45 — 60 
2031— 10 — 10 
240(a)225(b)167632

(a) The delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurance that current estimations and timelines are correct.
(b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract.
(c) Includes 12 -8 deliveries received through June 30, 2022, 23 expected -8 deliveries in third quarter 2022, and 31 expected -8 deliveries in fourth quarter 2022, for a total of 66 -8 deliveries in 2022. While the Company is contractually scheduled to receive 114 MAX deliveries, including options, this year, a portion of its deliveries are expected to shift into 2023 due to Boeing's supply chain challenges and the current status of the -7 certification. Furthermore, given the current ongoing status of the -7 certification and pace of expected deliveries for the remainder of this year, it is the Company's assumption that it will receive no -7 aircraft deliveries in 2022, and has the ability to convert -7s to -8s as noted in footnote (b).

Based on the Company's existing agreement with Boeing, capital commitments associated with its firm orders as of June 30, 2022, were: $2.4 billion remaining in 2022, $2.2 billion in 2023, $910 million in 2024, $845 million in 2025, $984 million in 2026, $1.0 billion in 2027, and $6.3 billion thereafter.

In addition, subsequent to June 30, 2022, and through August 1, 2022, due to the current status of the -7 certification, the Company converted 48 2023 -7 firm orders to -8 firm orders in 2023. These conversions did not result in a significant change to the Company's commitments as of June 30, 2022.

Contingencies
The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business and records a liability for such claims when it is probable that a loss will be incurred and the amount is reasonably estimable. In recent years, the airline industry has experienced an increase in litigation asserting the application of state and local employment laws, particularly in California. On June 30, 2022, the U.S. Supreme Court denied review of the Ninth Circuit’s ruling in Bernstein v. Virgin America, Inc., which held that federal law did not preempt the California state meal-and-rest-break regulations for flight attendants at issue. The Company is a defendant in multiple proceedings asserting wage and hour claims with respect to certain employees who work in, or are based in, California. The Bernstein decision may adversely affect the Company’s defenses in some or all of those proceedings and may give rise to additional litigation in these or other areas previously believed to be preempted by federal law. The Company is currently not able to estimate a range of possible loss.
29
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)





11. FINANCING ACTIVITIES

On May 1, 2020, the Company completed the public offering of $2.3 billion aggregate principal amount of Convertible Notes. The Convertible Notes bear interest at a rate of 1.25% and will mature on May 1, 2025. Interest on the notes is payable semi-annually in arrears on May 1 and November 1, beginning November 1, 2020.

Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering documents. As of June 30, 2022, the conditions were not met that would allow holders to exercise their conversion option.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. The Company intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in cash or shares of common stock. The initial conversion rate is 25.9909 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $38.48 per share of common stock).

Upon issuance, the Company bifurcated the Convertible Notes for accounting purposes between a liability component and an equity component utilizing applicable guidance. The liability component was determined by estimating the fair value of a hypothetical issuance of an identical offering excluding the conversion feature of the Convertible Notes. The initial carrying amount of the equity component was calculated as the difference between the liability component and the face amount of the Convertible Notes.

The Company adopted ASU 2020-06, as of January 1, 2022, utilizing the modified retrospective method approach. See Note 3 for further information. Upon adoption, the Company reclassified the remaining equity component, of $300 million, from Additional paid-in capital to Long-term debt associated with its Convertible Notes, and no longer records amortization of the debt discount to Interest expense. The following table details the equity and liability component recognized related to the Convertible Notes, prior to and following the adoption of ASU 2020-06:
(in millions)June 30, 2022December 31, 2021
Equity component:
     Carrying amount of Convertible Notes$— $311 
     Carrying amount of issuance costs— (11)
Net carrying amount$— $300 
Liability component:
Principal amount$1,795 $2,097 
Unamortized debt discount— (255)
Net carrying amount$1,795 $1,842 

The Company recognized interest expense associated with the Convertible Notes as follows:
30
Southwest Airlines Co.
Notes to Condensed Consolidated Financial Statements
(unaudited)


Three months ended June 30,Six months ended June 30,
(in millions)2022202120222021
Non-cash amortization of the debt discount$— $19 $— $37 
Non-cash amortization of debt issuance costs3 2 7 4 
Contractual coupon interest6 7 12 15 
Total interest expense$9 $28 $19 $56 

The unamortized debt issuance costs are being recognized as non-cash interest expense based on the 5-year term of the notes, through May 1, 2025, less amounts that were or will be required to be accelerated immediately upon conversion or repurchases. The Company had no changes to conversion terms, contingencies, or exercise prices during the six months ended June 30, 2022. The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three and six months ended June 30, 2022.

During the three and six months ended June 30, 2022, the Company paid $231 million and $555 million, respectively, in debt and finance lease obligations, which included scheduled debt and lease payments, extinguishment of Convertible Notes, and the early prepayment of debt. The following tables present the impact of the partial extinguishment of the Company's Convertible Notes and early prepayment of debt within the unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2022:
Three months ended June 30, 2022
(in millions) Cash paymentPrincipal repaymentLoss on extinguishment (a)Non-cash amortization of debt discount and (issuance) costs
1.25% Convertible Notes due 2025
$178 $138 $42 $(2)
5.125% Notes due 2027
$27 $26 $1 $— 
4.75% Notes due 2023
3 3 — — 
5.25% Notes due 2025
1 1 — — 
Total$209 $168 $43 $(2)

Six months ended June 30, 2022
(in millions)Cash paymentPrincipal repaymentLoss on extinguishment (a)Non-cash amortization of debt discount and (issuance) costs
1.25% Convertible Notes due 2025
$409 $302 $112 $(5)
5.125% Notes due 2027
$61 $56 $4 $1 
4.75% Notes due 2023
3 3 — — 
5.25% Notes due 2025
1 1 — — 
Total$474 $362 $116 $(4)
(a) Reflected in Other (gains) losses, net.

The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended A&R Credit Agreement"). In July 2022, this facility was amended to extend the expiration date to August 2025, and to change the benchmark rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate ("SOFR"). There were no amounts outstanding under the Amended A&R Credit Agreement as of June 30, 2022.


31
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

Relevant comparative operating statistics for the three and six months ended June 30, 2022, 2021, and 2019 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers. For the three and six months ended June 30, 2022, the Company believes a comparison of its 2022 to 2019 (pre-pandemic) operating statistics is relevant and useful as the Company continues to recover from the pandemic. For the three and six months ended June 30, 2021, and 2022, most of these operating statistics were significantly impacted by the COVID-19 pandemic and decisions the Company made as a result of the pandemic. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
 Three months ended June 30,
 202220212022 Change to 202120192022 Change to 2019
Revenue passengers carried (000s)33,224 26,158 27.0 %34,924 (4.9)%
Enplaned passengers (000s)41,284 32,786 25.9 %42,569 (3.0)%
Revenue passenger miles (RPMs) (in millions)(a)
32,523 27,689 17.5 %34,528 (5.8)%
Available seat miles (ASMs) (in millions)(b)
37,322 33,414 11.7 %39,985 (6.7)%
Load factor(c)
87.1 %82.9 %4.2 pts.86.4 %0.7 pts.
Average length of passenger haul (miles)979 1,059 (7.6)%989 (1.0)%
Average aircraft stage length (miles)727 794 (8.4)%750 (3.1)%
Trips flown326,848 268,879 21.6 %347,684 (6.0)%
Seats flown (000s)(d)
50,758 41,836 21.3 %52,398 (3.1)%
Seats per trip(e)
155.3 155.6 (0.2)%150.7 3.1 %
Average passenger fare$184.17 $136.46 35.0 %$157.10 17.2 %
Passenger revenue yield per RPM (cents)(f)
18.81 12.89 45.9 %15.89 18.4 %
Operating revenues per ASM (cents)(g)
18.03 11.99 50.4 %14.78 22.0 %
Passenger revenue per ASM (cents)(h)
16.39 10.68 53.5 %13.72 19.5 %
Operating expenses per ASM (cents)(i)
14.92 10.22 46.0 %12.36 20.7 %
Operating expenses per ASM, excluding fuel (cents)10.54 7.81 35.0 %9.52 10.7 %
Operating expenses per ASM, excluding fuel and profitsharing (cents)10.32 7.56 36.5 %9.09 13.5 %
Fuel costs per gallon, including fuel tax$3.36 $1.88 78.7 %$2.13 57.7 %
Fuel costs per gallon, including fuel tax, economic$3.36 $1.92 75.0 %$2.13 57.7 %
Fuel consumed, in gallons (millions)486 426 14.1 %532 (8.6)%
Active fulltime equivalent Employees(j)
62,333 54,448 14.5 %59,793 4.2 %
Aircraft at end of period(k)
730 736 (0.8)%753 (3.1)%

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 Six months ended June 30,
 202220212022 Change to 202120192022 Change to 2019
Revenue passengers carried (000s)59,253 40,383 46.7 %66,220 (10.5)%
Enplaned passengers (000s)73,289 50,713 44.5 %80,382 (8.8)%
Revenue passenger miles (RPMs) (in millions)(a)
59,006 42,565 38.6 %65,232 (9.5)%
Available seat miles (ASMs) (in millions)(b)
71,706 56,561 26.8 %77,871 (7.9)%
Load factor(c)
82.3 %75.3 %7.0 pts.83.8 %(1.5)pts.
Average length of passenger haul (miles)996 1,054 (5.5)%985 1.1 %
Average aircraft stage length (miles)745 785 (5.1)%751 (0.8)%
Trips flown614,599 461,280 33.2 %674,074 (8.8)%
Seats flown (000s)(d)
95,305 71,627 33.1 %101,871 (6.4)%
Seats per trip(e)
155.1 155.3 (0.1)%151.1 2.6 %
Average passenger fare$173.06 $130.79 32.3 %$154.50 12.0 %
Passenger revenue yield per RPM (cents)(f)
17.38 12.41 40.0 %15.68 10.8 %
Operating revenues per ASM (cents)(g)
15.93 10.71 48.7 %14.20 12.2 %
Passenger revenue per ASM (cents)(h)
14.30 9.34 53.1 %13.14 8.8 %
Operating expenses per ASM (cents)(i)
14.52 9.31 56.0 %12.31 18.0 %
Operating expenses per ASM, excluding fuel (cents)10.84 7.06 53.5 %9.55 13.5 %
Operating expenses per ASM, excluding fuel and profitsharing (cents)10.68 6.87 55.5 %9.21 16.0 %
Fuel costs per gallon, including fuel tax$2.86 $1.78 60.7 %$2.09 36.8 %
Fuel costs per gallon, including fuel tax, economic$2.86 $1.83 56.3 %$2.09 36.8 %
Fuel consumed, in gallons (millions)923 712 29.6 %1,026 (10.0)%
Active fulltime equivalent Employees(j)
62,333 54,448 14.5 %59,793 4.2 %
Aircraft at end of period(k)
730 736 (0.8)%753 (3.1)%

(a) A revenue passenger mile is one paying passenger flown one mile. Also referred to as "traffic," which is a measure of demand for a given period.
(b) An available seat mile is one seat (empty or full) flown one mile. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period.
(c) Revenue passenger miles divided by available seat miles.
(d) Seats flown is calculated using total number of seats available by aircraft type multiplied by the total trips flown by the same aircraft type during a particular period.
(e) Seats per trip is calculated by dividing seats flown by trips flown.
(f) Calculated as passenger revenue divided by revenue passenger miles. Also referred to as "yield," this is the average cost paid by a paying passenger to fly one mile, which is a measure of revenue production and fares.
(g) Calculated as operating revenues divided by available seat miles. Also referred to as "operating unit revenues" or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period.
(h) Calculated as passenger revenue divided by available seat miles. Also referred to as "passenger unit revenues," this is a measure of passenger revenue production based on the total available seat miles flown during a particular period.
(i) Calculated as operating expenses divided by available seat miles. Also referred to as "unit costs", "cost per available seat mile," or "CASM" this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies.
(j) Included 1,446 Employees on Extended Emergency Time Off as of June 30, 2021. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
(k) Included four and 39 Boeing 737 Next Generation aircraft in storage as of June 30, 2022 and June 30, 2021, respectively. Included 34 Boeing 737 MAX ("MAX") aircraft in long term storage as of June 30, 2019.

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Table of Contents
Financial Overview

The Company's financial results in 2021 were impacted and in 2022 have continued to be impacted, by the effects of the COVID-19 pandemic, which began in early 2020, on both an accounting principles generally accepted in the United States ("GAAP") and Non-GAAP basis. Although demand for leisure travel surged in second quarter 2022 and second quarter 2022 Operating revenues exceeded second quarter 2019 Operating revenues, both capacity (or ASMs) and business travel remained below comparable 2019 levels primarily due to available staffing constraints, in particular Pilots. In addition, GAAP results for the three and six months ended June 30, 2021, included impacts associated with payroll funding support ("Payroll Support") programs with the United States Department of the Treasury ("Treasury"), as referenced in Note 2 to the unaudited Condensed Consolidated Financial Statements.

The Company recorded second quarter and year-to-date GAAP and non-GAAP results for 2022, 2021, and 2019 as noted in the following tables. The Company believes comparisons of current year financial results to 2019 continue to be relevant given the significant impacts resulting from the pandemic. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
 Three months ended June 30,
(in millions, except per share amounts)
GAAP202220212022 Change to 202120192022 Change to 2019
Operating income$1,158 $594 94.9 %$968 19.6 %
Net income$760 $348 118.4 %$741 2.6 %
Net income per share, diluted$1.20 $0.57 110.7 %$1.37 (12.3)%
  
Non-GAAP
Operating income (loss)$1,173 $(162)n.m.$968 21.2 %
Net income (loss)$825 $(206)n.m.$741 11.3 %
Net income per share, diluted$1.30 $(0.35)n.m.$1.37 (4.9)%

 Six months ended June 30,
(in millions, except per share amounts)
GAAP202220212022 Change to 202120192022 Change to 2019
Operating income$1,007 $793 27.0 %$1,473 (31.6)%
Net income$482 $463 4.1 %$1,128 (57.3)%
Net income per share, diluted$0.77 $0.76 0.7 %$2.06 (62.9)%
  
Non-GAAP
Operating income (loss)$1,038 $(1,431)n.m.$1,473 (29.5)%
Net income (loss)$633 $(1,221)n.m.$1,128 (43.9)%
Net income per share, diluted$1.00 $(2.07)n.m.$2.06 (51.4)%

The Company's financial results for the three and six months ended June 30, 2022, exceeded the comparative 2021 financial results despite $724 million and $1.9 billion in grant allocations of Payroll Support from Treasury during the three and six months ended June 30, 2021, respectively, utilized to fund a portion of salaries, wages, and benefits. See below and Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. On a non-GAAP basis, the Company's Operating income (loss) and Net income (loss) improved significantly in the three and six months ended June 30, 2022, versus the same prior year period due to the
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significant recovery in travel demand, which was aided by a reduction in COVID-19 cases and hospitalizations, an increase in vaccinations, and a decline in travel-related restrictions across the United States. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures. These impacts combined resulted in a 67.9 percent and 88.5 percent increase in Operating revenues for the three and six months ended June 30, 2022, respectively, versus the same prior year periods. Operating revenues for the three and six months ended June 30, 2022, exceeded the comparative 2019 pre-pandemic levels primarily due to higher yields, despite the slight decrease in capacity. Operating expenses for the three and six months ended June 30, 2022, exceeded the comparative pre-pandemic 2019 levels primarily due to higher salaries, wages, and benefits and fuel prices.

2022 Outlook

The following tables present current selected financial guidance for third quarter and full year 2022:
3Q 2022 Estimation
Operating revenue compared with 2019 (a)Up 8% to 12%
ASMs compared with 2019 (b)~Flat
Economic fuel costs per gallon (c)(d)$3.25 to $3.35
Fuel hedging premium expense per gallon$0.02
Fuel hedging cash settlement gains per gallon$0.46
ASMs per gallon (fuel efficiency)76 to 78
CASM-X (e) compared with 2019 (f)Up 12% to 15%
Scheduled debt repayments (millions)~$55
Interest expense (millions)~$90
Aircraft (g)741

 2022 Estimation
ASMs compared with 2019 (b)Down ~4%
Economic fuel costs per gallon (c)(d)$2.95 to $3.05
Fuel hedging premium expense per gallon$0.04
Fuel hedging cash settlement gains per gallon$0.51
CASM-X (e) compared with 2019 (f)Up 12% to 16%
Scheduled debt repayments (millions)~$820
Interest expense (millions)~$360
Aircraft (g)765
Effective tax rate24% to 26%
Capital spending (billions) (h)~$4.0
(a) The Company believes that operating revenues compared with 2019 is a relevant measure of performance due to the significant impacts in 2020 and 2021 from the pandemic.
(b) Available seat miles (ASMs, or capacity). The Company's flight schedule is currently published for sale through March 8, 2023. The Company currently expects fourth quarter 2022 capacity to be down in the range of 1 percent to 2 percent compared with fourth quarter 2019, and first quarter 2023 capacity to be up approximately 10 percent, compared with first quarter 2022.
(c) See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items. In addition, information regarding special items and economic results is included in the accompanying table Reconciliation of Reported Amounts to Non-GAAP Items (also referred to as "excluding special items").
(d) Based on the Company's existing fuel derivative contracts and market prices as of July 21, 2022, third quarter, fourth quarter, and full year 2022 economic fuel costs per gallon are estimated to be in the range of $3.25 to $3.35, $3.00 to $3.10, and $2.95 to $3.05, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, the impact of COVID-19 cases on air travel demand, or the impact to its financial statements in future periods. Accordingly, the
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Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
(e) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profitsharing.
(f) Projections do not reflect the potential impact of fuel and oil expense, special items, and profitsharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for these projected results is not meaningful or available without unreasonable effort.
(g) Aircraft on property, end of period. The Company ended second quarter 2022 with 730 Boeing 737 aircraft. During third quarter 2022, the Company expects to take delivery of 23 Boeing 737 MAX 8 (-8) aircraft and retire 12 Boeing 737-700 (-700) aircraft to end the quarter with 741 aircraft. During fourth quarter 2022, the Company expects to take delivery of 31 -8 aircraft and retire seven -700 aircraft to end the year with 765 aircraft. The delivery schedule for the Boeing 737 MAX 7 (-7) is dependent on the Federal Aviation Administration ("FAA") issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct. Furthermore, given the current ongoing status of the -7 certification and pace of expected deliveries for the remainder of this year, it is the Company's assumption that it will receive no -7 aircraft deliveries in 2022, and that the remaining 48 Boeing 737 MAX (MAX) aircraft reflected in its 2022 contractual order book will shift into 2023.
(h) Represents the Company's current expectation which assumes the exercise of its five remaining 2022 MAX aircraft delivery options, and a total of 66 -8 aircraft deliveries in 2022, compared with the Company's previous estimation which assumed the delivery of 114 MAX aircraft in 2022. The Company continues to estimate $900 million in non-aircraft capital spending in 2022.

COVID-19 Pandemic Impacts
As detailed in Note 2 to the unaudited Condensed Consolidated Financial Statements, in connection with the major negative impact of COVID-19 on air carriers, the Company has received significant financial assistance from Treasury in the form of Payroll Support, and this assistance had a significant impact on the Company's reported GAAP financial results in 2021. Such impact ended in third quarter 2021, and the Company's 2022 results do not reflect the benefit of this Payroll Support, and its future periods are not expected to benefit from such Payroll Support. However, future cash flows will be impacted through the portion of Payroll Support that was in the form of loans that will have to be repaid to Treasury.

During second quarter 2020, the Company introduced Voluntary Separation Program 2020 ("Voluntary Separation Program") and the Extended Emergency Time Off ("Extended ETO") program which helped closer align staffing to reduced flight schedules and enabled the Company to avoid involuntary furloughs and layoffs associated with the impacts of the pandemic. Approximately 16,000 Employees elected to participate in one of these programs. All Employees that elected to participate in the Extended ETO program have since returned or been recalled to work, or have chosen to permanently separate from the Company, and no Employees were on Extended ETO past March 31, 2022. The Company realized approximately $1.1 billion of full year 2021 cost savings from the Voluntary Separation Program and Extended ETO but expects no material cost savings from these programs in 2022 and beyond. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
The Company met its 2021 hiring goals and plans to add over 10,000 Employees, net of attrition, in 2022. The Company continues to strive to provide sufficient and optimized staffing to support its anticipated flight schedule plans for 2022 and beyond. For the three and six months ended June 30, 2022, the Company hired approximately 4,000 and 7,300 Employees, respectively, net of attrition, and returned to overall pre-pandemic staffing levels in May 2022. The Company has been making additional investments to attract and retain talent, including the decision in fourth quarter 2021 to further raise the Company's starting hourly pay rates from $15 per hour to $17 per hour for certain of its workgroups, subject, in each case, to acceptance of such change by the applicable union.
Company Overview

The Company has entered into supplemental agreements with The Boeing Company ("Boeing") to increase aircraft orders and accelerate certain options with the goal of improving potential growth opportunities, restoring its network closer to pre-pandemic levels, lowering operating costs, and further modernizing its fleet with less carbon-
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intensive aircraft. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information. The Company continues to expect that more than half of the MAX aircraft in its firm order book will replace a significant amount of its 442 Boeing 737-700 ("-700") aircraft over the next 10 to 15 years to support the modernization of the Company's fleet, a key component of its environmental sustainability efforts.

For first half 2022, the Company was scheduled to receive 28 -8 aircraft, of which only 12 were received, all during second quarter 2022. The Company ended second quarter 2022 with 730 aircraft, which reflects four owned -700 retirements. In addition, the Company had four -700 aircraft in storage as of June 30, 2022, all of which were subsequently retired from the Company's fleet in July 2022. The Company is experiencing delays in aircraft deliveries from Boeing and now estimates 2022 deliveries to be 66 versus the previously expected 114. The Company is currently assuming 23 and 31 -8 aircraft deliveries in third quarter and fourth quarter 2022, respectively. The Company plans to retire 12 and seven -700 aircraft in third quarter and fourth quarter 2022, respectively. As a result, the Company expects to end third quarter with 741 aircraft and end 2022 with 765 aircraft, compared with its previous guidance of 814 aircraft. The Company now expects to retire 29 -700 aircraft in 2022, compared with its previous guidance of 28 -700 retirements this year.

The Company has published its flight schedule through March 8, 2023. During 2022, the Company is focusing on restoring its network, primarily in cities with a very strong Customer base, by adding city pair frequencies and connecting new service with existing points-of-strength to increase Customer depth.
On March 24, 2022, the Company announced a new fare product, Wanna Get Away Plus™, which became available to Customers in May 2022. Wanna Get Away Plus provides Customers with more flexibility, choice, and rewards for a modest buy-up from the Company's Wanna Get Away® fare product. In addition to all of the usual day of travel benefits and booking flexibility offered to Customers across all of the Company's fares, Wanna Get Away Plus provides additional benefits as compared with the Wanna Get Away fare product, including:

•Transferable flight credit(s), a new benefit that generally enables Customers to make a one-time transfer of eligible unused flight credit(s) to a new traveler for future use;
•More flexibility through same-day confirmed change/same-day standby; and
•More earning power in the Company's Rapid Rewards® loyalty program, with 8X points awarded on flights instead of the 6X points awarded on Wanna Get Away fares.

In July 2022, the Company announced that flight credits will no longer expire. The Company expects that this policy change, combined with its other attractive brand attributes, will contribute to an increase in Customer loyalty. Flight credits result from canceling reservations and previously were valid for no longer than one year from the date of original purchase. Flight credits for non-refundable fares will be issued as long as the reservation is cancelled more than 10 minutes prior to the scheduled departure. Flight credits or refunds for refundable fares will be issued regardless of cancellation time. Flight credits unexpired on, or created on or after July 28, 2022 do not expire and will show an expiration date (12/31/2040) until the Company’s systems are updated. A flight credit with an expiration date on or before July 27, 2022, has expired in accordance with its existing expiration date.

On March 28, 2022, the Company reached a tentative collective-bargaining agreement with the International Association of Machinists and Aerospace Workers, AFL-CIO ("IAM"), which represents the Company's approximately 6,000 Customer Service Agents, Customer Representatives, and Source of Support Representatives. However, during May 2022, the IAM membership voted not to ratify the agreement. The Company will continue to engage in discussions on a new agreement with IAM.

On June 3, 2022, the Company reached a tentative collective-bargaining agreement with the Aircraft Mechanics Fraternal Association ("AMFA"), which represents the Company's nearly 170 Aircraft Appearance Technicians. However, the AMFA membership voted not to ratify the agreement. The Company will continue to engage in discussions on a new agreement with AMFA.

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As part of its commitment to corporate sustainability, on April 22, 2022, the Company published its 2021 One Report describing the Company's sustainability strategies, which include the Company’s fuel conservation and emissions mitigation initiatives and other efforts to minimize greenhouse gas emissions and address other environmental matters such as energy and water conservation, waste minimization, and recycling. The Company also published its first ever Diversity, Equity, and Inclusion ("DEI") Report on April 22, 2022. A companion piece to the One Report, the DEI Report takes a deeper dive into the Company's DEI goals, commitments, and initiatives and highlights the expected path forward. Information contained in the Southwest One Report and/or the DEI Report is not incorporated by reference into, and does not constitute a part of, this Form 10-Q. While the Company believes that the disclosures contained in the Southwest One Report, the DEI Report, and other voluntary disclosures regarding environmental, social, and governance (“ESG”) matters are responsive to various areas of investor interest, the Company believes that these disclosures do not currently address matters that are material in the near term to the Company’s operations, strategy, financial condition, or financial results, although this view may change in the future based on new information that could materially alter the estimates, assumptions, or timelines used to create these disclosures. Given the estimates, assumptions, and timelines used to create the Southwest One Report and other voluntary disclosures, the materiality of these disclosures is inherently difficult to assess in advance.
Material Changes in Results of Operations

Comparison of three months ended June 30, 2022 and June 30, 2021

Operating Revenues

Total operating revenues for second quarter 2022 increased by $2.7 billion, or 67.9 percent, year-over-year, to a quarterly record of $6.7 billion. Second quarter 2022 operating revenues per ASM (RASM) were 18.03 cents, an increase of 50.4 percent, compared with second quarter 2021. The dollar increase was primarily due to the significant improvement in travel demand in second quarter 2022 versus the impacts to demand and bookings from the COVID-19 pandemic in second quarter 2021. For second quarter 2022, the year-over-year RASM increase was primarily driven by a 45.9 percent improvement in yield and an increase in Load factor of 4.2 points. The Company's policy change to eliminate expiration dates on qualifying flight credits, in particular those that were set to expire on September 7, 2022, results in a shift in the timing of revenue recognition. As a result, the breakage benefit to second quarter 2022 Operating revenues associated with flight credits that were set to expire on September 7, 2022 will not recur in third quarter creating a one-time sequential operating revenue growth headwind from second quarter 2022 to third quarter 2022 in the range of $250 million to $300 million, or five points, compared with their respective 2019 levels. The Company does not anticipate a material impact from this policy change beyond third quarter 2022, and estimates that breakage as a percentage of revenue will normalize to pre-pandemic levels. The Company expects that this policy change, combined with its other attractive brand attributes, will contribute to an increase in Customer loyalty and new Customers. See Note 6 to the unaudited Condensed Consolidated Financial Statements for further information.

Passenger revenues for second quarter 2022 increased by $2.6 billion, or 71.4 percent, year-over-year. On a unit basis, Passenger revenues increased 53.5 percent, year-over-year. The year-over-year increase in Passenger revenues on both a dollar and unit basis was primarily due to improvements in Passenger demand and bookings, the majority of which were for leisure oriented travel. The Company's revenue performance in second quarter 2022 was a quarterly record primarily due to a surge in leisure demand, especially in June, which resulted in strong passenger bookings, yields, and load factors. In addition, the Company's second quarter 2022 loyalty program revenue represented a quarterly record. June 2022 managed business revenues were down 19 percent, a sequential improvement compared with April and May 2022 managed business revenues, which were down 31 percent and 23 percent, respectively, all compared with their respective 2019 levels. While second quarter 2022 managed business revenues remained below 2019 levels, the Company was encouraged by the sequential improvement during the quarter, as well as managed business average fares that exceeded 2019 levels. Based on bookings thus far, the Company's third quarter 2022 managed business revenues are currently estimated to be down in the range of 17
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percent to 21 percent, compared with third quarter 2019. June 2022 is estimated to represent a monthly peak for 2022 operating revenues based on first half 2022 results and current expectations for second half 2022.

Freight revenues for second quarter 2022 decreased by $3 million, or 6.0 percent, compared with the second quarter 2021, primarily due to capacity challenges driven by an increase in Passenger demand resulting in reduced space for cargo shipments.
Other revenues for second quarter 2022 increased by $173 million, or 44.5 percent, compared with second quarter 2021. On a dollar basis, approximately 59.5 percent of the increase was due to incremental revenue from the Company's new co-brand credit card agreement secured in December 2021. The remaining increase is primarily due to revenue from business partners, and improved retail spend on the Company's co-brand credit card with Chase Bank USA, N.A ("Chase").

Operating Expenses

Operating expenses for second quarter 2022 increased by $2.2 billion, or 63.2 percent, compared with second quarter 2021, while capacity increased 11.7 percent over the same prior year period. Approximately 34 percent of the operating expense increase was due to $724 million in Payroll Support allocated to offset a portion of salaries, wages, and benefits in second quarter 2021, compared with no support received in second quarter 2022. In addition, approximately 39 percent of the increase was due to higher Fuel and oil expense and 18 percent of the increase was due to higher Salaries, wages, and benefits. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the second quarter of 2022 and 2021, followed by explanations of these changes on a dollar basis. Unless otherwise specified, changes on a per ASM basis were driven by changes in capacity, which increased with the improvement of travel demand, causing the Company's fixed costs to be spread over significantly more ASMs.
 Three months ended June 30,Per ASM
change		Percent
change
(in cents, except for percentages)20222021
Salaries, wages, and benefits5.95 ¢5.46 ¢0.49 ¢9.0 %
Payroll support and voluntary Employee programs, net— (2.22)2.22 n.m.
Fuel and oil4.38 2.41 1.97 81.7 
Maintenance materials and repairs0.56 0.66 (0.10)(15.2)
Landing fees and airport rentals1.04 1.21 (0.17)(14.0)
Depreciation and amortization0.87 0.94 (0.07)(7.4)
Other operating expenses2.12 1.76 0.36 20.5 
Total14.92 ¢10.22 ¢4.70 ¢46.0 %
Operating expenses per ASM for second quarter 2022 increased by 46.0 percent, compared with second quarter 2021, primarily due to second quarter 2021 including Payroll Support from the Consolidated Appropriations Act, 2021, and American Rescue Plan Act of 2021. Operating expenses per ASM for second quarter 2022, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), increased 5.1 percent, compared with second quarter 2021 primarily due to higher salaries and wages due to significantly more trips and step/pay rate increases for certain workgroups. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for second quarter 2022 increased by $395 million, or 21.6 percent, compared with second quarter 2021. On a per ASM basis, second quarter 2022 Salaries, wages, and benefits expense increased 9.0 percent, compared with second quarter 2021. On a dollar basis, the increase was primarily driven by higher salaries and wages due to significantly more trips and step/pay rate increases for certain workgroups.
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Payroll support and voluntary Employee programs, net (a reduction to expense) had no amounts for second quarter 2022. Second quarter 2021 consisted primarily of $724 million of Payroll Support proceeds allocated (credit to expense) and a $15 million net reduction in the Extended ETO liability (reduction to expense) relating to certain Employees being recalled prior to their previously elected return dates.

See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.

Fuel and oil expense for second quarter 2022 increased by $833 million, or 103.7 percent, compared with second quarter 2021. On a per ASM basis, second quarter 2022 Fuel and oil expense increased 81.7 percent. On a dollar basis, approximately 90 percent of the increase was attributable to an increase in jet fuel prices, and the remainder of the increase was due to an increase in fuel gallons consumed. The Company's second quarter 2022 average economic jet fuel price of $3.36 per gallon is net of approximately $332 million in gains from hedging activities. On a per ASM basis, the majority of the change was due to higher jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contract settlements:
Three months ended June 30,
20222021
Economic fuel costs per gallon$3.36 $1.92 
Fuel hedging premium expense (in millions)$26 $24 
Fuel hedging premium expense per gallon$0.05 $0.06 
Fuel hedging cash settlement gain per gallon$0.68 $0.02 

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

The Company's second quarter 2022 available seat miles per gallon ("fuel efficiency") decreased 2.3 percent, year-over-year, and increased 2.1 percent when compared with second quarter 2019. The year-over-year decrease was primarily driven by the Company's increased Load factor and operating more of its least fuel-efficient -700 aircraft versus the prior year. The increase when compared with second quarter 2019 was due to operating more MAX aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet. The MAX remains critical to the Company's efforts to modernize its fleet, reduce carbon emissions intensity, and achieve its near-term environmental sustainability goals. The Company expects third quarter 2022 fuel efficiency to be in the range of 76 to 78 ASMs per gallon, on a nominal basis.

The Company's multi-year fuel hedging program continues to provide insurance against spikes in energy prices and significantly offset the market price increase in jet fuel in second quarter 2022. The Company's current fuel derivative contracts contain a combination of instruments based in West Texas Intermediate ("WTI"), Brent crude oil, and refined products, such as heating oil. The economic fuel price per gallon sensitivities provided in the table below assume the relationship between Brent crude oil and refined products based on market prices as of July 21, 2022.

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Estimated economic fuel price per gallon,
including taxes and fuel hedging premiums
Average Brent Crude Oil
price per barrel		3Q 2022 (b)4Q 2022 (b)
$80$2.85 - $2.95$2.75 - $2.85
$90$3.05 - $3.15$2.95 - $3.05
Current Market (a)$3.25 - $3.35$3.00 - $3.10
$110$3.45 - $3.55$3.35 - $3.45
$120$3.70 - $3.80$3.60 - $3.70
$130$4.00 - $4.10$3.85 - $3.95
Fair market value of fuel derivative instruments$235 million$195 million
Estimated premium costs$13 million$13 million
(a) Brent crude oil average market prices as of July 21, 2022, were $100 and $94 per barrel for third quarter 2022 and fourth quarter 2022, respectively.
(b) Based on the Company's existing fuel derivative contracts and market prices as of July 21, 2022, third quarter, fourth quarter, and full year 2022 economic fuel costs per gallon are estimated to be in the range of $3.25 to $3.35, $3.00 to $3.10, and $2.95 to $3.05, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, the impact of COVID-19 cases on air travel demand, or the impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.

In addition, the Company is providing its maximum percentage of estimated fuel consumption covered by fuel derivative contracts in the following table:
PeriodMaximum fuel hedged percentage (c)
202263% (a)
202339% (b)
202417% (b)
(a) Based on the Company's available seat mile plans for full year 2022. The Company is currently 59 percent hedged for third quarter 2022 and 62 percent hedged for fourth quarter 2022.
(b) Due to uncertainty regarding available seat mile plans in future years, the Company believes that providing the maximum percent of fuel consumption covered by derivative contracts in 2023 and 2024 relative to 2019 fuel gallons consumed is a more relevant measure for future coverage.
(c) The Company's maximum fuel hedged percentage is calculated using the maximum number of gallons that are covered by derivative contracts divided by the Company's estimate of total fuel gallons to be consumed for each respective period. The Company's maximum number of gallons that are covered by derivative contracts may be at different strike prices and at strike prices materially higher than the current market prices. The volume of gallons covered by derivative contracts that ultimately get exercised in any given period may vary significantly from the volumes used to calculate the Company's maximum fuel hedged percentages, as market prices and the Company's fuel consumption fluctuate.

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As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income ("AOCI") that will be recognized in earnings in future periods when the underlying fuel derivative contracts settle. The following table displays the Company's estimated fair value of remaining fuel derivative contracts (not considering the impact of the cash collateral provided to or received from counterparties—see Note 4 to the unaudited Condensed Consolidated Financial Statements for further information), as well as the deferred amounts in AOCI at June 30, 2022, and the expected future periods in which these items are expected to settle and/or be recognized in earnings (in millions):

Year
Fair value of fuel derivative contracts at June 30, 2022
Amount of gains deferred in AOCI at June 30, 2022 (net of tax)
Remainder of 2022$495 $373 
2023497 328 
2024135 79 
Total$1,127 $780 


Maintenance materials and repairs expense for second quarter 2022 decreased by $12 million, or 5.4 percent, compared with second quarter 2021. On a per ASM basis, Maintenance materials and repairs expense decreased 15.2 percent, compared with second quarter 2021. On a dollar basis, the decrease was primarily due to a decrease in engines and components expense driven by the "power-by-the-hour" contract for the -700 engines expiring at the end of 2021, in which expense was incurred based primarily upon engine hours flown. At January 1, 2022, a time and materials contract commenced, pursuant to which -700 engine expense is based on actual repairs. This decrease was partially offset by the timing of regular airframe maintenance checks as some costs had previously been deferred while a portion of the fleet was placed into temporary storage during the COVID-19 pandemic. There were multiple other smaller increases on a dollar basis, primarily related to an increase in various repairs as a result of deferring costs and reduced operations in second quarter 2021 due to the COVID-19 pandemic.

Landing fees and airport rentals expense for second quarter 2022 decreased by $15 million, or 3.7 percent, compared with second quarter 2021. On a per ASM basis, Landing fees and airport rentals expense decreased 14.0 percent, compared with second quarter 2021. Despite the year-over-year increase in trips flown, on both a dollar and per ASM basis, Landing fees and airport rentals expense decreased slightly due to higher settlements and credits from various airports received in second quarter 2022.

Depreciation and amortization expense for second quarter 2022 increased by $10 million, or 3.2 percent, compared with second quarter 2021. On a per ASM basis, Depreciation and amortization expense decreased by 7.4 percent, compared with second quarter 2021. On a dollar basis, the increase was primarily due to higher depreciation expense associated with owned aircraft and engines, including certain -700 aircraft planned for accelerated retirement dates in 2022.

Other operating expenses for second quarter 2022 increased by $205 million, or 35.0 percent, compared with second quarter 2021. Included within this line item was aircraft rentals expense in the amounts of $49 million and $52 million for the three-month periods ended June 30, 2022 and 2021, respectively. On a per ASM basis, Other operating expenses increased 20.5 percent, compared with second quarter 2021. On a dollar basis, approximately 35 percent of the increase was due to higher revenue related expenses (including credit card processing charges) and approximately 20 percent of the increase was due to higher personnel expenses. The majority of the remainder was due to various flight-driven expenses.

The Company expects cost inflation in third quarter 2022, in particular with higher rates for labor, benefits, and airports. The Company also expects cost headwinds from operating at suboptimal productivity levels as headcount is expected to increase in third quarter 2022 while capacity levels are expected to remain relatively in line with third quarter 2019. The Company has increased short-haul trips in second half 2022 in an effort to restore its route network and support the reliability of its operational performance, which results in a decrease to average stage
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length, and adds further unit cost headwinds. As a result of its successful hiring efforts and much improved operational reliability, the Company plans to begin moderating hiring where opportunities exist and intensify its focus on returning to historical efficiency levels.

Other

Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and losses.

Interest expense for second quarter 2022 decreased by $23 million, or 19.8 percent, compared with second quarter 2021, primarily due to elimination of the debt discount as a result of the Company's adoption of ASU 2020-06. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

Capitalized interest for second quarter 2022 increased by $3 million, or 37.5 percent, compared with second quarter 2021, primarily due to an increase in average progress payment balances for scheduled future aircraft deliveries.

Interest income for second quarter 2022 increased by $26 million, compared with second quarter 2021, primarily due to higher interest rates.

The following table displays the components of Other (gains) losses, net, for the three months ended June 30, 2022 and 2021:
Three months ended June 30,
(in millions)20222021
Mark-to-market impact from fuel contracts settling in current and future periods$(20)$(11)
Premium cost of fuel contracts not designated as hedges— 10 
Unrealized mark-to-market adjustment on available for sale securities4 — 
Mark-to-market impact on deferred compensation plan investments39 (17)
Loss on partial extinguishment of convertible and unsecured notes43 — 
Other2 4 
 $68 $(14)

Income Taxes

The Company's effective tax rate was approximately 26.6 percent in second quarter 2022, compared with 30.7 percent in second quarter 2021. The higher tax rate for second quarter 2021 was primarily due to higher state taxes. The year-over-year decrease was partially offset by the losses on the Company's convertible debt repurchases, which are largely disallowed as a deduction for tax purposes. The Company currently estimates its annual 2022 effective tax rate to be approximately 24 percent to 26 percent.

Comparison of six months ended June 30, 2022 and June 30, 2021

Operating Revenues

Passenger revenues for the six months ended June 30, 2022, increased by $5.0 billion, or 94.1 percent, compared with the first six months of 2021. On a unit basis, Passenger revenues increased 53.1 percent, year-over-year. The increase in Passenger revenues on both a dollar and unit basis were primarily due to easing of negative impacts associated with the COVID-19 pandemic, which resulted in improvements in Passenger demand and bookings, the majority of which were for leisure oriented travel, in the first six months of 2022, compared with the severe impacts to demand and bookings from the COVID-19 pandemic for the majority of the first six months of 2021.

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Freight revenues for the six months ended June 30, 2022, decreased by $3 million, or 3.3 percent, compared with the six months ended June 30, 2021, primarily due to capacity challenges driven by an increase in Passenger demand resulting in reduced space for cargo shipments.

Other revenues for the six months ended June 30, 2022, increased by $393 million, or 57.3 percent, year-over-year. On a dollar basis, approximately half of the increase was associated with additional revenues generated from the Company's new co-brand credit card agreement secured in December 2021. The remaining increase in Other revenues is primarily due to income from business partners, including Chase, as the rebound in travel demand also resulted in higher spend on the Company's co-brand credit card, as well as additional revenues earned through the Company's rental car and hotel partners.

Operating Expenses

Operating expenses for the six months ended June 30, 2022, increased by $5.1 billion, or 97.7 percent, compared with the first six months of 2021, while capacity increased 26.8 percent over the same prior year period. Approximately 37 percent of the operating expense increase was due to $1.9 billion in Payroll Support allocated to offset a portion of salaries, wages, and benefits in the first six months of 2021, compared with no support received in the first six months of 2022. In addition, approximately 25 percent of the increase was due to higher Fuel and oil expense and approximately 20 percent of the increase was due to higher Salaries, wages, and benefits. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the first six months of 2022 and 2021, followed by explanations of these changes on a dollar basis. Unless otherwise specified, changes on a per ASM basis were driven by changes in capacity, which increased with the improvement of travel demand, causing the Company's fixed costs to be spread over significantly more ASMs.
 Six months ended June 30,Per ASMPercent
(in cents, except for percentages)20222021changechange
Salaries, wages, and benefits6.20 ¢6.00 ¢0.20 ¢3.3 %
Payroll support and voluntary Employee programs, net— (3.87)3.87 n.m.
Fuel and oil3.68 2.25 1.43 63.6 
Maintenance materials and repairs0.59 0.70 (0.11)(15.7)
Landing fees and airport rentals1.02 1.27 (0.25)(19.7)
Depreciation and amortization0.90 1.11 (0.21)(18.9)
Other operating expenses2.13 1.85 0.28 15.1 
Total14.52 ¢9.31 ¢5.21 ¢56.0 %

Operating expenses per ASM for the first six months of 2022 increased by 56.0 percent, compared with the first six months of 2021. The majority of the year-over-year unit cost increase was driven by the first six months of 2021 including Payroll Support from the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021. Operating expenses per ASM for the first six months of 2022, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), decreased 1.0 percent, year-over-year. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for the first six months of 2022 increased by $1.1 billion, or 31.1 percent, compared with the first six months of 2021. On a per ASM basis, Salaries, wages, and benefits expense for the first six months of 2022 increased 3.3 percent, compared with the first six months of 2021. On a dollar basis, the increase was primarily driven by higher salaries and wages due to significantly more trips and step/pay rate increases for certain workgroups, and $127 million of additional salaries, wages, and benefits expense as a result of incentive pay offered to the Company's Operations Employees through early February 2022 in an effort to address available staffing challenges related to the Omicron variant.
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Payroll support and voluntary Employee programs, net (a reduction to expense) had no amounts for the first six months of 2022. The first six months of 2021 consisted of the following items:

•$1.9 billion of Payroll Support proceeds allocated (credit to expense);
•A $130 million net reduction in the Extended ETO liability (reduction to expense) relating to certain Employees being recalled prior to their previously elected return dates; and
•$117 million credit to expense associated with the Employee Retention Tax Credit for continuing to pay Employees' salaries during the time they were not working, as allowed under the CARES Act, and subsequent legislation.

See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.

Fuel and oil expense for the first six months of 2022 increased by $1.4 billion, or 107.5 percent, compared with the first six months of 2021. On a per ASM basis, Fuel and oil expense for the first six months of 2022 increased 63.6 percent. On a dollar basis, approximately 75 percent of the increase was attributable to an increase in jet fuel prices per gallon, and the remainder of the increase was due to an increase in fuel gallons consumed. On a per ASM basis, the increase was primarily due to higher jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:

Six months ended June 30,
20222021
Economic fuel costs per gallon$2.86 $1.83 
Fuel hedging premium expense (in millions)$53 $50 
Fuel hedging premium expense per gallon$0.06 $0.07 
Fuel hedging cash settlement gains per gallon$0.61 $0.01 

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Maintenance materials and repairs expense for the first six months of 2022 increased by $25 million, or 6.3 percent, compared with the first six months of 2021. On a per ASM basis, Maintenance materials and repairs expense decreased 15.7 percent, compared with the first six months of 2021. On a dollar basis, the increase was primarily due to the timing of regular airframe maintenance checks as some costs had previously been deferred while a portion of the fleet was placed into temporary storage during the COVID-19 pandemic. There were multiple other increases on a dollar basis, primarily related to an increase in various repairs as a result of deferring costs and reduced operations in the first six months of 2021 due to the COVID-19 pandemic. These increases were partially offset by a decrease in engines and components expense due to the "power-by-the-hour" contract for the Company's -700 engines expiring at the end of 2021.

Landing fees and airport rentals expense for the first six months of 2022 increased by $17 million, or 2.4 percent, compared with the first six months of 2021. On a per ASM basis, Landing fees and airport rentals expense decreased 19.7 percent, compared with the first six months of 2021. On a dollar basis, the increase was primarily due to an increase in landing fees from the increased number of trips flown, partially offset by higher settlements and credits from various airports received in 2022.

Depreciation and amortization expense for the first six months of 2022 increased by $22 million, or 3.5 percent, compared with the first six months of 2021. On a per ASM basis, Depreciation and amortization expense decreased 18.9 percent, compared with the first six months of 2021. On a dollar basis, the increase was primarily due to higher depreciation expense associated with owned aircraft and engines, including certain -700 aircraft planned for accelerated retirement dates in 2022.
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Other operating expenses for the first six months of 2022 increased by $474 million, or 45.2 percent, compared with the first six months of 2021. Included within this line item was aircraft rentals expense in the amount of $98 million and $103 million for the six month periods ended June 30, 2022 and 2021, respectively. On a per ASM basis, Other operating expenses increased 15.1 percent, compared with the first six months of 2021. On a dollar basis, approximately 25 percent of the increase was due to higher revenue related expenses (including credit card processing charges) and approximately 20 percent of the increase was due to higher personnel expenses. The majority of the remaining increase was due to various flight-driven expenses.

Other

Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and losses.

Interest expense for the first six months of 2022 decreased by $43 million, or 18.8 percent, compared with the first six months of 2021, primarily due to elimination of the debt discount due to the adoption of ASU 2020-06. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

Capitalized interest for the first six months of 2022 increased by $1 million, or 5.3 percent, compared with the first six months of 2021, primarily due to an increase in average progress payment balances for scheduled future aircraft deliveries.

Interest income for the first six months of 2022 increased by $27 million, compared with the first six months of 2021, due to higher interest rates.

The following table displays the components of Other (gains) losses, net, for the six months ended June 30, 2022 and 2021:
Six months ended June 30,
(in millions)20222021
Mark-to-market impact from fuel contracts settling in current and future periods$15 $(9)
Premium cost of fuel contracts not designated as hedges— 21 
Unrealized mark-to-market adjustment on available for sale securities7 — 
Mark-to-market impact on deferred compensation plan investment72 (18)
Correction on investment gains related to prior periods— (60)
Loss on partial extinguishment of convertible and unsecured notes116 — 
Other2 5 
 $212 $(61)

Income Taxes

The Company's effective tax rate was approximately 26.9 percent for the first six months of 2022, compared with 28.4 percent for the first six months of 2021. The higher tax rate for the first six months of 2021 was primarily due to higher state taxes. The year-over-year decrease was partially offset by the losses on the Company's convertible debt repurchases, which are largely disallowed as a deduction for tax purposes.
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Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items) (unaudited)
(in millions, except per share amounts and per ASM amounts)
Three months ended June 30,PercentSix months ended June 30,Percent
 20222021Change20222021Change
Fuel and oil expense, unhedged$1,942 $802 $3,148 $1,266  
Add: Premium cost of fuel contracts designated as hedges26 14 53 29 
Deduct: Fuel hedge gains included in Fuel and oil expense, net(332)(13) (561)(23) 
Fuel and oil expense, as reported$1,636 $803 $2,640 $1,272 
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a)— 5 — 14 
Add: Premium cost of fuel contracts not designated as hedges— 10 — 21 
Fuel and oil expense, excluding special items (economic)$1,636 $818 100.0$2,640 $1,307 102.0
Total operating expenses, net, as reported$5,570 $3,414  $10,415 $5,267  
Add: Payroll support and voluntary Employee programs, net
— 740 — 2,187 
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a)— 5  — 14  
Add: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a)— 1 — 2 
Add: Premium cost of fuel contracts not designated as hedges— 10  — 21  
Deduct: Impairment of long-lived assets(15)$— $(31)$— 
Total operating expenses, excluding special items$5,555 $4,170 33.2$10,384 $7,491 38.6
Deduct: Fuel and oil expense, excluding special items (economic)(1,636)(818)(2,640)(1,307)
Operating expenses, excluding Fuel and oil expense and special items$3,919 $3,352 16.9$7,744 $6,184 25.2
Deduct: Profitsharing expense(81)(85)(118)(109)
Operating expenses, excluding Fuel and oil expense, special items, and profitsharing$3,838 $3,267 17.5$7,626 $6,075 25.5
Operating income, as reported$1,158 $594  $1,007 $793  
Deduct: Payroll support and voluntary Employee programs, net— (740)— (2,187)
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a)— (5) — (14) 
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a)— (1)— (2)
Deduct: Premium cost of fuel contracts not designated as hedges— (10) — (21) 
Add: Impairment of long-lived assets15 — 31 $— 
Operating income (loss), excluding special items$1,173 $(162)n.m.$1,038 $(1,431)n.m.
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Three months ended June 30,PercentSix months ended June 30,Percent
 20222021Change20222021Change
Other (gains) losses, net, as reported$68 $(14)$212 $(61)
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods (a)20 11 (15)9 
Deduct: Premium cost of fuel contracts not designated as hedges— (10)— (21)
Deduct: Unrealized mark-to-market adjustment on available for sale securities(4)— (7)— 
Deduct: Loss on partial extinguishment of convertible and unsecured notes(43)— (116)— 
Other (gains) losses, net, excluding special items$41 $(13)n.m.$74 $(73)n.m.
Income before income taxes, as reported$1,036 $502 $660 $648 
Deduct: Payroll support and voluntary Employee programs, net— (740)— (2,187)
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a)— (5)— (14)
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a)— (1)— (2)
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods (a)(20)(11)15 (9)
Add: Impairment of long-lived assets15 — 31 — 
Add: Unrealized mark-to-market adjustment on available for sale securities4 — 7 — 
Add: Loss on partial extinguishment of convertible and unsecured notes43 — 116 — 
Income (loss) before income taxes, excluding special items$1,078 $(255)n.m.$829 $(1,564)n.m.
Provision for income taxes, as reported$276 $154 $178 $185 
Add (Deduct): Net income (loss) tax impact of fuel and special items (b)(23)(203)18 (528)
Provision (benefit) for income taxes, net, excluding special items$253 $(49)n.m.$196 $(343)n.m.
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Three months ended June 30,PercentSix months ended June 30,Percent
 20222021Change20222021Change
Net income, as reported$760 $348 $482 $463 
Deduct: Payroll support and voluntary Employee programs, net— (740)— (2,187)
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a)— (5)— (14)
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a)— (1)— (2)
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods (a)(20)(11)15 (9)
Add: Loss on partial extinguishment of convertible and unsecured notes43 — 116 — 
Add: Impairment of long-lived assets15 — 31 — 
Add: Unrealized mark-to-market adjustment on available for sale securities4 — 7 — 
Add (Deduct): Net income (loss) tax impact of special items (b)23 203 (18)528 
Net income (loss), excluding special items$825 $(206)n.m.$633 $(1,221)n.m.
Net income per share, diluted, as reported$1.20 $0.57 $0.77 $0.76 
Add (Deduct): Impact of special items0.08 (1.21)0.24 (3.59)
Add (Deduct): Net impact of net income (loss) above from fuel contracts divided by dilutive shares(0.03)(0.03)0.02 (0.04)
Add (Deduct): Net income (loss) tax impact of special items (b)0.05 0.33 (0.03)0.87 
Deduct: GAAP to Non-GAAP diluted weighted average shares difference (c)— (0.01)— (0.07)
Net income (loss) per share, diluted, excluding special items$1.30 $(0.35)n.m.$1.00 $(2.07)n.m.
Operating expenses per ASM (cents)14.92 ¢10.22 ¢14.52 ¢9.31 ¢
Add (Deduct): Impact of special items(0.04)2.22 (0.05)3.87 
Deduct: Fuel and oil expense divided by ASMs(4.38)(2.41)(3.68)(2.25)
Deduct: Profitsharing expense divided by ASMs(0.22)(0.25)(0.16)(0.19)
Operating expenses per ASM, excluding Fuel and oil expense, profitsharing, and special items (cents)10.28 ¢9.78 ¢5.110.63 ¢10.74 ¢(1.0)

(a) See Note 4 to the unaudited Condensed Consolidated Financial Statements for further information.
(b) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.
(c) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference, due to the Company being in a Net income position on a GAAP basis versus a Net loss position on a Non-GAAP basis for the three and six months ended June 30, 2021. See Note 7 to the unaudited Condensed Consolidated Financial Statements for further information.

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Note Regarding Use of Non-GAAP Financial Measures

The Company's unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP. These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profitsharing; Operating income (loss), non-GAAP; Other (gains) losses, net, non-GAAP; Income (loss) before income taxes, non-GAAP; Provision (benefit) for income taxes, net, non-GAAP; Net income (loss), non-GAAP; Net income (loss) per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents). The Company's economic Fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within Fuel and oil expense in the period of settlement. Thus, Fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of Fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight into the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude any unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Note 4 to the unaudited Condensed Consolidated Financial Statements.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

1.Proceeds related to the Payroll Support programs, which were used to pay a portion of Employee salaries, wages, and benefits;
2.Charges and adjustments to previously accrued amounts related to the Company's extended leave programs;
3.Adjustments for prior period losses reclassified from AOCI associated with forward-starting interest rate swap agreements that were terminated in prior periods related to 12 -8 aircraft leases;
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4.Noncash impairment charges, primarily associated with adjustments to the salvage values for previously retired airframes;
5.Unrealized mark-to-market adjustment associated with certain available for sale securities; and
6.Losses associated with the partial extinguishment of the Company's Convertible Notes and early prepayment of debt.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profitsharing; Operating income (loss), non-GAAP; Other (gains) losses, net, non-GAAP; Income (loss) before income taxes, non-GAAP; Provision (benefit) for income taxes, net, non-GAAP; Net income (loss), non-GAAP; Net income (loss) per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents).
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Liquidity and Capital Resources

The enormous impact of the COVID-19 pandemic on the U.S. travel industry created an urgent liquidity crisis for the entire airline industry, including the Company. However, due to the Company's pre-pandemic low balance sheet leverage, large base of unencumbered assets, and investment-grade credit ratings, the Company was able to quickly access additional liquidity during 2020, as Customer cancellations and ticket refunds spiked and sales and revenues dropped while the Company continued to experience significant fixed operating expenses. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information regarding the impact of the COVID-19 pandemic and assistance obtained under Payroll Support programs.

Net cash provided by operating activities was $1.9 billion for the three months ended June 30, 2022, compared with $2.0 billion provided by operating activities in the same prior year period. Net cash provided by operating activities was $3.0 billion for the six months ended June 30, 2022, compared with $2.7 billion provided by operating activities in the same prior year period. Operating cash inflows are historically primarily derived from providing air transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date. Operating cash outflows are related to the recurring expenses of airline operations. The operating cash flows for the six months ended June 30, 2022, were largely impacted by the Company's net income (as adjusted for noncash items), a $793 million increase in Air traffic liability driven by higher ticket sales related to an increase in travel demand, a $284 million increase in cash collateral received from derivative counterparties due to an increase in the fuel hedge portfolio, driven by increases in the forward curve market prices for energy commodities year-to-date, and a $472 million cash tax refund from the Internal Revenue Service associated with the 2020 tax year. Operating cash flows for the six months ended June 30, 2021, included $2.7 billion in Payroll Support program grant proceeds, of which $1.9 billion was used to offset eligible costs through June 30, 2021, and was thus included in operating activities, as well as $45 million allocated to the value of warrants issued and thus included in financing activities. The operating cash flows for the six months ended June 30, 2021, were also driven by an increase in Air traffic liability of $1.5 billion as a result of increased ticket sales from the increase in leisure travel demand. Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, and provide working capital. Historically, the Company also used Net cash provided by operating activities to fund stock repurchases and pay dividends; however these shareholder return activities have been suspended due to restrictions associated with the payroll assistance under the Payroll Support programs and the Company's amended and restated revolving credit facility. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.

Net cash used in investing activities totaled $1.6 billion during the three months ended June 30, 2022, compared with $469 million used in investing activities in the same prior year period. Net cash used in investing activities was $1.7 billion during the six months ended June 30, 2022, compared with $670 million used in investing activities in the same prior year period. Investing activities in both years included Capital expenditures and changes in the balance of the Company's short-term and noncurrent investments. During the six months ended June 30, 2022, Capital expenditures were $1.5 billion, compared with $190 million in the same prior year period. Capital expenditures increased, year-over-year, largely due to an increase in progress and delivery payments made for current period and future aircraft deliveries during the six months ended June 30, 2022, compared to the same prior year period, when progress payments were not made due to delivery credits provided by Boeing to the Company resulting from the settlement of 2020 estimated damages relating to the FAA grounding of the MAX aircraft.

The Company now estimates its 2022 capital spending to be approximately $4.0 billion, which assumes the exercise of its five remaining 2022 aircraft options, and a total of 66 -8 aircraft deliveries in 2022, compared with its previous 2022 capital spending guidance of approximately $5.0 billion which assumed the delivery of 114 MAX aircraft in 2022. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information. The Company’s 2022 capital spending guidance continues to include approximately $900 million in non-aircraft capital spending.

Net cash used in financing activities was $215 million during the three months ended June 30, 2022, compared with $617 million provided by financing activities for the same prior year period. Net cash used in financing activities
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was $530 million during the six months ended June 30, 2022, compared with $1.1 billion provided by financing activities for the same year period. The Company repaid $555 million in debt and finance lease obligations, including the extinguishment of $302 million in principal of its Convertible Notes for a cash payment of $409 million during the six months ended June 30, 2022, and is scheduled to repay approximately $55 million in debt and finance lease obligations during third quarter 2022. The Company may engage in debt repurchases from time to time and future repurchases are not included in the scheduled to repay third quarter 2022 amount. During the six months ended June 30, 2021, the Company borrowed $1.1 billion of loan proceeds under Payroll Support programs. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. The Company also repaid $109 million in debt and finance lease obligations during the six months ended June 30, 2021.

The Company is a "well-known seasoned issuer" and currently has an effective shelf registration statement registering an indeterminate amount of debt and equity securities for future sales. The Company currently intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes.

The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended A&R Credit Agreement"). In July 2022, this facility was amended to extend the expiration date to August 2025, and to change the benchmark rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate ("SOFR"). The Amended A&R Credit Agreement has an accordion feature that would allow the Company, subject to, among other things, the procurement of incremental commitments, to increase the size of the facility to $1.5 billion. Interest on the facility is based on the Company's credit ratings at the time of borrowing. At the Company's current ratings, the interest cost would be SOFR plus a credit spread adjustment of 10 basis points plus 200 basis points. The facility contains a financial covenant to maintain total liquidity, as defined in the Amended A&R Credit Agreement, of $1.5 billion at all times under the Amended A&R Credit Agreement; the Company was compliant with this requirement as of June 30, 2022. There were no amounts outstanding under the Amended A&R Credit Agreement as of June 30, 2022.

Although not the case at June 30, 2022 due to the Company's significant financing activities throughout the early stages of the pandemic, the Company has historically carried a working capital deficit, in which its current liabilities exceed its current assets. This is common within the airline industry and is primarily due to the nature of the Air traffic liability account, which is related to advance ticket sales, unused funds available to Customers, and loyalty deferred revenue, which are performance obligations for future Customer flights, do not require future settlement in cash, and are mostly nonrefundable. See Note 6 to the unaudited Condensed Consolidated Financial Statements for further information.

The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $16.4 billion as of June 30, 2022, and anticipated future internally generated funds from operations. However, the COVID-19 pandemic continues to evolve and could have a material adverse impact on the Company's ability to meet its capital and operating commitments. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information on the impacts of the COVID-19.

As of June 30, 2022, the Company's total firm and option order book was 632 aircraft. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

The following table details information on the aircraft in the Company's fleet as of June 30, 2022:
  Average
Age (Yrs)		Number
 of Aircraft		Number
Owned		Number
Leased
TypeSeats
737-70014318 442 (a)360 82 
737-8001757 207 190 17 
737 -81752 81 52 29 
Totals 13 730 602 128 
(a) Included four Boeing 737 Next Generation aircraft in storage as of June 30, 2022.

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Critical Accounting Policies and Estimates

For information regarding the Company’s Critical Accounting Policies and Estimates, see the "Critical Accounting Policies and Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Cautionary Statement Regarding Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on, and include statements about, the Company's estimates, expectations, beliefs, intentions, and strategies for the future, and the assumptions underlying these forward-looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, statements related to the following:

•the Company’s financial guidance for third quarter and full year 2022 and factors that could impact the Company’s financial results;
•the Company’s capacity guidance;
•the Company’s estimated fuel costs, hedging gains, and fuel efficiency and the assumptions underlying the Company’s fuel-related expectations and estimates, including expectations related to the Company’s fuel derivative contracts;
•the Company’s plans for the repayment of debt;
•the Company’s fleet plans, including underlying expectations and dependencies;
•the Company’s fleet and network-related goals, including without limitation with respect to growth opportunities, better optimized staffing, restoration of the Company’s network, reduction of operating costs, and further fleet modernization with less carbon-intensive aircraft;
•the Company’s cash flow expectations and capital spending guidance, in particular with respect to aircraft capital expenditures and underlying aircraft delivery expectations;
•the Company’s hiring plans and expectations;
•the Company’s expectations related to its policy change with respect to the expiration of flight credits;
•the Company’s expectations with respect to its ability to meet its ongoing capital and operating commitments, including underlying assumptions and factors that could impact this ability;
•the Company's assessment of market risks; and
•the Company's plans and expectations related to legal and regulatory proceedings.

While management believes these forward-looking statements are reasonable as and when made, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed in or indicated by the Company's forward-looking statements or from historical experience or the Company's present expectations. Factors that could cause these differences include, among others:

•the Company's dependence on Boeing and the FAA with respect to the Company's fleet, fuel, and other operational strategies and goals;
•the impact of labor and hiring matters on the Company’s business decisions, plans, and strategies;
•the impact of fuel price changes, fuel price volatility, volatility of commodities used by the Company for hedging jet fuel, and any changes to the Company’s fuel hedging strategies and positions on the Company's business plans and results of operations;
•any further negative developments related to the COVID-19 pandemic, including, for example, with respect to (i) the duration, spread, severity, or any recurrence of the COVID-19 pandemic or any new variant strains of the underlying virus; (ii) the effectiveness, availability, and usage of COVID-19 vaccines; (iii) the impact of government mandates, directives, orders, regulations, and other governmental actions related to COVID-19 on the Company’s business plans and its ability to retain key Employees; (iv) the extent of the impact of COVID-19 on overall demand for air travel and the Company's related business plans and decisions; and (v) the impact of the COVID-19 pandemic on the Company's access to capital;
•the impact of governmental actions and governmental regulations on the Company's plans, strategies, financial results, and operations;
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•the impact of fears or actual outbreaks of other diseases, extreme or severe weather and natural disasters, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), consumer perception, economic conditions, fears of terrorism or war, socio-demographic trends, and other factors beyond the Company's control on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results;
•the impact of fears or actual acts of terrorism or war, political instability, cyber-attacks, and other factors beyond the Company’s control on the Company’s plans, financial results, operations, and ability to adequately insure against risks;
•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;
•the Company's dependence on third parties, in particular with respect to its fuel supply, and the impact on the Company's operations and results of operations of any third party delays or non-performance; and
•other factors as set forth 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 year ended December 31, 2021 and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

Caution should be taken not to place undue reliance on the Company's forward-looking statements, which represent the Company's views only as of the date this report is filed. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Hedging

As discussed in Note 4 to the unaudited Condensed Consolidated Financial Statements, the Company endeavors to acquire jet fuel at the lowest possible price and to reduce volatility in operating expenses through its fuel hedging program with the use of financial derivative instruments. At June 30, 2022, the estimated fair value of outstanding contracts was a net asset of $1.1 billion.

The Company's credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are in an asset position to the Company. At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. As of June 30, 2022, the Company had nine counterparties for which the derivatives held were a net asset. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty. However, if one or more of these counterparties were in a net liability position to the Company and were unable to meet their obligations, any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company. At June 30, 2022, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating. The Company also had agreements with counterparties in which cash deposits and/or letters of credit are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds. Refer to the counterparty credit risk and collateral table provided in Note 4 to the unaudited Condensed Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of June 30, 2022, at which such postings are triggered.
 
At June 30, 2022, $459 million in cash collateral deposits were held by the Company from counterparties based on the Company's outstanding fuel derivative instrument portfolio. Due to the types of derivatives held as of June 30, 2022, the Company does not have cash collateral exposure. See Note 4 to the unaudited Condensed Consolidated Financial Statements.

The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection. The Company has found that financial derivative instruments in commodities, such as WTI crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility. In addition, to add further protection, the Company may periodically enter into jet fuel derivatives for short-term timeframes. Jet fuel is not widely traded on an organized futures exchange and, therefore, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future. 

Financial Market Risk

The Company currently has agreements with organizations that process credit card transactions arising from purchases of air travel tickets by its Customers utilizing American Express, Discover, and MasterCard/VISA. Credit card processors have financial risk associated with tickets purchased for travel because the processor generally forwards the cash related to the purchase to the Company soon after the purchase is completed, but the air travel generally occurs after that time; therefore, the processor will have liability if the Company does not ultimately provide the air travel. Under these processing agreements, and based on specified conditions, increasing amounts of cash reserves could be required to be posted with the counterparty. There was no cash reserved for this purpose as of June 30, 2022.

A majority of the Company’s sales transactions are processed by Chase Paymentech. Should chargebacks processed by Chase Paymentech reach a certain level, proceeds from advance ticket sales could be held back and used to
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establish a reserve account to cover such chargebacks and any other disputed charges that might occur. Additionally, cash reserves are required to be established if the Company’s credit rating falls to specified levels below investment grade. Cash reserve requirements are based on the Company’s public debt rating and a corresponding percentage of the Company’s Air traffic liability. As of June 30, 2022, no holdbacks were in place.

See Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, for further information about market risk, and Note 4 to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q for further information about the Company's fuel derivative instruments.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2022. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022, at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

On June 30, 2015, the U.S. Department of Justice ("DOJ") issued a Civil Investigative Demand ("CID") to the Company. The CID sought information and documents about the Company’s capacity from January 2010 to the date of the CID, including public statements and communications with third parties about capacity. In June 2015, the Company also received a letter from the Connecticut Attorney General requesting information about capacity. The Company is cooperating fully with the DOJ CID and the state inquiry.

Further, on July 1, 2015, a complaint was filed in the United States District Court for the Southern District of New York on behalf of putative classes of consumers alleging collusion among the Company, American Airlines, Delta Air Lines, and United Airlines to limit capacity and maintain higher fares in violation of Section 1 of the Sherman Act. Since then, a number of similar class action complaints were filed in the United States District Courts for the Central District of California, the Northern District of California, the District of Columbia, the Middle District of Florida, the Southern District of Florida, the Northern District of Georgia, the Northern District of Illinois, the Southern District of Indiana, the Eastern District of Louisiana, the District of Minnesota, the District of New Jersey, the Eastern District of New York, the Southern District of New York, the Middle District of North Carolina, the District of Oklahoma, the Eastern District of Pennsylvania, the Northern District of Texas, the District of Vermont, and the Eastern District of Wisconsin. On October 13, 2015, the Judicial Panel on Multi-District Litigation centralized the cases to the United States District Court in the District of Columbia. On March 25, 2016, the plaintiffs filed a Consolidated Amended Complaint in the consolidated cases alleging that the defendants conspired to restrict capacity from 2009 to present. The plaintiffs seek to bring their claims on behalf of a class of persons who purchased tickets for domestic airline travel on the defendants' airlines from July 1, 2011 to present. They seek treble damages, injunctive relief, and attorneys' fees and expenses. On May 11, 2016, the defendants moved to dismiss the Consolidated Amended Complaint, which the Court denied on October 28, 2016. On December 20, 2017, the Company reached an agreement to settle these cases with a proposed class of all persons who purchased domestic airline transportation services from July 1, 2011, to the date of the settlement. The Company agreed to pay $15 million and to provide certain cooperation with the plaintiffs as set forth in the settlement agreement. After notice was provided to the proposed settlement class and the Court held a fairness hearing the Court issued an order granting final approval of the settlement on May 9, 2019. On June 10, 2019, certain objectors filed notices of appeal to the United States Court of Appeals for the District of Columbia Circuit, which the Court dismissed on July 9, 2021, for lack of jurisdiction because the district court's order approving the settlements was not a final appealable order. The case is continuing as to the remaining defendants. The Company denies all allegations of wrongdoing.

On July 11, 2019, a complaint alleging violations of federal and state laws and seeking certification as a class action was filed against Boeing and the Company in the United States District Court for the Eastern District of Texas in Sherman ("Sherman Complaint"). The complaint alleges that Boeing and the Company colluded to conceal defects with the Boeing 737 MAX ("MAX") aircraft in violation of the Racketeer Influenced and Corrupt Organization Act ("RICO") and also asserts related state law claims based upon the same alleged facts. The complaint seeks damages on behalf of putative classes of customers who purchased tickets for air travel from either the Company or American Airlines between August 29, 2017, and March 13, 2019. The complaint generally seeks money damages, equitable monetary relief, injunctive relief, declaratory relief, and attorneys’ fees and other costs. On September 13, 2019, the Company filed a motion to dismiss the complaint and to strike certain class allegations. Boeing also moved to dismiss. On February 14, 2020, the trial court issued a ruling that granted in part and denied in part the motions to dismiss the complaint. The trial court order, among other things: (i) dismissed without prejudice various state law claims that the plaintiffs abandoned in response to the motions, (ii) dismissed with prejudice the remaining state law claims, including fraud by concealment, fraud by misrepresentation, and negligent misrepresentation on the grounds that federal law preempts those claims, and (iii) found that plaintiffs lack Article III standing to pursue one of the plaintiffs’ theories of RICO injury. The order denied the motion to dismiss with respect to two RICO claims premised upon a second theory of RICO injury and denied the motion to strike the class allegations at the pleadings stage. On September 3, 2021, the trial court issued an order under Rule 23(a) and 23(b)(3) certifying four classes of persons associated with ticket purchases for flights during the period of August 29, 2017, through March 13, 2019, comprised of (i) those who purchased tickets (without being reimbursed) for flights on Southwest Airlines during the class period, except for those whose flights were solely on routes where, at the time of the ticket
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purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, (ii) those who reimbursed a Southwest Airlines ticket purchaser and thus bore the economic burden for a Southwest Airlines ticket for a flight meeting the preceding criteria set forth in (i) above, (iii) those who purchased tickets (without being reimbursed) for flights on American Airlines during the class period, except for those whose flights were solely on routes where, at the time of ticket purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, and (iv) those who reimbursed an American Airlines ticket purchaser and thus bore the economic burden for an American Airlines ticket for a flight meeting the preceding criteria set forth in (iii) above. On September 17, 2021, the Company filed a petition for permission immediately to appeal the class certification ruling to the Fifth Circuit Court of Appeals. Boeing also filed such a petition. Plaintiffs filed their oppositions to the petitions on September 27, 2021. On September 30, 2021, the Fifth Circuit Court of Appeals granted the Company (and Boeing) permission to appeal the class certification ruling. On December 22, 2021, in response to a motion to stay the trial court proceedings filed by the Company and Boeing, the Fifth Circuit stayed all proceedings, including the pursuit of any discovery, in the trial court pending disposition of the class certification appeal by the Fifth Circuit. Following full briefing on the merits of the appeal, a three-judge panel of the Fifth Circuit heard oral argument of the appeal on July 5, 2022, and the Company is awaiting a decision from the Fifth Circuit. The Company denies all allegations of wrongdoing, believes the plaintiffs' positions are without merit, and intends to continue vigorously defending itself in all respects.

On February 19, 2020, a complaint alleging violations of federal securities laws and seeking certification as a class action was filed against the Company and certain of its officers in the United States District Court for the Northern District of Texas in Dallas. A lead plaintiff has been appointed in the case, and an amended complaint was filed on July 2, 2020. The amended complaint seeks damages on behalf of a putative class of persons who purchased the Company’s common stock between February 7, 2017, and January 29, 2020. The amended complaint asserts claims under Sections 10(b) and 20 of the Securities Exchange Act and alleges that the Company made material misstatements to investors regarding the Company’s safety and maintenance practices and its compliance with federal regulations and requirements. The amended complaint generally seeks money damages, pre-judgment and post-judgment interest, and attorneys’ fees and other costs. On August 17, 2020, the Company and the individual defendants filed a motion to dismiss. On October 1, 2020, the lead plaintiff filed a response in opposition to the motion to dismiss. The Company filed a reply on or about October 21, 2020, such that the motion is now fully briefed, although the parties have each supplemented their prior briefing with regard to more recent case holdings in other matters. The Company denies all allegations of wrongdoing, including those in the amended complaint. The Company believes the plaintiffs' positions are without merit and intends to vigorously defend itself.

On June 22, 2020, a derivative action for breach of fiduciary duty was filed in the United States District Court for the Northern District of Texas naming the members of the Company's Board of Directors as defendants and the Company as a nominal defendant (the "Derivative Action"). The plaintiff alleges unspecified damage to Company’s reputation, goodwill, and standing in the community, as well as damage from exposure to civil and regulatory liability and defense costs. According to the lawsuit, these damages arise from the Company’s alleged failure to comply with safety and record maintenance regulations and false statements in public filings regarding the Company’s safety practices. The plaintiff alleges the Board, in the absence of good faith, exhibited reckless disregard for its duties of oversight. On October 7, 2020, the Court entered an order staying and administratively closing the Derivative Action. The plaintiff in the Derivative Action shall have the right to reopen the action following the resolution of the Company's motion to dismiss in the ongoing litigation brought under the federal securities laws or upon the occurrence of certain other conditions. The Board and Company deny all allegations of wrongdoing made in the Derivative Action.

On August 26, 2021, a complaint alleging breach of contract and seeking certification as a class action was filed against the Company in the United States District Court for the Western District of Texas in Waco. The complaint alleges that the Company breached its Contract of Carriage and other alleged agreements in connection with its use of the allegedly defective MAX aircraft manufactured by The Boeing Company. The complaint seeks damages on behalf of putative classes of customers who provided valuable consideration, whether in money or other form (e.g., voucher, miles/points, etc.), in exchange for a ticket for air transportation with the Company, which transportation took place between August 29, 2017, and March 13, 2019. The complaint generally seeks money damages, declaratory relief, and attorneys’ fees and other costs. On October 27, 2021, the Company filed a multi-faceted motion challenging the Complaint based upon lack of subject matter jurisdiction, the existence of the prior-filed
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Sherman Complaint on appeal in the Fifth Circuit, improper venue, and failure to state a claim, and seeking to have the complaint's class contentions stricken. That motion was fully briefed by both parties and was argued to a United States Magistrate Judge on June 27, 2022. On July 5, 2022, the Magistrate Judge granted the motion in part and ordered the case stayed until the issuance of the Fifth Circuit's opinion in the Sherman Complaint. The Company denies all allegations of wrongdoing, believes the plaintiffs' positions are without merit, and intends to vigorously defend itself in all respects.

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, examinations by the Internal Revenue Service.

The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue Service, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow.

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Item 1A. Risk Factors

Except for the additional risk factor set forth below, there have been no material changes to the factors disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Conflicting federal, state, and local laws and regulations may impose additional requirements and restrictions on the Company’s operations, which could increase the Company’s operating costs, result in service disruptions, and increase litigation risk.

Airlines are subject to extensive regulatory and legal requirements at the federal, state, and local levels that require substantial compliance costs and that may be inconsistent with each other. These laws could affect the Company’s relationship with its workforce and cause its expenses to increase without an ability to pass through these costs. In recent years, the airline industry has experienced an increase in litigation asserting the application of state and local employment laws, particularly in California. On June 30, 2022, the U.S. Supreme Court denied review of the Ninth Circuit’s ruling in Bernstein v. Virgin America, Inc., which held that federal law did not preempt the California state meal-and-rest-break regulations for flight attendants at issue. The Company is a defendant in multiple proceedings asserting wage and hour claims with respect to certain employees who work in, or are based in, California. The Bernstein decision may adversely affect the Company’s defenses in some or all of those proceedings and may give rise to additional litigation in these or other areas previously believed to be preempted by federal law. Application of state and local laws to the Company’s operations may conflict with federal laws—or with the laws of other states and local governments—and may subject the Company to additional requirements and restrictions. Moreover, application of these state and local laws may result in operational disruption, increased litigation risk, and negative effects on the Company’s collective bargaining agreements. Adverse litigation results in any of these cases could adversely impact the Company’s operational flexibility and result in the imposition of damages and fines, which could potentially be significant.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) On May 15, 2019, the Company’s Board of Directors authorized the repurchase of up to $2.0 billion of the Company’s common stock. Subject to certain conditions, including restrictions on the Company pursuant to the Payroll Support programs through September 30, 2022, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions. The Company has announced it has suspended further share repurchase activity until further notice. The Company has approximately $899 million remaining under its current share repurchase authorization.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None
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Item 6. Exhibits
3.1
3.2
10.1
10.2
31.1
31.2
32.1
101.INSXBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

(1) Certain confidential information contained in this agreement has been omitted because it is both not material and is of the type that the registrant treats as private or confidential.
(2) Furnished, not filed.
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SIGNATURES
 

 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 SOUTHWEST AIRLINES CO.
   
August 1, 2022By:/s/   Tammy Romo
   
  Tammy Romo
  Executive Vice President & Chief Financial Officer
  (On behalf of the Registrant and in
  her capacity as Principal Financial
  and Accounting Officer)
65




SUPPLEMENTAL AGREEMENT NO. 16
to
PURCHASE AGREEMENT NO. 03729
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-8 and 737-7 Aircraft

THIS SUPPLEMENTAL AGREEMENT NO. 16 (SA-16), entered into as of April 22, 2022, is made between THE BOEING COMPANY, a Delaware corporation (Boeing), and SOUTHWEST AIRLINES CO., a Texas corporation (Customer).

RECITALS:

WHEREAS, Customer and Boeing entered into Purchase Agreement Number PA-03729 dated December 13, 2011 (as amended and supplemented, Purchase Agreement) relating to the purchase and sale of Boeing model 737-8 (737-8 Aircraft) and model 737-7 aircraft (737-7 Aircraft) (737-8 Aircraft and 737-7 Aircraft collectively, the “Aircraft”). This SA-16 is an amendment to and is incorporated into the Purchase Agreement. Capitalized terms used herein but not otherwise defined will have the meaning set forth in the Purchase Agreement;
WHEREAS, Customer has previously notified Boeing of the exercise of twenty eight (28) Original Options as Remarket Aircraft, twelve (12) Original Option Aircraft, and thirty-two (32) 2020 Option Aircraft as follows:
(i) five (5) Original Option Aircraft as Remarket Aircraft scheduled for delivery in March 2022;
(ii) seven (7) Original Option Aircraft as Remarket Aircraft scheduled for delivery in April 2022;
(iii) three (3) Original Option Aircraft as Remarket Aircraft scheduled for delivery in May 2022;
(iv) thirteen (13) Original Option Aircraft as Remarket Aircraft scheduled for delivery in June 2022;
(v) three (3) Original Option Aircraft scheduled for delivery in October 2022;
(vi) three (3) Original Option Aircraft scheduled for delivery in November 2022;
(vii) two (2) Original Option Aircraft scheduled for delivery in December 2022;
[***] = Certain identified information has been excluded from the exhibit because it is both not material and is of the type that the registrant treats as private or confidential.

        


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(viii) one (1) Original Option Aircraft and seven (7) 2020 Option Aircraft scheduled for delivery in January 2023;
(ix) seven (7) 2020 Option Aircraft scheduled for delivery in February 2023;
(x) one (1) Original Option Aircraft and six (6) 2020 Option Aircraft scheduled for delivery in March 2023;
(xi) seven (7) 2020 Option Aircraft scheduled for delivery in April 2023;
(xii) five (5) 2020 Option Aircraft scheduled for delivery in May 2023; and
(xiii) two (2) Original Option Aircraft scheduled for delivery in July 2023;
WHEREAS, Customer and Boeing agree to the model substitution from model 737-8 to model 737-7 of forty-four (44) aircraft as follows; twelve (12) exercised Original Option Aircraft and thirty-two (32) exercised 2020 Option Aircraft in sub-paragraphs (v) through (xiii) in the WHEREAS clause above, and Boeing and Customer agree to update the Purchase Agreement to reflect the aforementioned aircraft option exercises and aircraft model substitutions;
WHEREAS, Customer and Boeing agree to the defer the delivery of three (3) 737-7 Aircraft in August 2022 to two (2) in December 2022 and one (1) in June 2023;
WHEREAS, Customer and Boeing agree to the acceleration of five (5) Original Option Aircraft from one (1) in November 2022, three (3) in December 2022, and one (1) in August 2023 to three (3) in August 2022 and two (2) in October 2022;
    WHEREAS, in addition to the foregoing, Boeing agrees to provide acceleration rights applicable for seventeen (17) Original Option Aircraft from two (2) in January 2023, three (3) in February 2023, two (2) in March 2023, two (2) in April 2023, three (3) in May 2023, two (2) in June 2023, and three (3) in July 2023, to ten (10) in July 2022 and seven (7) in August 2022;

WHEREAS, Customer and Boeing agree to the model substitution from model 737-7 to model 737-8 of forty (40) Aircraft as follows; ten (10) in September 2022, ten (10) in October 2022, ten (10) in November 2022, and ten (10) in December 2022;

WHEREAS, Customer agrees that upon issuance of the amended type certification for the model 737-7 Aircraft by the U.S. Federal Aviation Administration, Customer will use commercially reasonable efforts to take delivery, in 2022, of as many of the thirty-one (31) 737-7 Aircraft with scheduled delivery months in 2022 as possible (in accordance with the Letter Agreement No. SWA-PA-3729-LA-2103755, entitled 2022/2023 Production Plan);

WHEREAS, Boeing and Customer agree to clarify the definition of “Program Aircraft” as referenced in Letter Agreement No. SWA-PA-03729-1106484R1, entitled [***];







        


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WHEREAS, Boeing and Customer agree to [***] previously provided in Letter Agreement No. SWA-PA-03729-2100825R1; and

    WHEREAS, Boeing and Customer wish to enter into this SA-16 to reflect the terms as agreed between the parties.

NOW, THEREFORE, the parties agree that the Purchase Agreement is amended as set forth below and otherwise agree as follows:


1.TABLE OF CONTENTS.

The Table of Contents of the Purchase Agreement is hereby deleted in its entirety and replaced by a new Table of Contents (attached), which lists the Tables, Exhibits, and Letter Agreements revised or added by this SA-16 and is identified by “SA-16”. Such revised Table of Contents is incorporated into the Purchase Agreement by this reference.

2.TABLES.

Table 1A, Aircraft Delivery, Description, Price and Advance Payments – 737-8 Aircraft, is hereby deleted in its entirety and replaced by a new Table 1A (identified by “SA-16”) attached hereto and incorporated into the Purchase Agreement by this reference.

Table 1B, Aircraft Delivery, Description, Price and Advance Payments – 737-7 Aircraft, is hereby deleted in its entirety and replaced by a new Table 1B (identified by "SA-16") attached hereto and incorporated into the Purchase Agreement by this reference.

3.LETTER AGREEMENTS.

3.1.Letter Agreement No. SWA-PA-03729-LA-1106474R6 entitled Option Aircraft, together with the attachments thereto are hereby deleted in their entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-1106474R7 entitled Option Aircraft and the attachments thereto.

3.2.Letter Agreement No. SWA-PA-03729-LA-1106484R2 entitled [***], together with the attachments thereto are hereby deleted in their entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-1106484R3 entitled [***]and the attachments thereto.

3.3.Letter Agreement No. SWA-PA-03729-LA-2100825 entitled [***], is hereby deleted in its entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-2100825R1.









        


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3.4.Letter Agreement No. SWA-PA-03729-LA-2100812 entitled [***], is hereby deleted in its entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-2100812R1.

3.5.A new Letter Agreement No. SWA-PA-03729-LA-2103755 entitled 2022/2023 – Production Plan, is hereby incorporated into the Purchase Agreement.

4.[***] IMPACT.

4.1.Due to Customer’s prior exercise of (i) five (5) Original Option Aircraft as Remarket Aircraft scheduled for delivery in March 2022, (ii) seven (7) Original Option Aircraft as Remarket Aircraft scheduled for delivery in April 2022, (iii) three (3) Original Option Aircraft as Remarket Aircraft scheduled for delivery in May 2022, (iv) thirteen (13) Original Option Aircraft as Remarket Aircraft scheduled for delivery in June 2022, (v) three (3) Original Option Aircraft scheduled for delivery in October 2022, (vi) three (3) Original Option Aircraft scheduled for delivery in November 2022, (vii) two (2) Original Option Aircraft scheduled for delivery in December 2022, (viii) one (1) Original Option Aircraft and seven (7) 2020 Option Aircraft scheduled for delivery in January 2023, (ix) seven (7) 2020 Option Aircraft scheduled for delivery in February 2023, (x) one (1) Original Option Aircraft and six (6) 2020 Option Aircraft scheduled for delivery in March 2023, (xi) seven (7) 2020 Option Aircraft scheduled for delivery in April 2023, (xii) five (5) 2020 Option Aircraft scheduled for delivery in May 2023, and (xiii) two (2) Original Option Aircraft scheduled for delivery in July 2023; Customer [***]

4.2.Due to the deferral of three (3) 737-7 Aircraft as described in this SA-16, Customer [***]

4.3.Due to the acceleration of five (5) Original Option Aircraft described in this SA-16, Customer [***]

4.4.Due to the substitution of forty (40) model 737-7 Aircraft to model 737-8 Aircraft as follows; ten (10) in September 2022, ten (10) in October 2022, ten (10) in November 2022, and ten (10) in December 2022 as described in this SA-16, Customer and Boeing have [***]


        


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The Purchase Agreement is amended and supplemented to the extent herein provided and as so amended and supplemented will continue in full force and effect.


EXECUTED IN DUPLICATE as of the day and year first above written.

THE BOEING COMPANYSOUTHWEST AIRLINES CO.
By:     /s/ Carson J May
By:    /s/ Chris Monroe
Name: Carson J. May
Name: Chris Monroe
Its:     Attorney-In-Fact
Its:    SVP Finance & Treasurer
        


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TABLE OF CONTENTS

ARTICLESTITLES
Article 1Quantity, Model and DescriptionSA-2
Article 2Delivery Schedule
Article 3Price
Article 4PaymentSA-2
Article 5Additional Terms
TABLETITLE
1A737-8 Aircraft Information TableSA-16
1B737-7 Aircraft Information TableSA-16
EXHIBIT
A1737-8 Aircraft ConfigurationSA-11
A2737-7 Aircraft ConfigurationSA-8
A-3737-8 Remarket Aircraft ConfigurationSA-12
B*Aircraft Delivery Requirements and Responsibilities
B-1
Remarket Aircraft Technical
Acceptance and Delivery Requirements and Responsibilities    
SA-12
SUPPLEMENTAL EXHIBITSTITLES
AE1*Escalation Adjustment/Airframe and Optional Features
BFE1BFE Variables for 737-8SA-7
BFE2BFE Variables for 737-7SA-8
CS1Customer Support Variables
CS1-7MAXCustomer Support VariablesSA-2
EE1*
Engine Escalation/Engine Warranty and Patent Indemnity
    
SWA-PA-03729SA-16
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SLP1*Service Life Policy Components
LETTER AGREEMENTSTITLES
SWA-PA-03729-LA-1106463R3Open MattersSA-8
SWA-PA-03729-LA-1106464*[***]
SWA-PA-03729-LA-1106465*[***]
SWA-PA-03729-LA-1106466[***]
SWA-PA-03729-LA-1106467R2[***]SA-8
SWA-PA-03729-LA-1106468*[***]
SWA-PA-03729-LA-1106469R1[***]SA-2
SWA-PA-03729-LA-1106470R1
[***]
SA-2
SWA-PA-03729-LA-1106471R2Substitute AircraftSA-12
SWA-PA-03729-LA-1106473R2[***]SA-12
SWA-PA-03729-LA-1106474R7Option AircraftSA-16
SWA-PA-03729-LA-1106475R5[***]SA-14
SWA-PA-03729-LA-1106476R2[***]SA-8
SWA-PA-03729-LA-1106477*[***]
SWA-PA-03729-LA-1106478[***]
SWA-PA-03729-LA-1106479R1[***]SA-2
SWA-PA-03729-LA-1106480R1[***]SA-2
SWA-PA-03729-LA-1106481R2[***]SA-2
SWA-PA-03729-LA-1106482*[***]
SWA-PA-03729-LA-1106483*[***]
SWA-PA-03729-LA-1106484R3[***]SA-16
SWA-PA-03729-LA-1106485*
[***]
    
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LETTER AGREEMENTSTITLES
SWA-PA-03729-LA-1209080[***]SA-1
SWA-PA-03729-LA-1210419[***]SA-1
SWA-PA-03729-LA-1300943[***]SA-2
SWA-PA-03729-LA-1301168R3[***]SA-6
SWA-PA-03729-LA-1301170R3[***]SA-12
SWA-PA-03729-LA-1400371[***]SA-7
SWA-PA-03729-LA-1503792Service Ready Operational ValidationSA-6
SWA-PA-03729-LA-1500831[***]SA-7
SWA-PA-03729-LA-1602486R1[***]SA-12
SWA-PA-03729-LA-2100594737-8 Remarket Production AircraftSA-12
SWA-PA-03729-LA-2100700
737-8 Open Configuration Matters –
Remarket Production Aircraft
SA-12
SWA-PA-03729-LA-2100811[***]SA-12
SWA-PA-03729-LA-2100812R1[***]SA-16
SWA-PA-03729-LA-2100813[***]SA-12
SWA-PA-03729-LA-2100814R1[***]SA-15
SWA-PA-03729-LA-2100819[***]SA-12
SWA-PA-03729-LA-2100825R1[***]SA-16
SWA-PA-03729-LA-2100841[***]SA-12
SWA-PA-03729-LA-2100984[***]SA-12
SWA-PA-03729-LA-21037552022/2023 Production PlanSA-16
* Denotes revision to Page 1 or Page 2 only to reference 737-7 (SA-2)



SWA-PA-03729SA-16
Page 3
BOEING PROPRIETARY



INACTIVE / DELETED TABLES, EXHIBITS, AND LETTER AGREEMENTS

RESTRICTED LETTER AGREEMENTS

Letter AgreementTitleLast Updated under SACurrent Status
SWA-PA-03729-LA-1106472R1[***]SA-2Deleted under SA-4
SWA-PA-01810/03729-LA-1301169[***]SA-2Deleted under SA-4
SWA-PA-03729SA-16
Page 4
BOEING PROPRIETARY
Table 1A To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-8 Aircraft
Airframe Model/MTOW:    737-8 Engine
181,200 pounds
Detail Specification:
D019A008-P (5/1/2017)
Model/Thrust: CFMLEAP-1B28(2)
28,800 pounds
Airframe Price Base Year/Escalation Formula:
Jul-11
Non-Standard
Airframe Price:
[***]
Engine Price Base Year/Escalation Formula:
N/AN/A
Optional Features:
     [***]
Sub-Total of Airframe and Features:
[***]
Airframe Escalation Data:
Engine Price (Per Aircraft):
[***]
Base Year Index (ECI):
[***]
Aircraft Basic Price (Excluding BFE/SPE):
[***]
Base Year Index (CPI):
[***]
Buyer Furnished Equipment (BFE) Estimate:
[***]
Seller Purchased Equipment (SPE) Estimate:
[***]
capture13.jpg
SWA-PA-03729 107813 / 108198 / 108732SA-16
Page 1
BOEING PROPRIETARY
Table 1A To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-8 Aircraft
capture11.jpg


SWA-PA-03729 107813 / 108198 / 108732SA-16
Page 2
BOEING PROPRIETARY
Table 1A To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-8 Aircraft
capture14.jpg



SWA-PA-03729 107813 / 108198 / 108732SA-16
Page 3
BOEING PROPRIETARY
Table 1A To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-8 Aircraft

Delivery
Date*
Original
Delivery
Date*

Number of
Aircraft
Escalation
Factor
(Airframe)
Manufacturer
Serial
Number**

Escalation
Factor

Aircraft
Block


Notes
Escalation Estimate
Adv Payment Base
Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing
[***]
24 Mos.
[***]
21/18/12/9/6 Mos.
[***]
Total
[***]
Mar-2028
Nov-2020
1
[***]
65475
[***]
D OPEX
[***][***][***][***][***]
Apr-2028
Dec-2020
1
[***]
42703
[***][***][***][***][***][***]
Apr-2028
Dec-2020
1
[***]
33940
[***]
B
[***][***][***][***][***]
May-2028
Jan-2021
1
[***]
35974
[***]
B
[***][***][***][***][***]
Jun-2028
Jan-2021
1
[***]
65450
[***]
D OPEX
[***][***][***][***][***]
Jul-2028
Jan-2021
1
[***]
65449
[***]OPEX[***][***][***][***][***]
Sep-2028
Feb-2021
1
[***]
65451
[***]
D OPEX
[***][***][***][***][***]
Aug-2028
Feb-2021
1
[***]
65835
[***]OPEX
Note 3
[***][***][***][***][***]
Oct-2028
Mar-2021
1
[***]
42648
[***][***][***][***][***][***]
Nov-2028
Mar-2021
1
[***]
65452
[***]OPEX[***][***][***][***][***]
Nov-2028
Apr-2021
1
[***]
42650
[***][***][***][***][***][***]
Dec-2028
Apr-2021
1
[***]
42651
[***][***][***][***][***][***]
Jan-2029
Apr-2021
1
[***]
42649
[***][***][***][***][***][***]
Jan-2029
Apr-2021
1
[***]
65454
[***]
D OPEX
[***][***][***][***][***]
Feb-2029
Apr-2021
1
[***]
65453
[***]OPEX[***][***][***][***][***]
Feb-2029
May-2021
1
[***]
42652
[***][***][***][***][***][***]
Feb-2029
May-2021
1
[***]
42653
[***][***][***][***][***][***]
Mar-2029
May-2021
1
[***]
42654
[***][***][***][***][***][***]
Mar-2029
May-2021
1
[***]
65455
[***]
D OPEX
[***][***][***][***][***]
Mar-2029
May-2021
1
[***]
65456
[***]OPEX[***][***][***][***][***]
Apr-2029
Jun-2021
3
[***]
42655, 42656, 42670
[***][***][***][***][***][***]
May-2029
Jun-2021
1
[***]
65457
[***]
D OPEX
[***][***][***][***][***]
May-2029
Jul-2021
1
[***]
42658
[***][***][***][***][***][***]
Jun-2029
Jul-2021
1
[***]
65460
[***]
D OPEX
[***][***][***][***][***]
Jul-2029
Jul-2021
1
[***]
65459
[***]OPEX[***][***][***][***][***]
Jun-2029
Jul-2021
1
[***]
65458
[***]OPEX[***][***][***][***][***]
May-2029
Jul-2021
1
[***]
65834
[***]OPEX
Note 3
[***][***][***][***][***]
Sep-2029
Aug-2021
1
[***]
65461
[***]
D OPEX
[***][***][***][***][***]
Jul-2029
Aug-2021
1
[***]
65836
[***]OPEX
Note 3
[***][***][***][***][***]
Aug-2029Aug-2021
1
[***]
65837
[***]OPEX
Note 3
[***][***][***][***][***]
Aug-2029Aug-2021
1
[***]
65838
[***]OPEX
Note 3
[***][***][***][***][***]
Aug-2029Aug-2021
1
[***]
65839
[***]OPEX
Note 3
[***][***][***][***][***]
Sep-2029
Aug-2021
1
[***]
66974
[***]
Note 4
[***][***][***][***][***]
Nov-2029
Sep-2021
1
[***]
65462
[***]OPEX[***][***][***][***][***]
Oct-2029
Sep-2021
1
[***]
65463
[***]OPEX[***][***][***][***][***]
Oct-2029
Sep-2021
1
[***]
65840
[***]OPEX
Note 3
[***][***][***][***][***]
Oct-2029
Sep-2021
1
[***]
65841
[***]OPEX
Note 3
[***][***][***][***][***]
Nov-2029
Oct-2021
1
[***]
65466
[***]
D OPEX
[***][***][***][***][***]
Dec-2029
Oct-2021
2
[***]
65465, 65464
[***]OPEX[***][***][***][***][***]
Jan-2030
Nov-2021
1
[***]
65467
[***]
D OPEX
[***][***][***][***][***]
Jan-2030
Dec-2021
1
[***]
65468
[***]OPEX[***][***][***][***][***]
Jan-2030
Dec-2021
2
[***]
65842, 65843
[***]OPEX
Note 3
[***][***][***][***][***]
Feb-2030
Jan-2022
1
[***]
65469
[***]
D OPEX
[***][***][***][***][***]
Feb-2030
Jan-2022
1
[***]
65470
[***]OPEX[***][***][***][***][***]
Feb-2030
Apr-2022
1
[***]
65844
[***]OPEX
Note 3
[***][***][***][***][***]
Mar-2030
Jul-2022
3
[***]
65855, 65853, 65851
[***]OPEX
Note 3
[***][***][***][***][***]
Mar-2030
Aug-2022
1
[***]
65845
[***]OPEX
Note 3
[***][***][***][***][***]
Apr-2030
Aug-2022
2
[***]
65847, 65849
[***]OPEX
Note 3
[***][***][***][***][***]
Apr-2030
Oct-2022
2
[***]
65857, 65859
[***]OPEX
Note 3
[***][***][***][***][***]



SWA-PA-03729 107813 / 108198 / 108732SA-16
Page 4
BOEING PROPRIETARY
Table 1A To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-8 Aircraft

Delivery
Date*
Original
Delivery
Date*

Number of
Aircraft
Escalation
Factor
(Airframe)
Manufacturer
Serial
Number**

Escalation
Factor

Aircraft
Block


Notes
Escalation Estimate
Adv Payment Base
Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing
[***]
24 Mos.
[***]
21/18/12/9/6 Mos.
[***]
Total
[***]
May-2030
Dec-2022
1
[***]
65861
[***]OPEX
Note 3
[***][***][***][***][***]
May-2030
Mar-2023
1
[***]
36732
[***]
B
[***][***][***][***][***]
May-2030
Apr-2023
1
[***]
38806
[***]
B
[***][***][***][***][***]
May-2030
Jun-2023
1
[***]
37034
[***]
A
[***][***][***][***][***]
Jun-2030
Aug-2023
1
[***]
42552
[***]
A
[***][***][***][***][***]
Jun-2030
Oct-2023
1
[***]
42538
[***]
A
[***][***][***][***][***]
Jun-2030
Nov-2023
1
[***]
38815
[***]
B
[***][***][***][***][***]
Jul-2030
Mar-2024
3
[***]
38817, 35968, 35972
[***]
B
[***][***][***][***][***]
Jul-2030
Apr-2024
1
[***]
36736
[***]
B
[***][***][***][***][***]
Aug-2030
Jun-2024
1
[***]
42542
[***]
A
[***][***][***][***][***]
Aug-2030
Jul-2024
2
[***]
35963, 35967
[***]
B
[***][***][***][***][***]
Aug-2030
Sep-2024
1
[***]
36730
[***]
B
[***][***][***][***][***]
Sep-2030
Nov-2024
1
[***]
35971
[***]
B
[***][***][***][***][***]
Sep-2030
Dec-2024
1
[***]
35975
[***]
B
[***][***][***][***][***]
Sep-2030
Jan-2025
2
[***]
38804, 38805
[***]
B
[***][***][***][***][***]
Oct-2030
Jan-2025
2
[***]
65863, 65865
[***]OPEX
Note 3
[***][***][***][***][***]
Oct-2030
Feb-2025
1
[***]
36729
[***]
B
[***][***][***][***][***]
Nov-2030
Feb-2025
2
[***]
65868, 65869
[***]OPEX
Note 3
[***][***][***][***][***]
Nov-2030
Mar-2025
2
[***]
65870, 65871
[***]OPEX
Note 3
[***][***][***][***][***]
Dec-2030
Apr-2025
2
[***]
65872, 65873
[***]OPEX
Note 3
[***][***][***][***][***]
Dec-2030
May-2025
2
[***]
65846, 65848
[***]OPEX
Note 3
[***][***][***][***][***]
Jan-2031
Jun-2025
1
[***]
65852
[***]OPEX
Note 3
[***][***][***][***][***]
Feb-2031
Jun-2025
1
[***]
65850
[***]OPEX
Note 3
[***][***][***][***][***]
Mar-2031
Jul-2025
1
[***]
65854
[***]OPEX
Note 3
[***][***][***][***][***]
Apr-2031
Jul-2025
1
[***]
65856
[***]OPEX
Note 3
[***][***][***][***][***]
May-2031
Aug-2025
1
[***]
65860
[***]OPEX
Note 3
[***][***][***][***][***]
Jun-2031
Aug-2025
1
[***]
65858
[***]OPEX
Note 3
[***][***][***][***][***]
Jul-2031
Sep-2025
1
[***]
65862
[***]OPEX
Note 3
[***][***][***][***][***]
Aug-2031
Oct-2025
1
[***]
65864
[***]OPEX
Note 3
[***][***][***][***][***]
Sep-2031
Nov-2025
1
[***]
65866
[***]OPEX
Note 3
[***][***][***][***][***]
Oct-2031
Dec-2025
1
[***]
65867
[***]OPEX
Note 3
[***][***][***][***][***]

Total:     248

* [***]
** Manufacturer Serial Numbers (MSN) are for reference only and are subject to change.
† [***]
Notes:
(1) [***]
(2) [***]
(3) [***]
(4) [***]
(5) Substitution of (10) September 2022 / (10) October 2022 / (10) November 2022 / (10) December 2022 -- 737-7 into 737-8 from SA-16. Reference Table 1B and
Letter Agreement No. SWA-PA-03729-LA-2103755 for pricing terms and conditions for these (40) substituted Aircraft. (6) Exercise of Remarket Aircraft per SWA-PA-03729-LA-1106474, entitled Option Aircraft
SWA-PA-03729 107813 / 108198 / 108732SA-16
Page 5
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft
Airframe Model/MTOW:

Engine Model/Thrust:
737-7    77,000 pounds
CFMLEAP-1B27C(1)26,400 pounds
Detail Specification:

Airframe Price Base Year/Escalation Formula:
D019A008SWA17P-1

Jul-11


ECI-MFG/CPI
Airframe Price:
[***]
Engine Price Base Year/Escalation Formula:
N/A
N/A
Optional Features:
[***]
Sub-Total of Airframe and Features:
[***]
Airframe Escalation Data:
Engine Price (Per Aircraft):
[***]
Base Year Index (ECI):
[***]
Aircraft Basic Price (Excluding BFE/SPE):
[***]
Base Year Index (CPI):
[***]
Buyer Furnished Equipment (BFE) Estimate: [***]

Seller Purchased Equipment (SPE) Estimate:    [***]



Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***] 1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Jan-2022
Apr-2019
1
[***]42586[***][***][***][***][***][***][***]
Jan-2022
Apr-2019
1
[***]42587[***][***][***][***][***][***][***]
Jan-2022
Apr-2019
1
[***]42588[***][***][***][***][***][***][***]
Jan-2022
May-2019
1
[***]42589[***][***][***][***][***][***][***]
Feb-2022
May-2019
1
[***]42590[***][***][***][***][***][***][***]
Feb-2022
Aug-2019
1
[***]42561[***][***][***][***][***][***][***]
Feb-2022
Aug-2019
1
[***]42569[***][***][***][***][***][***][***]
May-2022
Oct-2023
1
[***]42614[***][***][***][***][***][***][***]
May-2022
Feb-2024
1
[***]42620[***][***][***][***][***][***][***]
May-2022
Mar-2024
1
[***]42621[***][***][***][***][***][***][***]
May-2022
Apr-2024
1
[***]42623[***][***][***][***][***][***][***]
May-2022
May-2024
1
[***]42627[***][***][***][***][***][***][***]
May-2022
Jun-2024
1
[***]42629[***][***][***][***][***][***][***]
May-2022
Jul-2024
1
[***]42631[***][***][***][***][***][***][***]
Jul-2022
Jun-2023
1
[***]42602[***][***][***][***][***][***][***]
Jul-2022
Jul-2023
1
[***]42603[***][***][***][***][***][***][***]
Jul-2022
Aug-2023
1
[***]42604[***][***][***][***][***][***][***]
Jul-2022
Sep-2023
1
[***]42609[***][***][***][***][***][***][***]
Jul-2022
Sep-2024
1
[***]42635[***][***][***][***][***][***][***]
Jul-2022
Oct-2024
1
[***]42638[***][***][***][***][***][***][***]

SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 1
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft
capture12.jpg


SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 2
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft

capture1.jpg



SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 3
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft
capture15.jpg




SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 4
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft
capture16.jpg




SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 5
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft




Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***]1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Feb-2024
Dec-23
1
[***]42583[***][***]
***737-8 Sub
[***][***][***][***][***]
Feb-2024
Jan-24
1
[***]42584[***][***]
***737-8 Sub
[***][***][***][***][***]
Feb-2024
Jan-24
1
[***]42585[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2024
Jan-24
1
[***]42611[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2024
Feb-24
1
[***]42596[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2024
Feb-24
1
[***]42599[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2024
Feb-24
1
[***]42612[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2024
Apr-24
1
[***]42606[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2024
Apr-24
1
[***]42617[***][***]
***737-8 Sub
[***][***][***][***][***]
May-2024
May-24
1
[***]42608[***][***]
***737-8 Sub
[***][***][***][***][***]
May-2024
May-24
1
[***]42619[***][***]
***737-8 Sub
[***][***][***][***][***]
May-2024
May-24
1
[***]42622[***][***]
***737-8 Sub
[***][***][***][***][***]
Jun-2024
Jun-24
1
[***]42610[***][***]
***737-8 Sub
[***][***][***][***][***]
Jun-2024
Aug-24
1
[***]42626[***][***]
***737-8 Sub
[***][***][***][***][***]
Jul-2024
Aug-24
1
[***]42624[***][***]
***737-8 Sub
[***][***][***][***][***]
Jul-2024
Sep-24
1
[***]42630[***][***]
***737-8 Sub
[***][***][***][***][***]
Aug-2024
Oct-24
1
[***]42625[***][***]
***737-8 Sub
[***][***][***][***][***]
Aug-2024
Oct-24
1
[***]42636[***][***]
***737-8 Sub
[***][***][***][***][***]
Aug-2024
Nov-24
1
[***]42639[***][***]
***737-8 Sub
[***][***][***][***][***]
Sep-2024
Dec-24
1
[***]42640[***][***]
***737-8 Sub
[***][***][***][***][***]
Sep-2024
Dec-24
1
[***]42628[***][***]
***737-8 Sub
[***][***][***][***][***]
Oct-2024
Feb-25
1
[***]42643[***][***]
***737-8 Sub
[***][***][***][***][***]
Oct-2024
Mar-25
1
[***]42645[***][***]
***737-8 Sub
[***][***][***][***][***]
Oct-2024
Mar-25
1
[***]42644[***][***]
***737-8 Sub
[***][***][***][***][***]
Nov-2024
Apr-25
1
[***]42659[***][***]
***737-8 Sub
[***][***][***][***][***]
Nov-2024
Apr-25
1
[***]42660[***][***]
***737-8 Sub
[***][***][***][***][***]
Dec-2024
May-25
1
[***]42663[***][***]
***737-8 Sub
[***][***][***][***][***]
Dec-2024
Jun-25
1
[***]42667[***][***]
***737-8 Sub
[***][***][***][***][***]
Jan-2025
Jul-25
1
[***]42668[***][***]
***737-8 Sub
[***][***][***][***][***]
Jan-2025
Aug-25
1
[***]42675[***][***]
***737-8 Sub
[***][***][***][***][***]

SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 6
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft




Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***]1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Feb-2025
Sep-25
1
[***]42677[***][***]
***737-8 Sub
[***][***][***][***][***]
Feb-2025
Sep-25
1
[***]42676[***][***]
***737-8 Sub
[***][***][***][***][***]
Feb-2025
Oct-25
1
[***]42692[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2025
Oct-25
1
[***]42696[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2025
Nov-25
1
[***]42698[***][***]
***737-8 Sub
[***][***][***][***][***]
Mar-2025
Nov-25
1
[***]42700[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2025
Dec-25
1
[***]42702[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2025
Dec-25
1
[***]42701[***][***]
***737-8 Sub
[***][***][***][***][***]
Apr-2025
1
[***]67319[***][***][***][***][***][***][***]
May-2025
1
[***]67321[***][***][***][***][***][***][***]
May-2025
1
[***]67320[***][***][***][***][***][***][***]
May-2025
1
[***]67322[***][***][***][***][***][***][***]
Jun-2025
1
[***]67323[***][***][***][***][***][***][***]
Jun-2025
1
[***]67324[***][***][***][***][***][***][***]
Jul-2025
1
[***]67325[***][***][***][***][***][***][***]
Jul-2025
1
[***]67326[***][***][***][***][***][***][***]
Aug-2025
1
[***]67328[***][***][***][***][***][***][***]
Aug-2025
1
[***]67327[***][***][***][***][***][***][***]
Sep-2025
1
[***]67330[***][***][***][***][***][***][***]
Sep-2025
1
[***]67329[***][***][***][***][***][***][***]
Oct-2025
1
[***]67333[***][***][***][***][***][***][***]
Oct-2025
1
[***]67332[***][***][***][***][***][***][***]
Oct-2025
1
[***]67331[***][***][***][***][***][***][***]
Nov-2025
1
[***]67335[***][***][***][***][***][***][***]
Nov-2025
1
[***]67334[***][***][***][***][***][***][***]
Dec-2025
1
[***]67338[***][***][***][***][***][***][***]
Dec-2025
1
[***]67337[***][***][***][***][***][***][***]
Dec-2025
1
[***]67336[***][***][***][***][***][***][***]
Jan-2026
1
[***]67339[***][***][***][***][***][***][***]
Feb-2026
1
[***]67340[***][***][***][***][***][***][***]

SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 7
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft




Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***]1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Mar-2026
1
[***]67342[***][***][***][***][***][***][***]
Mar-2026
1
[***]67341[***][***][***][***][***][***][***]
Apr-2026
1
[***]67343[***][***][***][***][***][***][***]
May-2026
1
[***]67345[***][***][***][***][***][***][***]
May-2026
1
[***]67344[***][***][***][***][***][***][***]
Jun-2026
1
[***]67346[***][***][***][***][***][***][***]
Jul-2026
1
[***]67347[***][***][***][***][***][***][***]
Aug-2026
1
[***]67348[***][***][***][***][***][***][***]
Sep-2026
1
[***]67349[***][***][***][***][***][***][***]
Oct-2026
1
[***]67351[***][***][***][***][***][***][***]
Oct-2026
1
[***]67350[***][***][***][***][***][***][***]
Nov-2026
1
[***]67352[***][***][***][***][***][***][***]
Dec-2026
1
[***]67353[***][***][***][***][***][***][***]
Jan-2027
1
[***]67354[***][***][***][***][***][***][***]
Feb-2027
1
[***]67355[***][***][***][***][***][***][***]
Mar-2027
1
[***]67357[***][***][***][***][***][***][***]
Mar-2027
1
[***]67356[***][***][***][***][***][***][***]
Apr-2027
1
[***]67358[***][***][***][***][***][***][***]
May-2027
1
[***]67360[***][***][***][***][***][***][***]
May-2027
1
[***]67359[***][***][***][***][***][***][***]
Jun-2027
1
[***]67361[***][***][***][***][***][***][***]
Jul-2027
1
[***]67362[***][***][***][***][***][***][***]
Aug-2027
1
[***]67363[***][***][***][***][***][***][***]
Sep-2027
1
[***]67364[***][***][***][***][***][***][***]
Oct-2027
1
[***]67366[***][***][***][***][***][***][***]
Oct-2027
1
[***]67365[***][***][***][***][***][***][***]
Nov-2027
1
[***]67367[***][***][***][***][***][***][***]
Dec-2027
1
[***]67368[***][***][***][***][***][***][***]
Jan-2028
1
[***]67369[***][***][***][***][***][***][***]
Feb-2028
1
[***]67370[***][***][***][***][***][***][***]

SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 8
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft




Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***]1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Mar-2028
1
[***]67372[***][***][***][***][***][***][***]
Mar-2028
1
[***]67371[***][***][***][***][***][***][***]
Apr-2028
1
[***]67373[***][***][***][***][***][***][***]
May-2028
1
[***]67375[***][***][***][***][***][***][***]
May-2028
1
[***]67374[***][***][***][***][***][***][***]
Jun-2028
1
[***]67376[***][***][***][***][***][***][***]
Jul-2028
1
[***]67377[***][***][***][***][***][***][***]
Aug-2028
1
[***]67378[***][***][***][***][***][***][***]
Sep-2028
1
[***]67379[***][***][***][***][***][***][***]
Oct-2028
1
[***]67381[***][***][***][***][***][***][***]
Oct-2028
1
[***]67380[***][***][***][***][***][***][***]
Nov-2028
1
[***]67382[***][***][***][***][***][***][***]
Dec-2028
1
[***]67383[***][***][***][***][***][***][***]
Jan-2029
1
[***]67385[***][***][***][***][***][***][***]
Jan-2029
1
[***]67384[***][***][***][***][***][***][***]
Feb-2029
1
[***]67386[***][***][***][***][***][***][***]
Mar-2029
1
[***]67388[***][***][***][***][***][***][***]
Mar-2029
1
[***]67387[***][***][***][***][***][***][***]
Apr-2029
1
[***]67389[***][***][***][***][***][***][***]
May-2029
1
[***]67391[***][***][***][***][***][***][***]
May-2029
1
[***]67390[***][***][***][***][***][***][***]
Jun-2029
1
[***]67393[***][***][***][***][***][***][***]
Jun-2029
1
[***]67392[***][***][***][***][***][***][***]
Jul-2029
1
[***]67395[***][***][***][***][***][***][***]
Jul-2029
1
[***]67394[***][***][***][***][***][***][***]
Aug-2029
1
[***]67397[***][***][***][***][***][***][***]
Aug-2029
1
[***]67396[***][***][***][***][***][***][***]
Sep-2029
1
[***]67399[***][***][***][***][***][***][***]
Sep-2029
1
[***]67398[***][***][***][***][***][***][***]
Oct-2029
1
[***]67400[***][***][***][***][***][***][***]
SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 9
BOEING PROPRIETARY
Table 1B To
Purchase Agreement No. PA-03729
Aircraft Delivery, Description, Price and Advance Payments
737-7 Aircraft




Delivery

Date*
Original Delivery Date*


Number of

Aircraft
Escalation Factor (Airframe)
Manufacturer
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):

Serial

Number**

Escalation

Factor

[***]1


Note
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Nov-2029
1
[***][***]
4Q20
[***][***][***][***][***][***]
Dec-2029
1
[***][***]
4Q20
[***][***][***][***][***][***]
Dec-2029
1
[***][***]
4Q20
[***][***][***][***][***][***]
Jan-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Feb-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Mar-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Mar-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Apr-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
May-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
May-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Jun-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Jul-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Aug-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Sep-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Oct-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Oct-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Nov-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Dec-2030
1
[***][***]
4Q20
[***][***][***][***][***][***]
Total:    238

* [***]
** Manufacturer Serial Numbers (MSN) are for reference only and are subject to change.
*** [***]
**** [***]

Notes:
(1) [***]

SWA-PA-03729 107953-1F 116795-1F 116953-1F 118300-1FSA-15
Page 10
BOEING PROPRIETARY

boeinglogo.jpg
The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207





SWA-PA-03729-LA-1106474R7
Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611
Subject:    Option Aircraft
Reference:    Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to Model 737-8 aircraft and Model 737-7 aircraft
This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement shall have the same meaning as in the Purchase Agreement.
1.    Right to Purchase Option Aircraft.
Subject to the terms and conditions contained in this Letter Agreement, in addition to the Aircraft described in Table 1 to the Purchase Agreement as of the date of execution of this Letter Agreement, Customer will have the option to purchase additional Boeing Model 737-8 aircraft as option aircraft (Option Aircraft).
2.    Delivery.
The number of Option Aircraft and delivery dates are listed in the Attachment 1-A, 1-B, and 1-C (collectively Attachment 1) to this Letter Agreement. The Attachment 1-A Aircraft are the Original Option Aircraft (Original Option Aircraft), the Attachment 1-B Aircraft are the 2020 Option Aircraft (2020 Option Aircraft) and the Attachment 1-C Aircraft are the 2021 Option Aircraft (2021 Option Aircraft).
3.    Configuration.
3.1    Subject to the provisions of Article 3.2, below, the configuration for the Option Aircraft will be the Detail Specification for Boeing Model 737-8 aircraft at the revision level in effect at the time of Definitive Agreement (as defined in Article 8). Such Detail Specification will be revised to include (i) changes applicable to the Detail Specification that are developed by Boeing between the Option Exercise Date (as defined below) and the signing of the Definitive Agreement, (ii) changes required to obtain required regulatory certificates, and (iii) other changes as mutually agreed.
SWA-PA-03729-LA-1106474R7
SA-16
Option Aircraft
Page 1
BOEING PROPRIETARY

boeinglogo.jpg




3.2    Boeing reserves the right to configure the Option Aircraft starting from a different configuration specification, provided that it can achieve the same configuration which would result pursuant to the provisions of Article 3.1.
4.    [***]







5.    [***]











SWA-PA-03729-LA-1106474R7
SA-16
Option Aircraft
Page 2
BOEING PROPRIETARY

boeinglogo.jpg




6.    [***]









7.    [***]



8.    [***]




9.    Assignment.
Notwithstanding any other provisions of the Purchase Agreement, the rights and obligations described in this Letter Agreement are provided to Customer in consideration of Customer’s becoming the operator of the Option Aircraft and cannot be assigned in whole or in part.



SWA-PA-03729-LA-1106474R7
SA-16
Option Aircraft
Page 3
BOEING PROPRIETARY

boeinglogo.jpg




10.    Confidentiality
Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.

SWA-PA-03729-LA-1106474R7
SA-16
Option Aircraft
Page 4
BOEING PROPRIETARY

boeinglogo.jpg









Very truly yours,

THE BOEING COMPANY
By/s/ Carson J. May
NameCarson J. May
ItsAttorney-In-Fact
ACCEPTED AND AGREED TO this
Date:
 April 22, 2022
SOUTHWEST AIRLINES CO.
By

/s/ Chris Monroe
Name

Chris Monroe
ItsSVP Finance & Treasurer


SWA-PA-03729-LA-1106474R7
SA-16
Option Aircraft
Page 5
BOEING PROPRIETARY

Attachment 1-A To
Letter Agreement No. 1106474
Aircraft Delivery, Description, Price and Advance Payments
Airframe Model/MTOW:
737-8
181,200 pounds
Detail Specification:
D019A008-S (5/1/2017)
Engine Model/Thrust:
CFMLEAP-1B28(1)
28,800 pounds
Airframe Price Base Year/Escalation Formul
Jul-11
ECI-MFG/CPI
Airframe Price:
[***]
Engine Price Base Year/Escalation Formula:
N/A
N/A
Optional Features:
[***]
Sub-Total of Airframe and Features:
[***]
Airframe Escalation Data:
Engine Price (Per Aircraft):
[***]
Base Year Index (ECI):
[***]
Aircraft Basic Price (Excluding BFE/SPE):
[***]
Base Year Index (CPI):
[***]

Buyer Furnished Equipment (BFE) Estimate:
[***]
Seller Purchased Equipment (SPE) Estimate:
[***]
Non-Refundable Deposit/Aircraft at Def Agreement:
[***]


Delivery

Date


Number of

Aircraft
Escalation Factor (Airframe)



Escalation Factor



MSN^
Option Exercise Date Deadline


[***]



Note



Note
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
Jul-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Jul-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Jul-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Aug-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Aug-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Aug-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
R
Aug-2022
1
[***]
[***]
67775
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***][***]
R
Aug-2022
1
[***]
[***]
67774
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***][***]
R
Aug-2022
1
[***]
[***]
67773
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***][***]
Sep-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Oct-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
R
Oct-2022
1
[***]
[***]
67783
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***][***]
R
Oct-2022
1
[***]
[***]
67785
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***][***]
Nov-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
Nov-2022
1
[***]
[***]
[***]
[***]1
Remarket Aircraft**
[***][***][***][***][***]
R
Jan-2023
1
[***]
[***]
67753
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Jan-2023
1
[***]
[***]
67754
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Feb-2023
1
[***]
[***]
67755
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Feb-2023
1
[***]
[***]
67756
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Feb-2023
1
[***]
[***]
67757
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Mar-2023
1
[***]
[***]
67758
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Mar-2023
1
[***]
[***]
67759
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Apr-2023
1
[***]
[***]
67762
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
Apr-2023
1
[***]
[***]
67760
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
May-2023
1
[***]
[***]
67761
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]
R
May-2023
1
[***]
[***]
67782
[***]
[***]1
Remarket Aircraft**
[***]2
[***][***][***][***][***]





SWA-PA-03729-LA-1106474 107813 116801-1F.txtSA-16
Page 1
BOEING PROPRIETARY
Attachment 1-A To
Letter Agreement No. 1106474
Aircraft Delivery, Description, Price and Advance Payments


Delivery

Date


Number of

Aircraft
Escalation Factor (Airframe)



Escalation Factor



MSN^
Option Exercise Date Deadline


[***]



Note



Note
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
R
May-2023
1
[***]
[***]
67781
March 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
R
Jun-2023
1
[***]
[***]
67780
April 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
R
Jun-2023
1
[***]
[***]
67779
April 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
R
Jul-2023
1
[***]
[***]
67778
May 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
R
Jul-2023
1
[***]
[***]
67777
May 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
R
Jul-2023
1
[***]
[***]
67776
May 1, 2023
[***]1
Remarket Aircraft**
[***] 2
[***][***][***][***][***]
Sep-2023
1
[***]
[***]
June 1, 2022
[***][***][***][***][***]
Sep-2023
1
[***]
[***]
June 1, 2022
[***][***][***][***][***]
Nov-2023
1
[***]
[***]
August 1, 2022
[***][***][***][***][***]
Nov-2023
1
[***]
[***]
August 1, 2022
[***][***][***][***][***]
Dec-2023
1
[***]
[***]
September 1, 2022
[***][***][***][***][***]
Dec-2023
1
[***]
[***]
September 1, 2022
[***][***][***][***][***]
Mar-2024
1
[***]
[***]
December 1, 2022
[***]
[***][***][***][***][***]
Apr-2024
1
[***]
[***]
January 1, 2023
[***]
[***][***][***][***][***]
Apr-2024
1
[***]
[***]
January 1, 2023
[***]
[***][***][***][***][***]
Apr-2024
1
[***]
[***]
January 1, 2023
[***]
[***][***][***][***][***]
Apr-2024
1
[***]
[***]
January 1, 2023
[***]
[***][***][***][***][***]
May-2024
1
[***]
[***]
February 1, 2023
[***]
[***][***][***][***][***]
May-2024
1
[***]
[***]
February 1, 2023
[***]
[***][***][***][***][***]
May-2024
1
[***]
[***]
February 1, 2023
[***]
[***][***][***][***][***]
Jun-2024
1
[***]
[***]
March 1, 2023
[***]
[***][***][***][***][***]
Jun-2024
1
[***]
[***]
March 1, 2023
[***]
[***][***][***][***][***]
Jun-2024
1
[***]
[***]
March 1, 2023
[***]
[***][***][***][***][***]
Jan-2025
1
[***]
[***]
October 1, 2023
[***]
[***][***][***][***][***]
Jan-2025
1
[***]
[***]
October 1, 2023
[***]
[***][***][***][***][***]
Jan-2025
1
[***]
[***]
October 1, 2023
[***]
[***][***][***][***][***]
Feb-2025
1
[***]
[***]
November 1, 2023
[***]
[***][***][***][***][***]
Feb-2025
1
[***]
[***]
November 1, 2023
[***]
[***][***][***][***][***]
Feb-2025
1
[***]
[***]
November 1, 2023
[***]
[***][***][***][***][***]
Mar-2025
1
[***]
[***]
December 1, 2023
[***]
[***][***][***][***][***]
Mar-2025
1
[***]
[***]
December 1, 2023
[***]
[***][***][***][***][***]
Mar-2025
1
[***]
[***]
December 1, 2023
[***]
[***][***][***][***][***]
Mar-2025
1
[***]
[***]
December 1, 2023
[***]
[***][***][***][***][***]
Apr-2025
1
[***]
[***]
January 1, 2024
[***]
[***][***][***][***][***]
Apr-2025
1
[***]
[***]
January 1, 2024
[***]
[***][***][***][***][***]
Apr-2025
1
[***]
[***]
January 1, 2024
[***]
[***][***][***][***][***]
Apr-2025
1
[***]
[***]
January 1, 2024
[***]
[***][***][***][***][***]
May-2025
1
[***]
[***]
February 1, 2024
[***]
[***][***][***][***][***]



SWA-PA-03729-LA-1106474 107813 116801-1F.txtSA-16
Page 2
BOEING PROPRIETARY
Attachment 1-A To
Letter Agreement No. 1106474
Aircraft Delivery, Description, Price and Advance Payments


Delivery

Date


Number of

Aircraft
Escalation Factor (Airframe)



Escalation Factor



MSN^
Option Exercise Date Deadline


Escalation

Cap Date



Note



Note
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]
May-2025
1
[***]
[***]
February 1, 2024
[***]
[***][***][***][***][***][***]
May-2025
1
[***]
[***]
February 1, 2024
[***]
[***][***][***][***][***][***]
May-2025
1
[***]
[***]
February 1, 2024
[***]
[***][***][***][***][***][***]
Jun-2025
1
[***]
[***]
March 1, 2024
[***]
[***][***][***][***][***][***]
Jun-2025
1
[***]
[***]
March 1, 2024
[***]
[***][***][***][***][***][***]

Total:
69


* [***]
** [***]
*** [***]
^ Manufacturer's serial numbers (MSNs) are for reference only and are subject to change
[***] 1: [***]
[***] 2: [***]
Note:
(1) [***]

SWA-PA-03729-LA-1106474 107813 116801-1F.txtSA-16
Page 3
BOEING PROPRIETARY
Attachment 1-B To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments

Airframe Model/MTOW:
737-8
181,200 pounds
Detail Specification:
D019A008-S (5/1/2017)
Engine Model/Thrust:
CFMLEAP-1B28(1)
28,800 pounds
Airframe Price Base Year/Escalation Formula:
Jul-11
Non-Standard
Airframe Price:
[***]
Engine Price Base Year/Escalation Formula:
Jul-11
Non-Standard
Optional Features:
[***]
Sub-Total of Airframe and Features:
[***]
Airframe Escalation Data:
Engine Price (Per Aircraft):
[***]
Base Year Index (ECI):
[***]
Aircraft Basic Price (Excluding BFE/SPE):    
[***]
Base Year Index (CPI):
[***]
Buyer Furnished Equipment (BFE) Estimate:
[***]
Seller Purchased Equipment (SPE) Estimate:
[***]
Deposit per Aircraft:
[***]



Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor

Note
Jan-2024
1
[***]
October 1, 2022
[***]
[***][***][***][***][***]
Jan-2024
1
[***]
October 1, 2022
[***]
[***][***][***][***][***]
Jan-2024
1
[***]
October 1, 2022
[***]
[***][***][***][***][***]
Feb-2024
1
[***]
November 1, 2022
[***]
[***][***][***][***][***]
Feb-2024
1
[***]
November 1, 2022
[***]
[***][***][***][***][***]
Feb-2024
1
[***]
November 1, 2022
[***]
[***][***][***][***][***]
Mar-2024
1
[***]
December 1, 2022
[***]
[***][***][***][***][***]
Mar-2024
1
[***]
December 1, 2022
[***]
[***][***][***][***][***]
Mar-2024
1
[***]
December 1, 2022
[***]
[***][***][***][***][***]
Mar-2024
1
[***]
December 1, 2022
[***]
[***][***][***][***][***]
Apr-2024
1
[***]
January 1, 2023
[***]
[***][***][***][***][***]
May-2024
1
[***]
February 1, 2023
[***]
[***][***][***][***][***]
May-2024
1
[***]
February 1, 2023
[***]
[***][***][***][***][***]
Jun-2024
1
[***]
March 1, 2023
[***]
[***][***][***][***][***]
Jun-2024
1
[***]
March 1, 2023
[***]
[***][***][***][***][***]
Jul-2024
1
[***]
April 1, 2023
[***]
[***][***][***][***][***]
Jul-2024
1
[***]
April 1, 2023
[***]
[***][***][***][***][***]



SWA-PA-03729 116954.txtSA-16
Page 1
BOEING PROPRIETARY
Attachment 1-B To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments






Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor

Note
Jul-2024
1
[***]
April 1, 2023
[***]
[***][***][***][***][***]
Jul-2024
1
[***]
April 1, 2023
[***]
[***][***][***][***][***]
Jul-2024
1
[***]
April 1, 2023
[***]
[***][***][***][***][***]
Aug-2024
1
[***]
May 1, 2023
[***]
[***][***][***][***][***]
Aug-2024
1
[***]
May 1, 2023
[***]
[***][***][***][***][***]
Aug-2024
1
[***]
May 1, 2023
[***]
[***][***][***][***][***]
Aug-2024
1
[***]
May 1, 2023
[***]
[***][***][***][***][***]
Aug-2024
1
[***]
May 1, 2023
[***]
[***][***][***][***][***]
Sep-2024
1
[***]
June 1, 2023
[***]
[***][***][***][***][***]
Sep-2024
1
[***]
June 1, 2023
[***]
[***][***][***][***][***]
Sep-2024
1
[***]
June 1, 2023
[***]
[***][***][***][***][***]
Sep-2024
1
[***]
June 1, 2023
[***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Oct-2024
1
[***]
April 1, 2023
[***]
** [***]
[***][***][***][***][***]
Nov-2024
1
[***]
May 1, 2023
[***]
** [***]
[***][***][***][***][***]
Nov-2024
1
[***]
May 1, 2023
[***]
** [***]
[***][***][***][***][***]
Nov-2024
1
[***]
May 1, 2023
[***]
** [***]
[***][***][***][***][***]
Nov-2024
1
[***]
May 1, 2023
[***]
** [***]
[***][***][***][***][***]
Nov-2024
1
[***]
May 1, 2023
[***]
** [***]
[***][***][***][***][***]
Dec-2024
1
[***]
June 1, 2023
[***]
** [***]
[***][***][***][***][***]
Dec-2024
1
[***]
June 1, 2023
[***]
** [***]
[***][***][***][***][***]
Dec-2024
1
[***]
June 1, 2023
[***]
** [***]
[***][***][***][***][***]
Dec-2024
1
[***]
June 1, 2023
[***]
** [***]
[***][***][***][***][***]
Dec-2024
1
[***]
June 1, 2023
[***]
** [***]
[***][***][***][***][***]
Mar-2025
1
[***]
December 1, 2023
[***]
[***][***][***][***][***]

SWA-PA-03729 116954.txtSA-16
Page 2
BOEING PROPRIETARY
Attachment 1-B To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments






Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor

Note
Apr-2025
1
[***]
January 1, 2024
[***]
[***][***][***][***][***]
May-2025
1
[***]
February 1, 2024
[***]
[***][***][***][***][***]
Jun-2025
1
[***]
March 1, 2024
[***]
[***][***][***][***][***]
Jun-2025
1
[***]
March 1, 2024
[***]
[***][***][***][***][***]
Jun-2025
1
[***]
March 1, 2024
[***]
[***][***][***][***][***]
Jul-2025
1
[***]
April 1, 2024
[***]
[***][***][***][***][***]
Jul-2025
1
[***]
April 1, 2024
[***]
[***][***][***][***][***]
Jul-2025
1
[***]
April 1, 2024
[***]
[***][***][***][***][***]
Jul-2025
1
[***]
April 1, 2024
[***]
[***][***][***][***][***]
Jul-2025
1
[***]
April 1, 2024
[***]
[***][***][***][***][***]
Aug-2025
1
[***]
May 1, 2024
[***]
[***][***][***][***][***]
Aug-2025
1
[***]
May 1, 2024
[***]
[***][***][***][***][***]
Aug-2025
1
[***]
May 1, 2024
[***]
[***][***][***][***][***]
Aug-2025
1
[***]
May 1, 2024
[***]
[***][***][***][***][***]
Aug-2025
1
[***]
May 1, 2024
[***]
[***][***][***][***][***]
Sep-2025
1
[***]
June 1, 2024
[***]
[***][***][***][***][***]
Sep-2025
1
[***]
June 1, 2024
[***]
[***][***][***][***][***]
Sep-2025
1
[***]
June 1, 2024
[***]
[***][***][***][***][***]
Sep-2025
1
[***]
June 1, 2024
[***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Oct-2025
1
[***]
April 1, 2024
[***]
** [***]
[***][***][***][***][***]
Nov-2025
1
[***]
May 1, 2024
[***]
** [***]
[***][***][***][***][***]
Nov-2025
1
[***]
May 1, 2024
[***]
** [***]
[***][***][***][***][***]
Nov-2025
1
[***]
May 1, 2024
[***]
** [***]
[***][***][***][***][***]
Nov-2025
1
[***]
May 1, 2024
[***]
** [***]
[***][***][***][***][***]

SWA-PA-03729 116954.txtSA-16
Page 3
BOEING PROPRIETARY
Attachment 1-B To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments






Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor

Note
Nov-2025
1
[***]
May 1, 2024
[***]
** [***]
[***][***][***][***][***]
Dec-2025
1
[***]
June 1, 2024
[***]
** [***]
[***][***][***][***][***]
Dec-2025
1
[***]
June 1, 2024
[***]
** [***]
[***][***][***][***][***]
Dec-2025
1
[***]
June 1, 2024
[***]
** [***]
[***][***][***][***][***]
Dec-2025
1
[***]
June 1, 2024
[***]
** [***]
[***][***][***][***][***]
Dec-2025
1
[***]
June 1, 2024
[***]
** [***]
[***][***][***][***][***]
Jan-2026
1
[***]
October 1, 2024
[***]
[***][***][***][***][***]
Jan-2026
1
[***]
October 1, 2024
[***]
[***][***][***][***][***]
Jan-2026
1
[***]
October 1, 2024
[***]
[***][***][***][***][***]
Feb-2026
1
[***]
November 1, 2024
[***]
[***][***][***][***][***]
Feb-2026
1
[***]
November 1, 2024
[***]
[***][***][***][***][***]
Feb-2026
1
[***]
November 1, 2024
[***]
[***][***][***][***][***]
Mar-2026
1
[***]
December 1, 2024
[***]
[***][***][***][***][***]
Mar-2026
1
[***]
December 1, 2024
[***]
[***][***][***][***][***]
Mar-2026
1
[***]
December 1, 2024
[***]
[***][***][***][***][***]
Mar-2026
1
[***]
December 1, 2024
[***]
[***][***][***][***][***]
Apr-2026
1
[***]
January 1, 2025
[***]
[***][***][***][***][***]
Apr-2026
1
[***]
January 1, 2025
[***]
[***][***][***][***][***]
Apr-2026
1
[***]
January 1, 2025
[***]
[***][***][***][***][***]
Apr-2026
1
[***]
January 1, 2025
[***]
[***][***][***][***][***]
Total:    95



* [***]

Note:
(1) [***]
SWA-PA-03729 116954.txtSA-16
Page 4
BOEING PROPRIETARY
Attachment 1-C To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments

Airframe Model/MTOW:
737-8
181,200 pounds

Detail Specification:
D019A008-S (5/1/2017) Jul-11


Non-Standard
Engine Model/Thrust:
CFMLEAP-1B28(1)
28,800 pounds

Airframe Price Base Year/Escalation Formula:
Airframe Price:
[***]
Engine Price Base Year/Escalation Formula:
Jul-11
Non-Standard
Optional Features:
[***]
Sub-Total of Airframe and Features:
[***]
Airframe Escalation Data:
Engine Price (Per Aircraft):
[***]

Base Year Index (ECI):
[***]
Aircraft Basic Price (Excluding BFE/SPE):
[***]

Base Year Index (CPI):
[***]
Buyer Furnished Equipment (BFE) Estimate:

[***]
Seller Purchased Equipment (SPE) Estimate:

[***]

Deposit per Aircraft:

[***]



Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor
May-2026
1
[***]
February 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
May-2026
1
[***]
February 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
May-2026
1
[***]
February 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jun-2026
1
[***]
March 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jun-2026
1
[***]
March 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jun-2026
1
[***]
March 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jul-2026
1
[***]
April 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jul-2026
1
[***]
April 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jul-2026
1
[***]
April 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Aug-2026
1
[***]
May 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Aug-2026
1
[***]
May 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Aug-2026
1
[***]
May 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Sep-2026
1
[***]
June 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Sep-2026
1
[***]
June 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Sep-2026
1
[***]
June 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Sep-2026
1
[***]
June 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Oct-2026
1
[***]
July 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]

SWA-PA-03729-LA-116474 116800-1F.txtSA-16
Page 1
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Attachment 1-C To
Letter Agreement No. SWA-PA-03729-LA-1106474R7
Aircraft Delivery, Description, Price and Advance Payments






Delivery

Date*


Number of

Aircraft
Escalation Factor (Airframe)
Option

Exercise Date


Escalation
Escalation Estimate Adv Payment Base Price Per A/P
Advance Payment Per Aircraft (Amts. Due/Mos. Prior to Delivery):
At Signing

[***]
24 Mos.

[***]
21/18/12/9/6 Mos.

[***]
Total

[***]

Deadline

Factor
Oct-2026
1
[***]
July 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Oct-2026
1
[***]
July 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Oct-2026
1
[***]
July 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Nov-2026
1
[***]
August 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Nov-2026
1
[***]
August 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Nov-2026
1
[***]
August 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Dec-2026
1
[***]
September 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Dec-2026
1
[***]
September 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Dec-2026
1
[***]
September 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jan-2027
1
[***]
October 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Jan-2027
1
[***]
October 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Feb-2027
1
[***]
November 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Feb-2027
1
[***]
November 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Mar-2027
1
[***]
December 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Mar-2027
1
[***]
December 1, 2025
[***]
New Options SA-14
[***][***][***][***][***]
Total:
32




* [***]

Note:
(1) [***]

                
SWA-PA-03729-LA-116474 116800-1F.txtSA-16
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The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207
SWA-PA-03729-LA-1106484R3
Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611
Subject:    [***]
Reference:    Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to Model 737-8 and 737-7 aircraft (Aircraft)
This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement shall have the same meaning as in the Purchase Agreement.
1.Defined Terms: The following capitalized terms have the following meaning:
1.1[***]

1.2[***]

1.3Program Aircraft means each firm Aircraft specified in Table 1 of the Purchase Agreement and Original Option Aircraft that are exercised and scheduled for delivery prior to 2024.
2.[***]






3.[***]








SWA-PA-03729-LA-1106484R3SA-16
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4.[***]
















































SWA-PA-03729-LA-1106484R3SA-16
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5. [***]






















6.[***]




7.Assignment. Notwithstanding any other provisions of the Purchase Agreement, the rights and obligations described in this Letter Agreement are provided to Customer in consideration of Customer’s becoming the operator of the Aircraft and cannot be assigned in whole or, in part.
8.Confidentiality. Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Aircraft) and who understand they are not to disclose its





SWA-PA-03729-LA-1106484R3SA-16
[***]
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contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations.  Customer shall be fully responsible to Boeing for compliance with such obligations.
Very truly yours,
THE BOEING COMPANY
By

/s/ Carson J. May
Its
     
       Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date:April 22, 2022
SOUTHWEST AIRLINES CO.
By

/s/ Chris Monroe
ItsSVP Finance & Treasurer





SWA-PA-03729-LA-1106484R3SA-16
[***]
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ATTACHMENT A
[***]

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ATTACHMENT B, continued
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ATTACHMENT B, continued
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ATTACHMENT B, continued
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ATTACHMENT B, continued
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ATTACHMENT B, continued
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SWA-PA-03729-LA-1106484R3SA-16
[***]
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The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207


SWA-PA-03729-LA-2100812R1
Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611

Subject:    [***]

References:    1)    Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to Model 737-8 and Model 737-7 aircraft
2)    Letter Agreement SWA-PA-03729-LA-1106474R7 entitled “Option Aircraft” (Option Aircraft Letter Agreement)
3)    Letter Agreement SWA-PA-03729-LA-1106475R5 entitled [***]

This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement shall have the same meaning as in the Purchase Agreement.
[***]











1.[***]
SA-12
Page 1
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SWA-PA-03729-LA-2100812R1SA-16
[***]
Page 2
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SWA-PA-03729-LA-2100812R1SA-16
[***]
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2.[***]













3.[***]




















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4.Confidentiality.
Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally to other parties.  Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.
SWA-PA-03729-LA-2100812R1SA-16
[***]
Page 5
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Very truly yours,
THE BOEING COMPANY
By/s/ Carson J. May
NameCarson J. May
ItsAttorney-In-Fact
ACCEPTED AND AGREED TO this
Date:April 22, 2022
SOUTHWEST AIRLINES CO.
By/s/ Chris Monroe
NameChris Monroe
ItsSVP Finance & Treasurer
SWA-PA-03729-LA-2100812R1SA-16
[***]
Page 6
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The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207




SWA-PA-03729-LA-2100825R1
Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611
Subject:    [***]
References:    1)    Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to Model 737-8 and 737-7 aircraft (Aircraft)
This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement shall have the same meaning as in the Purchase Agreement.
1.[***]

































SWA-PA-03729-LA-2100825R1SA-16
[***]
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2.Assignment.
Notwithstanding any other provisions of the Purchase Agreement, the rights and obligations described in this Letter Agreement are provided to Customer in consideration of Customer’s becoming the operator of the Aircraft and cannot be assigned in whole or, in part.
3.Confidential Treatment.
Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.
SWA-PA-03729-LA-2100825R1SA-16
[***]
Page 2
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Very truly yours,
THE BOEING COMPANY
By/s/ Carson J. May
Name

Carson J. May
Its
     
       Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date:April 22, 2022
SOUTHWEST AIRLINES CO.
By/s/ Chris Monroe
NameChris Monroe
ItsSVP Finance & Treasurer
SWA-PA-03729-LA-2100825R1SA-16
[***]
Page 3
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The Boeing Company
P.O. Box 3707
Seattle, WA 98124-2207



SWA-PA-03729-LA-2103755
Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611
Subject:    2022/2023 Production Plan
References:    1)    Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to model 737-8 and model 737-7 aircraft (collectively, Aircraft)
2)     Table 1A to the Purchase Agreement entitled “Table 1A to Purchase Agreement No. PA-03729 Aircraft Delivery, Description, Price and Advance Payments 737-8 Aircraft” (Table 1A)
3)     Table 1B to the Purchase Agreement entitled “Table 1B to Purchase Agreement No. PA-03729 Aircraft Delivery, Description, Price and Advance Payments 737-7 Aircraft” (Table 1B)
4)    Attachment 1-A to Letter Agreement No. SWA-PA-03729-LA-1106474R7 entitled “Option Aircraft” (Option Aircraft Letter Agreement) to the Purchase Agreement
5)    Letter Agreement No. SWA-PA-03729-LA-2100594 entitled “737-8 Remarket Aircraft” (Remarket Aircraft Letter Agreement) to the Purchase Agreement
This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement shall have the same meaning as in the Purchase Agreement.

1.Deferral of 737-7 Aircraft
Boeing and Customer have agreed to defer the scheduled delivery months of three (3) model 737-7 Aircraft previously scheduled for delivery in August 2022 to two (2) in December 2022 and one (1) in June 2023, respectively, as reflected in Table 1B to the Purchase Agreement.






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2022/2023 Production Plan
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2.Acceleration of Original Option Aircraft
Boeing and Customer have agreed to accelerate the scheduled delivery months of five (5) Original Option Aircraft that are notated as “Remarket Aircraft**” and “Accelerated” in Attachment 1-A to the Option Aircraft Letter Agreement (and as described in the Remarket Aircraft Letter Agreement) from one (1) in August 2023, two (2) in December 2022, one (1) in December 2022, and one (1) in November 2022 to one (1) in August 2022, two (2) in August 2022, one (1) in October 2022, and one (1) in October 2022, respectively, as reflected in Attachment 1-A to the Option Aircraft Letter Agreement.
3.[***]
3.1.[***]

















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3.2.2022 737-7 Delivery Considerations. Subject to Section 3.3 below and provided that issuance of the Amended Type Certificate (ATC) for the model 737-7 aircraft by the U.S. Federal Aviation Administration (FAA) occurs in 2022, Customer and Boeing agree to work in good faith to have as many of the thirty-one (31) 737-7 Aircraft with scheduled delivery months in 2022 delivered in 2022 as possible (as reflected in Table 1B to the Purchase Agreement).
3.3    Delivery Obligations. Prior to the execution of this Letter Agreement, up to one hundred fourteen (114) Aircraft were scheduled for delivery by Boeing to Customer in 2022. If (i) ATC for the model 737-7 Aircraft is issued by the FAA in 2022, and (ii) the total number of Aircraft available for delivery by Boeing to Customer in 2022 exceeds one hundred fourteen (114), Customer may request that Boeing defers a number of Aircraft deliveries from 2022 to 2023 such that the total number of Aircraft deliveries in 2022 does not exceed one hundred fourteen (114). The parties will work together in good faith to mutually agree to a revised delivery schedule for such Aircraft in excess of such amount.
4.737-8 Special Substitution Aircraft
4.1.[***] Boeing and Customer have agreed to the substitution of forty (40) model 737-7 Aircraft with scheduled delivery months in September 2022 through December 2022 (including one (1) New Firm -7 Aircraft in September 2022, nine (9) 737-7 Substitute Option Aircraft in September 2022, ten (10) 737-7 Substitute Option Aircraft in October 2022, one (1) New Firm -7 Aircraft in November 2022, nine (9) 737-7 Substitute Option Aircraft in November 2022, one (1) New Firm -7 Aircraft in December 2022, and nine (9) 737-7 Substitute Option Aircraft in December 2022), into model 737-8 Aircraft (collectively, 737-8 Special Substitution Aircraft), as reflected in Table 1A and Table 1B to the Purchase Agreement.
4.2.[***]
SWA-PA-03729-LA-2103755SA-16
2022/2023 Production Plan
Page 3
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5.Confidentiality
Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.


SWA-PA-03729-LA-2103755SA-16
2022/2023 Production Plan
Page 4
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Very truly yours,
THE BOEING COMPANY
By

/s/ Carson J. May
NameCarson J. May
ItsAttorney-In-Fact
ACCEPTED AND AGREED TO this
Date:April 22, 2022
SOUTHWEST AIRLINES CO.
By

/s/ Chris Monroe
Name

Chris Monroe
ItsSVP Finance & Treasurer


SWA-PA-03729-LA-2103755SA-16
2022/2023 Production Plan
Page 5
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SUPPLEMENTAL AGREEMENT NO. 17
to
PURCHASE AGREEMENT NO. 03729
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-8 and 737-7 Aircraft

THIS SUPPLEMENTAL AGREEMENT NO. 17 (SA-17), entered into as of June 3, 2022, is made between THE BOEING COMPANY, a Delaware corporation (Boeing), and SOUTHWEST AIRLINES CO., a Texas corporation (Customer).
RECITALS:
WHEREAS, Customer and Boeing entered into Purchase Agreement Number PA-03729 dated December 13, 2011 (as amended and supplemented, Purchase Agreement) relating to the purchase and sale of Boeing model 737-8 (737-8 Aircraft) and model 737-7 aircraft (737-7 Aircraft) (737-8 Aircraft and 737-7 Aircraft collectively, the “Aircraft”). This SA-17 is an amendment to and is incorporated into the Purchase Agreement. Capitalized terms used herein but not otherwise defined will have the meaning set forth in the Purchase Agreement; and
WHEREAS, Customer and Boeing agree to incorporate into the Remarket Aircraft documents the amendments and additions to certain Letter Agreements and Exhibits provided in this SA-17.

NOW, THEREFORE, the parties agree that the Purchase Agreement is amended as set forth below and otherwise agree as follows:

1.TABLE OF CONTENTS.

The Table of Contents of the Purchase Agreement is hereby deleted in its entirety and replaced by a new Table of Contents (attached), which lists the Tables, Exhibits, and Letter Agreements revised or added by this SA-17 and is identified by “SA-17”. Such revised Table of Contents is incorporated into the Purchase Agreement by this reference.
[***] = Certain identified information has been excluded from the exhibit because it is both not material and is of the type that the registrant treats as private or confidential.

SWA-PA-03729
1
SA-17
BOEING PROPRIETARY



2.TABLES.

There are no changes to the Tables as a result of this SA-17.

3.LETTER AGREEMENTS.

3.1.Letter Agreement No. SWA-PA-03729-LA-2100594 entitled 737-8 Remarket Aircraft, is hereby deleted in its entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-2100594R1.

3.2.Letter Agreement No. SWA-PA-03729-LA-2100700 entitled Remarket Aircraft – Open Matters, is hereby deleted in its entirety and replaced by Letter Agreement No. SWA-PA-03729-LA-2100700R1 entitled Remarket Aircraft – Configuration Matters.


4.EXHIBITS.
4.1.New Exhibit A-3, “Supplemental Aircraft Delivery Configuration”, is attached hereto and incorporated into the Purchase Agreement by this reference, containing the aircraft configuration for the modified Remarket Aircraft.

4.2.The Exhibit B-1, “Remarket Aircraft Technical Acceptance and Delivery Requirements and Responsibilities” is hereby deleted in its entirety and replaced by a new Exhibit B-1 (identified by “SA-17”) attached hereto and incorporated into the Purchase Agreement by reference.

5.[***] IMPACT.

There are no impacts to [***] as a result of this SA-17.


The Purchase Agreement is amended and supplemented to the extent herein provided and as so amended and supplemented will continue in full force and effect.


EXECUTED IN DUPLICATE as of the day and year first above written.

THE BOEING COMPANYSOUTHWEST AIRLINES CO.
By:     /s/Carson J. May
By:    /s/ Chris Monroe
Name: Carson J. May
Name: Chris Monroe
Its:     Attorney-In-Fact
Its:    SVP Finance and Treasurer
SWA-PA-03729
2
SA-17
BOEING PROPRIETARY



TABLE OF CONTENTS
ARTICLESTITLES
Article 1Quantity, Model and DescriptionSA-2
Article 2Delivery Schedule
Article 3Price
Article 4PaymentSA-2
Article 5Additional Terms
TABLETITLE
1A737-8 Aircraft Information TableSA-16
1B737-7 Aircraft Information TableSA-16
EXHIBIT
A1737-8 Aircraft ConfigurationSA-11
A2737-7 Aircraft ConfigurationSA-8
A-3737-8 Remarket Aircraft Configuration
SA-17
B*Aircraft Delivery Requirements and Responsibilities
B-1Remarket Aircraft TechnicalSA-17
Acceptance and Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITSTITLES
AE1*Escalation Adjustment/Airframe and Optional Features
BFE1BFE Variables for 737-8SA-7
BFE2BFE Variables for 737-7SA-8
CS1Customer Support Variables
CS1-7MAXCustomer Support VariablesSA-2
EE1*Engine Escalation/Engine Warranty and Patent Indemnity
SWA-PA-03729SA-17
Page 1
BOEING PROPRIETARY



SLP1*Service Life Policy Components
LETTER AGREEMENTSTITLES
SWA-PA-03729-LA-1106463R3Open MattersSA-8
SWA-PA-03729-LA-1106464*[***]
SWA-PA-03729-LA-1106465*[***]
SWA-PA-03729-LA-1106466[***]
SWA-PA-03729-LA-1106467R2[***]SA-8
SWA-PA-03729-LA-1106468*[***]
SWA-PA-03729-LA-1106469R1[***]SA-2
SWA-PA-03729-LA-1106470R1[***]SA-2
SWA-PA-03729-LA-1106471R2Substitute AircraftSA-12
SWA-PA-03729-LA-1106473R2[***]SA-12
SWA-PA-03729-LA-1106474R7Option AircraftSA-16
SWA-PA-03729-LA-1106475R5[***]SA-14
SWA-PA-03729-LA-1106476R2[***]SA-8
SWA-PA-03729-LA-1106477*[***]
SWA-PA-03729-LA-1106478[***]
SWA-PA-03729-LA-1106479R1[***]SA-2
SWA-PA-03729-LA-1106480R1[***]SA-2
SWA-PA-03729-LA-1106481R2[***]SA-2
SWA-PA-03729-LA-1106482*[***]
SWA-PA-03729-LA-1106483*[***]
SWA-PA-03729-LA-1106484R3[***]
SA-16
SWA-PA-03729-LA-1106485*[***]

SWA-PA-03729SA-17
Page 2
BOEING PROPRIETARY




LETTER AGREEMENTSTITLES
SWA-PA-03729-LA-1209080[***]SA-1
SWA-PA-03729-LA-1210419[***]SA-1
SWA-PA-03729-LA-1300943[***]SA-2
SWA-PA-03729-LA-1301168R3[***]SA-6
SWA-PA-03729-LA-1301170R3[***]SA-12
SWA-PA-03729-LA-1400371[***]SA-7
SWA-PA-03729-LA-1503792Service Ready Operational ValidationSA-6
SWA-PA-03729-LA-1500831[***]SA-7
SWA-PA-03729-LA-1602486R1[***]SA-12
SWA-PA-03729-LA-2100594R1
737-8 Remarket Production AircraftSA-17
SWA-PA-03729-LA-2100700R1
737-8 Configuration Matters – Remarket Production AircraftSA-17
SWA-PA-03729-LA-2100811[***]SA-12
SWA-PA-03729-LA-2100812R1[***]SA-16
SWA-PA-03729-LA-2100813[***]SA-12
SWA-PA-03729-LA-2100814R1[***]SA-15
SWA-PA-03729-LA-2100819[***]SA-12
SWA-PA-03729-LA-2100825R1[***]SA-16
SWA-PA-03729-LA-2100841[***]SA-12
SWA-PA-03729-LA-2100984[***]SA-12
SWA-PA-03729-LA-21037552022/2023 Production PlanSA-16
* Denotes revision to Page 1 or Page 2 only to reference 737-7 (SA-2)

SWA-PA-03729SA-17
Page 3
BOEING PROPRIETARY




INACTIVE / DELETED TABLES, EXHIBITS, AND LETTER AGREEMENTS

RESTRICTED LETTER AGREEMENTS

Letter AgreementTitleLast Updated under SACurrent Status
SWA-PA-03729-LA-1106472R1[***]SA-2Deleted under SA-4
SWA-PA-01810/03729-LA-1301169[***]SA-2Deleted under SA-4

SWA-PA-03729SA-17
Page 4
BOEING PROPRIETARY



SUPPLEMENTAL AIRCRAFT DELIVERY CONFIGURATION
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO
EXHIBIT A-3 to PURCHASE AGREEMENT
NUMBER PA-03729

Page 1
BOEING PROPRIETARY

EXHIBIT A-3
SUPPLEMENTAL AIRCRAFT DELIVERY CONFIGURATION
DATED JUNE 3, 2022
relating to
BOEING MODEL 737-8 AIRCRAFT

The As-Built Configuration of the aircraft with effectivities of 1C691, 1C692-1C694, 1C511-1C513, and 1C514-1C517 (Aircraft) is described in Exhibit A-3. The “Delivery Configuration” of the Aircraft will be comprised of Exhibit A with incorporation of the Master Change Kits (MKs) of this Supplemental Configuration Exhibit A-3 listed below.
A “Delivery Detail Specification” will be provided describing the Delivery Configuration of the Aircraft comprised of Detail Specification D019A008SWA18P-5-(insert MSN: 60186, 60188, 60187, 60219, 60223, 60225, 60226, 60650, 60649, 60652, or 60653) (As-Built Configuration), as amended to incorporate the MKs listed below; including the effects on Manufacturer's Empty Weight (MEW) and Operating Empty Weight (OEW). As soon as practicable, Boeing will provide to Customer the Delivery Detail Specification. [***]



























SWA-PA-03729-EX A-3SA-17
Page 2
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
0110-000030MAJOR MODEL 737 AIRPLANEAcceptedAcceptedAcceptedAccepted
0110E131A08MINOR MODEL 737-8 AIRPLANEAcceptedAcceptedAcceptedAccepted
0160F303C15AIRPLANE IDENTIFICATION INFORMATION - TCI/ROJ - 1C511--Accepted-
0160F350A37AIRPLANE IDENTIFICATION INFORMATION - CDX/ROJ - 1C691Accepted---
0160F350B74AIRPLANE IDENTIFICATION INFORMATION - CDX/ROJ - 1C692-Accepted--
0160F350F09RR 97283-24 - AIRPLANE IDENTIFICATION NUMBERS - CDX/ROJ - 1C691Accepted---
0160F351A40AIRPLANE IDENTIFICATION INFORMATION - ROJ - 1C514---Accepted
0170B401A73CLIMATE - NORMAL WEATHER OPERATIONSAcceptedAcceptedAcceptedAccepted
0170B871A31GALLEY AFT COMPLEX - G4B GALLEY - DOMED AFT BULKHEAD (BASELINE)AcceptedAcceptedAcceptedAccepted
0170D387A08AVIONICS - DUAL FMC WITH MULTI-CONTROL DISPLAY UNITAcceptedAcceptedAcceptedAccepted
0170D837A13FLEXIBLE CERTIFICATIONAcceptedAcceptedAcceptedAccepted
0170E432100PC - FORWARD COMPLEX - ADVANCED LAVATORY WITH MINIMUM GALLEY CAPACITY AND WITHOUT CURTAIN AND CURTAIN TRACK - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
0170E432101PC - LAVATORY AFT COMPLEX - TWO ADVANCED LAVATORIES WITH TWO DOUBLE ATTENDANT SEATS AND NO CURTAIN AND CURTAIN TRACKAcceptedAcceptedAcceptedAccepted
0170E516A14COMMUNICATIONS - BASIC COMMUNICATIONS CONFIGURATION WITH HFAcceptedAcceptedAcceptedAccepted
0170E526A94LAVATORY AFT COMPLEX - TWO ADVANCED LAVATORIES WITH TWO DOUBLE ATTENDANT SEATSAcceptedAcceptedAcceptedAccepted
0170E568H37FLIGHT COMPARTMENT - ONE OBSERVER WITH 2-BTP FIRE EXTINGUISHERAcceptedAcceptedAcceptedAccepted
0170E656A04AIRFRAME - 737-8AcceptedAcceptedAcceptedAccepted
0170E806A23CARGO LINERS- HEAVY DUTY - FORWARDAcceptedAcceptedAcceptedAccepted
0170E806A26CARGO LINERS- HEAVY DUTY- AFTAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 3
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
0170E895B97FORWARD COMPLEX - ADVANCED LAVATORY WITH MINIMUM GALLEY CAPACITY - BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
0220E684A09TYPE CERTIFICATE & CERTIFICATE OF AIRWORTHINESSAcceptedAcceptedAcceptedAccepted
0220F350K72MP - TYPE CERTIFICATE & CERTIFICATE OF AIRWORTHINESS - REVISE COUNTRY OF REGISTRATION AND OPERATION - USA IN LIEU OF INDIAAcceptedAcceptedAcceptedAccepted
0221-000026TAKEOFF AND LANDING WITH TAILWIND UP TO 15 KNOTSAcceptedAcceptedAcceptedAccepted
0221A609B52DISPATCH WITH GEAR EXTENDED FOR REVENUE FLIGHTAcceptedAcceptedAcceptedAccepted
0221C483C66ENGINE INOPERATIVE TEN-MINUTE TAKEOFF THRUST OPERATIONAcceptedAcceptedAcceptedAccepted
0224E173A44EXTENDED OPERATIONS (ETOPS) - APU ON DEMANDAcceptedAcceptedAcceptedAccepted
0226-000007CATEGORY IIIA AUTOMATIC APPROACH AND LANDINGAcceptedAcceptedAcceptedAccepted
0226C594A32GNSS LANDING SYSTEM (GLS) - CATEGORY I APPROACH CAPABILITY - ACTIVATIONAcceptedAcceptedAcceptedAccepted
0228E437G77AIRPLANE FLIGHT MANUALAcceptedAcceptedAcceptedAccepted
0252B299A36INSTRUMENTATION, AIRPLANE MANUALS AND FUEL MEASURING STICKS IN METRIC UNITS - TEMPERATURE IN DEGREES CELSIUSAcceptedAcceptedAcceptedAccepted
0253F288A03MP - BUYER FURNISHED EQUIPMENT - PROCUREMENT REVISION - SPE TO BFEAcceptedAccepted--
0254-000003USPHS CERTIFICATE OF SANITARY CONSTRUCTIONAcceptedAcceptedAcceptedAccepted
0315E591E95CERTIFIED OPERATIONAL WEIGHTS AND STRUCTURAL DESIGN WEIGHTSAcceptedRejectedAcceptedAccepted
0315F214J32RR 97283-23 - OPERATIONAL WEIGHTS - REVISION - DECREASE MLW, MTOW, AND MZFW - 1C691Accepted---
0315F263A22CERTIFIED OPERATIONAL WEIGHTS AND STRUCTURAL DESIGN WEIGHTS-Accepted--
0315F263A26MP - CERTIFIED OPERATIONAL WEIGHTS AND STRUCTURAL DESIGN WEIGHTS - REVISION-Accepted--
SWA-PA-03729-EX A-3SA-17
Page 4
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
0315F802A76RR 97029-284 - OPERATIONAL WEIGHTS - REVISION - INCREASE OPERATIONAL WEIGHTSAcceptedAcceptedRejected-
0352-000002CUSTOMIZED LOADING SCHEDULE FOR WEIGHT & BALANCE CONTROL - ALIGNMENT CHART LOADINGAcceptedAcceptedAcceptedAccepted
0352F816A42RR 97029-295 - DELETION OF CUSTOMIZED LOADING SCHEDULE FOR WEIGHT AND BALANCE CONTROL - ALIGNMENT CHART LOADINGAcceptedAcceptedAcceptedAccepted
1110E432048EXTERIOR NON-REGULATORY MARKINGSAcceptedAcceptedAcceptedAccepted
1110E432049EXTERIOR REGULATORY MARKINGS AND COLOR SCHEMEAcceptedAcceptedAcceptedAccepted
1110F802A71RR 97029-283 - EXTERIOR COLOR SCHEMES AND MARKINGS - REPLACEMENT - SOUTHWEST AIRLINES WINGLETS IN LIEU OF EXISTINGAcceptedAccepted--
1110F802A82RR 97029-285 - EXTERIOR COLOR SCHEMES AND MARKINGS -REPLACEMENT - SOUTHWEST AIRLINES ETOPS LIVERY IN LIEU OF SPICE JET AIR LIVERY - SWA - SAME LIVERY AS SWA 1A070AcceptedAcceptedAcceptedAccepted
1110F802A86RR 97029-283 - EXTERIOR COLOR SCHEMES AND MARKINGS - REPLACEMENT - SOUTHWEST AIRLINES WINGLETS IN LIEU OF EXISTING--AcceptedAccepted
1130E432053INTERIOR PLACARDS AND MARKERSAcceptedAcceptedAcceptedAccepted
1130E559D12CARGO COMPARTMENT PLACARDSAcceptedAcceptedAcceptedAccepted
1130E666A17REGISTRY PLACARDAcceptedRejectedAcceptedRejected
1130E970B73LIGHTED SIGNSAcceptedAcceptedAcceptedAccepted
1130F211A25PRR 3M0179 - 737 MAX OWNERSHIP PLACARD IMPRINTING PRODUCTION IMPROVEMENT-Accepted-Accepted
1130F211A26PRR 3M0179 - 737 MAX REGISTRY PLACARD IMPRINTING PRODUCTION IMPROVEMENT-Accepted-Accepted
1130F214J42RR 97260-22 - REVISE OWNERSHIP PLACARDS - 1C511--Accepted-
1130F303C16OWNERSHIP PLACARDS--Accepted-
SWA-PA-03729-EX A-3SA-17
Page 5
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
1130F350A38OWNERSHIP PLACARDSAccepted---
1130F350L12RR 97029-292 - DELETION - OWNERSHIP & REGISTRY PLACARDS - ENGINES, FLIGHT DECK, ENTRY DOOR SILL, AND REGISTRY-Accepted--
1130F350L13RR 97029-291 - DELETION - OWNERSHIP & REGISTRY PLACARDS - ENGINES, FLIGHT DECK, ENTRY DOOR SILL, AND REGISTRYAccepted---
1130F424A01OWNERSHIP PLACARD - AUXILIARY POWER UNIT (APU)-Canceled-Accepted
1130F424A02OWNERSHIP PLACARD - ENGINES-Accepted-Accepted
1130F424A03OWNERSHIP PLACARD - FLIGHT COMPARTMENT-Accepted-Accepted
1130F424A04OWNERSHIP PLACARD - FORWARD LH OVERHEAD DOOR SILL-Accepted-Accepted
1130F424A05REGISTRY PLACARD-Accepted-Accepted
1130F802A78RR 97029-287 - DELETION - OWNERSHIP & REGISTRY PLACARDS- ENGINES, APU, FLIGHT DECK, ENTRY DOOR SILL, AND REGISTRY--Accepted-
1130F802A80RR 97029-289 - DELETION - OWNERSHIP & REGISTRY PLACARDS- ENGINES, APU, FLIGHT DECK, ENTRY DOOR SILL, AND REGISTRY---Accepted
2103D839A04AC HEAT EXCHANGER OUTLET TEMPERATURE MONITORING SENSOR - INSTALLATIONAcceptedAcceptedAcceptedAccepted
2130-000010600 FPM CABIN PRESSURE ASCENT RATEAcceptedAcceptedAcceptedAccepted
2130-000012350 FPM CABIN PRESSURE DESCENT RATEAcceptedAcceptedAcceptedAccepted
2158D839A20ELECTRONIC RACK COOLING SYSTEM - ENHANCED E6 RACKAcceptedAcceptedAcceptedAccepted
2160C703A76CABIN TEMPERATURE CONTROL SYSTEM WITH ATTENDANT PANEL ADJUSTMENT CAPABILITY - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2170-000021OZONE CONTROL - SPACE PROVISIONS FOR CATALYTIC CONVERTERSAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 6
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2210-000003AUTOFLIGHT - INHIBIT GLIDE SLOPE CAPTURE PRIOR TO LOCALIZER CAPTUREAcceptedAcceptedAcceptedAccepted
2210-000124AUTOFLIGHT - FLIGHT DIRECTOR TAKEOFF MODE HEADING SELECTAcceptedAcceptedAcceptedAccepted
2210-000128AUTOFLIGHT - CONTROL WHEEL STEERING WARNINGAcceptedAcceptedAcceptedAccepted
2210-000130AUTOFLIGHT - AIRSPEED DEVIATION WARNINGAcceptedAcceptedAcceptedAccepted
2210-000143AUTOFLIGHT - ALTITUDE ALERT - 200/900 FEETAcceptedAcceptedAcceptedAccepted
2210C175A38AUTOFLIGHT - GO-AROUND ROLL MODE - LNAVAcceptedAcceptedAcceptedAccepted
2230-000137AUTOTHROTTLE - FMCS - TAKEOFF PROFILE THRUST REDUCTION ALTITUDEAcceptedAcceptedAcceptedAccepted
2310B401A33COMMUNICATIONS CONTROL PANELS - TRIPLE GABLES RADIO TUNING PANELS CAPABLE OF TWO HF SYSTEMS AND THREE VHF SYSTEMS (8.33 KHZ CAPABLE) - P/N G7404-124 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2311B401A05HF COMMUNICATIONS - COMPLETE PROVISIONS FOR THE SECOND HF SYSTEMAcceptedAcceptedAcceptedAccepted
2311B401A38HF COMMUNICATIONS - EQUIPMENT INSTALLATION OF SINGLE COLLINS AEROSPACE HF VOICE/DATA TRANSCEIVER - P/N 822-0990-004 - AND DIGITAL HF COUPLER - P/N 822-0987-004 BFE/SPEAcceptedAcceptedAcceptedAccepted
2312-000703VHF COMMUNICATIONS - ACTIVATION OF 8.33 KHZ CHANNEL SPACINGAcceptedAcceptedAcceptedAccepted
2312B401A87VHF COMMUNICATIONS - EQUIPMENT INSTALLATION OF TRIPLE COLLINS AEROSPACE ARINC 750 VHF-2100 TRANSCEIVERS WITH 8.33 KHZ CHANNEL SPACING, VDL MODE 2, AND CMC INTERFACE CAPABILITY - P/N 822-1287-101 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2315E516A58SATCOM - PARTIAL WIRING AND MOUNTING PROVISIONS - L-BAND FLIGHT DECK CONNECTIVITY USING INMARSAT SB200 OR IRIDIUM CERTUSAcceptedAccepted--
SWA-PA-03729-EX A-3SA-17
Page 7
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2315F197A45MP - SATCOM - INSTALLATION OF PARTIAL WIRING AND MOUNTING PROVISIONS - L-BAND FLIGHT DECK CONNECTIVITY USING INMARSAT SB200 OR IRIDIUM CERTUSAcceptedAccepted--
2321-000063SELCAL - ANNUNCIATION ON AUDIO SELECTOR PANELSAcceptedAcceptedAcceptedAccepted
2321B401A04SELCAL - AVTECH FIVE CHANNEL DECODER - P/N NA138-714C - BFE/SPEAcceptedAcceptedAcceptedAccepted
2322C939A06COMMUNICATIONS MANAGEMENT UNIT (CMU) - DATA LINK RECORDING ACTIVATIONAcceptedAcceptedAcceptedAccepted
2322D347A73CMU - INSTALLATION OF ROCKWELL COLLINS ARINC 758 LEVEL AOA CMU W/ARINC SERVICE PROVIDER - DATA LINK RECORDING CAPABLE - P/N 822-1239-151 - BFE / SPEAcceptedAcceptedAcceptedAccepted
2322E516A28CMU - INSTALLATION OF PARTIAL PROVISIONS FOR A SINGLE CMU IN ACCORDANCE WITH ARINC 758AcceptedAcceptedAcceptedAccepted
2324D197A18EMERGENCY LOCATOR TRANSMITTER (ELT) - ACR ELECTRONICS AUTOMATIC FIXED - WITH NAVIGATION INTERFACE UNIT (NIU) - MODE S BROADCAST - WITH ANTENNA P/N 110-337 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2324E706G43MP - LOW FREQUENCY UNDERWATER LOCATOR DEVICE (LF-ULD) - 8.8 KHZ - INSTALLATIONAcceptedAcceptedAcceptedAccepted
2324E773A11LOW FREQUENCY UNDERWATER LOCATOR DEVICE - 8.8 KHZAcceptedAcceptedAcceptedAccepted
2331-000558PA MIC INSTALLATION IN FLIGHT DECK AT AFT END OF AISLESTANDAcceptedAcceptedAcceptedAccepted
2331B754B15PASSENGER ADDRESS (PA) SYSTEM - ARINC 715 - COLLINS AEROSPACE AMPLIFIER - BFE/SPEAcceptedAcceptedAcceptedAccepted
2331B754B17PASSENGER ADDRESS (PA) SYSTEM - PA-IN-USE INDICATOR IN THE FLIGHT DECKAcceptedAcceptedAcceptedAccepted
2331E097A10PRAM/BMM SYSTEM - PANASONIC - FASTEN SEAT BELT/DECOMPRESSION DISCRETES ACTIVATED - BFE/SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 8
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2350B872A08AUDIO CONTROL PANEL - INTEGRATED SELCAL, CREW CALL, AND SATCOM FUNCTIONS - INSTALLATION - 3 VHF/2 HFAcceptedAcceptedAcceptedAccepted
2351-000034HAND HELD MICROPHONE - CAPTAIN AND FIRST OFFICER - ELECTROVOICE - P/N 903-1341 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2351-000036HAND HELD MICROPHONE - FIRST OBSERVER - ELECTROVOICE - P/N 903-1341 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2351-000043CONTROL WHEEL PUSH TO TALK (PTT) SWITCH - THREE POSITION WITH DETENT IN INTERPHONE POSITIONAcceptedAcceptedAcceptedAccepted
2351A213A33AUDIO INTEGRATION - INSTALLATION - TWO-PLUG AUDIO JACKS IN THE FLIGHT DECKAcceptedAcceptedAcceptedAccepted
2371A083A49VOICE RECORDER MICROPHONE/MONITOR PANEL WIRING - BULK ERASE FUNCTION DISABLEDAcceptedAcceptedAcceptedAccepted
2371B628B41VOICE RECORDER - RECORDER INDEPENDENT POWER SUPPLY (RIPS) - AFT LOWERED CEILINGAcceptedAcceptedAcceptedAccepted
2371B696P48COCKPIT VOICE RECORDER - MANUAL(ON) / AUTO(OFF) SWITCH INSTALLATION COMPATIBLE WITH CVR RECORDER INDEPENDENT POWER SUPPLY (RIPS) INSTALLATIONAcceptedAcceptedAcceptedAccepted
2371E716A13VOICE RECORDER AND MICROPHONE/MONITOR - L-3 AVIATION PRODUCTS - 2 HOUR RECORDING TIME - WITH DATALINK RECORDING CAPABILITY - P/N 2100-1925-22 & P/N S152-0020-01 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2371F816A45RR 97029-286 - REPLACE COCKPIT VOICE RECORDER (CVR), CVR CONTROL PANEL, AND DIGITAL FLIGHT DATA RECORDER (DFDR)--AcceptedAccepted
2371F816A48RR 97029-294 - REPLACE COCKPIT VOICE RECORDER (CVR), CVR CONTROL PANEL, AND DIGITAL FLIGHT DATA RECORDER (DFDR) - BFEAcceptedAccepted--
SWA-PA-03729-EX A-3SA-17
Page 9
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2375E526A61FLIGHT DECK ENTRY VIDEO SURVEILLANCE SYSTEM - PARTIAL PROVISIONS FOR THREE-CAMERA SYSTEMS - MDS INTERFACEAcceptedAcceptedAcceptedAccepted
2375E526A63FLIGHT DECK ENTRY VIDEO SURVEILLANCE SYSTEM - INSTALLATION INTO PARTIAL PROVISIONS - MDS INTERFACE - COLLINS AEROSPACE - BFE/SPEAcceptedAcceptedAcceptedAccepted
2375E861K81MP - VIDEO SURVEILLANCE SYSTEM - REVISION - GOODRICH IN LIEU OF AD AEROSPACE SYSTEM - GOODRICH - SPEAcceptedAcceptedAcceptedAccepted
2451B815K32POWER DISTRIBUTION - WIRING INSTALLATION FOR ADDITIONAL CAPACITYAcceptedAcceptedAcceptedAccepted
2520E432055INTERIOR COLOR AND MATERIAL - STANDARD OFFERINGAcceptedAcceptedAcceptedAccepted
2520F158A43INTERIOR COLOR AND MATERIAL - CUSTOM - ATTENDANT SEAT UPHOLSTERY AND SEAT BELTAcceptedAcceptedAcceptedAccepted
2520F158A44MP - INTERIOR COLOR AND MATERIAL - REVISION - ATTENDANT SEAT UPHOLSTERY AND SEAT BELTAcceptedAcceptedAcceptedAccepted
2523E432056PASSENGER SERVICE UNITS - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2524E432058FORWARD LEFT HAND FULL HEIGHT WINDSCREEN WITH STOWAGE UNIT - BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2525C204K04HIC AND FEMUR LOAD COMPLIANCE - ECONOMY CLASS SEATSAcceptedAcceptedAcceptedAccepted
2525C204K05HIC AND FEMUR LOAD COMPLIANCE - ATTENDANT SEATSAcceptedAcceptedAcceptedAccepted
2525F198C28MP - PASSENGER COMPARTMENT SEATS - REPLACEMENT - RECARO IN LIEU OF LIFT BY ENCORE - SPEAcceptedAcceptedAcceptedAccepted
2525F198D47ECONOMY CLASS SEATS - BFE/SPEAcceptedAcceptedAcceptedAccepted
2525F198D48MP - PASSENGER SEATS - REVISION - ROW 4, RIGHT HAND, PREMIUM ECONOMY IN LIEU OF ECONOMY - SPEAcceptedAcceptedAcceptedAccepted
2525F288A13MP - PASSENGER COMPARTMENT SEATS - PROCUREMENT - REVISION - SPE TO BFEAcceptedAccepted--
SWA-PA-03729-EX A-3SA-17
Page 10
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2527F198D45FLOOR COVERING - CARPET - BFE/SPEAcceptedAcceptedAcceptedAccepted
2527F198D46MP - FLOOR COVERING - INSTALLATION - CARPET - MOHAWK - SPEAcceptedAcceptedAcceptedAccepted
2528E432061OVERHEAD STOWAGE BINS - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2528E432066CHECKLIST HOLDER INSTALLATION - LAVATORIES A, D AND EAcceptedAcceptedAcceptedAccepted
2528E934H13LITERATURE POCKET - 787 STYLEAcceptedAcceptedAcceptedAccepted
2530E432067GALLEY PART NUMBERS - STANDARD EFFORT - BFE/SPEAcceptedAcceptedAcceptedAccepted
2530F198B83GALLEY INSERT PART NUMBERS - BFE/SPEAcceptedAcceptedAcceptedAccepted
2530F198B84MP - GALLEY INSERTS - REPLACEMENT - WATER BOILER - ZODIAC - SPEAcceptedAcceptedAcceptedAccepted
2540E432069LA ADVANCED LAVATORY 2.0 SELECTABLESAcceptedAcceptedAcceptedAccepted
2540E432070LD ADVANCED LAVATORY 2.0 SELECTABLESAcceptedAcceptedAcceptedAccepted
2540E432071LE ADVANCED LAVATORY 2.0 SELECTABLESAcceptedAcceptedAcceptedAccepted
2560B693L40FLASHLIGHTS WITH SHIELDS, TWO - FLIGHT DECK - DME - LED - P/N P2-07-0015-002 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2560E097A48PROTECTIVE GLOVES - FLIGHT DECK - TIGHITCO - BFE/SPEAcceptedAcceptedAcceptedAccepted
2560E526B32PROTECTIVE BREATHING EQUIPMENT - FLIGHT DECK - SECOND OBSERVERS SEAT STANCHIONS - COLLINS AEROSPACE - P/N E28180-20-0006 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2560F197A06CREW LIFE VESTS - FLIGHT DECK, NO SECOND OBSERVER - SWITLIK P/N S-61850-7409-SPJ112 - BFE/SPEAcceptedAcceptedAcceptedAccepted
2560F197A07MP - CREW LIFE VESTS - REPLACEMENT - FLIGHT DECK, NO SECOND OBSERVER - SWITLIK P/N S-61850-7409-SPJ112 IN LIEU OF EASTERN AERO MARINE P/N P01074-101WC - SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 11
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
2560F197A40MP - PROTECTIVE BREATHING EQUIPMENT - REPLACEMENT - SECOND OBSERVER'S SEAT STANCHIONS - B E AEROSPACE SYSTEMS GMBH - P/N E28180-20-0006 IN LIEU OF BE AEROSPACE - P/N 119003-21 - SPEAcceptedAcceptedAcceptedAccepted
2562F198D76OVERWATER EMERGENCY EQUIPMENT - BFE/SPE - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2562F198D81MP - OVERWATER EMERGENCY EQUIPMENT - REPLACEMENT - PORTABLE ELT AND BRACKET - HONEYWELL - SPE--AcceptedAccepted
2562F198D82MP - OVERWATER EMERGENCY EQUIPMENT - REPLACEMENT - PORTABLE ELT AND BRACKET - HONEYWELL - BFEAcceptedAccepted--
2564E432204DETACHABLE EMERGENCY EQUIPMENT - PASSENGER COMPARTMENT - BFE/SPE - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
2622E088A14APU FIRE EXTINGUISHER BOTTLE - COMMON WITH ENGINE BOTTLESAcceptedAcceptedAcceptedAccepted
2841-000004STANDARD FUEL SYSTEM ACCURACY - NO FUEL DENSITOMETERSAcceptedAcceptedAcceptedAccepted
2841-000011FUEL QUANTITY PRESELECT CAPABILITY ON RIGHT WING FUELING PANELAcceptedAcceptedAcceptedAccepted
2911-000042ENGINE-DRIVEN HYDRAULIC PUMPS WITH VESPEL SPLINE - EATON (VICKERS) - 10-62167AcceptedAcceptedAcceptedAccepted
2912E704A20AC MOTOR-DRIVEN HYDRAULIC PUMPS - EATON (VICKERS) - S276A100AcceptedAcceptedAcceptedAccepted
3041-000003NO HEATED FLIGHT COMPARTMENT NUMBER 3 WINDOWAcceptedAcceptedAcceptedAccepted
3131-000143ACCELEROMETER - HONEYWELL P/N 971-4193-001 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3131E103A15DIGITAL FLIGHT DATA ACQUISITION UNIT (DFDAU) - CATIIIB/IAN/GLS/NPS CAPABLE - WITH ACMS CAPABILITY - ONS - SFEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 12
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3131E716A09DIGITAL FLIGHT DATA RECORDER (DFDR) - L-3 AVIATION PRODUCTS - 1024 WORD PER SECOND MAXIMUM DATA RATE P/N 2100-4945-22 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3133-000123ARINC 740 PRINTER PROVISIONS IN THE FLIGHT DECK AISLESTANDAcceptedAcceptedAcceptedAccepted
3133E568J10MULTI-INPUT PRINTER -ARINC 740 - ASTRONOVA - P/N 42907100 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3133F183C90MP - FLIGHT COMPARTMENT PRINTER - PROCUREMENT REVISION - BFE TO SPE---Accepted
3133F197A31MP - MULTI-INPUT PRINTER - ARINC 740 - INSTALLATION INTO PARTIAL PROVISIONS - ASTRONOVA - P/N 42907100 - BFEAcceptedAcceptedAcceptedAccepted
3133F288A02MP - FLIGHT COMPARTMENT PRINTER - PROCUREMENT - REVISION - BFE TO SPEAcceptedAccepted--
3135E526B33ONBOARD NETWORK SYSTEM - QUICK ACCESS RECORDER - DAR OUTPUTAcceptedAcceptedAcceptedAccepted
3161-000070ENGINE OIL QUANTITY DISPLAY - QUARTS - ENGINE DISPLAYAcceptedAcceptedAcceptedAccepted
3161-000133ENGINE FUEL FLOW - FULL TIME DISPLAY - PRIMARY ENGINE DISPLAY UNITAcceptedAcceptedAcceptedAccepted
3161E568A38CDS - FUEL QUANTITY DISPLAY WITH NUMERIC READOUT ONLY - ENABLEAcceptedAcceptedAcceptedAccepted
3162-000018ATTITUDE COMPARATOR - FLASHING - ADIAcceptedAcceptedAcceptedAccepted
3162-000022FLIGHT DIRECTOR COMMAND DISPLAY - SPLIT AXIS - ADIAcceptedAcceptedAcceptedAccepted
3162-000028RADIO ALTITUDE - BELOW ADIAcceptedAcceptedAcceptedAccepted
3162-000030RISING RUNWAY - DISPLAYED ON THE ADIAcceptedAcceptedAcceptedAccepted
3162-000036LANDING ALTITUDE REFERENCE BAR - PRIMARY FLIGHT DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000040BARO MINIMUMS POINTER - DISPLAYED ON SELECTION OF RADIO ALTITUDE MINIMUMS - PRIMARY FLIGHT DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000044TCAS RESOLUTION ADVISORY - VSIAcceptedAcceptedAcceptedAccepted
3162-000046SINGLE CHANNEL AUTOPILOT ANNUNCIATION - ABOVE ADIAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 13
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3162-000051ILS LOCALIZER DEVIATION EXPANDED SCALE - AUTOPILOT OR FLIGHT DIRECTOR MODEAcceptedAcceptedAcceptedAccepted
3162-000059MAP MODE ORIENTATION - TRACK UP - NAVIGATION DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000064RANGE ARCS - NAVIGATION DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000079MANUALLY TUNED VOR SELECTED COURSE LINES DISPLAYED - NAVIGATION DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000084TCAS 3 NM RANGE RING - NAVIGATION DISPLAYAcceptedAcceptedAcceptedAccepted
3162-000088AIRSPEED BUG - ENABLED - 80 KNOT SETTING - MACH AIRSPEED INDICATORAcceptedAcceptedAcceptedAccepted
3162-000355V1 AURAL CALLOUT - FLIGHT DECKAcceptedAcceptedAcceptedAccepted
3162A627A32SOFTWARE ACTIVATION - DOUBLE DERATE INDICATION - ENABLEAcceptedAcceptedAcceptedAccepted
3162A627A38CDS - SOFTWARE ACTIVATION - HORIZON LINE HEADING SCALE - ENABLEAcceptedAcceptedAcceptedAccepted
3162A627A42CDS - SOFTWARE ACTIVATION - REF FLAP/SPEED ANNUNCIATION - ENABLEAcceptedAcceptedAcceptedAccepted
3162C594A29CDS - SOFTWARE ACTIVATION - NAVIGATION PERFORMANCE SCALES - ENABLEAcceptedAcceptedAcceptedAccepted
3162E967A02RSAT - SPEEDBRAKE WARNINGAcceptedAcceptedAcceptedAccepted
3244-000009PARKING BRAKE WARNING LIGHT - NOSE LANDING GEAR AREAAcceptedAcceptedAcceptedAccepted
3245B290A77WHEELS AND TIRES - NOSE LANDING GEAR - WHEELS - COLLINS AEROSPACE - INSTALLATION WITH SFE 12 PR, 235 MPH RATED RADIAL TIRESAcceptedAcceptedAcceptedAccepted
3245B290A92BRAKES - CARBON - COLLINS AEROSPACEAcceptedAcceptedAcceptedAccepted
3245F216A01WHEELS AND TIRES - MAIN LANDING GEAR - WHEELS FOR CARBON BRAKES - GOODRICH - INSTALLATION WITH 32 PR, 235 MPH RADIAL TIRESAcceptedAcceptedAcceptedAccepted
3245F216A02MP - WHEELS, TIRES AND BRAKES - REPLACEMENT - MAIN LANDING GEAR - WHEELS AND TIRES FOR CARBON BRAKES - GOODRICH - MAX9 WHEELS AND 32-PR TIRES IN LIEU OF MAX8 WHEELS AND 30-PL TIRESAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 14
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3245F802B24RR 97029-293 - REPLACEMENT - WHEELS AND TIRES - MAIN AND NOSE LANDING GEAR WHEELS AND TIRES WITHOUT TPIS IN LIEU OF WHEELS AND TIRES WITH TPISAcceptedAcceptedAcceptedAccepted
3249E173A73TIRE PRESSURE INDICATION SYSTEM - INSTALLATIONAcceptedAcceptedAcceptedAccepted
3321C869A65PASSENGER CABIN LIGHTING - SINGLE-ZONE CONTROL - 737 BOEING SKY INTERIORAcceptedAcceptedAcceptedAccepted
3324C195A05NO SMOKING SIGN - SILK SCREENED SYMBOLAcceptedAcceptedAcceptedAccepted
3350A704A19EMERGENCY ESCAPE PATH LIGHTING - FLOOR MOUNTED - PHOTOLUMINESCENTAcceptedAcceptedAcceptedAccepted
3412E437F31DUAL ELEMENT ASPIRATED TAT PROBE (FOR FMC) - INSTALLED IN A NON-ASPIRATED CONFIGURATIONAcceptedAcceptedAcceptedAccepted
3430F197A39MP - MULTI-MODE RECEIVER (MMR) AND VOR/MARKER BEACON - REPLACEMENT - ROCKWELL COLLINS 3G MMR P/N 822-2532-100 IN LIEU OF EXISTING ROCKWELL COLLINS MMR P/N 822-1821-332 AND ROCKWELL COLLINS VOR/MARKER BEACON P/N 822-0297-001 - SPEAcceptedAcceptedAcceptedAccepted
3430F211A42PRR 3M8275-6S - ROCKWELL COLLINS AEROSPACE GLU-2100 MMR SOFTWARE UPDATE--AcceptedAccepted
3430F302B75MP - SOFTWARE REPLACEMENT - 3G MULTI-MODE RECEIVER (3G MMR) - COLLINS AEROSPACE - P/N 822-2532-100 - BFEAcceptedAccepted--
3430F608A043G MULTI-MODE RECEIVER (3G MMR) - COLLINS AEROSPACE - P/N 822-2532-100 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3431C175A06NAVIGATION CONTROL PANEL (NCP) - GNSS LANDING SYSTEM (GLS) CAPABLE - GABLES - P/N G7501-01- BFE/SPEAcceptedAcceptedAcceptedAccepted
3433C594A24RADIO ALTIMETER (RA) - CAT IIIB CAPABLE - COLLINS AEROSPACE - P/N 822-0334-003 - BFE/SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 15
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3436D972A01HEAD-UP DISPLAY (HUD) - PARTIAL PROVISIONS FOR SINGLE COLLINS AEROSPACE HEAD-UP GUIDANCE SYSTEM (HGS) MODEL 6000 WITH MCDU INTERFACEAcceptedAcceptedAcceptedAccepted
3436D972A02HEAD-UP DISPLAY (HUD) - INSTALLATION OF SINGLE COLLINS AEROSPACE HEAD-UP GUIDANCE SYSTEM (HGS) MODEL 6000 WITH MCDU INTERFACE - STC CERTIFIED - BFE/SPEAcceptedAcceptedAcceptedAccepted
3443A065B18SINGLE WEATHER RADAR CONTROL PANEL - WITH MULTISCAN FUNCTIONALITY - COLLINS AEROSPACE P/N 622-5129-802 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3443E568A02SINGLE WEATHER RADAR SYSTEM - WITH PREDICTIVE WINDSHEAR AND MULTISCAN CAPABILITY WITH V2.0 HAZARD DISPLAY FEATURES - COLLINS AEROSPACE WRP-2100A PROCESSOR P/N 822-3150-101 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3445E724A21TCAS SYSTEM - COLLINS AEROSPACE TCAS COMPUTER P/N 822-2911-002 - TCAS CHANGE 7.1 COMPLIANT - BFE/SPEAcceptedAcceptedAcceptedAccepted
3446-000046LOW VOLUME FOR ALTITUDE CALLOUTSAcceptedAcceptedAcceptedAccepted
3446-000050500 SMART CALLOUTAcceptedAcceptedAcceptedAccepted
3446B693F93GROUND PROXIMITY WARNING SYSTEM ALTITUDE CALLOUTS - 2500, 1000, 500, 100, 50, 40, 30, 20, 10. APPROACHING MINIMUMS, MINIMUMSAcceptedAcceptedAcceptedAccepted
3446C174A14ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS) - BANK ANGLE CALLOUT (VARIABLE CALLOUT BELOW 130 FT) - ENABLEAcceptedAcceptedAcceptedAccepted
3453E437A58ATC SYSTEM - ROCKWELL COLLINS ATC TRANSPONDER P/N 822-1338-205 - ADS-B OUT DO-260B COMPLIANT - GABLES CONTROL PANEL P/N G6992-40 - BFE/SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 16
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3453F197A93MP - AIR TRAFFIC CONTROL TRANSPONDER SYSTEM - REPLACEMENT - GABLES CONTROL PANEL P/N G6992-40 IN LIEU OF P/N G6992-02 - SPEAcceptedAcceptedAcceptedAccepted
3455E717A12DISTANCE MEASURING EQUIPMENT (DME) - COLLINS AEROSPACE INTERROGATOR P/N 822-2325-001 - BFE/SPEAcceptedAcceptedAcceptedAccepted
3461A425A09FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - NAVIGATION DATABASE - BOEING SUPPLIEDAcceptedAcceptedAcceptedAccepted
3461A425A33FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - RUNWAY DISTANCE REMAINING - FEETAcceptedAcceptedAcceptedAccepted
3461A425A40FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS)- VERTICAL NAVIGATION PROFILE- "VNAV ALT"- ENABLEAcceptedAcceptedAcceptedAccepted
3461A425A48FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - ACTIVATE COLOR OPERATIONAcceptedAcceptedAcceptedAccepted
3461A890A76FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - NAVIGATION DISPLAY - MISSED APPROACH IN CYAN UNTIL ACTIVE - ENABLEAcceptedAcceptedAcceptedAccepted
3461B403A13FLIGHT MANAGEMENT COMPUTING SYSTEM (FMCS) - INTEGRATED APPROACH NAVIGATION (IAN)AcceptedAcceptedAcceptedAccepted
3461C175A11FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - AIR TRAFFIC SERVICES DATA LINK (ATS DL) - FANS FEATURE ACTIVATIONAcceptedAcceptedAcceptedAccepted
3461C175A14FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - FANS CAPABLE MCDU WITH ATC KEYBOARD - INSTALLATION-SFEAcceptedAcceptedAcceptedAccepted
3461C175A32FLIGHT MANAGEMENT COMPUTER SYSTEM (FMCS) - COMMON VNAV - ENABLEAcceptedAcceptedAcceptedAccepted
3511B873B97CREW OXYGEN MASKS - FULL FACE MASK WITH BUILT-IN SMOKE GOGGLES - FIRST OBSERVER - COLLINS AEROSPACE - BFE/SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 17
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
3511B873B98CREW OXYGEN MASKS - FULL FACE MASK WITH BUILT-IN SMOKE GOGGLES - CAPTAIN AND FIRST OFFICER - COLLINS AEROSPACE - BFE/SPEAcceptedAcceptedAcceptedAccepted
3811-000019POTABLE WATER - SERVICEABLE TO 60 GALLONSAcceptedAcceptedAcceptedAccepted
3812-000002NO WATER QUANTITY GAUGE - WATER SERVICE PANELAcceptedAcceptedAcceptedAccepted
3832-000076NO SENSOR FOULED LIGHT - COVER PLATEAcceptedAcceptedAcceptedAccepted
3832-000078NO WASTE QUANTITY GAUGE - COVER PLATEAcceptedAcceptedAcceptedAccepted
3910F197A33AFT ELECTRONICS PANEL ARRANGEMENTAcceptedAcceptedAcceptedAccepted
3910F197A34MP - AFT ELECTRONICS PANEL - REVISIONAcceptedAcceptedAcceptedAccepted
4400F186A15MP - HIGH-SPEED COMMUNICATIONS - INSTALLATION - ADDITIONAL PARTIAL PROVISIONS - HONEYWELL GX KA EQUIPMENT AS FURNITURE AND ROCKWELL COLLINS GX JETWAVE KA BAND UNIQUE WIRING AND EQUIPMENT TRAYS - ROCKWELL COLLINS - CSE/SPEAcceptedAcceptedAcceptedAccepted
4420E895E05IFE SYSTEM - PARTIAL PROVISIONS FOR IN-FLIGHT ENTERTAINMENT AND CONNECTIVITY SYSTEM MAIN EQUIPMENT - 737 MAXAcceptedAcceptedAcceptedAccepted
4435E526E63HIGH-SPEED COMMUNICATIONS - STRUCTURAL PROVISIONS - TRI-BAND RADOMEAcceptedAcceptedAcceptedAccepted
4435E837C84HIGH-SPEED COMMUNICATIONS - TRI-BAND RADOME INSTALLATION - WHITE COLOR (BAC 7945)AcceptedAcceptedAcceptedAccepted
4435E861A83HIGH-SPEED COMMUNICATIONS - PARTIAL PROVISIONS FOR KU/KA-BAND OFFBOARD CONNECTIVITY SYSTEMS - 737 MAXAcceptedAcceptedAcceptedAccepted
4435E861A88HIGH-SPEED COMMUNICATIONS - PARTIAL PROVISIONS FOR CABIN WIRELESS NETWORK SYSTEMS WITH 4 WAPS - 737 MAXAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 18
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
4435E926A65HIGH-SPEED COMMUNICATIONS - GATE-TO-GATE ACTIVATION-Accepted-Accepted
4435E926B26HIGH-SPEED COMMUNICATIONS - BROADBAND CONTROL PANEL WITH TWO POSITION SWITCH-Accepted-Accepted
4435F127A23HIGH-SPEED COMMUNICATIONS - INSTALLATION - HONEYWELL GX KA EQUIPMENT AS FURNITURE - ROCKWELL COLLINS - CSE/SPEAcceptedAcceptedAcceptedAccepted
4435F186A96HIGH-SPEED COMMUNICATIONS - INSTALLATION - ADDITIONAL PARTIAL PROVISIONS - ROCKWELL COLLINS GX JETWAVE KA BAND UNIQUE WIRING AND EQUIPMENT TRAYSAcceptedAcceptedAcceptedAccepted
4435F186A97MP - EXTERNAL COMMUNICATION SYSTEM - DELETE - PARTIAL PROVISIONS FOR A GROUND CELLULAR MODEM LOCATED IN THE G4 GALLEY - 737 MAXAcceptedAcceptedAcceptedAccepted
4435F186B82HIGH-SPEED COMMUNICATIONS - INSTALLATION - OPERATIONAL SOFTWARE - ROCKWELL COLLINS INC - CSE/SPE-Accepted-Accepted
4435F186C78HIGH-SPEED COMMUNICATIONS - INSTALLATION - INSTALL ROCKWELL COLLINS GX JETWAVE KA BAND EQUIPMENT INTO PROVISIONS AND ACTIVATE THE SYSTEM - ROCKWELL COLLINS INC - CSE/SPE-Accepted-Accepted
4435F186C79MP - HIGH-SPEED COMMUNICATIONS - INSTALLATION - INSTALL ROCKWELL COLLINS GX JETWAVE KA BAND EQUIPMENT INTO PROVISIONS AND ACTIVATE THE SYSTEM - ROCKWELL COLLINS INC - CSE/SPE-Accepted-Accepted
4610E526A81ONBOARD NETWORK SYSTEM - PARTIAL PROVISIONS - GROUND BASED CONNECTIVITYAcceptedAcceptedAcceptedAccepted
4610E526B92ONBOARD NETWORK SYSTEM - CELLULAR AND WIFI GROUND BASED CONNECTIVITY - WIRELESS WIDE AREA NETWORK UNIT (WWU) - BFE/SPEAcceptedAcceptedAcceptedAccepted
SWA-PA-03729-EX A-3SA-17
Page 19
BOEING PROPRIETARY

OptionOption Title1C6911C692-1C6941C511-1C5131C514-1C517
4610E526E60ONBOARD NETWORK SYSTEM - ACTIVATION OF ONS-ACARS CMU INTERFACEAcceptedAcceptedAcceptedAccepted
4610E855A25CREW WIRELESS NETWORK - FORWARD WIRELESS ACCESS POINT (WAP) - PROVISIONSAcceptedAcceptedAcceptedAccepted
4610E855A26CREW WIRELESS NETWORK - FORWARD WIRELESS ACCESS POINT (WAP) - INSTALLATIONAcceptedAcceptedAcceptedAccepted
4610F197A70MP - CREW WIRELESS NETWORK - REVISION - CWLU2 FORWARD WIRELESS ACCESS POINT IN LIEU OF EXISTING CWLU1 FORWARD AND AFT WIRELESS ACCESS POINT PROVISIONSAcceptedAcceptedAcceptedAccepted
5231A561C54CARGO DOOR - SOLID SKINAcceptedAcceptedAcceptedAccepted
5300-000027UNDERSEAT FLOOR PANELS, LOW TRAFFIC CAPABILITYAcceptedAcceptedAcceptedAccepted
5352A298A28RADOME- NORDAM- SFEAcceptedAcceptedAcceptedAccepted
7200D422A03CFM LEAP-1B ENGINES - 1B25 RATINGAcceptedAcceptedAcceptedAccepted
7200F278D81RR 97226-119 - CFM LEAP-1B ENGINES - ENGINE THRUST RATE INCREASE - 1B27 RATING IN LIEU OF 1B25 RATING---Accepted
7200F816A44RR 97029-296 - REVISION - CFM LEAP-1B ENGINES - 1B28 RATING IN LIEU OF 1B25 RATINGAcceptedAcceptedAcceptedRejected
7200F816A47RR 97029-297 - REVISION - CFM LEAP-1B ENGINES - 1B28 RATING IN LIEU OF 1B27 RATINGRejectedRejected-Accepted
7900-000116LUBRICATING OIL - MOBIL JET IIAcceptedAcceptedAcceptedAccepted

SWA-PA-03729-EX A-3SA-17
Page 20
BOEING PROPRIETARY



REMARKET AIRCRAFT TECHNICAL ACCEPTANCE AND DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
EXHIBIT B-1 to PURCHASE AGREEMENT
NUMBER PA-03729


Page 1
SA-17
BOEING PROPRIETARY

EXHIBIT B-1
REMARKET AIRCRAFT TECHNICAL ACCEPTANCE AND
DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 737-8 REMARKET AIRCRAFT

Both Boeing and Customer have certain documentation and approval responsibilities at various times during the construction and delivery cycle of the Remarket Aircraft that are critical to accomplishing Initial Technical Acceptance (defined in Article 3.1 below), Final Technical Acceptance (defined in Article 3.6 below), and Delivery (as defined below) of the Reconfigured Remarket Aircraft, and ensuring a positive experience for both parties. This Exhibit B-1 documents those responsibilities and indicates recommended completion deadlines for the actions to be accomplished.

    Boeing and Customer acknowledge that each Remarket Aircraft is built and will be delivered to Customer based on terms specified in Letter Agreement No. SWA-PA-03729-LA-2100594 entitled “737-8 Remarket Aircraft” (Remarket Aircraft Letter Agreement). Boeing has manufactured the Remarket Aircraft as described in their respective As-Built Configurations, as that term is defined in the Remarket Aircraft Letter Agreement and the applicable Exhibit A to the Purchase Agreement.

Following Customer’s Initial Technical Acceptance of the Remarket Aircraft in their respective As-Built Configurations, Boeing will manage the Reconfiguration of the Remarket Aircraft to the Delivery Configuration, as each term is defined in the Remarket Aircraft Letter Agreement. Customer’s Delivery Configuration, once finalized, will be described and incorporated into the Purchase Agreement as Exhibit A documents by way of supplemental agreement.

Upon the completion of the Reconfiguration to conform to the Delivery Configuration, the reconfigured Remarket Aircraft (Reconfigured Remarket Aircraft) will be presented for final inspection and Final Technical Acceptance and Delivery to Customer by Boeing in conformance with the Purchase Agreement.

1.GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of the scheduled Initial Technical Acceptance and/or Delivery with respect to obtaining certain government issued documentation.
1.1Airworthiness and Registration Documents. Boeing and Customer agree that the registration number provided by Customer shall be utilized for each Remarket Aircraft for the process of aircraft certification. Not later than six (6) months prior to Initial Technical Acceptance and upon Boeing request, Customer will notify Boeing



SWA-PA-03729-EX B-1SA-17
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BOEING PROPRIETARY

of the registration number to be painted on the side of the Remarket Aircraft. In addition, and not later than three (3) months prior to Initial Technical Acceptance and upon Boeing request, Customer will authorize, by letter to the regulatory authority having jurisdiction, the temporary use of such registration numbers by Boeing during the pre-delivery testing of the Remarket Aircraft. To the extent insufficient time exists between Customer’s purchase of the Remarket Aircraft and the deadlines in this paragraph, Customer will provide the information required as soon as possible following such purchase.
Customer is responsible for furnishing any temporary or permanent registration certificates required by any governmental authority having jurisdiction to be displayed aboard each Remarket Aircraft after Delivery.
1.2Certificate of Sanitary Construction.
1.2.1U.S. Registered Remarket Aircraft. Post modification, Boeing will or will arrange to obtain from the United States Public Health Service, a United States Certificate of Sanitary Construction to be displayed aboard the Remarket Aircraft after Delivery to Customer.

2.INSURANCE CERTIFICATES.
Unless provided earlier, Customer will provide to Boeing not later than thirty (30) days prior to Delivery, a copy of the requisite annual insurance certificate in accordance with the requirements of Article 8.2 of the AGTA.
3.TECHNICAL ACCEPTANCE OF AS-BUILT CONFIGURED REMARKET AIRCRAFT; REMARKET AIRCRAFT REPOSITION.
3.1Schedule Remarket Aircraft for Initial Technical Acceptance. Boeing and Customer shall agree, in advance, on a detailed listing of documents and process steps necessary for initial and final technical acceptance (the Delivery Agenda). In the event that anything in the Delivery Agenda or the Purchase Agreement conflict, the provisions of the Delivery Agenda shall prevail. Each Remarket Aircraft in As-Built Configuration will be available for inspection and an initial technical acceptance by Customer as of the month specified in Letter Agreement No. SWA-PA-03729-LA-1106474R7 entitled “Option Aircraft” of the Purchase Agreement, prior to Reconfiguration (Initial Technical Acceptance), at the Seattle Delivery Center (SDC). Boeing will provide notice of the target date of Initial Technical Acceptance at least forty-five (45) calendar days prior to the scheduled month of Initial Technical Acceptance. Boeing will give Customer at least seven (7) calendar days’ notice of the specific date for review and inspection of the As-Built Configuration of the Remarket Aircraft and will provide the associated technical documents, reports and manuals no later than sixty (60) days prior to the target date. Such reports shall, in addition to other required documentation, include a report on the customer inspection plan (Customer Inspection Report) for the original purchaser of the Remarket Aircraft. At a minimum, the Customer Inspection Report shall include:
3.1.1The areas that were inspected;







SWA-PA-03729-EX B-1SA-17
Page 3
BOEING PROPRIETARY

3.1.2The name of the individual conducting the inspection;
3.1.3Details on any inspections that were waived; and
3.1.4Findings and associated corrective actions.

3.2Scope of Initial Inspection. The initial inspection of the Remarket Aircraft shall be equal in scope to that of any other Aircraft under the Purchase Agreement reasonably necessary for Customer to provide its Initial Technical Acceptance in the form substantially similar to Attachment A hereto. Customer recognizes that the Remarket Aircraft are already built and, as a result, not all of the inspection activity that Customer may be accustomed to engaging in during the build process will be available to Customer. Boeing will make reasonable accommodations to provide Customer access for additional inspections as agreed upon.
3.3Delivery Condition Required for Initial Technical Acceptance. The Remarket Aircraft in their As-Built Configuration will be certified by the Federal Aviation Administration (FAA) to the configuration specification described in Exhibit A documents and will conform to Type Certification. Upon Boeing’s presentation of the Remarket Aircraft in the As-Built Configuration, Customer will then provide to Boeing written Initial Technical Acceptance of the As-Built Configuration of each Remarket Aircraft, when:
3.3.1The Remarket Aircraft has the Limited Configuration Revisions incorporated in the As-Built Configuration;
3.3.2The FAA has issued a Standard Airworthiness Certificate for each Remarket Aircraft in its As-Built Configuration;
3.3.3Customer has reviewed, inspected and accepted the technical documents, manuals and Boeing quality reports for each Remarket Aircraft in the As-Built Configuration;
3.3.4Customer has inspected the As-Built Configuration of the Remarket Aircraft;
3.3.5Customer has waived the demonstration flight in accordance with Letter Agreement No. SWA-PA-03729-LA-1106468 entitled “Demonstration Flight Waiver” of the Purchase Agreement; and
3.3.6Customer and Boeing will document any material quality and/or production issues with respect to the As-Built Configuration of the Remarket Aircraft and will execute an Initial Technical Acceptance Commitments Letter. Note that a separate Delivery Commitments Letter will be prepared for the Delivery following completion of Reconfiguration of the Remarket Aircraft to meet the Delivery Configuration.
3.4Re-location of the Remarket Aircraft to the Reconfiguration Site Following Initial Technical Acceptance of the Remarket Aircraft by Customer. Following Customer’s Initial Technical Acceptance, Boeing may, at its discretion, reposition the Remarket Aircraft to the MRO (as defined in the Remarket Aircraft Letter Agreement) that will perform the Reconfiguration. Reconfiguration of the Remarket Aircraft shall be
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performed with the goal of allowing sufficient time for (a) Customer to conduct the Final Technical Acceptance, (b) the MRO to address and/or remediate quality issues related to the Reconfiguration, and (c) Customer to take Delivery of the Remarket Aircraft during the Delivery Month noted in to Letter Agreement No. SWA-PA-03729-LA-1106474R7 entitled “Option Aircraft“, Attachment 1-A. As part of Reconfiguration activities, and to facilitate delivery, all changes to part numbers and serial numbers shall be communicated to Customer as they occur in a mutually acceptable format and timing.
3.5Scope of Final Inspection. The final inspection of the Remarket Aircraft shall be limited to an inspection of the Reconfiguration work performed; provided, however, (i) that, if during the Reconfiguration, and in order to accomplish the Reconfiguration work, there are areas affected beyond those that would normally be accessed or which were previously closed, during original production and/or (ii) if any areas of the Remarket Aircraft that are inspected by Customer for Aircraft were not inspected during original production, subject to Section 3.2, Customer shall be entitled to inspect those additional areas to ensure they comply with the Initial Technical Acceptance.
3.6Final Technical Acceptance. The Remarket Aircraft, in their respective Delivery Configuration shall be made available for a final inspection and technical acceptance of the Reconfiguration work (the Final Technical Acceptance) at the MRO.
3.7Delivery Condition Required for Final Technical Acceptance. Each Remarket Aircraft shall have incorporated all Service Bulletins related to the Reconfiguration, with the touch-labor and work performed as required for completion of the Reconfiguration into the Delivery Configuration. Boeing shall provide Customer with preliminary delivery documents in advance as is customary for Customer’s Aircraft and final, updated versions of the delivery documents shall be provided at Final Technical Acceptance. All documents shall be provided in the same format as is customary for delivery of Customer’s Aircraft. Customer will provide to Boeing written Final Technical Acceptance of the Remarket Aircraft, when:
3.7.1Customer has reviewed, inspected and accepted the Remarket Aircraft’s updated technical documents, manuals and quality reports, as well as an updated weight and balance manual to capture the Remarket Aircraft in its Delivery Configuration. All technical documents and manuals shall be in a post-modification configuration and as applicable, shall possess unique Customer Effectivity Codes.
3.7.2Customer has reviewed and accepted, such acceptance shall not be unreasonably withheld, any Maintenance Review Board and/or Significant Rework Log repairs that were completed during production and/or Reconfiguration.
3.7.3Customer has inspected and accepted the Reconfigured Remarket Aircraft after a post-Reconfiguration functional check flight (Functional Check Flight).
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3.7.3.1If delivery will not occur at the MRO, the Functional Check Flight will be conducted, unless otherwise agreed by the Parties, during the repositioning flight from the MRO to the site of delivery. The Parties agree that the purpose and intent of the Functional Check Flight is to ensure that the functionality of the Remarket Aircraft complies with the Initial Technical Acceptance and the Delivery Configuration. The Remarket Aircraft shall not be flown after the Functional Check Flight without the explicit, prior agreement of Customer.
3.7.3.2Upon completion of the Functional Check Flight, Boeing will address any flight squawks encountered during the Functional Check Flight and Customer will be provided an opportunity to inspect the Remarket Aircraft, in the form of a walk around. Boeing will ensure that all flight squawks and new issues identified by the walk around will be addressed prior to transfer of title.
3.7.3.3Customer will complete its Final Technical Acceptance inspections at the MRO prior to the Functional Check Flight, and Boeing will likewise ensure that all repairs identified during said inspections will be completed prior to the Functional Check Flight or a repositioning flight.
3.7.4Customer and Boeing have documented any material quality and/or production issues with respect to the post-Reconfiguration Configuration of the Remarket Aircraft and executed a Final Technical Acceptance Commitments Letter (A separate Delivery Commitments Letter will be prepared for the Delivery following completion of changes to meet the Delivery Configuration).

3.8Repositioning Upon completion of the Reconfiguration of the Remarket Aircraft, if the Completed Remarket Aircraft will be stored prior to Delivery, Boeing may reposition the Aircraft from the MRO to a storage location and possibly reposition again to support Customer’s Final Technical Acceptance and Delivery.

4.FINAL TECHNICAL ACCEPTANCE AND DELIVERY ACTIONS BY BOEING.
4.1Schedule of Inspections. All FAA, Boeing, Customer and, if required, CBP inspections will be scheduled by Boeing for completion prior to Delivery of the Remarket Aircraft. Customer will be informed of such schedules.
4.2Schedule of Demonstration Flights. All FAA demonstration flights will be scheduled by Boeing for completion prior to Delivery. [***]


4.3[***]


4.4Delivery Papers, Documents and Data. Boeing will have available at the time of Delivery, as the case may be, certain delivery papers, documents and data for




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execution and delivery. Such documents shall include, but not be limited to, a maintenance release from the MRO evidencing the airworthiness of the Remarket Aircraft and a post-modification letter verifying that the Air Traffic Control transponder and altimeter system comply with FAA regulations. If the Remarket Aircraft will be registered with the FAA, Boeing will pre-position in Oklahoma City, Oklahoma, for filing with the FAA at the time of Delivery of the Remarket Aircraft an executed original Form 8050-2, Aircraft Bill of Sale, indicating transfer of title to the Remarket Aircraft from Boeing to Customer.
4.5Delegation of Authority. Boeing will present a certified copy of a delegation of authority, designating and authorizing certain persons to act on its behalf in connection with Delivery of the Completed Remarket Aircraft.
4.6Aircraft Flight Log. Boeing will provide the Remarket Aircraft flight log for repositioning flights where Boeing provides flight crew personnel.

5.ADDITIONAL DELIVERY ACTIONS BY CUSTOMER.
5.1Aircraft Radio Station License. At Delivery Customer will provide its radio station license to be placed on board the Reconfigured Remarket Aircraft following Delivery.
5.2Delegation of Authority. Customer will present to Boeing at Delivery of the Remarket Aircraft an original or certified copy of Customer's delegation of authority designating and authorizing certain persons to act on its behalf in connection with the Delivery.
5.3TSA Waiver Approval. Customer may be required to have an approved Transportation Security Administration (TSA) waiver for the post-Delivery repositioning flight depending on Customer’s en-route stop(s) and destination unless the Customer already has a TSA-approved security program in place. Customer is responsible for application of the TSA waiver and obtaining TSA approval. Customer will provide a copy of the approved TSA waiver to Boeing upon arrival at the delivery location.
5.4Electronic Advance Passenger Information System. Should the post-Delivery repositioning flight of a Remarket Aircraft leave the United States, the Department of Homeland Security office requires Customer to comply with the Electronic Advance Passenger Information System (eAPIS). Customer needs to establish their own account with CBP in order to file for departure.





ATTACHMENT A TO EXHIBIT B-1






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CERTIFICATE OF INITIAL TECHNICAL ACCEPTANCE
BOEING MODEL 737-8
Southwest Airlines Co.

1.
REMARKET AIRCRAFT IDENTIFICATION
REGISTRATION IDENTIFICATION NO.:<RegNo>
BLOCK NO.:<Block>
MANUFACTURER'S SERIAL NO.:<MSN>
<EngMfg> <EngModel> ENGINE SERIAL NOS.:
POSITION #1POSITION #2
<EngMSN1><EngMSN2>
2.REMARKET AIRCRAFT INSPECTION
INSPECTED AT: The State of <DeliveryLocation>

DATE: ___________________ TIME___________________

Southwest Airlines Co. does hereby acknowledge and agree that the above described Remarket Aircraft together with all equipment installed therein and documents related thereto has been inspected by Southwest Airlines Co. to its satisfaction except as noted below, as applicable, and that the Remarket Aircraft complies with the provisions of Purchase Agreement No. 03729 dated December 13, 2011, as amended and supplemented relevant to the Remarket Aircraft, and Southwest Airlines Co. hereby technically accepts such Remarket Aircraft.

EXECUTED this _____ day of <DelMonthYear>.
SOUTHWEST AIRLINES CO.
Signature

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Printed name
Title


Exceptions to Technical Acceptance



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The Boeing Company
    P.O. Box 3707
    Seattle, WA 98124 2207
SWA-PA-03729-LA-2100594R1

Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611

Subject:    737-8 Remarket Aircraft

Reference:    a) Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to models 737-8 and 737-7 aircraft (Aircraft).
b) Letter Agreement No. SWA-PA-03729-LA-2100700R1 entitled “Remarket Aircraft - Configuration Matters” (Remarket Aircraft – Configuration Matters Letter Agreement) to the Purchase Agreement relating to the purchase of model 737-8 Remarket Aircraft.

    This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement and governs Customer’s purchase of sixty (60) remarket Boeing model 737-8 Aircraft with CFMI engines (Remarket Aircraft), under the terms and conditions described in this Letter Agreement and the Purchase Agreement. All capitalized terms which are not otherwise defined herein shall have the definitions specified in the Purchase Agreement and other letter agreements specifically addressing the Remarket Aircraft.

    This Letter Agreement incorporates in the Purchase Agreement those terms applicable only to the Remarket Aircraft. Except as expressly amended by the terms of this Letter Agreement, Remarket Aircraft are in all other respects “Aircraft” under the terms of the Purchase Agreement.

    [***]








    [***]












SA-17
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    [***]







1.    [***]












































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2.    [***]
    









3.    [***]










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4.    [***]

































5.    [***]

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6.    Miscellaneous.

    [***]

























7.    [***]










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8.    Assignment.

Notwithstanding any other provisions of the Purchase Agreement to the contrary, the rights and obligations described in this Letter Agreement are provided to Customer in consideration of Customer’s becoming the operator of the Remarket Aircraft and the Replacement Aircraft and cannot be assigned in whole or in part.

9.    Confidential Treatment.

Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally or to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Remarket Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.

    

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Very truly yours,


THE BOEING COMPANY
By/s/ Carson J. May
Name
Carson J. May
ItsAttorney-In-Fact
ACCEPTED AND AGREED TO this
Date:June 3, 2022
SOUTHWEST AIRLINES CO.
By/s/ Chris Monroe
Name
Chris Monroe
ItsSVP Finance and Treasurer



            
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SWA-PA-03729-LA-2100700R1


Southwest Airlines Co.
2702 Love Field Drive
P.O. Box 36611
Dallas, Texas 75235-1611

Subject:    Remarket Aircraft – Configuration Matters

References:    a) Purchase Agreement No. PA-03729 (Purchase Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co. (Customer) relating to models 737-8 and 737-7 aircraft (Aircraft); and

b) Letter Agreement No. SWA-PA-03729-LA-2100594R1 entitled “737-8 Remarket Aircraft” (737-8 Remarket Aircraft Letter Agreement) to the Purchase Agreement relating to the purchase of model 737-8 Remarket Aircraft.

This letter agreement (Letter Agreement) amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement will have the same meaning as in the Purchase Agreement.
1.Additional Delivery Configuration Revisions.
1.1The As-Built Configurations (which will include the Limited Configuration Revisions and As-Installed SPE/BFE, each as described in the 737-8 Remarket Aircraft Letter Agreement) for the Remarket Aircraft are described in the applicable Exhibit A to the Purchase Agreement shall be provided at least sixty (60) days prior to the target date for Initial Technical Acceptance. At Initial Technical Acceptance, Boeing will present each Remarket Aircraft to Customer in the respective As-Built Configuration for inspection and acceptance prior to Reconfiguration (as described in the 737-8 Remarket Aircraft Letter Agreement).
1.2 Following Initial Technical Acceptance by Customer of a Remarket Aircraft in its As-Built Configuration, Boeing will effect the Reconfiguration of such Remarket Aircraft into the Delivery Configuration, subject to minor, aesthetic and part-number differences between the Delivery Configuration of the Remarket Aircraft and the configuration of other Aircraft covered by the Purchase Agreement. Customer shall have the right to refuse any deviation or non-routine repair that would result in a change to the Customer’s maintenance program Once established by the Parties, the Delivery Configuration will be ultimately be defined for each Remarket Aircraft in an Exhibit A to the Purchase Agreement and incorporated into the Purchase Agreement by way of a supplemental agreement.








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1.3[***]



Boeing and Customer will consult together with regard to (i) the master kit changes required in the Change Proposal Packages for Reconfiguration of the Remarket Aircraft to the Delivery Configuration, and (ii) Customer’s BFE required from Customer for certification of each Remarket Aircraft in the Delivery Configuration (Configuration Coordination).
1.3.1Following the Configuration Coordination, Customer will have the opportunity to i) review the detailed descriptions in the Change Proposal Packages and/or ii) meet with Boeing to discuss and amend, as required, the Change Proposal Packages. Such review and/or meeting will not cause a delay to the acceptance timing of the Change Proposal Packages
1.3.2The Change Proposal Package for each Remarket Aircraft will be provided to Customer within thirty (30) days of the Configuration Coordination. Customer will provide acceptance within thirty (30) days of the receipt of the Change Proposal Package.
1.3.3For each Remarket Aircraft, Customer will provide a shipset of Customer’s BFE to Boeing, at the MRO selected to do the Reconfiguration of a Remarket Aircraft, for installation on and certification of the Delivery Configuration of each Remarket Aircraft. Boeing will provide the BFE on-dock dates as referenced in My Boeing Fleet (MBF).
1.3.4The Parties will work together to finalize the respective Delivery Configuration of each Remarket Aircraft, and each Delivery Configuration will be incorporated into the Purchase Agreement as Exhibit A-3 entitled “737-8 Remarket Aircraft Configuration”, with references to each Remarket Aircraft by manufacturer’s serial number (MSN).
1.3.5The Change Proposal Packages, once accepted and incorporated into the Purchase Agreement, will [***]


1.4The Parties agree to cooperate in good faith during the Configuration Coordination so that a mutually agreeable Delivery Configuration can be reached. Any delay in Customer’s acceptance of the Change Proposal Package may affect the schedule for induction of such Remarket Aircraft’s induction into the reconfiguration process and Boeing reserves the right to adjust the scheduled delivery date based on such delay in acceptance due to Customer.









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2.[***]







3.    Confidential Treatment.

Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential and has value precisely because it is not available generally or to other parties. Customer agrees to limit the disclosure of the contents of this Letter Agreement to (a) its directors and officers, (b) employees of Customer with a need to know the contents for performing its obligations (including, without limitation, those employees performing accounting, finance, administration and other functions necessary to finance and purchase, deliver or lease the Remarket Aircraft) and who understand they are not to disclose its contents to any other person or entity (other than those to whom disclosure is permitted by this Article) without the prior written consent of Boeing and (c) any auditors and attorneys of Customer who have a need to know such information and have signed a confidentiality agreement in the same form and substance similar to this Article, or are otherwise bound by a confidentiality obligation. Disclosure to other parties is not permitted without Boeing’s consent except as may be required by applicable law or governmental regulations. Customer shall be fully responsible to Boeing for compliance with such obligations.


















Very truly yours,


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THE BOEING COMPANY
By/s/ Carson J. May
Name
Carson J. May
ItsAttorney-In-Fact
ACCEPTED AND AGREED TO this
Date:June 3, 2022
SOUTHWEST AIRLINES CO.
By/s/ Chris Monroe
Name
Chris Monroe
ItsSVP Finance and Treasurer






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   Exhibit 31.1
CERTIFICATION

I, Robert E. Jordan, Chief Executive Officer of Southwest Airlines Co., certify that:

1.           I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of Southwest Airlines Co.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2022
 By:/s/ Robert E. Jordan
  Robert E. Jordan
  Chief Executive Officer
(Principal Executive Officer)
 

   Exhibit 31.2
CERTIFICATION

I, Tammy Romo, Executive Vice President & Chief Financial Officer of Southwest Airlines Co., certify that:

1.           I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of Southwest Airlines Co.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2022
 By:/s/ Tammy Romo
  Tammy Romo
  Executive Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)

Exhibit 32
 
 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, 

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report on Form 10-Q of Southwest Airlines Co. (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), Robert E. Jordan, Chief Executive Officer of the Company, and Tammy Romo, Executive Vice President & Chief Financial Officer of the Company, each certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

Date:  August 1, 2022
 By:/s/ Robert E. Jordan
  Robert E. Jordan
  Chief Executive Officer
(Principal Executive Officer)

 
 By:/s/ Tammy Romo
  Tammy Romo
  Executive Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)