1
Exhibit 10.2
Supplemental Agreement No. 2
to
Purchase Agreement No. 1810
between
The Boeing Company
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of June 24, 1997, by and
between THE BOEING COMPANY, a Delaware corporation with its principal offices
in Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas
corporation with its principal offices in City of Dallas, State of Texas
(Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;
WHEREAS, Buyer has agreed to exercise the option to purchase five (5)
additional Option Aircraft delivering in October 1998 (1), November 1998 (2)
and December 1998 (2), (Block "F" Aircraft) offered pursuant to Letter
Agreement 6-1162-RLL-933R1;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. The Table of Contents of the Agreement is deleted in its entirety and
a new Table of Contents is attached hereto and incorporated into the Agreement
by this reference.
- ------------------------
*** Pursuant to 17 CFR, 240.246-2, confidential
information has been omitted and has been filed separately with the
Securities and Exchange Commission pursuant to a Confidential
Treatment Application filed with the Commission.
P.A. No. 1810 SA-2-1
2
2. Article 1, entitled "Subject Matter of Sale," paragraph 1.1 entitled
"The Aircraft" is deleted in its entirety and replaced by a new paragraph 1.1
revised to reflect sixty-eight (68) Aircraft. Such new page 1-1 is attached
hereto and incorporated into the Agreement by this reference.
3. Article 2, entitled "Delivery, Title and Risk of Loss," paragraph 2.1,
entitled "Time of Delivery," is deleted in its entirety and replaced by a new
paragraph 2.1 revised to add five (5) Block "F" Aircraft. Such new pages 2-1
and 2-2 are attached hereto and incorporated into the Agreement by this
reference.
4. Article 3, entitled "Price of Aircraft", paragraph 3.2 entitled
"Aircraft Basic Price" is revised by adding a Aircraft Basic Price for the
Block "F" Aircraft. Paragraph 3.3 entitled "Aircraft Price," subparagraph 3.3.1
is revised by adding a Aircraft Basic Price for the Block "F" Aircraft.
Paragraph 3.4 entitled "Advance Payment Base Price," subparagraph 3.4.1
entitled "Advance Payment Base Price" is revised by adding Advance Payment Base
Prices for the Block "F" Aircraft. Such new pages 3-1, 3-2 and 3-3 are attached
hereto and incorporated into the Agreement by this reference.
5. Letter Agreement No. 6-1162-RLL-933R1 entitled "Option Aircraft" is
deleted in its entirety and replaced with Letter Agreement No. 6-1162-RLL-933R2
attached hereto and incorporated herein by this reference. The letter
agreement was revised to reflect the exercise of five (5) Block "F" Aircraft
and the conversion of five (5) Block "M" Rolling Option Aircraft to Option
Aircraft. Article 1, entitled "Delivery of Option Aircraft" is revised by
deleting five (5) Option Aircraft from the Block "F" delivery stream and adding
five (5) Block "M" Aircraft in August, 2004 (2) and September, 2004 (3).
Article 2 entitled "Delivery of Rollover Option Aircraft," paragraph 2.1 is
revised to delete five (5) Block "M" Rolling Option Aircraft; paragraph 2.2 and
subparagraphs 2.2.1 and 2.2.2 are revised by changing the quantity of Rolling
Option Aircraft from forty-nine (49) to forty-four (44). *** Attachment A,
Paragraph 2 entitled "Price Description," subparagraph 2.1 entitled "Price
Elements Per Aircraft" is revised by deleting the October 1998, November 1998
and December 1998 Option Aircraft and adding the August 2004 and September 2004
Option Aircraft, subparagraph 2.2 entitled "Price Adjustments For Option
Aircraft Delivering from October 1998 to October 2001", is revised to be
entitled "Price Adjustment For Option Aircraft Delivering From March 1999 to
October 2001", and subparagraph 2.2.2 is revised to change October 1998 to
March 1999.
P.A. No. 1810 SA-2-2
3
6. Letter Agreement No. 6-1162-RLL-936R1 entitled "Certain Contractual
Matters" is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-936R2 attached hereto and incorporated herein by this reference.
The letter agreement was revised to reflect the exercise of five (5) Block "F"
Aircraft and the conversion of five (5) Block "M" Rolling Option Aircraft to
Option Aircraft. Article 1 entitled "Credit Memorandum - Aircraft - Firm
Aircraft," is revised to add the credit memorandum amount for the Block "F"
Aircraft.
7. Letter Agreement No. 6-1162-RLL-1855 entitled "Additional Contractual
Matters," is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-1855R1 attached hereto and incorporated herein by this reference.
The letter agreement was revised to reflect the exercise of five (5) Block "F"
Aircraft. Article 2 entitled *** for the Option Aircraft delivering from
October 1998 through December 31, 2001," is revised to be entitled *** for the
Option Aircraft Delivering from March 1999 through December 31, 2001.
8. Concurrent with execution of this Supplemental Agreement, Buyer will
pay to Boeing *** The net amount due Boeing as a result of the exercise of the
Option Aircraft, and the conversion of Rolling Option Aircraft to Option
Aircraft is *** with the difference to be accounted for in the advance payments
due at 12 months prior to delivery of the five (5) exercised Option Aircraft.
9. All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of
sixty-eight (68) Model 737-7H4 Aircraft and forty-four (44) Model 737-7H4
Rollover Option Aircraft, to the extent such reference is not specifically
addressed herein.
The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY SOUTHWEST AIRLINES CO.
By: /s/ Dawn S. Foster By: /s/ Gary A. Barron
------------------------- --------------------------
Its: Attorney-In-Fact Its: Executive VP and COO
------------------------ --------------------------
P.A. No. 1810 SA-2-3
4
PURCHASE AGREEMENT
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
Purchase Agreement Number 1810
P.A. No. 1810
5
TABLE OF CONTENTS
Page SA
Number Number
------ ------
ARTICLES
- --------
1. Subject Matter of Sale..........................................1-1 SA-2
2. Delivery, Title and Risk
of Loss.........................................................2-1 SA-2
3. Price of Aircraft...............................................3-1 SA-2
4. Taxes...........................................................4-1
5. Payment.........................................................5-1
6. Excusable Delay.................................................6-1
7. Changes to the Detail
Specification...................................................7-1 SA-1
8. Federal Aviation Requirements and
Certificates and Export License.................................8-1
9. Representatives, Inspection,
Flights and Test Data...........................................9-1
10. Assignment, Resale or Lease....................................10-1
11. Termination for Certain Events.................................11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance..................................................12-1
13. Buyer Furnished Equipment and
Spare Parts....................................................13-1
14. Contractual Notices and Requests...............................14-1
15. Miscellaneous..................................................15-1
P.A. No. 1810 i SA-2
6
TABLE OF CONTENTS
SA
Number
------
EXHIBITS
- --------
A Aircraft Configuration SA-1
B Product Assurance Document SA-1
C Customer Support Document
D Price Adjustments Due to
Economic Fluctuations - Aircraft
E Buyer Furnished Equipment
Provisions Document
F Defined Terms Document
LETTER AGREEMENTS
- -----------------
1810-1 Waiver of Aircraft Demonstration Flight
P.A. No. 1810 ii SA-2
7
TABLE OF CONTENTS
SA
Number
------
RESTRICTED LETTER AGREEMENTS
- ----------------------------
6-1162-RLL-932 Promotional Support
6-1162-RLL-933R2 Option Aircraft SA-2
6-1162-RLL-934R1 Disclosure of Confidential SA-1
Information
6-1162-RLL-935R1 Performance Guarantees SA-1
6-1162-RLL-936R2 Certain Contractual Matters SA-2
6-1162-RLL-937 Alternate Advance Payment Schedule
6-1162-RLL-938 ***
6-1162-RLL-939R1 Certification Flight Test Aircraft SA-1
6-1162-RLL-940R1 Training Matters SA-1
6-1162-RLL-941R1 Other Matters SA-1
6-1162-RLL-942 Open Configuration Matters
6-1162-RLL-943 Substitution Rights
6-1162-RLL-944 Airframe Maintenance Material Cost
Protection Program
6-1162-RLL-945 Comparison of 737-7H4 and 737-3H4
Block Fuel Burn
6-1162-RLL-1855R1 Additional Contractual Matters SA-2
6-1162-RLL-1856 *** SA-1
6-1162-RLL-1857 Service Ready Validation Program SA-1
Field Test
6-1162-RLL-1858 Escalation Matters SA-1
P.A. No. 1810 iii SA-2
8
TABLE OF CONTENTS CON'T
SA
Number
------
RESTRICTED LETTER AGREEMENTS
- ----------------------------
6-1162-RLL-2036 Amortization of Costs for
Customer Unique Changes SA-1
6-1162-RLL-2037 Reconciliation of the Aircraft SA-1
Basic Price
6-1162-RLL-2073 Maintenance Training Matters SA-1
P.A. No. 1810 iv SA-2
9
PURCHASE AGREEMENT NO. 1810
Relating to
BOEING MODEL 737-7H4 AIRCRAFT
-------------------------------
This Agreement is entered into as of January 19th 1994, by and between
The Boeing Company, a Delaware corporation, with its principal office in
Seattle, Washington (Boeing), and Southwest Airlines Co., a Texas corporation,
with its principal office in the City of Dallas, State of Texas (Buyer).
Accordingly, Boeing and Buyer agree as follows:
P.A. No. 1810 1
10
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Subject to the terms and conditions of this
Agreement, Boeing will manufacture and deliver to Buyer and Buyer will purchase
and accept delivery from Boeing of sixty-eight (68) Boeing Model 737-7H4
aircraft (the Aircraft) manufactured in accordance with Boeing Detail
Specification D6-38808-1, dated October 30, 1996, as described in Exhibit A, as
modified from time to time in accordance with this Agreement (Detail
Specification).
1.2 Additional Goods and Services. In connection with the sale of the
Aircraft, Boeing will also provide to Buyer certain other things under this
Agreement, including data, documents, training and services, all as described in
this Agreement.
1.3 Performance Guarantees. Any performance guarantees applicable to
the Aircraft will be expressly included in this Agreement. Where performance
guarantees are included in this Agreement other than within the Detail
Specification, such guarantees will be treated as being incorporated in the
Detail Specification by this reference.
1.4 Defined Terms. For ease of use, certain terms are treated as
defined terms in this Agreement. Such terms are identified with a capital letter
and set forth and/or defined in Exhibit F.
P.A. No. 1810 1-1 SA-2
11
ARTICLE 2. Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered to Buyer by
Boeing, assembled and ready for flight and Buyer will accept delivery of the
Aircraft, in accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
-------------- --------------------
Block A Aircraft
October 1997 Two (2)
November 1997 Two (2)
Block B Aircraft
January 1998 Two (2)
February 1998 Three (3)
March 1998 Two (2)
April 1998 Two (2)
May 1998 Two (2)
June 1998 One (1)
July 1998 Two (2)
September 1998 Two (2)
Block C Aircraft
February 1999 Four (4)
May 1999 Four (4)
July 1999 Four (4)
September 1999 Four (4)
Block D Aircraft
January 2000 Four (4)
March 2000 Four (4)
July 2000 Four (4)
September 2000 Three (3)
Block E Aircraft
January 2001 Three (3)
March 2001 Three (3)
July 2001 Three (3)
September 2001 Three (3)
Block F Aircraft
October 1998 One (1)
November 1998 Two (2)
December 1998 Two (2)
P.A. No. 1810 2-1 SA-2
12
2.2 Notice of Target Delivery Date. Boeing will give Buyer notice
of the Target Delivery Date of the Aircraft approximately 30 days prior to the
scheduled month of delivery.
2.3 Notice of Delivery Date. If Boeing gives Buyer at least 7 days'
notice of the delivery date of the Aircraft, and an Aircraft delivery is delayed
beyond such delivery date due to the responsibility of Buyer, Buyer will
reimburse Boeing for all costs incurred by Boeing as a result of such delay,
including amounts for storage, insurance, Taxes, preservation or protection of
the Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at an airport
facility selected by Boeing in the State of Washington, unless mutually agreed
otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of an
Aircraft will pass from Boeing to Buyer upon delivery of such Aircraft, but
not prior thereto.
2.6 Bill of Sale. Upon delivery of an Aircraft Boeing will deliver to
Buyer a bill of sale conveying good title to such Aircraft, free of all liens,
claims, charges and encumbrances of every kind whatsoever, and such other
appropriate documents of title as Buyer may reasonably request.
P.A. No. 1810 2-2 SA-2
13
ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features incorporated in
Exhibit A which have been selected by Buyer.
3.1.2 Base Aircraft Price is the Aircraft Basic Price
excluding the price of Special Features.
3.1.3 Aircraft Basic Price is comprised of the Base Aircraft
Price and the price of the Special Features.
3.1.4 Economic Price Adjustment is the adjustment to the
Aircraft Basic Price (Base Aircraft and Special Features) as calculated pursuant
to Exhibit D.
3.1.5 Aircraft Price is the total amount Buyer is to pay for
the Aircraft at the time of delivery.
3.2 Aircraft Basic Price.
The Aircraft Basic Price, expressed in July 1992 dollars, is
set forth below:
Block A, B,
C, D & E Block F
Aircraft Aircraft
----------- --------
Base Aircraft Price: $*** $***
Special Features $*** $***
Aircraft Basic Price $*** $***
3.3 Aircraft Price. The Aircraft Price will be established at
the time of delivery of such Aircraft to Buyer and will be the sum of:
3.3.1 the Aircraft Basic Price, which is *** for the Block
A, B, C, D and E Aircraft and *** for the Block F Aircraft; plus
3.3.2 the Economic Price Adjustments for the Aircraft Basic
Price, as calculated pursuant to the formulas set forth in Exhibit D (Price
Adjustments Due to Economic Fluctuations - Aircraft); plus
3.3.3 other price adjustments made pursuant to this Agreement
or other written agreements executed by Boeing and Buyer.
P.A. No. 1810 3-1 SA-2
14
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance payment
purposes, the following estimated delivery prices of the Aircraft (Advance
Payment Base Price) have been established, using currently available forecasts
of the escalation factors used by Boeing as of the date of signing this
Agreement. The Advance Payment Base Price of each Aircraft is set forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
------------------ --------------------
Block A Aircraft ***
October 1997
November 1997
Block B Aircraft ***
January 1998
February 1998
March 1998
April 1998
May 1998
June 1998
July 1998
September 1998
Block C Aircraft ***
February 1999
May 1999
July 1999
September 1999
Block D Aircraft ***
January 2000
March 2000
July 2000
September 2000
Block E Aircraft ***
January 2001
March 2001
July 2001
P.A. No. 1810 3-2 SA-2
15
Block E Aircraft ***
(Continued)
September 2001
Block F Aircraft ***
October 1998
November 1998
December 1998
3.4.2 Adjustment of Advance Payment Base Prices - Long-Lead
Aircraft. For Aircraft scheduled for delivery 36 months or more after the date
of this Agreement, the Advance Payment Base Prices appearing in Article 3.4.1
will be used to determine the amount of the first advance payment to be made by
Buyer on the Aircraft. No later than 25 months before the scheduled month of
delivery of each affected Aircraft, Boeing will increase or decrease the Advance
Payment Base Price of such Aircraft as required to reflect the effects of (i)
any adjustments in the Aircraft Basic Price pursuant to this Agreement and (ii)
the then-current forecasted escalation factors used by Boeing. Boeing will
provide the adjusted Advance Payment Base Prices for each affected Aircraft to
Buyer, and the advance payment schedule will be considered amended to substitute
such adjusted Advance Payment Base Prices.
P.A. No. 1810 3-3 SA-2
16
6-1162-RLL-933R2
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-933R2 to Purchase Agreement
No. 1810 - Option Aircraft
This Letter Agreement amends Purchase Agreement No. 1810 dated as of
January 19, 1994 (the Agreement) between The Boeing Company (Boeing) and
Southwest Airlines Co. (Buyer) relating to Model 737-7H4 aircraft
(Aircraft).
All terms used and not defined herein will have the same meaning as in
the Agreement.
In consideration of the purchase by Buyer of the Aircraft, Boeing hereby
agrees to manufacture and sell to Buyer sixty-seven (67) additional
Model 737-7H4 aircraft as described in paragraph 1 of Attachment A
hereto (Option Aircraft) and forty-four (44) Model 737-7H4 Rollover
Option Aircraft (Rollover Option Aircraft), subject to the terms and
conditions set forth below.
1. Delivery of Option Aircraft.
The Option Aircraft will be delivered to Buyer during or before
the months set forth in the following schedule:
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
-------------- -------- --------
March 1999 Two (2) G
June 1999 Two (2) G
August 1999 Two (2) G
September 1999 One (1) G
October 1999 Two (2) G
April 2000 Three (3) H
October 2000 Three (3) H
April 2001 Three (3) I
October 2001 Three (3) I
P.A. No. 1810
SA-2
17
Southwest Airlines Co.
6-1162-RLL-933R2 Page 2
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
-------------- -------- --------
(continued)
January 2002 Four (4) J
March 2002 Four (4) J
April 2002 Two (2) J
July 2002 Four (4) J
October 2002 Four (4) J
January 2003 Four (4) K
March 2003 Four (4) K
April 2003 Two (2) K
July 2003 Four (4) K
October 2003 Four (4) K
April 2004 Two (2) L
July 2004 Three (3) L
August 2004 Two (2) M
September 2004 Three (3) M
2. Delivery of Rollover Option Aircraft.
2.1 The Rollover Option Aircraft will be delivered to Buyer
during or before the years set forth in the following schedule:
Option
Year of Number of Aircraft
Delivery Option Aircraft Block
-------- --------------- --------
2004 Eight (8) M
2005 Eighteen (18) N
2006 Eighteen (18) O
2.2 The forty-four (44) Rollover Option Aircraft are offered
to Buyer subject to the following conditions:
2.2.1 Buyer can exercise any forty-four (44) of the sixty-seven
(67) Option Aircraft, and will be offered a Rollover Option Aircraft for
each option aircraft exercised up to and including forty-four (44).
2.2.2 Conversely to Article 2.2.1 above, if Buyer does not
exercise a minimum of forty-four (44) Option Aircraft, one Rollover
Option Aircraft will be deleted for each Option Aircraft not exercised
by Buyer.
P.A. No. 1810
SA-2
18
Southwest Airlines Co.
6-1162-RLL-933R2 Page 3
2.2.3 When Buyer exercises one or more Option Aircraft, Boeing
will offer the same quantity of Rollover Option Aircraft to Buyer in the
years identified in Article 2.1 above.
2.2.4 The Rollover Option Aircraft delivery month offered by
Boeing to Buyer will be at least 24 months from the Option exercise date
of the corresponding option.
2.2.5 When Boeing offers the Rollover Option Aircraft to Buyer,
Buyer will accept such Rollover Option Aircraft by wire transferring
$100,000 to Boeing. In the event Buyer exercises its option to purchase
the Rollover Option Aircraft, such application will be in accordance
with Article 4.1 herein.
3. Price.
3.1 The advance payment base prices of the Option Aircraft set
forth below and in paragraph 2.1 of Attachment A represent the estimated
delivery prices of the Option Aircraft. The Option Aircraft pricing
elements and associated pricing terms and conditions are given in
Attachment A.
3.2 Price and escalation provisions for Model 737-7H4 aircraft
delivering after 2001, are not currently available. The estimated
Advance Payment Base Prices shown in paragraph 3.3 below and in
paragraph 2.1 of Attachment A are based on currently available price and
escalation provisions. As price and escalation provisions become
available for Model 737-7H4 aircraft delivering after 2001, such price
and escalation provisions will be appropriately applied to the
applicable Option Aircraft.
For additional information relating to price and escalation provisions
applicable to Option Aircraft delivering after 2001 refer to paragraphs
2.3 and 3.2 of Attachment A.
3.3 The Advance Payment Base Prices of the Option Aircraft
indicated below do include an amount for special features in addition to
those specifically described in Attachment A but do not include any
amount for items of Buyer Furnished Equipment (BFE). An estimate for
typical special features is *** per Aircraft (expressed in 1992 STE
dollars) and for BFE is *** per Aircraft (expressed in delivery year
dollars).
P.A. No. 1810
SA-2
19
Southwest Airlines Co.
6-1162-RLL-933R2 Page 4
Month and Year Advance Payment Base
of Delivery Price per Option Aircraft
-------------- -------------------------
Block G Aircraft ***
--------------------
March 1999
June 1999
August 1999
September 1999
October 1999
Block H Aircraft ***
--------------------
April 2000
October 2000
Block I Aircraft ***
--------------------
April 2001
October 2001
Block J Aircraft ***
--------------------
January 2002
March 2002
April 2002
July 2002
October 2002
Block K Aircraft ***
--------------------
January 2003
March 2003
April 2003
July 2003
October 2003
Block L Aircraft ***
--------------------
April 2004
July 2004
Block M Aircraft ***
--------------------
August 2004
September 2004
3.4 The Option Aircraft purchase price will be the applicable
basic price thereof at the time of Option Aircraft delivery adjusted in
accordance with Boeing's Aircraft escalation provisions contained in the
definitive agreement to purchase the Option
P.A. No. 1810
SA-2
20
Southwest Airlines Co.
6-1162-RLL-933R2 Page 5
Aircraft. The purchase price will include the price for Seller
Purchased Equipment (SPE) if Buyer has elected to change Buyer Furnished
Equipment (BFE) to SPE.
4. Option Aircraft Payment.
4.1 In consideration of the granting of the option as set
forth herein, on or before the date Boeing and Buyer enter into a
definitive agreement to purchase the Aircraft, Buyer will pay a deposit
to Boeing of $100,000 for each Option Aircraft (Deposit). In the event
Buyer exercises its option herein, the amount of the Deposit will be
credited against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in paragraph 3 of
Attachment A. The Deposits for the Option Aircraft will be refunded to
Buyer, without interest, if the parties do not enter into a definitive
Agreement for the Aircraft.
In the event that, after the parties enter into a definitive agreement
to purchase the Aircraft, Buyer does not exercise its option to purchase
the Option Aircraft pursuant to the terms and conditions set forth
herein, Boeing will be entitled to retain the Deposits for the Option
Aircraft except as provided in paragraphs 6 herein.
4.2 Advance payments in the amount of 30% of the advance
payment base price will be payable on the Option Aircraft in accordance
with paragraph 3 of Attachment A. The remainder of the Option Aircraft
purchase price is due at the time of delivery of the Option Aircraft.
5. Option Exercise.
5.1 To exercise its Option, Buyer will give written or
telegraphic notice thereof to Boeing on or before eighteen (18) months
prior to the first day of the delivery month of each Option Aircraft.
In such notice Buyer will select the Option Model type, and the
applicable delivery positions.
5.2 It is understood and agreed that Boeing may accelerate the
option exercise dates specified above if Boeing must make production
decisions which are dependent on Buyer's decision to buy the Option
Aircraft. If Boeing elects to accelerate the option exercise dates,
Boeing will do so by giving written or telegraphic notice thereof to
Buyer. Such notice will
P.A. No. 1810 SA-2
21
Southwest Airlines Co.
6-1162-RLL-933R2 Page 6
specify the revised option exercise dates, which will not be earlier
than 30 days after the date of transmittal of such notice, and the
Option Aircraft delivery positions affected by such revision. If Buyer
fails to exercise its option for any Option Aircraft affected by such
revised dates, the Deposit applicable to such Option Aircraft will be
promptly refunded, with interest, to Buyer. The interest rate for
calculation of the interest associated with such refund is the rate of
two percent (2%) below the Citibank base rate in effect from time to
time during the period the option deposit is held by Boeing.
6. Contract Terms.
It is understood that Boeing and Buyer will use their best
efforts to enter into a definitive agreement for the Option Aircraft
within thirty (30) days after Buyer exercises an option to purchase
Option Aircraft pursuant to paragraph 5 covering the detailed terms and
conditions for the sale of such Option Aircraft.
Such definitive agreement will include the terms and conditions
contained herein together with the terms and conditions, not
inconsistent herewith, contained in Boeing's then-current standard form
of purchase agreement for the sale of Model 737-700 aircraft in effect
as of the date of option exercise and such additional terms and
conditions as may be mutually agreed upon. In the event the parties
have not entered into such an agreement within the time period
contemplated herein, either party may, exercisable by written or
telegraphic notice given to the other within thirty (30) days after such
period, terminate the purchase of such Option Aircraft.
7. Termination of Option to Purchase.
Either Boeing or Buyer may terminate the option to purchase an
Option Aircraft if any of the following events are not accomplished by
the respective dates contemplated in this letter agreement, or in the
Agreement, as the case may be:
(i) termination of the purchase of the Aircraft under the
Agreement for any reason;
(ii) payment by Buyer of the Deposit with respect to an Option
Aircraft pursuant to paragraph 4.1 herein;
(iii) exercise of an option to purchase an Option Aircraft
pursuant to the terms hereof.
P.A. No. 1810
SA-2
22
Southwest Airlines Co.
6-1162-RLL-933R2 Page 7
Any termination of an option to purchase by Boeing which is based on the
termination of the purchase of Aircraft under the Agreement will be on a
one-for-one basis, for each Aircraft so terminated.
Any cancellation of an option to purchase which is based on failure to
make the required Deposit or to exercise the option to purchase shall
only apply to the Option Aircraft so canceled.
Termination of an option to purchase provided by this letter agreement
will be caused by either party giving written notice to the other within
10 days after the applicable date. Upon receipt of such notice, all
rights and obligations of the parties with respect to an Option Aircraft
for which the option to purchase has been terminate will thereupon
terminate.
If termination is result of a revision of an option exercise date by
Boeing pursuant to paragraph 5.2, Boeing will promptly refund to Buyer,
without interest, any payments received from Buyer, including the
Deposit, with respect to the Option Aircraft for which the option is
terminated. If termination is for any other reason, Boeing will
promptly refund to Buyer, without interest, any payments received from
Buyer with respect to the affected Option Aircraft, except the Deposit,
which Buyer may apply to any model Boeing aircraft purchased by Buyer
from Boeing at a future date.
P.A. No. 1810
SA-2
23
Southwest Airlines Co.
6-1162-RLL-933R2 Page 8
8. Confidential Treatment. Buyer understands that certain
commercial and financial information contained in this Letter Agreement
including any attachments hereto is considered by Boeing as
confidential. Buyer agrees that it will treat this Letter Agreement and
the information contained herein as confidential and will not, without
the prior written consent of Boeing, disclose this Letter Agreement or
any information contained herein to any other person or entity except as
provided in Letter Agreement No. 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
-------------------------------------
Its Attorney-in-Fact
------------------------------------
ACCEPTED AND AGREED TO this
date: June 24, 1997
-------
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
--------------------------
Its Executive VP & COO
-------------------------
Attachments
P.A. No. 1810
SA-2
24
Attachment A to
6-1162-RLL-933R2
Page 1
Model 737-7H4 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft is described by
Boeing Detail Specification D6-38808-1, Dated October 30 ,1996.
1.2 Changes. The Detail Specification will be revised to include:
(1) Changes applicable to the basic Model 737-700 aircraft
which are developed by Boeing between the date of the Detail Specification
and the signing of a definitive agreement to purchase the Option Aircraft.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard Certificate of
Airworthiness.
(4) To provide sufficient Option Aircraft manufacturing and
procurement lead time it is necessary for Boeing and Buyer to reach final
agreement on the Option Aircraft configuration, including BFE/SPE vendor
selection fifteen (15) months prior to delivery of each Option Aircraft. If
such items are not resolved by the indicated dates, Boeing reserves the
right to amend this letter agreement:
(i) to adjust the scheduled delivery of the Option
Aircraft to a later time period and,
(ii) to make such other changes as are appropriate
and consistent with the revised Option Aircraft deliveries.
1.3 Effect of Changes. Changes to the Detail Specification
incorporated pursuant to the provisions of the clauses above will include
the effects of such changes upon Option Aircraft weight, balance, design and
performance. Performance guarantees for the Option Aircraft which are
mutually acceptable to the parties will be included in the definitive
agreement for the Option Aircraft.
P.A. No. 1810
SA-2
25
Attachment A to
6-1162-RLL-933R2
Page 2
2. Price Description
2.1 Price Elements Per Aircraft
1 2 3
- - -
AIRCRAFT & ADV. PMT.
AIRCRAFT ESTIMATED SPECIAL BASE PRICE
DELIVERY FEATURES PRICE ESTIMATED (ELEMENTS)
MO. & YR. (JULY 1992$) ESCALATION 1 + 2 + 3
- --------- --------------- ---------- ----------
March 1999 *** *** ***
June 1999 *** *** ***
August 1999 *** *** ***
September 1999 *** *** ***
October 1999 *** *** ***
April 2000 *** *** ***
October 2000 *** *** ***
April 2001 *** *** ***
October 2001 *** *** ***
January 2002 *** *** ***
March 2002 *** *** ***
April 2002 *** *** ***
July 2002 *** *** ***
October 2002 *** *** ***
January 2003 *** *** ***
March 2003 *** *** ***
April 2003 *** *** ***
July 2003 *** *** ***
October 2003 *** *** ***
April 2004 *** *** ***
July 2004 *** *** ***
August 2004 *** *** ***
September 2004 *** *** ***
Continued Next Page...
P.A. No. 1810
SA-2
26
Attachment A to
6-1162-RLL-933R2
Page 3
2. Price Description. (Continued)
2.2 Price Adjustments For Option Aircraft Delivering From March
1999 to October 2001.
2.2.1 Special Features. The price for Special Features incorporated
in the Option Aircraft Detail Specification will be adjusted to Boeing's
then-current prices for such features as of the date of execution of the
definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. For Option Aircraft delivering from
March 1999 to October 2001, the Aircraft Basic Price and Special Features
price will be escalated according to the provisions of Attachment B to this
letter agreement.
2.2.3 Price Adjustments for Changes. Boeing may adjust the Aircraft
Basic Price and the Advance Payment Base Price for any changes mutually
agreed upon subsequent to the date that Buyer and Boeing enter into a
definitive agreement for the Option Aircraft.
2.2.4 Base Price Adjustments. The Aircraft Basic Price of the
Option Aircraft will be adjusted for any FAA mandated changes incorporated
into the Option Aircraft.
2.3 Price Adjustments For Option Aircraft Delivering From January
2002 through December 2006.
2.3.1 Special Features. The price for Special Features incorporated
in the Option Aircraft Detail Specification will be adjusted to Boeing's
then-current prices for such features as of the date of execution of the
definitive agreement for the Option Aircraft.
2.3.2 Escalation Adjustments. For escalation provisions applicable
to Option Aircraft delivering after 2001, see paragraph 2.3.6 below.
2.3.3 Base Price Adjustments for FAA Changes. The Aircraft Basic
Price of the Option Aircraft will be adjusted for any FAA mandated changes
incorporated into the Aircraft.
P.A. No. 1810
SA-2
27
Attachment A to
6-1162-RLL-933R2
Page 4
2.3.4 Price Adjustments for Changes. Boeing may adjust the Aircraft
Basic Price and the Advance Payment Base Price for any changes mutually
agreed upon subsequent to the date that Buyer and Boeing enter into a
definitive agreement for the Option Aircraft.
2.3.5 Base Price Adjustments. The Aircraft Basic Price of the
Option Aircraft will be adjusted to Boeing's then-current prices as of the
date of execution of the definitive agreement for the Option Aircraft in
accordance with the agreement reached below. The Aircraft Basic Price
starting point for options delivering from January 2002 through December
2006 is ***(July 1992 STE). Such Aircraft Basic Price may increase in
accordance with paragraphs 2.3.1, 2.3.2, 2.3.3 and 2.3.4. For any other
changes to the Aircraft Basic Price, Boeing may increase the Aircraft Basic
Price by a maximum of ***(July 1992 STE) per year or portion thereof
starting in January 2002.
2.3.6 Prices for Long Lead Time Aircraft. Boeing has not
established escalation provisions for Model 737-700 aircraft for delivery
2002 and after. Such escalation provisions (i) will be incorporated into
the Option Aircraft definitive agreement when such information is available
and (ii) will be the then-current escalation provisions applicable to the
same model aircraft and engines delivering in the same time period as the
Option Aircraft. The resulting revisions to the definitive agreement will
include but not be limited to, adjustment of the Aircraft Basic Price of the
Option Aircraft, the Advance Payment Base Price, the Aircraft escalation
provisions and the advance payment amounts due on the Option Aircraft.
2.3.7 BFE to SPE. An estimate of the total price for items of Buyer
Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE)
pursuant to the Configuration Specification is included in the Option
Aircraft price build-up. The purchase price of the Option Aircraft will be
adjusted by the price charged to Boeing for such items plus 10% of such
price. If all BFE except developmental avionics is converted to SPE, Boeing
will waive the 10% fee.
3. Advance Payment Schedules, Prices and Adjustments.
3.1 Buyer will pay to Boeing advance payments for the Option
Aircraft on the dates and in the amounts determined below.
P.A. No. 1810
SA-2
28
Attachment A to
6-1162-RLL-933R2
Page 5
Amount Due per Aircraft
-----------------------
(Percentage times
Due Date of Payment Advance Payment Base Price)
-------------------
Deposit $100,000 (if applicable)
18 months prior to the first 15% (less the
day of the scheduled delivery Deposit if any)
month of the Aircraft
12 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
9 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
6 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
---
Total 30%
Any advance payments that would be past due as of the date of signing the
definitive purchase agreement for the Option Aircraft in accordance with the
above schedule are due and payable on such date.
3.2 Option Aircraft advance payment base prices will be increased
or decreased, as appropriate, at the time of signing of the definitive
purchase agreement for the Option Aircraft, using the then-current
forecasted aircraft escalation factors used by Boeing, to determine the
amount of the advance payments to be made by Buyer on the Option Aircraft.
P.A. No. 1810
SA-2
29
Attachment B to
6-1162-RLL-933R2
Page 1
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRCRAFT PRICE ADJUSTMENT
(July 1992 Base Price)
1. Formula.
The Aircraft Price Adjustment will be determined at the time of
Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Aircraft Price Adjustment.
L = .65 x ECI
-----
116.2
M = .35 x ICI
-----
115.9
P = Aircraft Basic Price (as set forth in Article 3.2 of this
Agreement).
ECI = A value using the "Employment Cost Index for workers in
aerospace manufacturing" (aircraft manufacturing, standard
industrial classification code 3721, compensation, base month
and year June 1989 = 100), as released by the Bureau of Labor
Statistics, U.S. Department of Labor on a quarterly basis for
the months of March, June, September and December, calculated as
follows: A three-month arithmetic average value (expressed as a
decimal and rounded to the nearest tenth) will be determined
using the months set forth in the table below for the applicable
Aircraft, with the released Employment Cost Index value
described above for the month of March also being used for the
months of January and February; the value for June also used for
April and May; the value for September also used for July and
August; and the value for December also used for October and
November.
P.A. No. 1810
SA-2
30
Attachment B to
6-1162-RLL-933R2
Page 2
ICI = The three-month arithmetic average of the released monthly
values for the Industrial Commodities Index as set forth in the
"Producer Prices and Price Index" (Base Year 1982 = 100) as
released by the Bureau of Labor Statistics, U.S. Department of
Labor values (expressed as a decimal and rounded to the nearest
tenth) for the months set forth in the table below for the
applicable Aircraft.
In determining the value of L, the ratio of ECI divided by 116.2 will
be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .65 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by 115.9 will
be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .35 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
Months to be Utilized
Month of Scheduled in Determining the
Aircraft Delivery Value of ECI and ICI
----------------- -------------------------
January June B, July B, Aug. B
February July B, Aug. B, Sept. B
March Aug. B, Sept. B, Oct. B
April Sept. B, Oct. B, Nov. B
May Oct. B, Nov. B, Dec. B
June Nov. B, Dec. B, Jan. D
July Dec. B, Jan. D, Feb. D
August Jan. D, Feb. D, Mar. D
September Feb. D, Mar. D, Apr. D
October Mar. D, Apr. D, May D
November Apr. D, May D, June D
December May D, June D, July D
The following definitions of B and D will apply:
B = The calendar year before the year in which the scheduled month
of delivery as set forth in Paragraph 1 occurs.
D = The calendar year during which the scheduled month of delivery
as set forth in Paragraph 1 occurs.
P.A. No. 1810
SA-2
31
Attachment B to
6-1162-RLL-933R2
Page 3
2. If at the time of delivery of an Aircraft Boeing is unable to
determine the Aircraft Price Adjustment because the applicable values to be
used to determine the ECI and ICI have not been released by the Bureau of
Labor Statistics, then:
2.1 The Aircraft Price Adjustment, to be used at the time of
delivery of each of the Aircraft, will be determined by utilizing the
escalation provisions set forth above. The values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor
Statistics) to calculate the Aircraft Price Adjustment. If no values have
been released for an applicable month, the provisions set forth in Paragraph
2.2 below will apply. If prior to delivery of an Aircraft the U.S.
Department of Labor changes the base year for determination of the ECI or
ICI values as defined above, such rebased values will be incorporated in the
Aircraft Price Adjustment calculation. The payment by Buyer to Boeing of
the amount of the Purchase Price for such Aircraft, as determined at the
time of Aircraft delivery, will be deemed to be the payment for such
Aircraft required at the delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department of
Labor substantially revises the methodology used for the determination of
the values to be used to determine the ECI and ICI values (in contrast to
benchmark adjustments or other corrections of previously released values),
or for any reason has not released values needed to determine the applicable
Aircraft Price Adjustment, the parties will, prior to delivery of any such
Aircraft, select a substitute for such values from data published by the
Bureau of Labor Statistics or other similar data reported by
non-governmental United States organizations, such substitute to lead in
application to the same adjustment result, insofar as possible, as would
have been achieved by continuing the use of the original values as they may
have fluctuated during the applicable time period. Appropriate revision of
the formula will be made as required to reflect any substitute values.
However, if within 24 months from delivery of the Aircraft the Bureau of
Labor Statistics should resume releasing values for the months needed to
determine the Aircraft Price Adjustment, such values will be used to
determine any increase or decrease in the Aircraft Price Adjustment for the
Aircraft from that determined at the time of delivery of such Aircraft.
P.A. No. 1810
SA-2
32
Attachment B to
6-1162-RLL-933R2
Page 4
2.3 In the event escalation provisions are made non-enforceable or
otherwise rendered null and void by any agency of the United States
Government, the parties agree, to the extent they may lawfully do so, to
equitably adjust the Purchase Price of any affected Aircraft to reflect an
allowance for increases or decreases in labor compensation and material
costs occurring since February, 1992, which is consistent with the
applicable provisions of paragraph 1 of this Exhibit D.
3. For the calculations herein, the values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor
Statistics) to calculate the Aircraft Price Adjustment.
Note: Any rounding of a number, as required under this Exhibit D with
respect to escalation of the airframe price, will be accomplished as
follows: if the first digit of the portion to be dropped from the
number to be rounded is five or greater, the preceding digit will be
raised to the next higher number.
P.A. No. 1810
SA-2
33
6-1162-RLL-936R2
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-936R2 to
Purchase Agreement No. 1810 -
Certain Contractual Matters
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft) and Letter Agreement
6-1162-RLL-933R2, dated even date herewith, entitled "Option Aircraft",
relating to the sale by Boeing and the purchase by Buyer of sixty-seven (67)
additional Model 737-7H4 aircraft (the Option Aircraft) and forty-four (44)
Model 737-7H4 Rollover Option Aircraft (Rollover Option Aircraft).
The commitments made herein to Buyer are provided from Boeing and CFM
International Inc. (CFM).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Credit Memorandum - Aircraft - Firm Aircraft.
In consideration of Buyer's purchase of the Aircraft, Boeing will
issue to Buyer at the time of delivery of each Aircraft a credit memorandum
which may be used by Buyer for the purchase of Boeing goods and services or
applied to the final delivery payment for the Aircraft for which the credit was
issued. The amount of this credit memorandum applicable to each Block A, B, C,
D and E Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
The amount of this credit memorandum applicable to each Block F Aircraft will
be *** of the Aircraft Basic Price (July 1992 STE $) ***.
2. Credit Memorandum - Aircraft - Option Aircraft and Rollover Option
Aircraft.
In consideration of Buyer's purchase of the Option Aircraft and
Rollover Option Aircraft, Boeing will issue to Buyer at the time of delivery of
each
P.A. No. 1810 SA-2
34
Southwest Airlines Co.
6-1162-RLL-936R2 Page 2
Option Aircraft and Rollover Option Aircraft a credit memorandum which may be
used by Buyer for the purchase of Boeing goods and services or applied to the
final delivery payment for the Option Aircraft or Rollover Option Aircraft for
which the credit was issued. The amount of the credit memorandum applicable to
each Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
3. Simulation Data Credits.
If Buyer purchases one subsequent simulator data package for a
price of $*** dollars (July 1992 STE $), Boeing will issue offsetting credit
memoranda in amounts equal to Boeing's invoice price of such simulator data
concurrent with the issuance of such invoice. If Buyer purchases one
concurrent simulator data package for a price of $***, Boeing will issue an
offsetting credit memorandum in an amount equal to Boeing's invoice price of
such simulator data package concurrent with the issuance of such invoice.
Buyer understands that the concurrent data package price of $*** (July 1992 STE
$) is valid only if the second simulator is manufactured by the same simulator
manufacturer as the subsequent simulator and the concurrent simulator is
ordered within eight years of the signing of the Agreement.
4. Credits.
The Aircraft Basic Price for Buyer's 737-7H4 Aircraft does not
include a price for Dual Flight Management Computer and Five Channel SELCAL.
These two features will be installed in the Aircraft but deactivated. If Buyer
decides at anytime (whether before or after delivery) to activate this
capability, Buyer will pay Boeing an amount equal to *** (July 1992 STE $) ***
for this installed capability. If Buyer sells or leases the Aircraft for
operation by a third party and the features are subsequently activated, Buyer
will pay or cause the subsequent buyer or lessee to pay the above described
activation charge to Boeing.
5. Maximum Takeoff Weight Credit Memoranda.
Buyer has purchased a Maximum Takeoff Weight of 138,500 pounds for
the Aircraft. Boeing will, at the time of Aircraft delivery, issue to Buyer a
credit memoranda in the amount of $*** (July 1992 STE $), *** to offset the
price for 500 pounds of Maximum Takeoff Weight.
P.A. No. 1810 SA-2
35
Southwest Airlines Co.
6-1162-RLL-936R2 Page 3
6. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-in-Fact
--------------------------
ACCEPTED AND AGREED TO as of this
date: June 24, 1997
--------
SOUTHWEST AIRLINES CO.
By Gary A. Barron
--------------------------
Its Executive VP & COO
--------------------------
P.A. No. 1810 SA-2
36
6-1162-RLL-1855R1
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1855R1 to
Purchase Agreement No. 1810
Additional Contractual Matters
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement) between
The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating to the
sale by Boeing and the purchase by Buyer of sixty-eight (68) Model 737-7H4
aircraft (the Aircraft) and Letter Agreement 6-1162-RLL-933R2, dated even date
herewith, entitled "Option Aircraft", relating to the sale by Boeing and the
purchase by Buyer of sixty-seven (67) additional Model 737-7H4 aircraft (the
Option Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. ***
for the Aircraft.
In further consideration of Buyer's purchase of the Aircraft, Boeing will
issue at the time of delivery of each Aircraft a *** (July 1992 STE) escalated
to the month of delivery of the specific Aircraft in accordance with Exhibit D
"Aircraft Price adjustment" to be used by Buyer for the purchase of Boeing and
or CFMI goods and services or applied to the final delivery payment for the
Aircraft for which such ***.
P.A. No. 1810 SA-2
37
Southwest Airlines Co.
6-1162-RLL-1855R1 Page 2
2. *** for the Option Aircraft delivering from March 1999 through December 31,
2001.
In further consideration of Buyer's purchase of the Option Aircraft
delivering from March 1999 through December 31, 2001, Boeing will issue at the
time of delivery of each such Option Aircraft *** (July 1992 STE) escalated to
the month of delivery of the specific Aircraft in accordance with Exhibit D
"Aircraft Price adjustment" to be used by Buyer for the purchase of Boeing and
or CFMI goods and services or applied to the final delivery payment for the
Option Aircraft for which such ***.
3. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
-----------------------------
Its Attorney-In-Fact
----------------------------
P.A. No. 1810 SA-2
38
Southwest Airlines Co.
6-1162-RLL-1855R1 Page 3
ACCEPTED AND AGREED TO this
Date: June 24, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
----------------------------
Its Executive VP & COO
---------------------------
P.A. No. 1810 SA-2
39
Exhibit 10.2
Supplemental Agreement No. 3
to
Purchase Agreement No. 1810
between
The Boeing Company
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of October 6, 1997, by
and between THE BOEING COMPANY, a Delaware corporation with its principal
offices in Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas
corporation with its principal offices in City of Dallas, State of Texas
(Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement No.
1810 dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;
WHEREAS, Buyer has agreed to exercise the option to purchase two
(2) additional Option Aircraft delivering in March 1999 (Block "G" Aircraft)
offered pursuant to Letter Agreement 6-1162-RLL-933R2;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. The Table of Contents of the Agreement is deleted in its entirety
and a new Table of Contents is attached hereto and incorporated into the
Agreement by this reference.
2. Article 1, entitled "Subject Matter of Sale,"
- ------------------
*** Pursuant to 17 CFR, 240.246-2, confidential information has been
omitted and has been filed separately with the Securities and
Exchange Commission pursuant to a Confidential Treatment
Application filed with the Commission.
P.A. No. 1810 SA-3-1
40
paragraph 1.1 entitled "The Aircraft" is deleted in its entirety and replaced
by a new paragraph 1.1 revised to reflect seventy (70) Aircraft. Such new page
1-1 is attached hereto and incorporated into the Agreement by this reference.
3. Article 2, entitled "Delivery, Title and Risk of Loss," paragraph
2.1, entitled "Time of Delivery," is deleted in its entirety and replaced by a
new paragraph 2.1 revised to add two (2) Block "G" Aircraft. Such new pages
2-1 and 2-2 are attached hereto and incorporated into the Agreement by this
reference.
4. Article 3, entitled "Price of Aircraft", paragraph 3.2 entitled
"Aircraft Basic Price" is revised by adding Block "G" to the Aircraft Basic
Price for the Block "F" Aircraft. Paragraph 3.3 entitled "Aircraft Price,"
subparagraph 3.3.1 is revised by adding Block "G" to the Aircraft Basic Price
for the Block "F" Aircraft. Paragraph 3.4 entitled "Advance Payment Base
Price," subparagraph 3.4.1 entitled "Advance Payment Base Price" is revised by
adding Advance Payment Base Prices for the Block "G" Aircraft. Such new pages
3-1, 3-2 and 3-3 are attached hereto and incorporated into the Agreement by
this reference.
5. Letter Agreement No. 6-1162-RLL-933R2 entitled "Option Aircraft" is
deleted in its entirety and replaced with Letter Agreement No. 6-1162-RLL-933R3
attached hereto and incorporated herein by this reference. The letter
agreement was revised to reflect the exercise of two (2) Block "G" Aircraft and
the conversion of two (2) Block "M" Rolling Option Aircraft to Option Aircraft.
Article 1, entitled "Delivery of Option Aircraft" is revised by deleting two
(2) Option Aircraft from the Block "G" delivery stream and adding two (2) Block
"M" Aircraft in October 2004. Article 2 entitled "Delivery of Rollover Option
Aircraft," paragraph 2.1 is revised to delete two (2) Block "M" Rolling Option
Aircraft; paragraph 2.2 and subparagraphs 2.2.1 and 2.2.2 are revised by
changing the quantity of Rolling Option Aircraft from forty-four (44) to
forty-two (42). Article 3 entitled "Price" paragraph 3.3 is revised to delete
the Block "G" Option Aircraft Advance Payment Base Prices and to add Block "M"
Advance Payment Base Prices. Attachment A, Paragraph 2 entitled "Price
Description," subparagraph 2.1 entitled "Price Elements Per Aircraft" is
revised by deleting the March 1999 Option Aircraft and adding the October 2004
Option Aircraft, subparagraph 2.2 entitled "Price Adjustments For Option
Aircraft Delivering from March 1999 to October 2001", is revised to be entitled
"Price Adjustment For Option Aircraft Delivering From June 1999 to October
2001", and subparagraph 2.2.2 is revised to change March 1999 to June 1999.
6. Letter Agreement No. 6-1162-RLL-936R2 entitled "Certain Contractual
Matters" is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-936R3 attached hereto and incorporated herein by this reference.
The letter agreement was revised to reflect the exercise of two (2) Block "G"
Aircraft and
P.A. No. 1810 SA-3-2
41
the conversion of two (2) Block "M" Rolling Option Aircraft to Option Aircraft.
Article 1 entitled "Credit Memorandum - Aircraft - Firm Aircraft," is revised
to add the credit memorandum amount for the Block "G" Aircraft.
7. Letter Agreement No. 6-1162-RLL-1855R1 entitled "Additional
Contractual Matters," is deleted in its entirety and replaced with Letter
Agreement No. 6-1162-RLL-1855R2 attached hereto and incorporated herein by this
reference. The letter agreement was revised to reflect the exercise of two (2)
Block "G" Aircraft. Article 2 entitled *** for the Option Aircraft delivering
from March 1999 through December 31, 2001," is revised to be entitled *** for
the Option Aircraft Delivering from June 1999 through December 31, 2001.
8. The amount due Boeing as a result of the conversion of two Rolling
Option Aircraft to Option Aircraft is ***. However, as a result of the Option
exercise Buyer has overpaid the advance payments due at 18 months prior to
delivery of the 2 exercised Option Aircraft, resulting in ***. Accordingly,
concurrent with execution of this Supplemental Agreement, Buyer will pay to
Boeing ***.
9. All references in the Letter Agreements associated with Purchase
Agreement No. 1810 shall be deemed to refer to the purchase by Buyer of seventy
(70) Model 737-7H4 Aircraft and forty-two (42) Model 737-7H4 Rollover Option
Aircraft, to the extent such reference is not specifically addressed herein.
The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY SOUTHWEST AIRLINES CO.
By: /s/ Dawn S. Foster By: /s/ Gary A. Barron
------------------------ ----------------------
Its: Attorney-In-Fact Its: Executive VP and COO
----------------------- ---------------------
P.A. No. 1810 SA-3-3
42
PURCHASE AGREEMENT
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
Purchase Agreement Number 1810
P.A. No. 1810
43
TABLE OF CONTENTS
Page SA
Number Number
------ ------
ARTICLES
- --------
1. Subject Matter of Sale.................................1-1 SA-3
2. Delivery, Title and Risk
of Loss................................................2-1 SA-3
3. Price of Aircraft......................................3-1 SA-3
4. Taxes..................................................4-1
5. Payment................................................5-1
6. Excusable Delay........................................6-1
7. Changes to the Detail
Specification..........................................7-1 SA-1
8. Federal Aviation Requirements and
Certificates and Export License........................8-1
9. Representatives, Inspection,
Flights and Test Data..................................9-1
10. Assignment, Resale or Lease...........................10-1
11. Termination for Certain Events........................11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance.........................................12-1
13. Buyer Furnished Equipment and
Spare Parts...........................................13-1
14. Contractual Notices and Requests......................14-1
15. Miscellaneous.........................................15-1
P.A. No. 1810 SA-3
i
44
TABLE OF CONTENTS
SA
Number
------
EXHIBITS
- --------
A Aircraft Configuration SA-1
B Product Assurance Document SA-1
C Customer Support Document
D Price Adjustments Due to
Economic Fluctuations - Aircraft
E Buyer Furnished Equipment
Provisions Document
F Defined Terms Document
LETTER AGREEMENTS
- -----------------
1810-1 Waiver of Aircraft Demonstration Flight
P.A. No. 1810 SA-3
ii
45
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
- ---------------------------- ------
6-1162-RLL-932 Promotional Support
6-1162-RLL-933R3 Option Aircraft SA-3
6-1162-RLL-934R1 Disclosure of Confidential SA-1
Information
6-1162-RLL-935R1 Performance Guarantees SA-1
6-1162-RLL-936R3 Certain Contractual Matters SA-3
6-1162-RLL-937 Alternate Advance Payment Schedule
6-1162-RLL-938 ***
6-1162-RLL-939R1 Certification Flight Test Aircraft SA-1
6-1162-RLL-940R1 Training Matters SA-1
6-1162-RLL-941R1 Other Matters SA-1
6-1162-RLL-942 Open Configuration Matters
6-1162-RLL-943 Substitution Rights
6-1162-RLL-944 Airframe Maintenance Material Cost
Protection Program
6-1162-RLL-945 Comparison of 737-7H4 and 737-3H4
Block Fuel Burn
6-1162-RLL-1855R2 Additional Contractual Matters SA-3
6-1162-RLL-1856 *** SA-1
6-1162-RLL-1857 Service Ready Validation Program SA-1
Field Test
6-1162-RLL-1858 Escalation Matters SA-1
P.A. No. 1810 SA-3
iii
46
TABLE OF CONTENTS CON'T
SA
Number
RESTRICTED LETTER AGREEMENTS
- ---------------------------- ------
6-1162-RLL-2036 Amortization of Costs for
Customer Unique Changes SA-1
6-1162-RLL-2037 Reconciliation of the Aircraft SA-1
Basic Price
6-1162-RLL-2073 Maintenance Training Matters SA-1
P.A. No. 1810 SA-3
iv
47
PURCHASE AGREEMENT NO. 1810
Relating to
BOEING MODEL 737-7H4 AIRCRAFT
-------------------------
This Agreement is entered into as of January 19th 1994, by and between The
Boeing Company, a Delaware corporation, with its principal office in Seattle,
Washington (Boeing), and Southwest Airlines Co., a Texas corporation, with its
principal office in the City of Dallas, State of Texas (Buyer).
Accordingly, Boeing and Buyer agree as follows:
1
P.A. No. 1810
48
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Subject to the terms and conditions of this Agreement,
Boeing will manufacture and deliver to Buyer and Buyer will purchase and accept
delivery from Boeing of seventy (70) Boeing Model 737-7H4 aircraft (the
Aircraft) manufactured in accordance with Boeing Detail Specification
D6-38808-1, dated October 30, 1996, as described in Exhibit A, as modified from
time to time in accordance with this Agreement (Detail Specification).
1.2 Additional Goods and Services. In connection with the sale of the
Aircraft, Boeing will also provide to Buyer certain other things under this
Agreement, including data, documents, training and services, all as described in
this Agreement.
1.3 Performance Guarantees. Any performance guarantees applicable to the
Aircraft will be expressly included in this Agreement. Where performance
guarantees are included in this Agreement other than within the Detail
Specification, such guarantees will be treated as being incorporated in the
Detail Specification by this reference.
1.4 Defined Terms. For ease of use, certain terms are treated as defined
terms in this Agreement. Such terms are identified with a capital letter and set
forth and/or defined in Exhibit F.
1-1
P.A. No. 1810 SA-3
49
ARTICLE 2. Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered to Buyer by Boeing,
assembled and ready for flight and Buyer will accept delivery of the Aircraft,
in accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
-------------- --------------------
Block A Aircraft
----------------
October 1997 Two (2)
November 1997 Two (2)
Block B Aircraft
----------------
January 1998 Two (2)
February 1998 Three (3)
March 1998 Two (2)
April 1998 Two (2)
May 1998 Two (2)
June 1998 One (1)
July 1998 Two (2)
September 1998 Two (2)
Block C Aircraft
----------------
February 1999 Four (4)
May 1999 Four (4)
July 1999 Four (4)
September 1999 Four (4)
Block D Aircraft
----------------
January 2000 Four (4)
March 2000 Four (4)
July 2000 Four (4)
September 2000 Three (3)
Block E Aircraft
----------------
January 2001 Three (3)
March 2001 Three (3)
July 2001 Three (3)
September 2001 Three (3)
Block F Aircraft
----------------
October 1998 One (1)
November 1998 Two (2)
December 1998 Two (2)
2-1
P.A. No. 1810 SA-3
50
Block G Aircraft
----------------
March 1999 Two (2)
2.2 Notice of Target Delivery Date. Boeing will give Buyer notice of the
Target Delivery Date of the Aircraft approximately 30 days prior to the
scheduled month of delivery.
2.3 Notice of Delivery Date. If Boeing gives Buyer at least 7 days' notice
of the delivery date of the Aircraft, and an Aircraft delivery is delayed beyond
such delivery date due to the responsibility of Buyer, Buyer will reimburse
Boeing for all costs incurred by Boeing as a result of such delay, including
amounts for storage, insurance, Taxes, preservation or protection of the
Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at an airport
facility selected by Boeing in the State of Washington, unless mutually agreed
otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of an Aircraft will
pass from Boeing to Buyer upon delivery of such Aircraft, but not prior thereto.
2.6 Bill of Sale. Upon delivery of an Aircraft Boeing will deliver to Buyer
a bill of sale conveying good title to such Aircraft, free of all liens, claims,
charges and encumbrances of every kind whatsoever, and such other appropriate
documents of title as Buyer may reasonably request.
2-2
P.A. No. 1810 SA-3
51
ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features incorporated in Exhibit A
which have been selected by Buyer.
3.1.2 Base Aircraft Price is the Aircraft Basic Price excluding the
price of Special Features.
3.1.3 Aircraft Basic Price is comprised of the Base Aircraft Price
and the price of the Special Features.
3.1.4 Economic Price Adjustment is the adjustment to the Aircraft
Basic Price (Base Aircraft and Special Features) as calculated pursuant to
Exhibit D.
3.1.5 Aircraft Price is the total amount Buyer is to pay for the
Aircraft at the time of delivery.
3.2 Aircraft Basic Price.
The Aircraft Basic Price, expressed in July 1992 dollars, is set
forth below:
Block A, B,
C, D & E Block F & G
Aircraft Aircraft
-------- --------
Base Aircraft Price: $*** $***
Special Features $*** $***
Aircraft Basic Price $*** $***
3.3 Aircraft Price. The Aircraft Price will be established at the time
of delivery of such Aircraft to Buyer and will be the sum of:
3.3.1 the Aircraft Basic Price, which is *** for the Block A, B, C,
D and E Aircraft and *** for the Block F and Block G Aircraft; plus
3.3.2 the Economic Price Adjustments for the Aircraft Basic Price,
as calculated pursuant to the formulas set forth in Exhibit D (Price Adjustments
Due to Economic Fluctuations - Aircraft); plus
3.3.3 other price adjustments made pursuant to this Agreement or
other written agreements executed by Boeing and Buyer.
3-1
P.A. No. 1810
52
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance payment purposes, the
following estimated delivery prices of the Aircraft (Advance Payment Base Price)
have been established, using currently available forecasts of the escalation
factors used by Boeing as of the date of signing this Agreement. The Advance
Payment Base Price of each Aircraft is set forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
------------------ --------------------
Block A Aircraft ***
--------------------
October 1997
November 1997
Block B Aircraft ***
--------------------
January 1998 February 1998 March 1998 April 1998 May 1998 June 1998 July
1998 September 1998
Block C Aircraft ***
--------------------
February 1999
May 1999
July 1999
September 1999
Block D Aircraft ***
--------------------
January 2000
March 2000
July 2000
September 2000
Block E Aircraft ***
--------------------
January 2001
March 2001
July 2001
3-2
P.A. No. 1810
53
Block E Aircraft ***
--------------------
(Continued)
September 2001
Block F Aircraft ***
--------------------
October 1998
November 1998
December 1998
Block G Aircraft ***
--------------------
March 1999
3.4.2 Adjustment of Advance Payment Base Prices - Long-Lead Aircraft.
For Aircraft scheduled for delivery 36 months or more after the date of this
Agreement, the Advance Payment Base Prices appearing in Article 3.4.1 will be
used to determine the amount of the first advance payment to be made by Buyer on
the Aircraft. No later than 25 months before the scheduled month of delivery of
each affected Aircraft, Boeing will increase or decrease the Advance Payment
Base Price of such Aircraft as required to reflect the effects of (i) any
adjustments in the Aircraft Basic Price pursuant to this Agreement and (ii) the
then-current forecasted escalation factors used by Boeing. Boeing will provide
the adjusted Advance Payment Base Prices for each affected Aircraft to Buyer,
and the advance payment schedule will be considered amended to substitute such
adjusted Advance Payment Base Prices.
3-3
P.A. No. 1810
54
6-1162-RLL-933R3
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-933R3 to Purchase Agreement
No. 1810 - Option Aircraft
This Letter Agreement amends Purchase Agreement No. 1810 dated as of January
19, 1994 (the Agreement) between The Boeing Company (Boeing) and Southwest
Airlines Co. (Buyer) relating to Model 737-7H4 aircraft (Aircraft).
All terms used and not defined herein will have the same meaning as in the
Agreement.
In consideration of the purchase by Buyer of the Aircraft, Boeing hereby agrees
to manufacture and sell to Buyer sixty-seven (67) additional Model 737-7H4
aircraft as described in paragraph 1 of Attachment A hereto (Option Aircraft)
and forty-two (42) Model 737-7H4 Rollover Option Aircraft (Rollover Option
Aircraft), subject to the terms and conditions set forth below.
1. Delivery of Option Aircraft.
The Option Aircraft will be delivered to Buyer during or before the
months set forth in the following schedule:
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
-------------- -------- --------
June 1999 Two (2) G
August 1999 Two (2) G
September 1999 One (1) G
October 1999 Two (2) G
April 2000 Three (3) H
October 2000 Three (3) H
April 2001 Three (3) I
October 2001 Three (3) I
P.A. No. 1810 SA-3
55
Southwest Airlines Co.
6-1162-RLL-933R3 Page 2
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
-------------- -------- --------
(continued)
January 2002 Four (4) J
March 2002 Four (4) J
April 2002 Two (2) J
July 2002 Four (4) J
October 2002 Four (4) J
January 2003 Four (4) K
March 2003 Four (4) K
April 2003 Two (2) K
July 2003 Four (4) K
October 2003 Four (4) K
April 2004 Two (2) L
July 2004 Three (3) L
August 2004 Two (2) M
September 2004 Three (3) M
October 2004 Two (2) M
2. Delivery of Rollover Option Aircraft.
2.1 The Rollover Option Aircraft will be delivered to Buyer
during or before the years set forth in the following schedule:
Option
Year of Number of Aircraft
Delivery Option Aircraft Block
-------- --------------- --------
2004 Six (6) M
2005 Eighteen (18) N
2006 Eighteen (18) O
2.2 The forty-two (42) Rollover Option Aircraft are offered
to Buyer subject to the following conditions:
2.2.1 Buyer can exercise any forty-two (42) of
the sixty-seven (67) Option Aircraft, and will be offered a Rollover Option
Aircraft for each option aircraft exercised up to and including forty-two (42).
2.2.2 Conversely to Article 2.2.1 above, if Buyer
does not exercise a minimum of forty-two (42) Option Aircraft, one Rollover
Option Aircraft will be deleted for each Option Aircraft not exercised by
Buyer.
P.A. No. 1810 SA-3
56
Southwest Airlines Co.
6-1162-RLL-933R3 Page 3
2.2.3 When Buyer exercises one or more Option
Aircraft, Boeing will offer the same quantity of Rollover Option Aircraft to
Buyer in the years identified in Article 2.1 above.
2.2.4 The Rollover Option Aircraft delivery month
offered by Boeing to Buyer will be at least 24 months from the Option exercise
date of the corresponding option.
2.2.5 When Boeing offers the Rollover Option
Aircraft to Buyer, Buyer will accept such Rollover Option Aircraft by wire
transferring $100,000 to Boeing. In the event Buyer exercises its option to
purchase the Rollover Option Aircraft, such application will be in accordance
with Article 4.1 herein.
3. Price.
3.1 The advance payment base prices of the Option Aircraft
set forth below and in paragraph 2.1 of Attachment A represent the estimated
delivery prices of the Option Aircraft. The Option Aircraft pricing elements
and associated pricing terms and conditions are given in Attachment A.
3.2 Price and escalation provisions for Model 737-7H4
aircraft delivering after 2001, are not currently available. The estimated
Advance Payment Base Prices shown in paragraph 3.3 below and in paragraph 2.1
of Attachment A are based on currently available price and escalation
provisions. As price and escalation provisions become available for Model
737-7H4 aircraft delivering after 2001, such price and escalation provisions
will be appropriately applied to the applicable Option Aircraft.
For additional information relating to price and escalation provisions
applicable to Option Aircraft delivering after 2001 refer to paragraphs 2.3 and
3.2 of Attachment A.
3.3 The Advance Payment Base Prices of the Option Aircraft
indicated below do include an amount for special features in addition to those
specifically described in Attachment A but do not include any amount for items
of Buyer Furnished Equipment (BFE). An estimate for typical special features
is *** per Aircraft (expressed in 1992 STE dollars) and for BFE is *** per
Aircraft (expressed in delivery year dollars).
P.A. No. 1810 SA-3
57
Southwest Airlines Co.
6-1162-RLL-933R3 Page 4
Month and Year Advance Payment Base
of Delivery Price per Option Aircraft
-------------- -------------------------
Block G Aircraft ***
--------------------
June 1999
August 1999
September 1999
October 1999
Block H Aircraft ***
--------------------
April 2000
October 2000
Block I Aircraft ***
--------------------
April 2001
October 2001
Block J Aircraft ***
--------------------
January 2002
March 2002
April 2002
July 2002
October 2002
Block K Aircraft ***
--------------------
January 2003
March 2003
April 2003
July 2003
October 2003
Block L Aircraft ***
--------------------
April 2004
July 2004
Block M Aircraft ***
--------------------
August 2004
September 2004
October 2004
3.4 The Option Aircraft purchase price will be the
applicable basic price thereof at the time of Option Aircraft delivery adjusted
in accordance with Boeing's Aircraft escalation provisions contained in
P.A. No. 1810 SA-3
58
Southwest Airlines Co.
6-1162-RLL-933R3 Page 5
the definitive agreement to purchase the Option Aircraft. The purchase price
will include the price for Seller Purchased Equipment (SPE) if Buyer has
elected to change Buyer Furnished Equipment (BFE) to SPE.
4. Option Aircraft Payment.
4.1 In consideration of the granting of the option as set
forth herein, on or before the date Boeing and Buyer enter into a definitive
agreement to purchase the Aircraft, Buyer will pay a deposit to Boeing of
$100,000 for each Option Aircraft (Deposit). In the event Buyer exercises its
option herein, the amount of the Deposit will be credited against the first
advance payment due for such Option Aircraft pursuant to the advance payment
schedule set forth in paragraph 3 of Attachment A. The Deposits for the Option
Aircraft will be refunded to Buyer, without interest, if the parties do not
enter into a definitive Agreement for the Aircraft.
In the event that, after the parties enter into a definitive agreement to
purchase the Aircraft, Buyer does not exercise its option to purchase the
Option Aircraft pursuant to the terms and conditions set forth herein, Boeing
will be entitled to retain the Deposits for the Option Aircraft except as
provided in paragraphs 6 herein.
4.2 Advance payments in the amount of 30% of the advance
payment base price will be payable on the Option Aircraft in accordance with
paragraph 3 of Attachment A. The remainder of the Option Aircraft purchase
price is due at the time of delivery of the Option Aircraft.
5. Option Exercise.
5.1 To exercise its Option, Buyer will give written or
telegraphic notice thereof to Boeing on or before eighteen (18) months prior to
the first day of the delivery month of each Option Aircraft.
In such notice Buyer will select the Option Model type, and the applicable
delivery positions.
5.2 It is understood and agreed that Boeing may accelerate
the option exercise dates specified above if Boeing must make production
decisions which are dependent on Buyer's decision to buy the Option Aircraft.
If Boeing elects to accelerate the option exercise dates, Boeing will do so by
giving written or
P.A. No. 1810 SA-3
59
Southwest Airlines Co.
6-1162-RLL-933R3 Page 6
telegraphic notice thereof to Buyer. Such notice will specify the revised
option exercise dates, which will not be earlier than 30 days after the date of
transmittal of such notice, and the Option Aircraft delivery positions affected
by such revision. If Buyer fails to exercise its option for any Option
Aircraft affected by such revised dates, the Deposit applicable to such Option
Aircraft will be promptly refunded, with interest, to Buyer. The interest rate
for calculation of the interest associated with such refund is the rate of two
percent (2%) below the Citibank base rate in effect from time to time during
the period the option deposit is held by Boeing.
6. Contract Terms.
It is understood that Boeing and Buyer will use their best efforts
to enter into a definitive agreement for the Option Aircraft within thirty (30)
days after Buyer exercises an option to purchase Option Aircraft pursuant to
paragraph 5 covering the detailed terms and conditions for the sale of such
Option Aircraft.
Such definitive agreement will include the terms and conditions contained
herein together with the terms and conditions, not inconsistent herewith,
contained in Boeing's then-current standard form of purchase agreement for the
sale of Model 737-700 aircraft in effect as of the date of option exercise and
such additional terms and conditions as may be mutually agreed upon. In the
event the parties have not entered into such an agreement within the time
period contemplated herein, either party may, exercisable by written or
telegraphic notice given to the other within thirty (30) days after such
period, terminate the purchase of such Option Aircraft.
7. Termination of Option to Purchase.
Either Boeing or Buyer may terminate the option to purchase an
Option Aircraft if any of the following events are not accomplished by the
respective dates contemplated in this letter agreement, or in the Agreement, as
the case may be:
(i) termination of the purchase of the Aircraft under the
Agreement for any reason;
(ii) payment by Buyer of the Deposit with respect to an
Option Aircraft pursuant to paragraph 4.1 herein;
P.A. No. 1810 SA-3
60
Southwest Airlines Co.
6-1162-RLL-933R3 Page 7
(iii) exercise of an option to purchase an Option Aircraft
pursuant to the terms hereof. Any termination of an option to purchase by
Boeing which is based on the termination of the purchase of Aircraft under the
Agreement will be on a one-for-one basis, for each Aircraft so terminated.
Any cancellation of an option to purchase which is based on failure to make the
required Deposit or to exercise the option to purchase shall only apply to the
Option Aircraft so canceled.
Termination of an option to purchase provided by this letter agreement will be
caused by either party giving written notice to the other within 10 days after
the applicable date. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the option to
purchase has been terminate will thereupon terminate.
If termination is result of a revision of an option exercise date by Boeing
pursuant to paragraph 5.2, Boeing will promptly refund to Buyer, without
interest, any payments received from Buyer, including the Deposit, with respect
to the Option Aircraft for which the option is terminated. If termination is
for any other reason, Boeing will promptly refund to Buyer, without interest,
any payments received from Buyer with respect to the affected Option Aircraft,
except the Deposit, which Buyer may apply to any model Boeing aircraft
purchased by Buyer from Boeing at a future date.
P.A. No. 1810 SA-3
61
Southwest Airlines Co.
6-1162-RLL-933R3 Page 8
8. Confidential Treatment. Buyer understands that certain commercial
and financial information contained in this Letter Agreement including any
attachments hereto is considered by Boeing as confidential. Buyer agrees that
it will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of Boeing,
disclose this Letter Agreement or any information contained herein to any other
person or entity except as provided in Letter Agreement No. 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-in-Fact
--------------------------
ACCEPTED AND AGREED TO this
date: October 6, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
--------------------------
Its Executive VP & COO
--------------------------
Attachments
P.A. No. 1810 SA-3
62
Attachment A to
6-1162-RLL-933R3
Page 1
Model 737-7H4 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft is described
by Boeing Detail Specification D6-38808-1, Dated October 30 ,1996.
1.2 Changes. The Detail Specification will be revised to
include:
(1) Changes applicable to the basic Model
737-700 aircraft which are developed by Boeing between the date of the Detail
Specification and the signing of a definitive agreement to purchase the Option
Aircraft.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
(4) To provide sufficient Option Aircraft
manufacturing and procurement lead time it is necessary for Boeing and Buyer to
reach final agreement on the Option Aircraft configuration, including BFE/SPE
vendor selection fifteen (15) months prior to delivery of each Option Aircraft.
If such items are not resolved by the indicated dates, Boeing reserves the
right to amend this letter agreement:
(i) to adjust the scheduled
delivery of the Option Aircraft to a later time period and,
(ii) to make such other changes as
are appropriate and consistent with the revised Option Aircraft deliveries.
1.3 Effect of Changes. Changes to the Detail Specification
incorporated pursuant to the provisions of the clauses above will include the
effects of such changes upon Option Aircraft weight, balance, design and
performance. Performance guarantees for the Option Aircraft which are mutually
acceptable to the parties will be included in the definitive agreement for the
Option Aircraft.
P.A. No. 1810 SA-3
63
Attachment A to
6-1162-RLL-933R3
Page 2
2. Price Description
2.1 Price Elements Per Aircraft
1 2 3
- - -
AIRCRAFT & ADV. PMT.
AIRCRAFT ESTIMATED SPECIAL BASE PRICE
DELIVERY FEATURES PRICE ESTIMATED (ELEMENTS)
MO. & YR. (JULY 1992$) ESCALATION 1 + 2 + 3
- --------- --------------- ---------- ----------
June 1999 *** *** ***
August 1999 *** *** ***
September 1999 *** *** ***
October 1999 *** *** ***
April 2000 *** *** ***
October 2000 *** *** ***
April 2001 *** *** ***
October 2001 *** *** ***
January 2002 *** *** ***
March 2002 *** *** ***
April 2002 *** *** ***
July 2002 *** *** ***
October 2002 *** *** ***
January 2003 *** *** ***
March 2003 *** *** ***
April 2003 *** *** ***
July 2003 *** *** ***
October 2003 *** *** ***
April 2004 *** *** ***
July 2004 *** *** ***
August 2004 *** *** ***
September 2004 *** *** ***
October 2004 *** *** ***
Continued Next Page...
P.A. No. 1810 SA-3
64
Attachment A to
6-1162-RLL-933R3
Page 3
2. Price Description. (Continued)
2.2 Price Adjustments For Option Aircraft Delivering From
June 1999 to October 2001.
2.2.1 Special Features. The price for Special
Features incorporated in the Option Aircraft Detail Specification will be
adjusted to Boeing's then-current prices for such features as of the date of
execution of the definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. For Option
Aircraft delivering from June 1999 to October 2001, the Aircraft Basic Price
and Special Features price will be escalated according to the provisions of
Attachment B to this letter agreement.
2.2.3 Price Adjustments for Changes. Boeing may
adjust the Aircraft Basic Price and the Advance Payment Base Price for any
changes mutually agreed upon subsequent to the date that Buyer and Boeing enter
into a definitive agreement for the Option Aircraft.
2.2.4 Base Price Adjustments. The Aircraft Basic
Price of the Option Aircraft will be adjusted for any FAA mandated changes
incorporated into the Option Aircraft.
2.3 Price Adjustments For Option Aircraft Delivering From
January 2002 through December 2006.
2.3.1 Special Features. The price for Special
Features incorporated in the Option Aircraft Detail Specification will be
adjusted to Boeing's then-current prices for such features as of the date of
execution of the definitive agreement for the Option Aircraft.
2.3.2 Escalation Adjustments. For escalation
provisions applicable to Option Aircraft delivering after 2001, see paragraph
2.3.6 below.
2.3.3 Base Price Adjustments for FAA Changes.
The Aircraft Basic Price of the Option Aircraft will be adjusted for any FAA
mandated changes incorporated into the Aircraft.
P.A. No. 1810 SA-3
65
Attachment A to
6-1162-RLL-933R3
Page 4
2.3.4 Price Adjustments for Changes. Boeing may
adjust the Aircraft Basic Price and the Advance Payment Base Price for any
changes mutually agreed upon subsequent to the date that Buyer and Boeing enter
into a definitive agreement for the Option Aircraft.
2.3.5 Base Price Adjustments. The Aircraft Basic
Price of the Option Aircraft will be adjusted to Boeing's then-current prices
as of the date of execution of the definitive agreement for the Option Aircraft
in accordance with the agreement reached below. The Aircraft Basic Price
starting point for options delivering from January 2002 through December 2006
is *** (July 1992 STE). Such Aircraft Basic Price may increase in accordance
with paragraphs 2.3.1, 2.3.2, 2.3.3 and 2.3.4. For any other changes to the
Aircraft Basic Price, Boeing may increase the Aircraft Basic Price by a maximum
of *** (July 1992 STE) per year or portion thereof starting in January 2002.
2.3.6 Prices for Long Lead Time Aircraft. Boeing
has not established escalation provisions for Model 737-700 aircraft for
delivery 2002 and after. Such escalation provisions (i) will be incorporated
into the Option Aircraft definitive agreement when such information is
available and (ii) will be the then-current escalation provisions applicable to
the same model aircraft and engines delivering in the same time period as the
Option Aircraft. The resulting revisions to the definitive agreement will
include but not be limited to, adjustment of the Aircraft Basic Price of the
Option Aircraft, the Advance Payment Base Price, the Aircraft escalation
provisions and the advance payment amounts due on the Option Aircraft.
2.3.7 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller Purchased
Equipment (SPE) pursuant to the Configuration Specification is included in the
Option Aircraft price build-up. The purchase price of the Option Aircraft will
be adjusted by the price charged to Boeing for such items plus 10% of such
price. If all BFE except developmental avionics is converted to SPE, Boeing
will waive the 10% fee.
3. Advance Payment Schedules, Prices and Adjustments.
3.1 Buyer will pay to Boeing advance payments for the
Option Aircraft on the dates and in the amounts determined below.
P.A. No. 1810 SA-3
66
Attachment A to
6-1162-RLL-933R3
Page 5
Amount Due per Aircraft
-----------------------
(Percentage times
Due Date of Payment Advance Payment Base Price)
- -------------------
Deposit $100,000 (if applicable)
18 months prior to the first 15% (less the
day of the scheduled delivery Deposit if any)
month of the Aircraft
12 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
9 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
6 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
---
Total 30%
Any advance payments that would be past due as of the date of signing the
definitive purchase agreement for the Option Aircraft in accordance with the
above schedule are due and payable on such date.
3.2 Option Aircraft advance payment base prices will be
increased or decreased, as appropriate, at the time of signing of the
definitive purchase agreement for the Option Aircraft, using the then-current
forecasted aircraft escalation factors used by Boeing, to determine the amount
of the advance payments to be made by Buyer on the Option Aircraft.
P.A. No. 1810 SA-3
67
Attachment B to
6-1162-RLL-933R3
Page 1
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRCRAFT PRICE ADJUSTMENT
(July 1992 Base Price)
1. Formula.
The Aircraft Price Adjustment will be determined at the time of
Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Aircraft Price Adjustment.
L = .65 x ECI
-----
116.2
M = .35 x ICI
-----
115.9
P = Aircraft Basic Price (as set forth in Article 3.2 of this
Agreement).
ECI = A value using the "Employment Cost Index for workers in
aerospace manufacturing" (aircraft manufacturing, standard
industrial classification code 3721, compensation, base
month and year June 1989 = 100), as released by the Bureau
of Labor Statistics, U.S. Department of Labor on a
quarterly basis for the months of March, June, September
and December, calculated as follows: A three-month
arithmetic average value (expressed as a decimal and
rounded to the nearest tenth) will be determined using the
months set forth in the table below for the applicable
Aircraft, with the released Employment Cost Index value
described above for the month of March also being used for
the months of January and February; the value for June also
used for April and May; the value for September also used
for July and August; and the value for December also used
for October and November.
P.A. No. 1810 SA-3
68
Attachment B to
6-1162-RLL-933R3
Page 2
ICI = The three-month arithmetic average of the released monthly
values for the Industrial Commodities Index as set forth in
the "Producer Prices and Price Index" (Base Year 1982 =
100) as released by the Bureau of Labor Statistics, U.S.
Department of Labor values (expressed as a decimal and
rounded to the nearest tenth) for the months set forth in
the table below for the applicable Aircraft.
In determining the value of L, the ratio of ECI divided by 116.2
will be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .65 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by 115.9
will be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .35 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
Months to be Utilized
Month of Scheduled in Determining the
Aircraft Delivery Value of ECI and ICI
- ----------------- -------------------------
January June B, July B, Aug. B
February July B, Aug. B, Sept. B
March Aug. B, Sept. B, Oct. B
April Sept. B, Oct. B, Nov. B
May Oct. B, Nov. B, Dec. B
June Nov. B, Dec. B, Jan. D
July Dec. B, Jan. D, Feb. D
August Jan. D, Feb. D, Mar. D
September Feb. D, Mar. D, Apr. D
October Mar. D, Apr. D, May D
November Apr. D, May D, June D
December May D, June D, July D
The following definitions of B and D will apply:
B = The calendar year before the year in which the scheduled
month of delivery as set forth in Paragraph 1 occurs.
D = The calendar year during which the scheduled month of
delivery as set forth in Paragraph 1 occurs.
P.A. No. 1810 SA-3
69
Attachment B to
6-1162-RLL-933R3
Page 3
2. If at the time of delivery of an Aircraft Boeing is unable to
determine the Aircraft Price Adjustment because the applicable values to be
used to determine the ECI and ICI have not been released by the Bureau of Labor
Statistics, then:
2.1 The Aircraft Price Adjustment, to be used at the time
of delivery of each of the Aircraft, will be determined by utilizing the
escalation provisions set forth above. The values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor Statistics)
to calculate the Aircraft Price Adjustment. If no values have been released
for an applicable month, the provisions set forth in Paragraph 2.2 below will
apply. If prior to delivery of an Aircraft the U.S. Department of Labor
changes the base year for determination of the ECI or ICI values as defined
above, such rebased values will be incorporated in the Aircraft Price
Adjustment calculation. The payment by Buyer to Boeing of the amount of the
Purchase Price for such Aircraft, as determined at the time of Aircraft
delivery, will be deemed to be the payment for such Aircraft required at the
delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department
of Labor substantially revises the methodology used for the determination of
the values to be used to determine the ECI and ICI values (in contrast to
benchmark adjustments or other corrections of previously released values), or
for any reason has not released values needed to determine the applicable
Aircraft Price Adjustment, the parties will, prior to delivery of any such
Aircraft, select a substitute for such values from data published by the Bureau
of Labor Statistics or other similar data reported by non-governmental United
States organizations, such substitute to lead in application to the same
adjustment result, insofar as possible, as would have been achieved by
continuing the use of the original values as they may have fluctuated during
the applicable time period. Appropriate revision of the formula will be made
as required to reflect any substitute values. However, if within 24 months
from delivery of the Aircraft the Bureau of Labor Statistics should resume
releasing values for the months needed to determine the Aircraft Price
Adjustment, such values will be used to determine any increase or decrease in
the Aircraft Price Adjustment for the Aircraft from that determined at the time
of delivery of such Aircraft.
P.A. No. 1810 SA-3
70
Attachment B to
6-1162-RLL-933R3
Page 4
2.3 In the event escalation provisions are made
non-enforceable or otherwise rendered null and void by any agency of the United
States Government, the parties agree, to the extent they may lawfully do so, to
equitably adjust the Purchase Price of any affected Aircraft to reflect an
allowance for increases or decreases in labor compensation and material costs
occurring since February, 1992, which is consistent with the applicable
provisions of paragraph 1 of this Exhibit D.
3. For the calculations herein, the values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor Statistics)
to calculate the Aircraft Price Adjustment.
Note: Any rounding of a number, as required under this Exhibit D with
respect to escalation of the airframe price, will be accomplished
as follows: if the first digit of the portion to be dropped from
the number to be rounded is five or greater, the preceding digit
will be raised to the next higher number.
P.A. No. 1810 SA-3
71
6-1162-RLL-936R3
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-936R3 to
Purchase Agreement No. 1810 -
Certain Contractual Matters
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft) and Letter Agreement
6-1162-RLL-933R3, dated even date herewith, entitled "Option Aircraft", relating
to the sale by Boeing and the purchase by Buyer of sixty-seven (67) additional
Model 737-7H4 aircraft (the Option Aircraft) and forty-two (42) Model 737-7H4
Rollover Option Aircraft (Rollover Option Aircraft).
The commitments made herein to Buyer are provided from
Boeing and CFM International Inc. (CFM).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Credit Memorandum - Aircraft - Firm Aircraft.
In consideration of Buyer's purchase of the Aircraft, Boeing will issue to
Buyer at the time of delivery of each Aircraft a credit memorandum which may be
used by Buyer for the purchase of Boeing goods and services or applied to the
final delivery payment for the Aircraft for which the credit was issued. The
amount of this credit memorandum applicable to each Block A, B, C, D and E
Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***. The
amount of this credit memorandum applicable to each Block F and Block G Aircraft
will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
2. Credit Memorandum - Aircraft - Option Aircraft and Rollover Option
Aircraft.
In consideration of Buyer's purchase of the Option Aircraft and Rollover
Option Aircraft, Boeing will issue to Buyer at the time of delivery of each
P.A. No. 1810 SA-3
72
Southwest Airlines Co.
6-1162-RLL-936R3 Page 2
Option Aircraft and Rollover Option Aircraft a credit memorandum which may be
used by Buyer for the purchase of Boeing goods and services or applied to the
final delivery payment for the Option Aircraft or Rollover Option Aircraft for
which the credit was issued. The amount of the credit memorandum applicable to
each Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
3. Simulation Data Credits.
If Buyer purchases one subsequent simulator data package for a price of ***
dollars (July 1992 STE $), Boeing will issue offsetting credit memoranda in
amounts equal to Boeing's invoice price of such simulator data concurrent with
the issuance of such invoice. If Buyer purchases one concurrent simulator data
package for a price of ***, Boeing will issue an offsetting credit memorandum in
an amount equel to Boeing's invoice price of such simulator data package
concurrent with the issuance of such invoice. Buyer understands that the
concurrent data package price of *** (July 1992 STE $) is valid only if the
second simulator is manufactured by the same simulator manufacturer as the
subsequent simulator and the concurrent simulator is ordered within eight years
of the signing of the Agreement.
4. Credits.
The Aircraft Basic Price for Buyer's 737-7H4 Aircraft does not include a
price for Dual Flight Management Computer and Five Channel SELCAL. These two
features will be installed in the Aircraft but deactivated. If Buyer decides at
anytime (whether before or after delivery) to activate this capability, Buyer
will pay Boeing an amount equal to *** (July 1992 STE $) *** for this installed
capability. If Buyer sells or leases the Aircraft for operation by a third party
and the features are subsequently activated, Buyer will pay or cause the
subsequent buyer or lessee to pay the above described activation charge to
Boeing.
5. Maximum Takeoff Weight Credit Memoranda.
Buyer has purchased a Maximum Takeoff Weight of 138,500 pounds for the
Aircraft. Boeing will, at the time of Aircraft delivery, issue to Buyer a credit
memoranda in the amount of *** (July 1992 STE $), *** to offset the price for
500 pounds of Maximum Takeoff Weight.
P.A. No. 1810 SA-3
73
Southwest Airlines Co.
6-1162-RLL-936R3 Page 3
6. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------------
Its Attorney-in-Fact
---------------------------
ACCEPTED AND AGREED TO as of this
date: October 6, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-----------------------------
Its Executive VP & COO
-----------------------------
P.A. No. 1810 SA-3
74
6-1162-RLL-1855R2
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1855R2 to
Purchase Agreement No. 1810
Additional Contractual Matters
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement) between
The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating to the
sale by Boeing and the purchase by Buyer of seventy (70) Model 737-7H4 aircraft
(the Aircraft) and Letter Agreement 6-1162-RLL-933R3, dated even date herewith,
entitled "Option Aircraft", relating to the sale by Boeing and the purchase by
Buyer of sixty-seven (67) additional Model 737-7H4 aircraft (the Option
Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. ***
for the Aircraft.
In further consideration of Buyer's purchase of the Aircraft, Boeing will
issue at the time of delivery of each Aircraft a *** (July 1992 STE) escalated
to the month of delivery of the specific Aircraft in accordance with Exhibit D
"Aircraft Price adjustment" to be used by Buyer for the purchase of Boeing and
or CFMI goods and services or applied to the final delivery payment for the
Aircraft for which such ***.
2. ***
for the Option Aircraft delivering from June
1999 through December 31, 2001.
P.A. No. 1810 SA-3
75
Southwest Airlines Co.
6-1162-RLL-1855R2 Page 2
In further consideration of Buyer's purchase of the Option Aircraft
delivering from June 1999 through December 31, 2001, Boeing will issue at the
time of delivery of each such Option Aircraft *** (July 1992 STE) escalated to
the month of delivery of the specific Aircraft in accordance with Exhibit D
"Aircraft Price adjustment" to be used by Buyer for the purchase of Boeing and
or CFMI goods and services or applied to the final delivery payment for the
Option Aircraft for which such ***.
3. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------------
Its Attorney-In-Fact
---------------------------
P.A. No. 1810 SA-3
76
Southwest Airlines Co.
6-1162-RLL-1855R2 Page 3
ACCEPTED AND AGREED TO this
Date: October 6, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
----------------------------
Its Executive VP & COO
----------------------------
P.A. No. 1810 SA-3
77
Exhibit 10.2
Supplemental Agreement No. 4
to
Purchase Agreement No. 1810
between
The Boeing Company
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of December 19, 1997, by
and between THE BOEING COMPANY, a Delaware corporation with its principal
offices in Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas
corporation with its principal offices in City of Dallas, State of Texas
(Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement No. 1810
dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;
WHEREAS, Buyer has agreed to exercise the option to purchase forty
seven (47) additional Option Aircraft delivering in June 1999 (2), August 1999
(2), September 1999 (1), October 1999 (2), April 2000 (3), October 2000 (3),
April 2001 (3), October 2001 (3), January 2002 (4), March 2002 (4), April 2002
(2), July 2002 (4), October 2002 (4), January 2003 (4), March 2003 (1), April
2004 (2) and July 2004 (3) offered pursuant to Letter Agreement 6-1162-RLL-933R3
and;
WHEREAS, Buyer has agreed to purchase twelve (12) additional Aircraft
delivering in November 2000 (1), December 2000 (1), July 2001 (1), September
2001 (1), October 2001 (1), September 2002 (3), September 2003 (3) and March
2004 (1);
- ------------------
*** Pursuant to 17 CFR, 240.246-2, confidential information has been
omitted and has been filed separately with the Securities and
Exchange Commission pursuant to a Confidential Treatment
Application filed with the Commission.
P.A. No. 1810 SA-4-1
78
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. The Table of Contents of the Agreement is deleted in its entirety and a new
Table of Contents is attached hereto and incorporated into the Agreement by this
reference.
2. Article 1, entitled "Subject Matter of Sale," paragraph 1.1 entitled "The
Aircraft" is deleted in its
entirety and replaced by a new paragraph 1.1 revised to reflect one hundred
twenty-nine (129) Aircraft. Such new page 1-1 is attached hereto and
incorporated into the Agreement by this reference.
3. Article 2, entitled "Delivery, Title and Risk of Loss," paragraph 2.1,
entitled "Time of Delivery," is deleted in its entirety and replaced by a new
paragraph 2.1 revised to add nineteen (19) Block "H" Aircraft, Eighteen (18)
Block "I" Aircraft, five (5) Block "J" Aircraft, five (5) Block "K" Aircraft and
twelve (12) Block "L" Aircraft. Such new pages 2-1, 2-2 and 2-3 are attached
hereto and incorporated into the Agreement by this reference.
4. Article 3, entitled "Price of Aircraft", paragraph 3.2 entitled "Aircraft
Basic Price" is revised by adding Aircraft Basic Prices for the Block "H", Block
"I", Block "J", Block "K" and Block "L" Aircraft. Paragraph 3.3 entitled
"Aircraft Price," subparagraph 3.3.1 is revised by adding Aircraft Basic Prices
for the Block "H", Block "I", Block "J", Block "K" and Block "L" Aircraft.
Paragraph 3.4 entitled "Advance Payment Base Price," subparagraph 3.4.1 entitled
"Advance Payment Base Price" is revised by adding Advance Payment Base Prices
for the Block "H", "I", "J", "K" and "L" Aircraft. Such new pages 3-1, 3-2, 3-3
and 3-4 are attached hereto and incorporated into the Agreement by this
reference.
5. Letter Agreement No. 6-1162-RLL-933R3 entitled "Option Aircraft" is deleted
in its entirety and replaced with Letter Agreement No. 6-1162-RLL-933R4 attached
hereto and incorporated herein by this reference. Article 1, entitled "Delivery
of Option Aircraft" is revised by deleting forty-seven (47) Option Aircraft from
the Block "G", "H", "I", "J", "K" and "L" delivery stream and adding forty-two
(42) Block "M", "N", "O" and "P" Option Aircraft. Article 2 entitled "Delivery
of Rollover Option
P.A. No. 1810 SA-4-2
79
Aircraft," paragraph 2.1 is revised to delete forty-two (42) Block "M", "N" and
"O" Rolling Option Aircraft and add fifty-nine (59) Block "Q", "R" and "S"
Rolling Option Aircraft; paragraph 2.2 and subparagraphs 2.2.1 and 2.2.2 are
revised by changing the quantity of Rolling Option Aircraft from forty-two (42)
to fifty-nine (59), subparagraph 2.2.1 is also revised to change the quantity of
Option Aircraft from sixty-seven (67) to sixty-two (62). Article 3 entitled
"Price" paragraph 3.2 is revised to change 2001 to 2002, paragraph 3.3 is
revised to delete the Block "G", "H", "I", "J", "K" and "L" Option Aircraft
Advance Payment Base Prices and to add Block "M", "N", "O" and "P" Advance
Payment Base Prices. Attachment A, Paragraph 2 entitled "Price Description,"
subparagraph 2.1 entitled "Price Elements Per Aircraft" is revised by deleting
the forty-seven (47) Block "G", "H", "I", "J", "K" and "L" Option Aircraft,
adding the forty-two (42) Block "M", "N", "O" and "P" Option Aircraft and adding
a column for escalation sharing, subparagraph 2.2 entitled "Price Adjustments
For Option Aircraft Delivering from June 1999 to October 2001", is deleted.
Subparagraph 2.3 entitled "Price Adjustments For Option Aircraft Delivering From
January 2002 through December 2006," is renumbered to 2.2 and the title revised
to "Price Adjustments For Option Aircraft Delivering From March 2003 through
October 2006." Subparagraph 2.2.2 is revised to change 2001 to 2002,
subparagraph 2.2.5 is revised to change January 2002 through December 2006 to
March 2003 through October 2006, to change *** for Option deliveries in 2003,
*** for Option deliveries in 2004 and *** for Option deliveries in 2005 and
2006, and to change January 2002 to March 2003. Subparagraph 2.2.6 entitled
"Prices for Long Lead Aircraft" is revised to change 2002 to 2003.
6. Letter Agreement No. 6-1162-RLL-936R3 entitled "Certain Contractual Matters"
is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-936R4 attached hereto and incorporated herein by this reference.
Article 1 entitled "Credit Memorandum - Aircraft - Firm Aircraft," is revised to
add the credit memorandum amount for the Block "H", "I", "J", "K" and "L"
Aircraft.
7. Letter Agreement No. 6-1162-RLL-1855R2 entitled "Additional Contractual
Matters," is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-1855R3 attached hereto and incorporated herein by this reference.
Article 2 entitled *** for the Option Aircraft delivering from June 1999 through
December 31, 2001," is deleted. A new Article 2 entitled *** for the Aircraft,"
and a new Article 3 entitled "Applicable Aircraft," are added.
P.A. No. 1810 SA-4-3
80
8. Letter Agreement No. 6-1162-RLL-1858 entitled "Escalation Matters," is
deleted in its entirety and replaced with Letter Agreement No. 6-1162-RLL-1858R1
attached hereto and incorporated herein by this reference. Article 4 entitled
"Escalating Credits (STE)," is revised in the first sentence to add reference to
Letter Agreement No. 6-1162-RLL-1855.
9. This agreement is contingent upon the approval of the Southwest Airlines Co.
Board of Directors, such approval to be granted no later than January 23, 1998.
Until such approval, the amount due Boeing as a result of this supplemental
agreement is ***. Concurrent with Board approval, the balance due for advance
payments and option deposits, per the existing terms and conditions of the
contract, will be forwarded to Boeing.
10. All references in the Letter Agreements associated with Purchase Agreement
No. 1810 shall be deemed to refer to the purchase by Buyer of one hundred
twenty-nine (129) Model 737-7H4 Aircraft, sixty-two (62) Model 737-7H4 Option
Aircraft and fifty-nine (59) Model 737-7H4 Rollover Option Aircraft, to the
extent such reference is not specifically addressed herein.
The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY SOUTHWEST AIRLINES CO.
By: /s/ Dawn S. Foster By: /s/ Gary A. Barron
-------------------------- --------------------------
Its: Attorney-In-Fact Its: Executive VP and COO
-------------------------- --------------------------
P.A. No. 1810 SA-4-4
81
PURCHASE AGREEMENT
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
Purchase Agreement Number 1810
P.A. No. 1810
82
TABLE OF CONTENTS
Page SA
Number Number
------ ------
ARTICLES
- --------
1. Subject Matter of Sale..........................................1-1 SA-4
2. Delivery, Title and Risk
of Loss.........................................................2-1 SA-4
3. Price of Aircraft...............................................3-1 SA-4
4. Taxes...........................................................4-1
5. Payment.........................................................5-1
6. Excusable Delay.................................................6-1
7. Changes to the Detail
Specification...................................................7-1 SA-1
8. Federal Aviation Requirements and
Certificates and Export License.................................8-1
9. Representatives, Inspection,
Flights and Test Data...........................................9-1
10. Assignment, Resale or Lease....................................10-1
11. Termination for Certain Events.................................11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance..................................................12-1
13. Buyer Furnished Equipment and
Spare Parts....................................................13-1
14. Contractual Notices and Requests...............................14-1
15. Miscellaneous..................................................15-1
P.A. No. 1810 i
SA-4
83
TABLE OF CONTENTS
SA
Number
------
EXHIBITS
- --------
A Aircraft Configuration SA-1
B Product Assurance Document SA-1
C Customer Support Document
D Price Adjustments Due to
Economic Fluctuations - Aircraft
E Buyer Furnished Equipment
Provisions Document
F Defined Terms Document
LETTER AGREEMENTS
- -----------------
1810-1 Waiver of Aircraft Demonstration Flight
P.A. No. 1810 ii
SA-4
84
TABLE OF CONTENTS
SA
Number
------
RESTRICTED LETTER AGREEMENTS
- ----------------------------
6-1162-RLL-932 Promotional Support
6-1162-RLL-933R4 Option Aircraft SA-4
6-1162-RLL-934R1 Disclosure of Confidential SA-1
Information
6-1162-RLL-935R1 Performance Guarantees SA-1
6-1162-RLL-936R4 Certain Contractual Matters SA-4
6-1162-RLL-937 Alternate Advance Payment Schedule
6-1162-RLL-938 ***
6-1162-RLL-939R1 Certification Flight Test Aircraft SA-1
6-1162-RLL-940R1 Training Matters SA-1
6-1162-RLL-941R1 Other Matters SA-1
6-1162-RLL-942 Open Configuration Matters
6-1162-RLL-943 Substitution Rights
6-1162-RLL-944 Airframe Maintenance Material Cost
Protection Program
6-1162-RLL-945 Comparison of 737-7H4 and 737-3H4
Block Fuel Burn
6-1162-RLL-1855R3 Additional Contractual Matters SA-4
6-1162-RLL-1856 *** SA-1
6-1162-RLL-1857 Service Ready Validation Program SA-1
Field Test
6-1162-RLL-1858R1 Escalation Matters SA-4
P.A. No. 1810 iii
SA-4
85
TABLE OF CONTENTS CON'T
SA
Number
------
RESTRICTED LETTER AGREEMENTS
- ----------------------------
6-1162-RLL-2036 Amortization of Costs for
Customer Unique Changes SA-1
6-1162-RLL-2037 Reconciliation of the Aircraft SA-1
Basic Price
6-1162-RLL-2073 Maintenance Training Matters SA-1
P.A. No. 1810 iv
SA-4
86
PURCHASE AGREEMENT NO. 1810
Relating to
BOEING MODEL 737-7H4 AIRCRAFT
This Agreement is entered into as of January 19th 1994, by and between
The Boeing Company, a Delaware corporation, with its principal office in
Seattle, Washington (Boeing), and Southwest Airlines Co., a Texas corporation,
with its principal office in the City of Dallas, State of Texas (Buyer).
Accordingly, Boeing and Buyer agree as follows:
P.A. No. 1810 1
87
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Subject to the terms and conditions of this
Agreement, Boeing will manufacture and deliver to Buyer and Buyer will purchase
and accept delivery from Boeing of one hundred twenty-nine (129) Boeing Model
737-7H4 aircraft (the Aircraft) manufactured in accordance with Boeing Detail
Specification D6-38808-1, dated October 30, 1996, as described in Exhibit A, as
modified from time to time in accordance with this Agreement (Detail
Specification).
1.2 Additional Goods and Services. In connection with the sale of
the Aircraft, Boeing will also provide to Buyer certain other things under this
Agreement, including data, documents, training and services, all as described in
this Agreement.
1.3 Performance Guarantees. Any performance guarantees applicable
to the Aircraft will be expressly included in this Agreement. Where performance
guarantees are included in this Agreement other than within the Detail
Specification, such guarantees will be treated as being incorporated in the
Detail Specification by this reference.
1.4 Defined Terms. For ease of use, certain terms are treated as
defined terms in this Agreement. Such terms are identified with a capital letter
and set forth and/or defined in Exhibit F.
P.A. No. 1810 1-1
SA-4
88
ARTICLE 2. Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered to Buyer by
Boeing, assembled and ready for flight and Buyer will accept delivery of the
Aircraft, in accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
-------------- --------------------
Block A Aircraft
----------------
October 1997 Two (2)
November 1997 Two (2)
Block B Aircraft
----------------
January 1998 Two (2)
February 1998 Three (3)
March 1998 Two (2)
April 1998 Two (2)
May 1998 Two (2)
June 1998 One (1)
July 1998 Two (2)
September 1998 Two (2)
Block C Aircraft
----------------
February 1999 Four (4)
May 1999 Four (4)
July 1999 Four (4)
September 1999 Four (4)
Block D Aircraft
----------------
January 2000 Four (4)
March 2000 Four (4)
July 2000 Four (4)
September 2000 Three (3)
Block E Aircraft
----------------
January 2001 Three (3)
March 2001 Three (3)
July 2001 Three (3)
September 2001 Three (3)
Block F Aircraft
----------------
October 1998 One (1)
November 1998 Two (2)
December 1998 Two (2)
P.A. No. 1810 2-1
SA-4
89
Block G Aircraft
----------------
March 1999 Two (2)
Block H Aircraft
----------------
June 1999 Two (2)
August 1999 Two (2)
September 1999 One (1)
October 1999 Two (2)
April 2000 Three (3)
October 2000 Three (3)
April 2001 Three (3)
October 2001 Three (3)
Block I Aircraft
----------------
January 2002 Four (4)
March 2002 Four (4)
April 2002 Two (2)
July 2002 Four (4)
October 2002 Four (4)
Block J Aircraft
----------------
January 2003 Four (4)
March 2003 One (1)
Block K Aircraft
----------------
April 2004 Two (2)
July 2004 Three (3)
Block L Aircraft
----------------
November 2000 One (1)
December 2000 One (1)
July 2001 One (1)
September 2001 One (1)
October 2001 One (1)
September 2002 Three (3)
September 2003 Three (3)
March 2004 One (1)
2.2 Notice of Target Delivery Date. Boeing will give Buyer notice
of the Target Delivery Date of the Aircraft approximately 30 days prior to the
scheduled month of delivery.
2.3 Notice of Delivery Date. If Boeing gives Buyer at least 7
days' notice of the delivery date of the Aircraft, and an Aircraft delivery is
delayed beyond such delivery date due to the responsibility of Buyer, Buyer will
P.A. No. 1810 2-2
SA-4
90
reimburse Boeing for all costs incurred by Boeing as a result of such delay,
including amounts for storage, insurance, Taxes, preservation or protection of
the Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at an
airport facility selected by Boeing in the State of Washington, unless mutually
agreed otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of an
Aircraft will pass from Boeing to Buyer upon delivery of such Aircraft, but not
prior thereto.
2.6 Bill of Sale. Upon delivery of an Aircraft Boeing will deliver
to Buyer a bill of sale conveying good title to such Aircraft, free of all
liens, claims, charges and encumbrances of every kind whatsoever, and such other
appropriate documents of title as Buyer may reasonably request.
P.A. No. 1810 2-3
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ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features incorporated in
Exhibit A which have been selected by Buyer.
3.1.2 Base Aircraft Price is the Aircraft Basic Price
excluding the price of Special Features.
3.1.3 Aircraft Basic Price is comprised of the Base
Aircraft Price and the price of the Special Features.
3.1.4 Economic Price Adjustment is the adjustment to the
Aircraft Basic Price (Base Aircraft and Special Features) as calculated pursuant
to Exhibit D.
3.1.5 Aircraft Price is the total amount Buyer is to pay
for the Aircraft at the time of delivery.
3.2 Aircraft Basic Price.
The Aircraft Basic Price, expressed in July 1992 dollars, is
set forth below:
Base Special Aircraft
Aircraft Price Features Basic Price
-------------- -------- -----------
Block A, B, C,
D & E Aircraft *** *** ***
Block F & G
Aircraft *** *** ***
Block H
Aircraft *** *** ***
Block I
Aircraft *** *** ***
Block J
Aircraft *** *** ***
Block K
Aircraft *** *** ***
Block L
Aircraft *** *** ***
3.3 Aircraft Price. The Aircraft Price will be established at the
time of delivery of such Aircraft to Buyer and will be the sum of:
3.3.1 the Aircraft Basic Price, which is *** for the Block A,
B, C, D and E Aircraft, *** for the Block F and G Aircraft, *** for the Block H
Aircraft, *** for the
P.A. No. 1810 15-1
92
Block I Aircraft, *** for the Block J Aircraft, *** for the Block K Aircraft and
*** for the Block L Aircraft; plus
3.3.2 the Economic Price Adjustments for the Aircraft Basic
Price, as calculated pursuant to the formulas set forth in Exhibit D (Price
Adjustments Due to Economic Fluctuations - Aircraft); plus
3.3.3 other price adjustments made pursuant to this Agreement
or other written agreements executed by Boeing and Buyer.
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance payment
purposes, the following estimated delivery prices of the Aircraft (Advance
Payment Base Price) have been established, using currently available forecasts
of the escalation factors used by Boeing as of the date of signing this
Agreement. The Advance Payment Base Price of each Aircraft is set forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
------------------ ------------------
Block A Aircraft ***
--------------------
October 1997
November 1997
Block B Aircraft ***
--------------------
January 1998
February 1998
March 1998
April 1998
May 1998
June 1998
July 1998
September 1998
Block C Aircraft ***
--------------------
February 1999
May 1999
July 1999
September 1999
P.A. No. 1810 15-2
93
Block D Aircraft ***
--------------------
January 2000
March 2000
July 2000
September 2000
Block E Aircraft ***
--------------------
January 2001
March 2001
July 2001
September 2001
Block F Aircraft ***
--------------------
October 1998
November 1998
December 1998
Block G Aircraft ***
--------------------
March 1999
Block H Aircraft ***
--------------------
June 1999
August 1999
September 1999
October 1999
April 2000
October 2000
April 2001
October 2001
Block I Aircraft ***
--------------------
January 2002
March 2002
April 2002
July 2002
October 2002
Block J Aircraft ***
--------------------
January 2003
March 2003
Block K Aircraft ***
--------------------
April 2004
July 2004
P.A. No. 1810 15-3
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Block L Aircraft ***
--------------------
November 2000
December 2000
July 2001
September 2001
October 2001
September 2002
September 2003
March 2004
3.4.2 Adjustment of Advance Payment Base Prices - Long-Lead
Aircraft. For Aircraft scheduled for delivery 36 months or more after the date
of this Agreement, the Advance Payment Base Prices appearing in Article 3.4.1
will be used to determine the amount of the first advance payment to be made by
Buyer on the Aircraft. No later than 25 months before the scheduled month of
delivery of each affected Aircraft, Boeing will increase or decrease the Advance
Payment Base Price of such Aircraft as required to reflect the effects of (i)
any adjustments in the Aircraft Basic Price pursuant to this Agreement and (ii)
the then-current forecasted escalation factors used by Boeing. Boeing will
provide the adjusted Advance Payment Base Prices for each affected Aircraft to
Buyer, and the advance payment schedule will be considered amended to substitute
such adjusted Advance Payment Base Prices.
P.A. No. 1810 15-4
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6-1162-RLL-933R4
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-933R4 to
Purchase Agreement No. 1810 -
Option Aircraft
This Letter Agreement amends Purchase Agreement No. 1810 dated as of January 19,
1994 (the Agreement) between The Boeing Company (Boeing) and Southwest Airlines
Co. (Buyer) relating to Model 737-7H4 aircraft (Aircraft).
All terms used and not defined herein will have the same meaning as in the
Agreement.
In consideration of the purchase by Buyer of the Aircraft, Boeing hereby agrees
to manufacture and sell to Buyer sixty-two (62) additional Model 737-7H4
aircraft as described in paragraph 1 of Attachment A hereto (Option Aircraft)
and fifty-nine (59) Model 737-7H4 Rollover Option Aircraft (Rollover Option
Aircraft), subject to the terms and conditions set forth below.
1. Delivery of Option Aircraft.
The Option Aircraft will be delivered to Buyer during or before the
months set forth in the following schedule:
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
----------- -------- --------
March 2003 Three (3) M
April 2003 Two (2) M
July 2003 Four (4) M
October 2003 Four (4) M
January 2004 Four (4) N
March 2004 One (1) N
April 2004 One (1) N
August 2004 Two (2) N
September 2004 Three (3) N
October 2004 Two (2) N
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Soutwest Airlines Co.
6-1162-RLL-933R4 Page 2
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
-------------- --------- --------
January 2005 Four (4) O
March 2005 Four (4) O
April 2005 Two (2) O
July 2005 Four (4) O
October 2005 Four (4) O
January 2006 Four (4) P
March 2006 Four (4) P
April 2006 Two (2) P
July 2006 Four (4) P
October 2006 Four (4) P
2. Delivery of Rollover Option Aircraft.
2.1 The Rollover Option Aircraft will be delivered to Buyer during or
before the years set forth in the following schedule:
Option
Year of Number of Aircraft
Delivery Option Aircraft Block
-------- -------------- --------
2007 Twenty (20) Q
2008 Twenty (20) R
2009 Nineteen (19) S
2.2 The fifty-nine (59) Rollover Option Aircraft are offered to Buyer
subject to the following conditions:
2.2.1 Buyer can exercise any fifty-nine (59) of the sixty-two
(62) Option Aircraft, and will be offered a Rollover Option Aircraft for each
option aircraft exercised up to and including fifty-nine (59).
2.2.2 Conversely to Article 2.2.1 above, if Buyer does not
exercise a minimum of fifty-nine (59) Option Aircraft, one Rollover Option
Aircraft will be deleted for each Option Aircraft not exercised by Buyer.
2.2.3 When Buyer exercises one or more Option Aircraft, Boeing
will offer the same quantity of Rollover Option Aircraft to Buyer in the years
identified in Article 2.1 above.
2.2.4 The Rollover Option Aircraft delivery month offered by
Boeing to Buyer will be at
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6-1162-RLL-933R4 Page 3
least 24 months from the Option exercise date of the corresponding option.
2.2.5 When Boeing offers the Rollover Option Aircraft to
Buyer, Buyer will accept such Rollover Option Aircraft by wire transferring
$100,000 to Boeing. In the event Buyer exercises its option to purchase the
Rollover Option Aircraft, such application will be in accordance with Article
4.1 herein.
3. Price.
3.1 The advance payment base prices of the Option Aircraft set forth
below and in paragraph 2.1 of Attachment A represent the estimated delivery
prices of the Option Aircraft. The Option Aircraft pricing elements and
associated pricing terms and conditions are given in Attachment A.
3.2 Price and escalation provisions for Model 737-7H4 aircraft
delivering after 2002, are not currently available. The estimated Advance
Payment Base Prices shown in paragraph 3.3 below and in paragraph 2.1 of
Attachment A are based on currently available price and escalation provisions.
As price and escalation provisions become available for Model 737-7H4 aircraft
delivering after 2002, such price and escalation provisions will be
appropriately applied to the applicable Option Aircraft.
For additional information relating to price and escalation provisions
applicable to Option Aircraft delivering after 2002 refer to paragraphs 2.3 and
3.2 of Attachment A.
3.3 The Advance Payment Base Prices of the Option Aircraft indicated
below do include an amount for special features in addition to those
specifically described in Attachment A but do not include any amount for items
of Buyer Furnished Equipment (BFE). An estimate for typical special features is
$*** per Aircraft (expressed in 1992 STE dollars) and for BFE is $*** per
Aircraft (expressed in delivery year dollars).
Month and Year Advance Payment Base
of Delivery Price per Option Aircraft
-------------- -------------------------
Block M Aircraft ***
--------------------
March 2003
April 2003
July 2003
October 2003
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Southwest Airlines Co.
6-1162-RLL-933R4 Page 4
Month and Year Advance Payment Base
of Delivery Price per Option Aircraft
-------------- -------------------------
Block N Aircraft ***
--------------------
January 2004
March 2004
April 2004
August 2004
September 2004
October 2004
Block O Aircraft ***
--------------------
January 2005
March 2005
April 2005
July 2005
October 2005
Block P Aircraft ***
--------------------
January 2006
March 2006
April 2006
July 2006
October 2006
3.4 The Option Aircraft purchase price will be the applicable basic
price thereof at the time of Option Aircraft delivery adjusted in accordance
with Boeing's Aircraft escalation provisions contained in the definitive
agreement to purchase the Option Aircraft. The purchase price will include the
price for Seller Purchased Equipment (SPE) if Buyer has elected to change Buyer
Furnished Equipment (BFE) to SPE.
4. Option Aircraft Payment.
4.1 In consideration of the granting of the option as set forth herein,
on or before the date Boeing and Buyer enter into a definitive agreement to
purchase the Aircraft, Buyer will pay a deposit to Boeing of $100,000 for each
Option Aircraft (Deposit). In the event Buyer exercises its option herein, the
amount of the Deposit will be credited against the first advance payment due for
such Option Aircraft pursuant to the advance payment schedule set forth in
paragraph 3 of Attachment A. The Deposits for the Option Aircraft will be
refunded to Buyer, without
P.A. No. 1810
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Southwest Airlines Co.
6-1162-RLL-933R4 Page 5
interest, if the parties do not enter into a definitive Agreement for the
Aircraft.
In the event that, after the parties enter into a definitive agreement to
purchase the Aircraft, Buyer does not exercise its option to purchase the Option
Aircraft pursuant to the terms and conditions set forth herein, Boeing will be
entitled to retain the Deposits for the Option Aircraft except as provided in
paragraphs 6 herein.
4.2 Advance payments in the amount of 30% of the advance payment base
price will be payable on the Option Aircraft in accordance with paragraph 3 of
Attachment A. The remainder of the Option Aircraft purchase price is due at the
time of delivery of the Option Aircraft.
5. Option Exercise.
5.1 To exercise its Option, Buyer will give written or telegraphic
notice thereof to Boeing on or before eighteen (18) months prior to the first
day of the delivery month of each Option Aircraft.
In such notice Buyer will select the Option Model type, and the applicable
delivery positions.
5.2 It is understood and agreed that Boeing may accelerate the option
exercise dates specified above if Boeing must make production decisions which
are dependent on Buyer's decision to buy the Option Aircraft. If Boeing elects
to accelerate the option exercise dates, Boeing will do so by giving written or
telegraphic notice thereof to Buyer. Such notice will specify the revised option
exercise dates, which will not be earlier than 30 days after the date of
transmittal of such notice, and the Option Aircraft delivery positions affected
by such revision. If Buyer fails to exercise its option for any Option Aircraft
affected by such revised dates, the Deposit applicable to such Option Aircraft
will be promptly refunded, with interest, to Buyer. The interest rate for
calculation of the interest associated with such refund is the rate of two
percent (2%) below the Citibank base rate in effect from time to time during the
period the option deposit is held by Boeing.
6. Contract Terms.
It is understood that Boeing and Buyer will use their best efforts to
enter into a definitive agreement for the Option Aircraft within thirty (30)
days after
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Southwest Airlines Co.
6-1162-RLL-933R4 Page 6
Buyer exercises an option to purchase Option Aircraft pursuant to paragraph 5
covering the detailed terms and conditions for the sale of such Option Aircraft.
Such definitive agreement will include the terms and conditions contained herein
together with the terms and conditions, not inconsistent herewith, contained in
Boeing's then-current standard form of purchase agreement for the sale of Model
737-700 aircraft in effect as of the date of option exercise and such additional
terms and conditions as may be mutually agreed upon. In the event the parties
have not entered into such an agreement within the time period contemplated
herein, either party may, exercisable by written or telegraphic notice given to
the other within thirty (30) days after such period, terminate the purchase of
such Option Aircraft.
7. Termination of Option to Purchase.
Either Boeing or Buyer may terminate the option to purchase an Option
Aircraft if any of the following events are not accomplished by the respective
dates contemplated in this letter agreement, or in the Agreement, as the case
may be:
(i) termination of the purchase of the Aircraft under the Agreement
for any reason;
(ii) payment by Buyer of the Deposit with respect to an Option Aircraft
pursuant to paragraph 4.1 herein;
(iii) exercise of an option to purchase an Option Aircraft pursuant to
the terms hereof. Any termination of an option to purchase by Boeing which is
based on the termination of the purchase of Aircraft under the Agreement will be
on a one-for-one basis, for each Aircraft so terminated.
Any cancellation of an option to purchase which is based on failure to make the
required Deposit or to exercise the option to purchase shall only apply to the
Option Aircraft so canceled.
Termination of an option to purchase provided by this letter agreement will be
caused by either party giving written notice to the other within 10 days after
the applicable date. Upon receipt of such notice, all rights and obligations of
the parties with respect to an Option Aircraft for which the option to purchase
has been terminate will thereupon terminate.
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Soutwest Airlines Co.
6-1162-RLL-933R4 Page 7
If termination is result of a revision of an option exercise date by Boeing
pursuant to paragraph 5.2, Boeing will promptly refund to Buyer, without
interest, any payments received from Buyer, including the Deposit, with respect
to the Option Aircraft for which the option is terminated. If termination is for
any other reason, Boeing will promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option Aircraft,
except the Deposit, which Buyer may apply to any model Boeing aircraft purchased
by Buyer from Boeing at a future date.
8. Confidential Treatment. Buyer understands that certain commercial and
financial information contained in this Letter Agreement including any
attachments hereto is considered by Boeing as confidential. Buyer agrees that it
will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of Boeing, disclose
this Letter Agreement or any information contained herein to any other person or
entity except as provided in Letter Agreement No. 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------------
Its Attorney-in-Fact
----------------------------
ACCEPTED AND AGREED TO this
date: December 19, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-----------------------------
Its Executive VP & COO
----------------------------
Attachments
P.A. No. 1810
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Attachment A to
6-1162-RLL-933R4
Page 1
Model 737-7H4 Aircraft
- ----------------------
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft is described by
Boeing Detail Specification D6-38808-1, Dated October 30 ,1996.
1.2 Changes. The Detail Specification will be revised to include:
(1) Changes applicable to the basic Model 737-700 aircraft
which are developed by Boeing between the date of the Detail Specification and
the signing of a definitive agreement to purchase the Option Aircraft.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard Certificate of
Airworthiness.
(4) To provide sufficient Option Aircraft manufacturing and
procurement lead time it is necessary for Boeing and Buyer to reach final
agreement on the Option Aircraft configuration, including BFE/SPE vendor
selection fifteen (15) months prior to delivery of each Option Aircraft. If such
items are not resolved by the indicated dates, Boeing reserves the right to
amend this letter agreement:
(i) to adjust the scheduled delivery of the
Option Aircraft to a later time period and,
(ii) to make such other changes as are
appropriate and consistent with the revised Option Aircraft deliveries.
1.3 Effect of Changes. Changes to the Detail Specification incorporated
pursuant to the provisions of the clauses above will include the effects of such
changes upon Option Aircraft weight, balance, design and performance.
Performance guarantees for the Option Aircraft which are mutually acceptable to
the parties will be included in the definitive agreement for the Option
Aircraft.
P.A. No. 1810
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Attachment A to
6-1162-RLL-933R4
Page 2
2. Price Description
-----------------
2.1 Price Elements Per Aircraft
---------------------------
1 2 3
- - -
AIRCRAFT & ADV. PMT.
AIRCRAFT ESTIMATED SPECIAL ESTIMATED BASE PRICE
DELIVERY FEATURES PRICE ESTIMATED ESCALATION (ELEMENTS)
MO. & YR. (JULY 1992$) ESCALATION SHARING 1 + 2 + 3
- --------- ----------------- ---------- ---------- ----------
BLOCK M
- -------
March 2003 *** *** *** ***
April 2003 *** *** *** ***
July 2003 *** *** *** ***
October 2003 *** *** *** ***
BLOCK N
- -------
January 2004 *** *** *** ***
March 2004 *** *** *** ***
April 2004 *** *** *** ***
August 2004 *** *** *** ***
September 2004 *** *** *** ***
October 2004 *** *** *** ***
BLOCK O
- -------
January 2005 *** *** *** ***
March 2005 *** *** *** ***
April 2005 *** *** *** ***
July 2005 *** *** *** ***
October 2005 *** *** *** ***
BLOCK P
- -------
January 2006 *** *** *** ***
March 2006 *** *** *** ***
April 2006 *** *** *** ***
July 2006 *** *** *** ***
October 2006 *** *** *** ***
Continued Next Page...
P.A. No. 1810
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Attachment A to
6-1162-RLL-933R4
Page 3
2. Price Description. (Continued)
------------------
2.2 Price Adjustments For Option Aircraft Delivering From
March 2003 through October 2006.
2.2.1 Special Features. The price for Special Features
incorporated in the Option Aircraft Detail Specification will be adjusted to
Boeing's then-current prices for such features as of the date of execution of
the definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. For escalation provisions
applicable to Option Aircraft delivering after 2002, see paragraph 2.3.6 below.
2.2.3 Base Price Adjustments for FAA Changes. The Aircraft
Basic Price of the Option Aircraft will be adjusted for any FAA mandated changes
incorporated into the Aircraft.
2.2.4 Price Adjustments for Changes. Boeing may adjust the
Aircraft Basic Price and the Advance Payment Base Price for any changes mutually
agreed upon subsequent to the date that Buyer and Boeing enter into a definitive
agreement for the Option Aircraft.
2.2.5 Base Price Adjustments. The Aircraft Basic Price of the
Option Aircraft will be adjusted to Boeing's then-current prices as of the date
of execution of the definitive agreement for the Option Aircraft in accordance
with the agreement reached below. The Aircraft Basic Price starting point for
options delivering in 2003 is $*** (July 1992 STE), for options delivering in
2004 is $*** (July 1992 STE), for options delivering in 2005 and 2006 is $***
(July 1992 STE). Such Aircraft Basic Price may increase in accordance with
paragraphs 2.2.1, 2.2.2, 2.2.3 and 2.2.4. For any other changes to the Aircraft
Basic Price, Boeing may increase the Aircraft Basic Price by a maximum of $***
(July 1992 STE) per year or portion thereof starting in March 2003.
2.2.6 Prices for Long Lead Time Aircraft. Boeing has not
established escalation provisions for Model 737-700 aircraft for delivery 2003
and after. Such escalation provisions (i) will be incorporated into the Option
Aircraft definitive agreement when such information is available and (ii) will
be the then-current escalation provisions applicable to the same model aircraft
and engines delivering in the same time period as the Option Aircraft. The
resulting revisions to the definitive agreement will include but not be limited
to, adjustment of the Aircraft
P.A. No. 1810
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Attachment A to
6-1162-RLL-933R4
Page 4
Basic Price of the Option Aircraft, the Advance Payment Base Price, the Aircraft
escalation provisions and the advance payment amounts due on the Option
Aircraft.
2.2.7 BFE to SPE. An estimate of the total price for items of
Buyer Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE)
pursuant to the Configuration Specification is included in the Option Aircraft
price build-up. The purchase price of the Option Aircraft will be adjusted by
the price charged to Boeing for such items plus 10% of such price. If all BFE
except developmental avionics is converted to SPE, Boeing will waive the 10%
fee.
3. Advance Payment Schedules, Prices and Adjustments.
-------------------------------------------------
3.1 Buyer will pay to Boeing advance payments for the Option Aircraft
on the dates and in the amounts determined below.
Amount Due per Aircraft
-----------------------
(Percentage times
Due Date of Payment Advance Payment Base Price)
- -------------------
Deposit $100,000 (if applicable)
18 months prior to the first 15% (less the
day of the scheduled delivery Deposit if any)
month of the Aircraft
12 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
9 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
6 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
----
Total 30%
Any advance payments that would be past due as of the date of signing the
definitive purchase agreement for the Option Aircraft in accordance with the
above schedule are due and payable on such date.
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Attachment A to
6-1162-RLL-933R4
Page 5
3.2 Option Aircraft advance payment base prices will be increased or
decreased, as appropriate, at the time of signing of the definitive purchase
agreement for the Option Aircraft, using the then-current forecasted aircraft
escalation factors used by Boeing, to determine the amount of the advance
payments to be made by Buyer on the Option Aircraft.
P.A. No. 1810
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Attachment B to
6-1162-RLL-933R4
Page 1
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRCRAFT PRICE ADJUSTMENT
(July 1992 Base Price)
1. Formula.
The Aircraft Price Adjustment will be determined at the time of
Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Aircraft Price Adjustment.
L = .65 x ECI
---
116.2
M = .35 x ICI
---
115.9
P = Aircraft Basic Price (as set forth in Article 3.2 of this
Agreement).
ECI = A value using the "Employment Cost Index for workers in
aerospace manufacturing" (aircraft manufacturing, standard
industrial classification code 3721, compensation, base month
and year June 1989 = 100), as released by the Bureau of Labor
Statistics, U.S. Department of Labor on a quarterly basis for
the months of March, June, September and December, calculated
as follows: A three-month arithmetic average value (expressed
as a decimal and rounded to the nearest tenth) will be
determined using the months set forth in the table below for
the applicable Aircraft, with the released Employment Cost
Index value described above for the month of March also being
used for the months of January and February; the value for June
also used for April and May; the value for September also used
for July and August; and the value for December also used for
October and November.
P.A. No. 1810
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Attachment B to
6-1162-RLL-933R4
Page 2
ICI = The three-month arithmetic average of the released monthly
values for the Industrial Commodities Index as set forth in the
"Producer Prices and Price Index" (Base Year 1982 = 100) as
released by the Bureau of Labor Statistics, U.S. Department of
Labor values (expressed as a decimal and rounded to the nearest
tenth) for the months set forth in the table below for the
applicable Aircraft.
In determining the value of L, the ratio of ECI divided by 116.2 will
be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .65 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by 115.9 will
be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .35 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
Months to be Utilized
Month of Scheduled in Determining the
Aircraft Delivery Value of ECI and ICI
- ------------------ ---------------------
January June B, July B, Aug. B
February July B, Aug. B, Sept. B
March Aug. B, Sept. B, Oct. B
April Sept. B, Oct. B, Nov. B
May Oct. B, Nov. B, Dec. B
June Nov. B, Dec. B, Jan. D
July Dec. B, Jan. D, Feb. D
August Jan. D, Feb. D, Mar. D
September Feb. D, Mar. D, Apr. D
October Mar. D, Apr. D, May D
November Apr. D, May D, June D
December May D, June D, July D
The following definitions of B and D will apply:
B = The calendar year before the year in which the
scheduled month of delivery as set forth in Paragraph 1
occurs.
D = The calendar year during which the scheduled month of
delivery as set forth in Paragraph 1 occurs.
P.A. No. 1810
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Attachment B to
6-1162-RLL-933R4
Page 3
2. If at the time of delivery of an Aircraft Boeing is unable to determine the
Aircraft Price Adjustment because the applicable values to be used to determine
the ECI and ICI have not been released by the Bureau of Labor Statistics, then:
2.1 The Aircraft Price Adjustment, to be used at the time of delivery
of each of the Aircraft, will be determined by utilizing the escalation
provisions set forth above. The values released by the Bureau of Labor
Statistics and available to Boeing 30 days prior to scheduled Aircraft delivery
will be used to determine the ECI and ICI values for the applicable months
(including those noted as preliminary by the Bureau of Labor Statistics) to
calculate the Aircraft Price Adjustment. If no values have been released for an
applicable month, the provisions set forth in Paragraph 2.2 below will apply. If
prior to delivery of an Aircraft the U.S. Department of Labor changes the base
year for determination of the ECI or ICI values as defined above, such rebased
values will be incorporated in the Aircraft Price Adjustment calculation. The
payment by Buyer to Boeing of the amount of the Purchase Price for such
Aircraft, as determined at the time of Aircraft delivery, will be deemed to be
the payment for such Aircraft required at the delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department of Labor
substantially revises the methodology used for the determination of the values
to be used to determine the ECI and ICI values (in contrast to benchmark
adjustments or other corrections of previously released values), or for any
reason has not released values needed to determine the applicable Aircraft Price
Adjustment, the parties will, prior to delivery of any such Aircraft, select a
substitute for such values from data published by the Bureau of Labor Statistics
or other similar data reported by non-governmental United States organizations,
such substitute to lead in application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use of the original
values as they may have fluctuated during the applicable time period.
Appropriate revision of the formula will be made as required to reflect any
substitute values. However, if within 24 months from delivery of the Aircraft
the Bureau of Labor Statistics should resume releasing values for the months
needed to determine the Aircraft Price Adjustment, such values will be used to
determine any increase or decrease in the Aircraft Price Adjustment for the
Aircraft from that determined at the time of delivery of such Aircraft.
P.A. No. 1810
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Attachment B to
6-1162-RLL-933R4
Page 4
2.3 In the event escalation provisions are made non-enforceable or
otherwise rendered null and void by any agency of the United States Government,
the parties agree, to the extent they may lawfully do so, to equitably adjust
the Purchase Price of any affected Aircraft to reflect an allowance for
increases or decreases in labor compensation and material costs occurring since
February, 1992, which is consistent with the applicable provisions of paragraph
1 of this Exhibit D.
3. For the calculations herein, the values released by the Bureau of Labor
Statistics and available to Boeing 30 days prior to scheduled Aircraft delivery
will be used to determine the ECI and ICI values for the applicable months
(including those noted as preliminary by the Bureau of Labor Statistics) to
calculate the Aircraft Price Adjustment.
Note: Any rounding of a number, as required under this Exhibit D with
respect to escalation of the airframe price, will be accomplished
as follows: if the first digit of the portion to be dropped from
the number to be rounded is five or greater, the preceding digit
will be raised to the next higher number.
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6-1162-RLL-936R4
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-936R4 to
Purchase Agreement No. 1810 -
Certain Contractual Matters
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft) and Letter Agreement
6-1162-RLL-933R4, dated even date herewith, entitled "Option Aircraft",
relating to the sale by Boeing and the purchase by Buyer of sixty-two (62)
additional Model 737-7H4 aircraft (the Option Aircraft) and fifty-nine (59)
Model 737-7H4 Rollover Option Aircraft (Rollover Option Aircraft).
The commitments made herein to Buyer are provided from Boeing and CFM
International Inc. (CFM).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Credit Memorandum - Aircraft - Firm Aircraft.
In consideration of Buyer's purchase of the Aircraft, Boeing will
issue to Buyer at the time of delivery of each Aircraft a credit memorandum
which may be used by Buyer for the purchase of Boeing goods and services or
applied to the final delivery payment for the Aircraft for which the credit was
issued. The amount of this credit memorandum applicable to each Block A, B, C,
D and E Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
The amount of this credit memorandum applicable to each Block F, G, H, I, J, K
and L Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
2. Credit Memorandum - Aircraft - Option Aircraft and Rollover Option
Aircraft.
In consideration of Buyer's purchase of the Option Aircraft and
Rollover Option Aircraft, Boeing will issue to Buyer at the time of delivery of
each
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Option Aircraft and Rollover Option Aircraft a credit memorandum which may be
used by Buyer for the purchase of Boeing goods and services or applied to the
final delivery payment for the Option Aircraft or Rollover Option Aircraft for
which the credit was issued. The amount of the credit memorandum applicable to
each Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
3. Simulation Data Credits.
If Buyer purchases one subsequent simulator data package for a price
of $*** dollars (July 1992 STE $), Boeing will issue offsetting credit
memoranda in amounts equal to Boeing's invoice price of such simulator data
concurrent with the issuance of such invoice. If Buyer purchases one
concurrent simulator data package for a price of $***, Boeing will issue an
offsetting credit memorandum in an amount equal to Boeing's invoice price of
such simulator data package concurrent with the issuance of such invoice.
Buyer understands that the concurrent data package price of $*** (July 1992 STE
$) is valid only if the second simulator is manufactured by the same simulator
manufacturer as the subsequent simulator and the concurrent simulator is
ordered within eight years of the signing of the Agreement.
4. Credits.
The Aircraft Basic Price for Buyer's 737-7H4 Aircraft does not include
a price for Dual Flight Management Computer and Five Channel SELCAL. These two
features will be installed in the Aircraft but deactivated. If Buyer decides
at anytime (whether before or after delivery) to activate this capability,
Buyer will pay Boeing an amount equal to *** (July 1992 STE $) *** for this
installed capability. If Buyer sells or leases the Aircraft for operation by a
third party and the features are subsequently activated, Buyer will pay or
cause the subsequent buyer or lessee to pay the above described activation
charge to Boeing.
5. Maximum Takeoff Weight Credit Memoranda.
Buyer has purchased a Maximum Takeoff Weight of 138,500 pounds for the
Aircraft. Boeing will, at the time of Aircraft delivery, issue to Buyer a
credit memoranda in the amount of $*** (July 1992 STE $), *** to offset the
price for 500 pounds of Maximum Takeoff Weight.
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6. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------------
Its Attorney-in-Fact
---------------------------
ACCEPTED AND AGREED TO as of this
date: December 19, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
----------------------------
Its Executive VP & COO
---------------------------
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6-1162-RLL-1855R3
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1855R3 to
Purchase Agreement No. 1810
Additional Contractual Matters
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement) between
The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating to the
sale by Boeing and the purchase by Buyer of one hundred twenty-nine (129) Model
737-7H4 aircraft (the Aircraft) and Letter Agreement 6-1162-RLL-933R4, dated
even date herewith, entitled "Option Aircraft", relating to the sale by Boeing
and the purchase by Buyer of sixty-two (62) additional Model 737-7H4 aircraft
(the Option Aircraft) and fifty-nine (59) Rollover Option Aircraft (the Rollover
Option Aircraft) and Letter Agreement No. 6-1162-RLL-938, dated January 19, 1994
entitled "Most Favored Customer" relating to terms of the Agreement.
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. ***
for the Aircraft.
In further consideration of Buyer's purchase of the Aircraft, Boeing will
issue at the time of delivery of each Aircraft (whether Model 737-700, 737-600
or 737-800) *** (July 1992 STE) escalated to the month of delivery of the
specific Aircraft in accordance with Exhibit D "Aircraft Price adjustment" to be
used by Buyer for the purchase of Boeing and or CFMI goods
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and services or applied to the final delivery payment for the Aircraft for which
such ***.
2. ***
for the Aircraft.
3. Applicable Aircraft.
For the avoidance of doubt, ***
4. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
-------------------------
ACCEPTED AND AGREED TO this
Date: December 19, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
---------------------------
Its Executive VP & COO
--------------------------
P.A. No. 1810 SA-4
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6-1162-RLL-1858R1
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1858R1 to
Purchase Agreement No. 1810
Escalation Matters
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement) between
The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating to the
sale by Boeing and the purchase by Buyer of Model 737-7H4 aircraft (the
Aircraft) and Letter Agreement 6-1162-RLL-933R1, dated even date herewith,
entitled "Option Aircraft", relating to the sale by Boeing and the purchase by
Buyer of sixty-two (62) additional Model 737-7H4 aircraft (the Option Aircraft)
and fifty-nine (59) Model 737-7H4 Rollover Option Aircraft (Rollover Option
Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Escalation Sharing Commitment
Boeing agrees to share one-half of the escalation up to a maximum of three
percent (3%) per year in each of the years 1997 and 1998, as more fully
described in paragraph 2 below, for any Aircraft scheduled to be delivered after
December 31, 1996 (the Eligible Aircraft).
All escalation calculations under this Letter Agreement will be made in
accordance with Exhibit D to the Agreement entitled "Price Adjustment Due to
Economic
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Fluctuations - Aircraft Price Adjustment" (the Exhibit D), using actual
escalation indices published for the applicable period.
2. Calculation of Escalation Credit Memo
2.1 Eligible Aircraft Delivering in 1997
At the time of delivery of each Eligible Aircraft delivering in 1997,
Boeing will issue to Buyer a credit memorandum (the 1997 Credit Memorandum)
which shall be applied to the Aircraft Price of such Aircraft. The 1997 Credit
Memorandum for each Eligible Aircraft delivering in 1997 shall be calculated as
follows:
One-half of the difference between the Base Aircraft Price and Special Features
escalation amount calculated for a December 1996 aircraft delivery position, and
such escalation amount calculated for the month of delivery of each 1997
Eligible Aircraft; provided however;
The maximum amount of the 1997 Credit Memorandum shall not exceed three percent
(3%) pursuant to the following calculation:
At the time of the delivery of each 1997 Eligible Aircraft, the Aircraft Basic
Price will be escalated in accordance with the Exhibit D formula to a December
1996 delivery month. The December 1996 escalated price will be referred to in
the following formula as the "December 1996 Index Amount". The 1997 Credit
Memorandum for each 1997 Eligible Aircraft will not exceed an amount equal to
the December 1996 Index Amount times 0.03.
2.2 Eligible Aircraft Delivering in 1998
At the time of delivery of each Eligible Aircraft delivering in 1998,
Boeing will issue to Buyer a credit memorandum (the 1998 Credit Memorandum)
which shall be applied to the Aircraft Price of such Aircraft. The 1998 Credit
Memorandum for each Eligible Aircraft delivering in 1998 shall be calculated as
follows:
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(i) One-half of the difference between the Aircraft Basic Price escalation
amount calculated for a December 1997 aircraft delivery position, and such
escalation amount calculated for the month of delivery of each 1998 Eligible
Aircraft, provided however;
The maximum amount of the portion of the 1998 Credit Memorandum calculated
pursuant to this paragraph 2.2 (i) shall not exceed three (3%) percent pursuant
to the following calculation:
At the time of the delivery of each 1998 Eligible Aircraft, the Aircraft Basic
Price will be escalated in accordance with the Exhibit D formula to a December
1997 delivery month. The December 1997 escalated price will be referred to in
the following formula as the "December 1997 Index Amount." The portion of the
1998 Credit Memorandum calculated pursuant to this paragraph 2.2 (i) for the
1998 Eligible Aircraft will not exceed an amount equal to the December 1997
Index Amount times 0.03, plus;
(ii) The amount calculated above in paragraph 2.1 for the 1997 Credit Memorandum
calculated through December 1997.
2.3 Eligible Aircraft Delivering after 1998
For each Eligible Aircraft delivering after the calendar year 1998, the
amount of the Credit Memorandum will be the amount calculated pursuant to
paragraph 2.2 above through a December 1998 aircraft delivery position.
3. Advance Payment Base Price
It is agreed that the Advance Payment Base Prices for the Eligible Aircraft
set forth in Article 3.4 of the Agreement include an estimate for the escalation
sharing Credit Memoranda pursuant to this Letter Agreement.
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4. Escalating Credits (STE)
The credit memoranda specified in Article 1 of Letter Agreement No.
6-1162-RLL-936, as revised, and in Article 2 of Letter Agreement No.
6-1162-RLL-1855, as revised, which are expressed as a percentage of the
escalated purchase price of the Aircraft, will be calculated using the same
factors used to develop the adjusted aircraft escalation pursuant to this Letter
Agreement.
5. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
-----------------------------
Its Attorney-In-Fact
----------------------------
ACCEPTED AND AGREED TO this
Date: December 19, 1997
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SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
----------------------------
Its Executive VP & COO
---------------------------
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