LEASES

The Company's fleet included 28 aircraft on capital lease as of December 31, 2015, compared with 16 aircraft on capital lease, including two B717s, as of December 31, 2014. Amounts applicable to these aircraft that are included in property and equipment were:



(in millions)	2015		2014
Flight equipment	$	435	$	214
Less: accumulated amortization	29		22
	$	406	$	192

Total rental expense for operating leases, both aircraft and other, charged to operations in 2015, 2014, and 2013 was $909 million, $931 million, and $997 million, respectively. The majority of the Company’s terminal operations space, as well as 95 aircraft, were under operating leases at December 31, 2015. For aircraft operating leases and for terminal operations leases, expense is included in Aircraft rentals and in Landing fees and other rentals, respectively, in the Consolidated Statement of Income. Future minimum lease payments under capital leases and noncancelable operating leases and rentals to be received under subleases with initial or remaining terms in excess of one year at December 31, 2015, were:



(in millions)	Capital leases		Operating leases		Subleases			LFMP facility lease*		Operating leases, net
2016	$	46	$	636	$	(103	)	$	24	$	557
2017	46		624		(103		)	24		545
2018	45		551		(102		)	25		474
2019	45		479		(97		)	25		407
2020	44		359		(78		)	26		307
Thereafter	209		961		(66		)	634		1,529
Total minimum lease payments	$	435	$	3,610	$	(549	)	$	758	$	3,819
Less amount representing interest	79
Present value of minimum lease payments	356
Less current portion	32
Long-term portion	$	324
* See Note 4 for further details

The aircraft leases generally can be renewed for one to five years at rates based on fair market value at the end of the lease term. Most aircraft leases have purchase options at or near the end of the lease term at fair market value, generally limited to a stated percentage of the lessor’s defined cost of the aircraft.

On July 9, 2012, the Company signed an agreement with Delta Air Lines, Inc. and Boeing Capital Corp. to lease or sublease all 88 of AirTran's B717s to Delta at agreed-upon lease rates. The first converted B717 was delivered to Delta in September 2013, and as of December 31, 2015, the Company had delivered a total of 87 B717s to Delta. As the Company previously announced, all B717s remaining at Southwest were grounded on December 28, 2014. The Company expects the one remaining B717 to be converted and delivered to Delta by early 2016. A total of 76 of the B717s are on operating lease, ten are owned, and two are on capital lease.

The Company paid the majority of the costs to convert the aircraft to the Delta livery and perform certain maintenance checks prior to the delivery of each aircraft. The agreement to pay these conversion and maintenance costs is a “lease incentive” under applicable accounting guidance. The sublease terms for the 76 B717s on operating lease and the two B717s on capital lease coincide with the Company's remaining lease terms for these aircraft from the original lessor, which range from approximately three to eight years. The leasing of the ten B717s that are owned by the Company is subject to certain conditions, and the lease terms are for up to seven years, after which Delta will have the option to purchase the aircraft at the then-prevailing market value. The ten owned B717s are accounted for as sales type leases, the two B717s classified by the Company as capital leases are accounted for as direct financing leases, and the remaining 76 subleases are accounted for as operating leases with Delta. With respect to the 87 B717s delivered to Delta as of December 31, 2015, the Company had 76 operating leases, nine sales type leases, and two direct financing leases. There are no contingent payments and no significant residual value conditions associated with the transaction.

The accounting for this transaction is based on the guidance provided for lease transactions. The Company recorded an initial charge of approximately $137 million during third quarter 2012, representing the remaining estimated cost, at the scheduled date of delivery of each B717 to Delta (including the conversion, maintenance, and other contractual costs to be incurred), of the Company's lease of the 76 B717s that are accounted for as operating leases, net of the future sublease income from Delta and the remaining unfavorable aircraft lease liability established as of the acquisition date. During 2014, the Company recorded an additional $22 million in expense for its revised estimate of conversion costs for these B717s, and an additional $9 million associated with the extension of time between when the Company removed the aircraft from revenue service, on December 28, 2014, and when they entered the conversion process. The charges recorded by the Company for this transaction were included as a component of Acquisition and integration costs in the Company's Consolidated Statement of Income and were included as a component of Other, net in Cash flows from operating activities in the Company's Consolidated Statement of Cash Flows, and the corresponding liability for this transaction is included as a component of Current liabilities and Other noncurrent liabilities in the Company's Consolidated Balance Sheet. A rollforward of the Company's B717 lease/sublease liability for 2015 and 2014 is shown below:



(in millions)	B717 lease/sublease liability
Balance at December 31, 2013	$	122
Lease/sublease accretion	5
Lease/sublease expense adjustment	22
Lease/sublease payments, net (a)	(86		)
Balance at December 31, 2014	$	63
Lease/sublease accretion	1
Lease/sublease expense adjustment	2
Lease/sublease payments, net (a)	(48		)
Balance at December 31, 2015	$	18

(a) Includes lease conversion cost payments