<PAGE> 1
AMERICA WEST AIRLINES, INC.
1,200,000 SHARES CLASS A COMMON STOCK
18,573,704 SHARES CLASS B COMMON STOCK
$100,000,000 11 1/4% SENIOR UNSECURED NOTES DUE 2001
5,846,263 CLASS B COMMON STOCK WARRANTS
------------------------
This Prospectus relates to (i) 1,200,000 shares of Class A Common Stock,
par value $.01 per share ("Class A Common Stock") of America West Airlines, Inc.
(the "Company"), (ii) 18,573,704 shares of Class B Common Stock, par value $.01
per share of the Company, ("Class B Common Stock", and together with the Class A
Common Stock, the "Common Stock"), (iii) $100 million principal amount of
11 1/4% Senior Unsecured Notes due 2001 of the Company (the "Senior Notes"), and
(iv) 5,846,263 warrants, each entitling the holder thereof to purchase one share
of Class B Common Stock for $12.74 (subject to confirmation as hereinafter
described) at any time on or after the date on which the exercise price has been
confirmed (as hereinafter described) and prior to the fifth anniversary of the
date of issuance (the "Warrants," and together with the Common Stock and the
Senior Notes, the "Securities"). The Securities may be offered by the Selling
Securityholders (as defined herein) from time to time in transactions in the
over-the-counter market, on a national securities exchange or otherwise at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the Securities to or
through underwriters, brokers, dealers or agents who may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholders or the purchasers of the Securities for whom such underwriters,
brokers, dealers or agents may act. The Company will not receive any of the
proceeds from the sale of any of the Securities by the Selling Securityholders.
Holders of Class B Common Stock are entitled to one vote per share, and
holders of Class A Common Stock are entitled to 50 votes per share on all
matters submitted to a vote of common stockholders, except that voting rights of
holders who are not United States citizens are limited as described herein. The
Senior Notes bear interest payable semiannually in arrears. The Senior Notes may
be redeemed at the option of the Company (i) prior to September 1, 1997, at any
time, at a redemption price equal to 105% of the principal amount or from time
to time in part from the net proceeds from a public offering of its capital
stock at a redemption price equal to 105% of the principal amount, in each case
plus accrued and unpaid interest, if any, to the redemption date; and (ii) on or
after September 1, 1997 at any time in whole or from time to time in part, at
redemption prices described herein. In addition, Senior Notes may be subject to
mandatory redemption, at a redemption price of 104% of the aggregate principal
amount of Senior Notes so redeemed, plus accrued and unpaid interest thereon,
under certain circumstances following the consummation of a public offering of
the Company's capital stock. The Senior Notes will be effectively subordinated
to $407.9 million of secured indebtedness incurred by the Company to acquire
aircraft and other assets (the "Secured Debt"). Holders of the Secured Debt will
be senior to the holders of the Senior Notes with respect to the collateral
securing such indebtedness. See "Description of the Senior Notes." Prior to this
registration, there has been no public market for any of the Securities. The
Class B Common Stock and the Warrants have been approved for listing on The New
York Stock Exchange subject to official notice of issuance. The Company does not
intend to file an application to have either the Class A Common Stock or the
Senior Notes listed on a national exchange and does not expect an active trading
market to develop for either the Class A Common Stock or the Senior Notes.
The Selling Securityholders and any underwriters, brokers, dealers or
agents participating in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 as amended (the
"Securities Act"), and any profit on the sale of the Securities by the Selling
Securityholders and any commissions received by any such underwriters, brokers,
dealers or agents may be deemed to be underwriting commissions or discounts
under the Securities Act. Pursuant to the terms of the Registration Rights
Agreement (as hereinafter defined) the Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
Underwriters, brokers, dealers or agents effecting transactions in the
Securities should confirm the registration thereof under the securities laws of
the state in which such transactions will occur, or the existence of any
exemption from registration.
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is August 26, 1994
<PAGE> 2
AVAILABLE INFORMATION
America West Airlines, Inc. ("America West" or the "Company") is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information concerning America West can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
America West has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to America West and the
Securities offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto. The Registration Statement can be
inspected at the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Company is a Delaware corporation. Its executive offices are located at
4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034, and its telephone number
is (602) 693-0800.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus, which should be read in its entirety.
Prospective investors should carefully consider matters discussed under the
caption "Investment Considerations."
THE COMPANY
America West Airlines, Inc. ("America West" or the "Company") is a major
United States air carrier providing passenger, cargo and mail service with its
primary markets in the western and southwestern regions of the United States.
The Company operates its route system through two principal hubs, Phoenix,
Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio. As of July 31,
1994, America West operated a fleet of 85 jet aircraft and provided service to
45 destinations. Through alliance agreements with Mesa Airlines, Inc. ("Mesa"),
the Company provides connecting service to an additional 18 destinations. The
Company also has formed an alliance with Continental Airlines, Inc.
("Continental") to serve additional destinations.
The Company filed a voluntary petition for protection under Chapter 11 of
the federal bankruptcy code on June 27, 1991. The Company's plan of
reorganization (the "Plan") was confirmed by the United States Bankruptcy Court
for the District of Arizona (the "Bankruptcy Court") on August 10, 1994. The
Plan will become effective on the date (the "Effective Date") on which certain
conditions specified in the Plan are satisfied or waived, which the Company
expects to occur on or about August 25, 1994. In connection with its
reorganization in bankruptcy and related operational restructuring (the
"Reorganization"), the Company took significant steps to improve its operations,
including (i) reducing its fleet size from 123 aircraft in July 1991 to 85 at
July 31, 1994, facilitating a better matching of capacity to demand through
elimination of nonproductive routes; (ii) reducing the aircraft types operated
from five to three, resulting in reduced operating costs; (iii) implementing
certain enhancements to its revenue management system to optimize the level of
passenger revenues generated on each flight; (iv) eliminating Company operated
commuter service and introducing code sharing agreements to expand the scope of
service and attract a broader passenger base; and (v) implementing numerous cost
reduction programs, including a Company-wide pay reduction in August 1991 and
the reduction of aircraft lease rentals to fair market rates in the fall of
1992. As a result of these measures as well as a gradually improving economic
climate and a more stable environment relative to fare competition within the
airline industry, America West was one of only two major airlines to report a
profit in each quarter of 1993, realizing net income for 1993 of $37.2 million
and operating income of $121.1 million on revenues of $1.33 billion.
America West currently operates with one of the lowest cost structures
among major U.S. airlines, based on reported 1993 results. America West's
operating cost per available seat mile for 1993 was 7.01 cents, which was
approximately 25% lower than the average operating cost per available seat mile
of the nine largest other domestic airlines and was comparable to the costs
incurred by Southwest Airlines, Inc. ("Southwest Airlines"). The Company's
business strategy is to continue to offer competitive fares while maintaining an
incrementally higher level of service relative to low cost carriers generally.
These services include assigned seating, participation in computerized
reservation systems, interline ticketing, first class cabins on certain flights,
baggage transfer and various other services. Management believes that its
principal hub locations in Phoenix and Las Vegas not only provide a low cost
environment for a substantial portion of the Company's operations, but also
position the Company to benefit from an expanding market for leisure travel.
As a part of the Reorganization, the Company entered into certain
agreements (the "Alliance Agreements") with Continental and Mesa. With
Continental, the Company will implement certain code-sharing arrangements,
coordinate certain flight schedules, share ticket counter space, link frequent
flyer programs, and coordinate ground handling operations. With Mesa, America
West modified and extended two code-sharing agreements that establish Mesa as a
feeder carrier for the Company at its hubs in Phoenix and Columbus. The
code-sharing agreements provide for coordinated flight schedules, passenger
handling and computer reservations under the America West flight designator
code, thereby allowing passengers to
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purchase one air fare for their entire trip. Mesa connects 13 cities to the
Company's Phoenix hub, operates under the name "America West Express" and has
begun to incorporate the color scheme and commercial logo of America West on
certain aircraft utilized on these routes. Mesa serves five destinations from
the Company's Columbus mini-hub operations. Management believes the Alliance
Agreements will contribute significantly to the Company's passenger revenue and
operating results.
Pursuant to the Reorganization, the Company will substantially reduce its
outstanding debt and increase its liquidity through the infusion of new capital.
In addition, the Company has reached agreements with certain key suppliers of
aircraft. At June 30, 1994, prior to the Reorganization, the Company's long-term
debt including current maturities and estimated liabilities subject to Chapter
11 proceedings aggregated approximately $880 million. Such liabilities at June
30, 1994, adjusted to give pro forma effect to the consummation of the Plan,
would aggregate approximately $574 million.
Pursuant to the Reorganization, pre-existing equity interests of the
Company will be cancelled, the Company's obligations to other prepetition
creditors will be restructured and general unsecured nonpriority prepetition
creditors ("Prepetition Creditors") will receive, in full satisfaction of their
claims, approximately 26,053,185 shares of Class B Common Stock and $6,416,214
cash. Holders of the Company's pre-existing common equity interests will
receive, on a pro rata basis, 2,250,000 shares of Class B Common Stock and
Warrants to purchase 6,230,769 shares of Class B Common Stock. In addition,
pursuant to the exercise of subscription rights, holders of pre-existing equity
interests will receive 1,615,179 shares of Class B Common Stock for an aggregate
purchase price of $14,357,326 ($8.889 per share), including holders of
pre-existing preferred equity interests who will receive 250,000 shares of Class
B Common Stock for an aggregate purchase price of $2,222,250.
As part of the Reorganization and pursuant to an investment agreement (the
"Investment Agreement"), the Company will receive approximately $205.3 million
in cash upon the issuance to AmWest Partners, L.P. ("AmWest"), and to certain
assignees of AmWest (as described below), of (i) 1,200,000 shares of Class A
Common Stock, (ii) 12,981,636 shares of Class B Common Stock, (iii) Warrants to
purchase 2,769,231 shares of Class B Common Stock and (iv) $100 million of
Senior Notes. Certain funds managed or advised by Fidelity Management Trust
Company and its affiliates (collectively, "Fidelity") and Lehman Brothers Inc.
("Lehman") will purchase a portion of the Securities that otherwise would be
issued to AmWest pursuant to assignments by AmWest to those parties. Pursuant to
these assignments, Lehman will acquire 1,333,587 shares of Class B Common Stock
and Fidelity will acquire 3,270,311 shares of Class B Common Stock, Warrants to
purchase 133,488 additional shares of Class B Common Stock and $100 million of
Senior Notes. AmWest is a Texas limited partnership including as investors Mesa,
Continental and TPG Partners, L.P. and certain of its affiliates (collectively,
with its affiliates TPG Parallel I, L.P. and Air Partners II, L.P., "TPG"). TPG
Partners, L.P. is a Delaware limited partnership which is acquiring aggregate
beneficial ownership of securities representing 43.2% of the combined voting
power of America West securities (including shares to be acquired for existing
equity interests held by TPG). The general partner of AmWest is AmWest GenPar,
Inc., a Texas corporation. The controlling persons of AmWest GenPar also control
TPG. See "Investment Considerations -- Concentration of Voting Power; Influence
of AmWest or its Partners" and "Principal Stockholders." AmWest has advised the
Company that it expects to assign its rights to acquire securities pursuant to
the Investment Agreement to its partners and certain of their respective
affiliates. Pursuant to the Reorganization, Lehman, Fidelity and TPG will
receive additional shares of Class B Common Stock for their existing claims and
interests. These shares are also subject to the Registration Statement of which
this Prospectus is a part.
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THE OFFERING
The principal terms of the Common Stock, Senior Notes and Warrants are
summarized below. For a more complete description, see "Description of Capital
Stock," "Description of the Senior Notes" and "Description of Warrants,"
respectively. The Selling Securityholders will receive all of the proceeds from
the sale of the Securities offered hereby, and the Company will not receive any
proceeds from the Offering.
Common Stock:
Securities Offered............... 1,200,000 shares of Class A Common Stock
18,573,704 shares of Class B Common Stock
Common Stock outstanding(1)...... 1,200,000 shares of Class A Common Stock
43,800,000 shares of Class B Common Stock
Total.................. 45,000,000 shares of Common Stock
Voting Rights.................... Class A and Class B Common Stock have
identical economic rights and privileges
and rank equally, share ratably, and are
identical in all respects as to all matters
other than voting rights. The Class A
Common Stock votes together with the Class
B Common Stock on all matters except as
otherwise required by law. Each share of
Class B Common Stock has one vote; each
share of Class A Common Stock has 50 votes.
Listing.......................... The Class B Common Stock has been approved
for listing on the New York Stock Exchange.
The Company does not intend to apply for
listing of the Class A Common Stock on any
securities exchange or authorization
quotation on the NASDAQ System. The Company
does not expect that an active trading
market for the Class A Common Stock will
develop.
Trading Symbol................... "AWA"
- ---------------
(1) Excluding 10,384,615 shares of Class B Common Stock reserved for issuance
upon exercise of outstanding Warrants and 125,000 shares of Class B Common
Stock to be issued in connection with a reorganization success bonus.
Senior Notes:
Securities Offered............... $100,000,000 aggregate principal amount of
Senior Notes
Maturity......................... The seventh anniversary of the date of
issuance
Interest Rate.................... The Senior Notes will bear interest at a
rate of 11 1/4% per annum. Interest will
accrue from the date of issuance thereof
and will be payable semi-annually in
arrears on each March 1 and September 1,
commencing March 1, 1995.
Ranking.......................... The Senior Notes will rank senior in right
of payment to all existing and future
subordinated Indebtedness (defined in the
Indenture) of the Company and will rank
pari passu in right of payment with all
other Indebtedness of the Company. Certain
Indebtedness, however, including the
Secured Debt, will be effectively senior in
right of payment to the Senior Notes with
respect to assets that constitute
collateral securing such other
Indebtedness.
Optional Redemption.............. The Senior Notes offered hereby may be
redeemed at the option of the Company (i)
prior to September 1, 1997, (A) at any
time, in whole but not in part, at a
redemption price of 105% of the principal
amount of the Senior Notes plus accrued and
unpaid interest, if any, to the redemption
date or (B) from time to time in part from
the net proceeds of a public offering of
its capital stock at a redemption price
equal to 105% of the principal amount, plus
accrued and
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unpaid interest, if any, to the
redemption date except for amounts
mandatorily redeemed; and (ii) on or after
September 1, 1997 at any time in whole or
from time to time in part, at a redemption
price equal to the following percentage of
the principal amount redeemed, plus
accrued and unpaid interest to the date of
redemption, if redeemed during the
12-month period beginning:
SEPTEMBER
1, PERCENTAGE
----------- ----------
1997.... 105.0%
1998.... 103.3%
1999.... 101.7%
2000.... 100.0%
Mandatory Redemption............. In the event that, prior to September 1,
1997, the Company consummates a Public
Offering Sale, as defined in the Indenture,
and immediately prior to such consummation
the Company has cash and cash equivalents,
not subject to any restriction on
disposition, of at least $100,000,000, then
the Company shall redeem Senior Notes at a
redemption price equal to 104% of the
aggregate principal amount of the Senior
Notes so redeemed, plus accrued and unpaid
interest to the redemption date. The
aggregate redemption price and accrued and
unpaid interest of the Senior Notes to be
so redeemed shall equal the lesser of (a)
50% of the net offering proceeds of such
Public Offering Sale and (b) the excess, if
any, of (i) $20,000,000 over (ii) the
amount of any net offering proceeds of any
prior Public Offering Sale received prior
to September 1, 1997 and applied to so
redeem Senior Notes.
Principal Covenants.............. The Indenture contains numerous covenants
including covenants governing the
disposition of the proceeds of certain
underwritten public offerings of Common
Stock of the Company, limiting certain
Restricted Payments, limiting certain
transactions with Affiliates, limiting
certain sales of assets, limiting certain
investments and allowing a holder
repurchase rights upon a change of control.
Listing.......................... The Company does not intend to apply for
listing of the Senior Notes on any
securities exchange or authorization for
quotation on the NASDAQ system. The Company
does not expect that an active trading
market will develop for the Senior Notes.
Warrants:
Securities Offered............... 5,846,263 Warrants, each entitling the
holder to purchase one share of Class B
Common Stock at a price (the "Exercise
Price") of $12.74 per share subject to
confirmation of such price by the
Bankruptcy Court pursuant to a final order
and to adjustment as provided in the
Warrant Agreement.
Warrants to be Outstanding after
the Offering..................... 10,384,615 Warrants
Expiration....................... The Warrants are exercisable by the holders
at any time on or after the date on which
the Exercise Price has been confirmed by
the Bankruptcy Court pursuant to a final
order (the "Initial Exercise Date") and
prior to the fifth anniversary of the
Effective Date.
Redemption....................... The Warrants are not redeemable.
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Anti-Dilution.................... The number of shares of Class B Common
Stock purchasable upon exercise of each
Warrant will be adjusted upon, among other
things, (i) issuance of a dividend in or
other distribution of Common Stock to
holders of Common Stock; (ii) a
combination, subdivision or
reclassification of the Class B Common
Stock; and (iii) rights issuances.
Voting Rights.................... Warrant holders have no voting rights.
Listing.......................... The Warrants have been approved for listing
on the New York Stock Exchange. Trading in
the Warrants shall not be permitted prior
to the Initial Exercise Date.
Trading Symbol................... "AWAws"
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SUMMARY FINANCIAL DATA
The summary financial data set forth below presents historical and pro
forma financial information of the Company. The financial information at June
30, 1994 and 1993 and for the six months then ended has been derived from the
unaudited condensed financial statements of the Company which, in the opinion of
management, include all adjustments, consisting only of normal adjustments,
necessary for a fair presentation of the results for the periods. The results
for the six months ended June 30, 1994 are not necessarily indicative of the
results to be expected for the full year. The summary information should be read
in conjunction with the financial statements and related notes thereto appearing
elsewhere in this Prospectus, "Unaudited Pro Forma Condensed Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------- --------------------------------
1993 1994
------------------------- ---------------------
PRO PRO
1991 1992 HISTORICAL FORMA(A) 1993 HISTORICAL FORMA(A)
---------- ---------- ---------- ------------ -------- ---------- --------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues................... $1,413,925 $1,294,140 $1,325,364 $1,325,364 $641,515 $708,615 $708,615
Operating expenses................... 1,518,582 1,368,952 1,204,310 1,206,266 599,168 626,719 629,813
Operating income (loss).............. (104,657) (74,812) 121,054 119,098 42,347 81,896 78,802
Income (loss) before income taxes.... (222,016) (131,761) 37,924 55,532 12,647 36,782 50,504
Income tax expense................... -- -- 759 34,913 253 1,471 26,215
Net income (loss).................... (222,016) (131,761) 37,165 20,619 12,394 35,311 24,289
Earnings (loss) per share:
Primary.......................... (10.39) (5.58) 1.50 0.46 0.52 1.30 0.54
Fully diluted.................... (10.39) (5.58) 1.04 0.46 0.36 0.92 0.54
Shares used for computation:
Primary.......................... 21,534 23,914 27,525 45,125 29,669 28,704 45,125
Fully diluted.................... 21,534 23,914 41,509 45,125 42,804 40,607 45,125
Ratio of earnings to fixed
charges(b)......................... -- -- 1.28 1.39 1.18 1.56 1.74
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1994
YEAR ENDED -------------------------
DECEMBER 31, PRO
1993 HISTORICAL FORMA(A)
------------ ---------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficiency................................................. $ (124,375) $ (106,760) $ (21,144)
Total assets............................................................... 1,016,743 1,100,541 1,639,042
Long-term debt, less current maturities.................................... 620,992 604,420 518,264
Total stockholders' equity (deficiency).................................... (254,262) (215,338) 587,500
</TABLE>
- ---------------
(a) Pro Forma information gives effect to the consummation of the Plan,
including adjustments for fresh start reporting. Pro forma statement of
operations data for the year ended December 31, 1993 and the six-month
period ended June 30, 1994 is presented as if the Plan were consummated on
January 1, 1993; balance sheet data at June 30, 1994 is presented as if the
Plan were consummated on such date. See "Unaudited Pro Forma Condensed
Financial Information." These amounts are presented for informational
purposes only and do not purport to represent what the Company's financial
position or results of operations would have been if consummation of the
Plan had occurred on such dates.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income (loss) before taxes plus fixed charges less capitalized
interest. "Fixed charges" consist of interest expense including amortization
of debt issuance costs, capitalized interest and a portion of rent expense
which is deemed to be representative of an interest factor. For the years
ended December 31, 1992 and 1991, earnings were insufficient to cover fixed
charges by $131,761,000 and $228,680,000, respectively.
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INVESTMENT CONSIDERATIONS
HISTORY OF LOSSES
The Company experienced significant operating losses in each year of the
three year period ended December 31, 1992, and the Company operated as a
debtor-in-possession under Chapter 11 of the federal bankruptcy code from June
27, 1991 to the Effective Date. Although the Company's results of operations
improved in 1993, the airline industry has been extremely competitive and
generally unprofitable in recent years. In the long term, the Company's
viability is dependent upon its ability to sustain profitable results of
operations, and there can be no assurance that such results can be sustained.
ADVERSE INDUSTRY CONDITIONS AND COMPETITION
The airline industry is highly competitive. Overall industry profit margins
have traditionally been low and, in each year of the three year period ended
December 31, 1992, were substantially negative. Airlines compete in the areas of
pricing, scheduling (frequency and flight times), on-time performance, frequent
flyer programs and other services. Many of America West's competitors are
carriers with substantially greater financial resources.
The airline industry is susceptible to price discounting, which involves
the offering of discount or promotional fares to passengers. Any such fares
offered by one airline are normally matched by competing airlines, which results
in lower industry yields. In 1992 American Airlines introduced a new fare
structure followed by a deeply discounted summer sale. These steps were
generally matched by other U.S. airlines, including America West, and resulted
in substantially depressed industry yields and significant 1992 losses for most
of the major U.S. airlines. American Airlines and the rest of the domestic
airline industry subsequently abandoned that pricing structure, and fare levels
increased in 1993 from 1992 levels. Nonetheless, significant industry-wide
discounts could be re-implemented at any time, and the introduction of broadly
available, deeply discounted fares by a major U.S. airline would likely result
in lower yields for the entire industry and could have a material adverse effect
on the Company's operating results.
Several of the Company's markets, including those in New York City, Texas,
Southern California, Washington, D.C., Chicago and Las Vegas, are served by
larger carriers and are highly competitive. On many routes, and in particular
those routes between Phoenix and California, fare competition has made it
difficult for the Company to raise fares except on a selective basis. Intense
fare competition with respect to certain markets has adversely affected
passenger yield and, as a result, profitability.
In recent years several new carriers have entered the industry, typically
with low cost structures. Aircraft, skilled labor and gates at most airports
continue to be available to start-up carriers. In some cases, new entrants have
initiated or triggered further price discounting. The entry of additional new
carriers on many of the Company's routes (as well as increased competition from
established carriers) could negatively impact America West's results of
operations.
INCREASES IN FUEL PRICES
Fuel costs constituted approximately 14% of America West's total operating
expenses during 1993. A one cent per gallon change in fuel price would affect
the Company's annual operating results by approximately $3 million at present
consumption levels. Accordingly, either a substantial increase in fuel prices or
the lack of adequate fuel supplies in the future would likely have a material
adverse effect on the operations of the Company. Moreover, fuel price increases
or supply shortages, such as those that occurred during the Persian Gulf war,
can occur at any time as a result of, among other things, geopolitical
developments.
The Company purchases fuel on standard trade terms under master agreements
and has been able to obtain fuel sufficient to meet its requirements at
competitive prices. The Company does not currently hedge its fuel costs. In
August 1993, the United States government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. Airlines are exempt from this tax
increase until October 1, 1995. When implemented, this new tax will increase the
Company's annual operating expenses by approximately $13 million based upon its
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<PAGE> 10
1993 fuel consumption levels. There can be no assurance that the U.S. government
will not impose additional taxes on fuel in the future or that such taxes will
not materially affect the Company's results of operations.
LEVERAGE
Although the Reorganization will improve the Company's financial position,
the Company will be highly leveraged after the Effective Date. This high degree
of leverage will pose substantial risks to holders of the Securities and could
have a material adverse effect on the marketability, price and future value of
such Securities. This high degree of leverage will increase the reorganized
Company's vulnerability to adverse general economic and airline industry
conditions and to increased competitive pressures.
CONCENTRATION OF VOTING POWER; INFLUENCE OF AMWEST AND ITS PARTNERS
At the Effective Date, it is anticipated that AmWest and its partners will
own approximately 20.2% of the shares of Class B Common Stock to be outstanding
immediately after the Effective Date (excluding shares to be acquired by Lehman
and Fidelity as assignees under the Investment Agreement, but including shares
to be acquired by AmWest and its partners in exchange for existing interests)
and 100% of the Class A Common Stock, and thereby will control approximately
66.3% of the voting power of America West (67.4% assuming the exercise of
Warrants issued to such holders). As a result, AmWest or its partners will be
able to elect a majority of its designees to the Board of Directors and
otherwise to control the Company by, among other things, taking or approving
actions to (i) amend the America West charter or effect a merger, sale of assets
or other major corporate transaction; (ii) defeat any takeover attempt; (iii)
determine the amount of dividends, if any, paid to itself and the other holders
of Common Stock; and (iv) otherwise control the outcome of virtually all matters
submitted for a vote of the stockholders of the Company. Two of the partners of
AmWest, Mesa and Continental, are engaged in the airline industry and are
parties to certain agreements with the Company. In addition, the control persons
of AmWest GenPar, Inc., the general partner of AmWest, also control both Air
Partners L.P., a special purpose partnership formed in 1992 to participate in
the funding of the reorganization of Continental and a significant shareholder
in Continental, and TPG, a Delaware limited partnership which is acquiring
aggregate beneficial ownership of securities representing 43.3% of the combined
voting power of America West securities. See "Principal Stockholders." As a
result, there can be no assurance that the interests of Continental, Mesa or TPG
will not differ from the interests of the Company or that either party will not
seek to influence the Company in a manner that serves its interests.
Pursuant to the terms of the Stockholders' Agreement among the Company,
AmWest and certain other stockholders or their representatives, AmWest has
agreed to certain limitations on its ability to control the Company, including,
that for a three-year period beginning with the Effective Date, the Company
shall have a 15-member Board of Directors, six members of which may be
designated by parties other than AmWest or its partners (including three
Creditors' Committee Directors, one Equity Committee Director, one Independent
Company Director and one GPA Director, as such terms are defined in the
Stockholders' Agreement). The Stockholders' Agreement also contains other
restrictions on AmWest's ability to effect certain transactions involving the
Company. See "Principal Stockholders -- Stockholders' Agreements."
LIMITED TRADING MARKET; SHARES ELIGIBLE FOR FUTURE SALE
There has been no trading market in the Securities prior to the Effective
Date. There can be no assurance regarding the development of an active market
for these Securities. Accordingly, there is no assurance that a holder of such
Securities will be able to sell such Securities in the future or as to the price
at which any such sale may occur. If a market should develop, it is anticipated
that such market may be volatile, at least for an initial period of time after
the Effective Date, and that certain of the recipients of the Securities in the
Reorganization may prefer to liquidate their investments rather than to hold
their investments on a long-term basis.
Substantially all of the 43,800,000 outstanding shares of Class B Common
Stock (assuming no exercise of the outstanding warrants) will be freely
tradeable, subject to certain restrictions with respect to shares held by AmWest
or its partners or assignees. These shares include 13,881,636 shares of Class B
Common Stock to be issued to the Selling Securityholders pursuant to the
Investment Agreement and arrangements with GPA, (all of which are covered by the
Registration Statement of which this Prospectus is a part), 26,053,185 shares
10
<PAGE> 11
of Class B Common Stock to be distributed to prepetition creditors and 2,250,000
shares of Class B Common Stock to be issued to pre-existing common equity
holders. In addition, at the Effective Date, the Company will issue Warrants to
purchase 10,384,615 shares of Class B Common Stock. The Warrants will be
immediately exercisable, and the Company believes that substantially all of the
shares of Class B Common Stock issuable upon such exercise will be freely
tradeable.
LIMITATION ON VOTING BY FOREIGN OWNERS
The Company's Restated Certificate of Incorporation provides that no more
than 25% of the voting interest of the Company may be owned or controlled by
persons who are not U.S. citizens and that the voting rights of such persons are
subject to automatic suspension to the extent required to ensure that the
Company is in compliance with applicable laws relating to ownership or control
of a U.S. carrier. United States law currently requires that no more than 25% of
the voting stock of the Company (or any other domestic airline) may be owned
directly or indirectly by persons who are not citizens of the United States. See
"Description of Capital Stock -- Limitation on Voting by Foreign Owners."
LABOR NEGOTIATIONS
The Company historically has operated without collective bargaining
agreements covering any of its employees. In October 1993, however, the Air Line
Pilots Association ("ALPA") was certified as the bargaining representative of
the Company's flight deck crew members, and formal negotiations of a collective
bargaining agreement have commenced. In addition, elections will be held during
September, 1994 on a proposal by the Association of Flight Attendants ("AFA") to
represent the Company's customer service representatives and the Company
anticipates that an election will be held during 1994 with respect to a proposal
by the Transportation Workers Union ("TWU") to represent the Company's fleet
service personnel. On August 1, 1994 the International Brotherhood of Teamsters
("IBT") filed an application to represent the Company's mechanics and related
personnel. The Company cannot predict whether either the AFA, TWU or the IBT
will be certified to represent any of the Company's employees. Furthermore,
there can be no assurance that a future collective bargaining agreement with any
of the ALPA, AFA, TWU or IBT will not contain wage increases, work rules or
other provisions that could materially affect the Company's operations or
financial performance. See "Business -- Employees."
GOVERNMENT REGULATION
The Company is subject to the Federal Aviation Act of 1958, as amended (the
"Aviation Act"), under which the Department of Transportation (the "DOT") and
the Federal Aviation Administration (the "FAA") exercise regulatory authority.
This regulatory authority includes (i) the determination and periodic review of
the fitness (including financial fitness) of air carriers; (ii) the
certification and regulation of the flight equipment; (iii) the approval of
personnel who may engage in flight, maintenance and operations activities; and
(iv) the approval of flight training activities and the enforcement of minimum
air safety standards set forth in FAA regulations. In accordance with the
Airline Deregulation Act of 1978, domestic airline fares and routes are no
longer subject to significant regulation. The DOT maintains authority over
international aviation, subject to review by the President of the United States,
and has jurisdiction over consumer protection policies, computer reservation
system issues and unfair trade practices.
In the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, retirement of
older aircraft, collision avoidance system, airborne windshear avoidance
systems, noise abatement and increased inspections and maintenance procedures to
be conducted on older aircraft. Additional laws and regulations have been
proposed from time to time which could significantly increase the cost of
airline operations by imposing additional requirements or restrictions on
operations. Laws and regulations have been considered from time to time that
would prohibit or restrict the ownership and transfer of airline routes or
slots. There is no assurance that laws and regulations currently enacted or
enacted in the future will not adversely affect the Company's ability to
maintain its current level of operating results. See "Business -- Government
Regulations."
11
<PAGE> 12
FUTURE CAPITAL REQUIREMENTS
After giving effect to the Reorganization on a pro forma basis, as of June
30, 1994, America West had $573.7 million of long-term indebtedness (including
current maturities) and $587.5 million of stockholders' equity. As of such date,
the Company had $221.2 million of cash and cash equivalents on a pro forma
basis. America West does not have available lines of credit or significant
unencumbered assets. America West is more leveraged and has significantly less
liquidity than certain of its competitors, several of whom have available lines
of credit or significant unencumbered assets. Accordingly, the Company may be
less able than certain of its competitors to withstand a prolonged economic
recession.
As of June 30, 1994, the Company had significant capital commitments,
including firm commitments and options for a substantial number of new aircraft
with a cost aggregating approximately $2.7 billion, a total which is subject to
change pending the outcome of current negotiations. Upon the Effective Date, the
Company will have an obligation to lease up to eight aircraft pursuant to put
rights held by a third party. The Company will require substantial capital from
external sources to meet these financial commitments. The Company has no current
financing arrangements for most of its aircraft purchase commitments and intends
to seek additional financing (which may include public debt financing or private
financing) in the future when and as appropriate. There can be no assurance that
sufficient financing will be obtained for all aircraft and other capital
requirements. A default by the Company under any such commitment could have a
material adverse effect on the Company.
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
The reports of the Company's independent certified public accountants
covering the December 31, 1993 financial statements and schedules contain an
explanatory paragraph that states that the Company's Chapter 11 proceeding,
significant losses, accumulated deficit and highly leveraged capital structure
raise substantial doubt about its ability to continue as a going concern. The
financial statements and schedules do not include any adjustments that might
result from the outcome of these uncertainties. These reports do not cover the
pro forma financial statements included elsewhere in this Prospectus and,
accordingly, do not address the impact of consummation of the Plan on the
Company.
12
<PAGE> 13
THE COMPANY
GENERAL
America West is a major United States air carrier providing passenger,
cargo and mail service, with its primary markets in the western and southwestern
regions of the United States. The Company operates its route system through two
principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in
Columbus, Ohio. As of July 31, 1994, America West operated a fleet of 85 jet
aircraft and provided service to 45 destinations. Through alliances with Mesa,
the Company provides connecting service to an additional 18 destinations. The
Company also has formed an alliance with Continental to serve additional
destinations.
America West currently operates with one of the lowest cost structures
among the major U.S. airlines, based on reported 1993 results. America West's
operating cost per available seat mile for 1993 was 7.01 cents, which was
approximately 25% lower than the average operating cost per available seat mile
of the nine largest other domestic airlines and was comparable to the costs
incurred by Southwest Airlines. The Company's business strategy is to continue
to offer competitive fares while maintaining an incrementally higher level of
service relative to low cost carriers generally. These services include assigned
seating, participation in computerized reservation systems, interline ticketing,
first class cabins on certain flights, baggage transfer and various other
services. Management believes that its principal hub locations in Phoenix and
Las Vegas not only provide a low cost environment for a substantial portion of
the Company's operations, but also position the Company to benefit from an
expanding market for leisure travel.
The Company's principal offices are located at 4000 East Sky Harbor
Boulevard, Phoenix, Arizona 85034. The Company's telephone number is (602)
693-0800.
BACKGROUND TO THE REORGANIZATION
America West commenced operations in 1983 with three aircraft serving four
destinations from Phoenix, Arizona. America West's original route structure
consisted primarily of shorter-haul routes in the southwestern market, which
brought it into direct competition with certain low fare airlines, particularly
Southwest Airlines. Throughout the 1980s, America West financed rapid expansion
of its fleet, with corresponding significant increases in debt and lease
obligations. In addition, in the late 1980s, the Company entered the long-haul
and, on a very limited basis, international markets. The Company introduced
several aircraft types into its fleet in order to pursue this strategy. By July
1991, the Company operated a fleet of 123 aircraft serving 54 destinations in
the continental United States, Hawaii, Canada and Japan.
The Company experienced a significant net loss for the last six months of
1990, as revenues were lower than anticipated and fuel costs were higher than
anticipated. The Persian Gulf conflict, which began in August of 1990, the fear
of terrorism and the deepening national recession produced depressed traffic
levels, higher fuel prices and fierce price competition in the airline industry.
Beginning in February 1991, the Company undertook a series of actions designed
to improve its cash position and reduce costs, including significant fare
promotions and pay reductions. In June 1991, however, the Company faced a severe
liquidity crisis and filed for protection under Chapter 11 of the United States
Bankruptcy Code.
During the bankruptcy case, the Company operated as a debtor-in-possession
and implemented an operational restructuring pursuant to which it has:
- Reduced its fleet size from 123 aircraft in July 1991 to 85 at July 31,
1994, facilitating a better matching of capacity to demand through
elimination of nonproductive routes.
- Reduced the aircraft types operated from five to three, resulting in
reduced operating costs, including those related to maintenance, training
and parts inventories.
- Implemented certain enhancements to its revenue management system to
optimize the level of passenger revenues generated on each flight.
- Eliminated Company operated commuter service and introduced code-sharing
agreements to expand the Company's scope of service and attract a broader
passenger base.
13
<PAGE> 14
- Implemented numerous cost reduction programs, including a Company-wide
pay reduction in August 1991 and reduction of aircraft lease rentals to
fair market rates in the summer of 1992.
These programs, combined with a gradually improving economic climate and a
more stable environment relative to fare competition within the airline
industry, enabled the Company to realize operating income of $121.1 million in
1993, compared to operating losses of $74.8 million and $104.7 million for 1992
and 1991, respectively.
THE PLAN OF REORGANIZATION
On August 10, 1994, the order of the Bankruptcy Court confirming the Plan
became final. The Plan will be consummated on the Effective Date when certain
conditions specified in the Plan are satisfied or waived. The Company expects
that the Effective Date will occur on or about August 25, 1994.
Pursuant to the Plan, after giving effect to various elections made by
general unsecured creditors and the exercise of certain subscription rights by
certain holders of pre-existing equity interests, the following will occur upon
the Effective Date:
- AmWest (together with Lehman and Fidelity, as assignees of AmWest) will
invest $205.3 million in consideration for the issuance of securities by
the Company, consisting of (i) 1,200,000 shares of Class A Common Stock
at a price of $7.467 per share; (ii) 12,981,636 shares of Class B Common
Stock, including 12,259,821 shares at a price of $7.467 per share and
721,815 shares at $8.889 per share (representing shares acquired as a
result of cash elections made by unsecured creditors as described below);
(iii) 2,769,231 Warrants to purchase shares of Class B Common Stock; and
(iv) $100 million principal amount of Senior Notes.
- The general unsecured creditors of the Company will be issued an
aggregate of 26,053,185 shares of Class B Common Stock and cash
aggregating $6,416,214 (such cash representing $8.889 per share paid to
unsecured creditors electing to receive cash in lieu shares of Class B
Common Stock).
- TPG and Fidelity, the holders of preferred equity interests of the
Company prior to the Reorganization will receive their pro rata share of
(i) $500,000 and (ii) 250,000 shares of Class B Common Stock
(representing shares acquired pursuant to certain subscription rights at
a price of $8.889 per share).
- Holders of common equity interests in the Company prior to the
Reorganization will be issued 3,615,179 shares of Class B Common Stock
(1,365,179 of which shares are to be issued in exchange for cash,
aggregating $12,135,076, provided by such equity holders upon the
exercise of rights to subscribe for such shares at a price of $8.889 per
share), and will receive 6,230,769 Warrants to purchase shares of Class B
Common Stock.
- In exchange for certain concessions principally arising from cancellation
of the right of Guinness Peat Aviation ("GPA") affiliates to put to
America West 10 Airbus A320 aircraft at specified rates, GPA, or certain
affiliates thereof, will receive (i) 900,000 shares of Class B Common
Stock; (ii) 1,384,615 Warrants; (iii) a cash payment of approximately
$30.5 million; (iv) the right to require the Company to lease up to eight
aircraft of types operated by the Company on terms that the Company
believes to be more favorable than those currently applicable to the put
aircraft, which right must be exercised prior to June 30, 1999; and (v)
the right to designate one director of the Company.
- Approximately $77.6 million of debtor-in-possession ("D.I.P.") financing
and the $62.7 million priority term loan will be repaid in full in cash.
- Continental, Mesa and America West will enter into certain Alliance
Agreements relating to code-sharing, schedule coordination and certain
other relationships and agreements.
- The Company's Board of Directors will be reconstituted to include 15
members, of which nine shall be designated by AmWest, three shall be
designated by the Official Committee of Unsecured Creditors (the
"Creditors' Committee") and one shall be designated by each of the
Official Committee of Equity Security Holders (the "Equity Committee"),
GPA and the pre-Reorganization Board of Directors.
14
<PAGE> 15
- The Plan also provides for many other matters, including the satisfaction
of certain other prepetition claims in accordance with negotiated
settlement agreements, the disposition of the various types of claims
asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase
agreements and release of the Company's employees from all currently
existing obligations arising under the Company's stock purchase plan in
consideration for the cancellation of the shares of Company stock
securing such obligations.
The foregoing is a summary of the material aspects of the Plan. A complete
copy of the Plan has been filed as an exhibit to the Registration Statement.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Securities
by the Selling Securityholders.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company expects that it will retain all available earnings generated
by the Company's operations for the development and growth of its business. Any
future determination as to the payment of dividends will be made in the
discretion of the Board of Directors of the Company and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant. The Company expects that certain loan agreements including the
Indenture covering the Senior Notes will restrict the payment of cash dividends
on the Common Stock under certain circumstances. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
15
<PAGE> 16
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1994, and as adjusted to give pro forma effect to the consummation
of the Plan at that date. The presentation does not purport to represent what
the Company's actual capitalization would have been had such transactions in
fact been consummated on such date. The table should be read in conjunction with
the Company's financial statements and the related notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Unaudited Pro Forma Condensed Financial Information" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1994
-------------------------
PRO
HISTORICAL FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities:
Estimated liabilities subject to Chapter 11 proceedings........... $ 379,814 $ --(2)
Long-term debt, including current maturities...................... 500,018 475,249(3)
11 1/4% Senior Unsecured Notes due 2001........................... -- 98,425(4)
---------- ----------
Total long-term debt, including current maturities........ 879,832 573,674
Stockholders' equity (deficiency)(1):
Preferred stock................................................... 18 --
Common stock...................................................... 6,424 --
NewAWA Class A Common Stock....................................... -- 12(4)
NewAWA Class B Common Stock....................................... -- 438(4)
Additional paid in capital........................................ 200,013 587,050(4)
Accumulated deficit............................................... (403,315) --
---------- ----------
(196,860) 587,500
Less deferred compensation and notes receivable -- employee
stock purchase plans........................................... 18,478 --(5)
---------- ----------
Total stockholders' equity (deficiency)................... (215,338) 587,500
---------- ----------
Total capitalization................................................ $ 664,494 $1,161,174
========= ==========
</TABLE>
- ---------------
(1) Does not include 10,384,615 shares of Class B Common Stock reserved for
issuance upon exercise of the Warrants.
(2) Reflects cancellation of liabilities subject to Chapter 11 proceedings.
(3) Reflects additional long-term debt issued in connection with settlement of
claims.
(4) Reflects issuance of $100 million 11 1/4% Senior Notes due 2001 net of
$1.575 million discount, issuance of Class A and Class B Common Stock, the
settlement of claims and recording of equity value of the reorganized
Company.
(5) Reflects forgiveness of employee notes receivable and the write-off of
related deferred compensation under employee stock purchase plans.
16
<PAGE> 17
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1993, are derived from the
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
financial statements as of December 31, 1993 and 1992, and for each of the years
in the three-year period ended December 31, 1993, and the report thereon, are
included elsewhere in this Prospectus.
The selected data should be read in conjunction with the financial
statements for the three-year period ended December 31, 1993, the related notes
and the independent auditors' report, which contains an explanatory paragraph
that states that the Company's Chapter 11 proceeding, significant losses,
accumulated deficit and highly leveraged capital structure raise substantial
doubt about its ability to continue as a going concern, appearing elsewhere in
this Prospectus. The financial statements and the selected data do not include
any adjustments that might result from the outcome of these uncertainties. As a
result of the Company filing a voluntary petition to reorganize under Chapter 11
of the U.S. Bankruptcy Code on June 27, 1991 and operating as a
debtor-in-possession thereafter, the selected financial data for periods prior
to June 27, 1991 are not comparable to periods subsequent to such date. The
selected data presented below for the six-month periods ended June 30, 1994 and
1993 and as of June 30, 1994 are derived from the unaudited condensed financial
statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------------- -------------------------
1989 1990 1991 1992 1993 1993 1994
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues......... $993,409 $1,315,804 $1,413,925 $1,294,140 $1,325,364 $ 641,515 $ 708,615
Operating expenses......... 945,293 1,347,435 1,518,582 1,368,952 1,204,310 599,168 626,719
Operating income (loss).... 48,116 (31,631) (104,657) (74,812) 121,054 42,347 81,896
Income (loss) before income
taxes and extraordinary
items.................... 20,040 (76,695) (222,016) (131,761) 37,924 12,647 36,782
Income tax expense......... 7,237 -- -- -- 759 253 1,471
Income (loss) before
extraordinary items...... 12,803 (76,695) (222,016) (131,761) 37,165 12,394 35,311
Extraordinary items(a)..... 7,215 2,024 -- -- -- -- --
Net income (loss).......... 20,018 (74,671) (222,016) (131,761) 37,165 12,394 35,311
Earnings (loss) per share:
Primary:
Before extraordinary
items................ 0.61 (4.26) (10.39) (5.58) 1.50 0.52 1.30
Extraordinary
items(a)............. 0.39 0.11 -- -- -- -- --
Net earnings (loss).... 1.00 (4.15) (10.39) (5.58) 1.50 0.52 1.30
Fully diluted............ 1.00 (4.15) (10.39) (5.58) 1.04 0.36 0.92
Shares used for
computation:
Primary.................. 20,626 18,396 21,534 23,914 27,525 29,669 28,704
Fully diluted............ 20,626 18,396 21,534 23,914 41,509 42,804 40,607
Ratio of earnings to fixed
charges(b)............... 1.12 -- -- -- 1.28 1.18 1.56
BALANCE SHEET DATA:
Working capital
deficiency............... $(18,884) $ (94,671) $ (51,158) $ (201,567) $ (124,375) $ (188,171) $ (106,760)
Total assets............... 835,885 1,165,256 1,111,144 1,036,441 1,016,743 1,031,371 1,100,541
Long-term debt, less
current maturities....... 474,908 620,701 726,514 647,015 620,992 634,435 604,420
Total stockholders' equity
(deficiency)............. 87,203 21,141 (166,510) (294,613) (254,262) (279,626) (215,338)
</TABLE>
- ---------------
(a) Includes extraordinary items of $2,024,000 in 1990 resulting from the
purchase and retirement of convertible subordinated debentures and, in 1989,
income tax benefits resulting from the utilization of net operating loss
carryforwards amounting to $7,215,000.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income (loss) before taxes and extraordinary items plus fixed
charges less capitalized interest. "Fixed charges" consist of interest
expense including amortization of debt issuance cost, capitalized interest
and a portion of rent expense which is deemed to be representative of an
interest factor. For the years ended December 31, 1992, 1991 and 1990,
earnings were insufficient to cover fixed charges by $131,761,000,
$228,680,000 and $83,070,000, respectively.
17
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheet and unaudited pro
forma condensed statement of operations are based on the statements of America
West included elsewhere in this Prospectus, as adjusted to give effect to the
consummation of the Plan. The unaudited pro forma condensed statements of
operations have been prepared as if the Reorganization had occurred on January
1, 1993. The unaudited pro forma condensed balance sheet has been prepared
assuming the consummation of the Plan had occurred on June 30, 1994.
The unaudited pro forma condensed financial information and accompanying
notes should be read in conjunction with the Company's financial statements and
the notes thereto appearing elsewhere in this Prospectus. The Unaudited Pro
Forma Condensed Financial Information is presented for informational purposes
only and does not purport to represent what the Company's financial position or
results of operations would actually have been if the consummation of the Plan
had occurred on such date or at the beginning of the period indicated, or to
project the Company's financial position or results of operations at any future
date or for any future period.
18
<PAGE> 19
AMERICA WEST AIRLINES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA ADJUSTMENTS JUNE 30,
1994 --------------------------- 1994
(HISTORICAL) DEBIT CREDIT (PRO FORMA)
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 176,922 $ 98,425(1e) $ 77,561(1b) $ 221,230
114,857(1d) 65,391(1a)
35,600(2) 61,622(3)
Accounts receivable, net.......................... 78,207 -- 4,400(2) 73,807
Expendable spare parts and supplies, net.......... 28,622 -- 4,425(4a) 24,197
Prepaid expenses.................................. 32,888 -- -- 32,888
------------ ---------- ---------- -----------
Total current assets....................... 316,639 248,882 213,399 352,122
------------ ---------- ---------- -----------
Property and equipment, net, and equipment purchase
deposits.......................................... 709,154 -- 145,654(4a) 546,066
17,434(1a)
Restricted cash..................................... 50,468 -- 31,200(2) 19,268
Other assets........................................ 24,280 501(4a) 23,779
Reorganization value in excess of amounts allocable
to identifiable assets............................ -- 697,807(4c) -- 697,807
----------- ---------- ---------- ----------
$1,100,541 $ 946,689 $ 408,188 $1,639,042
=========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current maturities of long-term debt.............. $ 118,621 $ 77,561(1b) $ 18,201(1a) $ 55,410
3,851(3)
Accounts payable.................................. 71,463 10,215(1a) 10,000(1a) 71,248
Air traffic liability............................. 166,383.... -- -- 166,383
Accrued compensation and vacation benefits........ 12,525 -- -- 12,525
Accrued interest.................................. 7,812 -- -- 7,812
Accrued taxes..................................... 27,304 -- -- 27,304
Other accrued liabilities......................... 19,291 674(1a) 13,967(4b) 32,584
----------- ---------- ---------- ----------
Total current liabilities.................. 423,399 92,301 42,168 373,266
----------- ---------- ---------- ----------
Estimated liabilities subject to Chapter 11
proceedings....................................... 379,814 472,870(1a) 93,056(1a) --
Long-term debt, less current maturities............. 381,397 57,771(3) 98,425(1e) 518,264
96,213(1a)
Manufacturers' and other deferred credits........... 71,366 71,366(4a) 132,859(4b) 132,859
Other liabilities................................... 59,903 32,750(4a) -- 27,153
Stockholders' equity (deficiency):
Preferred stock................................... 18 18(1f) -- --
Common stock...................................... 6,424 6,424(1f) -- --
NewAWA class A common stock....................... -- -- 12(1d) 12
NewAWA class B common stock....................... -- -- 438(1d) 438
Additional paid in capital........................ 200,013 200,013(1f) 587,050(1d) 587,050
Retained earnings (deficit)....................... (403,315) -- 403,315(1f) --
----------- ---------- ---------- ----------
(196,860) 206,455 990,815 587,500
----------- ---------- ---------- ----------
Less deferred compensation and notes receivable --
employee stock purchase plans................... 18,478 -- 18,478(1c) --
----------- ---------- ---------- ----------
(215,338) 206,455 1,009,293 587,500
----------- ---------- ---------- ----------
$1,100,541 $ 933,513 $1,472,014 $1,639,042
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
19
<PAGE> 20
AMERICA WEST AIRLINES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA YEAR ENDED
DECEMBER 31, ADJUSTMENTS DECEMBER 31,
1993 -------------------- 1993
(HISTORICAL) DEBIT CREDIT (PRO FORMA)
------------ ------- ------- ------------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger................................. $1,246,564 $ -- $ -- $1,246,564
Cargo..................................... 40,161 -- -- 40,161
Other..................................... 38,639 -- -- 38,639
------------ ------- ------- ------------
Total operating revenues.......... 1,325,364 -- -- 1,325,364
------------ ------- ------- ------------
Operating expenses:
Salaries and related costs................ 305,429 -- -- 305,429
Rentals and landing fees.................. 274,708 -- 2,487(7) 272,221
Aircraft fuel............................. 166,313 -- -- 166,313
Agency commissions........................ 106,368 -- -- 106,368
Aircraft maintenance materials and
repairs................................ 31,000 -- -- 31,000
Depreciation and amortization............. 81,894 34,890(8a) 29,973(8b) 86,811
Other..................................... 238,598 -- 474(7) 238,124
------------ ------- ------- ------------
Total operating expenses.......... 1,204,310 34,890 32,934 1,206,266
------------ ------- ------- ------------
Operating income.................. 121,054 34,890 32,934 119,098
------------ ------- ------- ------------
Nonoperating income (expense):
Interest income........................... 728 -- 3,074(9) 3,802
Interest expense.......................... (54,192) 8,442(6) -- (62,634)
Loss on disposition of property and
equipment.............................. (4,562) -- -- (4,562)
Reorganization expense, net............... (25,015) -- 25,015(5) --
Other, net................................ (89) 83(6) -- (172)
------------ ------- ------- ------------
Total nonoperating expenses,
net............................. (83,130) 8,525 28,089 (63,566)
------------ ------- ------- ------------
Income before income taxes........ 37,924 43,415 61,023 55,532
------------ ------- ------- ------------
Income tax expense.......................... 759 34,154(10) -- 34,913
------------ ------- ------- ------------
Net income.................................. $ 37,165 $77,569 $61,023 $ 20,619
========== ======= ======= ==========
Earnings per share:
Primary................................... $ 1.50 $ 0.46
========== ==========
Fully diluted............................. $ 1.04 $ 0.46
========== ==========
Shares used for computation:
Primary................................... 27,525 45,125
========== ==========
Fully diluted............................. 41,509 45,125
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
20
<PAGE> 21
AMERICA WEST AIRLINES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED
ENDED PRO FORMA JUNE 30,
JUNE 30, ADJUSTMENTS 1994
1994 -------------------- (PRO
(HISTORICAL) DEBIT CREDIT FORMA)
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger.................................. $665,044 $ -- $ -- $665,044
Cargo...................................... 21,489 -- -- 21,489
Other...................................... 22,082 -- -- 22,082
---------- ------- ------- ----------
Total operating revenues.............. 708,615 -- -- 708,615
---------- ------- ------- ----------
Operating expenses:
Salaries and related costs................. 162,484 -- -- 162,484
Rentals and landing fees................... 132,835 -- 1,230(7) 131,605
Aircraft fuel.............................. 75,794 -- -- 75,794
Agency commissions......................... 59,931 -- -- 59,931
Aircraft maintenance materials and
repairs.................................. 18,902 -- -- 18,902
Depreciation and amortization.............. 43,198 17,466(8a) 12,194(8b) 48,470
Other...................................... 133,575 -- 948(7) 132,627
---------- ------- ------- ----------
Total operating expenses.............. 626,719 17,466 14,372 629,813
---------- ------- ------- ----------
Operating income...................... 81,896 17,466 14,372 78,802
---------- ------- ------- ----------
Nonoperating income (expense):
Interest income............................ 344 -- 2,509(9) 2,853
Interest expense........................... (26,068) 3,910(6) -- (29,978)
Loss on disposition of property and
equipment................................ (1,270) -- -- (1,270)
Reorganization expense, net................ (18,258) -- 18,258(5) --
Other, net................................. 138 41(6) -- 97
---------- ------- ------- ----------
Total nonoperating expenses, net...... (45,114) 3,951 20,767 (28,298)
---------- ------- ------- ----------
Income before income taxes............ 36,782 21,417 35,139 50,504
---------- ------- ------- ----------
Income tax expense.............................. 1,471 24,744(10) -- 26,215
---------- ------- ------- ----------
Net income...................................... $ 35,311 $46,161 $35,139 $ 24,289
=========== ======= ======= ===========
Earnings per share:
Primary.................................... $ 1.30 $ 0.54
=========== ===========
Fully diluted.............................. $ 0.92 $ 0.54
=========== ===========
Shares used for computation:
Primary.................................... 28,704 45,125
=========== ===========
Fully diluted.............................. 40,607 45,125
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
21
<PAGE> 22
AMERICA WEST AIRLINES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited pro forma condensed balance sheet as
of June 30, 1994, and the unaudited pro forma condensed statements of operations
for the year ended December 31, 1993 and for the six months ended June 30, 1994.
The unaudited pro forma condensed financial statements reflect the
adjustments described under "Pro Forma Adjustments" below, which are based on
the assumptions and preliminary estimates described therein, which are subject
to change. These statements do not purport to be indicative of the financial
position and results of operations of America West as of such dates or for such
periods, nor are they indicative of future results. Furthermore, these unaudited
pro forma condensed financial statements do not reflect anticipated changes
which may occur as the result of activities before and after the Effective Date
of the Plan and other matters. (For the purposes of the pro forma financial
statements, the "Effective Date" is assumed to be June 30, 1994 for the pro
forma balance sheet, and January 1, 1993 for the pro forma statements of
operations.)
The unaudited pro forma condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Prospectus.
PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed balance sheet and unaudited pro forma
condensed statements of operations reflect the following pro forma adjustments
based on the assumptions described below:
Balance Sheet Pro Forma Adjustments
1. To record the effects of the consummation of the Plan:
a. Estimated additional liabilities from settlement of certain claims;
payment of certain claims; issuance of new debt to settle claims;
cancellation of liabilities subject to Chapter 11 proceedings; and accrual
and payment for reorganization expenses including success bonuses;
b. Repayment of the debtor-in-possession loan;
c. Forgiveness of employee notes receivable and the write-off of
related deferred compensation under employee stock purchase plans.
d. Issuance of Class A and Class B Common Stock to AmWest and its
assignees for gross proceeds of $114.9 million and to settle claims; and
record equity value of the reorganized Company;
e. Issuance of $100 million 11 1/4% Senior Notes, net of $1.575
million discount; and
f. Cancellation of all pre-existing ownership interests and
elimination of the accumulated deficit.
2. To record the release of restricted cash and holdbacks related to credit
card transactions.
3. To record repayment of priority term loan.
4. To record estimated "fresh start" adjustments pursuant to Statement of
Position 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code ("SOP 90-7"), issued by the American Institute of Certified
Public Accountants:
a. Adjusting assets and liabilities to fair market value. Such fair
market values were estimated by America West's management based on its
reviews of various appraisals performed on certain of its owned facilities,
aircraft, rotable spare parts (including spare engines) and flight
simulators; and on management's estimates as to the fair values for other
of its fixed assets such as ground support, maintenance and other
equipment. Additionally, such estimated market values (including the fair
market lease rates for
22
<PAGE> 23
AMERICA WEST AIRLINES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
leased aircraft) are deemed to reflect the fair market values of those
assets, and certain other intangible assets and liabilities (i.e., deferred
heavy aircraft maintenance and other aircraft-related maintenance accruals,
leasehold improvements, deferred manufacturers' and other credits, and rent
leveling provisions) are assumed to be written off at the Effective Date.
America West has engaged independent parties to prepare valuations of
certain of its fixed assets and leased aircraft rental rates. Based on the
results of these valuations, these fair market values and lease rates will
be adjusted accordingly.
b. Adjusting operating leases (principally aircraft operating leases)
to fair market lease rates; and
c. Recording reorganization value in excess of amounts allocable to
identifiable assets ("Excess Reorganization Value"). The reorganization
value of America West at the Effective Date is based on a valuation
analysis prepared by an independent third party. This valuation is, in
turn, based on, among other considerations: historical financial results of
America West, financial projections of America West through 1997 prepared
by management, multiples based on a comparison of qualitative and
quantitative data for selected publicly-traded companies engaged in
businesses comparable to the business of America West, certain economic and
industry information relevant to the business of America West and
discussions with management regarding the current operations and prospects
of America West. Many of the analytical assumptions upon which this
valuation is based are beyond the control of America West and there may be
material variations between such assumptions and the actual facts.
Statements of Operations Pro Forma Adjustments
5. To eliminate reorganization expense, net. Reorganization costs incurred
subsequent to the Effective Date and not accrued at the Effective Date will be
reflected as reorganization expenses in the statement of operations in the
succeeding period.
6. To record interest expense for the Senior Notes, and to adjust interest
expense for the payoff of the D.I.P. and certain other loans and the
amortization of certain debt, given that all such transactions began at the
Effective Date.
7. To adjust lease rent expense (principally aircraft operating leases) to
fair market rents.
8. To adjust depreciation and amortization to be reflective of pro forma
balance sheet amounts:
a. Amortization of Excess Reorganization Value of approximately $698
million on a straight-line basis over a period of 20 years, and subject to
certain adjustments as discussed at note 9 below; and
b. Reduced depreciation and amortization primarily due to the
write-down of fixed assets to fair value.
9. To reclass interest income recorded previously as offsets to
Reorganization expenses and record interest income on additional cash and cash
equivalents due to the consummation of the Plan.
10. To adjust income tax expense for the effects of the consummation of the
Plan, including limitations on the uses of net operating loss carryforwards due
to a statutory ownership change. Pro forma tax expense exceeds the U.S.
statutory tax rate of 35% primarily as a result of amortization of Excess
Reorganization Value and state and local taxes.
It is estimated that the Company will have available at the consummation of
the Plan net future deductible temporary differences, primarily net operating
loss carryforwards. These deferred tax benefits have not been reflected in the
accompanying pro forma balance sheet. The realization of these benefits on a pro
forma basis are reported as a reduction in Excess Reorganization Value rather
than as a reduction in the tax provision in the statements of operations.
23
<PAGE> 24
AMERICA WEST AIRLINES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The analysis of the impact of the consummation of the Plan on the provision
for income taxes has not been finalized. When such analysis is completed, the
actual results could differ from the estimates included in the pro forma
financial statements.
11. Pro forma earnings per share have been computed based on the estimated
weighted average number of common shares outstanding during the applicable
period assuming that the Plan was effective on January 1, 1993. However, since
the exercise price of the Warrants will not be determined until a later date,
the earnings per share computation is presented without the effect of the
exercise of the Warrants for both primary and fully diluted earnings per share.
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On August 10, 1994, the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court") confirmed the Company's Plan of Reorganization
(the "Plan"). The Company currently anticipates that the Plan will be effective
after expiration of the Bankruptcy Code 10-day appeal period, on or about August
25, 1994 (the "Effective Date").
In connection with the confirmation hearing on August 10, 1994, the Company
filed certain motions with the Bankruptcy Court to secure approval to pay the
following confirmation bonuses or success fees:
-- $9.3 million to be paid based upon length of service to non-officer
employees.
-- $1.2 million to be paid to officers and other members of management.
-- 125,000 shares of stock in the reorganized Company to be issued to the
Company's Chairman and Chief Executive Officer.
A hearing on these motions has been scheduled for August 24, 1994.
On June 27, 1991 the Company filed a voluntary petition in the United
States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") to
reorganize under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). The Company operated as a debtor-in-possession ("D.I.P.")
under the supervision of the Bankruptcy Court until the Effective Date of the
Plan.
Due to the bankruptcy case, current economic conditions and the competitive
nature of the airline industry, no measure of comparability can be drawn from
past results in order to measure those that may occur in the future. Among the
uncertainties which have affected the Company's operations in the past and might
adversely impact the Company's future operations are (i) general economic
conditions; (ii) changes in the cost of fuel, labor, capital and other operating
items; (iii) increased level of competition resulting in significant discounting
of fares; and (iv) changes in capacity, load factors and yields or reduced
levels of passenger traffic due to war or terrorist activities.
On the Effective Date of the Plan, America West will adopt fresh start
reporting in accordance with SOP 90-7, resulting in adjustment of the Company's
common stockholders' equity and the carrying values of assets and liabilities.
Accordingly, the Company's post-reorganization balance sheet and statement of
operations will not be prepared on a consistent basis of accounting with the
pre-reorganization balance sheet and statements of operations. In connection
with the Reorganization, the Company will receive a significant capital
infusion, a substantial amount of prepetition liabilities will be converted to
equity or otherwise discharged and significant adjustments will be made to
reflect the resolution of or provision for certain contingent liabilities.
IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS
The fresh start reporting adjustments, primarily related to the adjustment
of the Company's assets and liabilities to fair market values, will have a
significant effect on the Company's future operating results. The more
significant adjustments relate to decreased depreciation expense, increased
amortization expense relating to reorganization value in excess of amounts
allocable to identifiable assets, reduced aircraft rent expense and increased
interest expense.
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1994 as Compared to the Six Months Ended
June 30, 1993
For the six months ended June 30, 1994, the Company realized a net income
of $35.3 million ($1.30 per common share on a primary basis) compared to $12.4
million ($.52 per common share on a primary basis) for the comparable period of
1993. The results for the six months include Reorganization expenses of $18.3
25
<PAGE> 26
million and $1.9 million for 1994 and 1993, respectively. The continuation of
the positive trend in operating results, which commenced during the fourth
quarter of 1992, is attributable to several factors which include improved
economic and competitive fare conditions, the stabilization of fuel prices as
well as the benefits derived from the reduction in fleet size from 104 aircraft
to 85 aircraft, the implementation of numerous cost reduction and revenue
enhancement programs, the elimination of the Company's commuter operation and
the introduction of code sharing agreements.
Passenger revenues for the six months ended June 30, 1994 increased 10.1%
to $665.0 million compared to the 1993 period. Although average passenger yield
declined by 4.6% during the period, RPMs increased by 15.3% more than offsetting
the decline in yield. Passenger revenues per ASM increased 5.9% to 7.55 cents
for the six months of 1994 on the strength of the increase in revenue passenger
miles.
Revenues from sources other than passenger fares increased during the first
six months of 1994 to $43.6 million compared to $37.7 million for 1993. This
improvement of 16% was due primarily to increases in freight and mail revenues.
The following table details certain key operating statistics for the six
month periods ended June 30, 1994 and 1993.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
PERCENTAGE
1994 1993 INCREASE OR (DECREASE)
----- ----- ----------------------
<S> <C> <C> <C>
Number of Aircraft (end of period)........... 85 85 --
ASMs (millions).............................. 8,804 8,467 4.0
RPMs (millions).............................. 6,139 5,324 15.3
Load Factor (percent)........................ 69.7 62.9 10.8
Yield (cents/RPM)............................ 10.82 11.34 (4.6)
Revenue Per ASM (cents):
Passenger.................................. 7.55 7.13 5.9
Total...................................... 8.05 7.58 6.2
</TABLE>
Operating expense per ASM increased to 7.12 cents for the first six months
of 1994 compared to 7.08 cents for the same period of the prior year. The table
below sets forth the major categories of operating expense per ASM for the
applicable periods.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------
1994 1993
---- ----
(IN CENTS/ASM)
<S> <C> <C>
Salaries and Related Costs........................................... 1.85 1.77
Rentals and Landing Fees............................................. 1.51 1.66
Aircraft Fuel........................................................ .86 .99
Agency Commissions................................................... .68 .62
Aircraft Maintenance Materials and Repairs........................... .21 .17
Depreciation and Amortization........................................ .49 .47
Other................................................................ 1.52 1.40
---- ----
7.12 7.08
==== ====
</TABLE>
The changes in the components of operating expense per ASM between 1994 and
1993 are explained as follows:
-- For the six month period of 1994 salaries and related costs have
increased primarily due to performance and employment award
distributions under the transition pay program which was instituted in
the second quarter of 1993 and the new pay program instituted in the
second quarter of 1994.
-- Rentals and landing fees decreased due to the reduction in airport rent
expense at New York's JFK and Phoenix's Sky Harbor International and the
return of certain administrative office space, as part of the Company's
facilities consolidation program. In addition, rentals and landing fees
have
26
<PAGE> 27
decreased for the first six months of 1994 compared to the 1993 period
due to the return of a wet leased aircraft that serviced the Hawaii
market through March 31, 1993.
-- Aircraft fuel expense decreased due to the decline in the average price
per gallon to 53.66 cents in 1994 from 62.87 cents for 1993.
-- The increase in the level of agency commission expense is primarily due
to the significant increase in passenger revenue per ASM from 7.13 cents
for 1993 to 7.55 cents for 1994.
-- The level of aircraft maintenance materials and repairs expense has
increased primarily as a result of higher aircraft utilization. Average
daily utilization of the aircraft fleet has increased from 10.7 hours
per day for 1993 to 11.1 hours per day for 1994. This higher level of
utilization has resulted in increases to engine and engine component
repair expense and to increases in line maintenance materials usage.
-- The increase in depreciation and amortization expense is primarily
attributable to increased heavy engine overhauls on a scheduled basis.
-- The increase in other operating expenses of 13% is primarily due to
increased media advertising costs as well as expenses related to
increased traffic such as credit card discount fees, booking fees,
telephone charges, catering expenses and single/multiple use supplies.
Non-operating expenses (net of non-operating income) amounted to $45.1
million and $29.7 million for 1994 and 1993, respectively. Interest expense for
1994 was $26.1 million, slightly below the $27.6 million for the same period of
1993. In conformity with SOP 90-7, the Company has ceased accruing and paying
interest on unsecured pre-petition long-term debt. Interest expense for 1994
would have been $33.9 million, if the Company had continued to accrue interest
on such debt.
During the first six months, the Company incurred expenses of $18.3 million
in 1994 and $1.9 million in 1993 in connection with the Reorganization. Such
expenses for 1994 include increased professional fees and charges of $7.5
million related to the termination of the Kawasaki Put Agreement and the
settlement of an administrative claim. Reorganization related expenses are
expected to significantly affect future results.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," (SFAS 109). Since
there was no cumulative effect of this change in accounting method, prior year
financial statements have not been restated.
For the Years Ended December 31, 1993, 1992 and 1991
The Company realized net income of $37.2 million ($1.50 per common share)
for 1993 compared to net losses of $131.8 million ($5.58 per common share) and
$222 million ($10.39 per common share) for 1992 and 1991, respectively. The
results for 1993 include reorganization expenses of $25 million and losses
aggregating $4.6 million primarily resulting from the disposition of surplus
spare aircraft parts and equipment. During 1992, the Company recorded
restructuring charges of $31.3 million, reorganization expenses of $16.2 million
and a gain of $15 million from the sale of its Honolulu to Nagoya, Japan route,
while the 1991 results were affected by reorganization expenses of $58.4
million. The Company was only one of two major U.S. airlines to report a profit
in each quarter of 1993.
27
<PAGE> 28
The Company began to realize significant improvement in its operating
results commencing the fourth quarter of 1992. During 1993, the level of
operating income improved each quarter as shown in the table below.
<TABLE>
<CAPTION>
1993 QUARTERLY RESULTS (UNAUDITED)
----------------------------------------------------
1ST 2ND 3RD 4TH YEAR
------ ------ ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total Operating Revenues............. $316.6 $324.9 $335.1 $348.8 $1,325.4
Total Operating Expenses............. 299.4 299.7 302.1 303.1 1,204.3
------ ------ ------ ------ --------
Operating Income..................... $ 17.2 $ 25.2 $ 33.0 $ 45.7 $ 121.1
====== ====== ====== ====== =======
</TABLE>
The improvement in operating results for 1993 compared to 1992 and 1991 is
attributable to several factors, the most significant of which are noted below.
-- A gradually improving economic climate, and a more stable environment
relative to fare competition within the airline industry.
-- The reduction in fleet size from 123 aircraft in July 1991 to the
current fleet of 85 aircraft has facilitated a better matching of
capacity to demand. In addition, the consolidation of the fleet from
five to three aircraft types has enabled the Company to further reduce
its level of costs including those related to maintenance, training and
inventories of parts.
-- In addition to reducing or eliminating certain routes as part of the
aircraft fleet downsizing, the Company implemented certain enhancements
to its revenue management system in an effort to optimize the level of
passenger revenues generated on each flight. Such enhancements enable
the Company to more effectively allocate seats within various fare
categories.
-- The implementation of numerous cost reduction programs since 1991,
including a Company-wide pay reduction in August of 1991 and reductions
of aircraft lease rentals to fair market rates in the fall of 1992.
-- The elimination of the Company's commuter operation and the introduction
of three code-sharing agreements have enabled the Company to expand its
scope of service and attract a broader passenger base.
The effect of these programs and the other factors described above resulted
in operating income of $121.1 million for 1993, compared to operating losses of
$74.8 million and $104.7 million for 1992 and 1991, respectively.
Total operating revenues were $1.3 billion in 1993, an increase of 2.4%
compared to the prior year and 6.3% less than 1991, primarily due to the
significant reduction in capacity. On April 1, 1993, the Company ceased service
to Hawaii. Passenger revenues for 1993, 1992 and 1991 were $1.2 billion, $1.2
billion and $1.3 billion, respectively. Summarized below are certain capacity
and traffic statistics for the years ended December 31, 1993, 1992 and 1991 and
the percentage change in such statistics from 1991 and 1992, respectively, to
1993.
<TABLE>
<CAPTION>
PERCENT CHANGE
------------------
1992 1991
1993 1992 1991 TO 1993 TO 1993
---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Aircraft (end of period)............... 85 87 101 (2.3) (15.8)
ASMs (in thousands).................... 17,190,489 19,271,353 20,627,472 (10.8) (16.7)
RPMs (in thousands).................... 11,220,753 11,780,568 13,030,279 (4.8) (13.9)
Load Factor (percent).................. 65.3 61.1 63.2 6.9 3.3
Passenger Enplanements (in
thousands)........................... 14,740 15,173 16,907 (2.9) (12.8)
Average Journey Miles.................. 970 990 962 (2.0) .8
Average Stage Length................... 645 631 598 2.2 7.9
Yield (cents/RPM)...................... 11.11 10.31 10.22 7.8 8.7
Revenue Per ASM (cents):
Passenger............................ 7.25 6.30 6.46 15.1 12.2
Total................................ 7.71 6.72 6.85 14.7 12.6
</TABLE>
28
<PAGE> 29
In spite of the significant decline in capacity in 1993 compared to the two
previous years, passenger revenues per ASM improved by 15.1 percent and 12.2
percent compared to 1992 and 1991, respectively. This improvement was primarily
attributable to the combination of the following factors.
-- An improved climate relative to the economy and industry fare
competition.
-- The reduction in aircraft fleet size in conjunction with the
implementation of enhancements to the Company's revenue management
systems.
-- The elimination of "fare simplification" in 1993 and 50 percent-off
sales that occurred on an industry-wide basis in the second and third
quarters of 1992.
-- The 50 percent-off sale conducted by the Company on a system-wide basis
in February 1991.
Revenues from sources other than passenger fares decreased during 1993 to
$78.8 million compared to $79.3 million and $81.7 million for 1992 and 1991,
respectively. Freight and mail revenues comprised 51.0%, or $40.2 million, of
other revenues for 1993. This represents a decrease of 4.6% compared to 1992 and
8.0 percent compared to 1991. For the years 1993, 1992 and 1991, the Company
carried 110.7 million, 116.4 million and 119.8 million pounds of freight and
mail, respectively. The decline in freight and mail revenues during the last
three years is a direct result of capacity reductions, the most significant of
which relate to the cessation of service to Hawaii and Nagoya, Japan. The
balance of other revenues includes revenues generated from pilot training,
contract services provided to other airlines for maintenance and ground
handling, reduced rate fares, alcoholic beverage and headset sales, and service
charges assessed for refunds, reissues and prepaid ticket advices.
In spite of the significant reductions in capacity which have occurred
since the filing for protection under Chapter 11, operating expense per ASM has
declined to 7.01 cents for 1993 from 7.10 cents for 1992 and 7.36 cents for
1991. The table below sets forth the major categories of operating expense per
ASM for 1993, 1992 and 1991 and the percentage change in such expenses from 1991
and 1992, respectively, to 1993:
<TABLE>
<CAPTION>
PERCENT CHANGE
-----------------
1992 TO 1991 TO
1993 1992 1991 1993 1993
---- ---- ---- ------- -------
(IN CENTS)
<S> <C> <C> <C> <C> <C>
Salaries and Related Costs....................... 1.78 1.68 1.86 6.0 (4.3)
Rentals and Landing Fees......................... 1.60 1.76 1.70 (9.1 ) (5.9)
Aircraft Fuel.................................... .97 .97 1.08 -- (10.2)
Agency Commissions............................... .62 .55 .62 12.7 --
Aircraft Maintenance Materials and Repairs....... .18 .20 .20 (10.0 ) (10.0)
Depreciation and Amortization.................... .48 .45 .47 6.7 2.1
Restructuring Charges............................ -- .16 -- (100.0 ) --
Other............................................ 1.38 1.33 1.43 3.8 (3.5)
---- ---- ---- ------- -------
7.01 7.10 7.36 (1.3 ) (4.8)
==== ==== ==== ======= =======
</TABLE>
The changes in the components of operating expense per ASM should be
considered in relation to the decline in available seat miles of 10.8% and 16.7%
from 1992 and 1991, respectively, and are explained as follows:
-- The 6.0% increase in salaries and related costs compared to 1992 is a
result of the decline in capacity as well as the implementation of a
transition pay program in the second quarter of 1993. The transition pay
program was designed to restore a portion of the 10% wage reduction that
was effected Company-wide on August 1, 1991 (officers and other
management personnel received wage reductions of 10% to 25% commencing
in February 1991). The program, which was in effect for four fiscal
quarters, provided for the following payments on a quarterly basis to
all active employees during the quarter.
29
<PAGE> 30
a. Commencing the second quarter of 1993, performance award
distributions were made based upon the Company meeting or exceeding
its operating income target for a given quarter as incorporated in
its business plan. The aggregate award for 1993 amounted to
approximately $6.5 million including applicable payroll taxes.
b. Commencing the third quarter of 1993, employment award
distributions were made based on the greater of .5 percent of an
employee's annual base wage, or $125, whichever is higher, on a
quarterly basis. The aggregate award for 1993 amounted to
approximately $2.6 million including applicable payroll taxes.
The favorable variance compared to the 1991 level was primarily
attributable to the reduction in payroll costs related to the decline in
capacity as well as overhead and the Company-wide wage reduction instituted in
August 1991.
-- Rentals and landing fees decreased due to the reduction in fleet size to
85 aircraft as well as the reduction in rental rates to fair market
rates for certain aircraft commencing in August 1992 for a period of two
years.
-- Aircraft fuel decreased due to the decline in the average price per
gallon to 61.05 cents from 62.70 cents for 1992 and 67.10 cents for
1991.
-- The increase in the level of agency commission expense is primarily due
to the significant increase in passenger revenue per ASM from 6.30 cents
and 6.46 cents for 1992 and 1991, respectively, to 7.25 cents for 1993.
-- The decrease in aircraft maintenance materials and repairs is primarily
due to the change in the composition of the aircraft fleet.
-- Restructuring charges incurred in 1992 consisted of the following:
<TABLE>
<CAPTION>
(IN MILLIONS OF DOLLARS)
------------------------
<S> <C>
Write-off for certain assets related to station closures or route
restructuring................................................... $ 9.5
Provision for spare parts for aircraft types no longer in
service......................................................... 12.7
Provision for employee severance.................................. 2.3
Loss on return of aircraft........................................ 6.8
------
$ 31.3
======
</TABLE>
The restructuring charges were necessitated by aircraft fleet reductions
and other operational changes. The Company reduced its fleet to 87 aircraft at
the end of 1992, as well as eliminated two of five aircraft types it operated.
Additionally, employee headcount was reduced by approximately 1,500 employees
and service was terminated to ten cities through the end of 1992.
-- The increase in depreciation and amortization is primarily attributable
to increased heavy engine overhauls.
-- Other operating expenses decreased 7.1 percent compared to 1992 and was
lower by 18.9% compared to 1991. The decrease compared to the prior year
is primarily attributable to the 10.8% decline in capacity.
Non-operating expenses (net of non-operating income) for 1993, 1992 and
1991 were $83.1 million, $56.9 million and $117.4 million, respectively.
Interest expense decreased to $54.2 million in 1993 from $55.8 million in 1992
and $61.9 million in 1991. In conformity with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code,"
issued by the American Institute of Certified Public Accountants, the Company
has ceased accruing and paying interest on unsecured pre-petition long-term
debt. Had the Company continued to accrue interest on such debt, interest
expense for 1993, 1992 and 1991 would have been $73.0 million, $73.9 million and
$79.3 million, respectively. See Financial Statements and Supplementary
Data -- Notes 3a and 4 of Notes to Financial Statements.
30
<PAGE> 31
The Company incurred expenses of $25 million in 1993, $16.2 million in 1992
and $58.4 million in 1991 in connection with its efforts to reorganize under
Chapter 11. Such expenses for 1993 include net charges aggregating $18.2 million
in accruals for unsecured claims and settlements of administrative claims
primarily relating to leased aircraft which were returned to the lessors.
Reorganization related expenses are expected to significantly affect future
results and to continue until such time as the Company has obtained approval for
its plan of reorganization.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Since
there was no cumulative effect of this change in accounting, prior year
financial statements have not been restated.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, the Company had a working capital deficiency of $106.8
million, which declined from $124.4 million at December 31, 1993, primarily due
to an increase in cash and receivables resulting from improved operating
results. At June 30, 1994, cash and cash equivalents were $176.9 million,
compared to $99.6 million at December 31, 1993.
On the Effective Date (estimated currently to be August 25, 1994), the
Company expects unrestricted and restricted cash balances to be approximately
$240 million and $21 million, respectively (compared to $25 million and $41
million, respectively, prior to the Chapter 11 filing). The estimates of
unrestricted cash include approximately $213 million relating to the issuance of
the Class A Common Stock, the Class B Common Stock and the Senior Notes. Such
projected cash balances are also net of estimated Plan confirmation payments of
approximately $186 million, including approximately $140 million of outstanding
D.I.P. and certain other financings.
Upon implementation of the Plan, the Company's total estimated long-term
debt (including related current maturities and liabilities subject to
compromise) will be reduced from approximately $957 million to approximately
$553 million. On the Effective Date, stockholders' equity is expected to be
$587.5 million. Accordingly, on a pro forma basis, the Company's ratio of debt
to equity is anticipated to be 0.94 to 1.
After the Effective Date, the Company will be substantially less leveraged
and will possess significantly greater liquidity than during the several years
prior to filing its Chapter 11 petition. It is anticipated that such projected
financial condition in conjunction with its current low cost structure will
enable the Company to better withstand future negative events, such as an
economic downturn, escalating fuel prices and intense fare competition, as well
as gain access to traditional market sources for its future financing
requirements. Substantial obligations relating to long-term aircraft and airport
terminal facilities leases will continue to exist.
During 1993, the Company incurred capital expenditures of $54.3 million,
primarily relating to aircraft modifications and heavy airframe and engine
overhauls. The Company anticipates capital expenditures for 1994 to aggregate
$82 million primarily for rotable spare parts, aircraft modifications and major
overhauls. The Company expects to fund these capital expenditures with cash
provided by operations.
At June 30, 1994, the Company had on order a total of 49 aircraft of the
types the Company currently operates, of which 29 are firm orders and 20 are
option orders. The current estimated aggregate cost for the acquisition of the
49 aircraft is approximately $2.7 billion (which amount may change as a result
of current negotiations and does not reflect any deliveries the Company may take
pursuant to put arrangements more fully discussed below). All of these aircraft
are to be purchased from Boeing or AVSA. For a more complete description of the
Company's rights and obligations with respect to the purchase of aircraft, see
"Business -- Aircraft."
With respect to the agreements with Boeing, the B737-300 purchase contract
has been affirmed in the Company's bankruptcy proceedings. With timely notice to
the manufacturer, all or some of these deliveries may be converted to B737-400
aircraft. Existing purchase agreements for B757-200 and B747-400 aircraft have
neither been affirmed nor rejected. All Boeing purchase agreements require a
24-month reconfirmation notice for the delivery of each aircraft. As of June 30,
1994, ten B737-300 and nine B757-200 delivery positions have expired due to the
lack of reconfirmation by the Company, leaving 14 and 11 delivery positions for
B737-300s and B757-200s, respectively. The failure to reconfirm such delivery
positions exposes the Company to loss of pre-delivery deposits and other claims
which may be asserted in the bankruptcy
31
<PAGE> 32
proceeding. The Company also has a pre-petition executory contract under which
the Company holds delivery positions for four B747-400 aircraft under firm order
and four B747-400 aircraft under option order. This executory contract allows
the Company, with the giving of adequate notice, to substitute B737-400 aircraft
for those delivery positions. The Company is currently renegotiating all of its
aircraft purchase agreements with Boeing and has reached a proposed settlement
with Boeing pursuant to which (i) existing leases on two aircraft would be
extended, (ii) a Boeing 757 aircraft would be leased beginning in December 1994,
(iii) the existing purchase contracts would be cancelled and negotiations with
respect to a new purchase contract would continue, and (iv) the net balance of
certain deposits of approximately $6.0 million would be retained by Boeing
pending execution of the new purchase contract, at which time the deposit would
be credited to the new contract. The proposed settlement with Boeing is subject
to Bankruptcy Court approval, a hearing for which is scheduled for August 24,
1994.
With respect to the purchase of aircraft from AVSA, a single executory
contract for the purchase of 24 A320 aircraft has neither been affirmed nor
rejected by the Company. As part of the investment by AmWest, the A320 purchase
agreement was amended to provide the Company with greater flexibility and
reduced pricing. Under the modified terms, delivery dates of the aircraft will
fall in the years 1998 through 2000 with an option to further defer deliveries.
In addition, if new A320 aircraft are delivered as a result of the renegotiated
put agreement (see discussion below), the Company will have the right to cancel
on a one-for-one basis up to a maximum of eight non-consecutive aircraft
deliveries, subject to certain conditions. Negotiations are currently continuing
between AVSA and the Company.
During 1994, leases relating to four Boeing 737-200 aircraft, two Airbus
A320 aircraft and two Boeing 757 aircraft are scheduled to expire. The Company
has negotiated extensions of the leases for all but one of the Airbus A320
aircraft for terms ranging from one to three years. One Airbus A320 aircraft was
returned to the lessor and was replaced by a Boeing 757 aircraft which has been
leased for a term of three years. In June 1994, the Company renegotiated a put
agreement for ten A320 aircraft. The new agreement reduced the number of put
aircraft from ten to eight and rescheduled the deliveries to start not earlier
than June 30, 1995 and end on June 30, 1999. Under the new agreement, new or
used A320 aircraft, B737-300 or B757-200 aircraft may be put to the Company but
at a rate of no more than two in 1995 and with respect to each ensuing year
during the put period, of no more than three. In addition, no more than five
used aircraft may be put to the Company and for every new A320 aircraft put to
the Company, the Company has the right to reduce the AVSA A320 purchase contract
on a one-for-one basis. During each January of the put period, the Company will
negotiate the type and delivery dates of the put aircraft for that year. The
puts will require 150-day notice and will be leased at fair market rates, for
terms ranging from three to 18 years, depending on the type and condition of the
aircraft. As part of the renegotiated agreement, certain financial concessions
were granted to the put holder.
Following the implementation of the Plan, the net operating loss
carryforwards (and other tax attributes) of the Company may be subject to the
limitations imposed by section 382 of the Internal Revenue Code ("Section 382").
Under Section 382, if a corporation undergoes an ownership change, the
amount of its pre-change losses that may be utilized to offset future taxable
income generally will be subject to an annual limitation. The issuance of Class
B Common Stock pursuant to the Plan will constitute an ownership change of the
Company.
Subject to certain exceptions, the Senior Note Indenture limits the
declaration or payment of dividends and certain other transactions (defined in
the Indenture as Restricted Payments). Such Restricted Payments are not
permitted if a Default or an Event of Default has occurred and is continuing,
and otherwise such payments are limited generally to 50% (or 75% if the Senior
Notes receive certain investment grade ratings) of Adjusted Consolidated Net
Income, as defined in the Indenture, plus proceeds of certain capital stock
issuances plus $25 million. At December 31, 1993, on a pro forma basis, the
Company would have had available approximately $37 million for dividends or
other Restricted Payments under such test (assuming the Effective Date was
January 1, 1993, the 50% test were applicable, no capital stock was issued for
any reason and there was no default under the Indenture). For a more detailed
description of these restrictions, see "Description of the Senior
Notes -- Certain Covenants."
32
<PAGE> 33
BUSINESS
America West is a major United States air carrier providing passenger,
cargo and mail service, with its primary markets in the western and southwestern
regions of the United States. The Company operates its route system through two
principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in
Columbus, Ohio. As of July 31, 1994 America West operated a fleet of 85 jet
aircraft and provided service to 45 destinations. Through alliances with Mesa,
the Company provides connecting service to an additional 18 destinations. The
Company has also formed an alliance with Continental to serve additional
destinations.
The Company filed a voluntary petition for protection under Chapter 11 of
the Bankruptcy Code on June 27, 1991. The Company's plan of reorganization (the
"Plan") was confirmed by the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court") on August 10, 1994. The Plan will become
effective on the date (the "Effective Date") on which certain conditions
specified in the Plan are satisfied or waived, which the Company expects to
occur on or about August 25, 1994. In connection with its reorganization in
bankruptcy and related operational restructuring (the "Reorganization"), the
Company took significant steps to improve its operations, including (i) reducing
its fleet size from 123 aircraft in July 1991 to 85 in May 1994, facilitating a
better matching of capacity to demand through elimination of nonproductive
routes; (ii) reducing the aircraft types operated from five to three to reduce
operating costs; (iii) implementing certain enhancements to its revenue
management system to optimize the level of passenger revenues operated on each
flight; (iv) eliminating Company operated commuter service and introducing code-
sharing agreements to expand the scope of service and attract a broader
passenger base; and (v) implementing numerous cost reduction programs, including
a Company-wide pay reduction in August 1991 and the reduction of aircraft lease
rentals to fair market rates in the fall of 1992. As a result of these measures
as well as a gradually improving economic climate and a more stable environment
relative to fare competition within the airline industry, America West was one
of only two major airlines to report a profit in each quarter of 1993, realizing
net income for 1993 of $37.2 million and operating income of $121.1 million on
revenues of $1.33 billion.
BUSINESS STRATEGY
The Company's business strategy is to continue to offer competitive fares
while providing an incrementally higher level of service relative to low cost
carriers generally. The principal features of the Company's business strategy
are as follows.
Maintain Competitive Pricing While Providing Differentiated
Service. America West currently operates with one of the lowest cost structures
among the major U.S. airlines, based on reported 1993 results. The Company's
operating cost per ASM for 1993 was 7.01 cents, which was approximately 25% less
than the average operating cost per ASM of the nine largest other domestic
airlines and was comparable to the cost structure of Southwest Airlines, which
operates in the Company's principal market areas. Management believes that the
Company can continue to offer fares that are competitive with those offered by
low cost carriers in the Company's markets, while providing a differentiated
level of service generally. Passenger services provided by America West include
assigned seating, participation in computerized reservation systems, interline
ticketing, first class cabins on certain flights, baggage transfer and various
other services. The Company believes that these features distinguish America
West from certain low cost carriers in the Company's markets, including
Southwest Airlines, and enable the Company to attract passengers without
competing solely on the basis of fares.
Achieve Growth in Revenue Passenger Miles. Management believes the
Company's pricing and service strategies, together with a gradual improvement of
general economic activity, will enable the Company to achieve growth in revenue
passenger miles in its existing markets and to expand into certain other North
American markets. Management believes that growth in existing markets will be
achieved in part due to the location of the Company's principal hubs. Both
Phoenix and Las Vegas are experiencing population growth in excess of national
averages, and these hubs are well situated to benefit from an expanding market
for leisure travel.
33
<PAGE> 34
Expand Service through Alliances. As a part of the Reorganization, the
Company entered into Alliance Agreements with Continental and Mesa. With
Continental, the Company agreed to implement certain code-sharing arrangements,
coordinate certain flight schedules to maximize connections between the two
airlines, share ticket counter space, link frequent flyer programs, and
coordinate ground handling operations. With Mesa, America West has entered into
two code-sharing agreements that establish Mesa as a feeder carrier for the
Company at its hubs in Phoenix and Columbus. The code-sharing agreements provide
for coordinated flight schedules, passenger handling and computer reservations
under the America West flight designator code, thereby allowing passengers to
purchase one air fare for their entire trip. Mesa connects 13 cities to the
Company's Phoenix hub, operates under the name "America West Express" and has
begun to incorporate the color scheme and commercial logo of America West on
certain aircraft utilized on these routes. Mesa serves five destinations from
the Company's Columbus mini-hub operations. Management believes the Alliance
Agreements will contribute significantly to the Company's growth in revenue
passenger miles and operating results.
Maintain a Cost Effective Fleet. In connection with its Reorganization,
the Company substantially reduced its aircraft fleet to the current level,
reduced the aircraft types from five to three and renegotiated lease rates for
certain aircraft to fair market rates. As of June 30, 1994, the Company's fleet
consisted of 56 Boeing 737s, 17 Airbus 320s and 12 Boeing 757s, with an average
age of approximately 8.6 years. The fleet enables the Company to achieve low
fuel costs compared to industry averages and to enjoy operational efficiencies
due to the limited number of aircraft types. Current plans provide for an
increase in the Company's fleet from 85 to 105 aircraft by 1997 through the
acquisition of additional aircraft of the types currently operated by the
Company.
OPERATIONS
Hub Operations. The Company operates primarily through hub airports in
Phoenix and Las Vegas and, to a lesser extent, through its mini-hub in Columbus,
Ohio. The Company schedules banks of flights timed to arrive at the hub from one
direction at approximately the same time and to depart toward the opposite
direction a short time later. The hub system allows the Company to transport
passengers between a large number of destinations with substantially more
frequent service than if each route were served directly.
The Company is the leading airline serving Phoenix Sky Harbor International
Airport with approximately 40% of all enplanements and an average of 149 daily
departures during 1993. In Las Vegas, the Company is the second largest carrier
with approximately 26% of all enplanements during 1993. In both markets the
Company's principal competitor is Southwest Airlines, which handled
approximately 30% and 29% of enplanements in Phoenix and Las Vegas,
respectively, in 1993. America West offers fares comparable to or below those of
its competitors on most routes. America West is able to use pricing as a part of
its strategy because of its ability to provide service generally comparable to
the full service airlines while maintaining a lower cost structure than these
competitors. In selected markets, America West has chosen not to match Southwest
Airlines' fares, but differentiates itself from Southwest Airlines in these and
other markets by providing assigned seating, interline ticketing, baggage
transfer and various other services typically offered by a full service carrier.
The Company established a mini-hub at Columbus, Ohio in December 1991. As
of July 31, 1994, the Company provided non-stop jet service to 11 destinations
from Columbus. During 1993, the Company enplaned approximately 18% of the
Columbus traffic compared to approximately 21% and 12% for USAir and Delta,
respectively.
The success of the Company's hub system depends on its ability to attract
passengers traveling to and from its hubs, as well as passengers traveling
through the hubs to the Company's other destinations. The Company believes that
several factors have contributed to the success of its operations in Phoenix and
Las Vegas. First, the rate of population growth in these two cities has exceeded
the national average in recent periods. Second, Phoenix and Las Vegas are
popular vacation destinations and, therefore, benefit from the fact that a
growing percentage of airline travelers are leisure or non-business travelers.
Third, the Company believes that certain costs of operating in Phoenix and Las
Vegas are less than in certain other geographic regions. Finally, these hub
operations allow the Company to serve a number of relatively high density routes
34
<PAGE> 35
that involve short-and medium-haul service without competing directly in the
more intensely competitive long-haul markets against larger carriers.
Hub operations involve certain inefficiencies that are primarily associated
with the need to maintain terminal resources adequate to deal with periods of
peak demand when numerous aircraft converge at the hub, even though this demand
occurs only a few times per day. As a result, certain carriers have emphasized
or announced intentions to initiate "point-to-point" flights not integrated with
hub operations that can potentially serve specific routes at lower cost than
comparable hub operations. Although the Company continually evaluates its
operating strategy in light of changing market conditions, the Company's current
strategy is to increase utilization of its existing hub facilities by increasing
frequency of service on existing routes served by its hub operations and
identifying selected markets into which the Company can expand utilizing its
existing hub operations. An important part of the Company's strategy involves
code-sharing arrangements with regional carriers that serve its hub airports and
alliances with major carriers that complement the Company's operations.
Regional/Commuter Service. A number of passengers served by the Company's
operations arrive at its hub airports via regional or commuter service airlines
that serve the surrounding areas. These airlines typically utilize turboprop
rather than jet aircraft and focus on flights less than 200 miles in length and
90 minutes in duration. In order to maximize the number of enplanements of
passengers from these commuter airlines, America West has entered into two
code-sharing agreements with Mesa designed to establish Mesa as a feeder carrier
for the Company at its hubs in Phoenix and Columbus. The code-sharing agreements
provide for coordinated flight schedules, passenger handling and computer
reservations under the America West flight designator code, thereby allowing
passengers to purchase one air fare for their entire trip. Mesa connects 13
cities to the Company's Phoenix hub, operates under the name "America West
Express" and has begun to incorporate the color scheme and commercial logo of
America West on aircraft utilized on these routes. Mesa services five
destinations from the Company's Columbus mini-hub operation. In connection with
the Reorganization, the Company and Mesa agreed to extend the terms of these
code-sharing agreements until 1999.
Alliance Agreements. In connection with its Reorganization, the Company
agreed to form an alliance with Continental pursuant to which the Company and
Continental agreed to implement certain code-sharing arrangements, coordinate
certain flight schedules, share ticket counter space, link frequent flyer
programs, and coordinate ground handling operations for mutual benefit. These
arrangements will be implemented in phases, commencing in the third quarter of
1994. The Company believes that it will realize substantial benefits from such
agreements, which are intended to increase the number of America West
enplanements of Continental passengers and vice versa. In addition, the Company
will be able to offer its existing customers connections to a greater number of
destinations served by Continental, which may permit the Company to further
increase its market share in its hub markets.
COMPETITION AND MARKETING
The airline industry is highly competitive and susceptible to price
discounting, and America West must compete with carriers that are much larger
and have substantially greater resources. See "Investment
Considerations -- Adverse Industry Conditions and Competition." Generally, the
passenger carrier industry is segmented into markets based on the length of trip
and level of service, including long-haul domestic and international routes,
medium-haul (two to three hours) and short-haul (less than two hours) routes
serviced by jet aircraft, and commuter routes served by turboprop aircraft.
America West services primarily short-haul and medium-haul routes connected to
its hub operations, engages only to a limited extent in long-haul flights, which
are dominated by larger carriers, and does not engage in regional commuter
flights, which are primarily served by smaller non-jet carriers. America West
competes primarily with Southwest Airlines at its Phoenix and Las Vegas hub
operations and with USAir and Delta at its Columbus mini-hub.
As is the case with other carriers, most tickets for travel on America West
are sold by travel agents through computer reservation systems that have been
developed and are controlled by other airlines. Travel agents generally receive
commissions based on the price of tickets sold. Accordingly, airlines compete
not only
35
<PAGE> 36
with respect to the price of tickets sold but also with respect to the amount of
commissions paid. Airlines often pay additional commissions in connection with
special revenue programs. Federal regulations have been promulgated that are
intended to diminish preferential schedule displays and other practices with
respect to the reservation systems that place the Company and other similarly
situated users at a competitive disadvantage to the airlines controlling the
systems.
The Company has implemented certain measures to increase leisure travel
utilizing America West flights. In 1987 the Company developed America West
Vacations, which is a tour packaging division that arranges vacation packages
that include hotel accommodations, air fare and ground transportation in certain
markets. During 1993, this division sold approximately 500,000 room nights and
over 315,000 round trip tickets and generated approximately $100 million in
gross revenues. In 1993, the Company became the preferred commercial air carrier
of the MGM Grand Hotel Casino and Theme Park ("MGM") in Las Vegas. Pursuant to
an agreement with MGM, America West will develop joint marketing programs that
target travel agents and consumers, which management believes will enhance
America West's presence in the Las Vegas market.
The Company also has an exclusive arrangement with the Phoenix Suns
professional basketball team pursuant to which the arena in which the team plays
is named "America West Arena," and the Company's name and logo appear throughout
the facility, including on the basketball court. As a result of this
association, the Company receives media exposure at no additional expense during
national and local telecasts of Phoenix Suns basketball games, as well as during
other events at the arena.
FLIGHTFUND
All major airlines have established frequent flyer programs to encourage
travel on that particular carrier. America West offers the FlightFund program
that allows members to earn mileage credits by flying America West and certain
other carriers and by using the services of other program participants such as
bank credit cards, hotels and car rental firms. In addition, the Company
periodically offers special short-term promotions that allow members to earn
additional free travel awards or mileage credits. When a FlightFund member
accumulates mileage credits of 20,000 miles, the Company issues mileage award
certificates that can be redeemed for various travel awards, including first
class upgrades and tickets on America West or other airlines participating in
America West's frequent flyer program. Travel is valid up to one year from the
date of ticketing. Most travel awards are subject to blackout dates and capacity
controlled seating. Mileage award certificates automatically expire after two
years if issued prior to April 1, 1993 and after three years for certificates
issued after that date.
FlightFund awards may also be redeemed for flights to certain international
destinations and Hawaii. America West is required to purchase space on other
airlines to accommodate such award redemption. In addition, America West has
entered into barter agreements with certain hotels and rental car agencies that
permit the Company to award discounts at such hotels and rental agencies to
FlightFund members in exchange for providing air travel to such hotels and
travel agencies.
The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
additional passenger. Costs including passenger food, beverages, supplies, fuel,
liability insurance, purchased space on other airlines and denied boarding
compensation are accrued as frequent flyer program participants accumulate
mileage to their accounts. Such unit costs are based upon expenses expected to
be incurred on a per passenger basis. No profit or overhead margin is included
in the accrual for these incremental costs.
FlightFund's current membership is approximately 1.6 million participants.
At December 31, 1993, 1992 and 1991, the Company estimated that approximately
238,000, 238,000 and 235,000 travel awards were expected to be redeemed.
Correspondingly, the Company had an accrued liability of $7.4 million, $7.3
million and $6.2 million for 1993, 1992 and 1991, respectively. The accrual is
based upon the Company's estimates of mileage earned that will eventually be
redeemed for a travel award.
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<PAGE> 37
The number of FlightFund travel awards redeemed for round-trip travel for
the years ended December 31, 1993, 1992 and 1991, was approximately 99,000,
106,000 and 160,000, respectively, representing 2.8%, 3.0% and 3.0% of total
revenue passenger miles for each respective period. The Company does not believe
that the usage of free travel awards results in any significant displacement of
revenue passengers due to the Company's ability to manage frequent flyer travel
by use of blackout dates and limited seat availability.
AIRCRAFT
In connection with its restructuring, the Company reduced the size of its
fleet from 123 in 1991 to 85 in 1993. The Company also reduced the different
types of aircraft in the fleet from five to three. At June 30, 1994, the Company
operated a fleet of 56 Boeing 737s, 17 Airbus A320s and 12 Boeing 757s.
The table below sets forth certain information regarding the Company's
aircraft fleet at June 30, 1994:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER OF AVERAGE LEASE
AIRCRAFT TYPE STATUS AIRCRAFT AGE (YRS.) TERM (YRS.)
- -------------- ------ --------- ---------- -----------
<S> <C> <C> <C> <C>
B737-100 Owned 1 24.8 --
B737-200 Owned 5 15.3 --
B737-200 Leased 17 14.5 6.2
B737-300 Leased 22 7.1 8.5
B737-300 Owned 11 5.7 --
B757-200 Leased 10 8.1 10.0
B757-200 Owned 2 4.8 --
A320 Leased 17 4.5 17.1
--
TOTAL 85 8.6 10.3
===
</TABLE>
Each of the aircraft that is designated as owned serves as collateral for a
loan pursuant to which the aircraft was acquired by the Company or serves as
collateral for a non-purchase money loan.
From 1994 through 1997, leases are scheduled to terminate on six aircraft
(four Boeing 737-200s and two Boeing 757-200s). In addition, leases for two
Airbus A320-200s were scheduled to terminate during 1994; however, the Company
extended one such lease for an additional twelve months. The other Airbus A320
aircraft was returned to the lessor in May 1994 and was replaced by a Boeing 757
aircraft which has been leased for a term of three years. In addition, certain
of the aircraft lessors have the right to call their respective aircraft upon
(in most cases) 180 days' prior notice to the Company. The Company, in turn
(with some exceptions), may retain such aircraft via a right of first refusal by
agreeing to the bona fide terms offered by a third party interested in leasing
or purchasing the aircraft. The Company does not believe that such call rights,
which were granted in exchange for concessions on payment terms relating to such
aircraft, will materially affect the Company's operations.
At June 30, 1994, the Company had on order a total of 49 aircraft of the
types the Company currently operates, of which 29 are firm orders and 20 are
optional orders. The table below details such deliveries.
<TABLE>
<CAPTION>
FIRM ORDERS
---------------------------------------------- OPTION
1994 1995 1996 1997 THEREAFTER TOTAL ORDERS TOTAL
---- ---- ---- ---- ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing:
737-300........................ -- -- 2 2 -- 4 10 14
757-200........................ -- -- 1 -- -- 1 10 11
Airbus:
A320-200....................... -- -- -- -- 24 24 -- 24
-- --
---- ---- ---- ---- --- ---
TOTAL..................... -- -- 3 2 24 29 20 49
==== ==== ==== ==== === === === ===
</TABLE>
37
<PAGE> 38
At June 30, 1994 the estimated aggregate cost for delivery positions under
the existing contracts for the acquisition of B737s, B757s and A320 aircraft
from manufacturers listed in the above table is approximately $2.7 billion. The
table does not include any deliveries under put arrangements more fully
discussed below nor does it include orders for B747-400 aircraft.
With respect to various contracts with Boeing presented in the table above,
a purchase agreement to acquire B737-300 aircraft has been affirmed in the
Company's bankruptcy proceedings. With timely notice to the manufacturer, all or
some of these deliveries may be converted to B737-400 aircraft. Existing
purchase agreements for B757-200 and B747-400 aircraft have neither been
affirmed nor rejected. Boeing purchase agreements carry a 24-month
reconfirmation notice for the delivery of each aircraft. As of June 30, 1994,
ten B737-300 and nine B757-200 delivery positions have expired due to the lack
of reconfirmation by the Company, leaving 14 and 11 delivery positions as
reflected in the table above. The failure to reconfirm such delivery positions
exposes the Company to loss of pre-delivery deposits and other claims which may
be asserted in the bankruptcy proceeding. The Company also has a pre-petition
executory contract under which the Company holds delivery positions for four
B747-400 aircraft under firm order and four B747-400 aircraft under option
order. This executory contract allows the Company, with the giving of adequate
notice, to substitute B737-400 aircraft for those delivery positions. The
Company is currently renegotiating all of its aircraft purchase agreements with
Boeing and has reached a proposed settlement with Boeing pursuant to which (i)
existing leases on two aircraft would be extended, (ii) a Boeing 757 aircraft
would be leased beginning in December 1994, (iii) the existing purchase
contracts would be cancelled and negotiations with respect to a new purchase
contract would continue, and (iv) the net balance of certain deposits of
approximately $6.0 million would be retained by Boeing pending execution of the
new purchase contract, at which time the deposit would be credited to the new
contract. The proposed settlement with Boeing is subject to Bankruptcy Court
approval, a hearing for which is scheduled for August 24, 1994.
With respect to the purchase of aircraft from AVSA presented in the table
above, a single executory contract for the purchase of 24 A320 aircraft has
neither been affirmed nor rejected by the Company. As part of the investment by
AmWest, the A320 purchase agreement was amended to provide the Company with
greater flexibility and reduced pricing. Under the modified terms, delivery
dates of the aircraft will fall in the years 1998 through 2000 with an option to
further defer deliveries. In addition, if new A320 aircraft are delivered as a
result of the renegotiated put agreement (see discussion below), the Company
will have the right to cancel on a one-for-one basis up to a maximum of eight
non-consecutive aircraft deliveries subject to certain conditions. Negotiations
are currently continuing between AVSA and the Company to finalize the details of
this amendment.
In June 1994, the Company renegotiated a put agreement for ten A320
aircraft. The new put agreement reduced the number of aircraft from ten to eight
and rescheduled the deliveries to start not earlier than June 30, 1995 and end
on June 30, 1999. Under the new agreement, new or used A320 aircraft, B737-300
or B757-200 aircraft may be put to the Company but at a rate of no more than two
in 1995 and with respect to each ensuing year during the put period, of no more
than three. In addition, no more than five used aircraft may be put to the
Company and for every new A320 aircraft put to the Company, the Company has the
right to reduce the AVSA A320 purchase contract on a one-for-one basis. During
each January of the put period, the Company will negotiate the type and delivery
dates of the put aircraft for that year. The puts will require 150-day notice
and will be leased at fair market rates, for terms ranging from three to 18
years, depending on the type and condition of the aircraft. As part of the
renegotiated agreement, certain cash payments will be made and certain
securities will be issued to the put holder pursuant to the Plan.
In connection with the Company's $78 million D.I.P. financing agreement,
the Company in December 1991, terminated its agreement with a D.I.P. lender to
lease 24 aircraft and replaced it with a put agreement to lease up to ten of the
aircraft. In September 1992, the put agreement was amended and the number of put
aircraft was reduced from ten to four with the aircraft scheduled for delivery
in 1994. In June 1994, the Company reached a settlement for the cancellation of
the right to "put" four aircraft to the Company for $4.5 million of which $2.5
million was paid in June 1994 and $2.0 million will be paid on the Effective
Date.
38
<PAGE> 39
FACILITIES
America West's principal facilities are associated with its hub operations
in Phoenix, Las Vegas and Columbus. The Company operates from Terminal 4 of
Phoenix Sky Harbor International Airport pursuant to a lease agreement that
included 28 gates and approximately 258,200 square feet at December 31, 1993.
The Company also leases approximately 25,000 square feet of additional space at
the airport for administrative offices and pilot training. Since 1988, the
Company has owned a 660,000 square foot maintenance and technical support
facility that includes four hangar bays, hangar shops, two flight simulator
bays, and warehouse and commissary facilities.
In Las Vegas, the Company leases approximately 80,000 square feet of space
at McCarran International Airport, which includes seven gates and adjoining
holding room areas. At the Company's Columbus, Ohio mini-hub, the Company leases
30,000 square feet and two gates and has the ability to sublease additional
gates from other airlines as the need arises.
Space for ticket counters, gates and back offices has also been obtained at
each of the other airports served by the Company, either by lease from the
airport operator or by sublease from another airline. Some of the Company's
airport sublease agreements include requirements that the Company purchase
various ground services at the airport from the lessor airline at rates in
excess of what it would cost the Company to provide those services itself.
The Company owns the 68,000 square foot America West Corporate Center at
222 South Mill Avenue in Tempe, Arizona. The Company currently leases
approximately 500,000 square feet of general office and other space in Phoenix
and Tempe, Arizona.
EMPLOYEES
Management believes that the Company's dedicated labor force has
contributed significantly to its successful reorganization. At December 31,
1993, the Company employed 8,102 full-time and 3,117 part-time employees, the
equivalent of 10,544 full-time employees. During 1993, the Company had 1,630,400
available seat miles per full-time equivalent employee and 1,064,200 revenue
passenger miles per full-time equivalent employee, based on the number of
full-time equivalent employees at year end. The Company's payroll and related
costs, which amounted to 1.78 cents per available seat mile for the year ended
December 31, 1993, is below the industry average.
On October 26, 1993, the Air Line Pilots Association ("ALPA") was certified
by the National Mediation Board as the bargaining representative of the
Company's flight deck crew members. Formal negotiations commenced in April 1994
and are continuing. Both sides have exchanged preliminary proposals. In February
1989, the Association of Flight Attendants ("AFA") lost an election to represent
the Company's customer service representatives ("CSRs"). In June, 1994, the
National Mediation Board accepted AFA's new petition to represent the Company's
CSRs and ballots are scheduled to be mailed to all eligible flight attendants in
August 1994. The ballot count will be held September 15, 1994. In April 1994,
the Transportation Workers Union ("TWU") filed a petition to represent the
Company's fleet service personnel. The International Brotherhood of Teamsters
("IBT") filed an application to represent the Company's mechanics and related
personnel on August 1, 1994. The Company anticipates that elections with respect
to the petitions will be held during 1994.
The Company cannot predict whether either the AFA, TWU or IBT will be
certified to represent any of the Company's employees or the effect, if any,
that a future collective bargaining agreement with any of the ALPA, AFA, IBT or
TWU will have on the Company's operations or financial performance.
The Company has arranged a program of insurance of the types and in the
amounts it believes customary in the airline industry, including coverage for
public liability, passenger liability, property damage, aircraft loss or damage,
cargo liability and workers' compensation. The Company believes such insurance
is adequate as to both risks covered and coverage amounts.
39
<PAGE> 40
GOVERNMENT REGULATIONS
Noise Abatement. The Airport Noise and Capacity Act of 1990 provides, with
certain exceptions, that after December 31, 1999, no person may operate certain
large civilian turbo-jet aircraft in the United States that do not comply with
Stage 3 noise levels, which is the FAA designation for the quietest commercial
jets. These regulations will require carriers to gradually phase out their
noisier jets (such as the Boeing 737-200), either replacing them with quieter
Stage 3 jets or equipping them with hush kits to comply with noise abatement
regulations, over a five-year period commencing December 31, 1994. As of
December 31, 1993, 73 percent of America West's fleet was in compliance with the
FAA noise abatement regulations, and the Company expects that it will meet the
thresholds imposed by such regulations through scheduled retirement of its older
aircraft.
Numerous airports, including those serving Boston, Denver, Los Angeles,
Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange
County, Washington, D.C., Burbank and Long Beach have imposed restrictions such
as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on number of average daily departures, which limit the
ability of air carriers to provide service to or increase service at such
airports. The Port Authority of New York and New Jersey is considering a
phaseout of Stage 2 aircraft on a more accelerated basis than that of the FAA
requirement. The Company's Boeing 757-200s, 737-300s and Airbus A320s all comply
with current FAA Stage 3 noise regulations, as well as the more stringent noise
abatement requirements of the airports listed above.
PFC Charges. During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the DOT, to impose passenger facility
charges ("PFCs") as a means of funding local airport projects. These charges,
which are intended to be collected by the airlines from their passengers, are
limited to $3.00 per enplanement, and to no more than $12.00 per round trip. As
a result of competitive pressure, the Company and other airlines have been
limited in their abilities to pass on the cost of the PFCs to passengers through
fare increases.
Environmental Matters. The Company is subject to regulation under major
environmental laws administered by state and federal agencies, including the
Clean Air Act, Clean Water Act and Comprehensive Environmental Response
Compensation and Liability Act of 1980. In some locations there are also county
and sanitary sewer district agencies which regulate the Company. The Company
believes that it is in substantial compliance with applicable environmental
regulations.
Aging Aircraft Maintenance. The FAA issued several Airworthiness
Directives ("AD") in 1990 mandating changes to the older aircraft maintenance
programs. These ADs were issued to ensure that the oldest portion of the
nation's fleet remains airworthy. The FAA is requiring that these aircraft
undergo extensive structural modifications. These modifications are required
upon the accumulation of 20 years time in service, prior to the accumulation of
a designated number of flight cycles or prior to 1994 deadlines established by
the various ADs, whichever occurs later. Only one of the Company's 85 aircraft
is currently affected by these aging aircraft ADs. The Company constantly
monitors its fleet of aircraft to ensure safety levels which meet or exceed
those mandated by the FAA or the DOT.
Safety. America West is subject to the jurisdiction of the FAA with
respect to aircraft maintenance and operations, including equipment, dispatch,
communications, training, flight personnel and other matters affecting air
safety. The FAA has the authority to issue new or additional regulations. To
ensure compliance with its regulations, the FAA requires the Company to obtain
operating, airworthiness and other certificates which are subject to suspension
or revocation for cause. In addition, a combination of FAA and Occupational
Safety and Health Administration regulations on both federal and state levels
apply to all of America West's ground-based operations.
Slot Restrictions. At New York City's JFK and LaGuardia Airports,
Chicago's O'Hare International Airport and Washington's National Airport, which
have been designated "High Density Airports" by the FAA, there are restrictions
on the number of aircraft that may land and take-off during peak hours. In the
future, these take-off and landing time slot restrictions and other restrictions
on the use of various airports and their facilities may result in further
curtailment of services by, and increased operating costs for, individual
40
<PAGE> 41
airlines, including America West, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for nonuse and permits carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
On January 1, 1993, the FAA implemented new slot use standards that require
that all slots must be used on 80% of the dates during each two-month reporting
period. Previously, slots were required to be used at a 65% use rate. Failure to
satisfy the 80% use rate will result in loss of the slot. The slot would revert
to the FAA and be reassigned through a lottery arrangement.
The Company currently utilizes two slots at New York City's JFK airport,
four slots at New York City's LaGuardia airport, four slots at Chicago's O'Hare
airport and six slots at Washington's National airport. Four of the slots at
Washington's National airport are temporary and the Company's right to utilize
such slots expires in September 1994; however, the Company currently expects
that its right to utilize such slots will be renewed. The average utilization
rates by the Company of all the foregoing slots range from 86% to 100%.
CRAF Program. In time of war or during a national emergency, United States
air carriers may be required to provide airlift services to the Military Airlift
Command under the Civil Reserve Air Fleet Program (the "CRAF Program"). During
the Middle East conflict in 1990-91, two of America West's aircraft participated
in the CRAF Program.
LEGAL PROCEEDINGS
On June 27, 1991, the Company filed a voluntary petition in the United
States Bankruptcy Court for the District of Arizona to reorganize under Chapter
11 of the United States Bankruptcy Code. The Company's plan of reorganization
was confirmed on August 10, 1994, and will become effective on the Effective
Date, which the Company anticipates will be on or about August 25, 1994. The
Bankruptcy Court retains jurisdiction over the Company for limited purposes.
In August 1991, the Securities and Exchange Commission informally requested
that the Company provide the Commission with certain information and
documentation underlying disclosures made by the Company in annual and quarterly
reports filed with the Commission by the Company in 1991. The Company has
cooperated with the Commission's informal inquiry. On March 29, 1994, the
Company's Board of Directors approved the submission of an offer of settlement
for the purpose of resolving the inquiry through the entry of a consent decree
pursuant to which the Company would, while neither admitting nor denying any
violation of the securities laws, agree to comply with its future reporting
obligations under Section 13 of the Exchange Act. The Company was advised on May
6, 1994 that the Commission agreed to accept the Company's offer of settlement.
In order to implement the settlement, on May 12, 1994 the Commission issued an
"Order Instituting Proceedings Pursuant to Section 21C of the Exchange Act and
Opinion and Order of the Commission" (the "Order") finding the Company's Form
10-K for the year ending December 31, 1990, violated Section 13(a) of the
Exchange Act and Rule 13a-1 thereunder, and that the Company's Form 10-Q for the
first quarter of 1991 violated Section 13(a) of the Exchange Act and Rule 13a-13
thereunder, and ordered that the Company cease and desist from violating Section
13(a) of the Exchange Act and Rules 13a-1 and 13a-13 promulgated under the
Exchange Act. The Order provides that the Company neither admits nor denies any
violation of the securities laws.
41
<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information respecting the names, ages, terms, positions with the Company
and business experience of the executive officers and the directors of the
Company as of July 1, 1994, is set forth below. Each director has served
continuously with the Company since his first election.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE POSITION SINCE EXPIRES(3)
- ---------------------------------- --- ------------------------------------ -------- ----------
<S> <C> <C> <C> <C>
William A. Franke................. 57 Chairman of the Board and Chief 1992 1994
Executive Officer
A. Maurice Myers.................. 54 President, Chief Operating Officer 1994 1994
and Director
Thomas P. Burns................... 52 Senior Vice President -- Sales and N/A N/A
Marketing Programs
Thomas F. Derieg.................. 54 Senior Vice President -- Operations N/A N/A
Martin J. Whalen.................. 53 Senior Vice N/A N/A
President -- Administration and
General Counsel
Raymond T. Nakano................. 49 Vice President and Controller N/A N/A
Frederick W. Bradley, Jr.(1)(2)... 67 Director 1992 1992
O. Mark De Michele(2)............. 60 Director 1986 1993
Samuel L. Eichenfield(2).......... 57 Director 1992 1992
Richard C. Kraemer(1)............. 50 Director 1992 1993
James T. McMillan(1)(2)........... 68 Director 1993 1993
John R. Norton III(1)............. 65 Director 1992 1992
John F. Tierney(1)................ 49 Director 1993 1993
Declan Treacy(2).................. 38 Director 1993 1994
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) The Company has not held a meeting of its stockholders since May 1991 to
elect directors. Accordingly, each director, including those directors with
terms expiring in 1992, 1993 and 1994, shall serve until either their
resignation or the later of (i) his term expiration or (ii) such time as
his successor is duly elected and qualified.
William A. Franke was named Chairman of the Board of Directors in September
1992. On December 31, 1993, Mr. Franke was also elected to serve as the
Company's Chief Executive Officer. In addition to his responsibilities at
America West, Mr. Franke serves as president of the financial services firm,
Franke & Co., a company he has owned since May 1987. From November 1989 until
June 1990, Mr. Franke served as the Chairman of Circle K Corporation's executive
committee with the responsibility for Circle K Corporation's restructure. In May
1990, the Circle K Corporation filed a voluntary petition to reorganize under
Chapter 11 of the Bankruptcy Code. From June 1990 until August 1993, Mr. Franke
served as the chairman of a special committee of directors overseeing the
reorganization of the Circle K Corporation. Mr. Franke has also served in
various other capacities at Circle K Corporation since 1990. Mr. Franke was also
involved in the restructuring of the Valley National Bank of Arizona (now Bank
One Arizona). Mr. Franke also serves as a director of Phelps Dodge Corp. and
Central Newspapers Inc.
A. Maurice Myers was named President and Chief Operating Officer on
December 31, 1993 and was named to the Board of Directors in 1994. Prior to
joining America West, Mr. Myers was the president and chief executive officer of
Aloha Airgroup, Inc., an aviation services corporation which owns and operates
42
<PAGE> 43
Aloha Airlines and Aloha Island Air. Mr. Myers joined Aloha in 1983 as vice
president of marketing and became its president and chief executive officer in
June 1985. Mr. Myers is a member of the boards of directors of Air Transport
Association of America and Hawaiian Electric Industries.
Thomas P. Burns has served as Senior Vice President -- Sales and Marketing
since August 1987. Mr. Burns joined the Company in April 1985 as Vice
President -- Sales. Mr. Burns was employed for 25 years by Continental Airlines
in various sales and passenger service positions. From 1982 to 1983, he was
employed as North American manager of sales for UTA, a French airline. Mr. Burns
returned to Continental from 1983 through March 1985, where he served as
director of international sales prior to joining the Company.
Thomas F. Derieg has been Senior Vice President -- Operations since joining
the Company in June 1994. For the preceding seven years, Mr. Derieg served as
Senior Vice President -- Operations at Aloha Airlines, Inc. in Honolulu, Hawaii.
Mr. Derieg served in the U.S. Air Force from 1963 to 1969, and from 1970 to 1987
held a variety of positions in areas of operations and maintenance in the air
transportation industry.
Martin J. Whalen has been Senior Vice President -- Administration and
General Counsel of the Company since July 1986. From 1980 until July 1986, Mr.
Whalen was employed by McDonnell Douglas Helicopter Company and its
predecessors, most recently as vice president of administration. He also held
positions in labor relations, personnel and legal affairs at Hughes Airwest and
Eastern Airlines.
Raymond T. Nakano has served as Vice President and Controller since April
of 1985. Prior to joining America West, Mr. Nakano was employed by Continental
Airlines, Inc. for eight years in various accounting positions, most recently as
Senior Director, General Accounting.
Frederick W. Bradley, Jr. has served as a member of the Board of Directors
since September 1992. Immediately prior to joining the Board of Directors, Mr.
Bradley was a senior advisor with Simat, Helliesen & Eichner, Inc. Mr. Bradley
formerly served as senior vice president of Citibank/Citicorp's Global Airline
and Aerospace business. Mr. Bradley joined Citibank/Citicorp in 1958. In
addition, Mr. Bradley serves as a member of the board of directors of Shuttle,
Inc. (USAir Shuttle) and the Institute of Air Transport, Paris, France. Mr.
Bradley also serves as chairman of the board of directors of Aircraft Lease
Portfolio Securitization 92-1 Ltd. and as president of IATA's International
Airline Training Fund of the United States.
O. Mark De Michele has served as a member of the Board of Directors since
1986 and is president, chief executive officer and a director of Arizona Public
Service Company. Mr. De Michele joined Arizona Public Service Company in 1978 as
vice president of corporate relations, and also served as its chief operating
officer and an executive vice president. Mr. De Michele is also a member of the
board of directors of the Pinnacle West Capital Corporation.
Samuel L. Eichenfield has served as a member of the Board of Directors
since September 1992 and is chairman of the board of directors and chief
executive officer of GFC Financial Corporation. Mr. Eichenfield has also served
as chief executive officer of Greyhound Financial Corporation, a subsidiary of
GFC Financial Corporation, since joining GFC in 1987.
Richard C. Kraemer has served as a member of the Board of Directors since
September 1992 and is president and chief operating officer of UDC Homes, Inc.
Mr. Kraemer is also a member of the UDC Homes, Inc. board of directors. Prior to
joining UDC Homes, Inc. in 1975, Mr. Kraemer held a variety of positions at
American Cyanamid Company.
James T. McMillan has served as a member of the Board of Directors since
December 1993. Mr. McMillan joined McDonnell Douglas Finance Corporation as its
president in 1968 and retired as its chairman of the board in 1991. Mr. McMillan
also served in various capacities for the McDonnell Douglas Corporation from
August 1954 until August 1990, most recently as a senior vice president and
group executive.
John R. Norton III has served as a member of the Board of Directors since
September 1992 and was former Deputy Secretary of the United States Department
of Agriculture from 1985 to 1986. Mr. Norton is currently a principal of J.R.
Norton Company, an agricultural and real estate concern. Mr. Norton is also a
43
<PAGE> 44
member of the board of directors of Aztar Corp., Pinnacle West Capital
Corporation, Arizona Public Service Company and Terra Industries, Inc.
John F. Tierney has served as a member of the Board of Directors since
December 1993. Mr. Tierney is the assistant chief executive and finance director
of GPA Group plc, an Irish aircraft leasing concern, and has served GPA Group
plc in such capacity since 1981. See "Compensation Committee Interlocks and
Insider Participation" and "Certain Relationships and Related Transactions."
Declan Treacy has served as a member of the Board of Directors since
December 1993. Mr. Treacy is the General Manager -- Corporate Finance of GPA
Group plc, an Irish aircraft leasing concern, and has served GPA Group plc in
such capacity since 1988. See "Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions."
Since September 1992, certain of the debtor-in-possession lenders have had
the right to appoint and approve the membership of the Company's Board of
Directors pursuant to a management letter agreement, as amended and restated,
between the Company and such lenders. Under the terms of such letter agreement,
GPA has the right to appoint two members to the Board of Directors and the
remaining D.I.P. lenders (except Kawasaki) have the right to appoint five
members to the Board of Directors. One member of the Board must be a member of
America West management and two members must be independent.
In connection with the Reorganization, the Company, AmWest, GPA and certain
stockholders' representatives entered into a Stockholders' Agreement with
respect to certain matters involving the Company, including the election of
directors. See "Principal Stockholders -- Stockholders' Agreements."
During the year ended December 31, 1993, the Board of Directors of the
Company met on 29 occasions. During the period in which he served as director,
each of the directors attended 75% or more of the meetings of the Board of
Directors and of the meetings held by committees of the Board on which he
served.
Following the Effective Date, the Company's Board of Directors will be
elected in accordance with the provisions of a stockholders' agreement. For
information concerning persons expected to serve on the post-Reorganization
Board of Directors, see "-- Proposed Slate of Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors, which met ten times
during 1993, reviews all aspects of compensation of executive officers of the
Company and makes recommendations on such matters to the full Board of
Directors. In addition, the Compensation Committee reviews and approves all
compensation and employee benefit plans, the Company's organizational structure
and plans for the development of successors to corporate officers and other key
members of management.
The Audit Committee, which met nine times during 1993, makes
recommendations to the Board concerning the selection of outside auditors,
reviews the financial statements of the Company and considers such other matters
in relation to the internal and external audit of the financial affairs of the
Company as may be necessary or appropriate in order to facilitate accurate and
timely financial reporting.
The Company does not maintain a standing nominating committee or other
committee performing similar functions. See "Principal
Stockholders -- Stockholders' Agreements."
44
<PAGE> 45
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1993, 1992 and 1991, of those persons who were,
at December 31, 1993 (i) the chief executive officer and (ii) the other four
most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME YEAR SALARY(2) COMPENSATION(3)
- --------------------------------------------------------- ----- ------------ ---------------
<S> <C> <C> <C>
William A. Franke(1)..................................... 1993 $450,000 $ -0-
Chairman of the Board and 1992 $131,250 -0-
Chief Executive Officer 1991 N/A N/A
Thomas P. Burns.......................................... 1993 $127,204 $ 2,182
Senior Vice President -- Sales and Marketing 1992 $123,200 $2,182
1991 $125,767 N/A
Alphonse E. Frei(4)...................................... 1993 $161,896 $ 2,182
Senior Vice President -- Finance and 1992 $156,800 $2,182
Chief Financial Officer 1991 $160,067 N/A
Don Monteath(5).......................................... 1993 $161,896 $ 2,182
Senior Vice President -- Operations 1992 $156,800 $2,182
1991 $160,067 N/A
Martin J. Whalen......................................... 1993 $138,368 $ 2,016
Senior Vice President -- Administration and 1992 $134,000 $2,016
General Counsel 1991 $137,200 N/A
Michael J. Conway(6)..................................... 1993 $440,250 $ 2,182
Former Chief Executive Officer and President 1992 $432,000 $2,182
1991 $444,000 N/A
</TABLE>
- ---------------
(1) Mr. Franke was elected Chairman of the Board on September 17, 1992 and was
elected Chief Executive Officer on December 31, 1993.
(2) Includes amounts paid pursuant to the Company's transition pay program.
(3) Consists of Company contributions to the Company's 401(k) Plan on behalf of
the Named Officer.
(4) Mr. Frei retired effective July 1, 1994.
(5) Mr. Monteath resigned from the Company in February 1994.
(6) Mr. Conway was replaced as the President and Chief Executive Officer on
December 31, 1993.
OPTION PLAN INFORMATION
The following table sets forth with respect to the executive officers named
in the Summary Compensation Table the unexercised options held as of the end of
1993 pursuant to the Company's then existing Restated Nonstatutory Stock Option
Plan ("NSOP") and Incentive Stock Option Plan ("ISO").
45
<PAGE> 46
AGGREGATE OPTIONS AND OPTION VALUES
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD
1993 FISCAL YEAR-END AT 1993 FISCAL
NAME -------------------- YEAR-END(1)
- ---------------------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE
-------------------- EXERCISABLE/UNEXERCISABLE
-------------------------
<S> <C> <C> <C>
William A. Franke....................... NSOP 0/0 $ 0
ISO 0/0
Thomas P. Burns......................... NSOP 109,640/0 $ 0
ISO 17,300/0
Alphonse E. Frei........................ NSOP 191,560/0 $ 0
ISO 20,000/0
Don Monteath............................ NSOP 206,560/0 $ 0
ISO 21,000/0
Martin J. Whalen........................ NSOP 143,480/0 $ 0
ISO 12,033/0
Michael J. Conway....................... NSOP 717,400/0 $ 0
ISO 28,000/0
</TABLE>
- ---------------
(1) All of the outstanding options held by the executive officers in the table
above had a fair market value lower than their exercise price at December
31, 1993.
During the fiscal year ended December 31, 1993, none of the Named Officers
exercised any options. All options held by the Named Officers immediately prior
to the Effective Date had exercise prices greater than the fair market value of
the Common Stock at such time and were cancelled for no additional consideration
in connection with the Reorganization.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company has made certain employment termination arrangements in keeping
with its practice under its July 21, 1991 termination of employment guidelines
("Guidelines"), as amended. The Guidelines provide for severance payments based
on three-weeks' pay for each year of full-time service with the Company for up
to one year, continued group medical coverage through the allowance period and
travel privileges on Company flights during the allowance period. Each of the
executives named in the table above is eligible for the benefits under the
Guidelines.
In connection with the termination of employment of Mr. Michael J. Conway
as an officer of the Company, the Company agreed to pay Mr. Conway $503,000 in
termination allowances, payable as an initial severance payment in the amount of
$304,200, an additional $163,800 in six monthly installments of $27,300 each,
and a $35,000 transition expense allowance. The Company also agreed to continue
the payment until December 31, 1994, of premiums aggregating approximately
$33,000 on certain life insurance policies owned by Mr. Conway. The foregoing
payments were in addition to continuation of medical insurance benefits and
certain other fringe benefit arrangements.
In connection with the termination of employment of Mr. Don Monteath as an
officer of the Company, the Company agreed to pay Mr. Monteath a severance
payment of $168,862. This payment was in addition to continuation of medical
insurance benefits and certain other fringe benefit arrangements.
DIRECTOR COMPENSATION
Each non-employee director at December 31, 1993, is compensated as follows:
an annual retainer of $25,000 plus $1,000 for each Board meeting attended,
$1,000 for each committee meeting attended and reimbursement for expenses
incurred in attending the meetings. Directors are also entitled to certain air
travel benefits. No personal travel by directors was reported to the Company in
1993.
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<PAGE> 47
OTHER ARRANGEMENTS
Mr. Franke, Chairman of the Board of Directors, is also the president of
the financial services firm, Franke & Co. In order to assist Mr. Franke with
certain costs associated with his service as Chairman and Chief Executive
Officer, the Company pays Franke & Co. an office overhead allowance of $4,167
per month in exchange for which Franke & Co. provides Mr. Franke's secretarial
and administrative support.
Effective January 1, 1994, Mr. A. Maurice Myers left his position as
president and chief executive officer of Aloha Airlines, Inc. to join the
Company as President and Chief Operating Officer. The employment agreement
between the Company and Mr. Myers provides an initial two-year term at a base
salary of $375,000 per year. Mr. Myers also received a $100,000 transition
allowance. The Company loaned Mr. Myers approximately $320,000 to exercise
options to acquire stock of Aloha Airlines, Inc. The loan is secured by the
stock purchased by Mr. Myers but is otherwise nonrecourse to Mr. Myers. The loan
bears interest at a rate based on the rate of imputed interest under the
Internal Revenue Code. The loan matures within a specified period following
expiration of the employment agreement or other termination of employment or, if
earlier, on the date that is 180 days after the first date on which the pledged
stock becomes eligible for sale by Mr. Myers on a national securities exchange
or automated quotation system. In addition, the Company has agreed to assist Mr.
Myers in purchasing a residence in Phoenix, Arizona with a nonrecourse loan of
up to $200,000 secured by such residence. In connection with the confirmation of
the Plan, the Company has submitted for Bankruptcy Court approval a payment to
Mr. Myers of a reorganization success bonus in the amount of $400,000. The
Company has also agreed to provide to Mr. Myers certain retirement benefits,
reduced for vested accrued benefits payable under plans maintained by his former
employer. If Mr. Myers' employment with the Company is terminated or his
responsibilities are materially altered following a change in control, he is
entitled to receive a severance payment equal to 200% of his base salary and,
for a period of 12 months, medical and life insurance coverages as provided
immediately prior to such termination. Mr. Myers is entitled to participate in
any incentive plans or other fringe benefits provided by the Company to other
key employees.
During 1993, the Company paid approximately $39,000 for consulting services
to Juan O'Callaghan, a former director of the Company.
The Company and Mr. Franke entered into a Key Employee Protection Agreement
on June 27, 1994 pursuant to which the Company agreed to pay to Mr. Franke a
Severance Payment (as defined in the agreement) if a Change of Control (as
defined in the agreement) occurs in connection with a plan of reorganization and
if for any reason (including voluntary resignation or involuntary removal, but
excluding death) Mr. Franke ceases to serve as Chairman of the Company at any
time within 180 days after the date of confirmation of such a plan of
reorganization. A Change of Control (as defined in the agreement) would occur,
generally, (i) if individuals who constitute the Board of Directors of the
Company immediately prior to confirmation of a plan of reorganization cease to
constitute a majority of the Board (except that any individual who becomes a
director after the date of the agreement whose election or nomination was
approved by a majority of directors then comprising the incumbent Board is to be
considered as though he were a member of the incumbent Board), or (ii) if an
individual, entity or group (within the meaning of the Securities Exchange Act
of 1934, as amended) acquires beneficial ownership of 51% or more of the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors. Under the agreement,
the Severance Payment would be a lump sum amount equal to 200% of the sum of Mr.
Franke's annual base salary in effect immediately prior to the date of
termination and the administrative expense allowance then in effect. The Key
Employee Protection Agreement also provides for certain other benefits,
including medical and life insurance, accrued vacation pay for a 12 month period
and certain travel privileges consistent with the Company's policy for retired
executives.
In connection with the confirmation of the Plan, the Company filed certain
motions with the Bankruptcy Court to secure approval to pay the reorganization
success bonuses of (i) $9.3 million to be paid to non-officer employees; (ii)
$1.2 million to be paid to officers and other members of management; and (iii)
125,000 shares of stock in the reorganized Company to be issued to William A.
Franke. In connection with the shares to be issued to Mr. Franke, the Company
proposes to grant certain rights to Mr. Franke to have the offering and sale
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<PAGE> 48
of such shares registered with the Commission under the Securities Act. A
hearing on these motions has been scheduled for August 24, 1994.
PROPOSED SLATE OF DIRECTORS
Following the Effective Date, the Company's Board of Directors will be
elected in accordance with the provisions of a stockholders' agreement. See
"Principal Stockholders -- Stockholders' Agreements." In connection with the
confirmation of the Plan, the Company submitted to the Bankruptcy Court the
names and certain information with respect to the following persons who are
expected to serve on the post-Reorganization Board of Directors.
DIRECTOR NOMINATED BY THE COMPANY'S BOARD
William A. Franke who currently serves as Chairman of the Board of
Directors and Chief Executive Officer of America West.
DIRECTORS NOMINATED BY AMWEST
Julia Chang Bloch is the group executive vice president, corporate
relations of BankAmerica Corporation and has held that position since June 1993.
Ms. Bloch served as the U.S. Ambassador to Nepal from September 1989 through May
1993. Ms. Bloch is a board member of the American Refugee Committee and the
Himalaya Foundation, and serves as a trustee of the Asian Art Museum and the
Asia Society.
Frederick W. Bradley, Jr. has been a member of America West's Board of
Directors since September 1992. Immediately prior to joining the Board of
Directors, Mr. Bradley was a senior advisor with Simat, Helliesen & Eichner,
Inc. Mr. Bradley formerly was a senior vice president of Citibank/Citicorp's
Global Airline and Aerospace business. Mr. Bradley joined Citibank/Citicorp in
1958. In addition, Mr. Bradley is a member of the board of directors of Shuttle,
Inc. (USAir Shuttle) and the Institute of Air Transport, Paris, France. Mr.
Bradley also is chairman of the board of directors of Aircraft Lease Portfolio
Securitization 92-1 Ltd. and is president of IATA's International Airline
Training Fund of the United States.
James G. Coulter is the managing director of Air Partners, L.P., and a
partner and director of Colony Advisors, Inc. He has held those positions since
September 1992. Since 1993, Mr. Coulter has also been a managing director of TPG
Partners, L.P. (a private investment firm). From April 1993 through August 1994,
Mr. Coulter was a member of the board of directors of Continental Airlines, Inc.
From 1986 to August 1992, Mr. Coulter was vice president of Keystone, Inc.
(formerly Robert M. Bass Group, Inc., a private investment firm based in Fort
Worth, Texas).
John F. Fraser is the chairman of the board of Federal Industries Ltd. Mr.
Fraser was chairman and chief executive officer of Federal Industries Ltd. from
March 1991 to May 1992, and president and chief executive officer of Federal
Industries Ltd. May 1978 - March 1991. Mr. Fraser was a member of the Board of
Directors of Continental Airlines, Inc. from August 1993 through August 1994.
Mr. Fraser is a director of Air Canada, Montreal, Bank of Montreal, Coca-Cola
Beverages Limited, Ford Motor Company of Canada, Limited, Inter-City Products
Corporation, Investors Group Inc., Shell Canada Limited, and The Thomson
Corporation.
John L. Goolsby has been the president of The Hughes Corporation and the
Summa Corporation (the principal operating companies of the Howard Hughes
Estate) since 1988, and has been the chief executive officer of those companies
since 1990. In addition to serving on the board of directors of the Hughes and
Summa Corporations, Mr. Goolsby serves as a director of Nevada Power Company,
Bank of America Nevada, Las Vegas Chamber of Commerce, and the Boulder Dam Area
Council of the Boy Scouts of America, and serves as a trustee of The Donald W.
Reynolds Foundation and the UNLV Foundation.
Richard C. Kraemer has been a member of America West's board of directors
since September 1992 and is president, chief executive officer and chief
operating officer of UDC Homes, Inc. Mr. Kraemer is also a member of the board
of directors of UDC Homes, Inc. Prior to joining UDC Homes, Inc. in 1975, Mr.
Kraemer held a variety of positions at American Cyanamid Company.
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<PAGE> 49
A. Maurice Myers who currently serves as President and Chief Operating
Officer of America West and is a member of the current Board of Directors.
Larry L. Risley has been the president, chief executive officer and
chairman of the board of directors of Mesa Airlines, Inc. since the founding of
the company in 1983. From 1979 to 1982, Mr. Risley was president of Mesa
Aviation Services, Inc.
Richard P. Schifter has been a managing director of TPG Partners, L.P. (a
private investment firm) since July 1994. Mr. Schifter is of counsel to the
Washington D.C. based law firm of Arnold & Porter, where he was an associate
from 1979 to 1986, and a partner from 1986 to July 1994.
DIRECTOR NOMINATED BY GPA
John F. Tierney who is currently a member of America West's Board of
Directors.
DIRECTOR NOMINATED BY THE EQUITY COMMITTEE
John R. Power, Jr. is president of The Patrician Corporation, an investment
company. Prior to joining The Patrician Corporation, Mr. Power served as a vice
president at Continental Bank.
DIRECTORS NOMINATED BY THE CREDITORS' COMMITTEE
Harrison J. Goldin is a senior partner with Goldin Associates, L.P., an
investment partnership. From 1988 to 1989 Mr. Goldin served as a member of the
Pension Managers Advisory Committee to the New York Stock Exchange Board of
Directors. He currently serves as chairman emeritus of the Council of
Institutional Investors.
Raymond S. Troubh is a financial consultant. He currently serves on the
board of directors of ADT Limited, American Maize Products Co., Applied Power
Inc., ARIAD Pharmaceuticals, Inc., Becton, Dickinson and Company, Benson Eyecare
Corporation, Foundation Health Corporation, General American Investors Company,
Manville Corporation, Olsten Corporation, Riverwood International Corporation,
Time Warner Inc. and Wheeling-Pittsburgh Corporation.
Stephen Bollenbach is president and chief executive of Host Marriott Corp.
Mr. Bollenbach served as chief financial officer of the Promus Companies from
1986 to 1990 and served as chief financial officer for the Trump Organization
from 1990 to 1992. He serves as a director of Carr Realty Corporation and
Mid-America Apartment Communities, Inc.
MANAGEMENT RIGHTS AGREEMENT
On the Effective Date, the Company and TPG will enter into a Management
Rights Agreement ("Management Rights Agreement") pursuant to which TPG will be
entitled, subject to certain restrictions, (i) to make proposals,
recommendations and suggestions to the Company relating to the business and
affairs of the Company, (ii) discuss the affairs of the Company with officers,
directors and accountants, and (iii) examine the Company's books and records.
Proposals and recommendations made pursuant the Management Rights Agreement will
not be binding on the Company and information provided to TPG will be subject to
confidentiality and various other restrictions.
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<PAGE> 50
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors reviews all
aspects of compensation of executive officers of the Company and makes
recommendations on such matters to the full Board of Directors. The Compensation
Committee also reviews and approves all compensation and employee benefit plans,
the Company's organizational structure and plans for the development of
successors to corporate officers and other key members of management. During
1993, Frederick W. Bradley, Jr., Richard C. Kraemer, James T. McMillan, John R.
Norton, III and John F. Tierney served on the Compensation Committee.
Both Mr. Tierney and Declan Treacy were elected to the Board of Directors
pursuant to a certain management letter agreement, as amended and restated,
between the Company and its debtor-in-possession lenders, including GPA. See
"Management -- Directors and Executive Officers". Both Mr. Tierney and Mr.
Treacy are executives of GPA. The management letter agreement will terminate as
of the Effective Date and GPA's representation on the Company's Board will be
determined pursuant to the Stockholders' Agreement and a voting agreement to be
entered between GPA and AmWest which collectively provide that GPA shall be
allocated one seat on the Company's Board of Directors for so long as it owns at
least 2% of the voting equity securities of the Company determined on a
fully-diluted basis.
GPA has been and will continue to be a major supplier of leased aircraft
and engines to the Company and has provided financing for the Company prior to
and during the bankruptcy proceedings. In September 1990, GPA and the Company
entered into an agreement (the "Aircraft Finance Agreement") pursuant to which
(i) GPA provided a cash advance to the Company of $60.2 million and (ii) the
Company agreed to sublease 16 A320-200's and three spare engines and committed
to lease 10 additional A320-200's. Under the Aircraft Finance Agreement, the
monthly rental rates for each of the initial 12 aircraft is approximately
$307,000 (including adjustments in connection with certain security arrangements
and repayment of certain advances) and the monthly rental rates for each of the
remaining four aircraft averages approximately $345,000. The Company's
obligations under the Aircraft Finance Agreement are secured by a $17.6 million
letter of credit.
In June of 1991, GPA and the Company restructured the Aircraft Finance
Agreement by eliminating the Company's obligations with respect to the 10
additional A320-200 aircraft, increasing the payments on the initial 12 aircraft
to repay advances on the cancelled aircraft as reflected above, and entering
into a put agreement (the "1991 Put Agreement"). Under the 1991 Put Agreement,
GPA is entitled to put 10 A320 aircraft to the Company over a three-year period.
Specified lease terms range from 18 to 23 years for a leveraged lease and seven
to 18 years for a single investor lease. Applicable rental rates are based on a
rental factor (.925% per month for a leveraged lease and 1.14% per month for a
single investor lease) multiplied by the cost of the aircraft to GPA. Rental
factors are subject to a 10-year reset provision based on changes in Treasury
rates in the case of leveraged leases and six-month adjustments based on LIBOR
rates in the case of single investor leases.
In September 1991, after commencement of the Company's bankruptcy
proceedings, affiliates of GPA provided the Company $35 million of D.I.P.
financing. An additional $35 million was provided in September 1992. As of June
30, 1994, the aggregate outstanding principal balance of D.I.P. financing
provided by GPA was $54.4 million. The D.I.P. financing provided by GPA bears
interest at 350 basis points over the 90-day LIBOR rate and, along with the
other debtor-in-possession financing, is secured by substantially all of the
assets of the Company. Pursuant to the Plan and in accordance with a settlement
agreement to be entered into as of the Effective Date (the "Settlement
Agreement"), the Company will repay to GPA the outstanding balance under the
D.I.P. loan. In addition, GPA will receive 900,000 shares of Class B Common
Stock, 1,384,615 Warrants and a cash payment of $30.525 million, and the 1991
Put Agreement will be replaced with a new put agreement. The new put agreement
will reduce the number of aircraft from 10 to eight and reschedule the
deliveries to start not earlier than June 30, 1995 and to end on June 30, 1999,
unless otherwise agreed to by the Company. Under the new agreement, A320
aircraft with A-5 engines, B737-300 aircraft or B757-200 aircraft may be put to
the Company, but at a rate of no more than two in 1995 and no more than three in
each ensuing year during the put period. No more than five used aircraft may be
put to the Company,
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<PAGE> 51
and for every A320 aircraft (which may only be new aircraft) put to the Company,
the Company has the right to reduce the AVSA A320 purchase contract delivery on
a one-for-one basis. During each January of the put period, the Company and GPA
will negotiate the type and delivery dates of the put aircraft for that year.
The puts will require 150-day notice and will be leased at fair market rates,
for terms ranging from three to 18 years, depending on the type and condition of
the aircraft.
Lease payments from America West to GPA under the Aircraft Finance
Agreement and the 1991 Put Agreement totaled $20,784,669 in 1991, $63,812,425 in
1992 and $63,073,184 in 1993. As of December 31, 1993, the Company was obligated
to pay approximately $1.136 billion over the terms of the 16 aircraft leases
under the Aircraft Finance Agreement. Payments by the Company to GPA under the
D.I.P. financing totalled $1,026,000 in 1991, $3,328,608 in 1992 and $16,298,189
in 1993.
CERTAIN TRANSACTIONS
In September 1993, in connection with an extension of its
debtor-in-possession financing, the Company repaid $8.3 million of indebtedness
to Ansett Worldwide Aviation U.S.A., an affiliate of Transpacific Enterprises,
Inc., which was then a substantial stockholder of the Company. As of December
31, 1993, the Company leased or subleased 11 Boeing 737 aircraft from affiliates
of Transpacific Enterprises, Inc. and was obligated to pay $232 million over the
remaining terms of the leases.
As part of the Reorganization, the Company entered into Alliance Agreements
with Continental and Mesa. See "Business -- Business Strategy" and
"Business -- Operations."
Each of the transactions described above were the result of significant
negotiation among the parties thereto and were concluded on what the Company
believes to be terms no less favorable than would have been obtained had the
transactions been entered into with non-affiliated third parties. For a
description of certain transactions or arrangements between the Company and its
officers or directors, see "Management -- Other Arrangements."
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the outstanding
Class A Common Stock and Class B Common Stock of the Company by (i) each person
who is known to the Company to beneficially own more than 5% of the outstanding
common stock of America West, (ii) each director of America West, (iii) each of
the executive officers of America West named in the Summary Compensation Table
and (iv) all executive officers and directors of America West as a group, in
each case as of the Effective Date. The information set forth below is estimated
based upon certain assumptions concerning the distribution of securities
pursuant to the Plan. The actual ownership of securities resulting from
consummation of the Plan will depend upon final calculations based on various
cash elections and subscription elections made by owners of claims against and
interests in the Company, as well as the amount of claims allowed pursuant to
the bankruptcy proceedings, and may differ from the information set forth above.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ ------------------------ CLASS A AND B
---------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED COMBINED VOTING POWER
------------------------ ------------------------ ---------------------
BENEFICIAL OWNER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
- ------------------------------ --------- ---------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
TPG Partners, L.P.(2)(3)(4)
201 Main Street
Suite 2420
Fort Worth, Texas 76102..... 774,495 64.5% 6,923,148(5) 15.1% 43.2%
Continental Airlines, Inc.(2)
2929 Allen Parkway
Houston, Texas 77019........ 325,505 27.1% 2,311,094(6) 5.2% 17.8%
Mesa Airlines, Inc.(2)
2525 30th Street
Farmington, New Mexico
87401....................... 100,000 8.3% 2,983,110(7) 6.7% 7.6%
Lehman Brothers Inc.
200 Vessey Street
American Express Tower
World Financial Center
New York, NY
10285-1800.................. -- -- 5,062,000(8) 11.5% 4.9%
FMR Corp.
82 Devonshire St.
Boston, MA 02109............ -- -- 4,856,000(9) 10.9% 4.6%
William A. Franke(10)......... -- -- -- -- --
Thomas P. Burns............... -- -- 15,924(11) * *
Martin J. Whalen.............. -- -- 22(12) * *
Alphonse E. Frei.............. -- -- 993(13) * *
Don Monteath.................. -- -- -- -- --
Frederick W. Bradley, Jr...... -- -- -- -- --
Michael J. Conway............. -- -- 33,973(14) * *
O. Mark De Michele............ -- -- 2,478(15) * *
Samuel L. Eichenfield......... -- -- -- -- --
Richard C. Kraemer............ -- -- -- -- --
James T. McMillan............. -- -- -- -- --
John R. Norton, III........... -- -- -- -- --
John F. Tierney............... -- -- -- -- --
Declan Treacy................. -- -- -- -- --
All executive officers and
directors as a group (17
persons).................... -- -- 55,482(16) * *
</TABLE>
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<PAGE> 53
- ---------------
* Less than 1%.
(1) As of the Effective Date.
(2) Represents rights to acquire shares allocated to investors upon the
dissolution of AmWest. It is contemplated that prior to or on the Effective
Date, AmWest will assign to its partners and certain of their affiliates
its rights to acquire the Securities and after the Effective Date such
Securities will be held directly by such partners and affiliates of AmWest.
(3) TPG is a Delaware limited partnership whose general partner is TPG GenPar,
L.P., a Delaware limited partnership. The general partner of TPG GenPar,
L.P. is TPG Advisors, Inc., a Delaware corporation. The executive officers
and directors of TPG Advisors are: David Bonderman (director and
President), James Coulter (director and Vice President), William Price
(director and Vice President) and James O'Brien (Vice President, Treasurer
and Secretary). Includes shares to be acquired by TPG Parallel I, L.P., a
Delaware limited partnership ("TPG Parallel") and Air Partners II, L.P., a
Texas limited partnership, ("Air Partners II"). The general partner of each
of TPG Parallel and Air Partners II is TPG GenPar L.P. No other persons
control TPG, TPG GenPar, TPG Advisors, TPG Parallel or Air Partners II.
(4) Mr. Bonderman is also Director and Chairman of the Board of Continental.
Mr. Bonderman and Mr. Coulter, through their control positions in Air
Partners, L.P., a special purpose partnership formed in 1992 to participate
in the funding of the reorganization of Continental and a significant
shareholder in Continental, may be deemed to beneficially own a significant
percentage of Continental's common stock.
(5) Includes 1,910,296 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(6) Includes 802,860 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(7) Includes 799,767 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(8) Includes 291,944 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants. Does not include any shares which Lehman or its
affiliates may own in its or their capacity as a market maker on a
when-issued basis for the Warrants and the Class B Common Stock. Class B
Common Stock issuable to Lehman in exchange for unsecured claims were
determined based upon the unsecured claims held by Lehman or its affiliates
as of the close of business on August 18, 1994.
(9) Includes 656,781 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants. All shares are owned directly by Fidelity
Copernicus Fund, L.P. ("Copernicus"), Belmont Capital Partners II, L.P.
("Belmont II") or Belmont Fund, L.P. ("Belmont I"), each of which is a
private investment limited partnership. Fidelity Management Trust Company
("FMTC") serves as investment adviser to Belmont I and Belmont II and
Fidelity Management & Research Company ("FMRC") serves as investment
adviser to Copernicus. Each of FMTC and FMRC is a wholly owned subsidiary
of FMR Corp. ("FMR"). Through shared voting and dispositive power over the
shares held by Belmont I and Belmont II, FMTC may be deemed to beneficially
own the shares held by such entities. Through shared voting and dispositive
power over the shares held by Copernicus, FMRC may be deemed to
beneficially own the shares held by such entity. In addition, FMR, as
controlling person of FMTC, FMRC and certain general partners of Belmont I,
Belmont II and Copernicus, may be deemed to beneficially own the shares
held by each of Belmont I, Belmont II and Copernicus. FMR disclaims
beneficial ownership of such shares. Edward C. Johnson III, through his
interest in FMR, may be deemed to beneficially own the shares held by each
of Belmont I, Belmont II and Copernicus. Mr. Johnson disclaims beneficial
ownership of such shares.
(10) Does not include 125,000 shares of Class B Common Stock to be issued to Mr.
Franke as part of a reorganization success bonus, subject to approval by
the Bankruptcy Court.
(11) Includes 11,699 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(12) Includes 16 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(13) Includes 730 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(14) Includes 21,089 shares of Class B Common Stock that may be acquired upon
exercise of Warrants. Information concerning ownership by Mr. Conway is
based upon the latest information available to the Company. Mr. Conway was
replaced as the Company's President and Chief Executive Officer on December
31, 1993 and resigned as a member of the Board of Directors effective
January 31, 1994.
(15) Includes 1,453 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(16) Includes 35,829 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
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<PAGE> 54
STOCKHOLDERS' AGREEMENTS
As of the Effective Date, the Company, AmWest, GPA and certain designated
stockholder representatives will enter into an agreement (the "Stockholders'
Agreement") with respect to certain matters involving the Company. The material
provisions of the Stockholders' Agreement are summarized below. The following
description, however, is only a summary and is qualified in its entirety by
reference to the Stockholders' Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
The Stockholders' Agreement provides that for a period lasting until the
first annual meeting after the third anniversary of the Effective Date (the
"Third Annual Meeting"), America West's Board of Directors will consist of 15
members including (i) nine members designated by AmWest; (ii) one member
designated by GPA for as long as GPA retains at least two percent of the voting
equity securities of the Company; and (iii) five independent directors (the
"Independent Directors") initially including (a) three designated by the
Creditors' Committee, (b) one member designated by the Equity Committee, and (c)
one director designated by the pre-Reorganization Board of Directors from among
the executive officers of the Company. Until the Third Annual Meeting, AmWest
and GPA will vote all shares of the Common Stock owned by them in favor of the
reelection of the initially designated Independent Directors for as long as such
Independent Directors continue to serve.
In addition to the voting and other provisions of the Stockholders'
Agreement, AmWest and GPA have agreed that (i) AmWest will vote in favor of
GPA's nominee to the Company's Board of Directors, and (ii) GPA will vote in
favor of AmWest's nine nominees to the Company's Board of Directors for so long
as (a) AmWest owns at least 5% of the voting equity securities of the Company,
and (b) GPA owns at least 2% of the voting equity securities of the Company.
The Stockholders' Agreement also provides that no director nominated by
AmWest will be an employee or officer of Continental. All directors who are
selected by or who are directors of Continental or Mesa and all directors who
are employees or officers of Mesa shall recuse themselves from voting on or
receiving information on any matters involving negotiations or direct
competition between Mesa and America West or Continental and America West,
whichever the applicable case may be.
Until the Third Annual Meeting, approval by at least the three Independent
Directors or the affirmative vote of the holders of a majority of the voting
power of each class of Common Stock (excluding those shares owned by AmWest or
any of its Affiliates, as defined in the Stockholders' Agreement, but not,
however, excluding any shares owned, controlled or voted by Mesa or any of its
transferees that are not otherwise Affiliates of AmWest) is required to approve
(i) any merger or consolidation of the Company with or into AmWest or any of its
Affiliates; (ii) certain transactions involving issuances of voting securities
by the Company that result in AmWest or any of its Affiliates acquiring an
increased percentage ownership of such voting securities; and (iii) any
transaction or series of transactions having the same effect as (i) or (ii)
above.
Under the terms of the Stockholders' Agreement, neither AmWest nor any
partner or Affiliate of AmWest or of any partner of AmWest may sell or otherwise
transfer any Common Stock (other than to an Affiliate of the transferor) if,
after giving effect thereto or to any related transaction, the total number of
shares of Class B Common Stock beneficially owned by the transferor is less than
twice the number of shares of Class A Common Stock beneficially owned by the
transferor, except in certain circumstances.
In addition, the Stockholders' Agreement provides that for a period of
three years after the Effective Date, AmWest shall not sell, in a single
transaction or related series of transactions, shares of Common Stock
representing 51% or more of the combined voting power of shares of Common Stock
then outstanding other than (i) pursuant to or in connection with a tender or
exchange offer for all shares of Common Stock and for the benefit of all holders
of Class B Common Stock on a pro rata basis at the same price per share and on
the same economic terms, (ii) to any Affiliate of AmWest, (iii) to any Affiliate
of AmWest's partners, (iv) pursuant to a bankruptcy or insolvency proceeding,
(v) pursuant to judicial order, legal process, execution or attachment or (vi)
in a Public Offering as defined in the Stockholders' Agreement.
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SELLING SECURITYHOLDERS
The Selling Securityholders are TPG, Continental, Mesa, GPA, Fidelity and
Lehman. Pursuant to partial assignments of the Investment Agreement by AmWest,
Fidelity and Lehman also purchased Securities from the Company through
subscription agreements between AmWest and those parties. Pursuant to the
Reorganization Plan, AmWest and such parties invested $205.3 million into the
Company in exchange for the rights to acquire Securities offered hereby. It is
contemplated that prior to or on the Effective Date AmWest will assign to its
partners and certain of their affiliates its right to acquire the Securities and
after the Effective Date such Securities will be held directly by such partners
and affiliates of AmWest.
The following table sets forth the name of each Selling Securityholder,
assuming the distribution of the rights to acquire Securities held by AmWest to
its partners and their affiliates, and the amount of the Securities (other than
the Senior Notes) owned by each such Selling Securityholder which are subject to
being offered hereby. This prospectus relates to the offers and sales of the
Securities by the Selling Securityholders.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CLASS A CLASS B NUMBER OF
COMMON STOCK COMMON STOCK(1) WARRANTS
------------ --------------- ---------
<S> <C> <C> <C>
TPG Partners, L.P................................. 642,078 5,739,480 1,583,688
TPG Parallel I, L.P. ............................. 64,699 578,338 159,580
Air Partners II, L.P. ............................ 67,718 605,330 167,028
Continental Airlines, Inc......................... 325,505 2,311,094 802,860
Mesa Airlines, Inc................................ 100,000 2,983,110 799,767
GPA Group plc..................................... -- 2,284,615 1,384,615
Fidelity Copernicus Fund, L.P..................... -- 2,610,000 100,116
Belmont Capital Partners II, L.P.................. -- 1,395,000 523,293
Belmont Fund, L.P................................. -- 851,000 33,372
Lehman Brothers Inc............................... -- 5,062,000 291,944
------------ --------------- ---------
TOTAL................................... 1,200,000 24,419,967 5,846,263
</TABLE>
- ---------------
(1) Includes in each case a number of shares that may be acquired upon exercise
of Warrants equal to the number of Warrants held by such person and offered
pursuant to this Prospectus. The Class B Common Stock reflected is based on
certain assumptions concerning the distribution of securities pursuant to
the Plan. The actual ownership of securities resulting from consummation of
the Plan will depend upon final calculations based on various cash elections
and subscription elections made by owners of claims against and interests in
the Company, as well as the amount of claims allowed pursuant to the
bankruptcy proceedings, and may differ from the information set forth above.
In addition, Fidelity Copernicus Fund, L.P. ("Copernicus") will hold $75
million principal amount of the Senior Notes and Belmont Fund, L.P. ("Belmont")
will hold $25 million principal amount of the Senior Notes, all of which may be
offered and sold pursuant to this Prospectus. The Senior Notes to be purchased
by Copernicus will be subject to a repurchase agreement and pursuant to such
agreement will be resold shortly after their issuance to Copernicus and Belmont.
This Prospectus relates to offers and sales of the Senior Notes by Copernicus
and Belmont as well as offers and sales that may be subsequently made in
accordance with the repurchase agreement. See "Plan of Distribution."
SHARES ELIGIBLE FOR FUTURE SALE
At the Effective Date, assuming no exercise of outstanding warrants to
purchase Common Stock, America West will have 45,000,000 shares of Common Stock
outstanding, including 1,200,000 shares of Class A Common Stock and 43,800,000
shares of Class B Common Stock (and excluding 125,000 shares to be issued in
connection with a reorganization success bonus). The offer and sale of
19,773,704 of such shares of Common Stock is registered under the Securities Act
pursuant to the Registration Statement of which this Prospectus forms a part. In
addition, at the Effective Date, America West will have 10,384,615 shares of
Class
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<PAGE> 56
B Common Stock reserved for issuance upon the exercise of Warrants; the offer
and sale of 5,846,263 of such shares is registered pursuant to the Registration
Statement of which this Prospectus forms a part.
At the Effective Date, substantially all of the outstanding shares of
Common Stock and shares of Common Stock issuable upon exercise of the Warrants
(except to the extent such shares may have been acquired by an underwriter) will
be freely tradeable without restriction or further registration under the
Securities Act, either because such shares were issued or are issuable pursuant
to the exemption provided by Section 1145 of the Bankruptcy Code and such shares
are not "restricted securities" as defined in Rule 144 under the Securities Act
or because the offer and resale of such shares is registered pursuant to the
Registration Statement of which this Prospectus forms a part. To the extent
shares of Common Stock are owned or purchased by "affiliates" of the Company as
such term is defined in Rule 144 and are not registered pursuant to the
Registration Statement of which this Prospectus forms a part, such restricted
shares may generally be sold in compliance with Rule 144.
In general under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least two years
from the later of the date of acquisition from America West or an affiliate
thereof, may sell such securities in brokers' transactions or directly to market
makers, provided the number of shares sold in any three-month period does not
exceed the greater of 1% of the then outstanding shares of the Common Stock or
the average weekly trading volume in the public market during the four calendar
weeks immediately preceding the filing of the seller's Form 144. Sales under
Rule 144 are also subject to certain notice requirements and availability of
current public information concerning America West. Pursuant to Rule 144(k),
after three years have elapsed from the later of the acquisition of the
restricted securities from America West or an affiliate thereof, such shares may
be sold without limitation by persons who have not been affiliates of America
West for at least three months.
AmWest, Fidelity, Lehman, GPA and their respective affiliates, including
the partners and affiliates of Amwest, have certain rights pursuant to
agreements with the Company to have the offering and sale of Securities held by
them registered with the Commission under the Securities Act. Under such
agreements, the Company may be required to effect such registration for a period
of eight years from the Effective Date.
Prior to this offering, there has been no market for the Common Stock of
America West. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes will be issued under an Indenture dated as on or about
August 25, 1994 (the "Indenture") between the Company and American Bank National
Association, as trustee (the "Trustee"). The material provisions of the Senior
Notes and the Indenture are summarized below. The statements under this caption
relating to the Senior Notes and the Indenture are summaries only, however, and
do not purport to be complete. Such summaries make use of terms defined in the
Indenture and are qualified in their entirety by express reference to the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. All section references under this heading are
references to sections of the Indenture.
GENERAL
Each Senior Note will mature on September 1, 2001, and will bear interest
at the rate per annum stated on the cover page hereof from the date of issuance,
payable semiannually in arrears on March 1 and September 1 of each year,
commencing March 1, 1995, to the person in whose name the Senior Note is
registered at the close of business on the record date next preceding such
interest payment date. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Company will pay the principal on the Senior Notes
to each Holder who surrenders such Senior Notes to a Paying Agent on or after
September 1, 2001 or, in the event of a redemption of the Senior Notes, on or
after the Redemption Date, as described below. The Company will pay principal
and interest in U.S. legal tender by Federal funds bank wire transfer or (in the
case of payment of interest) by check to the persons who are registered Holders
at the close of business on the Record Date next preceding the applicable
interest payment date. The aggregate principal amount of the Senior Notes that
may be issued will be limited to $100,000,000.
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<PAGE> 57
The Senior Notes will be transferable and exchangeable at the office of the
Registrar and any co-registrar and will be issued in fully registered form,
without coupons, in denominations of $1,000 and any whole multiple thereof;
provided, however, that any Global Security representing all or a portion of the
Senior Notes may not be transferred except as a whole by the Depository in
certain circumstances unless and until it is exchanged in whole or in part for
Senior Notes in a non-global form. The Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection with certain transfers and exchanges.
RANKING
The Senior Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with the Company's existing and future
senior unsecured obligations.
OPTIONAL REDEMPTION
The Company, at its option on notice to the Holders, may redeem the Senior
Notes (i) prior to September 1, 1997 (A) at any time in whole but not in part,
at a Redemption Price equal to 105% of the aggregate principal amount of the
Senior Notes, plus accrued and unpaid interest thereon to the Redemption Date,
or (B) from time to time in part from the Net Offering Proceeds received by the
Company prior to September 1, 1997 from a Public Offering Sale at a Redemption
Price equal to 105% of the aggregate principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest thereon to the Redemption Date; and
(ii) on and after September 1, 1997 at any time in whole or from time to time in
part, at a Redemption Price equal to the applicable percentage of the aggregate
principal amount of the Senior Notes so to be redeemed, set forth below, plus
accrued and unpaid interest thereon to the Redemption Date if redeemed during
the 12 calendar months beginning on September 1 of the years indicated below:
1997: 105.0%
1998: 103.3%
1999: 101.7%
2000: 100.0%
MANDATORY REDEMPTION
If the Company shall consummate a Public Offering Sale at any time or from
time to time prior to September 1, 1997, it shall, promptly after each Public
Offering Sale so consummated at a time when, immediately prior to such
consummation, the Company shall have on hand cash and Cash Equivalents, not
subject to any restriction on disposition, of at least $100,000,000, then the
Company shall redeem Senior Notes at a redemption price equal to 104% of the
aggregate principal amount of the Senior Notes so redeemed, plus accrued and
unpaid interest to the redemption date. The aggregate redemption price and
accrued and unpaid interest of the Senior Notes to be redeemed shall equal the
lesser of (x) 50% of such Net Offering Proceeds or (y) the excess, if any, of
$20,000,000 over (ii) the amount of any Net Offering Proceeds of any prior
Public Offering Sale received prior to September 1, 1997, and applied to redeem
Senior Notes as described therein.
The Senior Notes will not be entitled to the benefit of any sinking fund or
other mandatory redemption provisions.
CERTAIN COVENANTS
Limitations on Restricted Payments. Under the terms of the Indenture,
neither the Company nor any subsidiary shall: (i) declare or pay any dividends
on or make any distributions in respect of Capital Stock of the Company (other
than dividends or distributions payable solely in shares of Capital Stock (other
than redeemable stock) or in options, warrants or other rights to purchase
Capital Stock (other than Redeemable Stock)) to holders of Capital Stock of the
Company, (ii) purchase, redeem or otherwise acquire or retire for value (other
than through the issuance solely of Capital Stock (other than Redeemable Stock))
or warrants, rights or options to acquire Capital Stock other than Redeemable
Stock; (iii) redeem, repurchase, defease (including, but not limited to, in
substance or legal defeasance), or otherwise acquire or retire for value (other
than through the issuance solely of Capital Stock (other than Redeemable Stock)
or warrants, rights or
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<PAGE> 58
options to acquire Capital Stock (other than Redeemable Stock)) (collectively, a
"prepayment"), directly or indirectly (including by way of amendment of the
terms of any Indebtedness in connection with any retirement or acquisition of
such Indebtedness) other than at scheduled maturity thereof or by any scheduled
repayment or scheduled sinking fund payment, any indebtedness of the Company
which is subordinated in right of payment to the Senior Notes or which matures
after the maturity date of the Senior Notes except out of the proceeds of
Refinancing Indebtedness); if, at the time of such transaction described in
clause (i), (ii) or (iii) (such transactions being hereinafter collectively
referred to as "Restricted Payments") and after giving effect thereto, either
the aggregate amount expended by the Company and its Subsidiaries for all
Restricted Payments (the amount of any Restricted Payment if other than cash to
be the fair market value of the property included in such payment as determined
in good faith by the Board of Directors as evidenced by a Board Resolution) from
and after the Closing Date shall exceed the sum of (A) 50% (or if the Senior
Notes at the time of the proposed Restricted Payment are rated Investment Grade
by at least one rating agency of recognized standing selected by the Company,
75%) of the aggregate Adjusted Consolidated Net Income (or if such Adjusted
Consolidated Net Income is a loss, minus 100% of such loss) of the Company and
its Subsidiaries for the period from the Closing Date and through the day
immediately prior to the day on which the Restricted Payment occurs, calculated
on a cumulative basis as if such period were a single accounting period; (B) the
aggregate net proceeds received by the Company after the Closing Date (including
the fair market value of non-cash proceeds as determined in good faith by the
Board of Directors as evidenced by a Board Resolution) from any Person other
than a Subsidiary, as a result of the issuance of (or contribution to capital
on) Capital Stock (other than any Redeemable Stock) or warrants, rights or
options to acquire Capital Stock (other than any Redeemable Stock); (C) the
aggregate net proceeds received by the Company after the Closing Date from any
Person other than a Subsidiary as a result of the issuance of Capital Stock
(other than Redeemable Stock) upon conversion or exchange of Indebtedness or
upon exercise of options, warrants or other rights to acquire such Capital Stock
and (D) $25,000,000. For purposes of any calculation that is required to be made
in respect of, or after the declaration of a dividend by the Company, such
dividend shall be deemed to be paid at the date of declaration and shall be
included in determining the aggregate amount of Restricted Payments, and the
subsequent payment of such dividend shall not be treated as an additional
payment.
For the purposes of the preceding covenant, the net proceeds from the
issuance of shares of Capital Stock of the Company upon conversion of debt
securities shall be deemed to be an amount equal to the net book value of such
debt securities (plus the additional amount required to be paid upon such
conversion, if any), less any cash payment on account of fractional shares; the
"net book value" of a security shall be the net amount received by the Company
on the issuance of such security, as adjusted on the books of the Company to the
date of conversion.
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred or be continuing at the time, the Indenture shall not prohibit (i) the
purchase, redemption or other acquisition or retirement for value of any shares
of the Company's Capital Stock or the prepayment of any indebtedness of the
Company which is subordinated in right of payment to the Senior Notes or which
matures after the maturity date of the Senior Notes by any exchange for, or out
of and to the extent the Company has received cash proceeds from the
substantially concurrent sale or issuance (other than to a Subsidiary) of,
shares of Capital Stock (other than any Redeemable Stock of the Company) or
warrants, rights or options to acquire Capital Stock (other than any Redeemable
Stock); or (ii) the purchase or redemption of shares of Capital Stock of the
Company (including options on any such shares or related stock appreciation
rights or similar securities) held by officers or employees of the Company or
its Subsidiaries (or their estates or beneficiaries under their estates) upon
death, disability, retirement, termination of employment or pursuant to the
terms of any Plan or any other agreement under which such shares of stock or
related rights were issued, provided that the aggregate amount of such purchases
or redemptions of such Capital Stock shall not exceed $3,000,000 in any one
fiscal year of the Company.
Limitation on Transactions with Affiliates. Neither the Company nor any
Subsidiary of the Company shall, directly or indirectly (i) sell, lease,
transfer or otherwise dispose of any of its properties or assets, or issue
securities to, (ii) purchase any property, assets or securities from, (iii) make
any Investment in, or (iv) enter into or suffer to exist any contract or
agreement with or for the benefit of, an Affiliate or Holder of 5% or more
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<PAGE> 59
of any class of Capital Stock (and any Affiliate of such Holder) of the Company
(an "Affiliate Transaction"), other than (x) certain permitted Affiliate
Transactions and (y) Affiliate Transactions (including lease transactions) which
are on fair and reasonable terms no less favorable to the Company or such
Subsidiary, as the case may be, as those as might reasonably have been
obtainable at such time from an unaffiliated party; provided that if an
Affiliate Transaction or series of related Affiliate Transactions involves or
has a value in excess of $10 million, the Company or such Subsidiary, as the
case may be, shall not enter into such Affiliate Transaction or series of
related Affiliate Transactions unless a majority of the disinterested members of
the Board of Directors of the Company or such Subsidiary shall reasonably and in
good faith determine that such Affiliate Transaction is fair to the Company or
such Subsidiary, as the case may be, or is on terms no less favorable to the
Company or such Subsidiary, as the case may be, than those as might reasonably
have been obtainable at such time from an unaffiliated party.
(b) The preceding paragraph shall not apply to (i) any agreement as in
effect as of the Closing Date, or any amendment thereto (including pursuant to
any amendment thereto) so long as any such amendment is not disadvantageous to
the Holders in any material respect or any transaction contemplated thereby
(including pursuant to any amendment thereto); (ii) any transaction between the
Company and any Wholly Owned Subsidiary or between Wholly Owned Subsidiaries,
provided such transactions are not otherwise prohibited by this Indenture; (iii)
reasonable and customary fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company or
any Subsidiary, as determined by the Board of Directors of the Company or any
Subsidiary or the senior management thereof in good faith; (iv) any Restricted
Payments not prohibited in Section 4.13; (v) any payments or other transactions
pursuant to any tax sharing agreement between the Company and any other Person
with which the Company is required or permitted to file a consolidated tax
return or with which the Company is or could be part of a consolidated group for
tax purposes; and (vi) transactions with Continental, Mesa and their respective
Affiliates as contemplated by Alliance Agreements.
Limitation on Asset Sales. Subject to certain provisions of the Indenture,
in the event and to the extent that on any date the Company or any of its
Subsidiaries shall receive Net Cash Proceeds from one or more Asset Sales (other
than Asset Sales by the Company or any Subsidiary to the Company or another
Subsidiary) then the Company shall, or shall cause such Subsidiary to, within 12
months after such date apply an amount equal to such Net Cash Proceeds (A) and
to repay Indebtedness of the Company or Indebtedness of any Subsidiary, in each
case owing to a Person other than the Company or any of its Subsidiaries, and/or
(B) as an investment (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property or assets
of a nature or type or that are used in a business (or in a Person having
property and assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the business of,
the Company and its Subsidiaries existing on the date thereof (as determined in
good faith by the Board of Directors of the Company or such Subsidiary, as the
case may be, whose determination shall be conclusive and evidenced by a Board
Resolution). The amount of such Net Cash Proceeds required to be applied (or to
be committed to be applied) during such 12-month period as set forth in clause
(A) or (B) of the preceding sentence shall constitute "Excess Proceeds."
If on the first Business Day following any 12-month period referred to in
the preceding paragraph, the aggregate amount of Excess Proceeds from all Asset
Sales subject to application but not previously applied during such 12-month
period as provided in clause (A) or (B) of the preceding paragraph, exceeds
$15,000,000, the Company, within 10 Business Days thereafter, shall make an
offer to purchase on a pro rata basis from all Holders (an "Excess Proceeds
Offer"), and shall purchase from Holders accepting such Excess Proceeds Offer,
the maximum principal amount (expressed as an integral multiple of $1,000) of
Senior Notes that may be purchased from funds in an amount equal to all such
outstanding Excess Proceeds at a purchase price equal to 100% of the principal
amount of the Senior Notes so purchased plus accrued and unpaid interest thereon
to the date of purchase ("Excess Proceeds Payment"). Upon completion of an
Excess Proceeds Offer (or upon termination of such offer if no repurchases are
required), the amount of such Excess Proceeds relating thereto shall be equal to
zero.
Change of Control. Upon a Change of Control, each Holder shall have the
right to require the Company to repurchase all or any part of such Holder's
Senior Notes at a repurchase price equal to 101% of
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<PAGE> 60
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase. Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder stating: (i) that a Change of Control has
occurred and that such Holder has the right to require the Company to purchase
all or any part of such Holder's Senior Notes at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase; (ii) the circumstances and relevant facts
regarding such Change of Control; (iii) the purchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is mailed;
and (iv) the instructions that the Company determines that a Holder must follow
to have its Senior Notes repurchased. Holders electing to have a Senior Note
purchased will be required to surrender the Senior Note, with an appropriate
form duly completed, to the Company at the address specified in the notice at
least 10 business days prior to the purchase date. Holders will be entitled to
withdraw their election as specified in the notice.
Limitation on Investments. The Company shall not, and shall not permit any
Subsidiary to make any Investment other than (i) Investments consisting of
non-cash proceeds from Asset Sales as contemplated by the Indenture; (ii)
Investments consisting of Cash Equivalents; (iii) accounts receivable if
credited or acquired in the ordinary course of business; (iv) payroll advances
and advances for business and travel expenses in the ordinary course of
business; (v) Investments by the Company in its Subsidiaries in the ordinary
course of its business; (vi) Investments by any Subsidiary of the Company in the
Company or in any Subsidiary; (vii) Investments by the Company for the purpose
of acquiring businesses reasonably related to the business of the Company, in an
aggregate amount not exceeding $5 million in any fiscal year; (viii) Investments
made by way of endorsement of negotiable instruments received by the Company or
any Subsidiary in the ordinary course of business; (ix) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business owing to the Company or any Subsidiary; (x) Investments by the Company
for the purpose of receivables financing; and (xi) in addition to any other
permitted investments, any other Investments by the Company in an aggregate
amount not exceeding $1 million at any time.
LIMITATIONS ON MERGERS AND CONSOLIDATION
The Indenture provides that the Company will not consolidate with or merge
into any other corporation, or transfer, lease or convey its properties and
assets substantially as an entirety (the "Properties") to any Person, unless:
(i) the corporation formed by such consolidation or merger or the Person that
acquires by transfer, lease or conveyance the Properties (collectively, the
"Successor"), is a corporation organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia and
the Successor assumes by supplemental indenture in a form satisfactory to the
Trustee the Company's obligation for the due and punctual payment of the
principal of and interest on all the Senior Notes according to their tenor and
the performance of every covenant of the Indenture on the part of the Company to
be performed or observed; and (ii) immediately before and after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, lease or transfer and such Supplemental Indenture comply
with Article Six of the Indenture and that all conditions precedent set forth in
the Indenture relating to such transaction have been complied with.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms to be used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms and for the definitions of other capitalized terms used herein and
not defined below.
"Adjusted Consolidated Net Income" means, for any Person for any period,
the aggregate net income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in occurrence with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of any Person (other
than a Subsidiary of such first Person) in which any other Person (other than
such first Person or any of its Subsidiaries) has a joint or shared interest,
except to the extent of the amount of dividends or other distributions actually
paid to and received by such first Person or any of its Subsidiaries during such
period out of funds legally available therefor, (ii) the net income
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<PAGE> 61
(or loss) of any Person accrued prior to the date it becomes a Subsidiary of
such first Person or any of its Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by such first Person or any of
its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of such
Person that is subject to a Payment Restriction, except to the extent of the
amount of cash dividends or other distributions actually paid to, and received
by, such person or any of its Subsidiaries during such period from such
Subsidiary out of funds legally available therefor, (iv) any gains or losses (on
an after-tax basis) attributable to Asset Sales, and (v) all extraordinary gains
and extraordinary losses.
"Affiliates" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transactions) in one transaction
or a series of related transactions by the Company or any of its Subsidiaries to
any Person other than the Company or any of its Subsidiaries of (i) all or any
of the Capital Stock of any Subsidiary of the Company, (ii) all or substantially
all of the property and assets of an operating unit or business of the Company
or any of its Subsidiaries or (iii) any other property and assets of the Company
or any of its Subsidiaries outside the ordinary course of business of the
Company or such Subsidiary and, in each case, that is not governed by the
provisions of Article Six of the Indenture applicable to mergers, consolidations
and transfers of all or substantially all of the property and assets of the
Company; provided that none of (A) sales or other dispositions of inventory,
receivables and other current assets, (B) sale or other dispositions of surplus
equipment, spare parts, expandable inventories, furniture or fixtures in an
aggregate amount not to exceed $10,000,000 in any fiscal year of the Company,
(C) sale leasebacks of aircraft and engines passenger loading bridges or other
flight or ground equipment, flight simulators, or the Company's reservation
facility located at 222 South Mill Avenue, Tempe, Arizona; or (D) $20,000,000 of
other sales in any fiscal year of the Company shall be included within the
meaning of "Asset Sale".
"Change of Control" means (i) the acquisition at any time by any Person
(other than one or more Permitted Holders), of "beneficial ownership" (within
the meaning of Section 13(d) under the Exchange Act and the rules and
regulations promulgated thereunder) in excess of 50% of the total voting power
of the voting stock of the Company; (ii) the sale, lease, transfer or other
disposition, of all or substantially all of the assets of the Company to any
Person (other than one or more Permitted Holders) as an entirety or
substantially as an entirety in one transaction or a series of related
transactions; (iii) the merger or consolidation of the Company, with or into
another corporation, or the merger of another corporation into the Company, or
any other transaction, with the effect that a Person (other than one or more
Permitted Holders), has "beneficial ownership" (within the meaning of Section
13(d) under the Exchange Act and the rules and regulations promulgated
thereunder) in excess of 50% of the voting stock of the Company, or such other
corporation, as the case may be (including indirect ownership through another
Person other than one or more Permitted Holders); or (iv) the liquidation or
dissolution of the Company. For purposes of this definition, the term Person
includes a "person" within the meaning of Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder.
"Commodity Agreement" means any agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in the
prices of commodities used by the Company or any of its Subsidiaries in the
ordinary course of its business.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to or
under which the Company or any of its Subsidiaries is a party or a beneficiary
on the date of the Indenture or becomes a party or a beneficiary thereafter.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by
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bonds, debentures, Senior Notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables, (v) all obligations of such Person
to the extent capitalized on the balance sheet of such Person as lessee under
Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
stated principal amount of such Indebtedness, (vii) all Indebtedness of other
Persons guaranteed by such Person to the extent such Indebtedness is guaranteed
by such Person, (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements, Interest Risk Agreement and Commodity
Agreements. The amount of Indebtedness of any Person of any date shall be the
outstanding balance on such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the full amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness of such
time as determined in conformity with GAAP.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business consistent with past practices that are recorded as accounts receivable
on the balance sheet of such Person or its Subsidiaries) or other extension of
credit or capital contribution by such Person to any other Person (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others; provided, that any transfer of
aircraft to a limited partnership or other entity in connection with the
transaction in which the aircraft are leased to the Company shall not be an
Investment), or any purchase or acquisition by such person of Capital Stock,
bonds, notes, debentures or other similar instruments issued by any other
Person.
"Interest Rate Agreement" means any interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect the Company or any of
its Subsidiaries against fluctuations in interest rates to or under which the
Company or any of its Subsidiaries is a party or a beneficiary on the date of
the Indenture or becomes a party or a beneficiary thereafter.
"Investment Grade" means a rating of BBB- or higher by S&P or BaaB or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the
event that the Company shall select any other rating agency, the equivalent of
such ratings by such rating agency shall be used.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest); provided that in no event shall a true operating
lease be deemed to constitute a Lien hereunder.
"Material Subsidiary" means each Subsidiary that is either (a) a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act (as such regulation is in effect on the date
hereof) or (b) material to the financial condition or results of operations of
the Company and its Subsidiaries taken as a whole.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company) and proceeds
from the conversion of other property received when converted to cash or Cash
Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale
without regard to the consolidated results of operations of the Company and its
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding
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at the time of such Asset Sale that either (A) is secured by a Lien on the
property or assets sold or (B) is required to be paid as a result of such Asset
Sale other than pursuant to this Agreement, and (iv) appropriate amounts to be
provided by the Company or any Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP.
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or Advances to such Person or
any other Subsidiary of such Person, or (c) transfer any of its property or
assets to such Person or any other Subsidiary of such Person, or (ii) such
Person or other Subsidiary of such Person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances, or (c) property or
assets.
"Permitted Holders" means AmWest, TPG, Continental, Mesa, Fidelity and
their respective successors and affiliates.
"Public Offering Sale" means an underwritten public offering of Capital
Stock of the Company pursuant to which the Company agreed to issue and sell and
the Purchasers named in such agreement agreed to purchase, an aggregate of
$100,000,000 in principal amount of Securities.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise (i) is required to be redeemed prior to the
Stated Maturity of the Securities, (ii) may be required to be redeemed at the
option of the holder of such class or series of Capital Stock at any time prior
to the Stated Maturity of the Securities or (iii) is convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
indebtedness having a scheduled maturity prior to the Stated Maturity of the
Securities; provided that any Capital Stock that would not constitute Redeemable
Stock but for provisions thereof offering holders thereof the right to require
the Company to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" occurring prior to the Stated Maturity of the Securities shall not
constitute Redeemable Stock if the asset sale provisions contained in such
Capital Stock specifically provide that in respect of any particular asset sale
proceeds, the Company will not repurchase or redeem any such Capital Stock
pursuant to such provisions prior to the Company's repurchase of such Securities
as are required to be repurchased from Holders accepting an Excess Proceeds
Offer pursuant to the provisions of Section 4.15.
"Refinancing Indebtedness" means any Indebtedness of the Company or any
Subsidiary issued in exchange for, or the net proceeds of which are applied
entirely to substantially concurrently repay, refinance, refund or replace,
outstanding Indebtedness of the Company or any of its Subsidiaries (the
"Refinanced Indebtedness"), to the extent such Indebtedness
(a) is issued in a principal amount (or if such Indebtedness is issued
at an original issue discount, is issued at an original issue price) not
exceeding the outstanding principal amount (or, if such Refinanced
Indebtedness was issued at an original issue discount, not exceeding the
outstanding accreted principal amount) of such Refinanced Indebtedness, and
(b) if the Refinanced Indebtedness is Indebtedness of the Company and
ranks by its terms junior in right of payment to the Securities, (i) does
not have a final scheduled maturity and is not subject to any principal
payments, including but not limited to payments upon mandatory or optional
redemption, prior to the dates of analogous payments under the Refinanced
Indebtedness, and (ii) has subordination provisions effective to
subordinate such Indebtedness to the Securities at least to the extent that
such Refinanced Indebtedness is subordinated to the Securities, and
(c) if the Refinanced Indebtedness is Indebtedness of the Company and
ranks by its terms pari passu in right of payment with the Securities, (i)
is pari passu or subordinated in right of payment to the Securities, (ii)
does not have a final scheduled maturity and is not subject to any
principal payments,
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including but not limited to payments upon mandatory or optional
redemption, prior to the dates of analogous payments under the Refinanced
Indebtedness, and (iii) is not secured by any Lien on any property of the
Company or any Subsidiary in addition to Liens securing the Refinanced
Indebtedness.
EVENTS OF DEFAULT
An Event of Default, with respect to the Senior Notes, means any one of the
following events shall have occurred and be continuing: (i) default by the
Company for 30 days in payment of any interest on the Senior Notes; (ii) default
by the Company in any payment of principal of or premium, if any, on the Senior
Notes when such payment becomes due and payable; (iii) default by the Company in
performance of any other covenant or agreement in the Indenture or under the
Senior Notes, which shall not have been remedied within 30 days after receipt of
written notice from the Trustee or from the holders of at least 25% in principal
amount of the Senior Notes then outstanding; (iv) upon an event of default
resulting in the acceleration of the maturity of any issue or issues of
Indebtedness of the Company and/or one or more Subsidiaries of any principal
amount of $10 million or more in the aggregate, and such default shall be
continuing for a period of 30 days without the Company or such Subsidiary, as
the case may be, discharging the Indebtedness or effecting a cure of such
default; (v) a judgment or order not covered by insurance for the payment of
money in excess of $10 million having been rendered against the Company or any
Subsidiary and such judgment or order shall continue unsatisfied and unstayed
for a period of 60 days; or (vi) certain events involving bankruptcy, insolvency
or reorganization of the Company or any Material Subsidiary; (vii) failure by
the Company to make at the final (but not any interim) fixed maturity of one or
more issues of Indebtedness a principal payment or principal payments
aggregating 10 million or more, which failure shall not have been remedied
within 30 days of the payment default that causes the aggregate amount of such
indebtedness to exceed $10 million, or (viii) the cessation of the full force
and effect of the Indenture, except as permitted therein. The Trustee may
withhold notice to the holders of the Senior Notes of any default or Event of
Default (except in payment of principal of, or premium, if any, or interest on
the Notes) if the Trustee considers it in the interest of the holders of the
Senior Notes to do so.
If an Event of Default occurs and is continuing with respect to the
Indenture, the Trustee or the Holders of not less than 25% in principal amount
of the Senior Notes outstanding may, and at the request of the Holders, the
Trustee shall declare the principal of and premium, if any, and accrued but
unpaid interest on all the Senior Notes to be due and payable. Upon such a
declaration, such principal, premium, if any, and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company or any Material
Subsidiary occurs and is continuing, the principal of and premium, if any, and
interest on all the Senior Notes will become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders
of the Senior Notes. If an Event of Default relating to item (iv) in the
preceding paragraph occurs, such acceleration will be automatically rescinded if
the Event of Default is cured by the Company or waived by the holders of the
relevant Indebtedness within 30 days after the occurrence of the Event of
Default. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Senior Notes may rescind any such acceleration with
respect to the Senior Notes and its consequences.
The Indenture provides that no Holder may pursue any remedy under the
Indenture unless (i) the Trustee shall have received written notice from the
Holder of a continuing Event of Default, (ii) the Trustee shall have received a
request from holders of at least 25% in principal amount of the Senior Notes to
pursue such remedy, (iii) the Trustee shall have been offered indemnity
reasonably satisfactory to it, (iv) the Trustee shall have failed to act for a
period of 60 days after receipt of such notice and offer of indemnity, and (v)
during such 60-day period, a majority of the Holders do not give the Trustee
directions inconsistent with the initial request; however, such provision does
not affect the right of a holder of a Note to sue for enforcement of any overdue
payment thereon.
The holders of a majority in principal amount of the Senior Notes then
outstanding have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture. The
Indenture will
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require the annual filing by the Company with the Trustee of a written statement
as to compliance with the covenants contained in the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that supplements and amendments to the Indenture or
the Senior Notes may be made by the Company, and the Trustee with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Senior Notes then outstanding; provided that no such amendment or waiver
may, without the consent of each Holder affected, (i) reduce the principal
amount of Senior Notes whose Holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity of any Senior
Note, or alter the provisions with respect to the redemption of the Senior Notes
in a manner adverse to the Holders, (iii) reduce the rate of or change the time
for payment of interest on any Senior Note, (iv) make any Senior Note payable in
money other than U.S. Legal Tender, (v) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders to
receive payments of principal of, or premium, if any, or interest on, the Senior
Notes, (vi) waive a redemption payment with respect to any Senior Notes, or
(vii) make any change in certain sections of the Indenture.
The Indenture provides that supplements and amendments to the Indenture may
be made by the Company and the Trustee without the consent of any Holder to: (i)
cure any ambiguity, correct or supplement any provision therein which may be
inconsistent with any other provision therein, or to make any other provisions
with respect to matters or questions arising under the Indenture which shall not
be inconsistent with the provisions of the Indenture, provided that such
amendment does not adversely affect the rights of the Holders, (ii) evidence the
succession of another corporation to the Company, and provide for the assumption
by such successor of the Company's obligations to the Holders under the
Indenture and the Senior Notes, (iii) to provide for uncertificated Senior Notes
in addition to or in place of certificated Senior Notes, (iv) make any change
that would provide additional rights or benefits to holders, or not adversely
affect the legal rights of the Holder under the Indenture or (v) comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act of 1939.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Senior Notes then outstanding may waive any existing
Default or Event of Default under the Indenture or the Senior Notes, except a
default or Event of Default in the payment of principal, or premium, if any, or
interest.
DISCHARGE AND TERMINATION
The Indenture provides that the Indenture shall cease to be of further
effect (subject to certain exceptions) when (i) all outstanding Senior Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Senior Notes that have been replaced or paid) have been delivered to the Trustee
for cancellation or (ii) (A) the Senior Notes mature within one year or all of
them are to be called for redemption within one year under arrangements
satisfactory to the Trustee, (B) the Company irrevocably deposits in trust with
the Trustee during such one-year period, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee, as trust funds
solely for the benefit of the Holders, money or U.S. Government Obligations
sufficient to pay principal and interest on the Senior Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by it under
the Indenture or the Senior Notes, (C) no Event of Default with respect to the
Senior Notes shall have occurred and be continuing on the date of such deposit,
(D) such deposit will not result in a breach or violation of, or constitute a
default under, the Indenture or any other agreement or instrument to which the
Company is a party or by which either is bound and (E) the Company has delivered
to the Trustee any required Officers' Certificate and Opinion of Counsel.
GOVERNING LAW
The Indenture and each Senior Note are governed by, and construed in
accordance with, the laws of the State of New York, except as may otherwise be
required by mandatory provisions at law, but without giving effect to principles
of conflicts of law.
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THE TRUSTEE
American Bank National Association will be the Trustee under the Indenture.
Its address is 101 East 5th Street, St. Paul, MN 55101.
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act of 1939), it must eliminate such conflict or resign.
The Indenture provides that in case an Event of Default shall occur (and be
continuing), the Trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The Trustee will be under no
obligation to exercise any of its powers under the Indenture at the request of
any of the holders of the Senior Notes, unless such holders shall have offered
the Trustee indemnity reasonably satisfactory to it.
AUTHENTICATION
Two officers of the Company will sign each Senior Note on behalf of the
Company, in each case by manual or facsimile signature. The Company's seal will
be reproduced on each Senior Note and may be in facsimile form. A Senior Note
will not be valid until the Trustee or an Authenticating Agent manually signs
the certificate of authentication on the Senior Note. Each Senior Note will be
dated the date of its authentication.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 1,200,000 shares of
Class A Common Stock, $.01 par value (the "Class A Common Stock "), 100,000,000
shares of Class B Common Stock, $.01 par value (the "Class B Common Stock"),
(such classes of Common Stock referred to collectively as the "Common Stock")
and 48,800,000 shares of preferred stock, $.01 par value (the "Preferred
Stock"). As of the Effective Date, there were 1,200,000 outstanding shares of
Class A Common Stock and 43,800,000 outstanding shares of Class B Common Stock.
An additional 125,000 shares will be issued in connection with a reorganization
success bonus.
The material terms of the Company's capital stock are summarized below. The
following description is a summary only, however, and is not intended to be
complete and is qualified by reference to the provisions of the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
bylaws and the agreements referred to in this summary description, copies of
each of which have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. As used in this section, except as otherwise stated
or required by context, each reference to AmWest includes any successor by
merger, liquidation, consolidation or similar transaction and any wholly owned
subsidiary of such entity or such successor.
COMMON STOCK -- ALL CLASSES
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, are paid in
Common Stock, or securities to acquire Common Stock, of the same class as that
held by the recipient of the dividend. Upon any liquidation, dissolution or
winding up of the Company, holders of Common Stock of all outstanding classes
are entitled, subject to the rights of preferred Stockholders, if any, to
receive pro rata all of the assets of the Company available for distribution to
the stockholders. Holders of Common Stock have no preemptive, subscription,
conversion or redemption rights (other than conversion rights of AmWest and GPA
described below), and are not subject to further calls or assessments. Holders
of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
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CLASS B COMMON STOCK AND CLASS A COMMON STOCK
The holders of Class B Common Stock are entitled to one vote per share, and
the holders of Class A Common Stock are entitled to fifty votes per share, on
all matters submitted to a vote of common stockholders, except that voting
rights of non-U.S. citizens are limited as set forth below under "-- Limitation
on Voting by Foreign Owners."
As set forth under the heading "Principal Stockholders," AmWest currently
owns in the aggregate 100% of the outstanding Class A Common Stock and 20.2% of
the outstanding Class B Common Stock, which collectively represent approximately
66.3% of the total voting power of the outstanding Common Stock. In addition,
AmWest holds Warrants to acquire an additional 3,534,695 shares of Class B
Common Stock that, if exercised, would increase AmWest's voting control to
67.4%. See "Principal Stockholders -- Stockholders' Agreement" below for a
discussion of arrangements regarding the composition of the Board of Directors
of the Company.
Holders of Class A Common Stock may at any time elect to convert such
shares into an equal number of shares of Class B Common Stock. Class B Common
Stock is not convertible into Class A Common Stock.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company is
authorized to issue 48,800,000 shares of Preferred Stock. The Company's Board of
Directors by resolution may authorize the issuance of the Preferred Stock as a
class, in one or more series, having the number of shares, designations,
relative voting rights, dividend rights, liquidation and other rights
preferences, and limitations that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
LIMITATION ON VOTING BY FOREIGN OWNERS
The Certificate of Incorporation defines "Foreign Ownership Restrictions"
as "applicable statutory, regulatory and interpretive restrictions regarding
foreign ownership or control of U.S. air carriers (as amended or modified from
time to time)." Such restrictions currently require that no more than 25% of the
voting stock of the Company be owned or controlled, directly or indirectly, by
persons who are not U.S. citizens ("Foreigners") for purposes of the Foreign
Ownership Restrictions, and that the Company's president and at least two-thirds
of its directors be U.S. citizens. The Certificate of Incorporation provides
that no shares of capital stock may be voted by or at the direction of
Foreigners, unless such shares are registered on a separate stock record (the
"Foreign Stock Record"). The Company's bylaws further provide that no shares
will be registered on the Foreign Stock Record if the amount so registered would
exceed the Foreign Ownership Restrictions. Registration on the Foreign Stock
Record is made in chronological order based on the date the Company receives a
written request for registration.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation and Restated Bylaws
(collectively, the "Charter Documents") provide, to the fullest extent permitted
by Delaware law as it may from time to time be amended, that no director shall
be liable to the Company or any stockholder for monetary damages for breach of
fiduciary duty as a director. Delaware law currently provides that such waiver
may not apply to liability (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders), or (iv) for any transaction from which the
director derived any improper personal benefit. The Charter Documents further
provide that the Company will indemnify each of its directors and officers to
the full extent permitted by Delaware law and may indemnify certain other
persons as authorized by law.
Additionally, America West has entered into written agreements with each
person who served as a director or executive officer of America West as of the
date of the Investment Agreement providing for similar indemnification of such
person and that no recourse or liability whatsoever with respect to the
Investment
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Agreement, the Plan or consummation of the transactions contemplated thereby
shall be had by or in the right of America West against such person.
DELAWARE BUSINESS COMBINATION STATUTE
Pursuant to the Plan, the Company has elected not to be governed by Section
203 of the Delaware General Corporation Law ("DGCL"). In general, Section 203 of
the DGCL prohibits a Delaware corporation from entering into a "business
combination" with an "interested stockholder" for a period of three years unless
certain exceptions are applicable. Pursuant to the statute, the Company's
election not to be governed by Section 203 will not become effective until the
first anniversary date of the Effective Date.
By opting out of Section 203, America West may be foregoing certain
"anti-takeover" protections that may otherwise be available to it under Section
203 in the event of an unsolicited takeover offer from a party other than
AmWest. However, given the limited protections provided by Section 203, the
significant holdings of Common Stock by AmWest after the Effective Date and
certain other factors, the Company does not believe that the protections
afforded by Section 203 are very significant or that an unsolicited takeover
offer is likely to occur.
With respect to a possible "business combination" or takeover attempt by
AmWest or its affiliates involving the Company, the protective provisions of
Section 203 would not apply to such a transaction because the Board of Directors
of the Company has previously approved of the transactions contemplated by the
Investment Agreement and otherwise described herein prior to the date such
agreement was entered into and prior to the date that AmWest acquired any shares
of Common Stock. However, pursuant to the Stockholders' Agreement, AmWest will
be precluded from consummating any "Business Combination" (as defined in the
Stockholders Agreement) with the Company for a three-year period commencing on
the Effective Date, unless such transaction is recommended or approved in
advance by at least three Independent Directors or a majority of the Common
Stock of the Company not held by AmWest and its affiliates.
DESCRIPTION OF WARRANTS
GENERAL
The Warrants will be issued under a Warrant Agreement dated on or about
August 25, 1994 (the "Warrant Agreement") between the Company and First
Interstate of California, N.A. as warrant agent (the "Warrant Agent"). The
material terms of the Warrants and the Warrant Agreement are summarized below.
The statements under this caption relating to the Warrants and the Warrant
Agreement are summaries only, however, and do not purport to be complete. Such
summaries make use of terms defined in the Warrant Agreement and are qualified
in their entirety by express reference to the Warrant Agreement, which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. All section references under this heading are references to sections of
the Warrant Agreement.
Each of the 5,871,079 Warrants offered hereby entitles the registered
holder to purchase from the Company one share of Class B Common Stock at a price
("Exercise Price") of $12.74 subject to confirmation of such price by the
Bankruptcy Court pursuant to a final order and subject to adjustment as provided
in the Warrant Agreement. The Warrants are exercisable by the holders at any
time on or after the date on which the Exercise Price has been confirmed by the
Bankruptcy Court pursuant to a final order and before the fifth anniversary of
the Effective Date (the "Expiration Date"). (Section 3.01)
CERTAIN TERMS OF THE WARRANTS
Exercise of Warrants. Warrants may be exercised by surrendering the
Warrant Certificate evidencing such Warrants at the Warrant Agent's Office with
the Election to Exercise form duly completed and executed. Surrendered Warrant
Certificates must be accompanied by payment in full to the Warrant Agent for the
account of the Company (i) in cash, (ii) by certified or official bank check or
(iii) by any combination of (i) or (ii) the Warrant Price for each share of
Class B Common Stock as to which Warrants are exercised and any applicable taxes
that the Company is not required to pay as set forth in Sections 4.08 or 6.01.
(Section 3.02(a)).
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The Company will not be required to issue fractional shares of Class B
Common Stock upon the exercise of the Warrants. In lieu thereof, the Company, at
its option, may purchase the fraction for an amount in cash equal to the
then-current market value of the fraction (as defined in Section 4.01(d)) or
issue scrip of the Company that is non-dividend bearing and non-voting and
exchangeable in combination with other similar scrip for the number of full
shares of Class B Common Stock represented thereby. (Section 3.03)
The Company has the right, except as limited by law or other agreement, to
purchase or otherwise acquire Warrants at such times, in such manner and for
such consideration as it may deem appropriate. (Section 3.04)
The Company will, at all times, reserve and keep available free of
preemptive rights out of its authorized and unissued Class B Common Stock, the
full number of shares of Class B Common Stock, if any, issuable if all
outstanding Warrants then exercisable were to be exercised. Any shares of Class
B Common Stock issued upon a Warrant holder's exercise of any Warrant shall be
validly authorized and issued, fully paid, non-assessable, free of preemptive
rights and free from all taxes (other than those required to be paid by the
holder or its transferees) liens, charges, security interests and claims created
or incurred by the Company in respect of the issuance thereof. (Sections
3.02(b); 4.06)
Adjustment of Warrant Price. The Warrant Price and the number of shares of
Class B Common Stock purchasable upon exercise of each Warrant are subject to
adjustment in certain events, including (a) the payment of a dividend in Common
Stock or certain combinations, subdivisions, or reclassifications of the Common
Stock, (b) the issuance to holders of Common Stock (without any charge to such
holders) of rights, options or warrants entitling the holders thereof to
purchase Common Stock (or securities convertible into Common Stock) at a price
per share less than the then-current market price per share, and (c) certain
distributions by the Company to holders of Common Stock of evidences of its
indebtedness or assets (excluding any cash dividend or distribution out of
retained earnings), all as described in the Warrant Agreement. The Company is
not required to make any adjustment to the Warrant Price unless such adjustment
could require an increase or decrease of at least $.05 in the Warrant Price then
subject to adjustment; provided, however, that any adjustments that are not made
for this reason must be carried forward and taken into account in any subsequent
adjustment. (Section 4.01) The Company may, at its option, reduce the Warrant
Price at any time.
Rights Upon Consolidation, Merger, Sale, Transfer or Reclassification. In
the event of certain consolidations with or mergers of the Company into another
corporation or in the event of certain leases, sales or conveyances of the
property of the Company to another corporation, the holder of each outstanding
Warrant shall have the right to receive, upon exercise of the Warrant, the kind
and amount of shares, securities, property or cash receivable upon such
consolidation, merger, lease, sale or conveyance by a holder of one share of
Class B Common Stock. (Section 4.05(a))
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, each holder of a Warrant may receive, upon exercise of such
Warrant in accordance with the Warrant Agreement, the same kind and amount of
any stock, securities or assets as may be issuable, distributable or payable on
any such dissolution, liquidation, or winding up with respect to each share of
Class B Common Stock of the Company. (Section 4.05(b))
In the event of certain reclassifications or changes of the shares of Class
B Common Stock issuable upon exercise of the Warrants or in the event of the
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation in which the holders of the shares of
Common Stock thereafter receive shares, other securities, property or cash for
such shares of Common Stock, each holder of a Warrant shall have the right to
receive, upon exercise of the Warrant, the kind and amount of shares, other
securities, property or cash receivable upon such reclassification or change.
(Section 4.05(c))
Rights as Warrantholders. A holder of Warrants does not have any rights
whatsoever as a stockholder of the Company, either at law or equity, including
but not limited to the right to vote at, or to receive notice of, any meeting of
stockholders of the Company. The consent of any holder is not required with
respect to any action or proceeding of the Company nor do holders, by reason of
the ownership or possession of a Warrant,
69
<PAGE> 70
have any right to receive any cash dividends, stock dividends, allotments or
rights, or other distributions paid, allotted or distributed or distributable to
the stockholders of the Company. A holder of a Warrant shall not have any rights
unless the right is expressly conferred by the Warrant Agreement or by a Warrant
Certificate held by the holder. (Section 5.01)
PLAN OF DISTRIBUTION
Selling Securityholders may sell their Securities in transactions through
such underwriters, brokers, dealers or agents as may be approved by the Company
from time to time or through privately negotiated transactions; provided,
however, that pursuant to the Stockholders' Agreement, certain of the Selling
Securityholders have agreed that (i) they will not dispose of any Common Stock
(other than to an affiliate of the transferor) if, after giving effect thereto
and to any concurrent transaction, the total number of shares of Class B Common
Stock owned by the transferor is less than 200% of the total number of shares of
Class A Common Stock beneficially owned by the transferor; provided, however,
that the preceding will not prohibit any person from transferring or otherwise
disposing of all shares of Common Stock owned by such person; (ii) all of the
Securities issued to the Selling Securityholders shall bear the legend that the
Securities may not be sold, transferred or otherwise disposed of except in
accordance with applicable securities laws; and (iii) AmWest has agreed that
subject to certain exceptions it will not, prior to on or about August 25, 1997,
sell in a single transaction or related transaction 51% or more of the combined
voting power of all shares of Common Stock then outstanding unless other holders
of Common Stock shall have been given a reasonable opportunity to participate
therein on a pro rata basis and at the same price per share and on the same
economic terms and conditions applicable to AmWest. See "Principal
Stockholders -- Stockholders' Agreement."
The distribution of the Securities may be effected from time to time in one
or more transactions (which may involve crosses or block transactions) (i) in
the over-the-counter market, (ii) in transactions otherwise than in the
over-the-counter market or (iii) through the writing of options on the
Securities (whether such options are listed on an options exchange or
otherwise). Any of such transactions may be effected at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. If the Selling Securityholders effect such
transactions by selling Securities to or through underwriters, brokers, dealers
or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or commissions from purchasers of Securities for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents might be in excess of those
customary in the types of transactions involved). The Selling Securityholders
and any brokers, dealers or agents that participate in the distribution of the
Securities might be deemed to be underwriters, and any profit on the sale of
Securities by them and any discounts, concessions or commissions received by any
such underwriters, brokers, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. The Company will not receive
any of the proceeds from the sale of any of the Securities by the Selling
Securityholders.
The Senior Notes to be purchased by Fidelity Copernicus Fund, L.P.
("Copernicus") pursuant to the Investment Agreement (the "Repurchase Notes")
will be subject to a repurchase agreement between Copernicus and Lehman
Government Securities Inc. ("LGSI") pursuant to which the notes will be sold to
LGSI shortly after their issuance to Copernicus.
The agreement will be terminable upon demand by either party. During the
term of the agreement, Copernicus will be entitled to all interest or other
payments of any nature with respect to the Repurchase Notes. Upon termination,
Copernicus will be required to repurchase, and LGSI will be obligated to sell,
the Repurchase Notes at a price equal to the price paid by LGSI to purchase the
Repurchase Notes from Copernicus, plus an amount that provides to LGSI a rate of
return on the purchase price based on a spread over LIBOR. LGSI will receive a
fee for entering into the repurchase agreement. To ensure its ability to fulfill
its obligation to repurchase the Repurchase Notes, Copernicus will be obligated
to maintain certain margin requirements with LGSI. In the event that Copernicus
fails to repurchase the Repurchase Notes or maintain
70
<PAGE> 71
the required margin, or Copernicus becomes insolvent, LGSI is permitted to sell
the Repurchase Notes. LGSI may enter into one or more similar repurchase
agreements with respect to the Repurchase Notes with other counterparties from
time to time, pursuant to which LGSI may sell the Repurchase Notes to a
counterparty and agree to repurchase the Repurchase Notes upon termination of
the agreement. This Prospectus relates to all offers and sales of the Repurchase
Notes by Copernicus upon termination of the repurchase agreement as well as all
offers and sales of the Repurchase Notes in connection with any of the foregoing
transactions, including, without limitation, the repurchase agreement between
LGSI and Copernicus (including any remedies thereunder) and any repurchase
agreement between LGSI and any counterparty other than Copernicus. LGSI may be
deemed to be an underwriter with respect to the Repurchase Notes by virtue of
any of such sales.
At the time a particular offer of Securities is made, a Prospectus
Supplement, to the extent required, will be distributed which will set forth the
aggregate amount and type of Securities being offered, the names of the Selling
Securityholders, the purchase price, the amount of expenses of the offering and
the terms of the offering, including the name or names of any underwriters,
brokers, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the Securities may
not simultaneously engage in market making activities with respect to the
Securities for a period, depending upon certain circumstances, of either two
days or nine days prior to the commencement of such distribution. In addition
and without limiting the foregoing, the Selling Securityholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders.
Under the securities laws of certain states, the Securities may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the Securities may not be sold unless the Securities have been
registered or qualify for sale in such state or an exemption from registration
or qualification is available and is complied with.
Prior to this offering, there has been no public market for the Securities.
The Class B Common Stock and the Warrants have been approved for listing on The
New York Stock Exchange. No assurance can be given as to whether an active
trading market will develop for the Securities. All of the foregoing may affect
the marketability of the Securities and the ability of broker-dealers to engage
in market making activities with respect to the Securities. See "Investment
Considerations -- Limited Trading Market; Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the shares of Common Stock and certain legal matters
relating to the Senior Notes and Warrants offered hereby will be passed upon for
the Company by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements and schedules of America West Airlines, Inc., as
of December 31, 1993 and 1992, and for each of the years in the three-year
period ended December 31, 1993, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The reports of KPMG Peat Marwick LLP covering the December 31, 1993
financial statements and schedules contain an explanatory paragraph that states
that the Company's Chapter 11 proceeding, significant losses, accumulated
deficit and highly leveraged capital structure raise substantial doubt about its
ability to continue as a going concern. The financial statements and schedules
do not include any adjustments that might result from the outcome of these
uncertainties.
71
<PAGE> 72
AMERICA WEST AIRLINES, INC., D.I.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 1994 (UNAUDITED)
Condensed Balance Sheets as of June 30, 1994 (unaudited)............................ F-2
Condensed Statements of Operations and Accumulated Deficit for the six months ended
June 30, 1994 (unaudited) and 1993 (unaudited)................................... F-4
Condensed Statements of Cash Flows for the six months ended June 30, 1994
(unaudited) and 1993 (unaudited)................................................. F-5
Notes to Condensed Financial Statements............................................. F-6
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993
Independent Auditors' Report........................................................ F-20
Balance Sheets as of December 31, 1993 and 1992..................................... F-21
Statements of Operations for the Years ended December 31, 1993, 1992 and 1991....... F-23
Statements of Cash Flows for the Years ended December 31, 1993, 1992 and 1991....... F-24
Statements of Stockholders' Equity (Deficiency) for the Years ended December 31,
1993, 1992 and 1991.............................................................. F-25
Notes to Financial Statements....................................................... F-26
</TABLE>
F-1
<PAGE> 73
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 176,922 $ 99,631
Accounts receivable, less allowance for doubtful accounts of
$3,756,000 in 1994 and $3,030,000 in 1993.................... 78,207 65,744
Expendable spare parts and supplies, less allowance for
obsolescence of $7,754,000 in 1994 and $7,231,000 in 1993.... 28,622 28,111
Prepaid expenses................................................ 32,888 34,939
-------------- ------------
Total current assets.................................... 316,639 228,425
-------------- ------------
Property and equipment:
Flight equipment................................................ 895,662 872,104
Other property and equipment.................................... 183,765 180,607
-------------- ------------
1,079,427 1,052,711
Less accumulated depreciation and amortization............... 422,109 385,776
-------------- ------------
657,318 666,935
Equipment purchase deposits..................................... 51,836 51,836
-------------- ------------
709,154 718,771
-------------- ------------
Restricted cash................................................... 50,468 46,296
Other assets...................................................... 24,280 23,251
-------------- ------------
$1,100,541 $1,016,743
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-2
<PAGE> 74
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............................. $ 118,621 $ 125,271
Accounts payable................................................. 71,463 62,957
Air traffic liability............................................ 166,383 118,479
Accrued compensation and vacation benefits....................... 12,525 11,704
Accrued interest................................................. 7,812 8,295
Accrued taxes.................................................... 27,304 14,114
Other accrued liabilities........................................ 19,291 11,980
----------- ------------
Total current liabilities................................ 423,399 352,800
----------- ------------
Estimated liabilities subject to Chapter 11 proceedings............ 379,814 381,114
Long-term debt, less current maturities............................ 381,397 396,350
Manufacturers' and deferred credits................................ 71,366 73,592
Other liabilities.................................................. 59,903 67,149
Commitments contingencies and subsequent events
Stockholders' deficiency:
Preferred stock, $.25 par value. Authorized 50,000,000 shares:
Series C 9.75 percent convertible preferred stock, issued and
outstanding 73,099 shares; $1.33 per share cumulative dividend
(liquidation preference $1,000,000)........................... 18 18
Common stock, $.25 par value. Authorized 90,000,000 shares;
issued and outstanding 25,694,469 shares in 1994 and
25,291,102 in 1993............................................ 6,424 6,323
Additional paid-in capital....................................... 200,013 197,010
Accumulated deficit.............................................. (403,315) (438,626)
----------- ------------
(196,860) (235,275)
Less deferred compensation and notes receivable -- employee stock
purchase plans................................................... 18,478 18,987
----------- ------------
Total stockholders' deficiency........................... (215,338) (254,262)
----------- ------------
$ 1,100,541 $1,016,743
========= ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-3
<PAGE> 75
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Operating revenues:
Passenger......................................................... $ 665,044 $ 603,790
Cargo............................................................. 21,489 18,971
Other............................................................. 22,082 18,754
----------- -----------
Total operating revenues.................................. 708,615 641,515
----------- -----------
Operating expenses:
Salaries and related costs........................................ 162,484 149,990
Rentals and landing fees.......................................... 132,835 140,555
Aircraft fuel..................................................... 75,794 83,553
Agency commissions................................................ 59,931 52,093
Aircraft maintenance materials and repairs........................ 18,902 14,619
Depreciation and amortization..................................... 43,198 39,879
Other............................................................. 133,575 118,479
----------- -----------
Total operating expenses.................................. 626,719 599,168
----------- -----------
Operating income.......................................... 81,896 42,347
----------- -----------
Nonoperating income (expenses):
Interest income................................................... 344 411
Interest expense.................................................. (26,068) (27,563)
Loss on disposition of property and equipment..................... (1,270) (613)
Reorganization expense, net....................................... (18,258) (1,892)
Other, net........................................................ 138 (43)
----------- -----------
Total nonoperating expenses, net.......................... (45,114) (29,700)
----------- -----------
Income before income taxes................................ 36,782 12,647
----------- -----------
Income taxes........................................................ 1,471 253
----------- -----------
Net income.......................................................... 35,311 12,394
Accumulated deficit at beginning of period.......................... (438,626) (475,791)
----------- -----------
Accumulated deficit at end of period................................ $ (403,315) $ (463,397)
========== ==========
Earnings per share:
Primary........................................................... $ 1.30 $ 0.52
========== ==========
Fully diluted..................................................... $ 0.92 $ 0.36
========== ==========
Shares used for computation:
Primary........................................................... 28,704 29,669
========== ==========
Fully diluted..................................................... 40,607 42,804
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE> 76
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 35,311 $ 12,394
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization................................... 43,198 39,879
Amortization of manufacturers' and deferred credits............. (2,225) (2,451)
Loss on disposition of property and equipment................... 1,270 613
Reorganization items............................................ 3,703 --
Other........................................................... (283) (247)
Changes in operating assets and liabilities:
Increase in accounts receivable, net............................... (12,463) (8,227)
(Increase) decrease in spare parts and supplies, net............... (511) 2,941
Decrease in prepaid expenses....................................... 2,051 2,666
Decrease (increase) in other assets and restricted cash............ (5,201) 2,078
Increase (decrease) in accounts payable............................ 8,923 (10,331)
Increase in air traffic liability.................................. 45,467 33,312
Increase in accrued compensation and vacation benefits............. 821 195
Increase in accrued interest....................................... 5,130 5,013
Increase in accrued taxes.......................................... 13,190 8,168
Increase in other accrued liabilities.............................. 7,141 1,984
Decrease in other liabilities...................................... (6,337) (6,901)
-------- --------
Net cash provided by operating activities....................... 139,185 81,086
Cash flows from investing activities:
Purchases of property and equipment................................ (34,981) (23,586)
Proceeds from disposition of property.............................. 269 619
-------- --------
Net cash used in investing activities........................... (34,712) (22,967)
Cash flows from financing activities:
Repayment of debt.................................................. (27,182) (39,532)
-------- --------
Net cash used in financing activities........................... (27,182) (39,532)
-------- --------
Net increase in cash and cash equivalents....................... 77,291 18,587
-------- --------
Cash and cash equivalents at beginning of period..................... 99,631 74,383
-------- --------
Cash and cash equivalents at end of period........................... $176,922 $ 92,970
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-5
<PAGE> 77
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1994
1. REORGANIZATION UNDER CHAPTER 11, LIQUIDITY AND FINANCIAL CONDITION
On August 10, 1994, the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court") confirmed the Company's Plan of Reorganization
("Plan"). The Company currently anticipates that the Plan will be effective
after expiration of the Bankruptcy Code 10-day appeal period on or about August
25, 1994 (the "Effective Date").
In connection with the confirmation hearing on August 10, 1994, the Company
filed certain motions with the Bankruptcy Court to secure approval to pay the
following confirmation bonuses or success fees:
-- $9.3 million to be paid based upon length of service to non-officer
employees.
-- $1.2 million to be paid to officers and other members of management.
-- 125,000 shares of Class B Common Stock in the reorganized Company to be
issued to the Company's Chairman and Chief Executive Officer.
A hearing on these motions has been scheduled for August 24, 1994.
HISTORICAL CHAPTER 11 EVENTS AND EVENTS LEADING TO PLAN CONFIRMATION
On June 27, 1991, the Company filed a voluntary petition in the United
States Bankruptcy Court for the District of Arizona to reorganize under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Company is
currently operating as a debtor-in-possession ("D.I.P.") under the supervision
of the Bankruptcy Court. As a debtor-in-possession, the Company is authorized to
operate its business but may not engage in transactions outside its ordinary
course of business without the approval of the Bankruptcy Court.
Subject to certain exceptions under the Bankruptcy Code, the Company's
filing for reorganization automatically enjoined the continuation of any
judicial or administrative proceedings against the Company. Any creditor actions
to obtain possession of property from the Company or to create, perfect or
enforce any lien against the property of the Company are also enjoined. As a
result, the creditors of the Company are precluded from collecting pre-petition
debts without the approval of the Bankruptcy Court.
The Company had the exclusive right for 120 days after the Chapter 11
filing on June 27, 1991 to file a plan of reorganization and 60 additional days
to obtain necessary acceptances of such plan. Such periods were extended at the
discretion of the Bankruptcy Court, but only on a showing of good cause. On May
17, 1994, the Company filed a Disclosure Statement with the Bankruptcy Court
which includes its Plan of Reorganization. On June 28, 1994, the Bankruptcy
Court approved the adequacy of the Disclosure Statement and set into motion a
balloting process for the approval of the Plan of Reorganization. Subject to
certain exceptions set forth in the Bankruptcy Code, acceptance of a Plan of
Reorganization requires approval of the Bankruptcy Court and the affirmative
vote (i.e. 50 percent of the number and 66 2/3 percent of the dollar amount) of
each class of creditors and equity holders whose claims are impaired by the
plan. (See "Plan of Reorganization" for further discussion of the contents of
the Plan of Reorganization).
Certain pre-petition liabilities have been paid after obtaining the
approval of the Bankruptcy Court, including certain wages and benefits of
employees, insurance costs, obligations to foreign vendors and governmental
agencies, travel agent commissions and ticket refunds. The Company has also been
allowed to honor all tickets sold prior to the date it filed for reorganization.
In addition, the Company is authorized to pay pre-petition liabilities to
essential suppliers of fuel, food and beverages and to other vendors providing
critical goods and services. Subsequent to filing and with the approval of the
Bankruptcy Court, the Company assumed certain executory contracts of essential
suppliers.
F-6
<PAGE> 78
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Parties to executory contracts may, under certain circumstances, file
motions with the Bankruptcy Court to require the Company to assume or reject
such contracts. Unless otherwise agreed, the assumption of a contract will
require the Company to cure all prior defaults under the related contract,
including all pre-petition liabilities. Unless otherwise agreed, the rejection
of a contract is deemed to constitute a breach of the agreement as of the moment
immediately preceding the Chapter 11 filing, giving the other party to the
contract a right to assert a general unsecured claim for damages arising out of
the breach.
February 28, 1992 was set as the last date for the filing of proofs of
claim under the Bankruptcy Code and the Company's creditors have submitted
claims for liabilities not paid and for damages incurred. There may be
differences between the amounts at which any such liabilities are recorded in
the financial statements and the amount claimed by the Company's creditors. In
connection with the confirmation of the Company's Plan of Reorganization, the
Bankruptcy Court will be requested to fix the total amount of allowed claims as
well as the total amount of disputed claims that may become allowed claims.
The Company has incurred and will continue to incur significant costs
associated with the reorganization. The amount of these costs, which are being
expensed as incurred, is expected to significantly affect the results of
operations.
As a result of its filing for protection under Chapter 11 of the Bankruptcy
Code, the Company is in default of substantially all of its debt agreements. All
outstanding pre-petition unsecured debt of the Company has been presented in
these financial statements within the caption Estimated Liabilities Subject to
Chapter 11 Proceedings.
Additional liabilities subject to the proceedings may arise in the future
as a result of the rejection of executory contracts, including leases, and from
the determination by the Bankruptcy Court (or agreement by parties in interest)
of allowed claims for contingencies and other disputed amounts. Conversely, the
assumption of executory contracts and unexpired leases may convert liabilities
shown as subject to Chapter 11 proceedings to post-petition liabilities.
Substantially all of the aircraft, engines and spare parts in the Company's
fleet are subject to lease or secured financing agreements that entitle the
Company's aircraft lessors and secured creditors to rights under Section 1110 of
the Bankruptcy Code. Pursuant to Section 1110, the Company had 60 days from the
date of its Chapter 11 filing, or until August 26, 1991, to bring its
obligations to these aircraft lessors and secured creditors current and/or reach
other mutually satisfactory negotiated arrangements. In September 1991, as a
condition to the borrowings under the initial $55 million D.I.P. facility, the
Company arranged for rent, principal and interest payment deferrals from a
majority of its aircraft providers as a condition to the assumption of the
related lease or secured borrowing by the Company. As a result of these
arrangements, the Company was able to assume the executory contracts associated
with 83 aircraft in its fleet without having to bring its obligations to these
aircraft providers current. In addition, as part of the initial D.I.P. facility,
the Company assumed and brought current certain agreements for 16 Airbus A320
aircraft, three CFM engines, a Boeing 757-200 and a Boeing 737-300.
Twenty-two aircraft were deemed surplus to the Company's needs and the
associated executory contracts were rejected. Included in 1991 reorganization
costs was $35.2 million in write-offs of leasehold improvements, security
deposits, accrued maintenance, accrued rents and other costs to return the
aircraft which were subject to the rejected aircraft agreements. In certain
cases, final agreements were reached with such aircraft providers and no further
claims by such providers will be pursued as a result of the rejections. In other
instances, the aircraft providers have filed claims in the normal course of the
bankruptcy and as of June 30, 1994, significant claims for rejected aircraft
have not yet been settled.
Due to the uncertain nature of many of the potential claims, the Company is
unable to project the magnitude of such claims with any degree of certainty.
However, the claims (pre-petition claims and administrative claims) that have
been filed against the Company are in excess of $2 billion. Such aggregate
F-7
<PAGE> 79
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
amount includes claims of all character, including, but not limited to,
unsecured claims, secured claims, claims that have been scheduled but not filed,
duplicative claims, tax claims, claims for leases that were assumed, and claims
which the Company believes to be without merit; however, claims filed for which
an amount was not stated, are not reflected in such amount. The Company is
unable to estimate the potential amount of such unstated claims; however, the
amount of such claims could be material.
The Company is in the process of reviewing and seeking allowance or
disallowance, as appropriate, of the general unsecured claims asserted against
the Company. In many instances, such allowance process will include the
commencement of Bankruptcy Court proceedings in order to determine the amount at
which such claims should be allowed. The Company has accrued its estimate of
claims that will be allowed or the minimum amount at which it believes the
asserted general unsecured claims will be allowed if there is no better estimate
within the range of possible outcomes. However, the ultimate amount of allowed
claims will be different and such differences could be material. In its
Disclosure Statement, the Company estimates the range of allowed general
unsecured claims to be from a low of approximately $300 million to a high of
approximately $360 million. This range does not include, nor can the Company
currently estimate, claims which may arise and be allowed as a result of the
renegotiation of certain aircraft purchase agreements.
The Bankruptcy Code requires that all administrative claims be paid on the
effective date of a plan of reorganization unless the respective claimants
agreed to different treatment. The Company is actively negotiating with
claimants to achieve mutually acceptable dispositions of these claims. Since the
commencement of the bankruptcy proceeding, claims alleging administrative
expense priority totaling more than $153 million have been filed. As of June 30,
1994, $115 million of the filed claims have been allowed and settled for $50.2
million in the aggregate. Additionally, the Company has obtained Bankruptcy
Court approval of an agreement which settled the remaining $38 million filed
administrative expense claim (which relates to a rejected lease of a Boeing
737-300 aircraft) for $5 million. Pursuant to an order dated May 18, 1994, the
Bankruptcy Court fixed July 1, 1994 as the bar date for filing such
administrative claims. In response to the notice of this bar date, certain
claims were filed asserting status as non-ordinary course administrative expense
claims. These include claims for administrative rent, breach of return
conditions on aircraft, guarantees and obligations under tax indemnity
agreements. The amount of such asserted claims, if allowed, could be material;
however, the Company is optimistic that the claims, except to the extent
previously known and provided for by the Company, will be either disallowed,
withdrawn or negotiated to a mutually acceptable amount.
PLAN OF REORGANIZATION
On December 8, 1993 and February 16, 1994, the Bankruptcy Court entered
certain orders which provided for a procedure through which interested parties
could submit proposals to participate in a plan of reorganization for America
West. The Bankruptcy Court also set February 24, 1994 as the date for America
West to select a "Lead Plan Proposal" from the proposals submitted.
On February 24, 1994, America West selected as its Lead Plan Proposal an
investment proposal submitted by AmWest Partners, L.P., a limited partnership
("AmWest"), which includes TPG Partners, L.P., Continental Airlines, Inc. and
Mesa Airlines, Inc. Certain funds managed or advised by Fidelity Management
Trust Company and its affiliates and Lehman Brothers, Inc. are participating in
the proposal as assignees of AmWest. On March 11, 1994, the Company and AmWest
entered into an Investment Agreement which was filed with the Bankruptcy Court
on March 11, 1994 (the "Original Investment Agreement"). The Original Investment
Agreement was superseded by a Revised Investment Agreement dated as of March 11,
1994 and filed with the Bankruptcy Court on March 28, 1994 (the "Revised
Investment Agreement"). The Revised Investment Agreement was superseded by a
Second Revised Investment Agreement dated as of April 7, 1994 and filed with the
Bankruptcy Court on April 8, 1994 (the "Second Revised Investment Agreement").
The Second Revised Investment Agreement was superseded by a Third Revised
Investment
F-8
<PAGE> 80
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement dated as of April 21, 1994 and filed with the Bankruptcy Court on
April 26, 1994 (the "Third Revised Investment Agreement"). The Third Revised
Investment Agreement is substantially identical to the Second Revised Investment
Agreement except for a change in the configuration of the expanded 15-member
board of directors of the Company. The Third Revised Investment Agreement
substantially incorporates the terms of the AmWest investment proposal. It
provides that AmWest will purchase from America West equity securities
representing a 33.5 percent ownership interest (subject to adjustment) in the
Company for $114.8 million and $100 million in new senior unsecured debt
securities. The Third Revised Investment Agreement also provides that, in
addition to the 33.5 percent ownership interest in the Company, AmWest would
also obtain 71.2 percent of the total voting interest (subject to adjustment) in
America West after the Company is reorganized. The terms of the Third Revised
Investment Agreement have been incorporated into a Plan of Reorganization which
was filed with the Bankruptcy Court on May 17, 1994. By Order dated June 28,
1994, the Bankruptcy Court approved the Company's Disclosure Statement, finding
that it contained adequate information as required by Section 1125 of the
Bankruptcy Code. The Bankruptcy Court also entered an order fixing August 3,
1994 as the last date for filing objections to confirmation of the Plan of
Reorganization, voting to accept or reject the Plan and making any available
elections under the Plan. In addition, the Court fixed August 10, 1994 as the
hearing date for confirmation of the Plan of Reorganization. Consummation of the
Plan of Reorganization is subject to satisfaction of the closing conditions
specified therein, including (among others) the accuracy of certain
representations and warranties of the Company and the absence of any material
adverse change in the Company's condition (financial or otherwise), business,
assets, properties, operations or relations with employees or labor unions since
December 31, 1993.
In addition to the interest in the reorganized America West that would be
acquired by AmWest pursuant to the Plan of Reorganization, the Plan also
provides for the following:
1. The D.I.P. financing would be repaid in full with cash on the date the
Plan of Reorganization is effective ("Effective Date") or on such other terms as
may be agreed to.
2. On the Effective Date, unsecured creditors would receive 59.5 percent of
the new common equity in the reorganized Company. In addition, unsecured
creditors would have the right to elect to receive cash at $8.889 per share up
to an aggregate maximum amount of $100 million, through a purchase by AmWest of
the shares otherwise allocable to such unsecured creditors making the election
under the Plan of Reorganization.
3. Holders of common stock equity interests would receive 5 percent of the
new common equity of the Company. In addition, such holders of equity interests
would have the right to subscribe to purchase up to 1,615,179 shares of the new
Class B common stock of the Company for $8.889 per share from AmWest, and would
also receive warrants entitling them to purchase 6,230,769 shares of the
reorganized Company's common stock. With respect to establishing the price of
the warrants, the Bankruptcy Court will be requested to fix the total amount of
allowed unsecured claims as well as the total amount of disputed claims that may
become allowed claims. In turn, the aggregate amount established by the
Bankruptcy Court would be multiplied by 1.1 and the resultant product divided by
the number of shares of new common equity to be issued to unsecured creditors
(26,775,000 shares) to establish the price. Holders of preferred stock equity
interests would receive $500,000 cash and the right to subscribe to the purchase
of the first 250,000 shares of the over-subscription stock otherwise allocable
to holders of common stock equity interests.
4. In exchange for certain concessions principally arising from
cancellation of the right of Guinness Peat Aviation ("GPA") affiliates to put to
America West 10 Airbus A320 aircraft at fixed rates, GPA, or certain affiliates
thereof, would receive (i) 2.0 percent of the new common equity in the
reorganized Company, (ii) warrants to purchase up to 1,384,615 shares of the
reorganized Company's common stock on the same terms as the AmWest warrants,
(iii) $30.5 million in cash, and (iv) the right to require the Company to lease
from GPA prior to June 30, 1999 up to eight aircraft of types operated by the
Company on terms which the Company believes to be more favorable than those
currently applicable to the put aircraft. (See Note 8(c) for further discussion
of the new put agreement.)
F-9
<PAGE> 81
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. Continental Airlines, Inc., Mesa Airlines, Inc. and America West would
enter into certain alliance agreements which would include code-sharing,
schedule coordination and certain other relationships and agreements. A
condition precedent to the Effective Date of the Plan of Reorganization is that
these agreements be in form and substance satisfactory to America West,
including the Company's reasonable satisfaction that such alliance agreements
when fully implemented will result in an increase in pre-tax income of not less
that $40 million per year.
6. The expansion of the Company's board of directors to 15 members for a
period not less than three years following effective date. Nine members would be
designated by AmWest and other members reasonably acceptable to AmWest would
include three members designated by the Creditors' Committee, one member
designated by the Equity Committee, one member designated by the Company's
current board of directors and one member designated by GPA.
7. The pre-petition executory contract for the purchase of 24 A320-200
aircraft between the Company and AVSA would be amended to provide the Company
with greater flexibility, reduced pricing and enhanced terms for the acquisition
of the aircraft than is presently provided in the contract. Under the modified
terms, delivery dates of the aircraft would fall in the years 1998 through 2000
with an option to further defer deliveries. In addition, if A320 aircraft are
delivered as a result of the new GPA Put Agreement (see item 4 above), the
Company would have the right to cancel on a one-for-one basis, up to a maximum
of eight non-consecutive aircraft deliveries hereunder, subject to certain
conditions. In exchange for these modifications, the contract, as modified,
would be assumed and certain promissory notes relating thereto would be
reinstated on the Effective Date of the Plan of Reorganization.
8. The Plan of Reorganization also provides for many other matters,
including the disposition of the various types of claims asserted against the
Company, the adherence to the Company's aircraft lease agreements, the
renegotiation, assumption as modified or rejection of certain pre-petition
aircraft purchase agreements and release of the Company's employees from all
obligations presently existing under the notes issued in connection with the
Company's employee stock purchase plan, concurrent with abandonment of such
notes by the Company and the cancellation of the shares of Company stock
securing such notes.
In connection with the selection of AmWest's proposal as the Lead Plan
Proposal and pursuant to an order of the Bankruptcy Court, America West and
AmWest entered into an Interim Procedures Agreement setting forth, among other
things, the rights and obligations of AmWest and America West pending
Confirmation of the Plan of Reorganization. After a series of hearings, and
certain modifications, a Third Revised Interim Procedures Agreement (the
"Interim Procedures Agreement") was approved by the Bankruptcy Court on May 4,
1994. Among other terms governing the relationship of America West and AmWest
and its partners until the Effective Date of the Plan of Reorganization, the
Interim Procedures Agreement provides, subject to certain exceptions, that
America West is prohibited from directly soliciting additional investment
proposals. However, the Interim Procedures Agreement provides that, until an
order approving a Disclosure Statement is entered, America West may consider
unsolicited proposals subject to certain rights of AmWest to match any
alternative proposal. If America West accepts any such alternative proposal, or
a competing plan of reorganization proposed by another party in interest is
confirmed by the Bankruptcy Court, the Interim Procedures Agreement provides
that AmWest may apply to the Bankruptcy Court, on a substantial contribution
basis consistent with Section 503(b) of the Bankruptcy Code for recovery of an
additional amount not to exceed $4 million as reasonable compensation for its
actions in connection with the proposed investment in America West and the
benefits it provided to America West and its constituents in connection
therewith and with the Chapter 11 Case, provided, however, that making the
proposed investment will not, in and of itself, entitle AmWest to any additional
payment. Further, should America West breach the Interim Procedures Agreement at
any time, AmWest has agreed that any damages it may be entitled to recover shall
be limited to an amount not to exceed $4 million, subject to the approval of the
Bankruptcy Court. Upon the entry of an order by the Bankruptcy Court approving
the Disclosure Statement, America
F-10
<PAGE> 82
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
West has agreed not to consider any other proposals. (An order approving the
Disclosure Statement was entered by the Bankruptcy Court on June 28, 1994.)
The Interim Procedures Agreement also provides that America West will
reimburse AmWest for all out-of-pocket and third-party expenses actually
incurred by AmWest through February 28, 1994, subject to a cap of $550,000. The
Interim Procedures Agreement also provides for America West to reimburse AmWest
for expenses covered under the Interim Procedures Agreement and incurred by
AmWest on and after March 1, 1994 in an amount of up to $300,000 per month,
provided that any unused portion of such $300,000 for any month shall accumulate
and be carried forward and be available in any subsequent month, through the
Effective Date of the Plan of Reorganization. On the Effective Date, America
West will be obligated to reimburse AmWest for all expenses covered under the
Interim Procedures Agreement, irrespective of the foregoing monthly limitations.
All such fees will be subject to final approval of the Bankruptcy Court.
On June 28, 1994, the Bankruptcy Court entered an order fixing August 3,
1994, as the last date for filing objections to confirmation of the Plan of
Reorganization, voting to accept or reject the Plan of Reorganization and making
any applicable elections available under the Plan. Additionally, the Court fixed
August 10, 1994, as the hearing date for confirmation of the Plan of
Reorganization. The Plan of Reorganization must be approved by the Bankruptcy
Court and by specified majorities of each class of creditors and equity holders
whose claims are impaired by the Plan. Alternatively, absent the requisite
approvals, the Company may seek Bankruptcy Court approval of its Reorganization
Plan under Section 1129(b) of the Bankruptcy Code, assuming certain tests are
met.
If at any time the Creditors Committee, the Equity Committee or any
creditor of the Company or equity holder of the Company believes that the
Company is or will not be in a position to sustain operations, such party can
move in the Bankruptcy Court to compel a liquidation of the Company's estate by
conversion to Chapter 7 bankruptcy proceedings or otherwise. In the event that
the Company is forced to sell its assets and liquidate, it is unlikely that
unsecured creditors or equity holders will receive any value for their claims or
interests.
The Company anticipates that the reorganization process will result in the
restructuring, cancellation and/or replacement of the interest of its existing
common and preferred stockholders. Because of the "absolute priority rule" of
Section 1129 of the Bankruptcy Code, which requires that the Company's creditors
be paid in full (or otherwise consent) before equity holders can receive any
value under a plan of reorganization, the Company previously disclosed that it
anticipated that the reorganization process would result in the elimination of
the Company's existing equity interests. Due to recent events, including
sustained improvement in the Company's operating results as well as general
improvement in the condition of the United States' economy and airline industry,
existing holders of equity interests are anticipated to receive 5 percent of the
new common equity under the proposed Plan of Reorganization.
The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. The financial
statements do not include any adjustments as a result of the effects of the Plan
of Reorganization.
Fresh Start Reporting (pro forma)
In connection with its emergence from Chapter 11 protection, which is
anticipated to occur on or about August 23, 1994, the Company will be adopting
fresh start reporting in accordance with SOP 90-7 of the American Institute of
Certified Public Accountants. The pro forma effects of the Company's Plan of
F-11
<PAGE> 83
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Reorganization and fresh start reporting on the Company's condensed balance
sheet as of June 30, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1994 JUNE 30, 1994
------------- FRESH START AND OTHER -------------
ASSETS ADJUSTMENTS (NET)
- ----------------------------------------------- (HISTORICAL) --------------------- (PRO FORMA)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 176,922 $ 108,005 $ 284,927
Other current assets........................... 139,717 (8,825) 130,892
---------- --------- ----------
Total current assets...................... 316,639 99,180 415,819
Property and equipment (net)................... 709,154 (162,559) 546,595
Other assets................................... 74,748 (30,701) 44,047
Reorganization value in excess of amounts
allocable to identifiable assets............. -- 697,278 697,278
---------- --------- -----------
Total assets.............................. $1,100,541 $ 603,198 $ 1,703,739
========== ========= ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C>
Current maturities of long-term debt........... $ 118,621 $ (59,172) $ 59,449
Other current liabilities...................... 304,778 13,078 317,856
------------- --------------------- -------------
Total current liabilities................. 423,399 (46,094) 377,305
Estimated liabilities subject
to Chapter 11 proceedings.................... 379,814 (379,814) --
Long-term debt................................. 381,397 197,525 578,922
Other liabilities.............................. 131,269 28,743 160,012
Stockholders' equity (deficiency).............. (215,338) 802,838 587,500
------------- --------------------- -------------
Total liabilities and stockholders' equity
(deficiency)................................. $ 1,100,541 $ 603,198 $ 1,703,739
========== ================ ==========
</TABLE>
The pro forma fresh start reporting common equity value was estimated by
the Company with the assistance of its financial advisors. The significant
factors used in estimating this value were analyses of publicly available
information of other companies believed to be comparable to the Company,
industry, economic and overall market conditions and historical and estimated
performance of the airline industry and certain financial analyses. There may be
differences between the amounts estimated above and those actually recorded when
fresh start reporting is applied as of the Effective Date, and such differences
may be material.
Under fresh start reporting, the pro forma reorganization value of the
Company has been assumed to be allocated to the reorganized Company's assets and
liabilities on a basis substantially consistent with the purchase method of
accounting. Pro forma reorganization value not attributable to specific assets
of the reorganized Company has been included as "Reorganization value in excess
of amounts allocable to identifiable assets" in the pro forma condensed balance
sheet above. The pro forma fresh start reporting adjustments relate primarily to
the adjustment of the reorganized Company's assets and liabilities to fair
market values as well as reflecting the issuance of new stock and debt and the
discharge of certain pre-petition liabilities under the Plan. The ultimate
amount of such adjustments, when actually recorded, will likely have a
significant effect on the reorganized Company's future operations.
F-12
<PAGE> 84
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of elections made and subscription rights exercised in
connection with the balloting for the Plan of Reorganization, the Company
expects the allocation of its common shares, post-emergence, excluding success
bonuses, to approximate the following (in thousands):
<TABLE>
<CAPTION>
CLASS PERCENT OF
CLASS A B TOTAL TOTAL
------- ------ ------ ----------
<S> <C> <C> <C> <C>
AmWest.............................................. 1,200 13,366 14,566 32.4%
Unsecured Creditors................................. -- 25,669 25,669 57.0%
Common Equity Interests............................. -- 3,615 3,615 8.0%
Preferred Equity Interests.......................... -- 250 250 .6%
GPA................................................. -- 900 900 2.0%
------- ------ ------ ----------
1,200 43,800 45,000 100.0%
====== ====== ====== =======
</TABLE>
The allocation as discussed above is based upon the preliminary balloting
results as of August 3, 1994 and is subject to change.
Estimated Liabilities Subject to Chapter 11 Proceedings and Reorganization
Expense
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the Code are stayed while the
Company continues business operations as debtor-in-possession. These
pre-petition liabilities are expected to be settled as part of the plan of
reorganization and are classified as "Estimated liabilities subject to Chapter
11 proceedings".
Estimated liabilities subject to Chapter 11 proceedings as of June 30, 1994
consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1994
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt (including convertible subordinated debentures
of $138.9 million)................................................... $223,023
Accounts payable and accrued liabilities............................... 112,919
Accrued interest....................................................... 18,153
Accrued taxes.......................................................... 25,719
--------------
$379,814
===========
</TABLE>
The debt balance included above consists of unsecured and secured
obligations and other obligations that have not been affirmed by the Company
through the Bankruptcy Court.
F-13
<PAGE> 85
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Reorganization expense is comprised of items of income, expense, gain or
loss that were realized or incurred by the Company as a result of reorganization
under Chapter 11 of the Federal Bankruptcy Code. Such items consisted of the
following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Provisions for pre-petition and
administrative claims........................................ $ 8,680 $ --
Professional fees.............................................. 11,656 2,827
D.I.P. financing issuance costs................................ 209 --
Interest income................................................ (2,549) (1,025)
Other.......................................................... 262 90
------- -------
$18,258 $ 1,892
======= =======
</TABLE>
2. PER SHARE DATA
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflect net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
conversion of common stock equivalents.
Fully diluted earnings per share is based on the average number of shares
of common stock and dilutive common stock equivalents outstanding adjusted for
conversion of outstanding convertible preferred stock and convertible
debentures. Fully diluted earnings per share reflect net income adjusted for
interest on borrowings effectively reduced by the proceeds from the assumed
conversion of common stock equivalents.
3. LONG-TERM DEBT
On June 13, 1994, the Company filed a motion seeking authorization to amend
the terms and extend the maturity of approximately $77.6 million of the D.I.P.
financing to the earlier of December 31, 1994, or the Effective Date of the
Plan. On June 28, 1994, the Bankruptcy Court granted the extension of the D.I.P.
financing. One of the D.I.P. lenders has elected to be repaid as of June 30,
1994 (the prior maturity date), in the approximate amount of $1 million.
Accordingly, the outstanding principal amount of the extended D.I.P. financing
will be approximately $77.6 million. While there are certain fees to be paid in
the event that the D.I.P. financing is not fully repaid prior to September 30,
1994, there is an interest rate reduction to 90-day LIBOR plus 250 basis points
for the period July 1, 1994 through September 30, 1994, unless the extended
D.I.P. financing is not repaid by such date. Under the terms of the amended
D.I.P. financing, the Company is required to notify the lenders if the
unrestricted cash balance of the Company exceeds $175 million. Subsequent to
June 30, 1994, the Company notified the D.I.P. lenders that the Company's
unrestricted cash exceeded $175 million. The amended D.I.P. financing contains a
minimum unencumbered cash balance requirement of $74 million and certain other
covenants with which the Company was in compliance at June 30, 1994.
4. COMMON STOCK
In May 1994, the Company entered into a settlement agreement with the
Patrician Corporation for its preferred dividend claim and issued 336,277 shares
of common stock. In return, Patrician agreed not to bring litigation seeking to
compel the issuance of such shares, or, in the alternative, to either rescind
its prior
F-14
<PAGE> 86
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
conversion of the Series B preferred stock into common stock, or assert a claim
for such dividends senior to Common equity.
5. EMPLOYEE STOCK PURCHASE PLANS
Under the Plan of Reorganization, the remaining obligations of
approximately $17.6 million under notes issued in connection with the Employee
Stock Purchase Plan will be forgiven on the Effective Date in return for the
cancellation of the shares held as security for such obligations. Such notes
will be abandoned by the Company as provided for in the Bankruptcy Code.
As of June 30, 1994, 7,486,427 shares of common stock had been sold under
the plans. No shares were sold during the second quarter of 1994. At June 30,
1994, the unamortized deferred compensation and outstanding receivable balance
relating to such plans amounted to $875,000 and $17,603,000, respectively.
6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes during the six months ended June
30, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest (net of amounts capitalized)............................ $20,615 $22,356
Income taxes..................................................... $ 1,207 $ 55
</TABLE>
In addition, during the six months ended June 30, 1994 and 1993, the
Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Equipment acquired through capital leases........................ $ 138 $ 43
Conversion of long-term debt to common stock..................... $ -- $ 1,918
Accrued interest reclassified to long-term debt.................. $ 4,268 $ 9
Notes payable issued to seller................................... $ -- $ 574
</TABLE>
7. INCOME TAX
For the six months ended June 30, 1994, the Company recorded income tax
expense as follows based upon its estimate of its annual effective rate:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------
1994 1993
------ ----
(IN THOUSANDS)
<S> <C> <C>
Current taxes
Federal........................................................... $1,163 $215
State............................................................. 308 38
------ ----
$1,471 $253
====== ====
Deferred taxes...................................................... $ -- $ --
====== ====
</TABLE>
For the quarter and six months ended June 30, 1994, income tax expense is
solely attributable to income from continuing operations. The difference in
income taxes at the federal statutory rate ("expected taxes") to those reflected
in the financial statements (the "effective rate") primarily results from the
benefit of net operating loss carryforwards resulting in an effective tax rate
of 4 percent.
F-15
<PAGE> 87
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1994, to the best of the Company's knowledge, it has not
undergone a statutory "ownership change" (as defined in Section 382 of the
Internal Revenue Code) that would result in any material limitation of the
Company's ability to use its net operating loss and business tax credit
carryforwards in future tax years. Should an "ownership change" occur prior to
the Effective Date of a plan of reorganization, the Company's ability to utilize
said carryforwards would be significantly restricted. Further, the net operating
loss and business tax credit carryforwards may be limited as a result of the
Company's reorganization under the United States Bankruptcy Code.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Since
there was no cumulative effect of this change in accounting method, prior year
financial statements have not been restated.
8. COMMITMENTS AND CONTINGENCIES
(a) Leases
During 1991, the Company restructured its lease commitment for Airbus A320
aircraft with the lessors. As a result of the restructuring, the Company's
obligation to lease ten A320 aircraft was canceled and the basic rental rate for
twelve aircraft was revised to provide for the repayment to the lessor over the
then remaining lease term of certain advanced credits received by the Company
which relate to the ten canceled aircraft.
In the third quarter of 1991, the Company requested a deferral of rent and
other periodic payments from its aircraft providers. The deferral was requested
in an effort to conserve cash and improve the Company's liquidity position. As a
condition of securing the $78 million D.I.P. financing, the Company was required
to obtain from most aircraft providers rent, principal and interest payment
deferrals in excess of $100 million covering the six-month period of June
through November 1991. These deferrals will generally be repaid with interest at
10.5 percent over the remaining term of the lease or secured borrowing with
repayment commencing generally in December 1991. At June 30, 1994 and December
31, 1993, the remaining unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable.............................................. $ 5,744 $ 5,744
Other liabilities............................................. 20,071 22,912
Long-term debt................................................ 17,547 18,671
-------- ------------
$ 43,362 $ 47,327
======= ==========
</TABLE>
In the third quarter of 1992, the Company requested an additional deferral
of rent and other periodic payments from its aircraft providers. The deferral
was requested to assure sufficient liquidity to sustain operations while
additional debtor-in-possession financing was obtained. The 1992 deferrals are
generally scheduled to be repaid either without interest during the first
quarter of 1993 or with interest over a period of seven years. At June 30, 1994
and December 31, 1993, the remaining unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable.............................................. $ 1,823 $ 1,823
Other liabilities............................................. 6,922 8,513
Long-term debt................................................ 20,064 21,539
-------- ------------
$ 28,809 $ 31,875
======= ==========
</TABLE>
F-16
<PAGE> 88
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1994, the Company had 66 aircraft under operating leases
with remaining terms ranging from one year to 25 years. The Company has options
to purchase most of the aircraft at fair market value at the end of the lease
term. Certain of the agreements require security deposits and maintenance
reserve payments. The Company also leases certain terminal space, ground
facilities and computer and other equipment under noncancelable operating
leases.
Future minimum rental payments for years ending December 31 under
noncancelable operating leases with initial terms of more that one years are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1994........................................... $ 194,379
1995........................................... 186,978
1996........................................... 184,152
1997........................................... 171,357
1998........................................... 160,759
Thereafter..................................... 1,333,187
--------------
$2,230,812
===========
</TABLE>
Rent expense (excluding landing fees) was approximately $118.3 million and
$126.1 million for the six months ended June 30, 1994 and 1993, respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $8.1 million and bank letters of credit of $17.7 million. The letters
of credit are collateralized by $17.6 million in restricted cash.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used to
fund the acquisition of leasehold improvements at the airport which have been
leased by the Company. Under the operating lease agreements, which commenced in
1990, the Company is required to make rental payments sufficient to pay
principal and interest when due on the bonds. The Company ceased rental payments
in June 1991. The principal amount of such bonds outstanding at December 31,
1992 and 1991 was $40.7 million. In October 1993, the Company and the bondholder
agreed to reduce the outstanding balance of the bonds to $22.5 million and
adjust the related operating lease payments sufficient to pay principal and
interest on the reduced amount effective upon the confirmation of a plan of
reorganization. The remaining principal balance of $18.2 million will be
accorded the same treatment under the plan of reorganization as a pre-petition
unsecured claim. The Company also agreed to make adequate protection payments in
the amount of $150,000 per month from August 1993 to plan confirmation.
(c) Aircraft Acquisitions
At June 30, 1994, the Company had on order a total of 49 aircraft of the
types the Company currently operates, of which 29 are firm orders and 20 are
option orders. The table below details such deliveries.
<TABLE>
<CAPTION>
FIRM ORDERS
-------------------------------------------------------- OPTION
1994 1995 1996 1997 THEREAFTER TOTAL ORDERS TOTAL
---- ---- ---- ---- ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing: 737-300 -- -- 2 2 -- 4 10 14
757-200 -- -- 1 -- -- 1 10 11
Airbus: A320-200 -- -- -- -- 24 24 -- 24
-- --
---- ---- ---- ---- ----- -----
Total -- -- 3 2 24 29 20 49
==== ==== ==== ==== ========= ===== ====== =====
</TABLE>
F-17
<PAGE> 89
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1994, the estimated aggregate cost for delivery positions under
existing contracts for the acquisition of B737's, B757's and A320 aircraft from
manufacturers listed in the above table is approximately $2.7 billion. The table
does not include any deliveries under put arrangements more fully discussed
below nor does it include orders for B747-400 aircraft.
With respect to various contracts with Boeing, a purchase agreement to
acquire B737-300 aircraft has been affirmed in the Company's bankruptcy
proceedings. With timely notice to the manufacturer, all or some of these
deliveries may be converted to B737-400 aircraft. Existing purchase agreements
for B757-200 and B747-400 aircraft have not been affirmed nor rejected. All
Boeing purchase agreements require a 24-month reconfirmation notice for the
delivery of each aircraft. As of June 30, 1994, ten B737-300 and nine B757-200
delivery positions have expired due to the lack of reconfirmation by the
Company, leaving 14 and 11 delivery positions, respectively, as reflected above.
The failure to reconfirm such delivery positions exposes the Company to loss of
pre-delivery deposits and other claims which may be asserted in the bankruptcy
proceeding. The Company also has a pre-petition executory contract under which
the Company holds delivery positions for four B747-400 aircraft under firm order
and four B747-400 aircraft under option order. This executory contract allows
the Company, with the giving of adequate notice, to substitute B737-400 aircraft
for those delivery positions. The Company is currently renegotiating all of its
aircraft purchase agreements with Boeing.
With respect to the purchase of aircraft from AVSA presented in the table
above, a single executory contract for the purchase of 24 A320 aircraft has not
been affirmed nor rejected by the Company. As part of the investment by AmWest,
the A320 purchase agreement was amended to provide the Company with greater
flexibility and reduced pricing. Under the modified terms, delivery dates of the
aircraft will fall in the years 1998 through 2000 with an option to further
defer deliveries. In addition, if new A320 aircraft are delivered as a result of
the renegotiated put agreement (see below), the Company will have the right to
cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft
deliveries hereunder, subject to certain conditions. Negotiations are currently
continuing between AVSA and the Company to finalize the details of this
amendment.
In June 1994, the Company renegotiated a put agreement for ten A320
aircraft. The new agreement reduced the number of put aircraft from ten to eight
and rescheduled the deliveries to start not earlier than June 30, 1995 and end
on June 30, 1999. Under the new agreement, new or used A320-200 aircraft,
B737-300 or B757-200 aircraft may be put to the Company but at a rate of no more
than two in 1995, and with respect to each ensuing year during the put period,
of no more than three. In addition, no more than five used aircraft may be put
to the Company and for every new A320 aircraft put to the Company, the Company
has the right to reduce the AVSA A320 purchase contract on a one-for-one basis.
During each January of the put period, the Company will negotiate the type and
delivery dates of the put aircraft for that year. The puts will require 150-day
notice and will be leased at fair market rates for terms ranging from three to
eighteen years, depending on the type and condition of the aircraft. As part of
the renegotiated agreement, certain cash payments and securities will be issued
to the put holder pursuant to the Plan of Reorganization (see Note 1).
In connection with the $78 Million D.I.P. Facility, in December 1991, the
Company terminated its agreement with a D.I.P. lender to lease 24 aircraft and
replaced it with a put agreement to lease up to ten of the aircraft. In
September 1992, the put agreement was amended and the number of put aircraft was
reduced from ten to four with aircraft scheduled for delivery in 1994. In June
1994, the Company reached a settlement for the cancellation of the right to put
four aircraft to the Company for $4.5 million of which $2.5 million was paid in
June 1994 and $2.0 million will be paid on the Effective Date of the Plan of
Reorganization.
(d) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. At June 30, 1994, approximately 82 percent of the Company's
receivables related to tickets sold to individual passengers
F-18
<PAGE> 90
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
through the use of major credit cards or to tickets sold by other airlines and
used by passengers on America West. These receivables are short-term, generally
being settled shortly after sale or in the month following usage. Bad debt
losses, which have been minimal in the past, have been considered in
establishing allowances for doubtful accounts.
F-19
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Airlines, Inc., D.I.P.:
We have audited the accompanying balance sheets of America West Airlines, Inc.,
D.I.P. (the "Company") as of December 31, 1993 and 1992, and the related
statements of operations, cash flows and stockholders' equity (deficiency) for
each of the years in the three-year period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurances about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America West Airlines, Inc.,
D.I.P. as of December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, on June 27, 1991 the Company filed a voluntary petition
seeking to reorganize under Chapter 11 of the federal bankruptcy laws. This
event and circumstances relating to this event, including the Company's
significant losses, accumulated deficit and highly leveraged capital structure,
raise substantial doubt about its ability to continue as a going concern.
Although the Company is currently operating as debtor-in-possession under the
jurisdiction of the Bankruptcy Court, the continuation of the business as a
going concern is contingent upon, among other things, the ability to (1) file a
Plan of Reorganization which will gain approval of the creditors and
stockholders and confirmation by the Bankruptcy Court, (2) maintain compliance
with all debt covenants under the debtor-in-possession financing agreements, (3)
achieve satisfactory levels of future operating results and cash flows and (4)
obtain additional debt and equity. Also, as discussed in note 1 to the financial
statements, as part of the Company's bankruptcy proceeding there is uncertainty
as to the amount of claims that will be allowed and as to a number of disputed
claims which are materially in excess of amounts reflected in the accompanying
financial statements. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
KPMG PEAT MARWICK
Phoenix, Arizona
March 18, 1994
F-20
<PAGE> 92
AMERICA WEST AIRLINES, INC., D.I.P.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 4)................................ $ 99,631 $ 74,383
Accounts receivable, less allowance for doubtful accounts of
$3,030,000 in 1993 and $2,542,000 in 1992 (note 11)............ 65,744 64,817
Expendable spare parts and supplies, less allowance for
obsolescence of $7,231,000 in 1993 and $6,921,000 in 1992...... 28,111 34,431
Prepaid expenses.................................................. 34,939 37,807
---------- ----------
Total current assets...................................... 228,425 211,438
---------- ----------
Property and equipment (notes 2, 4, 11 and 12):
Flight equipment.................................................. 872,104 841,239
Other property and equipment...................................... 180,607 189,755
---------- ----------
1,052,711 1,030,994
Less accumulated depreciation and amortization................. 385,776 328,870
---------- ----------
666,935 702,124
Equipment purchase deposits....................................... 51,836 52,431
---------- ----------
718,771 754,555
---------- ----------
Restricted cash (note 11)........................................... 46,296 40,612
Other assets (note 12).............................................. 23,251 29,836
---------- ----------
$1,016,743 $1,036,441
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 93
AMERICA WEST AIRLINES, INC., D.I.P.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
1993 1992
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 4).................... $ 125,271 $ 156,656
Accounts payable (note 11)....................................... 62,957 90,629
Air traffic liability............................................ 118,479 107,496
Accrued compensation and vacation benefits....................... 11,704 13,004
Accrued interest................................................. 8,295 15,647
Accrued taxes.................................................... 14,114 15,765
Other accrued liabilities........................................ 11,980 13,808
---------- ------------
Total current liabilities................................ 352,800 413,005
---------- ------------
Estimated liabilities subject to Chapter 11 proceedings (notes 2
and 4)........................................................... 381,114 348,322
Long-term debt, less current maturities (notes 4 and 11)........... 396,350 411,989
Manufacturers' and deferred credits (note 11)...................... 73,592 84,694
Other liabilities (note 11)........................................ 67,149 73,044
Commitments, contingencies and subsequent events (notes 1, 2, 4, 6,
7, 9, 11 and 12)
Stockholders' deficiency (notes 1, 4, 6, 7, 8, 9 and 12):
Preferred stock, $.25 par value. Authorized 50,000,000 shares:
Series B 10.5% convertible preferred stock, issued and
outstanding 291,149 shares in 1992; $5.41 per share
cumulative dividend (liquidation preference $15,000,000)..... -- 73
Series C 9.75% convertible preferred stock, issued and
outstanding 73,099 shares; $1.33 per share cumulative
dividend (liquidation preference $1,000,000)................. 18 18
Common stock, $.25 par value. Authorized 90,000,000 shares;
issued and outstanding 25,291,102 shares in 1993 and
23,967,663 shares in 1992..................................... 6,323 5,992
Additional paid-in capital....................................... 197,010 195,407
Accumulated deficit.............................................. (438,626) (475,791)
----------- ------------
(235,275) (274,301)
Less deferred compensation and notes receivable -- employee stock
purchase plans (note 6)....................................... 18,987 20,312
----------- ------------
Total stockholders' deficiency........................... (254,262) (294,613)
----------- ------------
$ 1,016,743 $1,036,441
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 94
AMERICA WEST AIRLINES, INC., D.I.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenues:
Passenger............................................ $1,246,564 $1,214,816 $1,332,191
Cargo................................................ 40,161 42,077 43,651
Other................................................ 38,639 37,247 38,083
---------- ---------- ----------
Total operating revenues..................... 1,325,364 1,294,140 1,413,925
---------- ---------- ----------
Operating expenses:
Salaries and related costs........................... 305,429 324,255 383,833
Rentals and landing fees............................. 274,708 338,391 349,563
Aircraft fuel........................................ 166,313 186,042 223,347
Agency commissions................................... 106,368 106,661 128,134
Aircraft maintenance materials and repairs........... 31,000 38,366 41,649
Depreciation and amortization........................ 81,894 86,981 97,803
Restructuring charges (note 13)...................... -- 31,316 --
Other................................................ 238,598 256,940 294,253
---------- ---------- ----------
Total operating expenses..................... 1,204,310 1,368,952 1,518,582
---------- ---------- ----------
Operating income (loss)...................... 121,054 (74,812) (104,657)
---------- ---------- ----------
Nonoperating income (expense):
Interest income...................................... 728 1,418 5,724
Interest expense (contractual interest of $72,961,
$73,931 and $79,271 for 1993, 1992 and 1991,
respectively) (note 4)............................ (54,192) (55,826) (61,912)
Loss on disposition of property and equipment........ (4,562) (1,283) (1,600)
Reorganization expense, net (note 2)................. (25,015) (16,216) (58,440)
Other, net (notes 4 and 11).......................... (89) 14,958 (1,131)
---------- ---------- ----------
Total nonoperating expense, net.............. (83,130) (56,949) (117,359)
---------- ---------- ----------
Income (loss) before income taxes............ 37,924 (131,761) (222,016)
---------- ---------- ----------
Income taxes (note 5).................................. 759 -- --
---------- ---------- ----------
Net income (loss)...................................... $ 37,165 $ (131,761) $ (222,016)
========= ========= =========
Earnings (loss) per share:
Primary.............................................. $ 1.50 $ (5.58) $ (10.39)
========= ========= =========
Fully diluted........................................ $ 1.04 $ (5.58) $ (10.39)
========= ========= =========
Shares used for computation:
Primary.............................................. 27,525 23,914 21,534
========= ========= =========
Fully diluted........................................ 41,509 23,914 21,534
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 95
AMERICA WEST AIRLINES, INC., D.I.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................... $ 37,165 $(131,761) $(222,016)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization............................................ 81,894 86,981 97,803
Amortization of manufacturers' and deferred credits...................... (5,186) (5,869) (9,851)
Loss on disposition of property and equipment............................ 4,562 1,283 1,600
Restructuring charges.................................................... -- 31,316 --
Reorganization items..................................................... 18,167 3,188 44,273
Other.................................................................... (554) 866 9,242
Changes in operating assets and liabilities:
Decrease in short-term investments....................................... -- -- 19,705
Decrease (increase) in accounts receivable, net.......................... (927) 19,418 (13,945)
Decrease (increase) in spare parts and supplies, net..................... 6,320 (2,384) (3,227)
Decrease in prepaid expenses............................................. 2,627 812 3,208
Increase in other assets and restricted cash............................. (5,295) (1,141) (21,053)
Increase (decrease) in accounts payable.................................. 9,014 (8,473) 65,083
Increase (decrease) in air traffic liability............................. 8,749 30,723 (41,256)
Decrease in accrued compensation and vacation benefits................... (1,300) (1,491) (909)
Increase in accrued interest............................................. 10,368 25,640 23,676
Increase (decrease) in accrued taxes..................................... (1,764) 2,968 (2,945)
Increase in other accrued liabilities.................................... 644 18,204 4,594
Increase (decrease) in other liabilities................................. (11,126) 6,465 65,945
-------- --------- ---------
Net cash provided by operating activities........................... 153,358 76,745 19,927
Cash flows from investing activities:
Purchases of property and equipment........................................ (54,324) (69,208) (96,803)
Decrease (increase) in equipment purchase deposits......................... -- 14,425 (7,294)
Proceeds from disposition of property...................................... 3,715 383 275
Proceeds from manufacturers' credits....................................... -- -- 5,100
-------- --------- ---------
Net cash used in investing activities............................... (50,609) (54,400) (98,722)
Cash flows from financing activities:
Proceeds from issuance of D.I.P. financing................................. -- 53,000 78,000
Proceeds from issuance of debt............................................. -- 22,804 --
Repayment of debt.......................................................... (77,501) (75,871) (44,939)
Proceeds from issuance of common stock..................................... -- -- 7,265
Preferred dividends paid................................................... -- -- (423)
-------- --------- ---------
Net cash provided by (used in) financing activities................. (77,501) (67) 39,903
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents................ 25,248 22,278 (38,892)
-------- --------- ---------
Cash and cash equivalents at beginning of year............................... 74,383 52,105 90,997
-------- --------- ---------
Cash and cash equivalents at end of year..................................... $ 99,631 $ 74,383 $ 52,105
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 96
AMERICA WEST AIRLINES, INC., D.I.P.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES RECEIVABLE
AND DEFERRED
CONVERTIBLE ADDITIONAL COMPENSATION
PREFERRED COMMON PAID-IN ACCUMULATED EMPLOYEE STOCK
STOCK STOCK CAPITAL DEFICIT PURCHASE PLANS TOTAL
----------- ------ ---------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991............... $91 $4,832 $156,573 $(118,669) $(21,686) $ 21,141
Issuance of 253,422 shares of common
stock sold at:
$5.50 per share, net of expenses....... -- 63 1,331 -- -- 1,394
Issuance of 2,755,938 shares of common
stock pursuant to convertible
subordinated debentures................ -- 689 28,084 -- -- 28,773
Issuance of 10,841 shares of common stock
pursuant to exercise of stock options
and warrants........................... -- 3 38 -- -- 41
Repurchase of 1,356 shares of common
stock pursuant to employee restricted
stock plan............................. -- -- (8) -- -- (8)
Repurchase of 3,659 shares of common
stock pursuant to employee stock
purchase plan.......................... -- (1 ) (23) -- -- (24)
Employee restricted stock deferred
compensation........................... -- -- (1) -- 214 213
Employee stock purchase plan:
Issuance of 1,271,765 shares of common
stock at:
$.94-$7.50 per share................. -- 318 4,601 -- (889) 4,030
Deferred compensation.................. -- -- 1,230 -- 389 1,619
Preferred stock dividends
Series B: $5.41 per share.............. -- -- -- (1,575) -- (1,575)
Series C: $1.33 per share.............. -- -- -- (98) -- (98)
Net loss................................. -- -- -- (222,016) -- (222,016)
--- ------ ---------- ----------- -------- ---------
Balance at December 31, 1991............. 91 5,904 191,825 (342,358) (21,972) (166,510)
--- ------ ---------- ----------- -------- ---------
Issuance of 346,661 shares of common
stock pursuant to convertible
subordinated debentures................ -- 86 3,599 -- -- 3,685
Employee restricted stock deferred
compensation........................... -- -- -- -- 101 101
Employee stock purchase plan:
Issuance of 7,305 shares of common
stock at:
$.19-$2.63 per share................. -- 2 (13) -- 81 70
Deferred compensation.................. -- -- (4) -- 1,478 1,474
Preferred stock dividends
Series B: $5.41 per share............ -- -- -- (1,575) -- (1,575)
Series C: $1.33 per share............ -- -- -- (97) -- (97)
Net loss................................. -- -- -- (131,761) -- (131,761)
--- ------ ---------- ----------- -------- ---------
Balance at December 31, 1992............. 91 5,992 195,407 (475,791) (20,312) (294,613)
--- ------ ---------- ----------- -------- ---------
Issuance of 170,173 shares of common
stock pursuant to convertible
subordinated debentures................ -- 43 1,896 -- -- 1,939
Issuance of 1,164,596 shares of common
stock pursuant to convertible preferred
stock.................................. (73) 291 (218) -- -- --
Employee restricted stock deferred
compensation........................... -- -- -- -- 21 21
Employee stock purchase plan:
Cancellation of 11,330 shares of common
stock at:
$.22-$1.59 per share................. -- (3 ) (38) -- 49 8
Deferred compensation.................. -- -- (37) -- 1,255 1,218
Net income............................... -- -- -- 37,165 -- 37,165
--- ------ ---------- ----------- -------- ---------
Balance at December 31, 1993............. $18 $6,323 $197,010 $(438,626) $(18,987) $(254,262)
=========== ======== ========== ============ ================ =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 97
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(1) REORGANIZATION UNDER CHAPTER 11, LIQUIDITY, FINANCIAL CONDITION AND
SUBSEQUENT EVENTS
On June 27, 1991, America West Airlines, Inc., D.I.P. (the "Company" or
"America West") filed a voluntary petition in the United States Bankruptcy Court
for the District of Arizona (the "Bankruptcy Court") to reorganize under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The Company is
currently operating as a debtor-in-possession ("D.I.P.") under the supervision
of the Bankruptcy Court. As a debtor-in-possession, the Company is authorized to
operate its business but may not engage in transactions outside its ordinary
course of business without the approval of the Bankruptcy Court.
Subject to certain exceptions under the Bankruptcy Code, the Company's
filing for reorganization automatically enjoined the continuation of any
judicial or administrative proceedings against the Company. Any creditor actions
to obtain possession of property from the Company or to create, perfect or
enforce any lien against the property of the Company are also enjoined. As a
result, the creditors of the Company are precluded from collecting pre-petition
debts without the approval of the Bankruptcy Court.
The Company had the exclusive right for 120 days after the Chapter 11
filing on June 27, 1991 to file a plan of reorganization and 60 additional days
to obtain necessary acceptances of such plan. Such periods may be extended at
the discretion of the Bankruptcy Court, but only on a showing of good cause, and
extensions have been obtained such that the Company has until June 10, 1994 to
file its plan of reorganization with the Court or obtain an additional
extension. Subject to certain exceptions set forth in the Bankruptcy Code,
acceptance of a plan of reorganization requires approval of the Bankruptcy Court
and the affirmative vote (i.e. 50% of the number and 66 2/3% of the dollar
amount) of each class of creditors and equity holders whose claims are impaired
by the plan.
Certain pre-petition liabilities have been paid after obtaining the
approval of the Bankruptcy Court, including certain wages and benefits of
employees, insurance costs, obligations to foreign vendors and governmental
agencies, travel agent commissions and ticket refunds. The Company has also been
allowed to honor all tickets sold prior to the date it filed for reorganization.
In addition, the Company is authorized to pay pre-petition liabilities to
essential suppliers of fuel, food and beverages and to other vendors providing
critical goods and services. Subsequent to filing and with the approval of the
Bankruptcy Court, the Company assumed certain executory contracts of essential
suppliers.
Parties to executory contracts may, under certain circumstances, file
motions with the Bankruptcy Court to require the Company to assume or reject
such contracts. Unless otherwise agreed, the assumption of a contract will
require the Company to cure all prior defaults under the related contract,
including all pre-petition liabilities unless terms can be negotiated. Unless
otherwise agreed, the rejection of a contract is deemed to constitute a breach
of the agreement as of the moment immediately preceding Chapter 11 filing,
giving the other party to the contract a right to assert a general unsecured
claim for damages arising out of the breach.
February 28, 1992 was set as the last date for the filing of proof of
claims under the Bankruptcy Code and the Company's creditors have submitted
claims for liabilities not paid and for damages incurred. There may be
differences between the amounts at which any such liabilities are recorded in
the financial statements and the amount claimed by the Company's creditors.
Significant litigation may be required to resolve any such disputes.
The Company has incurred and will continue to incur significant costs
associated with the reorganization. The amount of these costs, which are being
expensed as incurred, is expected to significantly affect results of operations.
As a result of its filing protection under Chapter 11 of the Bankruptcy
Code, the Company is in default of substantially all of its debt agreements. All
outstanding pre-petition unsecured debt of the Company has been
F-26
<PAGE> 98
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
presented in these financial statements within the caption Estimated Liabilities
Subject to Chapter 11 Proceedings.
Additional liabilities subject to the proceedings may arise in the future
as a result of the rejection of executory contracts, including leases, and from
the determination by the Bankruptcy Court (or agreement by parties in interest)
of allowed claims for contingencies and other disputed amounts. Conversely, the
assumption of executory contracts and unexpired leases may convert liabilities
shown as subject to Chapter 11 proceedings to post-petition liabilities.
Substantially all of the aircraft, engines and spare parts in the Company's
fleet are subject to lease or secured financing agreements that entitle the
Company's aircraft lessors and secured creditors to rights under Section 1110 of
the Bankruptcy Code. Pursuant to Section 1110, the Company had 60 days from the
date of its Chapter 11 filing, or until August 26, 1991, to bring its
obligations to these aircraft lessors and secured creditors current and/or reach
other mutually satisfactory negotiated arrangements. In September 1991, as a
condition to the borrowings under the initial $55 million D.I.P. facility, the
Company arranged for rent, principal and interest payment deferrals from a
majority of its aircraft providers as a condition to the assumption of the
related lease or secured borrowing by the Company. As a result of these
arrangements, the Company was able to assume the executory contracts associated
with 83 aircraft in its fleet without having to bring its obligations to these
aircraft providers current. In addition, as part of the initial D.I.P. facility,
the Company assumed and brought current lease agreements for 16 Airbus A320
aircraft, three CFM engines, a Boeing 757-200 and a Boeing 737-300. Twenty-two
aircraft were deemed surplus to the Company's needs and the associated executory
contracts were rejected. Included in 1991 reorganization costs is $35.2 million
in write-offs of leasehold improvements, security deposits, accrued maintenance,
accrued rents and other costs to return the aircraft which were subject to the
rejected aircraft agreements. In certain cases, final agreements were reached
with such aircraft providers and no further claims by such providers will be
pursued as a result of the rejections. In other instances, the aircraft
providers have filed claims in the normal course of the bankruptcy and as of
December 31, 1993 significant claims for rejected aircraft have not yet been
settled.
Due to the uncertain nature of many of the potential claims, the Company is
unable to project the magnitude of such claims with any degree of certainty.
However, the claims (pre-petition claims and administrative claims) that have
been filed against the Company are in excess of $2 billion. Such aggregate
amount includes claims of all character, including, but not limited to,
unsecured claims, secured claims, claims that have been scheduled but not filed,
duplicative claims, tax claims, claims for leases that were assumed, and claims
which the Company believes to be without merit; however, claims filed for which
an amount was not stated, are not reflected in such amount. The Company is
unable to estimate the potential amount of such unstated claims; however, the
amount of such claims could be material.
The Company is in the process of reviewing the general unsecured claims
asserted against the Company. In many instances, such review process will
include the commencement of Bankruptcy Court proceedings in order to determine
the amount at which such claims should be allowed. The Company has accrued its
estimate of claims that will be allowed or the minimum amount at which it
believes the asserted general unsecured claims will be allowed if there is no
better estimate within the range of possible outcomes. However, the ultimate
amount of allowed claims will be different and such differences could be
material. The Company is unable to estimate the amount of such differences with
any reasonable degree of certainty at this time.
The Bankruptcy Code requires that all administrative claims be paid on the
effective date of a plan of reorganization unless the respective claimants
agreed to different treatment. Consequently, depending on the ultimate amount of
administrative claims allowed by the Bankruptcy Court, the Company may be unable
to obtain confirmation of a plan of reorganization. The Company is actively
negotiating with claimants to achieve mutually acceptable dispositions of these
claims. Since the commencement of the bankruptcy proceeding, claims alleging
administrative expense priority totaling more than $153 million have been filed
and an additional claim of $14 million has been alleged. As of February 28,
1994, $115 million of the filed claims have
F-27
<PAGE> 99
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been allowed and settled for $50.2 million in the aggregate. The Company is
currently negotiating the resolution of the remaining $38 million filed
administrative expense claim (which relates to a rejected lease of a Boeing
737-300 aircraft) and the alleged $14 million administrative claim (which
relates to a rejected lease of a Boeing 757-200 aircraft). Claims have been or
may be asserted against the Company for alleged administrative rent and/or
breach of return conditions (i.e. maintenance standards), guarantees and tax
indemnity agreements related to aircraft or engines abandoned or rejected during
the bankruptcy proceedings. Additional claims may be asserted against the
Company and allowed by the Bankruptcy Court. The amount of such unidentified
administrative claims may be material.
Plan of Reorganization
Under the Bankruptcy Code, the Company's pre-petition liabilities are
subject to settlement under a plan of reorganization. Pursuant to an extension
granted by the Bankruptcy Court on February 2, 1994, the Company has the
partially exclusive right, until June 10, 1994 (unless extended by the
Bankruptcy Court), to file a plan of reorganization. Each of the official
committees has also been approved to submit a plan of reorganization. The
exclusivity period may be extended by the Bankruptcy Court upon a showing of
cause after notice has been given and a hearing has been held, although no
assurance can be given that any additional extensions will be granted if
requested by the Company. The Company has agreed not to seek additional
extensions of the exclusivity period without the advance consent of the
Creditors' Committee and the Equity Committee.
On December 8, 1993 and February 16, 1994, the Bankruptcy Court entered
certain orders which provided for a procedure pursuant to which interested
parties could submit proposals to participate in a plan of reorganization for
America West. The Bankruptcy Court also set February 24, 1994 as the date for
America West to select a "Lead Plan Proposal" from the proposals submitted.
On February 24, 1994, America West selected as its Lead Plan Proposal an
investment proposal submitted by AmWest Partners, L.P., a limited partnership
("AmWest"), which includes Air Partners II, L.P., Continental Airlines, Inc.,
Mesa Airlines, Inc. and Fidelity Management Trust Company. On March 11, 1994,
the Company and AmWest entered into a revised investment agreement which
substantially incorporates the terms of the AmWest investment proposal (the
"Investment Agreement"). The Investment Agreement provides that AmWest will
purchase from America West equity securities representing a 37.5% ownership
interest in the Company for $120 million and $100 million in new senior
unsecured debt securities. The Investment Agreement also provides that, in
addition to the 37.5% ownership interest in the Company, AmWest would also
obtain 72.9% of the total voting interest in America West after the Company is
reorganized. The terms of the Investment Agreement will be incorporated into a
plan of reorganization to be filed with the Bankruptcy Court; however,
modifications to the Investment Agreement may occur prior to the submission of a
plan of reorganization and such modifications may be material. There can be no
assurance that a plan of reorganization based upon the Investment Agreement will
be accepted by the parties entitled to vote thereon or confirmed by the
Bankruptcy Court.
In addition to the interest in the reorganized America West that would be
acquired by AmWest pursuant to the Investment Agreement, the Investment
Agreement also provides for the following:
1. The D.I.P. financing would be repaid in full with cash on the date a
plan of reorganization is confirmed ("Reorganization Date").
2. On the Reorganization Date, unsecured creditors would receive 45% of the
new common equity in the reorganized Company, with the potential to receive up
to 55% of such equity if within one year after the Reorganization Date, the
value of the securities distributed to them has not provided them with a full
recovery under the Bankruptcy Code. In addition, unsecured creditors would have
the right to elect to receive cash at
F-28
<PAGE> 100
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$8.889 per share up to an aggregate maximum amount of $100 million, through a
repurchase by AmWest of a portion of the shares to be issued to unsecured
creditors under a plan of reorganization.
3. Holders of equity interests would have the right to receive up to 10% of
the new common equity of the Company, depending on certain conditions
principally involving a determination as to whether the unsecured creditors had
received a full recovery on account of their claims. In addition, holders of
equity interests would have the right to purchase up to $15 million of the new
common equity in the Company for $8.296 per share from AmWest, and would also
receive warrants entitling them to purchase, together with AmWest, up to 5% of
the reorganized Company's common stock, at a price to be set so that the
warrants would have value only after the unsecured creditors would have received
full recovery on their claims.
4. In exchange for certain concessions principally arising from
cancellation of the right of Guinness Peat Aviation ("GPA") affiliates to put to
America West 10 Airbus A320 aircraft at fixed rates, GPA, or certain affiliates
thereof, would receive (i) 7.5% of the new common equity in the reorganized
Company, (ii) warrants to purchase up to 2.5% of the reorganized Company's
common stock on the same terms as the AmWest warrants, (iii) $3 million in new
senior unsecured debt securities, and (iv) the right to require the Company to
lease up to eight aircraft of types operated by the Company from GPA prior to
June 30, 1999 on terms which the Company believes to be more favorable than
those currently applicable to the put aircraft. See note 11 for an additional
discussion of the put rights.
5. Continental Airlines, Inc., Mesa Airlines, Inc. and America West would
enter into certain alliance agreements which would include code-sharing,
schedule coordination and certain other relationships and agreements. A
condition to proceeding with a plan of reorganization based upon the Investment
Agreement would be that these agreements be in form and substance satisfactory
to America West, including the Company's reasonable satisfaction that such
alliance agreements when fully implemented will result in an increase in pre-tax
income of not less than $40 million per year.
6. The expansion of the Company's board of directors to 15 members. Nine
members would be designated by AmWest and other members reasonably acceptable to
AmWest would include four members designated by representatives of the Company,
the Equity Committee and the Creditors' Committee and two members designated by
GPA.
7. The Investment Agreement also provides for many other matters, including
the disposition of the various types of claims asserted against the Company, the
adherence to the Company's aircraft lease agreements, the amendment of the
Company's aircraft purchase agreements and release of the Company's employees
from all currently existing obligations arising under the Company's stock
purchase plan in consideration for the cancellation of the shares of Company
stock securing such obligations.
The Company has also entered into a revised Interim Procedures Agreement
(the "Procedures Agreement") with AmWest. The Procedures Agreement is subject to
the approval of the Bankruptcy Court and sets forth terms and conditions upon
which the Company must operate prior to the effective date of a confirmed plan
of reorganization based upon the terms of the Investment Agreement. The
Procedures Agreement provides for the reimbursement of AmWest's expenses (up to
a maximum of $3.6 million) as well as a termination fee of up to $8 million
under certain conditions. The Procedures Agreement has not yet been approved by
the Bankruptcy Court.
The Company is currently developing with AmWest a plan of reorganization
based upon the foregoing terms. The Equity Committee has agreed to support the
plan. The Creditors' Committee has indicated that it does not support the
current terms of the Investment Agreement. Another group interested in
developing a plan of reorganization with the Company has proposed to invest $155
million in equity securities and $65 million in new senior unsecured debt
securities. The proponent of this proposal would receive a 33.5% ownership
interest in the reorganized Company, current equity holders would receive a 4%
ownership interest
F-29
<PAGE> 101
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in the reorganized company and the unsecured creditors would receive a 62.5%
ownership interest in the reorganized company.
Any plan of reorganization must be approved by the Bankruptcy Court and by
specified majorities of each class of creditors and equity holders whose claims
are impaired by the plan. Alternatively, absent the requisite approvals, the
Company may seek Bankruptcy Court approval of its reorganization plan under
Section 1129(b) of the Bankruptcy Code, assuming certain tests are met. The
Company cannot predict whether any plan submitted by it will be approved.
The Company is currently unable to predict when it may file a plan of
reorganization based upon the Investment Agreement, but intends to do so as soon
as practicable. Once a plan with a disclosure statement is filed by any party,
the Bankruptcy Court will hold a hearing to determine the adequacy of the
information contained in such disclosure statement. Only upon receiving an order
form the Bankruptcy Court providing that the disclosure statement accompanying
any such plan contains adequate information as required by Section 1125 of the
Bankruptcy Code, may a party solicit acceptances or rejections of any such plan
of reorganization. Following entry of an order approving the disclosure
statement, the plan will be sent to creditors and equity holders for voting
pursuant to both the Bankruptcy Code and orders that will be entered by the
Bankruptcy Court. Following submission of the plan to holders of claims and
equity interest, the Bankruptcy Court will hold a hearing to consider
confirmation of the plan pursuant to Section 1129 of the Bankruptcy Code.
Although the Bankruptcy Code provides for certain minimum time periods for these
events, the Company is unable to reasonably estimate when a plan based on the
Investment Agreement might be submitted for voting and confirmation.
If at any time the Creditors' Committee, the Equity Committee or any
creditor of the Company or equity holder of the Company believes that the
Company is or will not be in a position to sustain operations, such party can
move in the Bankruptcy Court to compel a liquidation of the Company's estate by
conversion to Chapter 7 bankruptcy proceedings or otherwise. In the event that
the Company is forced to sell its assets and liquidate, it is unlikely that
unsecured creditors or equity holders will receive any value for their claims or
interests.
The Company anticipates that the reorganization process will result in the
restructuring, cancellation and/or replacement of the interest of its existing
common and preferred stockholders. Because of the "absolute priority rule" of
Section 1129 of the Bankruptcy Code, which requires that the Company's creditors
be paid in full (or otherwise consent) before equity holders can receive any
value under a plan of reorganization, the Company previously disclosed that it
anticipated that the reorganization process would result in the elimination of
the Company's existing equity interests. Due to recent events, including
sustained improvement in the Company's operating results as well as general
improvement in the condition of the United States' economy and airline industry,
some form of distribution to the equity interests pursuant to Section 1129 may
occur. However, there can be no assurances in this regard.
The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. As a result of
the reorganization proceedings, there are significant uncertainties relating to
the ability of the Company to continue as a going concern. The financial
statements do not include any adjustments that might be necessary as a result of
the outcome of the uncertainties discussed herein including the effects of any
plan of reorganization.
(2) ESTIMATED LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS AND REORGANIZATION
EXPENSE
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the Code are stayed while the
Company continues business operations as debtor-in-possession.
F-30
<PAGE> 102
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
These pre-petition liabilities are expected to be settled as part of the plan of
reorganization and are classified as "Estimated liabilities subject to Chapter
11 proceedings."
Estimated liabilities subject to Chapter 11 proceedings as of December 31,
1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including convertible subordinated debentures
of $138.9 million and $140.8 million at December 31,1993 and
1992, respectively) (note 4)................................. $ 224,642 $ 235,026
Accounts payable and accrued liabilities....................... 113,945 73,488
Accrued interest............................................... 16,808 14,261
Accrued taxes.................................................. 25,719 25,547
--------- ---------
$ 381,114 $ 348,322
======== ========
</TABLE>
The debt balance included above consists of unsecured and secured
obligations and other obligations that have not been affirmed by the Company
through the Bankruptcy Court (note 4).
Reorganization expense is comprised of items of income, expense, gain or
loss that were realized or incurred by the Company as a result of reorganization
under Chapter 11 of the Federal Bankruptcy Code. Such items consisted of the
following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provisions for pre-petition and administrative
claims.............................................. $18,231 $ 1,748 $35,203
Professional fees..................................... 7,227 11,147 8,531
D.I.P. financing issuance costs....................... 1,378 1,760 2,660
Write-off of debt issuance costs...................... -- -- 2,773
Employee termination and furlough costs............... -- 561 1,343
Facility closing costs................................ -- 2,776 6,796
Interest income....................................... (2,635) (2,030) (1,365)
Other................................................. 814 254 2,499
------- ------- -------
$25,015 $16,216 $58,440
======= ======= =======
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Reporting for Bankruptcy Proceedings
On November 19, 1990, the American Institute of Certified Public
Accountants issued Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 provides
guidance for financial reporting by entities that have filed petitions with the
Bankruptcy Court and expect to reorganize under Chapter 11 of the Code.
SOP 90-7 recommends that all such entities report consistently while
reorganizing under Chapter 11, with the objective of reflecting their financial
evolution. To achieve such objectives, their financial statements should
distinguish transactions and events that are directly associated with the
reorganization from those of the operations of the ongoing business as it
evolves.
F-31
<PAGE> 103
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SOP 90-7 became effective for financial statements of enterprises that
filed petitions under the Code after December 31, 1990, although earlier
application was encouraged. The Company has implemented the guidance provided by
SOP 90-7 in the accompanying financial statements.
Pursuant to SOP 90-7, pre-petition liabilities are reported on the basis of
the expected amounts of such allowed claims, as opposed to the amounts for which
those allowed claims may be settled. Under an approved final plan of
reorganization, those claims may be settled at amounts substantially less than
their allowed amounts.
(b) Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less and are carried at cost which
approximates market.
(c) Restricted Cash
Restricted cash includes cash held in Company accounts, but pledged to an
institution which processes credit card sales transactions and cash deposits
securing certain letters of credit.
(d) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at average
cost. Allowances for obsolescence are provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(e) Property and Equipment
Property and equipment is stated at cost or, if acquired under capital
leases, at the lower of the present value of minimum lease payments or fair
market value at the inception of the lease. Interest capitalized on advance
payments for aircraft acquisitions and on expenditures for aircraft improvements
is part of the cost. Property and equipment is depreciated and amortized to
residual values over the estimated useful lives or the lease term using the
straight-line method. The Company discontinued capitalizing interest on June 27,
1991 due to the Chapter 11 filing.
The estimated useful lives for the Company's property and equipment range
from three to twelve years for owned property and equipment and to thirty years
for the reservation and training center and technical support facilities. The
estimated useful lives of the Company's owned aircraft, jet engines, flight
equipment and rotable parts range from eleven to twenty-two years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and included in
depreciation and amortization expense. Additionally, a provision for the
estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
provided.
(f) Revenue Recognition
Passenger revenue is recognized when the transportation is provided. Ticket
sales for transportation which has not yet been provided are reflected in the
financial statements as air traffic liability.
F-32
<PAGE> 104
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Passenger Traffic Commissions and Related Fees
Passenger traffic commissions and related fees are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and related fees not yet recognized are included as a
prepaid expense.
(h) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
As more fully discussed at note 5, adoption of the new standard changes the
Company's method of accounting for income taxes from the deferred approach to an
asset and liability approach.
As with the prior standard, the Company continues to account for its
investment tax credits and general business credits by use of the flow-through
method.
(i) Per Share Data
Primary earnings (loss) per share is based upon the weighted average number
of shares of common stock outstanding and dilutive common stock equivalents
(stock options and warrants). Primary earnings per share reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from the
assumed conversion of common stock equivalents.
Fully diluted earnings per share in 1993 is based on the average number of
shares of common stock and dilutive common stock equivalents outstanding
adjusted for conversion of outstanding convertible preferred stock and
convertible debentures. Fully diluted earnings per share reflects net income
adjusted for interest on borrowings effectively reduced by the proceeds from the
assumed conversion of common stock equivalents.
(j) Frequent Flyer Awards
The Company maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(k) Manufacturers' and Deferred Credits
In connection with the acquisition of certain aircraft and engines, the
Company receives various credits. Such manufacturers' credits are deferred until
the aircraft and engines are delivered, at which time they are either applied as
a reduction of the cost of acquiring owned aircraft and engines, resulting in a
reduction of future depreciation expense, or amortized as a reduction of rent
expense for leased aircraft and engines.
(l) Fair Value of Financial Instruments
The fair value estimates and assumptions used in developing the estimates
of the Company's financial instruments are as follows:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
F-33
<PAGE> 105
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable and Accounts Payable
The carrying amount of accounts receivable and accounts payable
approximates fair value as they are expected to be collected or paid within 90
days of year-end.
Long-term Debt and Estimated Liabilities Subject to Chapter 11 Proceedings
The fair value of long-term debt and estimated liabilities subject to
Chapter 11 proceedings cannot readily be estimated as quoted market prices are
not available. Additionally, future cash flows cannot be estimated as the
repayment of these instruments is subject to disposition within the bankruptcy
proceedings.
(m) Reclassifications
Certain prior year reclassifications have been made to conform to the
current year presentation.
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
D.I.P. financing, secured by substantially all Company
assets(a).................................................. $ 83,577 $ 110,784
Note payable to aircraft provider for advance credits(a)..... 68,356 60,732
Notes payable secured by aircraft(b)......................... 306,837 327,267
Line of credit agreements(c)................................. 18,589 24,979
Note from an aircraft engine provider(d)..................... 7,191 12,392
Notes payable secured by flight simulators(e)................ 20,064 22,804
Notes payable to administrative claimants(f)................. 10,734 --
Other........................................................ 6,273 9,687
--------- ---------
521,621 568,645
Less current maturities............................ (125,271) (156,656)
--------- ---------
$ 396,350 $ 411,989
========= =========
</TABLE>
Long-term debt included in estimated liabilities subject to Chapter 11
proceedings consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
7 3/4% convertible subordinated debentures due 2010(g)........... $ 30,477 $ 30,752
7 1/2% convertible subordinated debentures due 2011(h)........... 31,709 32,069
11 1/2% convertible subordinated debentures due 2009(i).......... 76,722 78,025
Note payable to an aircraft provider for deferred pre-delivery
payments(j).................................................... 21,126 21,126
Line of credit agreement(k)...................................... 9,854 11,000
Industrial development revenue bonds(l).......................... 29,497 29,497
Letter of credit draws secured by rotable parts(m)............... 22,967 23,113
Other............................................................ 2,290 9,444
--------- ---------
$ 224,642 $ 235,026
========= =========
</TABLE>
F-34
<PAGE> 106
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As part of the Chapter 11 reorganization process, the Company is required
to notify all known or potential claimants for the purpose of identifying all
pre-petition claims against the Company. Additional bankruptcy claims and
pre-petition liabilities may arise by termination of various contractual
obligations and as certain contingent and/or potentially disputed bankruptcy
claims are allowed for amounts which may differ from those shown on the balance
sheet.
As discussed in note 1, payment of these liabilities, including maturity of
debt obligations, is stayed while the debtor continues to operate as a
debtor-in-possession. As a result, contractual terms have been suspended with
respect to debt subject to the Chapter 11 proceedings. The following paragraphs
include discussion of the original contractual terms of the long-term debt;
however, the maturity and terms of the long-term debt subsequent to the petition
date may differ as a result of negotiations that take place as part of the plan
of reorganization.
No principal or interest may be paid on pre-petition debt without the
approval of the Bankruptcy Court. The Company has continued to accrue and pay
interest on its long-term debt related to D.I.P. financing, affirmed long-term
debt and secured debt included in estimated liabilities subject to Chapter 11
proceedings only to the extent that, in the Company's opinion, the value of
underlying collateral exceeds the principal amount of the secured claim. The
Company believes it is probable such interest will be an allowed secured claim
as part of the bankruptcy proceeding. Except as otherwise stated above, the
Company ceased accruing interest on pre-petition debt as of June 27, 1991, due
to uncertainties relating to a final plan of reorganization.
(a) In September 1991, the Company completed arrangements for a $55 million
D.I.P. credit facility. The D.I.P. credit facility is secured by a first
priority lien senior to all other liens on substantially all existing assets of
the Company, except that such lien is junior in priority to Permitted First
Liens (as such term is defined in the D.I.P. credit facility documents) with
respect to the property encumbered thereby. In December 1991, the Company
completed arrangements for an additional $23 million of D.I.P. financing under
terms and conditions substantially the same as those associated with the $55
million D.I.P. credit facility. Quarterly interest payments for the D.I.P.
financings commenced in the quarter ending December 31, 1991 at the 90-day
London Interbank Offered Rate (LIBOR) plus 3.5% and quarterly principal
repayments of $3.9 million were to commence in September 1992 with the balance
due in September 1993, or earlier upon confirmation of an approved plan of
reorganization.
In connection with the $23 million of D.I.P. financing, the Company agreed
to convert advanced cash credits for 24 Airbus A320 aircraft previously provided
to the Company into an unsecured priority term loan. At December 31, 1993, the
amount of the term loan was $68.4 million including accrued interest of $21.9
million. Until the Reorganization Date, the term loan will accrue interest at
12% per annum and such interest will be added to the principal balance. On the
Reorganization Date, 85% of the outstanding balance will be converted into an
eight-year term loan which will accrue interest at 2% over 90-day LIBOR and will
be secured by substantially all the assets of the Company if the D.I.P.
financing is fully repaid. Principal payments will be made in equal quarterly
installments, plus interest, commencing after the Reorganization Date. The
Company has the right to prepay the loan if the D.I.P. financing is fully
repaid. The remaining 15% of the term loan will be treated as a general
unsecured claim without priority status under the Company's plan of
reorganization. In the first quarter of 1994, the Company received information
that the term loan was purchased by a third party.
In connection with the D.I.P. financing, a D.I.P. lender agreed to acquire
the Company's Honolulu to Nagoya, Japan route for $15 million. The Nagoya route
sale was finalized in March 1992, resulting in a gain of $15 million, which is
included in other non-operating income in the accompanying statement of
operations. Upon the completion of the sale of the Nagoya route, $10 million of
the proceeds from the sale were paid to the lender to reduce the Company's
obligation to the lender under the D.I.P. financing. The balance of the proceeds
from the sale of the Nagoya route were added to the Company's working capital.
The remaining D.I.P. balance was paid to this lender in connection with the
September 1992 D.I.P. Facility.
F-35
<PAGE> 107
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 1992, the Company completed arrangements to expand its
existing D.I.P. financing by an additional $53 million (the "September 1992
D.I.P. Facility").
As a condition to the closing of the September 1992 D.I.P. Facility, the
Company was required to reduce its aircraft fleet and the number of aircraft
types from five to three pursuant to certain agreements with third parties,
including the following:
1. With the exception of four lessors (two of which participated in the
September 1992 D.I.P. Facility and did not defer or reduce their lease
payments), aircraft lessors whose aircraft were retained in the fleet and who
agreed to payment deferrals during July and August 1992, were required to waive
any default which occurred as a result of such non-payments and to defer these
payments without interest until the first calendar quarter of 1993. In addition,
effective August 1, 1992, the rental rates on these retained aircraft were
reduced to fair market lease rates for a two-year period. The rental rates
adjust to market rates effective August 1, 1994.
Of the remaining two lessors, one accepted rental payment reductions and
the other agreed to a deferral of the rents from July through October 1992.
Repayment of this deferral is monthly over seven years beginning November 1992
at level principal and interest at 90-day LIBOR plus 3.5%.
2. The aircraft lessors who accepted rent reductions and agreed to waive
any administrative claims arising from the reductions stipulated that, if prior
to July 31, 1994, the Company defaults on any of these leases and the aircraft
are repossessed, the lessors are entitled to fixed damages which will be
afforded priority as administrative claims. Lessors of 11 aircraft have the
option, beginning August 1, 1994, to reset the rents to the current fair market
rental rates and, if elected by the lessor, to readjust at two other two-year
intervals during the remaining term of the lease.
The Company also agreed in certain cases that lessors could call the
aircraft upon 180 days notice if the lessor had a better lease proposal from
another party which the Company was unwilling to match. During the period August
1, 1994 through July 31, 1995, certain of these lessors may call their aircraft
without first giving the Company the right to match any competing offer. Call
rights with a right of first refusal affect 16 aircraft and call rights without
a right of first refusal affect 10 aircraft. In addition, in order to induce
several lessors to extend the lease terms of their aircraft, the Company agreed
that the aircraft could be called by the lessors at the end of the original
lease term. One lessor of 11 aircraft has the right to terminate each lease at
the end of the original lease term of each aircraft. Such lessor also has the
right to call its aircraft on 90 days notice at any time prior to the end of the
amended lease term. America West has no right of first refusal with respect to
such aircraft. To date, no lessor has exercised its call rights.
3. Certain principal and interest payments relating to owned aircraft due
in July 1992 were deferred without interest and were repaid by March 31, 1993.
Additionally, certain other principal and interest payments due from August 1992
through January 1993 were deferred and repaid beginning February 1993 over five
to nine years with interest at approximately 10.25%. In lieu of payment
deferrals, two of the aircraft lenders agreed to adjust the interest rates based
on 90-day LIBOR plus 3.5% per annum.
In September 1993, the Bankruptcy Court approved an amendment to the D.I.P.
loan agreement extending the maturity date of the loan from September 30, 1993
to June 30, 1994. Concurrent with the extension of the maturity date, $8.3
million of the principal balance was repaid to one of the participants who did
not agree with the amendment. Interest on all funds advanced under the D.I.P.
facility accrues at 3.5% per annum, over 90-day LIBOR and is payable quarterly.
The amended D.I.P. loan agreement defers all principal payments to the earlier
of June 30, 1994 or the effective date of a confirmed Chapter 11 plan of
reorganization with the exception of $5 million that will be due on March 31,
1994. The amended terms of the D.I.P. financing require the Company to notify
the D.I.P. lenders if the unrestricted cash balance of the Company exceeds $125
million. Upon receipt of such notice, the D.I.P. lenders may require the Company
to prepay the D.I.P. financing by the amount of such excess. Subsequent to
December 31, 1993, the Company notified the
F-36
<PAGE> 108
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
D.I.P. lenders that the Company's unrestricted cash exceeded $125 million;
however, the D.I.P. lenders have not exercised their prepayment rights. The
D.I.P. financings contain a minimum unencumbered cash balance requirement of $55
million at December 31, 1993 and other financial covenants. At December 31,
1993, the Company was in compliance with these covenants.
As a condition to extending the maturity date of the D.I.P. financing in
September 1993, the Company also agreed to pay a facility fee of $627,000 to the
D.I.P. lenders on September 30, 1993 and to pay an additional facility fee equal
to 1/4% of the then outstanding balance of the D.I.P. financing on March 31,
1994. Consequently, the outstanding balance of $83.6 million is classified as a
current liability as of December 31, 1993. Presently, the Company does not
possess sufficient liquidity to satisfy the D.I.P. financing nor does it appear
likely that new equity capital will be obtained and a plan of reorganization
confirmed prior to June 30, 1994. Consequently, the Company will be required to
obtain alternative repayment terms from the D.I.P. lenders. There can be no
assurance that alternative repayment terms will be obtained. The Company
believes that any extension of the D.I.P. financing will be for a short period
of time and would be concurrent with the implementation of a plan of
reorganization.
The D.I.P. financings contain a minimum unencumbered cash balance
requirement of $55 million at December 31, 1993 and other financial covenants.
At December 31, 1993, the Company was in compliance with these covenants.
(b) These notes from financial institutions, secured by seventeen aircraft
with a net book value of $327.6 million, are payable in semi-monthly, monthly,
quarterly and semi-annual installments ranging from $75,000 to $1,637,000 plus
interest at 30-day LIBOR plus 3.5% (6.88% at December 31, 1993) to 10.79%, with
maturities ranging from 1999 to 2008. Approximately $105.3 million of these
secured notes have provisions providing for the reset of interest rates at
various future dates based on fluctuations in indices such as the Eurodollar
rate. Additionally, interest rates and principal payments for certain of these
notes were modified, as discussed above, in connection with the September 1992
D.I.P. Facility.
(c) The Company has a $40 million line of credit that extends to December
31, 1997 for which no borrowing can occur after December 31, 1994. The purpose
of the line is to provide for the initial provisioning of spare parts for Airbus
A320 aircraft. The loan is repaid quarterly with level principal payments of
$970,000 each and interest at LIBOR plus 4%. At December 31, 1993 and 1992, the
Company had borrowings outstanding of $15.5 million and $20.4 million,
respectively, under this credit facility. However, the lender will not make the
unused credit of $24.5 million available at December 31, 1993 as a result of the
Chapter 11 filing. This loan was affirmed in December 1991 by the Bankruptcy
Court under Section 1110 of the Bankruptcy Code.
The Company also has a $25 million line of credit that extends to September
1997 under which no borrowing could occur after September 1992. The credit line
was used for spare engine parts and has an interest rate of LIBOR plus 4%. At
December 31, 1993 and 1992, the Company had borrowings outstanding of $3.1
million and $4.6 million, respectively, under this credit facility. In
connection with the financing by this same lender of two aircraft flight
simulators in October 1992 (see (e)), this loan was affirmed in the bankruptcy
proceeding. Consequently, the outstanding balance at December 31, 1993 is
included in long-term debt.
(d) This note from an aircraft engine manufacturer was originally made for
$30 million in September 1990. The note is secured by two aircraft, spare engine
parts and other equipment. Interest on the note began to accrue at its inception
at 90-day LIBOR plus 2.0%, compounded quarterly, until September 1993 when all
such accrued interest, or approximately $6 million, was paid. Interest is
currently paid quarterly at the same interest rate. In October 1992, this lender
financed two new flight simulators which were securing this note (see (e)), and
this loan was reduced by the amount of such financing, or approximately $22.8
million. Repayment of the balance of this loan is dependent on the future
delivery of certain firm ordered aircraft
F-37
<PAGE> 109
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
scheduled to begin in November 1996 (however, the related aircraft purchase
agreement has been neither affirmed nor rejected at December 31, 1993). In
connection with the above financing of the two flight simulators, this note was
affirmed in the bankruptcy proceedings, and the outstanding balances at December
31, 1993 and 1992 are included in long-term debt.
(e) In October 1992, the Company acquired two flight simulators and
executed two notes secured by the simulators. The notes are payable in 84 equal
monthly principal installments, plus accrued interest at LIBOR plus 2%. However,
the Company has the right, upon the giving of notice to the lender, to fix the
interest rate at the greater of the then current LIBOR plus 2% or 6.375%. In
connection with this financing, the Company affirmed in the bankruptcy
proceedings the agreements for a certain note payable (see (d) above) and a line
of credit (see (c) above).
(f) In 1993, the Company settled three administrative claims with three
four-year promissory notes totaling $9.6 million with quarterly principal
payments and interest at 6%. At December 31, 1993, the outstanding balance of
these promissory notes was $8.7 million.
Also in 1993, the Company renegotiated a note for certain ground equipment
for $2 million as part of an administrative claim settlement which takes effect
upon the confirmation of a plan of reorganization. The Company is required to
make adequate protection payments of $8,000 per month from the settlement date
until plan confirmation, at which time, the note term is 5 years with interest
at 6%.
(g) The Company's 7 3/4% convertible subordinated debentures are
convertible into common stock at $13.50 per share. The debentures are redeemable
at prices ranging from 101.55% of the principal amount at December 31, 1993 to
100% of the principal amount in 1995 and thereafter. Annual sinking fund
payments of $1.5 million are required beginning in 1995.
(h) The Company's 7 1/2% convertible subordinated debentures are
convertible into common stock at $14.00 per share. The debentures are redeemable
at prices ranging from 102.25% of the principal amount at December 31, 1993 to
100% of the principal amount in 1996 and thereafter. Annual sinking fund
payments of $1.6 million are required beginning in 1996.
(i) The Company's 11 1/2% convertible subordinated debentures are
convertible into common stock at $10.50 per share. The debentures are redeemable
at prices ranging from 105.75% of the principal amount from January 1, 1994 to
100% of the principal amount in 1999 and thereafter. Annual sinking fund
payments of $5.8 million are required beginning in 1999.
During 1991, certain bondholders converted $22.1 million of the 11 1/2%
convertible subordinated debentures into common stock. The conversion of the
11 1/2% subordinated debentures resulted in a charge to other non-operating
expense of $875,000 for incremental shares issued upon conversion. Certain
bondholders converted $1.4 million of the 7 1/2% convertible subordinated
debentures and $4.4 million of the 7 3/4% convertible subordinated debentures
into common stock.
During 1992, certain bondholders converted $95,000 of the 7 1/2%
convertible subordinated debentures, $100,000 of the 7 3/4% convertible
subordinated debentures and $3.5 million of the 11 1/2% convertible subordinated
debentures into common stock.
During 1993, certain bondholders converted $360,000 of the 7 1/2%
convertible subordinated debentures, $275,000 of the 7 3/4% convertible
subordinated debentures and $1.3 million of the 11 1/2% convertible subordinated
debentures into common stock.
All of the convertible subordinated debenture interests will be subject to
settlement of their stated amounts in a plan of reorganization, thereby
eliminating the need for continued deferral of the debt issuance costs.
Therefore, the unamortized debt issuance costs of $2.8 million for these
convertible subordinated
F-38
<PAGE> 110
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
debentures were charged to operations as reorganization expense in 1991. The
Company ceased accruing interest on all of these debentures as of June 27, 1991
in accordance with SOP 90-7.
(j) This note from an aircraft manufacturer for deferred pre-delivery
payments was required under a purchase agreement entered into in 1990. The
deferred pre-delivery payments will accrue interest at one year LIBOR plus 4%
with both principal and interest due upon delivery of the aircraft. The Company
has ceased accruing interest on the outstanding balance in accordance with SOP
90-7. The acquisition of the aircraft associated with these deferred
pre-delivery payments is subject to the affirmation or rejection of the
respective aircraft purchase agreement by the Company in the reorganization
proceeding.
(k) The Company has a $20 million secured revolving credit facility with a
group of financial institutions that expired on April 17, 1993. Borrowings under
this credit facility were either made i) at the federal funds rate plus 1%, ii)
based on a CD rate or iii) 90-day LIBOR two business days prior to the first day
of the interest period. The borrowings are secured by certain assets. The
Company is obligated to pay a commitment fee equal to 1/4% per annum on the
average daily amount by which the aggregate commitments exceed the applicable
borrowing base and 1/2% per annum on the average daily amount by which the
lower of the aggregate commitments or applicable borrowing base exceeds the
aggregate principal amount on all outstanding loans. At December 31, 1993 and
1992, the Company had an outstanding balance of $9.9 million and $11 million,
respectively, under the revolving credit agreement. Proceeds from sales of
assets securing the loan were used to prepay the loan during 1993. The Company
ceased accruing interest on the outstanding balance as of June 27, 1991 in
accordance with SOP 90-7.
(l) The holders of industrial development revenue bonds have the right to
put the bonds back to the Company at various times. If such a put occurs, the
Company has an agreement with the underwriters to remarket the bonds. Any bonds
not remarketed will be retired utilizing a letter of credit. Any funding under
the letter of credit will be in the form of a two-year term loan at prime plus
2%. During the first quarter of 1991, the Company redeemed $14.5 million of the
$44 million of industrial development revenue bonds issued and outstanding and
agreed to a seven-year amortization schedule for the redemption of the remaining
balance. In July and August 1991, $29.5 million in the aggregate was drawn
against the letter of credit facility that supported these bonds. The Company
intends to remarket the bonds in the future. Such draws were made on behalf of
holders of such bonds who exercised their right to put the bonds back to the
Company for purchase. The bonds are currently held in trust for the benefit of
the Company. These bonds were issued in connection with the Company's technical
support facility.
(m) These draws on a letter of credit from a financial institution, secured
by spare rotable parts with a net book value of $35.8 million, are payable in
quarterly installments of $1.3 million plus interest at prime plus 4.5%. The
Company has ceased accruing interest as of June 27, 1991 on the outstanding
balance in accordance with SOP 90-7.
Maturities of long-term debt, excluding $225 million included in estimated
liabilities subject to Chapter 11 proceedings, for the years ending December 31
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1994........................................... $125,271
1995........................................... 41,949
1996........................................... 44,957
1997........................................... 39,544
1998........................................... 32,916
Thereafter..................................... 236,984
</TABLE>
F-39
<PAGE> 111
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
Adoption of New Accounting Standard
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
is a fundamental change in the manner used to account for income taxes in that
the deferred method has been replaced with an asset and liability approach.
Under SFAS 109, deferred tax assets (subject to a possible valuation allowance)
and liabilities are recognized for the expected future tax consequences of
events that are reflected in the Company's financial statements or tax returns.
In the year of adoption, SFAS 109 permits an enterprise to record in its
current year financial statements, the cumulative effect (if any) of the change
in accounting principle. Upon adoption, the Company did not need to record a
cumulative effect adjustment.
Income Tax Expense
For the year ended December 31, 1993, the Company recorded income tax
expense as follows:
<TABLE>
<S> <C>
Current taxes:
Federal............................................. $675
State............................................... 84
----
$759
====
Deferred taxes........................................ $ --
====
</TABLE>
For the year ended December 31, 1993, income tax expense is solely
attributable to income from continuing operations. The difference in income
taxes at the federal statutory rate ("expected taxes") to those reflected in the
financial statements (the "effective rate") results from the effect of the
benefit of net operating loss carryforwards of $12.6 million and state income
tax expense, net of federal tax benefit of $55,000, for an effective tax rate of
2%. In 1992 and 1991, the tax benefits at the federal statutory rate of 34% were
offset by the generation of net operating loss carryforwards.
At December 31, 1993, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for federal
income tax purposes of $530.3 million, $12.7 million and $700,000, respectively.
The net operating loss carryforwards expire during the years 1999 through 2007
while the business credit carryforwards expire during the years 1997 through
2006. However, such carryforwards are not fully available to offset federal
(and, in certain circumstances, state) alternative minimum taxable income.
Accordingly, income tax expense recognized for the year ended December 31, 1993,
is attributable to the Company's expected net current liability for federal and
various state alternative minimum taxes. The alternative minimum tax credit
carryforward does not expire and is available to reduce future income tax
payable.
As of December 31, 1993, to the best of the Company's knowledge, it has not
undergone a statutory "ownership change" (as defined in sec.382 of the Internal
Revenue Code) that would result in any material limitation of the Company's
ability to use its net operating loss and business tax credit carryforwards in
future tax years. Should an "ownership change" occur prior to confirmation of a
plan of reorganization, the Company's ability to utilize said carryforwards
would be significantly restricted. Further, the net operating loss and business
tax credit carryforwards may be limited as a result of the Company's
reorganization under the United States Bankruptcy Code.
F-40
<PAGE> 112
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Composition of Deferred Tax Items
The Company has not recognized any net deferred tax items for the year
ended December 31, 1993. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1993 are a result of the temporary differences related to the
items described as follows:
<TABLE>
<CAPTION>
NET DEFERRED ITEMS
------------------
(IN THOUSANDS)
<S> <C>
Deferred income tax liabilities:
Property and equipment, principally depreciation differences.... $ (105,242)
-----------
Deferred income tax assets:
Aircraft leases................................................. 20,594
Frequent flyer accrual.......................................... 3,721
Reorganization expenses......................................... 16,527
Net operating loss carryforwards................................ 212,124
Tax credit carryforwards........................................ 12,706
Other........................................................... 5,986
----------
Total deferred income tax assets........................ 271,658
Valuation allowance............................................... (166,416)
----------
Net deferred items...................................... $ --
==========
</TABLE>
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes, the volatility of the industry within
which the Company operates and certain other factors, the Company has
established a valuation allowance for the portion of its net operating loss
carryforwards that may not be available due to expirations after considering the
net reversals of future taxable and deductible differences occurring in the same
periods. In this context, the Company has taken into account prudent and
feasible tax planning strategies. After application of the valuation allowance,
the Company's net deferred tax assets and liabilities are zero.
(6) EMPLOYEE STOCK PURCHASE PLANS AND OTHER EMPLOYEE BENEFIT PROGRAMS
The Company has a stock purchase plan covering its directors, officers and
employees and certain other persons providing service to the Company, as well as
a separate plan covering its California resident employees. At December 31,
1993, the number of shares authorized under the plans is 10,450,000. Each
participating employee is required to purchase a number of shares having an
aggregate purchase price equivalent to 20% of such employee's annual base wage
or salary on the date of purchase. Each participating employee has the option of
simultaneously purchasing additional shares having an aggregate purchase price
not exceeding 20% of such wage or salary. California resident employees electing
to participate in the plan may purchase a number of shares having an aggregate
purchase price not exceeding 40% of their annual base wage or salary on the date
of purchase at a specified price.
Participating employees can elect to finance their purchase through the
Company for up to 20% of their annual base wage or salary over a five-year
period at an interest rate of 9.5%. Employee notes receivable of $17.6 million
existed at December 31, 1993 and were classified in the stockholders' deficiency
section. Shares issued under the plans cannot be sold, transferred, assigned,
pledged or encumbered in any way for a period of two years from the date such
shares are paid for and delivered to participating employees. The employees'
F-41
<PAGE> 113
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
purchase price is 85% of the market price on the date of purchase. The
difference between the employees' purchase price and the market price is
recorded as deferred compensation and is amortized over five years.
The plans provide for the purchase of additional shares of common stock up
to 10% of the employee's annual base wage during the first year of employment
and 20% of the employee's annual base wage during each subsequent calendar year.
Such purchases may be financed through the Company at the same terms as
indicated above, as long as total outstanding amounts previously financed do not
exceed 10% of the employee's annual base compensation.
Effective August 1, 1991, the Company suspended the mandatory portion of
the Employee Stock Purchase Plan for 60 days. Subsequent to the expiration of
the 60-day period, the Company indefinitely suspended the Employee Stock
Purchase Plan. The Company also suspended payroll deductions related to the
Employee Stock Purchase Plan as a result of a 10% across the board reduction in
wages which commenced August 1, 1991 for all employees whose wages had not been
previously reduced. The unpaid employee stock purchase notes continue to accrue
interest. The Company anticipates that the reorganization process will result in
the restructuring, cancellation and/or replacement of the interests of its
existing common and preferred stockholders.
The bankruptcy process has caused the suspension of the Company's profit
sharing plan which covers all personnel. The plan provided for the distribution
of 15% of annual pre-tax profits to employees based on each individual's base
wage. The Company made no distributions under the plan in 1993, 1992 or 1991.
The Company implemented a 401(k) defined contribution plan on January 1,
1989, covering essentially all employees of the Company. Participants may
contribute from 1% to 10% of their pre-tax earnings to a maximum of $8,994. The
Company will match 25% of a participant's contributions up to 6% of the
participant's annual pre-tax earnings. The Company's contribution expense to the
plan totaled $2.1 million, $2 million and $4.9 million in 1993, 1992 and 1991,
respectively.
The Company provides no post-retirement benefits to its former employees
other than the continuation of flight benefits on a stand-by, non-revenue basis;
the cost of which is not material. Additional, no material post-employment
benefits are provided.
(7) CONVERTIBLE PREFERRED STOCK
Annual dividends of $5.41 per share are payable quarterly on the 291,149
shares of voting Series B 10.5% convertible preferred stock. Each preferred
share is entitled to four votes and may be converted into four shares of common
stock subject to certain anti-dilution provisions. The preferred shares are
redeemable at the Company's election, if the price of common stock is at least
$19.32 per share, at $51.52 per share plus unpaid accrued dividends plus a
redemption premium starting at 3% during 1991 and decreasing 1% per year to zero
during and after 1994. During 1993, the Series B convertible preferred stock was
converted into 1,164,596 shares of common stock.
Annual dividends of $1.33 per share are payable quarterly on the 73,099
shares of voting Series C 9.75% convertible preferred stock. Such shares may be
converted into an equal number of shares of common stock subject to certain
anti-dilution provisions. The preferred shares are redeemable at the Company's
election at $13.68 per share plus unpaid accrued dividends plus a redemption
premium starting at 4% during 1991 and decreasing 1% per year to zero during and
after 1995.
Under Delaware law, the Company is precluded from paying dividends on its
outstanding preferred stock until such time as the Company's stockholder
deficiency has been eliminated.
At December 31, 1993, the Company was delinquent in the payment of its
sixth consecutive dividends on the Preferred Stock. See note 1 for a discussion
of the potential effects of the Company's reorganization upon preferred stock.
F-42
<PAGE> 114
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMON STOCK
Certain "Rights" have been distributed to certain shareholders of record on
August 25, 1986. The Rights, which entitle the holder to purchase one
one-hundredth ( 1/100th) of a share of Series D Participating Preferred Stock at
a price of $200, are not exercisable unless certain conditions relating to a
possible attempt to acquire the Company are met. In the event of an acquisition
or merger, the Rights will entitle the holder of a Right to purchase that number
of common shares of the acquiring or surviving entity having twice the market
value of the exercise price of each Right. The Rights expire on August 24, 1996
and are redeemable at a price of $.03 per Right under certain conditions.
The Board of Directors has authorized the purchase of up to 700,000 shares
of the Company's common stock from time to time in open market transactions. The
Company has purchased and retired 348,410 shares as of December 31, 1993 at an
average per share price of $8.31.
(9) STOCK OPTIONS AND WARRANTS
The Company has an Incentive Stock Option Plan and has reserved 13,225,000
shares of common stock for issuance upon the exercise of stock options granted
under the plan. Of the total shares reserved, 10,350,000 shares are restricted
for issuance to employees other than certain management employees. Options are
granted at fair market value on the date of grant and generally become
exercisable over a five-year period, and ultimately lapse if unexercised at the
end of ten years.
Activity under the Incentive Stock Option Plan is as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTION PLAN
---------------------------------------------
NUMBER OF OPTIONS
-------------------------
KEY OTHER OPTION PRICE
MANAGEMENT EMPLOYEES PER SHARE
---------- ---------- ---------------
<S> <C> <C> <C>
Outstanding January 1, 1991................. 1,721,326 5,215,028 $2.50 - $13.06
Granted..................................... 52,000 2,434,880 $0.94 - $ 7.50
Canceled.................................... (254,025 ) (535,116) $1.38 - $12.81
Exercised................................... (8,981 ) (1,860) $2.50 - $ 9.13
---------- ---------- ---------------
Outstanding December 31, 1991............... 1,510,320 7,112,932 $0.94 - $13.06
Granted..................................... -- 414,060 $1.13 - $ 2.63
Canceled.................................... (183,700 ) (791,199) $0.27 - $13.06
---------- ---------- ---------------
Outstanding December 31, 1992............... 1,326,620 6,735,793 $0.94 - $13.06
Canceled.................................... (284,990 ) (1,005,192) $0.94 - $12.81
---------- ---------- ---------------
Outstanding December 31, 1993............... 1,041,630 5,730,601 $0.94 - $13.06
========= ========= ==============
</TABLE>
At December 31, 1993, options to purchase 3,731,608 shares were exercisable
at prices ranging from $0.94 to $13.06 per share under the Incentive Stock
Option Plan. Effective March 13, 1992, additional grants under the Plan were
suspended.
The Company has a Nonstatutory Stock Option Plan under which options to
purchase 3,785,880 shares of common stock at prices ranging from $5.06 to $10.25
per share (fair market value on date of grant) have been granted, of which
1,961,410 stock options are outstanding as of December 31, 1993. During 1991,
40,000 options were granted at $6.00 per share. During 1993, 1992 and 1991, no
options were exercised. At December 31, 1993, all options were exercisable.
Options expire 10 years from date of grant.
The Company had granted warrants and options to purchase 227,500 shares of
common stock to members of the Board of Directors who are not employees of the
Company. At December 31, 1993, 110,000
F-43
<PAGE> 115
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options are outstanding and exercisable through February 4, 1996 at prices of
$6.00 to $9.00 per share (fair market value at date of grant). No warrants or
options were granted or exercised during 1993, 1992 or 1991.
The Company has adopted a Restricted Stock Plan and has reserved 250,000
shares of common stock for issuance at no cost to key employees. Grants that are
issued will vest over a three to five-year period. As of December 31, 1993, the
Company granted 93,870 shares and the related unamortized deferred compensation
was $5,320. In 1991, the operation of the Restricted Stock Plan was suspended
due to the Company's reorganization.
(10) SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1993, 1992 and 1991 was approximately $44 million, $46 million and
$33 million, respectively.
Cash paid for income taxes during the year ended December 31, 1993 was
$537,000.
Cash flows from reorganization items in connection with the Chapter 11
proceedings during the years ended December 31, 1993, 1992 and 1991 were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest received on cash accumulations.............. $ 2,635 $ 2,030 $ 1,365
Professional fees paid for services rendered......... (7,372) (11,346) (6,913)
D.I.P. financing issuance costs paid................. (1,378) (1,760) (2,660)
</TABLE>
In addition, during the years ended December 31, 1993, 1992 and 1991, the
Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Conversion of long-term debt to common stock......... $ 1,938 $ 3,685 $ 27,898
======= ======= ========
Draws taken by third parties on letters of credit.... $ -- $11,201 $ 42,415
======= ======= ========
Equipment acquired through capital leases............ $ 709 $ 437 $ 10,028
======= ======= ========
Notes payable issued to equipment seller............. $ 818 $22,804 $106,510
======= ======= ========
Notes payable issued for administrative claim
settlements........................................ $11,597 $ -- $ --
======= ======= ========
Preferred stock dividends declared but unpaid........ $ -- $ 1,672 $ 1,250
======= ======= ========
Accrued interest reclassified to long-term debt...... $15,137 $16,443 $ 19,311
======= ======= ========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
(a) Leases
During 1991, the Company restructured its lease commitment for Airbus A320
aircraft with the lessors. As a result of the restructuring, the Company's
obligation to lease ten A320 aircraft was canceled and the basic rental rate for
twelve aircraft was revised to provide for the repayment to the lessor over a
ten-year period of certain advanced credits received by the Company which relate
to the ten canceled aircraft.
In the third quarter of 1991, the Company requested a deferral of rent and
other periodic payments from its aircraft providers. The deferral was requested
in an effort to conserve cash and improve the Company's liquidity position. As a
condition of securing the $78 million D.I.P. financing, the Company was required
to obtain from most aircraft providers rent, principal and interest payment
deferrals in excess of $100 million covering the six-month period of June
through November 1991. These deferrals will generally be repaid with
F-44
<PAGE> 116
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
interest at 10.5% over the remaining term of the lease or secured borrowing with
repayment commencing December 1991. At December 31, 1993 and 1992, the remaining
unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $ 7,567 $20,672
Other liabilities................................................ 31,425 28,196
Long-term debt................................................... 18,671 20,769
------- -------
$57,663 $69,637
======= =======
</TABLE>
In the third quarter of 1992, the Company requested an additional deferral
of rent and other periodic payments from its aircraft providers. The deferral
was requested to assure sufficient liquidity to sustain operations while
additional debtor-in-possession financing was obtained (note 4). The 1992
deferrals will generally be repaid either without interest during the first
quarter of 1993 or with interest over a period of seven years. At December 31,
1993 and 1992, the remaining unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $ 9,650 $17,528
Long-term debt................................................... 21,539 25,346
------- -------
$31,189 $42,874
======= =======
</TABLE>
As of December 31, 1993, the Company had 66 aircraft under operating leases
with remaining terms ranging from four months to 20 years. The Company has
options to purchase most of the aircraft at fair market value at the end of the
lease term. Certain of the agreements require security deposits and maintenance
reserve payments. The Company also leases certain terminal space, ground
facilities and computer and other equipment under noncancelable operating
leases.
Future minimum rental payments for years ending December 31 under
noncancelable operating leases with initial terms of more than one year are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1994........................................... $ 191,606
1995........................................... 182,236
1996........................................... 179,110
1997........................................... 169,797
1998........................................... 160,759
Thereafter..................................... 1,333,187
----------
$2,216,695
==========
</TABLE>
Collectively, the operating lease agreements require security deposits with
lessors of $8.1 million and bank letters of credit of $17.7 million. The letters
of credit are collateralized by certain spare rotable parts with a net book
value of $35.8 million and $17.6 million in restricted cash.
Rent expense (excluding landing fees) was approximately $245 million in
1993, $307 million in 1992 and $319 million in 1991.
F-45
<PAGE> 117
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Revenue Bonds
Special facility revenue bonds have been issued by a municipality used for
leasehold improvements at the airport which have been leased by the Company.
Under the operating lease agreements, which commenced in 1990, the Company is
required to make rental payments sufficient to pay principal and interest when
due on the bonds. The Company ceased rental payments in June 1991. The principal
amount of such bonds outstanding at December 31, 1992 and 1991 was $40.7
million. In October 1993, the Company and the bondholder agreed to reduce the
outstanding balance of the bonds to $22.5 million and adjust the related
operating lease payments sufficient to pay principal and interest on the reduced
amount effective upon the confirmation of a plan of reorganization. The
remaining principal balance of $18.2 million will be accorded the same treatment
under the plan of reorganization as a pre-petition unsecured claim. The Company
also agreed to make adequate protection payments in the amount of $150,000 per
month from August 1993 to plan confirmation.
(c) Aircraft Acquisitions
At December 31, 1993, the Company had on order a total of 93 aircraft of
the types currently comprising the Company's fleet, of which 51 are firm and 42
are options. The table below details such deliveries.
<TABLE>
<CAPTION>
FIRM ORDERS
-------------------------------------------------------- OPTION
1994 1995 1996 1997 THEREAFTER TOTAL ORDERS TOTAL
---- ---- ---- ---- ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing: 737-300............... -- -- 4 2 -- 6 10 16
757-200............... -- 4 3 -- -- 7 10 17
Airbus: A320-200............. 9 5 2 8 14 38 22 60
- -- --
---- ---- ---- ----- -----
Total............... 9 9 9 10 14 51 42 93
==== ==== ==== ==== ======= ==== ===== ====
</TABLE>
The current estimated aggregate cost for these firm commitments and options
is approximately $5.2 billion. Future aircraft deliveries are planned in some
instances for incremental additions to the Company's existing aircraft fleet and
in other instances as replacements for aircraft with lease terminations
occurring during this period. The purchase agreements to acquire 24 Boeing
737-300 aircraft had been affirmed in the Company's bankruptcy proceeding. With
timely notice to the manufacturer, all or some of these deliveries may be
converted to Boeing 737-400 aircraft. At December 31, 1993, eight Boeing 737
delivery positions had been eliminated due to the lack of a required
reconfirmation notice by the Company to Boeing leaving 16 delivery positions as
reflected above. The failure to reconfirm such delivery positions exposes the
Company to loss of pre-delivery deposits and other claims which may be asserted
by Boeing in the bankruptcy proceeding. The purchase agreements for the
remaining aircraft types have not been assumed, and the Company has not yet
determined which of the other aircraft purchase agreements, if any, will be
affirmed or rejected.
As part of the $68.4 million term loan (see note 4(a)), the Company
terminated an agreement to lease 24 Airbus A320 aircraft and ultimately replaced
it with a put agreement to lease up to four such aircraft. The lessor is under
no obligation to lease such aircraft to the Company and has the right to
remarket these aircraft to other parties. Prior to its bankruptcy filing, the
Company also entered into a similar arrangement with another lessor, whereby the
Company terminated its agreement to lease 10 Airbus A320 aircraft and replaced
it with a put agreement to lease up to 10 Airbus A320 aircraft.
The put agreement related to the term loan requires the lessor to notify
the Company prior to July 1, 1994 if it intends to require the Company to lease
any of its put aircraft. The other put agreement requires 180 days prior notice
of the delivery of a put aircraft. The agreement also provides that the lessor
may not put more than five aircraft to the Company in any one calendar year.
This put right expires on December 31, 1996. No more than nine put aircraft
(from both lessors combined) may be put to the Company in one calendar year. The
put aircraft are reflected in the "Firm Orders" section of the table above.
F-46
<PAGE> 118
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Investment Agreement provides that as partial consideration for the
cancellation of certain put rights, the lessor will receive the right to require
the Company to lease up to eight aircraft prior to June 30, 1999.
The Company does not have firm lease or debt financing commitments with
respect to the future scheduled aircraft deliveries (other than for the put
aircraft referred to above).
In addition to the aircraft set forth in the chart above, the Company also
has a pre-petition executory contract under which the Company holds delivery
positions for four Boeing 747-400 aircraft under firm orders and another four
under options. The contract allows the Company, with the giving of adequate
notice, to substitute other Boeing aircraft types for the Boeing 747-400 in
these delivery positions. As a result, the Company is still evaluating its
future fleet needs and is currently unable to determine if it will substitute
other aircraft types or reject this agreement.
(d) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. At December 31, 1993, approximately 82% of the Company's
receivables related to tickets sold to individual passengers through the use of
major credit cards or to tickets sold by other airlines and used by passengers
on America West. These receivables are short-term, generally being settled
shortly after sale or in the month following usage. Bad debt losses, which have
been minimum in the past, have been considered in establishing allowances for
doubtful accounts.
(12) RELATED PARTY TRANSACTIONS
During 1989, the Company sold 486,219 shares of common stock at $6.31 and
$9.79 to the stockholder that purchased 3,029,235 shares of common stock at
$10.50 in 1987 and $1 million of the Series C preferred stock in 1985. This
stockholder has the right to maintain a 20% voting interest through the purchase
of common stock from the Company at a price per share which is the average
market price per share for the preceding six months. In 1990, the stockholder
made direct purchases on the open market to maintain its 20% voting interest. On
February 15, 1991, the stockholder purchased 253,422 shares of common stock from
the Company at $5.50 per share. No such purchases occurred in 1993 or 1992.
The Company has entered into various aircraft acquisition and leasing
agreements with this stockholder at terms comparable to those obtained from
third parties for similar transactions. The Company leases 11 aircraft from this
stockholder and the rental payments for such leases amounted to $33.7 million in
1993, $33.8 million in 1992 and $18.1 million in 1991. At December 31, 1993, the
Company was obligated to pay $232 million under these leases through August 2003
unless terminated earlier at the stockholder's option. In 1991, the stockholder
drew upon a $7.5 million letter of credit which had been issued in its favor in
lieu of a cash reserve for periodic heavy maintenance overhauls. This cash
deposit is included in other assets at December 31, 1993 and 1992.
In addition, the stockholder participated as a lender in the September 1992
D.I.P. Facility and advanced $10 million of the $53 million in total D.I.P
financing. In September 1993, the stockholder was repaid the then outstanding
balance of $8.3 million as a result of not participating in the extension of the
maturity date of the debt financing.
In order to assist the Chairman of the Board with certain costs associated
with his service as chairman, the Company pays an office overhead allowance of
$4,167 per month to a company owned by the chairman. During 1993 and 1992, such
payments totaled approximately $50,000 and $16,000, respectively.
Additionally, a former member of the Board of Directors provided consulting
services to the Company during 1993 and 1992 for which he received fees of
approximately $39,000 and $47,000, respectively.
F-47
<PAGE> 119
AMERICA WEST AIRLINES, INC., D.I.P
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) RESTRUCTURING CHARGES
Restructuring charges consist of the following:
<TABLE>
<CAPTION>
1992
--------------
(IN THOUSANDS)
<S> <C>
Write-off for certain assets related to station closures or route $ 9,529
restructuring.......................................................
Provision for spare parts for aircraft types no longer in service..... 12,651
Provision for employee severance...................................... 2,284
Loss on return of aircraft............................................ 6,852
--------------
$ 31,316
===========
</TABLE>
The restructuring charges were necessitated by aircraft fleet reductions
and other operational changes. The Company has reduced its fleet to 85 aircraft
and has reduced the number of aircraft types in the fleet from five to three.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 are as follows (in
thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total operating revenues:
1993............................................. $316,605 $324,910 $335,113 $348,736
1992............................................. $337,050 $333,511 $321,590 $301,989
Operating income (loss):
1993............................................. $ 17,168 $ 25,179 $ 32,981 $ 45,726
1992(a).......................................... $ (7,974) $(15,979) $(48,534) $ (2,325)
Nonoperating expense, net
1993............................................. $(14,990) $(14,710) $(18,285) $(35,145)
1992 (b)......................................... $ (2,010) $(17,390) $(22,230) $(15,319)
Income tax expense
1993............................................. $ (44) $ (209) $ (293) $ (213)
1992............................................. $ -- $ -- $ -- $ --
Net income (loss)
1993............................................. $ 2,134 $ 10,260 $ 14,403 $ 10,368
1992............................................. $ (9,984) $(33,369) $(70,764) $(17,644)
Earnings (loss) per share
1993:
Primary........................................ $ .09 $ .41 $ .56 $ .40
Fully diluted.................................. $ .09 $ .28 $ .38 $ .28
1992:
Primary........................................ $ (0.44) $ (1.41) $ (2.97) $ (0.75)
</TABLE>
- ---------------
(a) During the third quarter of 1992, restructuring charges for employee
separation costs, losses related to returning aircraft to lessors, write-off
of assets related to the restructuring and a loss provision related to spare
parts expected to be sold amounting to $31.3 million was recorded.
(b) During the first quarter of 1992, a gain of $15 million was recorded for the
transfer of the Honolulu/Nagoya route to another carrier.
F-48
<PAGE> 120
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDERS OR ANY UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Investment Considerations............. 9
The Company........................... 13
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Selected Financial Data............... 17
Unaudited Pro Forma Condensed
Financial Information............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 33
Management............................ 42
Compensation Committee Interlocks and
Insider Participation............... 50
Certain Transactions.................. 51
Principal Stockholders................ 52
Selling Securityholders............... 55
Shares Eligible for Future Sale....... 55
Description of the Senior Notes....... 56
Description of Capital Stock.......... 66
Description of Warrants............... 68
Plan of Distribution.................. 70
Legal Matters......................... 71
Experts............................... 71
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
AMERICA WEST
AIRLINES, INC.
1,200,000 SHARES
CLASS A COMMON STOCK
18,573,704 SHARES
CLASS B COMMON STOCK
$100,000,000 11 1/4%
SENIOR UNSECURED NOTES DUE 2001
5,846,263 CLASS B
COMMON STOCK WARRANTS
------------------------
PROSPECTUS
------------------------
AUGUST 26, 1994
- ------------------------------------------------------
- ------------------------------------------------------
