<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1994
REGISTRATION NO. 33-54243
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4512 86-0418245
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
MARTIN J. WHALEN
SENIOR VICE PRESIDENT
AMERICA WEST AIRLINES, INC.
4000 EAST SKY HARBOR BOULEVARD 4000 EAST SKY HARBOR BOULEVARD
PHOENIX, ARIZONA 85034 PHOENIX, ARIZONA 85034
(602) 693-0800 (602) 693-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
_____________________________
With Copies to:
DAVID J. GRAHAM
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
(713) 220-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
_____________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective, which time is to be
determined by the Selling Securityholders. All of the Securities offered hereby
are offered for the account of the Selling Securityholders.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
_____________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE> 2
AMERICA WEST AIRLINES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
- ------------------------------------------- -----------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Forepart of Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Investment
Considerations
4. Use of Proceeds...................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...... Plan of Distribution
6. Selling Securityholders.............. Principal Stockholders; Selling
Securityholders
7. Plan of Distribution................. Outside Front Cover Page of Prospectus;
Plan of Distribution
8. Description of Securities to be
Registered......................... Outside Front Cover Page of Prospectus;
Description of Capital Stock; Description
of the Senior Notes; Description of
Warrants; Shares Eligible for Future Sale
9. Interests of Named Experts and
Counsel............................ Legal Matters; Experts
10. Information with Respect to the
Registrant......................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Investment
Considerations; The Company; Use of
Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Description of Capital Stock; Description
of the Senior Notes; Description of
Warrants; Shares Eligible for Future
Sale; Financial Statements
11. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED , 1994
AMERICA WEST AIRLINES, INC.
14,775,000 SHARES CLASS B COMMON STOCK
$100,000,000 % SENIOR UNSECURED NOTES DUE 2001
4,153,846 CLASS B COMMON STOCK WARRANTS
------------------------
This Prospectus relates to (i) 14,775,000 shares of Class B Common Stock,
par value $.01 per share ("Class B Common Stock") of America West Airlines, Inc.
(the "Company"), (ii) $100 million principal amount of % Senior Unsecured
Notes due 2001 of the Company (the "Senior Notes"), and (iii) 4,153,846
warrants, each entitling the holder thereof to purchase one share of Class B
Common Stock for $ at any time prior to the fifth anniversary of the
date of issuance (the "Warrants," and together with the Class B 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, 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,
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 the Company's 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
, 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 , 1997 at any time in whole or
from time to time in part, at redemption prices described herein. The Senior
Notes will be effectively subordinated to $482.8 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 Company intends to apply for the
listing of the Class B Common Stock and the Warrants on a national securities
exchange. The Company does not intend to file an application to have the Senior
Notes listed on a national exchange and does not expect an active trading market
to develop for the Senior Notes.
The Selling Securityholders and any underwriters, 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, 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, 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 , 1994
<PAGE> 4
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.
2
<PAGE> 5
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 May 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 , 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 prior to , 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, 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
3
<PAGE> 6
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 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 March 31, 1994, prior to the Reorganization, the Company's
long-term debt including current maturities and estimated liabilities subject to
Chapter 11 proceedings aggregated approximately $894 million. Such liabilities
at March 31, 1994, adjusted to give pro forma effect to the consummation of the
Plan, would aggregate approximately $644 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, shares of Class B Common Stock and $ cash. Holders
of the Company's pre-existing 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 preexisting equity interests will receive
shares of Class B Common Stock for an aggregate purchase price of
$ ($8.889 per share).
Also pursuant to the Reorganization, the Company will receive approximately
$ 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) 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 shares of Class B Common
Stock and Warrants to purchase additional shares of Class B Common
Stock in consideration of payment to the Company of approximately $7.7 million,
and Fidelity will acquire shares of Class B Common Stock, Warrants to
purchase 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. ("TPG"), a Delaware limited partnership which
is acquiring aggregate beneficial ownership of % of the voting securities
of America West. 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 distribute to its partners the securities acquired by it
pursuant to the Reorganization. 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 not subject to the Registration
Statement of which this Prospectus is a part.
4
<PAGE> 7
THE OFFERING
The principal terms of the Class B 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.
Class B Common Stock:
Securities Offered............... 14,775,000 shares of Class B Common Stock
Common Stock to be outstanding
after the Offering(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 Company's
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.
Trading Symbol................... " "
- ---------------
(1) Excluding 10,384,615 shares of Class B Common Stock reserved for issuance
upon exercise of outstanding Warrants.
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 % per annum. Interest will
accrue from the date of issuance thereof
and will be payable semi-annually in
arrears on each and ,
commencing , 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 , 1997, (A) at any
time 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
5
<PAGE> 8
principal amount, plus accrued and
unpaid interest, if any, to the redemption
date; and (ii) on or after ,
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 on the anniversary of the date of
issuance falling within the years indicated
below:
<TABLE>
<S> <C> <C>
1997.. 105.0%
1998.. 103.3%
1999.. 101.7%
2000.. 100.0%
</TABLE>
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 and limiting
certain sales of assets.
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............... 4,153,846 Warrants, each entitling the
holder to purchase one share of Class B
Common Stock at a price (the "Exercise
Price") of $ per share.
Warrants to be Outstanding after
the Offering..................... 10,384,615 Warrants
Expiration....................... The Warrants are exercisable by the holders
at any time on or prior to the fifth
anniversary of the Effective Date.
Redemption....................... The Warrants are not redeemable.
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.
Trading Symbol................... " "
6
<PAGE> 9
SUMMARY FINANCIAL DATA
The summary financial data set forth below presents historical and pro
forma financial information of the Company. The financial information at March
31, 1994 and 1993 and for the three 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 three months ended March 31, 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- --------------------------------
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 $316,605 $345,264 $345,264
Operating expenses................... 1,518,582 1,368,952 1,204,310 1,201,877 299,437 307,514 307,697
Operating income (loss).............. (104,657) (74,812) 121,054 123,487 17,168 37,750 37,567
Income (loss) before income taxes.... (222,016) (131,761) 37,924 53,772 2,178 15,807 21,705
Income tax expense................... -- -- 759 33,847 44 632 11,721
Net income (loss).................... (222,016) (131,761) 37,165 19,925 2,134 15,175 9,984
Earnings (loss) per share:
Primary.......................... (10.39) (5.58) 1.50 0.44 0.09 0.56 0.22
Fully diluted.................... (10.39) (5.58) 1.04 0.44 0.09 0.40 0.22
Shares used for computation:
Primary.......................... 21,534 23,914 27,525 45,000 24,020 29,153 45,000
Fully diluted.................... 21,534 23,914 41,509 45,000 41,991 41,055 45,000
Ratio of earnings to fixed
charges(b)......................... -- -- 1.28 1.37 1.06 1.48 1.63
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994
YEAR ENDED -------------------------
DECEMBER 31, PRO
1993 HISTORICAL FORMA(A)
------------ ---------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................................... $ (124,375) $ (102,345) $ 47,562
Total assets............................................................... 1,016,743 1,083,161 1,693,932
Long-term debt, less current maturities.................................... 620,992 613,967 582,209
Total stockholders' equity (deficiency).................................... (254,262) (238,835) 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 three-month
period ended March 31, 1994 is presented as if the Plan were consummated on
January 1, 1993; balance sheet data at March 31, 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.
7
<PAGE> 10
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
8
<PAGE> 11
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 % of the Class B Common Stock and 100% of the Class A Common Stock, and
thereby will control % of the voting power of America West. 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 %
of the combined voting securities of America West. 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 shares of Class B Common Stock to be
outstanding upon completion of this Offering (assuming no exercise of the
outstanding warrants) will be freely tradeable, subject to certain restrictions
with respect to shares held by AmWest. These shares include 14,775,000 shares of
Class B Common Stock to be issued to the Selling Securityholders and offered
hereby, 26,775,000 shares 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 equity holders. The 1,200,000 shares of Class A Common Stock to
be issued to AmWest will be "restricted securities" within the meaning of the
Securities Act and may not be resold
9
<PAGE> 12
without registration under the Securities Act or an exemption therefrom. 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, the Company anticipates that
elections will be held during 1994 on proposals by the Association of Flight
Attendants ("AFA") to represent the Company's customer service representatives
and by the Transportation Workers Union ("TWU") to represent the Company's fleet
service personnel. The Company cannot predict whether either the AFA or TWU 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 or TWU will not contain wage increases, work rules or other provisions
that could materially affect the Company's operations or financial performance.
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."
FUTURE CAPITAL REQUIREMENTS
After giving effect to the Reorganization on a pro forma basis, as of March
31, 1994, America West had $644.3 million of long-term indebtedness (including
current maturities) and $587.5 million of stockholders'
10
<PAGE> 13
equity. As of such date, the Company had $264.3 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.
11
<PAGE> 14
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 May 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 in May 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.
12
<PAGE> 15
- 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 fall 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 , 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 prior to , 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 $ 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) shares of Class B Common
Stock, including shares at a price of $7.467 per share and
shares at $8.889 per share (representing shares not acquired by
pre-existing equity holders pursuant to subscription rights 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 shares of Class B Common Stock and cash
aggregating $ (such cash representing $8.889 per share paid to
unsecured creditors electing to receive cash in lieu shares of Class B
Common Stock).
- Holders of preferred equity interests of the Company prior to the
Reorganization will receive their pro rata share of (i) $500,000 and (ii)
shares of Class B Common Stock (representing shares acquired
pursuant to certain subscription rights at a price of $8.889 per share).
- Holders of equity interests in the Company prior to the Reorganization
will be issued shares of Class B Common Stock ( of which
shares are to be issued in exchange for cash, aggregating $ ,
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 $30.25 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
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.
13
<PAGE> 16
- 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."
14
<PAGE> 17
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at March 31, 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>
MARCH 31, 1994
-------------------------
PRO
HISTORICAL FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities:
Estimated liabilities subject to Chapter 11 proceedings........... $ 383,914 $ --(2)
Long-term debt, including current maturities...................... 510,085 545,261(3)
% Senior Unsecured Notes due 2001............................... -- 99,000(4)
--------- ----------
Total long-term debt, including current maturities........ 893,999 644,261
Stockholders' equity (deficiency)(1):
Preferred stock................................................... 18 --
Common stock...................................................... 6,323 --
NewAWA Class A Common Stock....................................... -- 12(4)
NewAWA Class B Common Stock....................................... -- 438(4)
Additional paid in capital........................................ 196,986 587,050(4)
Accumulated deficit............................................... (423,451) --
--------- ----------
(220,124) 587,500
Less deferred compensation and notes receivable -- employee
stock purchase plans........................................... 18,711 --(5)
--------- ----------
Total stockholders' equity (deficiency)................... (238,835) 587,500
--------- ----------
Total capitalization................................................ $ 655,164 $1,231,761
========= =========
</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 % Senior Notes due 2001, net of estimated fees and
issuance costs, 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.
15
<PAGE> 18
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, 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 five-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 three-month periods ended March 31, 1994
and 1993 and as of March 31, 1994 are derived from the unaudited condensed
financial statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------------- -------------------------
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 $ 316,605 $ 345,264
Operating expenses......... 945,293 1,347,435 1,518,582 1,368,952 1,204,310 299,437 307,514
Operating income (loss).... 48,116 (31,631) (104,657) (74,812) 121,054 17,168 37,750
Income (loss) before income
taxes and extraordinary
items.................... 20,040 (76,695) (222,016) (131,761) 37,924 2,178 15,807
Income tax expense......... 7,237 -- -- -- 759 44 632
Income (loss) before
extraordinary items...... 12,803 (76,695) (222,016) (131,761) 37,165 2,134 15,175
Extraordinary items(a)..... 7,215 2,024 -- -- -- -- --
Net income (loss).......... 20,018 (74,671) (222,016) (131,761) 37,165 2,134 15,175
Earnings (loss) per share:
Primary:
Before extraordinary
items................ 0.61 (4.26) (10.39) (5.58) 1.50 0.09 0.56
Extraordinary
items(a)............. 0.39 0.11 -- -- -- -- --
Net earnings (loss).... 1.00 (4.15) (10.39) (5.58) 1.50 0.09 0.56
Fully diluted............ 1.00 (4.15) (10.39) (5.58) 1.04 0.09 0.40
Shares used for
computation:
Primary.................. 20,626 18,396 21,534 23,914 27,525 24,020 29,153
Fully diluted............ 20,626 18,396 21,534 23,914 41,509 41,991 41,055
Ratio of earnings to fixed
charges(b)............... 1.12 -- -- -- 1.28 1.06 1.48
BALANCE SHEET DATA:
Working capital
deficiency............... $(18,884) $ (94,671) $ (51,158) $ (201,567) $ (124,375) $ (183,660) $ (102,345)
Total assets............... 835,885 1,165,256 1,111,144 1,036,441 1,016,743 1,031,454 1,083,161
Long-term debt, less
current maturities....... 474,908 620,701 726,514 647,015 620,992 644,840 613,967
Total stockholders' equity
(deficiency)............. 87,203 21,141 (166,510) (294,613) (254,262) (291,500) (238,835)
</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.
16
<PAGE> 19
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 March 31, 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.
17
<PAGE> 20
AMERICA WEST AIRLINES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA ADJUSTMENTS MARCH 31,
1994 --------------------------- 1994
(HISTORICAL) DEBIT CREDIT (PRO FORMA)
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 151,452 $ 99,000(1e) $ 78,574(1b) $ 264,343
114,857(1d) 47,332(1a)
24,940(2)
Accounts receivable, net.......................... 88,542 -- 4,400(2) 84,142
Expendable spare parts and supplies, net.......... 29,303 -- 4,425(3a) 24,878
Prepaid expenses.................................. 40,118 -- -- 40,118
---------- ---------- ---------- ----------
Total current assets....................... 309,415 238,797 134,731 413,481
---------- ---------- ---------- ----------
Property and equipment, net......................... 710,680 -- 150,267(3a) 560,413
Restricted cash..................................... 39,425 -- 20,540(2) 18,885
Other assets........................................ 23,641 -- 2,588(3a) 21,053
Reorganization value in excess of amounts allocable
to identifiable assets............................ -- 680,100(3c) -- 680,100
---------- ---------- ---------- ----------
$1,083,161 $ 918,897 $ 308,126 $1,693,932
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current maturities of long-term debt.............. $ 119,727 $ 78,574(1b) $ 20,899(1a) $ 62,052
Accounts payable.................................. 67,402 7,515(1a) -- 59,887
Air traffic liability............................. 165,022 -- -- 165,022
Accrued compensation and vacation benefits........ 12,390 -- -- 12,390
Accrued interest.................................. 7,107 -- -- 7,107
Accrued taxes..................................... 24,870 -- -- 24,870
Other accrued liabilities......................... 15,242 -- 19,349(3b) 34,591
---------- ---------- ---------- ----------
Total current liabilities.................. 411,760 86,089 40,248 365,919
---------- ---------- ---------- ----------
Estimated liabilities subject to Chapter 11
proceedings....................................... 383,914 448,428(1a) 64,514(1a) --
Long-term debt, less current maturities............. 390,358 -- 99,000(1e) 582,209
92,851(1a)
Manufacturers' and other deferred credits........... 72,478 72,478(3a) 129,087(3b) 129,087
Other liabilities................................... 63,486 34,269(3a) -- 29,217
Stockholders' equity (deficiency):
Preferred stock................................... 18 18(1f) -- --
Common stock...................................... 6,323 6,323(1f) -- --
NewAWA class A common stock....................... -- -- 12(1d) 12
NewAWA class B common stock....................... -- -- 438(1d) 438
Additional paid in capital........................ 196,986 196,986(1f) 587,050(1d) 587,050
Retained earnings (deficit)....................... (423,451) -- 423,451(1f) --
---------- ---------- ---------- ----------
(220,124) 203,327 1,010,951 587,500
---------- ---------- ---------- ----------
Less deferred compensation and notes receivable --
employee stock purchase plans................... 18,711 -- 18,711(1c) --
---------- ---------- ---------- ----------
(238,835) 203,327 1,029,662 587,500
---------- ---------- ---------- ----------
$1,083,161 $ 844,591 $1,455,362 $1,693,932
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
18
<PAGE> 21
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 -- 5,526(6) 269,182
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 34,005(7a) 30,438(7b) 85,461
Other..................................... 238,598 -- 474(6) 238,124
----------- ------- ------- ----------
Total operating expenses.......... 1,204,310 34,005 36,438 1,201,877
----------- ------- ------- ----------
Operating income.................. 121,054 34,005 36,438 123,487
----------- ------- ------- ----------
Nonoperating income (expense):
Interest income........................... 728 -- 656(8) 1,384
Interest expense.......................... (54,192) 12,173(5) -- (66,365)
Loss on disposition of property and
equipment.............................. (4,562) -- -- (4,562)
Reorganization expense, net............... (25,015) -- 25,015(4) --
Other, net................................ (89) 83(5) -- (172)
----------- ------- ------- ----------
Total nonoperating expenses,
net............................. (83,130) 12,256 25,671 (69,715)
----------- ------- ------- ----------
Income before income taxes........ 37,924 46,261 62,109 53,772
----------- ------- ------- ----------
Income tax expense.......................... 759 33,088(9) -- 33,847
----------- ------- ------- ----------
Net income.................................. $ 37,165 $79,349 $62,109 $ 19,925
========== ======= ======= ==========
Earnings per share:
Primary................................... $ 1.50 $ 0.44
========== ==========
Fully diluted............................. $ 1.04 $ 0.44
========== ==========
Shares used for computation:
Primary................................... 27,525 45,000
========== ==========
Fully diluted............................. 41,509 45,000
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
19
<PAGE> 22
AMERICA WEST AIRLINES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED PRO FORMA ENDED
MARCH 31, ADJUSTMENTS MARCH 31,
1994 -------------------- 1994
(HISTORICAL) DEBIT CREDIT (PRO FORMA)
------------ ------- ------- ------------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger.............................. $324,427 $ -- $ -- $324,427
Cargo.................................. 10,491 -- -- 10,491
Other.................................. 10,346 -- -- 10,346
-------- ------- ------- --------
Total operating revenues.......... 345,264 -- -- 345,264
-------- ------- ------- --------
Operating expenses:
Salaries and related costs............. 79,471 -- -- 79,471
Rentals and landing fees............... 66,259 -- 1,063(6) 65,196
Aircraft fuel.......................... 37,932 -- -- 37,932
Agency commissions..................... 29,111 -- -- 29,111
Aircraft maintenance materials and
repairs.............................. 7,929 -- -- 7,929
Depreciation and amortization.......... 21,153 8,090(7a) 6,370(7b) 22,873
Other.................................. 65,659 -- 474(6) 65,185
-------- ------- ------- --------
Total operating expenses.......... 307,514 8,090 7,907 307,697
-------- ------- ------- --------
Operating income.................. 37,750 8,090 7,907 37,567
-------- ------- ------- --------
Nonoperating income (expense):
Interest income........................ 161 -- 164(8) 325
Interest expense....................... (13,175) 2,458(5) -- (15,633)
Loss on disposition of property and
equipment............................ (542) -- -- (542)
Reorganization expense, net............ (8,396) -- 8,396(4) --
Other, net............................. 9 21(5) -- (12)
-------- ------- ------- --------
Total nonoperating expenses,
net............................. (21,943) 2,479 8,560 (15,862)
-------- ------- ------- --------
Income before income taxes........ 15,807 10,569 16,467 21,705
-------- ------- ------- --------
Income tax expense.......................... 632 11,089(9) -- 11,721
-------- ------- ------- --------
Net income.................................. $ 15,175 $21,658 $16,467 $ 9,984
======== ======= ======= ========
Earnings per share:
Primary................................ $ 0.56 $ 0.22
======== ========
Fully diluted.......................... $ 0.40 $ 0.22
======== ========
Shares used for computation:
Primary................................ 29,153 45,000
========= ========
Fully diluted.......................... 41,055 45,000
========= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
20
<PAGE> 23
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 March 31, 1994, and the unaudited pro forma condensed statements of
operations for the year ended December 31, 1993 and for the three months ended
March 31, 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 March 31, 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; and
cancellation of liabilities subject to Chapter 11 proceedings;
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 of % Senior Notes, before estimated
fees and issuance costs of $1 million; and
f. Cancellation of all preexisting 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 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 leased aircraft) are deemed to reflect the fair
market values of those assets, certain other intangible
21
<PAGE> 24
AMERICA WEST AIRLINES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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) and 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
4. To eliminate reorganization expense, net. Additional reorganization
costs will be incurred subsequent to March 31, 1994. These costs, which could be
material, will be reflected as reorganization expenses in the statement of
operations in the period prior to the Effective Date of the Plan.
5. To record interest expense and amortize debt issuance costs for the
Senior Notes, assuming an interest rate of 11.5%, and to adjust interest expense
for the payoff of the D.I.P. loan and the amortization of certain debt, given
that all such transactions began at the Effective Date.
6. To adjust lease rent expense (principally aircraft operating leases) to
fair market rents.
7. To adjust depreciation and amortization to be reflective of pro forma
balance sheet amounts:
a. Amortization of Excess Reorganization Value of approximately $680
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.
8. To record interest income on additional cash and cash equivalents due to
the consummation of the Plan.
9. 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
22
<PAGE> 25
AMERICA WEST AIRLINES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
10. 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.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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 Three Months Ended March 31, 1994 as Compared to Three Months Ended
March 31, 1993
The Company realized net income of $15.2 million ($.56 per common share)
for the first quarter of 1994, the Company's fifth consecutive quarter of
profitability. 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 three code sharing
agreements. During the first quarter of 1994, the Company incurred $8.4 million
of reorganization expenses. For the first quarter of 1993, the Company reported
net income of $2.1 million ($.09 per common share) which included reorganization
expenses of $1.1 million.
Passenger revenues for the first three months of 1994 increased 9% to
$324.4 million compared to the corresponding period of 1993. The impact
resulting from a 4.5% decline in average passenger yield was more than offset by
the 14.1% increase in the level of traffic, measured in revenue passenger miles
("RPMs"). In addition, available seat miles ("ASMs") increased 1.1% to 4.302
billion miles compared to the first quarter of 1993 due to increased
utilization, in spite of operating one less aircraft.
24
<PAGE> 27
Revenues from sources other than passenger fares increased during the 1994
quarter to $20.8 million compared to $18.9 million for 1993. This improvement of
10% was due primarily to increases in freight and mail revenues.
The following table details certain key operating statistics for the three
month periods ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
FIRST QUARTER
----------------------------------------------
PERCENTAGE
1994 1993 INCREASE OR (DECREASE)
----- ----- ----------------------
<S> <C> <C> <C>
Number of Aircraft (end of period)........... 85 86 (1.2)
ASMs (millions).............................. 4,302 4,254 1.1
RPMs (millions).............................. 2,917 2,558 14.1
Load Factor (percent)........................ 67.8 60.1 12.8
Yield (cents/RPM)............................ 11.12 11.64 (4.5)
Revenue Per ASM (cents):
Passenger.................................. 7.54 7.00 7.7
Total...................................... 8.03 7.44 7.9
</TABLE>
Operating expense per ASM increased 1.6% to 7.15 cents for the first
quarter of 1994 compared to the same period of the prior year. The table below
sets forth the major categories of operating expense per available seat mile for
the first quarter of 1994 and 1993.
<TABLE>
<CAPTION>
FIRST QUARTER
--------------------------------------------
PERCENTAGE
1994 1993 INCREASE OR (DECREASE)
---- ---- ----------------------
(IN CENTS/ASM)
<S> <C> <C> <C>
Salaries and Related Costs..................... 1.85 1.74 6.3
Rentals and Landing Fees....................... 1.54 1.70 (9.4)
Aircraft Fuel.................................. .88 1.00 (12.0)
Agency Commissions............................. .68 .60 13.3
Aircraft Maintenance Materials and Repairs..... .18 .17 5.9
Depreciation and Amortization.................. .49 .46 6.5
Other.......................................... 1.53 1.37 11.7
---- ---- ----
7.15 7.04 1.6
==== ==== ====
</TABLE>
The changes in the components of operating expense per ASM between 1994 and
1993 are explained as follows:
-- Approximately $3.3 million of a total $5.3 million increase in salaries
and related costs is due to the performance and employment award
distributions under the transition pay program which was instituted in
the second quarter of 1993. The remaining balance is attributable to
increased costs associated with medical claims and a higher staffing
level.
-- Rentals and landing fees decreased due to the return of a leased
aircraft which was used to service the Hawaii market through March 31,
1993, 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.
-- Aircraft fuel expense decreased due to the decline in the average price
per gallon to 54.71 cents from 63.34 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 7.00 cents
for 1993 to 7.54 cents for 1994.
-- The level of aircraft maintenance materials and repairs expense remained
relatively unchanged.
-- The increase in depreciation and amortization expense is primarily
attributable to increased heavy engine overhauls on a scheduled basis.
25
<PAGE> 28
-- The increase in other operating expenses of 11.7 percent 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 $21.9
million and $15.0 million for the first quarter of 1994 and 1993, respectively.
Net interest expense for the first quarter of 1994 was $13.2 million, slightly
below the $13.9 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 the first quarter of 1994
would have been $16.4 million, if the Company had continued to accrue interest
on such debt. The increase in the loss on disposition of property and equipment
from $200,000 for the first quarter of 1993 to $500,000 for the first quarter of
1994 is primarily attributable to the sale of spare parts and equipment rendered
surplus as a result of the downsizing of the aircraft fleet that occurred in the
fall of 1992.
During the first quarter, the Company incurred expenses of $8.4 million in
1994 and $1.1 million in 1993 in connection with the Reorganization. Such
expenses for the first quarter of 1994 include charges of $4.2 million related
to the proposed settlement of an administrative claim.
Effective April 1, 1994, employee wages were increased between 2% and 8%
depending on length of service with the Company. In addition, effective April 1,
1994, the Company increased its matching contributions under its 401(k) plan
from 25% to 50% of the first 6% of base wage contributed by employees. The
Company estimates that such wage and contribution increases will result in
additional costs of $18 million during the last nine months of 1994.
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.
Additionally, Statements of Financial Accounting Standards No. 106 "Post
Retirement Benefits Other Than Pensions," ("SFAS 106") became effective January
1, 1993. The Company does not provide any post retirement benefits, thus, the
standard has no impact. Statement of Financial Accounting Standard No. 112,
"Employer's Accounting for Post Employment Benefits," ("SFAS 112") became
effective January 1, 1994. This statement requires that post employment benefits
be treated as part of compensation provided to an employee in exchange for
service. Previously most employers expensed the cost of these benefits as the
benefits were provided. The Company is still reviewing the impact of SFAS 112,
but does not believe it will have a material effect.
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.
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>
26
<PAGE> 29
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>
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.
27
<PAGE> 30
-- 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.
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.
28
<PAGE> 31
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 increased 3.8 percent compared to 1992 but was
lower by 3.5% compared to 1991. The increase 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.
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.
29
<PAGE> 32
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.
Additionally, Statements of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
106"), became effective January 1, 1993. The Company does not provide any post
retirement benefits, thus, the standard has no impact. Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Post Employment
Benefits" ("SFAS 112"), becomes effective January 1, 1994. This statement
requires that post employment benefits be treated as part of compensation
provided to an employee in exchange for service. Previously, most employers
expensed the cost of these benefits as the benefits were provided. The Company
is still reviewing the impact of SFAS 112, but does not believe it will have a
material effect.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, the Company had a working capital deficiency of $102.3
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 March 31, 1994, cash and cash equivalents were $151.5 million, an
increase from $99.6 million at December 31, 1993.
On the Effective Date, the Company expects unrestricted and restricted cash
balances to be $305.2 million and $18.9 million, respectively (compared to $25
million and $41 million, respectively, prior to the Chapter 11 filing). The
estimates of unrestricted cash include $214.9 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 $86 million, including $77.6 million of outstanding D.I.P.
financing. These estimated plan confirmation payments, however, do not include
any amounts on account of any cure payments which may be due under certain
aircraft purchase agreements or on account of any confirmation payments which
may arise as the result of any other settlements or agreements which may be
reached between America West and other parties after the date as of which the
projections were prepared. In addition, on the Effective Date, the Company is
projected to have working capital of $101.7 million.
Upon implementation of the Plan, the Company's total long-term debt
(including related current maturities and liabilities subject to compromise)
will be reduced from $929.3 million to $629.6 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 1.07 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
optional 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
30
<PAGE> 33
may be converted to B737-400 aircraft. Existing purchase agreements for B757-200
and B747-400 aircraft have neither been affirmed nor rejected but such
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 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, 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 with A-5 engines, 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."
31
<PAGE> 34
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 May 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 , 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 prior to , 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.
32
<PAGE> 35
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 December 31, 1993, the Company's
fleet consisted of 56 Boeing 737s, 18 Airbus 320s and 11 Boeing 757s, with an
average age of approximately 8.1 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 May 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
33
<PAGE> 36
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
34
<PAGE> 37
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 $126 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.
35
<PAGE> 38
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 December 31, 1993, the
Company operated a fleet of 56 Boeing 737s, 18 Airbus A320s and 11 Boeing 757s.
The table below sets forth certain information regarding the Company's
aircraft fleet at December 31, 1993:
<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 24.3 --
B737-200 Owned 5 14.8 --
B737-200 Leased 17 14.0 5.9
B737-300 Leased 22 6.6 8.8
B737-300 Owned 11 5.2 --
B757-200 Leased 9 7.8 11.0
B757-200 Owned 2 4.3 --
A320 Leased 18 3.9 16.6
--
TOTAL 85 8.1
==
</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>
36
<PAGE> 39
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.
With respect to the contracts to purchase aircraft from Boeing presented in
the table above, a purchase agreement to acquire B737-300 aircraft had 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. The existing purchase agreements for the B757-200 and B747-400
aircraft have neither been affirmed nor rejected but such 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.
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. Negotiations are currently continuing
between AVSA and the Company.
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 with A-5
engines, 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.
In December 1991, in connection with the $77.6 Million D.I.P. Facility, 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 and the aircraft were 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.
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.
37
<PAGE> 40
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. ALPA has submitted its preliminary proposal
to the Company. Formal negotiations have commenced. In February 1989, the
Association of Flight Attendants ("AFA") lost an election to represent the
Company's customer service representatives ("CSRs"). In July 1993, the National
Mediation Board ordered a rerun election. In April 1994, the Transportation
Workers Union ("TWU") filed a petition to represent the Company's fleet service
personnel. The Company anticipates that elections with respect to the proposals
will be held during 1994.
The Company cannot predict whether either the AFA or TWU 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 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.
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
38
<PAGE> 41
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
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%.
39
<PAGE> 42
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 , 1994, and will become effective on the Effective
Date, which the Company anticipates will be prior to , 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 ordering 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.
40
<PAGE> 43
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
41
<PAGE> 44
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
42
<PAGE> 45
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.
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."
43
<PAGE> 46
EXECUTIVE COMPENSATION
The table below 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").
44
<PAGE> 47
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
NAME 1993 FISCAL YEAR-END AT 1993 FISCAL
- ---- -------------------- 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.
45
<PAGE> 48
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. Upon confirmation of the Plan, the
Company has agreed to seek Bankruptcy Court approval of payment to Mr. Myers of
a reorganization success bonus, and grant, pursuant to the Plan, options to
acquire shares of Common Stock in the reorganized Company. 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 $47,000 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, reduced,
however, by the amount of any reorganization success bonus payable to Mr. Franke
in connection with the reorganization. In addition to the Severance Payment, the
agreement 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. The
Board of Directors has discussed and continues to discuss a reorganization
success bonus with Mr. William A. Franke. It also has discussed and has
tentatively approved up to $1.2 million in reorganization success bonuses for
other key employees of the Company.
46
<PAGE> 49
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Two members of the Company's Board of Directors, John F. Tierney and Declan
Treacy, were elected to the Board pursuant to a certain management letter
agreement, as amended and restated, between the Company and its
debtor-in-possession lenders. 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.
During the Company's bankruptcy proceedings, affiliates of GPA loaned the
Company $70 million of D.I.P. financing. As of June 30, 1994, the aggregate
principal amount of D.I.P. financing provided by GPA was $54.4 million. The
D.I.P. financing provided by GPA and other debtor-in-possession lenders is
secured by substantially all of the assets of the Company. In addition to its
rights with respect to the D.I.P. financing, GPA also currently has the right,
pursuant to a 1991 put agreement (the "1991 Put Agreement"), to require the
Company to lease ten A320 aircraft at rental rates which are above today's
market rates. Pursuant to the Plan and in accordance with a settlement agreement
to be entered as of the Effective Date (the "Settlement Agreement"), the Company
will repay the D.I.P. loan in cash and, in consideration for concessions by GPA
under the 1991 Put Agreement, GPA will receive 900,000 shares of Class B Common
Stock, 1,384,615 Warrants, a cash payment of $30.525 million and rights to put
up to eight aircraft to the Company. The new put agreement gives GPA the right
from June 30, 1995 through June 30, 1999 to require the Company to lease up to
eight new or used aircraft at market rates.
In addition to the relationships described above, the Company presently
leases or subleases a total of sixteen Airbus A320 aircraft and three spare
engines from GPA or its affiliates for terms expiring at various dates through
July 2013. As of December 31, 1993, the Company was obligated to pay
approximately $1.136 billion over the respective terms of these leases.
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."
47
<PAGE> 50
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.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------ ------------------------ CLASS A AND B
---------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED COMBINED VOTING POWER
------------------------ ------------------------ ---------------------
BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
- ---------------- --------- ---------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
AmWest Partners, L.P.
201 Main Street
Suite 2420
Fort Worth, Texas 76102..... 1,200,000 100% (1) %
TPG Partners, L.P.(2)(3)(4)
201 Main Street
Suite 2420
Fort Worth, Texas 76102..... 733,333 61.1% (5) %
Continental Airlines, Inc.(2)
2929 Allen Parkway
Houston, Texas 77019........ 366,667 30.6% (6) %
Mesa Airlines, Inc.(2)
2525 30th Street
Farmington, New Mexico
87401....................... 100,000 8.3% (7) %
Lehman Brothers Inc.
200 Vessey Street
American Express Tower
World Financial Center
New York, NY
10285-1800.................. -- -- (8)
FMR Corp.
82 Devonshire St.
Boston, MA 02109............ -- -- (9)
William A. Franke............. -- -- -- --
A. Maurice Myers.............. -- -- -- --
Thomas P. Burns............... -- -- (10) *
Thomas F. Derieg.............. -- -- -- --
Martin J. Whalen.............. -- -- (11) *
Raymond T. Nakano............. -- -- -- --
Frederick W. Bradley, Jr...... -- -- -- --
Michael J. Conway(10)......... -- -- (12) *
O. Mark De Michele............ -- -- (13) *
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).................... -- -- 42,998(14) *
</TABLE>
48
<PAGE> 51
- ---------------
* Less than 1%.
(1) Includes shares of Class B Common Stock that may be acquired upon
exercise of Warrants. For a more complete description of AmWest Partners,
L.P., please see "Summary" and "Risk Factors -- Concentration of Voting
Power; Influence of AmWest and its Partners."
(2) Represents shares allocated to investors upon the dissolution 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). No other persons control TPG, TPG GenPar or TPG Advisors.
(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 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(6) Includes shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(7) Includes shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(8) Includes shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(9) Includes 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
controlling 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) Includes shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(11) Includes shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(12) Represents America West's estimates. 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.
(13) Includes shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(14) Includes shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
49
<PAGE> 52
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.
50
<PAGE> 53
SELLING SECURITYHOLDERS
The Selling Securityholders are the partners of AmWest, GPA and Fidelity.
AmWest is a limited partnership including Mesa and Continental. 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 $ million into the Company in exchange for the
Securities offered hereby and 1,200,000 shares of Class A Common Stock. It is
contemplated that prior to, on, or after the Effective Date AmWest will
distribute the Securities held by it to its partners, and such Securities will
be held directly by the partners of AmWest.
The following table sets forth the name of each Selling Securityholder,
assuming the distribution of the Securities held by AmWest to its partners, and
the amount of the Securities (other than the Senior Notes) owned by each such
Selling Securityholder which are subject to being offered hereby. In addition,
Fidelity holds $100 million principal amount of the Senior Notes all of which
may be offered and sold pursuant to this Prospectus.
<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.(2)............................. 733,333
Continental Airlines, Inc......................... 366,667
Mesa Airlines, Inc................................ 100,000
GPA Group plc..................................... 0
Fidelity Copernicus Fund, L.P.(2)................. 0
Belmont Capital Partners II, L.P.(2).............. 0
Belmont Fund, L.P.(2)............................. 0
Lehman Brothers Inc............................... 0
------------ --------------- ---------
TOTAL................................... 1,200,000
</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.
(2) Does not include shares issued pursuant to the Plan of Reorganization for
preexisting claims and interests.
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; the offer and sale of 14,775,000 of such shares
of Class B 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 B Common
Stock reserved for issuance upon the exercise of Warrants; the offer and sale of
4,153,846 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
51
<PAGE> 54
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 and GPA 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 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 of
, 1994 (the "Indenture") between the Company and , 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 , 2001, and will bear interest
at the rate per annum stated on the cover page hereof from , 1994,
payable semiannually in arrears on and of each year,
commencing ,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
, 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.
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.
52
<PAGE> 55
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 , 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 from a Public Offering Sale (1) at a Redemption Price equal to 104% of
the aggregate principal amount of the Senior Notes so to be redeemed, plus
accrued and unpaid interest thereon to the Redemption Date, to the extent of the
excess of (a) $20,000,000 over (b) the sum of (x) such amount of such Net
Offering Proceeds as is required to be applied to purchase Senior Notes from
Holders tendering the same in a Net Proceeds Offer as a result of such Public
Offering Sale, plus (y) any amount of Net Offering Proceeds of any prior Public
Offering Sale received prior to , 1997 and either applied to
purchase Senior Notes pursuant to a prior Net Proceeds Offer or applied to
redeem Senior Notes as described herein, and otherwise (2) 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 , 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 of the years indicated below:
1997: 105.0%
1998: 103.3%
1999: 101.7%
2000: 100.0%
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 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
53
<PAGE> 56
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.
Disposition of Proceeds of Public Offering Sale. If the Company shall
consummate a Public Offering Sale at any time or from time to time prior to
, 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, make an offer to apply a portion of the
Net Offering Proceeds thereof equal to 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
, 1997, and applied to purchase Securities on a pro rata basis from
all Holders (a "Net Proceeds Offer") at a purchase price equal to 104% of the
principal amount of the Securities so purchased plus accrued and unpaid interest
to the date of purchase.
Notice of a Net Proceeds Offer shall be mailed, by first class mail, by the
Trustee on behalf of the Company not more than 60 days after the consummation of
the relevant Public Offering Sale to all Holders at their last registered
addresses, with copies to the Trustee. The notice shall contain all instructions
and material necessary to enable such Holders to tender Senior Notes pursuant to
the Net Proceeds Offer and shall state the terms specified in Section 4.11.
54
<PAGE> 57
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 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 $1 million and less than or equal to $5 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 or an Independent Financial Advisor 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. In addition,
neither the Company nor any Subsidiary shall enter into an Affiliate Transaction
or series of related Affiliate Transactions involving or having a value of more
than $5 million unless the Company or such Subsidiary, as the case may be, has
received an opinion from an Independent Financial Advisor to the effect that the
financial terms of such Affiliate Transaction are fair to the Company or such
Subsidiary or no less favorable to the Company or such Subsidiary, as the case
may be as those that 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 or their respective
Affiliates as contemplated by Alliance Agreements as amended from time to time
in accordance with the provisions thereof.
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
55
<PAGE> 58
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.
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 (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.
56
<PAGE> 59
"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".
"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 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.
"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
57
<PAGE> 60
security interest); provided that in no event shall a true operating lease be
deemed to constitute a Lien hereunder.
"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 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.
"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
58
<PAGE> 61
(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, or
(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, 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 Restricted 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 Restricted
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
59
<PAGE> 62
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 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
60
<PAGE> 63
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.
THE TRUSTEE
will be the Trustee under the Indenture. Its address is
.
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.
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
61
<PAGE> 64
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.
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 % of
the outstanding Class B Common Stock, which collectively represent approximately
% of the total voting power of the outstanding Common Stock. In addition,
AmWest holds Warrants to acquire an additional 2,769,231 shares of Class B
Common Stock that, if exercised, would increase AmWest's voting control to %.
See "Principal Stockholders -- Stockholders' Agreement" below for a discussion
of arrangements regarding the composition of the Board of Directors of the
Company.
Each of the Selling Securityholders may at any time elect to convert shares
of Class A Common Stock 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
62
<PAGE> 65
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 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 as of
, 1994 (the "Warrant Agreement") between the Company and
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 4,153,846 Warrants offered hereby entitles the registered
holder to purchase from the Company one share of Class B Common Stock for
$ , subject to adjustment as provided in the Warrant Agreement, at any
time after the Effective Date and before the fifth anniversary of the Effective
Date (the "Expiration Date"). (Section 3.01)
63
<PAGE> 66
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)).
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 $ 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
64
<PAGE> 67
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, 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, 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 the terms of the Plan; and (iii) AmWest has
agreed that subject to certain exceptions it will not, prior to ,
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 "Selling
Securityholders."
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, dealers or
agents, such underwriters, 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 a particular underwriters,
dealers or agents might be in excess of those customary in the types of
transactions involved). The Selling Securityholders and any underwriters,
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,
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.
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
65
<PAGE> 68
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.
Application has been made to list the Class B Common Stock and the Warrants on a
national securities 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 Class B 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,
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 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.
66
<PAGE> 69
AMERICA WEST AIRLINES, INC., D.I.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 1994 (UNAUDITED)
Condensed Balance Sheets as of March 31, 1994 (unaudited)........................... F-2
Condensed Statements of Operations and Accumulated Deficit for the three months
ended March 31, 1994 (unaudited) and 1993 (unaudited)............................ F-4
Condensed Statements of Cash Flows for the three months ended March 31, 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-17
Balance Sheets as of December 31, 1993 and 1992..................................... F-18
Statements of Operations for the Years ended December 31, 1993, 1992 and 1991....... F-20
Statements of Cash Flows for the Years ended December 31, 1993, 1992 and 1991....... F-21
Statements of Stockholders' Equity (Deficiency) for the Years ended December 31,
1993, 1992 and 1991.............................................................. F-22
Notes to Financial Statements....................................................... F-23
</TABLE>
F-1
<PAGE> 70
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 151,452 $ 99,631
Accounts receivable, less allowance for doubtful accounts of
$3,209,000 in 1994 and $3,030,000 in 1993.................... 88,542 65,744
Expendable spare parts and supplies, less allowance for
obsolescence of $7,466,000 in 1994 and $7,231,000 in 1993.... 29,303 28,111
Prepaid expenses................................................ 40,118 34,939
---------- ----------
Total current assets.................................... 309,415 228,425
---------- ----------
Property and equipment:
Flight equipment................................................ 881,478 872,104
Other property and equipment.................................... 182,313 180,607
---------- ----------
1,063,791 1,052,711
Less accumulated depreciation and amortization............... 404,947 385,776
---------- ----------
658,844 666,935
Equipment purchase deposits..................................... 51,836 51,836
---------- ----------
710,680 718,771
---------- ----------
Restricted cash................................................... 39,425 46,296
Other assets...................................................... 23,641 23,251
---------- ----------
$1,083,161 $1,016,743
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-2
<PAGE> 71
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............................. $ 119,727 $ 125,271
Accounts payable................................................. 67,402 62,957
Air traffic liability............................................ 165,022 118,479
Accrued compensation and vacation benefits....................... 12,390 11,704
Accrued interest................................................. 7,107 8,295
Accrued taxes.................................................... 24,870 14,114
Other accrued liabilities........................................ 15,242 11,980
----------- -----------
Total current liabilities................................ 411,760 352,800
----------- -----------
Estimated liabilities subject to Chapter 11 proceedings............ 383,914 381,114
Long-term debt, less current maturities............................ 390,358 396,350
Manufacturers' and deferred credits................................ 72,478 73,592
Other liabilities.................................................. 63,486 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 25,289,270 shares in 1994 and
25,291,102 in 1993............................................ 6,323 6,323
Additional paid-in capital....................................... 196,986 197,010
Accumulated deficit.............................................. (423,451) (438,626)
----------- -----------
(220,124) (235,275)
Less deferred compensation and notes receivable -- employee stock
purchase plans................................................... 18,711 18,987
----------- -----------
Total stockholders' deficiency........................... (238,835) (254,262)
----------- -----------
$ 1,083,161 $ 1,016,743
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-3
<PAGE> 72
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Operating revenues:
Passenger......................................................... $ 324,427 $ 297,661
Cargo............................................................. 10,491 9,595
Other............................................................. 10,346 9,349
----------- -----------
Total operating revenues.................................. 345,264 316,605
----------- -----------
Operating expenses:
Salaries and related costs........................................ 79,471 74,160
Rentals and landing fees.......................................... 66,259 72,490
Aircraft fuel..................................................... 37,932 42,406
Agency commissions................................................ 29,111 25,464
Aircraft maintenance materials and repairs........................ 7,929 7,194
Depreciation and amortization..................................... 21,153 19,723
Other............................................................. 65,659 58,000
----------- -----------
Total operating expenses.................................. 307,514 299,437
----------- -----------
Operating income.......................................... 37,750 17,168
----------- -----------
Nonoperating income (expenses):
Interest income................................................... 161 237
Interest expense.................................................. (13,175) (13,897)
Loss on disposition of property and equipment..................... (542) (198)
Reorganization expense, net....................................... (8,396) (1,086)
Other, net........................................................ 9 (46)
----------- -----------
Total nonoperating expenses, net.......................... (21,943) (14,990)
----------- -----------
Income before income taxes................................ 15,807 2,178
----------- -----------
Income taxes........................................................ 632 44
----------- -----------
Net income.......................................................... 15,175 2,134
Accumulated deficit at beginning of period.......................... (438,626) (475,791)
----------- -----------
Accumulated deficit at end of period................................ $ (423,451) $ (473,657)
=========== ===========
Earnings per share:
Primary........................................................... $ 0.56 $ 0.09
=========== ===========
Fully diluted..................................................... $ 0.40 $ 0.09
=========== ===========
Shares used for computation:
Primary........................................................... 29,153 24,020
=========== ===========
Fully diluted..................................................... 41,055 41,991
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE> 73
AMERICA WEST AIRLINES, INC., D.I.P.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 15,175 $ 2,134
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization................................... 21,153 19,723
Amortization of manufacturers' and deferred credits............. (1,114) (1,152)
Loss on disposition of property and equipment................... 542 198
Reorganization items............................................ 3,703 --
Other........................................................... (187) (122)
Changes in operating assets and liabilities:
Increase in accounts receivable, net............................... (22,798) (8,059)
Decrease (increase) in spare parts and supplies, net............... (1,192) 3,429
Increase in prepaid expenses....................................... (5,179) (1,269)
Decrease in other assets and restricted cash....................... 6,481 6,375
Increase (decrease) in accounts payable............................ 4,823 (2,859)
Increase in air traffic liability.................................. 45,325 14,216
Increase (decrease) in accrued compensation and vacation
benefits........................................................ 686 (358)
Increase in accrued interest....................................... 1,530 1,572
Increase in accrued taxes.......................................... 10,756 3,813
Increase in other accrued liabilities.............................. 3,139 2,295
Decrease in other liabilities...................................... (3,209) (2,792)
-------- --------
Net cash provided by operating activities....................... 79,634 37,144
Cash flows from investing activities:
Purchases of property and equipment................................ (13,665) (8,893)
Proceeds from disposition of property.............................. 172 223
-------- --------
Net cash used in investing activities........................... (13,493) (8,670)
Cash flows from financing activities:
Repayment of debt.................................................. (14,320) (14,730)
-------- --------
Net cash used in financing activities........................... (14,320) (14,730)
-------- --------
Net increase in cash and cash equivalents....................... 51,821 13,744
-------- --------
Cash and cash equivalents at beginning of period..................... 99,631 74,383
-------- --------
Cash and cash equivalents at end of period........................... $151,452 $ 88,127
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-5
<PAGE> 74
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1994
1. REORGANIZATION UNDER CHAPTER 11, LIQUIDITY AND FINANCIAL CONDITION
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 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 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.
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 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.
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 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
F-6
<PAGE> 75
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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 March 31, 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
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,
F-7
<PAGE> 76
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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
March 31, 1994, $115 million of the filed claims have 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
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 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 funds managed or advised by Fidelity Management &
Research Company and its affiliates. 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 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 in the Company for
$114.8 million and $100 million in new senior unsecured debt securities which
can be increased to $130 million by the Company depending upon certain other
events, prior to the date fixed for voting by the Bankruptcy Court. 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 in America West after the Company is reorganized. The
terms of the Third Revised Investment Agreement will be incorporated into a plan
of reorganization to be filed with the Bankruptcy Court; however, modifications
to the Third Revised 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 Third Revised Investment
Agreement will be accepted by the parties entitled to vote thereon or confirmed
by the Bankruptcy Court. Moreover, consummation of a Plan of Reorganization
F-8
<PAGE> 77
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
based on the Third Revised Investment Agreement 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 Third Revised Investment Agreement, the Third
Revised 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 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 repurchase by
AmWest of a portion of the shares to be issued to unsecured creditors under a
plan of reorganization.
3. Holders of equity interest would receive 5 percent of the new common
equity of the Company. In addition, holders of equity interests would have the
right to purchase up to $14.4 million of the new common equity in 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 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 multipled 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.
4. In exchange for certain concessions principally arising from
cancellation of the right of Guiness 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 new unsecured debt securities or an equivalent amount in
cash, 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.
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 Third
Revised 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 for a
period not less than three years following the Reorganization 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 Third Revised 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
F-9
<PAGE> 78
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On March 11, 1994, the Company and AmWest also entered into an Interim
Procedures Agreement which was filed with the Bankruptcy Court on March 11, 1994
(the "Original Procedures Agreement"). The Original Procedures Agreement was
superseded by a Revised Interim Procedures Agreement dated as of March 11, 1994
and filed with the Bankruptcy Court on March 28, 1994 (the "Revised Procedures
Agreement"). The Revised Procedures Agreement was superseded by a Second Revised
Interim Procedures Agreement dated as of April 7, 1994 and filed with the
Bankruptcy Court on April 8, 1994 (the "Second Revised Procedures Agreement").
The Second Revised Procedures Agreement was superseded by a Third Revised
Interim Procedures Agreement dated as of April 21, 1994 and filed with the
Bankruptcy Court on April 26, 1994 (the "Third Revised Procedures Agreement").
The Procedures Agreement 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 Third Revised Procedures Agreement is substantially identical to the
Second Revised Procedures Agreement except for the following principal
modifications:
1. All provisions of the Second Revised Procedures Agreement providing for
the payment to AmWest of a termination or break-up fee were deleted. In lieu
thereof, AmWest would be entitled, in the event the Third Revised Investment
Agreement is terminated on account of the Company's acceptance of a qualified
overbid or the confirmation of a competing Plan of Reorganization, to seek
Bankruptcy Court approval of a special payment (not to exceed $4 million) to
AmWest based on the "substantial contribution" principle set forth in Section
503(b) of the Bankruptcy Code. The Company is committed to cooperate in good
faith as reasonably requested by AmWest in obtaining Bankruptcy Court approval
of any special payment requested by AmWest and, should such approval be granted,
to make the special payment to AmWest without offset.
2. Under the Second Revised Procedures Agreement, the Company was entitled
to consider unsolicited competing bids regardless of when received by the
Company. The Third Revised Procedures Agreement prohibits the Company from
considering any unsolicited competing bid received by the Company after the
entry by the Bankruptcy Court of an order approving a disclosure statement
relating to AmWest proposal. Should the Company breach the Procedures Agreement
at any time, AmWest has agreed that any damages it may be entitled to seek shall
be limited to an amount not to exceed $4 million.
3. The Third Revised Procedures Agreement grants to AmWest the right to
terminate the Third Revised Procedures Agreement and the Third Revised
Investment Agreement for any reason prior to the entry by the Bankruptcy Court
of an order approving a disclosure statement relating to AmWest proposal. Should
AmWest exercise such right, it would become obligated to refund to the Company
all expenses incurred by AmWest after March 1, 1994 and previously reimbursed or
paid by the Company.
4. The Second Revised Procedures Agreement obligated the Company to
reimburse AmWest for all reasonable out-of-pocket or third-party expenses
incurred by AmWest in connection with the AmWest investment proposal subject to
certain limitations, including with respect to expenses incurred after March 1,
1994 (i) a $250,000 monthly cap and (ii) a $3 million overall cap. The Third
Revised Procedures Agreement increased the monthly cap to $300,000 and
eliminated the $3 million overall cap.
The Third Revised Procedures Agreement was approved by the Bankruptcy Court
on May 4, 1994.
The Company is currently developing with AmWest a plan of reorganization
based upon the Third Revised Investment Agreement and the Third Revised
Procedures Agreement.
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
F-10
<PAGE> 79
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
1129(b) of the Bankruptcy Code, assuming certain tests are met. The Company
cannot predict whether any plan submitted by it would be approved.
The Company is currently unable to predict when it may file a plan of
reorganization based upon the Third Revised 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 from 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 holders of equity
interests for voting, and 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
Third Revised Investment Agreement might be submitted for voting and
confirmation.
If at any time the Creditor's 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. The plan to be based upon the
Investment Agreement provides for a substantial distribution to holders of
equity interests, as noted above. However, there can be no assurances that this
plan will be confirmed as currently configured.
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.
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".
F-11
<PAGE> 80
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated liabilities subject to Chapter 11 proceedings as of March 31,
1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1994
---------
(IN THOUSANDS)
<S> <C>
Long-term debt (including convertible subordinated debentures of
$138.9 million).................................................... $223,609
Accounts payable and accrued liabilities............................. 117,161
Accrued interest..................................................... 17,425
Accrued taxes........................................................ 25,719
--------
$383,914
========
</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.
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>
MARCH 31,
---------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Provisions for pre-petition and administrative claims.............. $4,180 $ --
Professional fees.................................................. 5,268 1,521
D.I.P. financing issuance costs.................................... 209 --
Interest income.................................................... (848) (468)
Other.............................................................. (413) 33
------ ------
$8,396 $1,086
====== ======
</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 reflects 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 1994 and 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 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 March 31, 1994, the Company made a principal payment of $5 million as
required under the amended D.I.P. loan agreement. Under the amended terms of the
D.I.P. financing, the Company also is required 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 March 31, 1994, the
Company notified the D.I.P. lenders that the Company's unrestricted cash
exceeded $125 million; however, the D.I.P. lenders have not exercised their
F-12
<PAGE> 81
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
prepayment right. The D.I.P. financing contains a minimum unencumbered cash
balance requirement of $55 million at March 31, 1994 and other financial
covenants. At March 31, 1994, the Company was in compliance with these
covenants.
At March 31, 1994, the outstanding balance of the D.I.P. loan was $78.6
million with a maturity date of June 30, 1994. Presently, the Company does not
possess the liquidity to satisfy its D.I.P. loan obligation and still maintain a
sufficient level of working capital or does it appear that a Plan of
Reorganization could be confirmed prior to June 30, 1994. Consequently, the
Company is in negotiations with its current D.I.P. lenders to obtain alternative
repayment terms. Although there can be no assurances that such alternative
repayment terms will be agreed to by the D.I.P. lenders, the Company is
confident that such revise terms will be granted based on its recent operating
performance and the progress it has achieved with respect to the reorganization
process.
4. EMPLOYEE STOCK PURCHASE PLANS
As of March 31, 1994, 7,486,427 shares of common stock had been sold under
the plans. No shares were sold during the first quarter of 1994. At March 31,
1994, the unamortized deferred compensation and outstanding receivable balance
relating to such plans amounted to $1,083,000 and $17,624,000, respectively.
5. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
Cash paid for interest and income taxes during the three months ended March
31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Interest (net of amounts capitalized)................ $11,362,000 $12,291,000
Income taxes......................................... $ 221,000 $ --
</TABLE>
In addition, during the three months ended March 31, 1994 and 1993, the
Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Equipment acquired through capital leases................ $ 111,000 $ --
Conversion of long-term debt to common stock............. $ -- $636,000
Accrued interest reclassified to long-term debt.......... $2,101,000 $ 8,831
</TABLE>
6. INCOME TAX
For the quarter ended March 31, 1994, the Company recorded income tax
expense as follows:
<TABLE>
<S> <C>
Current taxes
Federal............................................. $450
State............................................... 182
----
$632
====
Deferred taxes........................................ $ --
====
</TABLE>
For the quarter ended March 31, 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 for an effective tax rate of 4 percent.
As of March 31, 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
F-13
<PAGE> 82
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
7. 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 interest at
10.5 percent over the remaining term of the lease or secured borrowing with
repayment commencing December 1991. At March 31, 1994 and December 31, 1993, the
remaining unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable........................................... $ 5,520 $ 5,744
Other liabilities.......................................... 21,382 22,912
Long-term debt............................................. 18,196 18,671
------- -------
$45,098 $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 March 31, 1994
and December 31, 1993, the remaining unpaid deferrals are reported as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................. $ 1,823 $ 1,823
Other liabilities............................................ 8,058 8,513
Long-term debt............................................... 20,971 21,539
------- -------
$30,852 $31,875
======= =======
</TABLE>
As of March 31, 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
F-14
<PAGE> 83
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In the first quarter of 1994, the Company entered into a lease agreement
for a B757 aircraft for a term of three years with monthly payments in advance.
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.................................................................. $ 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 $59 million and $65
million for the three months ended March 31, 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 certain spare rotable parts with a net book
value of $35.8 million and $17.6 million in restricted cash.
(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 March 31, 1994, 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> <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
F-15
<PAGE> 84
AMERICA WEST AIRLINES, INC., D.I.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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. As of March 31, 1994,
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.
(d) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. At March 31, 1994, approximately 82 percent 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 minimal in the past, have been considered in establishing allowances for
doubtful accounts.
F-16
<PAGE> 85
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-17
<PAGE> 86
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-18
<PAGE> 87
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-19
<PAGE> 88
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-20
<PAGE> 89
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-21
<PAGE> 90
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-22
<PAGE> 91
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-23
<PAGE> 92
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-24
<PAGE> 93
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-25
<PAGE> 94
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-26
<PAGE> 95
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-27
<PAGE> 96
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-28
<PAGE> 97
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-29
<PAGE> 98
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-30
<PAGE> 99
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-31
<PAGE> 100
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-32
<PAGE> 101
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-33
<PAGE> 102
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-34
<PAGE> 103
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-35
<PAGE> 104
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-36
<PAGE> 105
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-37
<PAGE> 106
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-38
<PAGE> 107
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-39
<PAGE> 108
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-40
<PAGE> 109
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-41
<PAGE> 110
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-42
<PAGE> 111
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-43
<PAGE> 112
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-44
<PAGE> 113
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-45
<PAGE> 114
========================================================
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............. 8
The Company........................... 12
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Financial Data............... 16
Unaudited Pro Forma Condensed
Financial Information............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 32
Management............................ 41
Compensation Committee Interlocks and
Insider Participation............... 47
Certain Transactions.................. 47
Principal Stockholders................ 48
Selling Securityholders............... 51
Shares Eligible for Future Sale....... 51
Description of the Senior Notes....... 52
Description of Capital Stock.......... 61
Description of Warrants............... 63
Plan of Distribution.................. 65
Legal Matters......................... 66
Experts............................... 66
Index to Financial Statements......... F-1
</TABLE>
========================================================
========================================================
AMERICA WEST
AIRLINES, INC.
14,775,000 SHARES
CLASS B COMMON STOCK
$100,000,000 %
SENIOR UNSECURED NOTES DUE 2001
4,153,846 CLASS B
COMMON STOCK WARRANTS
________________________
PROSPECTUS
_______________________
, 1994
========================================================
<PAGE> 115
PART II
INFORMATION REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............................. $ 84,286
NYSE Listing Fee.......................................................... *
Blue Sky Filing Fees and Expenses......................................... *
Printing and Engraving Costs.............................................. *
Legal Fees and Expenses................................................... *
Accounting Fees and Expenses.............................................. *
Trustee's Fees and Expenses............................................... *
Transfer Agent Fees....................................................... *
Miscellaneous............................................................. *
--------
Total........................................................... $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes,
inter alia, a corporation generally to indemnify any person ("indemnitee") who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (other than an action by or in the right
of the corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation, in a similar position with another corporation or
entity, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. With respect to actions or
suits by or in the right of the corporation; however, an indemnitee who acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation is generally limited to attorneys' fees and
other expenses, and no indemnification shall be made if such person is adjudged
liable to the corporation unless and only to the extent that a court of
competent jurisdiction determines that indemnification is appropriate. Section
145 further provides that any indemnification shall be made by the corporation
only as authorized in each specific case upon a determination by the (i)
stockholders, (ii) board of directors by a majority vote of a quorum of
disinterested directors so directs, that indemnification of the indemnitee is
proper because he has met the applicable standard of conduct. Section 145
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
by-law agreement, vote of stockholders or disinterested directors or otherwise.
Section 8.02 of the Company's By-laws, a copy of which is filed as Exhibit
3.2 to this Registration Statement provides, in substance, that directors,
officers, employees and agents shall be indemnified to the fullest extent
permitted by Section 145 of the DGCL.
Article 12.0 of the Company's Restated Certificate of Incorporation, a copy
of which is filed as Exhibit 3.1 to this Registration Statement, limits the
liability of directors of the Company to the Company or its stockholders (in
their capacity as directors but not in their capacity as officers) to the
fullest extent permitted by the DGCL. Specifically, directors of the Company
will not be personally liable for monetary damages for
II-1
<PAGE> 116
breach of a director's fiduciary duty as a director, except for 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) for unlawful
payments of dividends or unlawful stock repurchase or redemptions as provided in
section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. The Restated Certificate of Incorporation
also provides that if the DGCL is amended after the approval of the Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Company will be eliminated or limited to the full extent
permitted by the DGCL, as so amended.
The form of the Third Revised Investment Agreement filed as Exhibit 10.1 to
this Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Selling Securityholder against
civil liabilities under the Securities Act. Certain of these provisions are set
forth in the form of the Registration Rights Agreement filed as Exhibit 4.6 to
this Registration Rights Agreement.
The Company intends to enter into indemnification agreements with certain
of its directors providing for indemnification to the fullest extent permitted
by the laws of the State of Delaware. These agreements provide for specific
procedures to better assure the directors' rights to indemnification, including
procedures for directors to submit claims, for determination of directors
entitled to indemnification (including the allocation of the burden of proof and
selection of a reviewing party) and for enforcement of directors'
indemnification rights.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following summarizes transactions occurring within the last three years
in which the Company has sold securities without registration under the
Securities Act.
On February 15, 1991, the Company sold 253,422 shares of its common stock
to Transpacific Enterprises, Inc. for $1,393,821, or $5.50 per share, in
reliance upon the exemption set forth in Section 4(2) of the Securities Act.
On the Effective Date, the Company will issue the following securities in
connection with its Reorganization:
1. The Company will issue shares of Class B Common Stock to
holders of approximately $ million of allowed, general unsecured
prepetition claims against the Company in satisfaction of such claims in
reliance upon the exemption set forth in Section 1145 of the Bankruptcy
Code.
2. The Company will issue shares of Class B Common Stock
( of which shares are to be issued in exchange for cash,
aggregating $ , provided by such equity holders upon the exercise
of rights to subscribe for such shares at a price of $8.889 per share) and
6,230,769 Warrants to the holders of pre-existing equity interests in the
Company in consideration of cancellation of such pre-existing equity
interests in reliance upon the exemption set forth in Section 1145 of the
Bankruptcy Code.
3. The Company issued 900,000 shares of Class B Common Stock and
1,384,615 Warrants to Guiness Peat Aviation and its affiliates ("GPA") in
satisfaction of claims of GPA against the Company in reliance upon the
exemption set forth in Section 1145 of the Bankruptcy Code.
4. The Company issued the following securities to AmWest (or to Lehman
Brothers Inc. or certain funds managed or advised by Fidelity Management
Trust Company, in each case as assignees of AmWest's rights to acquire such
securities) for new consideration paid to the Company in accordance with
the Company's Plan: (i) 1,200,000 shares of Class A Common Stock for $7.467
per share; (ii) shares of Class B Common Stock for $7.467 per
share and shares of Class B Common Stock for $8.889 per share;
(iii) $100 million principal amount of Senior Notes for $100 million in
cash; and (iv) 2,769,231 Warrants, separate consideration for which was not
specified. The Company relied upon the exemption set forth in Section 4(2)
of the Securities Act.
II-2
<PAGE> 117
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- --------------------------------------------------------------------------
<C> <C> <S>
*2.1 -- The Company's Plan of Reorganization under Chapter 11 of the Bankruptcy
Code.
*3.1 -- Form of Restated Certificate of Incorporation of America West Airlines,
Inc.
</TABLE>
<TABLE>
<C> <C> <S>
*3.2 -- Form of Restated By-laws of America West Airlines, Inc.
*4.1 -- Form of Form of Indenture for $100,000,000 % Senior Notes due 2001
dated 1994, of America West Airlines, Inc. and ,
as trustee.
*4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
*4.3 -- Form of Warrant Agreement dated , 1994 between America West
Airlines, Inc. and , as Warrant Agent.
*4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
*4.5 -- Form of Stockholders' Agreement for America West Airlines, Inc. dated
, 1994 among America West Airlines, Inc., AmWest Partners,
L.P., GPA Group plc and certain other Stockholder Representatives.
*4.6 -- Form of Registration Rights Agreement dated , 1994 among America
West Airlines, Inc., AmWest Partners, L.P. and other holders.
*4.7 -- Article 4.0 of the Company's Restated Certificate of Incorporation
(included in Exhibit 3.1 above).
5.1 -- Opinion of Andrews & Kurth L.L.P.
10.1 -- Third Revised Investment Agreement dated April 21, 1994 between America
West Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference
to Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1994.
10.11 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between
America West Airlines and AmWest Partners, L.P. -- Incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
**10.12 -- Alliance Agreement dated , 1994 between America West Airlines,
Inc. and Continental Airlines, Inc., including the Bilateral Cargo Prorate
Agreement, the Club Usage Agreement, the Code-Sharing Agreement, the
Master Technology Cooperation Agreement, the Frequent Flyer Program
Exchange and the Ground Handling Agreements.
**10.13 -- Alliance Agreement dated , 1994 between America West Airlines,
Inc. and Mesa Airlines.
**10.14 -- The GPA Settlement Agreement dated , 1994 between America West
Airlines, Inc. and GPA Group plc.
10.15 -- America West Airlines Management Resignation Allowance Guidelines, as
amended, dated November 18, 1993.
10.16 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of
September 28, 1990 between AVSA, S.A.R.L. ("AVSA") and the Company,
together with Letter Agreement Nos. 1-10, inclusive -- Incorporated by
reference to Exhibit 10-(D)(1) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1990.
10.17 -- Loan Agreement, dated as of September 28, 1990, among the Company, AVSA
and AVSA, as agent -- Incorporated by reference to Exhibit 10-(D)(2) to
the Company's Quarterly Report on Form 10-Q for the period ended September
30, 1990.
**10.18 -- AVSA, S.A.R.L. Settlement Agreement dated , 1994 between the
Company and Airbus.
</TABLE>
II-3
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- -----
<S> <C>
10.19 -- V2500 Support Contract Between the Company and IAE International Aero
Engines AG ("IAE"), dated September 28, 1990, together with Side Letters
Nos. 1-4, inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
10.20 -- Cash Management Agreement, dated September 28, 1991, among the Company, BT
and First Interstate of Arizona, N.A. -- Incorporated by reference to
Exhibit 10-D(21) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
10.21 -- First Amendment to Cash Management Agreement, dated December 1, 1991,
among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-D(22) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992,
among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.23 -- Restructuring Agreement, dated December 1, 1991 between the Company and
Kawasaki -- Incorporated by reference to Exhibit 10-D(24) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.24 -- A320 Put Agreement, dated December 1, 1991 between the Company and
Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.25 -- First Amendment to A320 Put Agreement, dated September 1,
1992 -- Incorporated by reference to Exhibit 10-R(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.26 -- A320 Put Agreement, dated as of June 25, 1991 between the Company and GPA
Group plc -- Incorporated by reference to Exhibit 10-D(26) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.27 -- First Amendment to A320 Put Agreement, dated as of September 1, 1992 --
Incorporated by reference to Exhibit 10-S(2) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.28 -- Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc,
GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and the
Company -- Incorporated by reference to Exhibit 10-D(27) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.29 -- Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate
Airport Facility Revenue Bonds -- Incorporated by reference to Exhibit
10.e to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1986.
10.30 -- Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement")
among the City of Phoenix, The Industrial Development Authority of the
City of Phoenix, Arizona and the Company -- Incorporated by reference to
Exhibit 10-D(9) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
10.31 -- First Amendment dated August 1, 1990 to Airport Use
Agreement -- Incorporated by reference to Exhibit 10-(D)(9) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.32 -- Revolving Loan Agreement dated April 17, 1990, by and among the Company,
the Bank signatories thereto, and Bank of America National Trust and
Savings Association, as Agent for the Banks (the "Revolving Loan
Agreement") -- Incorporated by reference to Exhibit 10-1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1990.
</TABLE>
II-4
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- -----
<S> <C>
10.33 -- First Amendment dated April 17, 1990 to Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.34 -- Second Amendment dated September 28, 1990 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.35 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
10.36 -- Spares Credit Agreement, dated as of September 28, 1990, between the
Company and IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.37 -- Master Credit Modification Agreement dated as of October 1, 1992, among
the Company, IAE International Aero Engines AG, Intlaero (Phoenix A320)
Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd., and Hughes
Rediffusion Simulation Limited -- Incorporated by reference to Exhibit
10-L to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.38 -- Credit Agreement, dated as of September 28, 1990 between the Company and
IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1990.
10.39 -- Amendment No. 1 to the Credit Agreement, dated March 1,
1991 -- Incorporated by reference to Exhibit 10-(M)(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.40 -- Amendment No. 2 to the Credit Agreement, dated May 15,
1991 -- Incorporated by reference to Exhibit 10-(M)(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.41 -- Amendment No. 3 to the Credit Agreement, dated October 1,
1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30,
1993, among the Company, various lenders, and BT Commercial Corp. as
Administrative Agent (without exhibits) -- Incorporated by reference to
Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of
September 30, 1993 from the Company to the Lenders -- Incorporated by
reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement;
Consent to Amendment of By-laws dated February 8, 1994 from the Company to
the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
**10.45 -- Subscription Agreement between Amwest Partners, L.P and Lehman Brothers
Inc. dated , 1994
10.46 -- Key Employee Protection Agreement dated as of June 27, 1994 between
America West Airlines, Inc. and William A. Franke.
11.1 -- Statement re: computation of net income (loss) per common share.
*12.1 -- Statement re: computation of ratio of earnings to fixed charges.
23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1 above).
</TABLE>
II-5
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
_______ _____
<S> <C>
23.2 -- Consent of KPMG Peat Marwick (independent auditors) -- Included at page
S-1.
*24.1 -- Power of Attorney (included on the signature pages of this Registration
Statement.
**25.1 -- Statement of Eligibility on Form S-1 of , as trustee
under the Indenture for $100,000,000 Senior Notes due 2001.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
The following financial statement schedules are filed as part of this
Registration Statement, but not included in the Prospectus.
<TABLE>
<CAPTION>
SCHEDULES PAGE
_________ ____
<S> <C>
Independent Auditors' Report on Schedules and Consent................. S-1
Schedule V -- Property, Plant and Equipment........................... S-2
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment.......................... S-3
Schedule VIII -- Valuation and Qualifying Accounts.................... S-4
Schedule X -- Supplementary Income Statement Information.............. S-5
</TABLE>
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are
inapplicable or the required information is included in the financial
statements or notes thereto and, therefore, have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Phoenix, State of Arizona on the 2nd day of August, 1994.
AMERICA WEST AIRLINES, INC.
*
By:___________________________________
William A. Franke,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
_________ _____ ____
<S> <C> <C>
* Chairman of the Board and Chief August 2, 1994
__________________________________________ Executive Officer (Principal
William A. Franke Executive Officer)
* President, Chief Operating August 2, 1994
__________________________________________ Officer and Director
A. Maurice Myers
* Vice President and Controller August 2, 1994
__________________________________________ (Principal Financial and
Raymond T. Nakano Accounting Officer)
* Director August 2, 1994
_________________________________________
O. Mark DeMichele
* Director August 2, 1994
_________________________________________
Frederick W. Bradley
Director
_________________________________________
Samuel L. Eichenfield
* Director August 2, 1994
_________________________________________
Richard C. Kraemer
Director
_________________________________________
James T. McMillan
* Director August 2, 1994
_________________________________________
John R. Norton III
</TABLE>
II-7
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
_________ _____ ____
<S> <C> <C>
* Director August 2, 1994
__________________________________________
John F. Tierney
Director
__________________________________________
Declan Treacy
*By: /s/ MARTIN J. WHALEN
______________________________________
Martin J. Whalen
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 123
INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT
The Board of Directors and Stockholders
America West Airlines, Inc. D.I.P.:
The audits referred to in our report dated March 18, 1994 included the
related financial statement schedules as of December 31, 1993, and for each of
the years in the three-year period ended December 31, 1993, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
Our report dated March 18, 1994, referenced to above, contains an
explanatory paragraph that states that America West'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 financial statement schedules do not include any
adjustments that might result from the outcome of these uncertainties.
KPMG PEAT MARWICK
Phoenix, Arizona
August 2, 1994
S-1
<PAGE> 124
AMERICA WEST AIRLINES, INC., D.I.P.
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS TRANSFERS OF PERIOD
- -------------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
1993
Building and improvements............... $ 72,917 $ 71 $ (3,340) $ 1,482 $ 71,130
Flight equipment owned.................. 767,080 45,082 (19,922) 26,602 818,842
Leasehold improvements -- flight
equipment............................. 36,550 31 (1,183) 5,428 40,826
Ground property and equipment........... 111,131 1,303 (9,654) 2,111 104,891
Construction in progress................ 43,316 9,367 (38) (35,623) 17,022
---------- --------- ---------- --------- ----------
$1,030,994 $ 55,854 $ (34,137) $ -- $1,052,711
========== ========= ========== ========= ==========
1992
Building and improvements............... $ 83,596 $ 341 $ (11,967) $ 947 $ 72,917
Flight equipment owned.................. 759,579 39,876 (33,192) 817 767,080
Leasehold improvements -- flight
equipment............................. 40,604 (63) (8,234) 4,243 36,550
Ground property and equipment........... 117,408 1,950 (9,083) 856 111,131
Construction in progress................ 23,955 28,034 (1,810) (6,863) 43,316
---------- --------- ---------- --------- ----------
$1,025,142 $ 70,138 $ (64,286) $ -- $1,030,994
========== ========= ========== ========= ==========
1991
Building and improvements............... $ 87,287 $ 330 $ (9,863) $ 5,842 $ 83,596
Flight equipment owned.................. 768,728 86,033 (104,964) 9,782 759,579
Leasehold improvements -- flight
equipment............................. 35,516 2,547 (14,678) 17,219 40,604
Ground property and equipment........... 103,979 6,551 (936) 7,814 117,408
Construction in progress................ 27,139 42,351 (4,878) (40,657) 23,955
---------- --------- ---------- --------- ----------
$1,022,649 $ 137,812 $ (135,319) $ -- $1,025,142
========== ========= ========== ========= ==========
</TABLE>
S-2
<PAGE> 125
AMERICA WEST AIRLINES, INC., D.I.P.
SCHEDULE VI -- ACCUMULATED DEPRECIATION,
DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS OF PERIOD
- -------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1993
Building and improvements...................... $ 18,163 $ 4,237 $ (1,309) $ 21,091
Flight equipment............................... 226,972 59,896 (14,717) 272,151
Leasehold improvements -- flight equipment..... 16,493 4,137 (1,096) 19,534
Ground property and equipment.................. 67,242 13,624 (7,866) 73,000
-------- ------- -------- --------
$328,870 $81,894 $(24,988) $385,776
======== ======= ======== ========
1992
Building and improvements...................... $ 17,790 $ 4,763 $ (4,390) $ 18,163
Flight equipment............................... 174,235 72,523 (19,786) 226,972
Leasehold improvements -- flight equipment..... 14,262 4,184 (1,953) 16,493
Ground property and equipment.................. 55,466 16,202 (4,426) 67,242
-------- ------- -------- --------
$261,753 $97,672 $(30,555) $328,870
======== ======= ======== ========
1991
Building and improvements...................... $ 15,418 $ 5,626 $ (3,254) $ 17,790
Flight equipment............................... 133,526 67,750 (27,041) 174,235
Leasehold improvements -- flight equipment..... 15,542 6,073 (7,353) 14,262
Ground property and equipment.................. 37,660 18,354 (548) 55,466
-------- ------- -------- --------
$202,146 $97,803 $(38,196) $261,753
======== ======= ======== ========
</TABLE>
S-3
<PAGE> 126
AMERICA WEST AIRLINES, INC., D.I.P.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993, 1992, 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables:
Years ended:
December 31, 1993................... $2,542 $5,474 $-- $4,986 $3,030
====== ====== === ====== ======
December 31, 1992................... $3,603 $3,800 $-- $4,861 $2,542
====== ====== === ====== ======
December 31, 1991................... $1,203 $5,300 $-- $2,900 $3,603
====== ====== === ====== ======
Reserve for obsolescence:
Years ended:
December 31, 1993................... $6,921 $ 902 $-- $ 592 $7,231
====== ====== === ====== ======
December 31, 1992................... $3,638 $3,283 $-- $ -- $6,921
====== ====== === ====== ======
December 31, 1991................... $2,296 $1,342 $-- $ -- $3,638
====== ====== === ====== ======
</TABLE>
S-4
<PAGE> 127
AMERICA WEST AIRLINES, INC., D.I.P.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992, 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
ITEM 1993 1992 1991
- ---- ------- ------- -------
<S> <C> <C> <C>
Advertising costs............................................. $25,118 $25,007 $29,821
======= ======= =======
Aircraft maintenance materials and repairs.................... $31,000 $38,366 $41,649
Amortization of deferred overhauls included in depreciation
and amortization............................................ 29,870 31,482 27,453
------- ------- -------
Maintenance and repairs.................................. $60,870 $69,848 $69,102
======= ======= =======
</TABLE>
Other items are not listed because they are either shown in the financial
statements or the amounts are less than 1% of revenues for all periods.
S-5
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER TITLE PAGE
______ _____ __________
<S> <C> <C>
*2.1 -- The Company's Plan of Reorganization under Chapter 11 of the
Bankruptcy Code.
*3.1 -- Form of Restated Certificate of Incorporation of America West
Airlines, Inc.
*3.2 -- Form of Restated By-laws of America West Airlines, Inc.
*4.1 -- Form of Form of Indenture for $100,000,000 % Senior Notes
due 2001 dated 1994, of America West Airlines, Inc. and
, as trustee.
*4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1
above).
*4.3 -- Form of Warrant Agreement dated , 1994 between
America West Airlines, Inc. and , as
Warrant Agent.
*4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
*4.5 -- Form of Stockholders' Agreement for America West Airlines, Inc.
dated , 1994 among America West Airlines, Inc.,
AmWest Partners, L.P., GPA Group plc and certain other
Stockholder Representatives.
*4.6 -- Form of Registration Rights Agreement dated , 1994
among America West Airlines, Inc., AmWest Partners, L.P. and
other holders.
*4.7 -- Article 4.0 of the Company's Restated Certificate of
Incorporation (included in Exhibit 3.1 above).
5.1 -- Opinion of Andrews & Kurth L.L.P.
10.1 -- Third Revised Investment Agreement dated April 21, 1994 between
America West Airlines, Inc. and AmWest Partners,
L.P. -- Incorporated by reference to Exhibit 10.A to the
Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1994.
10.11 -- Third Revised Interim Procedures Agreement dated April 21, 1994
between America West Airlines and AmWest Partners,
L.P. -- Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
**10.12 -- Alliance Agreement dated , 1994 between America West
Airlines, Inc. and Continental Airlines, Inc., including the
Bilateral Cargo Prorate Agreement, the Club Usage Agreement, the
Code-Sharing Agreement, the Master Technology Cooperation
Agreement, the Frequent Flyer Program Exchange and the Ground
Handling Agreements.
**10.13 -- Alliance Agreement dated , 1994 between America West
Airlines, Inc. and Mesa Airlines.
**10.14 -- The GPA Settlement Agreement dated , 1994 between
America West Airlines, Inc. and GPA Group plc.
10.15 -- America West Airlines Management Resignation Allowance
Guidelines, as amended, dated November 18, 1993.
10.16 -- Airbus A320 Purchase Agreement (including exhibits thereto),
dated as of September 28, 1990 between AVSA, S.A.R.L. ("AVSA")
and the Company, together with Letter Agreement Nos. 1-10,
inclusive -- Incorporated by reference to Exhibit 10-(D)(1) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990.
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER TITLE PAGE
--------- ----- ----------
<S> <C> <C>
10.17 -- Loan Agreement, dated as of September 28, 1990, among the
Company, AVSA and AVSA, as agent -- Incorporated by reference to
Exhibit 10-(D)(2) to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1990.
**10.18 -- AVSA, S.A.R.L. Settlement Agreement dated , 1994
between the Company and Airbus.
10.19 -- V2500 Support Contract Between the Company and IAE International
Aero Engines AG ("IAE"), dated September 28, 1990, together with
Side Letters Nos. 1-4, inclusive -- Incorporated by reference to
Exhibit 10-(D)(3) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990.
10.20 -- Cash Management Agreement, dated September 28, 1991, among the
Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-D(21) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991.
10.21 -- First Amendment to Cash Management Agreement, dated December 1,
1991, among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-D(22) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991.
10.22 -- Second Amendment to Cash Management Agreement, dated September
1, 1992, among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-O(3) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.23 -- Restructuring Agreement, dated December 1, 1991 between the
Company and Kawasaki -- Incorporated by reference to Exhibit
10-D(24) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.
10.24 -- A320 Put Agreement, dated December 1, 1991 between the Company
and Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.25 -- First Amendment to A320 Put Agreement, dated September 1,
1992 -- Incorporated by reference to Exhibit 10-R(2) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.26 -- A320 Put Agreement, dated as of June 25, 1991 between the
Company and GPA Group plc -- Incorporated by reference to
Exhibit 10-D(26) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
10.27 -- First Amendment to A320 Put Agreement, dated as of September 1,
1992 -- Incorporated by reference to Exhibit 10-S(2) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.28 -- Restructuring Agreement, dated as of June 25, 1991 among GPA
Group plc, GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and
the Company -- Incorporated by reference to Exhibit 10-D(27) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER TITLE PAGE
------- ----- ----------
<S> <C> <C>
10.29 -- Official Statement dated August 11, 1986 for the $54,000,000
Variable Rate Airport Facility Revenue Bonds -- Incorporated by
reference to Exhibit 10.e to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1986.
10.30 -- Airport Use Agreement dated July 1, 1989 (the "Airport Use
Agreement") among the City of Phoenix, The Industrial
Development Authority of the City of Phoenix, Arizona and the
Company -- Incorporated by reference to Exhibit 10-D(9) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1989.
10.31 -- First Amendment dated August 1, 1990 to Airport Use Agreement --
Incorporated by reference to Exhibit 10-(D)(9) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.32 -- Revolving Loan Agreement dated April 17, 1990, by and among the
Company, the Bank signatories thereto, and Bank of America
National Trust and Savings Association, as Agent for the Banks
(the "Revolving Loan Agreement") -- Incorporated by reference to
Exhibit 10-1 to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1990.
10.33 -- First Amendment dated April 17, 1990 to Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1990.
10.34 -- Second Amendment dated September 28, 1990 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1990.
10.35 -- Third Amendment dated as of January 14, 1991 to the Revolving
Loan Agreement -- Incorporated by reference to Exhibit
10-(D)(13) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990.
10.36 -- Spares Credit Agreement, dated as of September 28, 1990, between
the Company and IAE -- Incorporated by reference to Exhibit
10-(D)(4) to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1990.
10.37 -- Master Credit Modification Agreement dated as of October 1,
1992, among the Company, IAE International Aero Engines AG,
Intlaero (Phoenix A320) Inc., Intlaero (Phoenix B737) Inc., CAE
Electronics Ltd., and Hughes Rediffusion Simulation
Limited -- Incorporated by reference to Exhibit 10-L to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.38 -- Credit Agreement, dated as of September 28, 1990 between the
Company and IAE -- Incorporated by reference to Exhibit
10-(D)(5) to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1990.
10.39 -- Amendment No. 1 to the Credit Agreement, dated March 1, 1991 --
Incorporated by reference to Exhibit 10-(M)(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER TITLE PAGE
_______ _____ ________
<S> <C> <C>
10.40 -- Amendment No. 2 to the Credit Agreement, dated May 15, 1991 --
Incorporated by reference to Exhibit 10-(M)(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.41 -- Amendment No. 3 to the Credit Agreement, dated October 1,
1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.42 -- Form of Third Amended and Restated Credit Agreement dated
September 30, 1993, among the Company, various lenders, and BT
Commercial Corp. as Administrative Agent (without exhibits) --
Incorporated by reference to Exhibit 10-(N)(1) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.43 -- Form of Amended and Restated Management Letter Agreement, dated
as of September 30, 1993 from the Company to the
Lenders -- Incorporated by reference to Exhibit 10-N(2) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993.
10.44 -- Form of Amendment to Amended and Restated Management Letter
Agreement; Consent to Amendment of By-laws dated February 8,
1994 from the Company to the Lenders -- Incorporated by
reference to Exhibit 10-N(3) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
**10.45 -- Subscription Agreement between Amwest Partners, L.P and Lehman
Brothers Inc. dated , 1994
10.46 -- Key Employee Protection Agreement dated as of June 27, 1994
between America West Airlines, Inc. and William A. Franke.
11.1 -- Statement re: computation of net income (loss) per common share.
*12.1 -- Statement re: computation of ratio of earnings to fixed charges.
23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1
above).
23.2 -- Consent of KPMG Peat Marwick (independent auditors) -- Included
at page S-1.
*24.1 -- Power of Attorney (included on the signature pages of this
Registration Statement.
**25.1 -- Statement of Eligibility on Form S-1 of , as
trustee under the Indenture for $100,000,000 Senior Notes due
2001.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
[ANDREWS & KURTH]
LETTERHEAD
August 2, 1994
Board of Directors
America West Airlines, Inc.
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Gentlemen:
We have acted as counsel for America West Airlines, Inc. (the "Company") in
connection with the Company's Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), relating to (i) shares of Class B Common Stock of the Company, par value
$.01 per share (the "Class B Common Stock"), (ii) warrants to purchase Class B
Common Stock (the "Warrants"), and (iii) senior unsecured notes of the Company
(the "Senior Notes") (the Class B Stock, Warrants and Senior Notes are
collectively referred to herein as the "Securities"), to be offered from time to
time pursuant to Rule 415 under the Act by certain selling securityholders of
the Company. The Securities are being issued pursuant to the Company's plan of
reorganization under Chapter 11 of the United States Bankruptcy Code as
described in the Registration Statement (the "Plan of Reorganization"). At your
request, this opinion is being furnished to you for filing as Exhibit 5.1 to the
Registration Statement.
In our capacity as counsel for the Company in connection with the
registration by the Company and proposed issuance of the securities described
herein, we have examined the charter and bylaws of the Company, and have
examined the originals, or copies otherwise identified, of corporate records of
the Company, as furnished to us by the Company, certificates, advices and
assurances of public officials and of representatives of the Company, statutes
and other instruments and documents, as a basis for the opinions hereinafter
expressed. In giving such opinions, we have relied upon certificates of officers
of the Company with respect to the accuracy of the material factual matters
contained in such certificates.
We have assumed that all signatures on all documents examined by us are
genuine, that all documents submitted to us as originals are authentic, that all
documents submitted to us as copies are true and correct copies of the originals
thereof and that all information submitted to us was accurate and complete.
Based upon our examination as aforesaid, and subject to the assumptions and
limitations herein set forth, we are of the opinion that:
1. The shares of Class B Common Stock to be issued pursuant to the
Plan of Reorganization have been duly authorized by all necessary corporate
action on the part of the Company and such shares, upon issuance pursuant
to and in accordance with the Plan of Reorganization, will constitute
validly issued, fully paid and non-assessable shares of common stock of the
Company.
<PAGE> 2
Board of Directors
America West Airlines, Inc.
August 2, 1994
Page 2
2. The Warrants to purchase Class B Common Stock have been duly
authorized by all necessary corporate action on the part of the Company
and, upon the issuance of the Warrants pursuant to and in accordance with
the Plan of Reorganization and the Warrant Agreement, the Warrants will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws and by principles
of equity.
3. The Senior Notes have been duly authorized by all necessary
corporate action on the part of the Company and, upon the issuance of the
Senior Notes pursuant to and in accordance with the Plan of Reorganization
and the Indenture, the Senior Notes will constitute valid and binding
obligations of the Company enforceable in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws and by principles of equity.
In rendering the opinions set forth above, we express no opinion as to the
adequacy or sufficiency of the consideration paid or to be paid or contributions
made or to be made for any of the Securities in connection with the Plan of
Reorganization.
This opinion is limited in all respects to the corporate law of the State
of Delaware, the laws of the State of New York and of the United States of
America. To the extent any of such opinions relate to the corporate law of the
State of Delaware, we have formed our opinion based solely upon a reading of the
Delaware General Corporation Law. We express no opinion with respect to the laws
or regulations of other jurisdictions applicable by virtue of conflict of laws
or other principles.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the use of our name in the
Registration Statement under the caption "Legal Matters."
Very truly yours,
/s/ ANDREWS & KURTH
1098/1146/2560:sfe
<PAGE> 1
EXHIBIT 10.15
MANAGEMENT RESIGNATION ALLOWANCE GUIDELINES
NOVEMBER 18, 1993
PROGRAM PURPOSE
The plan is intended to provide eligible employees with reasonable
transition support in order for them to seek career opportunities outside the
company. Management can use the plan after other reasonable alternatives for
dealing with the situation have been exhausted.
ELIGIBILITY
Eligibility for the program is determined by the Company and is intended to
apply to management employees who permanently end their employment relationship
with AWA. Eligible management employees include those whose positions are
eliminated or downgraded in conjunction with a reorganization of
responsibilities or priorities within the Company or whose particular services
no longer fit the needs of the Company. All or some of the functions may be
transferred to another position or eliminated as a result of the reorganization.
All resignation allowances are subject to case-by-case review by the
Compensation Committee of the Board of Directors. All resignation allowances for
directors, senior directors and officers of the corporation and all resignation
allowances for other management personnel in amounts in excess of twenty-six
(26) weeks pay must be approved by the Compensation Committee.
The plan is not intended to relieve management of its responsibility to
appropriately deal with individual performance issues on a firm and constructive
basis. Specifically, the plan is not available for:
- Employees with less than one full year of AWA service.
- Employees subject to termination for cause, for example, an employee with
an ongoing non-performance problem.
- Employees guilty of serious misconduct, for example, stealing or willful
or negligent destruction of AWA property.
PLAN DESIGN
- The resignation allowance payments are based on Current Annual
Compensation of three (3) weeks pay for each year of full-time AWA
service (partial years to be pro-rated to date of termination) with a
four (4) week minimum and a fifty-two (52) week maximum. If applicable,
any unearned portion of a salary advance will be reimbursed to the
company or will be deducted from the resignation allowance.
- Five percent (5%) increase in allowance period for each year over age 40,
not to exceed 52-weeks combined maximum payment.
- Group medical/life coverages continue during the allowance period at the
same cost paid by active employees.
- Travel privileges on AWA continue during the allowance period. Travel
privileges with other carriers vary based on the agreements with those
carriers. All travel privileges cease if the resigned employee becomes
employed by another airline.
- The resignation date is the termination date for purposes of 401(k) and
incentive stock options.
- Outplacement services through an outplacement agency approved by Human
Resources will be made available on a case-by-case basis with a maximum
per employee cost to AWA of $5,000.
<PAGE> 2
PROCESS
1. Before discussing the resignation program with a potential candidate,
the supervising Officer or Director will review the situation with the Senior
Director, Human Resources, to confirm plan eligibility. The Senior Director,
Human Resources, will then coordinate approval of the resignation package as
required. Any exceptions to these guidelines require the advance review by Human
Resources and the approval of the CEO and the Compensation Committee of the
Board of Directors.
2. Human Resources will prepare the resignation agreement documents,
including the resignation allowance payment calculation and employee benefits
summary.
3. The supervising Officer or Director will make the offer to the employee
with appropriate coordination from Human Resources.
4. The resigned employee is "out-processed" by Human Resources, Payroll and
the various employee benefits departments.
<PAGE> 1
EXHIBIT 10.46
KEY EMPLOYEE PROTECTION AGREEMENT
KEY EMPLOYEE PROTECTION AGREEMENT ("Agreement"), dated June 27, 1994, by
and between AMERICA WEST AIRLINES, INC., a Delaware corporation (the "Company"),
and WILLIAM A. FRANKE ("Franke").
WHEREAS, Franke is the Chairman of the Board and Chief Executive Officer of
the Company; and
WHEREAS, at the time of Franke's employment as Chairman of the Board in
1992, the Company's Board of Directors and debtor-in-possession lenders agreed,
among other things, to use their best efforts to cause any plan of
reorganization filed with the Bankruptcy Court (as hereinafter defined) relating
to the Company to provide for the payment to Franke, upon substantial
consummation of such plan of reorganization, of a confirmation success bonus of
not less than $500,000; and
WHEREAS, with significant contribution from Franke in his capacities as
Chairman of the Board and Chief Executive Officer of the Company, significant
financial and operating progress has been made by the Company and other actions
have been taken which have enhanced, and in the future are expected to further
enhance, the value of the Company's estate for the benefit of its creditors and
other constituencies; and
WHEREAS, under Franke's leadership, the Company is currently endeavoring to
develop and finalize a confirmable Plan of Reorganization (as hereinafter
defined); and
WHEREAS, the services and knowledge of Franke are valuable to the Company
in many respects, including (without limitation) the rendering of advice to the
Company and its Board of Directors with respect to the difficult and complex
process of developing and finalizing a confirmable Plan of Reorganization; and
WHEREAS, the Company considers it prudent to enter into this Agreement in
order to (i) better secure Franke's continued services, (ii) ensure Franke's
continued objectivity in the event of negotiations or actions that might lead to
a Change in Control (as hereinafter defined) and (iii) define the nature and
terms of Franke's severance benefits following a Change in Control.
NOW THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties (intending to be legally bound) hereby covenant and
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below:
(a) "Bankruptcy Court" means the Bankruptcy Court for the District of
Arizona.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" shall occur if either:
(i) the individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; or
(ii) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended)
acquires the beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) 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.
<PAGE> 2
(d) "Company Affiliate" means any corporation, partnership or other
business entity directly or indirectly controlling, controlled by or under
common control with, the Company. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
corporation, partnership or other business entity, whether through
ownership of voting securities, by contract or otherwise.
(e) "Confirmation Bonus" means any reorganization success bonus
payable to Franke pursuant to a Plan of Reorganization in the event such
Plan of Reorganization is confirmed and consummated.
(f) "Confirmation Date" means the date a Plan of Reorganization is
confirmed by the Bankruptcy Court.
(g) "Plan of Reorganization" means any plan of reorganization which
(i) is filed with the Bankruptcy Court and (ii) contemplates and, if
confirmed and consummated, would result in the emergence of the Company
from its Chapter 11 bankruptcy proceedings.
(h) "Severance Payment" means as specified in Section 2 below.
(i) "Termination Date" means as specified in Section 2 below.
2. Severance Payment. (a) If a Change in Control occurs in connection with
the consummation of a Plan of Reorganization and if, for any reason (including,
without limitation, a voluntary resignation or an involuntary removal but
excluding death), Franke ceases to serve as the Chairman of the Board and the
Chief Executive Officer of the Company at any time during the period of 180 days
beginning on the Confirmation Date, the Company agrees to pay to Franke,
promptly after the date on which Franke ceases to be the Chairman of the Board
and the Chief Executive Officer of the Company ("Termination Date"), a lump sum
amount (the "Severance Payment") equal to 200% of the sum of (i) Franke's annual
base salary as in effect immediately prior to the Termination Date and (ii)
Franke's annual administrative expense allowance as in effect immediately prior
to the Termination Date; provided, however, that the Severance Payment shall be
reduced by the amount of any Confirmation Bonus actually paid to Franke prior to
the Termination Date.
(b) If all or any portion of the Severance Payment is actually paid to
Franke, any Confirmation Bonus thereafter payable to Franke shall be reduced by
the amount of the Severance Payment actually paid to Franke unless the payment
of such amount to Franke was taken into account in determining the amount of
such Confirmation Bonus.
3. Medical Insurance. During the 12-month period following the Termination
Date, the Company, at its cost, shall maintain in full force and effect for the
continued benefit of Franke and Franke's dependents all benefits available to
Franke and Franke's dependents under all medical plans and programs of the
Company, provided that (i) Franke's continued participation is possible under
the terms and provisions of such plans and programs and (ii) Franke pays the
regular employee contribution, if any, required by such plans and programs. In
the event that participation by Franke (or his dependents) in any such plan or
program after the Termination Date is barred pursuant to the terms thereof, or
in the event the Company shall terminate any such plan or program, the Company
shall obtain for Franke (and/or his dependents) comparable coverage under
individual policies.
4. Life Insurance. During the 12-month period following the Termination
Date, the Company, at its cost, shall continue to provide Franke all life
insurance coverages (and in the same amounts) provided to him by the Company
immediately prior to the Termination Date.
5. Travel Privileges. The Company shall provide Franke (and wife and his
dependents) such lifetime on-line and interline, positive space travel
privileges subject to the terms of the Company's non-revenue travel policy for
retired executives as from time to time in effect.
6. Accrued Vacation Pay, etc. Promptly after the Termination Date, the
Company shall pay to Franke a lump sum amount for (i) all unused vacation time
accrued by Franke as of the Termination Date and (ii) all unpaid benefits earned
by Franke as of the Termination Date under any and all incentive compensation
plans or programs of the Company.
2
<PAGE> 3
7. Tax Withholdings. The Company shall be entitled to withhold from all
payments hereunder all applicable taxes (federal, state or other) which it is
required to withhold therefrom.
8. Successors; Binding Agreement. (a) This Agreement shall not be
terminated by the merger or consolidation of the Company whereby the Company is
or is not the surviving or resulting corporation or as a result of any transfer
of all or substantially all the assets of the Company. In the event of any such
merger, consolidation or transfer of assets, the provisions of this Agreement
shall be binding upon the surviving or resulting corporation or the person or
entity to which such assets are transferred.
(b) The Company agrees that concurrently with any merger, consolidation or
transfer referred to in paragraph (a) above, it will cause any successor or
transferee to unconditionally assume in writing all of the obligations of the
Company hereunder on terms and conditions reasonably satisfactory to Franke.
Failure of the Company to obtain such assumption prior to the effectiveness of
any such merger, consolidation or transfer shall be a breach of this Agreement
and shall entitle Franke to immediately receive the Severance Payment from the
Company and, for purposes of implementing the foregoing, the date on which such
merger, consolidation or transfer becomes effective shall be deemed to be the
Termination Date.
(c) This Agreement shall inure to the benefit of and be enforceable by
Franke's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Franke should die
while any amounts would still be payable to Franke hereunder if Franke had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Franke to receive such amounts or, if no person is so
appointed, to Franke's estate.
9. No Mitigation. The provisions of this Agreement are not intended to,
nor shall they be construed to, require that Franke seek or accept other
employment following a termination of employment. Except as provided in Section
1(a), the Company's obligations to make the payments to Franke required under
this Agreement or any other agreement and otherwise to perform its obligations
hereunder shall not be affected by any set off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against
Franke.
10. Expense Reimbursement. If any litigation, contest or dispute shall
arise under this Agreement involving the failure or refusal of the Company to
fully perform in accordance with the terms hereof, the Company shall reimburse
Franke, on a current basis, for all legal fees and expenses, if any, incurred by
Franke, on a current basis, for all legal fees and expenses, if any incurred by
Franke in connection with such litigation, contest or dispute, together with
interest thereon at the rate of 10% per annum, such interest to accrue from the
date the Company receives Franke's statement for such fees and expenses through
the date of payment thereof; provided, however, that in the event the final
resolution of such litigation, contest or dispute includes a finding denying, in
total, Franke's claims in such litigation, contest or dispute, Franke shall be
required to refund to the Company, over a period not to exceed 12 months from
the date of such resolution, all sums advanced to Franke pursuant to this
Section 10.
11. Assignability. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any affiliate of the Comapny, provided that no such
assignment or delegation shall relieve the Company of its obligations under this
Agreement.
12. Notices. All notices and all other communications to the parties shall
be in writing and addressed (i) if to the Company, at its principal office
address or such other address as it may have designated by written notice to
Franks for purposes hereof, directed to the attention of the Board with a copy
to the Secretary of the Company and (ii) if to Franke, at his residence address
on the records of the Company or to such other address as he may have designated
to the Company in writing for purposes hereof. Each such notice or other
communication shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage prepaid,
except that any notice of change of address shall be effective only upon
receipt.
3
<PAGE> 4
13. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Amendments and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Franke and a duly authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or in compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
15. Benefits Not Exclusive. The rights of and benefits payable to Franke
or his beneficiaries under this Agreement are not exclusive and are in addition
to any rights of and benefits payable to Franke or such beneficiaries under any
other agreement between Franke and the Company or under any employee benefit
plan or compensation program of the Company.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Franke have executed this Agreement as
of the date first above written.
AMERICA WEST AIRLINES, INC.
By: /s/ RICHARD O'BRIEN
___________________________________
/s/ WILLIAM A. FRANKE
___________________________________
4
<PAGE> 1
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC., D.I.P.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1993
-------------------------
PRO
1989 1990 1991 1992 HISTORICAL FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Computation for Statements of
Operation:
Income (loss) before
extraordinary item............. $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,925
Adjustment for interest on debt
reduction...................... 1,414 -- -- -- 4,210 --
Preferred stock dividend
requirement.................... (1,673) (1,673) (1,673) (1,672) -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to
common stock before
extraordinary item............. 12,544 (78,368) (223,689) (133,433) 41,375 19,925
Extraordinary item, tax
benefit........................ 795 -- -- -- -- --
Extraordinary item, net.......... 7,215 2,024 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to
common stock................... $ 20,554 $ (76,344) $ (223,689) $ (133,433) $ 41,375 $ 19,925
============ ============ ============ ============ ============ ============
Weighted average number of common
shares outstanding............. 16,761,622 18,395,970 21,533,992 23,914,298 24,480,487 45,000,000
Assumed exercise of stock options
and warrants(a)................ 3,864,273 -- -- -- 3,044,504 (d)
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding as
adjusted....................... 20,625,895 18,395,970 21,533,992 23,914,298 27,524,991 45,000,000
============ ============ ============ ============ ============ ============
Primary earnings per common share:
Income (loss) before
extraordinary item............. $ 0.61 $ (4.26) $ (10.39) $ (5.58) $ 1.50 $ 0.44
Extraordinary item............... 0.39 0.11 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 1.00 $ (4.15) $ (10.39) $ (5.58) $ 1.50 $ 0.44
============ ============ ============ ============ ============ ============
Income (loss) before
extraordinary item............. $ (76,695) $ (222,016) $ (131,761)
Preferred stock dividend
requirement.................... (1,673) (1,673) (1,672)
Interest adj net of taxes........ 2,818 4,408 4,964
----------- ----------- -----------
Income (loss) applicable to
common stock before
extraordinary item............. (75,550) (219,281) (128,469)
Extraordinary item, tax
benefit........................ 1,490 2,448 2,756
Extraordinary item, net.......... 2,024 -- --
----------- ----------- -----------
Income (loss) applicable to
common stock................... $ (72,036) (216,833) $ (125,713)
============ ============ ============
Weighted average number of common
shares outstanding............... 18,395,970 21,533,992 23,914,298
Assumes exercise of stock options
and warrants..................... 4,922,120 6,704,746 7,383,922
----------- ----------- -----------
Weighted average number of common
shares as adjusted............... 23,318,090 28,238,738 31,298,220
============ ============ ============
Primary earnings per common share:
Income (loss) before
extraordinary item............. $ (3.24) $ (7.77) $ (4.10)
Extraordinary item............... 0.15 0.09 0.09
----------- ----------- -----------
Net income (loss)(c)............... $ (3.09) $ (7.68) $ (4.01)
============ ============ ============
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1994
-------------------------
PRO
1993 HISTORICAL FORMA
----------- ----------- -----------
<S> <<C> <C> <C>
PRIMARY EARNINGS PER SHARE
Computation for Statements of
Operation:
Income (loss) before
extraordinary item............. $ 2,134 $ 15,175 $ 9,984
Adjustment for interest on debt
reduction...................... -- 1,172 --
Preferred stock dividend
requirement.................... -- -- --
----------- ----------- -----------
Income (loss) applicable to
common stock before
extraordinary item............. 2,134 16,347 9,984
Extraordinary item, tax
benefit........................ -- -- --
Extraordinary item, net.......... -- -- --
----------- ----------- -----------
Income (loss) applicable to
common stock................... $ 2,134 $ 16,347 $ 9,984
============ ============ ============
Weighted average number of common
shares outstanding............. 24,020,266 25,291,260 45,000,000
Assumed exercise of stock options
and warrants(a)................ -- 3,861,469 (d)
----------- ----------- -----------
Weighted average number of common
shares outstanding as
adjusted....................... 24,020,266 29,152,729 45,000,000
============ ============ ============
Primary earnings per common share:
Income (loss) before
extraordinary item............. $ 0.09 $ 0.56 $ 0.22
Extraordinary item............... -- -- --
----------- ----------- -----------
Net income (loss)................ $ 0.09 $ 0.56 $ 0.22
============ ============ ============
</TABLE>
<PAGE> 2
AMERICA WEST AIRLINES, INC., D.I.P.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1993
-------------------------
PRO
1989 1990 1991 1992 HISTORICAL FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statements of
Operations:
Income (loss) before extraordinary
items............................ $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,925
Adjustment for interest on debt
reduction........................ 1,219 -- -- -- 5,812 --
Preferred stock dividend
requirement...................... (1,673) (1,673) (1,673) (1,672) -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to common
stock before extraordinary
items............................ $ 12,349 $ (78,368) $ (223,689) $ (133,433) $ 42,977 $ 19,925
Extraordinary items, tax benefit... 7,902 2,024 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss).................. $ 20,251 $ (76,344) $ (223,689) $ (133,433) $ 42,977 $ 19,925
=========== =========== =========== =========== =========== ===========
Weighted average number of common
shares outstanding............... 16,761,622 18,395,970 21,533,992 23,914,298 24,480,487 45,000,000
Assumed exercise of stock options
and warrants(a).................. 3,864,273 -- -- -- 4,240,761 (d)
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted... 20,625,895 18,395,970 21,533,992 23,914,298 28,721,248 45,000,000
=========== =========== =========== =========== =========== ===========
Fully diluted income (loss) per
common share:
Income (loss) before extraordinary
items............................ $ 0.60 $ (4.26) $ (10.39) $ (5.58) $ 1.50 $ 0.44
Extraordinary items................ 0.38 0.11 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss).................. $ 0.98(b) $ (4.15) $ (10.39) $ (5.58) $ 1.50 $ 0.44
=========== =========== =========== =========== =========== ===========
Additional Fully Diluted
Computation:
Additional adjustment to net income
(loss) as adjusted per fully
diluted computation above
Income (loss) before extraordinary
items as adjusted per fully
diluted computation above........ $ 12,803 $ (76,695) $ (222,016) $ (131,761) $ 37,165 $ 19,925
Add -- Interest on 7.75%
subordinated debentures, net of
taxes............................ 1,853 1,829 869 -- -- --
Add -- Interest on 7.5%
subordinated debentures, net of
taxes............................ 1,735 1,712 806 -- -- --
Add -- Interest on 11.5%
subordinated debentures, net of
taxes............................ 6,948 7,629 3,506 -- -- --
Add interest on debt reduction, net
of taxes......................... 1,219 2,777 4,352 4,964 5,812 --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
items as adjusted................ 24,558 (62,748) (212,483) (126,797) 42,977 19,925
Extraordinary items................ 13,828 9,399 5,293 2,756 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss).................. $ 38,386 $ (53,349) $ (207,190) $ (124,041) $ 42,977 $ 19,925
=========== =========== =========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1994
-------------------------
PRO
1993 HISTORICAL FORMA
----------- ----------- -----------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statements of
Operations:
Income (loss) before extraordinary
items............................ $ 2,134 $ 15,175 $ 9,984
Adjustment for interest on debt
reduction........................ 1,677 1,136 --
Preferred stock dividend
requirement...................... -- -- --
----------- ----------- -----------
Income (loss) applicable to common
stock before extraordinary
items............................ $ 3,811 $ 16,311 $ 9,984
Extraordinary items, tax benefit... -- -- --
----------- ----------- -----------
Net income (loss).................. $ 3,811 $ 16,311 $ 9,984
=========== =========== ===========
Weighted average number of common
shares outstanding............... 24,020,266 25,291,260 45,000,000
Assumed exercise of stock options
and warrants(a).................. 4,785,027 3,861,469 (d)
----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted... 28,805,293 29,152,729 45,000,000
=========== =========== ===========
Fully diluted income (loss) per
common share:
Income (loss) before extraordinary
items............................ $ 0.13 $ 0.56 $ 0.22
Extraordinary items................ -- -- --
----------- ----------- -----------
Net income (loss).................. $ 0.13(c) $ 0.56 $ 0.22
=========== =========== ===========
Additional Fully Diluted
Computation:
Additional adjustment to net income
(loss) as adjusted per fully
diluted computation above
Income (loss) before extraordinary
items as adjusted per fully
diluted computation above........ $ 2,134 $ 15,175 $ 9,984
Add -- Interest on 7.75%
subordinated debentures, net of
taxes............................ -- -- --
Add -- Interest on 7.5%
subordinated debentures, net of
taxes............................ -- -- --
Add -- Interest on 11.5%
subordinated debentures, net of
taxes............................ -- -- --
Add interest on debt reduction, net
of taxes......................... 1,677 1,136 --
----------- ----------- -----------
Income (loss) before extraordinary
items as adjusted................ 3,811 16,311 9,984
Extraordinary items................ -- -- --
----------- ----------- -----------
Net income (loss).................. $ 3,811 $ 16,311 $ 9,984
=========== =========== ===========
</TABLE>
<PAGE> 3
AMERICA WEST AIRLINES, INC., D.I.P.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1993
-------------------------
PRO
1989 1990 1991 1992 HISTORICAL FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additional adjustment to weighted
average number of shares
outstanding
Weighted average number of shares
outstanding as adjusted per fully
diluted computation above........ 20,625,895 18,395,970 21,533,992 23,914,298 28,721,248 45,000,000
Additional dilutive effect of
outstanding options and
warrants......................... -- 5,266,266 6,704,746 7,383,922 -- (d)
Additional dilutive effect of
assumed conversion of preferred
stock:
Series A 9.75%................... -- -- -- -- -- --
Series B 10.5%................... 1,164,596 1,164,596 1,164,596 1,164,596 851,294 --
Series C 9.75%................... 73,099 73,099 73,099 73,099 73,099 --
Additional dilutive effect of
assumed conversion of 7.75%
subordinated debentures.......... 2,767,111 2,735,200 2,483,528 2,278,151 2,263,007 --
Additional dilutive effect of
assumed conversion of 7.5%
subordinated debentures.......... 2,582,357 2,551,060 2,347,604 2,291,607 2,272,548 --
Additional dilutive effect of
assumed conversion of 11.5%
subordinated debentures.......... 8,995,021 9,866,509 9,081,162 7,486,391 7,328,201 --
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted... 36,208,079 40,052,700 43,388,727 44,592,064 41,509,397 45,000,000
=========== =========== =========== =========== =========== ===========
Fully diluted income (loss) per
common share:
Income (loss) before extraordinary
items............................ $ 0.68 $ (1.57) $ (4.90) $ (2.84) $ 1.04 $ 0.44
Extraordinary items................ 0.39 0.23 0.12 0.06 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)(e)............... $ 1.07(c) $ (1.34)(c) $ (4.78)(c) $ (2.78)(c) $ 1.04 $ 0.44
=========== =========== =========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1994
-------------------------
PRO
1993 HISTORICAL FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Additional adjustment to weighted
average number of shares
outstanding
Weighted average number of shares
outstanding as adjusted per fully
diluted computation above........ 28,805,293 29,152,729 45,000,000
Additional dilutive effect of
outstanding options and
warrants......................... -- -- (d)
Additional dilutive effect of
assumed conversion of preferred
stock:
Series A 9.75%................... -- -- --
Series B 10.5%................... 1,164,596 -- --
Series C 9.75%................... 73,099 73,099 --
Additional dilutive effect of
assumed conversion of 7.75%
subordinated debentures.......... 2,276,302 2,257,558 --
Additional dilutive effect of
assumed conversion of 7.5%
subordinated debentures.......... 2,290,367 2,264,932 --
Additional dilutive effect of
assumed conversion of 11.5%
subordinated debentures.......... 7,380,896 7,306,865 --
----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted... 41,990,553 41,055,183 45,000,000
=========== =========== ===========
Fully diluted income (loss) per
common share:
Income (loss) before extraordinary
items............................ $ 0.09 $ 0.40 $ 0.22
Extraordinary items................ -- -- --
----------- ----------- -----------
Net income (loss)(e)............... $ 0.09 $ 0.40 $ 0.22
=========== =========== ===========
</TABLE>
- ---------------
(a) The stock options and warrants are included only in the periods in which
they are dilutive.
(b) The calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(c) The calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an antidilutive result.
(d) 10,384,615 warrants are available for exercise and as such the EPS
calculation should follow the modified treasury stock method. However since
the exercise price of the warrants will not be determined until a later
date, the EPS computation is presented without the effect of the exercise of
the warrants for both primary and fully diluted earnings per share.
