<PAGE> 1
AMERICA WEST AIRLINES
1,200,000 SHARES CLASS A COMMON STOCK
18,698,704 SHARES CLASS B COMMON STOCK
5,850,016 CLASS B COMMON STOCK WARRANTS
------------------------
This Prospectus relates to (i) 1,200,000 shares of Class A Common Stock,
par value $.01 per share ("Class A Common Stock"), of America West Airlines,
Inc. ("America West" or the "Company"), (ii) 18,698,704 shares of Class B Common
Stock, par value $.01 per share, of the Company ("Class B Common Stock", and
together with the Class A Common Stock, the "Common Stock"), and (iii) 5,850,016
warrants, each entitling the holder thereof to purchase one share of Class B
Common Stock for $12.74 at any time prior to August 25, 1999 and such shares of
Class B Common Stock (the "Warrants," and together with the Common Stock, the
"Securities"). The Securities may be offered by the Selling Securityholders (as
defined herein) from time to time in transactions in the over-the-counter
market, on a national securities exchange or otherwise at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to such market prices or at negotiated prices. The Selling Securityholders may
effect such transactions by selling the Securities to or through underwriters,
brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders or the
purchasers of the Securities for whom such underwriters, brokers, dealers or
agents may act. The Company will not receive any of the proceeds from the sale
of any of the Securities by the Selling Securityholders.
Holders of Class B Common Stock are entitled to one vote per share, and
holders of Class A Common Stock are entitled to 50 votes per share on all
matters submitted to a vote of common stockholders, except that voting rights of
holders who are not United States citizens are limited as described herein. The
Class B Common Stock and the Warrants are listed on The New York Stock Exchange.
The Company does not intend to file an application to have the Class A Common
Stock listed on a national exchange and does not expect an active trading market
to develop for the Class A Common Stock.
The Selling Securityholders and any underwriters, brokers, dealers or
agents participating in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 as amended (the
"Securities Act"), and any profit on the sale of the Securities by the Selling
Securityholders and any commissions received by any such underwriters, brokers,
dealers or agents may be deemed to be underwriting commissions or discounts
under the Securities Act. Pursuant to the terms of the Registration Rights
Agreements (as hereinafter defined) the Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
Underwriters, brokers, dealers or agents effecting transactions in the
Securities should confirm the registration thereof under the securities laws of
the state in which such transactions will occur, or the existence of any
exemption from registration.
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN 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 October 5, 1995
<PAGE> 2
AVAILABLE INFORMATION
America West Airlines, Inc. ("America West" or the "Company") is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information concerning America West can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Class B Common Stock and the Warrants are listed on the New York
Stock Exchange and the Company's registration statements, reports, proxy and
information statements and other information may also be inspected at the
offices of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York,
New York 10005.
America West has filed with the Commission Registration Statement No.
33-54243 under the Securities Act with respect to the Securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to America West and the Securities offered hereby,
reference is made to the Registration Statement, including the exhibits and
schedules thereto. The Registration Statement can be inspected at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
The Company is a Delaware corporation. Its executive offices are located at
4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034, and its telephone number
is (602) 693-0800.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus.
THE COMPANY
America West Airlines, Inc. is the ninth largest commercial airline carrier
in the United States, operating through its principal hubs located in Phoenix,
Arizona and Las Vegas, Nevada and a mini-hub located in Columbus, Ohio. The
Company believes it is the lowest cost full service carrier in the United States
and, during the first six months of 1995, generated the highest operating margin
among the major domestic airlines. At September 1, 1995, the Company served 48
destinations, including three destinations in Mexico and one in Canada, with a
fleet of 91 aircraft. The Company offers service to an additional 24
destinations through an alliance agreement with Continental Airlines, Inc.
("Continental") and 18 commuter service and regional destinations through an
alliance agreement with Mesa Air Group, Inc. ("Mesa").
America West is the leading airline serving Phoenix with approximately 38%
of all enplanements in 1994 and is second in Las Vegas with approximately 26% of
all enplanements in 1994. The Phoenix and Las Vegas airports are among the
world's largest 25 in passenger traffic, and these cities are among the fastest
growing in the nation. The Company believes these hubs are well positioned for
continued growth due to their geographically favorable locations with strategic
access to key Southwestern and West Coast markets, relatively low operating
costs, year-round fair weather and modern, uncongested facilities. Substantially
all of the Company's passenger traffic is channeled into or through its hubs,
which serve as gateways for the Company's route network. Through its hub and
spoke system, the Company serves more markets with greater frequency than would
be possible with the same number of aircraft in a point-to-point route system.
America West operates with one of the lowest cost structures among the
major U.S. airlines, based on reported 1994 results. The Company's operating
cost per available seat mile ("ASM") for the first six months of 1995 was 7.04
cents, which was approximately 20% less than the average operating cost per ASM
of the nine largest other domestic airlines. Management believes that the
Company's low cost structure is a significant competitive advantage relative to
other full service carriers and also enables the Company to compete effectively
against low cost carriers in its short-haul local markets. As a full service
airline, the Company believes it distinguishes itself from other low cost
carriers by offering passenger services that include assigned seating,
participation in computerized reservation systems, interline ticketing, first
class cabins, baggage transfer and various other services.
The Company completed its reorganization under Chapter 11 of the U.S.
Bankruptcy Code in August 1994, after having filed for protection in June 1991.
Following a restructuring implemented during its bankruptcy proceedings, the
Company has achieved 10 consecutive quarters of profitability, beginning with
the first quarter of 1993. The Company's bankruptcy filing was the result of a
combination of adverse industry factors and the Company's rapid expansion beyond
its core base of operations. From 1990 to 1992, the airline industry experienced
significant operating losses attributable in large part to high fuel prices,
depressed traffic levels and intense fare competition brought about by the
Persian Gulf conflict, a fear of terrorism in the United States and the
deepening national recession. America West was acutely affected by these
conditions, which occurred at a time when the Company's indebtedness had
increased significantly to finance expansion. While in bankruptcy, the Company,
under new leadership, developed and implemented a restructuring plan focusing on
the Company's competitive strengths, which included its hub positions in Phoenix
and Las Vegas and its low cost structure. The Company reduced its fleet from
five aircraft types to three, eliminated routes that did not adequately support
strategic objectives and implemented cost reduction programs. Due in part to
these measures and improved economic and industry conditions, total operating
revenues grew by 8.9% during the period from 1992 through 1994, while total
operating expenses declined by 7.8%.
3
<PAGE> 4
STRATEGY
America West's strategy seeks to achieve additional revenue growth and
profitability by capitalizing on the Company's key competitive strengths while
maximizing financial flexibility. This strategy focuses on (i) strengthening the
Company's position in its existing hubs through strategic expansion, (ii)
maintaining its position as a leading low cost full service carrier, (iii)
operating a modern, efficient and flexible fleet, and (iv) continuing to develop
its passenger base through key alliances. Principal elements of the Company's
strategy are as follows:
Strengthen Position in Existing Hubs through Strategic Expansion. America
West's growth plan is designed to capitalize on its strong positions in its
Phoenix and Las Vegas hubs. In connection with the Company's restructuring, the
Company's operations in Phoenix contracted somewhat during a period when
airlines generally were expanding their strategic hub operations. In September
1995, the Company announced a two-year plan to expand its principal hub
operations and increase connecting traffic and service to longer-haul nonstop
markets. The expansion plan provides for an increase in available seat miles of
29% and total departures of 17% and the addition of at least eight new cities to
the Company's route network.
As the Company adds aircraft required to support the expansion of the
Phoenix hub, the Company intends to continue to optimize asset utilization
through the expansion of its night flight service to Las Vegas. By utilizing
aircraft for this service that would otherwise be idle overnight, the Company is
able to compete in a low cost market segment without diminishing asset
availability for use in its Phoenix operations. The Company believes that its
existing service at its Columbus mini-hub is adequate based on current demand.
Maintain its Position as a Leading Low Cost Full Service Airline. America
West is committed to maintaining its low cost structure, which the Company has
achieved primarily through its favorable labor costs per ASM and asset
utilization enhancements. The Company has focused on increasing productivity at
all levels. For the twelve months ended June 30, 1995, the Company's workforce
decreased by 8.5% despite an increase in ASMs of 6.4 %. In May 1995, a five-year
collective bargaining agreement with the Company's pilots became effective. The
terms of this contract are consistent with the Company's goal of maintaining a
low cost structure. Aircraft utilization has been enhanced through a
restructuring of the Company's route network including expansion of its Las
Vegas night flight program. The Company's fleet configuration, consisting of
three aircraft types, permits the Company to minimize spare parts inventories
and simplify maintenance and training operations.
Operate a Modern, Efficient and Flexible Fleet. The Company enjoys
operational efficiencies due to its modern, fuel efficient fleet. As of
September 1, 1995, the Company's fleet consisted of 59 Boeing 737s, 18 Airbus
A320s and 14 Boeing 757s, with an average age of approximately 9.6 years
compared to an estimated industry average of 11.3 years. Most of the Company's
existing aircraft are held under leases, including leases on 11 aircraft
expiring prior to December 1998. As a result, in the event general economic
conditions change adversely, the Company maintains flexibility to reduce its
fleet size by not renewing expiring aircraft leases. Management currently
intends to lease the additional aircraft necessary to support the Company's
expansion plan.
Continue to Develop Passenger Base through Alliances. The Company plans to
continue to capitalize on its alliance agreement with Continental to further
expand the Company's passenger base while achieving cost savings through the
reduction of redundant labor and facilities. This agreement provides for
codesharing arrangements, coordination of flight schedules, linking of frequent
flyer programs, sharing of ticket counter space, coordination of ground handling
operations and joint purchasing and marketing efforts. Through codesharing, each
airline is able to offer additional destinations to its customers without
materially increasing operating and capital expenses. Management believes that
its codesharing activities result in increased demand for travel on America West
and intends to pursue additional alliances as opportunities warrant.
4
<PAGE> 5
SUMMARY DESCRIPTION OF SECURITIES
The principal terms of the Common Stock and Warrants are summarized below.
For a more complete description, see "Description of Capital Stock" and
"Description of Warrants," respectively. The Selling Securityholders will
receive all of the net proceeds from the sale of the Securities offered hereby,
and the Company will not receive any proceeds from the Offering.
Common Stock:
Securities Registered............ 1,200,000 shares of Class A Common Stock
18,698,704 shares of Class B Common Stock
Common Stock Outstanding......... 1,200,000 shares of Class A Common Stock
43,966,891 shares of Class B Common
Stock(1)
Total.................. 45,166,891 shares of Common Stock
Voting Rights.................... Class A Common Stock and Class B Common
Stock have identical economic rights and
privileges and rank equally, share ratably,
and are identical in all respects as to all
matters other than voting rights. The Class
A Common Stock votes together with the
Class B Common Stock on all matters except
as otherwise required by law. Each share of
Class B Common Stock has one vote; each
share of Class A Common Stock has 50 votes.
Listing.......................... The Class B Common Stock is listed on The
New York Stock Exchange. The Company does
not intend to apply for listing of the
Class A Common Stock on any securities
exchange or authorization quotation on the
NASDAQ System. The Company does not expect
that an active trading market for the Class
A Common Stock will develop.
Class B Common Stock Trading
Symbol........................... "AWA"
- ---------------
(1) Excluding 12,595,058 shares of Class B Common Stock reserved for issuance
upon exercise of outstanding Warrants and options as of September 1, 1995.
Warrants:
Securities Registered............ 5,850,016 Warrants, each entitling the
holder to purchase one share of Class B
Common Stock at a price (the "Exercise
Price") of $12.74 per share and such shares
of Class B Common Stock.
Warrants Outstanding............. 10,384,058 Warrants
Expiration....................... The Warrants are exercisable by the holders
at any time prior to August 25, 1999.
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.
Listing.......................... The Warrants are listed on the New York
Stock Exchange.
Warrants Trading Symbol.......... "AWAws"
5
<PAGE> 6
SUMMARY FINANCIAL DATA
The following table summarizes certain financial and operating data with
respect to the Company contained elsewhere in this Prospectus and should be read
in conjunction therewith. Statement of operations data subsequent to August 25,
1994 and balance sheet data as of December 31, 1994 and June 30, 1995 reflect
the adoption by the Company of fresh start reporting upon consummation of the
Company's reorganization and are not prepared on a basis of accounting
consistent with prior data. References to "Predecessor Company" refer to the
Company's operations prior to its emergence from bankruptcy. See the financial
statements and related notes thereto and "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY
REORGANIZED COMPANY | ------------------------------------------------
------------------------ | PERIOD
SIX | SIX FROM
MONTHS PERIOD FROM | MONTHS JANUARY 1 YEARS ENDED DECEMBER
ENDED AUGUST 26 TO | ENDED TO 31,
JUNE 30, DECEMBER 31, | JUNE 30, AUGUST 25, -----------------------
1995 1994 | 1994 1994 1993 1992
---------- ------------ | ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> | <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA: |
Operating revenues............................... $ 745,706 $ 469,766 | $ 708,615 $ 939,028 $1,325,364 $1,294,140
Operating income (loss).......................... 77,852 38,871 | 81,896 107,506 121,054 (74,812)
Income (loss) before income taxes and |
extraordinary items............................ 52,165 19,736 | 36,782 (201,209) 37,924 (131,761)
Income (loss) before extraordinary item.......... 26,083 7,846 | 35,311 (203,268) 37,165 (131,761)
Extraordinary item(a)............................ -- -- | -- 257,660 -- --
Net income (loss)................................ 26,083 7,846 | 35,311 54,392 37,165 (131,761)
Earnings (loss) per share(b): |
Primary........................................ .58 .17 | 1.30 1.99 1.50 (5.58)
Fully diluted.................................. .58 .17 | .92 1.41 1.04 (5.58)
BALANCE SHEET DATA (AT END OF PERIOD): |
Working capital deficiency....................... $ (47,134) $ (47,927) | $ (106,760) $(163,572) $ (124,375) $ (201,567)
Total assets..................................... 1,673,117 1,545,092 | 1,100,541 1,053,780 1,016,743 1,036,441
Long-term debt, less current maturities(c)....... 438,204 465,598 | 604,420 597,839 620,992 647,015
Total stockholders' equity (deficiency).......... 621,765 595,446 | (215,338) (286,395) (254,262) (294,613)
OPERATING DATA: |
Available seat miles (in millions)............... 9,493 6,424 | 8,804 11,636 17,190 19,271
Revenue passenger miles (in millions)............ 6,458 3,972 | 6,139 8,261 11,221 11,781
Passenger load factor (%)........................ 68.0 61.8 | 69.7 71.0 65.3 61.1
Yield per revenue passenger mile (cents)......... 10.82 11.02 | 10.82 10.68 11.11 10.31
Passenger revenue per available seat mile |
(cents)........................................ 7.36 6.81 | 7.55 7.58 7.25 6.30
Operating cost per available seat mile (cents)... 7.04 6.71 | 7.12 7.15 7.01 7.10
Full time equivalent employees (at end of |
period)........................................ 9,925 10,715 | 10,850 10,849 10,544 10,233
</TABLE>
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(a) Includes extraordinary item of $257.7 million in 1994 resulting from the
discharge of indebtedness pursuant to the consummation of the Company's plan
of reorganization.
(b) Historical per share data for the Predecessor Company is not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(c) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
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RISK FACTORS
COMPETITIVE INDUSTRY CONDITIONS
The airline industry is highly competitive and industry earnings are
volatile. From 1990 to 1992, the airline industry experienced unprecedented
losses due to high fuel costs, general economic conditions, intense price
competition and other factors. Airlines compete on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. 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 may result in lower industry yields without a
corresponding increase in traffic levels.
Most of the Company's markets are highly competitive and are served by
larger carriers with substantially greater financial resources than the Company.
Also, in recent years several new carriers have entered the industry, typically
with low cost structures. 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 or the
introduction of new services by established carriers, could negatively impact
America West's results of operations.
LEVERAGE; FUTURE CAPITAL REQUIREMENTS
At June 30, 1995, the Company had $501.5 million of long-term indebtedness
(including current maturities). 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. Accordingly,
the Company may be less able than certain of its competitors to withstand
adverse industry conditions or a prolonged economic recession. In addition, as
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," at June 30, 1995, the
Company had on order a total of 24 Airbus A320-200 aircraft for delivery
beginning in 1998, with an aggregate net cost estimated at $1.1 billion. The
Company has arranged for financing for up to one-half of the commitment relating
to such aircraft and will require substantial capital from external sources to
meet its remaining financial commitment. There can be no assurance that the
Company will be able to obtain such capital in sufficient amounts or on
favorable terms. In addition, pursuant to the Company's growth plan, the Company
expects to expand its fleet, increase frequencies to existing cities and add
destinations to its route system. See "Business -- Operations." This expansion
will require the lease of additional aircraft. There can be no assurance that
the Company will be able to negotiate such leasing arrangements in sufficient
amounts or on favorable terms.
RECENT REORGANIZATION
The Company experienced significant operating losses in each year of the
three-year period ended December 31, 1992. During this period, notwithstanding a
series of actions taken by the Company to improve its cash position and reduce
costs, the Company faced a severe liquidity crisis and filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in June 1991. In connection with
its reorganization in bankruptcy and related operational restructuring (the
"Reorganization"), the Company took significant steps to improve its operations,
leading to profitability during 1993 and subsequent periods. The Company's
long-term viability, however, will depend upon its ability to sustain profitable
results of operations. There can be no assurance that such results can be
sustained. In connection with the Reorganization, the Company adopted fresh
start reporting. Certain fresh start adjustments have had a significant effect
on the Company's statements of operations subsequent to the Reorganization,
which statements are not prepared on a basis consistent with the prior periods.
The Company expects that approximately 2,400,000 of the shares of Class B
Common Stock remaining in an escrow account established pursuant to the
Company's bankruptcy reorganization will be distributed by the escrow agent in
October 1995. Following such distribution, approximately 724,000 shares of Class
B Common Stock will remain with the escrow agent pending final resolution of
claims. All other securities issued pursuant to the bankruptcy have been
distributed. Distribution of the shares of Class B Common Stock could adversely
affect the market price of the Class B Common Stock or the Warrants, or both.
7
<PAGE> 8
INCREASES IN FUEL PRICES
Fuel costs constituted approximately 13% of America West's total operating
expenses during 1994. A one cent per gallon change in fuel price would affect
the Company's annual operating results by approximately $3 million at 1995
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 operating results of the Company. Fuel price increases or
supply shortages 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. The Company does not currently hedge its fuel costs but
may elect to do so in the future.
In August 1993, the United States government increased taxes on fuel,
including aircraft fuel, by 4.3 cents per gallon. Initially, airlines were
exempt from this tax increase; however, the Company became liable for such tax
commencing October 1, 1995. A bill to extend the airline exemption for two years
has recently been passed by the Ways and Means Committee of the House of
Representatives. There can be no assurance that such a bill will be enacted by
Congress. The tax as currently in effect will increase the Company's annual
operating expenses by approximately $13 million based upon its 1994 fuel
consumption levels. There can be no assurance that additional taxes on fuel will
not be imposed in the future or that such taxes will not materially affect the
Company's results of operations.
LABOR NEGOTIATIONS
The Company historically operated without collective bargaining agreements
covering any of its employees. In October 1993, however, the Air Lines Pilots
Association ("ALPA") was certified by the National Mediation Board as the
bargaining representative of the Company's pilots. In May 1995, a five-year
collective bargaining agreement with the Company's pilots became effective. See
"Business -- Labor Relations." In June 1994, the National Mediation Board
accepted the Association of Flight Attendants' ("AFA") petition to represent the
Company's flight attendants. In September 1994, the Company's flight attendants
voted in favor of AFA representation and contract negotiations are ongoing.
There have been numerous attempts by unions (including the Transportation
Workers Union and the International Brotherhood of Teamsters) to organize the
employees of the Company, and the Company expects such organization efforts to
continue in the future. The Company cannot predict the terms of any future
collective bargaining agreement and therefore the effect, if any, on the
Company's operations or financial condition.
GOVERNMENT REGULATION
The Company is subject to the Federal Aviation Act of 1958, as amended,
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 systems, airborne windshear avoidance
systems, noise abatement and increased inspections and maintenance procedures to
be conducted on older aircraft. As of September 1, 1995, the Company's fleet
consisted of 91 aircraft of which 22 aircraft meet the FAA's Stage II (but not
Stage III) noise reduction requirements and must be retired or significantly
modified prior to the year 2000. These modifications may require additional
capital. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." Management is
currently considering its options regarding such 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
8
<PAGE> 9
considered from time to time that would prohibit or restrict the ownership and
transfer of airline routes or slots.
CONCENTRATION OF VOTING POWER; INFLUENCE OF CERTAIN PRINCIPAL STOCKHOLDERS
At September 1, 1995, TPG Partners, L.P. ("TPG"), Continental and Mesa
owned 12,221,151 of the shares of Class B Common Stock (on a fully diluted
basis) and 100% of the Company's Class A Common Stock, and thereby control
approximately 68.4% of the voting power of America West. As a result, TPG,
Continental and Mesa, whose shares are subject to the terms of a Stockholders'
Agreement (defined herein), are able to elect a majority of their 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 themselves 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, subject to certain restrictions. Mesa and
Continental are engaged in the airline industry and are parties to alliance
agreements with the Company. The general partner of TPG is a limited partnership
whose general partner is TPG Advisors, Inc., a Delaware corporation. The
executive officers and directors of TPG Advisors, Inc. are David Bonderman,
James G. Coulter, William Price, James O'Brien, Richard P. Schifter and Richard
Ekleberry. Mr. Bonderman, Mr. Coulter and Mr. Price, through their positions in
Air Partners, L.P., a partnership formed to participate in the funding of the
reorganization of Continental and a significant shareholder of Continental, may
be deemed to own beneficially a significant percentage of the equity securities
of Continental. Mr. Bonderman is also a director and chairman of the board of
directors of Continental and Mr. Price is a director of Continental. Mr. Larry
L. Risley, a director of the Company, is the chairman and chief executive
officer of Mesa. 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 their interests.
Pursuant to the terms of the Stockholders' Agreement, AmWest Partners, L.P.
("AmWest"), a limited partnership which included TPG, Continental and Mesa,
agreed to certain limitations on its ability to control the Company, including,
that for a three-year period beginning on August 25, 1994 (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). In addition, the Stockholders' Agreement provides
that until the annual meeting after the third anniversary of the Effective Date,
approval of transactions in which AmWest or its affiliates may participate will
require the affirmative vote of the holders of a majority of the voting power of
the outstanding shares of each class of common stock of the Company entitled to
vote, voting as a single class and excluding any shares owned by AmWest or any
of its affiliates. Transactions to which such restriction applies include any
merger or consolidation of the Company with or into AmWest or its affiliates,
any sale or other disposition of all or a substantial part of the assets of the
Company to AmWest or its affiliates and certain other transactions in which
AmWest or its affiliates would acquire an increased ownership of equity
securities in the Company. The Company does not believe these restrictions will
have any adverse effects on the stockholders of the Company. Upon the
dissolution of AmWest on the Effective Date, the provisions of the Stockholders'
Agreement with respect to AmWest became binding upon TPG, Continental and Mesa.
See "Principal Stockholders -- Stockholders' Agreements."
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 beneficially 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."
9
<PAGE> 10
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Securities
by the Selling Securityholders.
PRICE RANGE OF CLASS B COMMON STOCK AND WARRANTS
The following table sets forth, for the periods indicated, the high and low
sale prices of the Class B Common Stock and the Warrants as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK WARRANTS
-------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Third Quarter (commencing August 25, 1994)....... $15 1/8 $12 3/8 $7 3/8 $5 1/4
Fourth Quarter................................... 13 6 3/4 5 1/2 1 1/2
Year ended December 31, 1995
First Quarter.................................... 9 1/8 6 1/2 3 5/8 1 3/4
Second Quarter................................... 12 1/2 8 5/8 5 1/8 2 3/4
Third Quarter.................................... 16 1/2 11 3/4 6 7/8 4 3/8
</TABLE>
On October 2, 1995, the last reported sales price on the New York Stock
Exchange of the Class B Common Stock was $15 1/4 per share and of the Warrants
was $6 1/4 per Warrant. As of October 2, 1995, the approximate number of holders
of record of Class B Common Stock, Class A Common Stock and Warrants was 16,159,
10 and 15,640, respectively.
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. Certain loan agreements and debt instruments of the Company restrict
the Company's ability to pay cash dividends on the Common Stock and make certain
other restricted payments (as defined therein). Under these restrictions, as of
June 30, 1995, the Company's ability to pay dividends, together with any other
restricted payments, would be limited to an aggregate of $41.2 million. In
addition, the Company is a party to certain agreements with a vendor containing
covenants which would currently preclude the payment of dividends. The Company
is in the process of negotiating a transaction with such vendor and intends to
negotiate amendments to the existing agreements such that the dividend
restrictions contained therein will be consistent with those included in the
Company's debt instruments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
10
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1995. The table should be read in conjunction with the Company's financial
statements and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
JUNE 30, 1995
--------------
(IN THOUSANDS)
[S] [C]
Long-term debt, including current maturities............ $ 501,486(1)
Stockholders' equity:
Class A Common Stock.................................. 12
Class B Common Stock(2)............................... 440
Additional paid-in capital............................ 587,384
Retained earnings..................................... 33,929
-----------
Total stockholders' equity.................... 621,765
-----------
Total capitalization.................................... $1,123,251
===========
- ---------------
(1) Subsequent to June 30, 1995, the Company prepaid approximately $48 million
of its long-term debt.
(2) Excludes 12,595,264 shares of Class B Common Stock reserved for issuance
upon exercise of the Warrants and options at June 30, 1995.
11
<PAGE> 12
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statements of
Operations Data" and "Balance Sheet Data" for, and as of, (i) the period August
26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994,
and each of the years in the four-year period ended December 31, 1993, are
derived from the financial statements of the Company, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants and (ii) the periods ended June 30, 1995 and 1994 are derived from
the unaudited condensed financial statements of the Company. In the opinion of
management, the unaudited condensed financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation. The selected data should be read in conjunction with the financial
statements, the related notes and the independent auditors' report included
elsewhere herein. The independent auditors' report for the period August 26,
1994 to December 31, 1994, for the period January 1, 1994 to August 25, 1994,
and as of December 31, 1994 contains an explanatory paragraph that states the
financial statements of the Reorganized Company reflect the impact of
adjustments to reflect the fair value of assets and liabilities under fresh
start reporting. As a result, the financial statements of the Reorganized
Company are presented on a different basis than those of the Predecessor Company
and, therefore, are not comparable in all respects.
As a result of the filing by the Company of 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 until August 25, 1994, the selected
financial data for periods prior to June 27, 1991 are not comparable to periods
subsequent to such date.
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY
REORGANIZED COMPANY | --------------------------------------------------------------------------
------------------------ | PERIOD
SIX | SIX FROM
MONTHS PERIOD FROM | MONTHS JANUARY 1
ENDED AUGUST 26 TO | ENDED TO YEARS ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, | JUNE 30, AUGUST 25, -------------------------------------------------
1995 1994 | 1994 1994 1993 1992 1991 1990
---------- ------------ | ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> | <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS |
DATA: |
Operating revenues......... $ 745,706 $ 469,766 | $ 708,615 $ 939,028 $1,325,364 $1,294,140 $1,413,925 $1,315,804
Operating income (loss).... 77,852 38,871 | 81,896 107,506 121,054 (74,812) (104,657) (31,631)
Income (loss) before income |
taxes and extraordinary |
items.................... 52,165 19,736 | 36,782 (201,209) 37,924 (131,761) (222,016) (76,695)
Income (loss) before |
extraordinary item....... 26,083 7,846 | 35,311 (203,268) 37,165 (131,761) (222,016) (76,695)
Extraordinary item(a)...... -- -- | -- 257,660 -- -- -- 2,024
Net income (loss).......... 26,083 7,846 | 35,311 54,392 37,165 (131,761) (222,016) (74,671)
Earnings (loss) per |
share(b): |
Primary.................. .58 .17 | 1.30 1.99 1.50 (5.58) (10.39) (4.15)
Fully diluted............ .58 .17 | .92 1.41 1.04 (5.58) (10.39) (4.15)
BALANCE SHEET DATA (AT END |
OF PERIOD): |
Working capital |
deficiency............... $ (47,134) $ (47,927) | $ (106,760) $(163,572) $ (124,375) $ (201,567) $ (51,158) $ (94,671)
Total assets............... 1,673,117 1,545,092 | 1,100,541 1,053,780 1,016,743 1,036,441 1,111,144 1,165,256
Long-term debt, less |
current |
maturities(c)............ 438,204 465,598 | 604,420 597,839 620,992 647,015 726,514 620,701
Total stockholders' equity |
(deficiency)............. 621,765 595,446 | (215,338) (286,395) (254,262) (294,613) (166,510) 21,141
OPERATING DATA: |
Available seat miles (in |
millions)................ 9,493 6,424 | 8,804 11,636 17,190 19,271 20,627 18,286
Revenue passenger miles (in |
millions)................ 6,458 3,972 | 6,139 8,261 11,221 11,781 13,030 11,114
Passenger load factor |
(%)...................... 68.0 61.8 | 69.7 71.0 65.3 61.1 63.2 60.8
Yield per revenue passenger |
mile (cents) 10.82 11.02 | 10.82 10.68 11.11 10.31 10.22 11.17
Passenger revenue per |
available seat mile |
(cents).................. 7.36 6.81 | 7.55 7.58 7.25 6.30 6.46 6.79
Operating cost per |
available seat mile |
(cents).................. 7.04 6.71 | 7.12 7.15 7.01 7.10 7.36 7.37
Full time equivalent |
employees (at end of |
period).................. 9,925 10,715 | 10,850 10,849 10,544 10,233 11,561 12,933
</TABLE>
- ---------------
(a) Includes extraordinary item of $257.7 million in 1994 resulting from the
discharge of indebtedness pursuant to the consummation of the plan of
Reorganization and, $2.0 million in 1990, resulting from the purchase and
retirement of convertible subordinated debentures.
(b) Historical per share data for the Predecessor Company is not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(c) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL FACTORS AFFECTING COMPANY RESULTS
The Company's operating results are significantly affected by general
economic conditions as well as competitive factors and other conditions
affecting the airline industry. From 1990 to 1992, the airline industry
experienced significant operating losses. These losses were attributable in
large part to high fuel prices, depressed traffic levels and intense fare
competition among airlines brought about by the Persian Gulf conflict, a fear of
terrorism in the United States and the deepening national recession. America
West was acutely affected by these conditions, as it had incurred high levels of
indebtedness to finance fleet expansions beyond its core base of operations. In
recent periods, airlines have achieved generally improved operating results as a
result of more favorable economic conditions and as carriers have focused on
their areas of relative strength, eliminating service to under-performing
markets and rationalizing operations, route systems and pricing strategies.
America West began to achieve positive results beginning in 1993 due to an
operational restructuring, combined with a gradually improving economic climate
and a more rational pricing environment. As a result, the Company has achieved
10 consecutive quarters of profitability beginning with the first quarter of
1993 and, during the first six months of 1995, the Company achieved the highest
operating margins among the 10 largest United States carriers.
The Company continually evaluates performance in its existing and potential
markets and has undertaken a study of the strategic deployment of its aircraft
to optimize operating performance. To this end, the Company announced in
September 1995 a new growth plan and has identified additional routes through
its Phoenix and Las Vegas hubs which it believes it can service profitably. See
"Business -- Operations."
The Company operates one of the lowest cost structures among the major
airlines in the United States. To the extent that other carriers are successful
in reducing their operating costs, the advantage which the Company enjoys as a
result of its low cost structure would be reduced. For this reason, maintaining
a low cost structure is one of the Company's strategic imperatives. In May 1995,
a five-year collective bargaining agreement with the Company's pilots became
effective. The terms of this contract are consistent with the Company's goal of
maintaining its low unit cost structure. Specifically, the agreement provides
for a salary level increase at a compound annual rate of approximately 5.7% and
includes provisions relating to pilot productivity which management estimates
will result in productivity increases of approximately 2% per year. A
significant portion of such salary level increase was effected in May 1995 in
order to provide the pilots with a pay and benefits package competitive with
other low cost carriers. Salary level increases after the May 1995 increase will
occur through April 2000 and will increase at a compound annual rate of
approximately 2.5%.
The Company's operating costs will also be affected by a 4.3 cents per
gallon increase in fuel taxes that the Company became liable for on October 1,
1995. This new tax will increase the Company's annual operating expenses by
approximately $13 million based upon its 1994 fuel consumption levels. A bill to
extend the airline exemption for two years has recently been passed by the Ways
and Means Committee of the House of Representatives. There can be no assurance
that such bill will be enacted by Congress. See "Risk Factors -- Increases in
Fuel Prices."
The Company's actual income tax liability (i.e., income taxes payable) is
considerably lower than income tax expense for financial reporting purposes due
principally to the utilization of net operating loss and certain tax credit
carryforwards. The amortization of the excess reorganization value is not
deductible for income tax purposes, giving rise to an effective tax rate for
financial reporting purposes that is significantly greater than the current U.S.
corporate statutory rate of 35 percent. See "-- Liquidity and Capital
Resources."
IMPACT OF FRESH START REPORTING
In connection with its emergence from bankruptcy in August 1994, the
Company adopted fresh start reporting in accordance with Statement of Position
90-7 "Financial Reporting by Entities in Reorganization
13
<PAGE> 14
under the Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified
Public Accountants. Fresh start reporting significantly affects the Company's
statements of operations and the accounting and cash flow impact of taxes.
Under fresh start reporting, the reorganization value of the Company has
been allocated to its assets and liabilities on a basis substantially consistent
with purchase accounting. The portion of reorganization value not attributable
to specific tangible assets has been recorded as "Reorganization Value in Excess
of Amounts Allocable to Identifiable Assets." Certain 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 statements of operations. The more significant adjustments relate to
(i) reduced rent expense due to the re-valuation of aircraft leases to market
rates, (ii) reduced maintenance expense due to the write off of previously
capitalized overhauls, (iii) reduced depreciation expense on property and
equipment due to the re-valuation of such assets to fair value, (iv) the
addition of amortization expense relating to reorganization value in excess of
amounts allocable to identifiable assets, (v) increased interest expense due to
the re-valuation of aircraft leases to market rates, and (vi) increased income
tax expense principally because the amortization of excess reorganization value
is not deductible for income tax purposes, giving rise to an effective tax rate
for financial reporting purposes that is significantly greater than the current
U.S. corporate statutory rate of 35 percent. For further information regarding
fresh start reporting, see Notes 2, 3, and 9 of Notes to Financial Statements.
The table below sets forth the key areas in the statement of operations
affected by the implementation of fresh start reporting and the related impact
on the periods presented. However, actual cash flows do not change as a result
of fresh start reporting.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 26-
JUNE 30, 1995 DECEMBER 31, 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Reduced rent expense..................................... $ 11.0 $ 7.8
Reduced maintenance expense.............................. 19.1 11.5
Reduced depreciation expense on property and equipment... 1.4 2.0
Addition of excess reorganization value amortization..... (16.4) (11.1)
Increased interest expense............................... (5.6) (3.9)
Increased income tax expense............................. (24.3) (11.9)
---- ----
Net reduction to net income.............................. (14.8) (5.6)
==== ====
</TABLE>
SEASONALITY
Due to the greater demand for air travel during the summer months, revenues
in the airline industry in the second and third quarters of the year tend to be
greater than revenues in the first and fourth quarters of the year. Other
factors that are not necessarily seasonal also significantly affect results,
including the extent and nature of price and other competition from other
airlines, fare wars, changing levels of operations, international events, fuel
prices and general economic conditions. Seasonality is illustrated by the
differences between the Company's results during the first and second quarters
of 1995. America West realized a significantly higher load factor of 72.0% in
the second quarter of 1995 compared to 63.9% in the first quarter of the year.
As a result, passenger revenues per ASM ("RASM") increased in the second quarter
of 1995 to 7.72 cents compared to 6.98 cents for the previous quarter. Operating
cost per ASM also increased to 7.14 cents in the second quarter of 1995 compared
to 6.92 cents in the previous quarter, largely due to increases in passenger
variable expenses generated by the high traffic levels. In total, net income
increased to $20.9 million in the second quarter of 1995 compared to $5.2
million for the previous quarter.
14
<PAGE> 15
SELECTED OPERATING DATA
The table below sets forth selected operating data for America West.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
1995 1994 1995-1994 1994 1993 1992 1994-1993 1993-1992
----- ----- --------- ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available seat miles
(in millions)................... 9,493 8,804 7.8 18,060 17,190 19,271 5.1 (10.8)
Revenue passenger miles
(in millions)................... 6,458 6,139 5.2 12,233 11,221 11.781 9.0 (4.8)
Load factor (percent)............. 68.0 69.7 (2.4) 67.7 65.3 61.1 3.7 6.9
Yield per revenue passenger mile
(cents)......................... 10.82 10.82 -- 10.79 11.11 10.31 (2.9) 7.8
Revenue per available
seat mile:
Passenger (cents)............... 7.36 7.55 (2.5) 7.31 7.25 6.30 0.8 15.1
Total (cents)................... 7.86 8.05 (2.4) 7.80 7.71 6.72 1.2 14.7
Passenger enplanements
(in thousands).................. 8,185 7,814 4.7 15,669 14,740 15,173 6.3 (2.9)
Average stage length.............. 688 667 3.1 676 645 631 4.8 2.2
Average passenger journey miles... 985 988 (0.3) 979 970 990 0.9 (2.0)
Average daily aircraft utilization
(hours)......................... 11.3 11.0 2.7 11.2 10.7 10.5 4.7 1.9
Aircraft (end of period).......... 89 85 4.7 87 85 87 2.4 (2.3)
Full time equivalent employees
(end of period)................. 9,925 10,850 (8.5) 10,715 10,544 10,233 0.2 0.3
</TABLE>
The table below sets forth the major components of operating expense per
ASM for America West for the applicable periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
1995 1994 1995-1994 1994 1993 1992 1994-1993 1993-1992
---- ---- ---------- ----------- ---------- ----------- --------- ---------
(IN CENTS) (IN CENTS) (IN CENTS) (IN CENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and related costs......... 1.95 1.85 5.4 1.83 1.78 1.68 2.8 6.0
Rentals and landing fees........... 1.45 1.51 (4.0) 1.47 1.60 1.76 (8.1) (9.1)
Aircraft fuel...................... .87 .86 1.2 .88 .97 .97 (9.3) --
Agency commissions................. .64 .68 (5.9) .64 .62 .55 3.2 12.7
Aircraft maintenance materials and
repairs.......................... .28 .21 33.3 .25 .18 .20 38.9 (10.0)
Depreciation and
amortization..................... .43 .49 (12.2) .47 .48 .45 (2.1) 6.7
Restructuring charges.............. -- -- -- -- -- .16 -- (100.0)
Other.............................. 1.42 1.52 (6.6) 1.45 1.38 1.33 5.1 3.8
---- ---- ----- ---- ---- ---- ------ ----
7.04 7.12 (1.1) 6.99 7.01 7.10 (.3) (1.3)
==== ==== ===== ==== ==== ==== ====== ====
</TABLE>
Six Months Ended June 30, 1995 and 1994
For the six months ended June 30, 1995 and 1994, the Company realized net
income of $26.1 million and $35.3 million, respectively. Net income for the six
month period of 1995 included income tax expense for financial reporting
purposes of $26.1 million compared to $1.5 million in 1994. The increase in
income tax expense for financial reporting purposes resulted principally from
the adoption of fresh start reporting. Net income for the six month period of
1994 included reorganization expense of $18.3 million.
Total operating revenues were $745.7 million for the six months ended June
30, 1995 compared to $708.6 million for the comparable period of 1994. Passenger
revenues increased 5% to $698.4 million during
15
<PAGE> 16
the six months ended June 30, 1995 in spite of competitive pricing initiatives
commenced by other carriers which exerted pressure on the Company's yield and
load factor during the first quarter of 1995. Cargo and other revenues increased
8.5% to $47.3 million for the first half of 1995 primarily due to an increase in
contract service revenues generated through the alliance with Continental. The
balance of other revenues includes revenues generated primarily from alcoholic
beverage sales, headset rentals and service charges.
Capacity, as measured by available seat miles, increased 7.8% for the six
months ended June 30, 1995 compared to the 1994 period, primarily due to the
addition of four aircraft to the fleet and an increase in the average stage
length of 3.1%. Revenue passenger miles increased 5.2% for the six months ended
June 30, 1995 compared to the 1994 period. Load factor decreased by 1.7 points
and yield was flat for the six months ended June 30, 1995 compared to the 1994
period.
Operating expense per available seat mile decreased to 7.04 cents for the
1995 period from 7.12 cents for the 1994 period. The changes in the components
of operating expense per available seat mile are explained as follows:
- The increase in salaries and related costs is primarily the result of
accruals totaling $4.5 million for the six months ended June 30, 1995 to
provide for performance awards related to the Company's profitability. In
addition, such costs were affected by a significant initial increase in
pilot salaries under their collective bargaining agreement and the
adoption of the Company's Total Pay Program. These pay increases were
effected in order to make employees' compensation levels more competitive
with that of other low cost carriers and local employers. These pay
increases were partially offset by improvements in productivity through
an 8.5% reduction in the work force.
- The decrease in rentals and landing fees is due to the amortization of
deferred credits recorded in the Company's adjustment of operating leases
to fair market value under fresh start reporting. The decrease in
aircraft rent was partially offset by the addition of four aircraft to
the fleet.
- The average price per gallon of aircraft fuel increased to 54.6 cents for
the 1995 period from 53.7 cents for 1994. Also, fuel consumption was
higher in the 1995 period than in 1994 due to the increase in capacity
discussed above.
- Agency commissions decreased due to a change in the mix of tickets sold
through travel agencies vis-a-vis direct sales to passengers through the
Company's reservation system.
- Aircraft maintenance materials and repairs increased largely as the
result of a flight hour agreement involving certain auxiliary power
units, an increase in hours flown and a change in the classification of
the amortization expense associated with capitalized heavy engine and
airframe overhauls. For the six months ended June 30, 1995 amortization
of capitalized maintenance totaling $2.8 million is included in aircraft
maintenance materials and repairs. Amortization of capitalized
maintenance totaling $17.8 million for the 1994 six month period is
included in depreciation and amortization expense. The level of aircraft
maintenance materials and repairs amortization decreased $15.0 million.
The amount of overhauls capitalized relating to aircraft and engines was
reduced as part of the re-valuation of property and equipment and
operating leases under fresh start reporting. Overhauls that have been
performed since August 25, 1994 have been capitalized, which will cause
amortization expense of aircraft maintenance costs to increase in the
near term. Overhauls capitalized from August 26 through December 31, 1994
and during the first six months of 1995 were $6.9 million and $23.8
million, respectively.
- Depreciation and amortization expense decreased $17.8 million due to the
classification change discussed above and $1.4 million from the
re-valuation of property and equipment under fresh start reporting, these
decreases were partially offset by an increase of $16.4 million arising
from the amortization of the reorganization value in excess of amounts
allocable to identifiable assets under fresh start reporting.
- Other operating expenses decreased due to reductions in advertising
expense and property taxes and the fixed nature of certain other costs.
16
<PAGE> 17
Net nonoperating expenses decreased $19.4 million from $45.1 million for
1994 to $25.7 million for 1995. This net decrease resulted from: an increase in
interest income of $6.6 million due to higher cash and cash equivalent balances
in 1995; partially offset by a net increase in interest expense of $5.4 million
because the Company did not accrue and pay interest on unsecured prepetition
long-term debt during its bankruptcy proceedings in conformity with SOP 90-7 and
after the Reorganization, an increase in interest expense due to the
re-valuation of aircraft leases to market rates as part of fresh start
reporting; and a decrease in reorganization expense of $18.3 million since the
Company emerged from bankruptcy.
Income tax expense for financial reporting purposes increased to $26.1
million from $1.5 million in 1994 resulting from the adoption of fresh start
accounting. The amortization of the excess reorganization value is not
deductible for income tax purposes thus giving rise to an effective tax rate for
financial reporting purposes that is significantly greater than the current U.S.
corporate statutory rate of 35 percent. Nevertheless, the Company's actual
income tax liability (i.e. income taxes payable) is considerably lower than
income tax expense for financial reporting purposes due principally to the
utilization of net operating loss and certain tax credit carryforwards.
Periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25,
1994 and
the years ended December 31, 1993 and 1992
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the periods August 26,
1994 to December 31, 1994, January 1, 1994 to August 25, 1994 and the two years
ended December 31, 1993. The Company's results of operations for the periods
subsequent to August 25, 1994 have not been prepared on a basis of accounting
consistent with its results of operations for periods prior to August 26, 1994
due to the implementation of fresh start reporting upon the Company's emergence
from bankruptcy.
The Company realized net income of $62.2 million on a combined basis for
1994 compared to net income of $37.2 million for 1993 and a net loss of $131.8
million for 1992. The 1994 results include an extraordinary gain of $257.7
million from the discharge of certain prepetition indebtedness and $273.7
million of reorganization expenses. 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.
Total operating revenues were $1.4 billion on a combined basis for 1994, an
increase of 6.3 percent compared to the prior year and 8.9 percent greater than
1992. Passenger revenues for 1994, 1993 and 1992 were $1.3 billion on a combined
basis, $1.2 billion and $1.2 billion, respectively.
Passenger revenue per available seat mile increased slightly in 1994
compared to 1993 as the increase in load factor period over period was largely
offset by a decline in average passenger yields. The passenger revenue increases
realized in 1994 reflect a continuation of trends which commenced in 1993. These
trends reflected a gradually improving economic climate and a more stable
environment within the airline industry. The increase in passenger revenue per
available seat mile in 1993 compared to 1992 was due to improvements in both
load factor and yield.
With the exception of the two aircraft deliveries late in 1994, the Company
operated an 85 aircraft fleet and realized increases in capacity over 1993 as
measured by available seat miles by increasing the average stage length flown by
4.8 percent and by increasing the average daily utilization of the aircraft by
4.7 percent.
In the fourth quarter of 1994, certain competitive pricing initiatives were
commenced by other carriers which exerted pressure on both the Company's yield
and the load factor. The result of these initiatives, which carried over to the
first quarter of 1995, was softer traffic and generally lower yield levels. To
address these conditions, the Company announced certain fare initiatives of its
own, and selectively matched fare decreases initiated by other carriers.
Revenues from sources other than passenger fares increased to $88.9 million
on a combined basis for 1994 compared to $78.8 million and $79.3 million for
1993 and 1992, respectively. Cargo revenues comprised
17
<PAGE> 18
49.8 percent, or $44.3 million of other revenues on a combined basis for 1994.
For the years 1994, 1993 and 1992, the Company carried 129.6 million, 110.7
million and 116.4 million pounds of freight and mail, respectively.
In spite of significant reductions in capacity since 1991, operating
expense per ASM declined to 6.99 cents for 1994 from 7.01 cents for 1993 and
7.10 cents for 1992. The changes in the components of operating expense per ASM
are explained as follows:
- The increase in 1994 salaries and related costs compared to 1993 is a
result of an increase in capacity as well as the implementation of a pay
plan in the second quarter of 1994. Effective April 1, 1994, the Company
implemented a pay plan that increased wages by between two percent and
eight percent, depending on the employee's length of service with the
Company, and the Company increased its matching contribution under the
Company's 401(k) plan. The pay program replaced a transition program that
the Company had in place from mid-1993 through the first quarter of 1994.
Under the transition program, pay increases totaling $6.5 million,
including applicable payroll taxes, were made in 1993. Such pay plans
were put in place to improve compensation to employees following a period
of reduced compensation during the bankruptcy. In addition, commencing in
the third quarter of 1993, employee award distributions based on the
greater of 0.5% of an employee's annual base wage or $125 were made on a
quarterly basis. Such payments for 1993 totaled $2.6 million, including
applicable payroll taxes. In 1994, approximately $4.5 million in
distributions were made prior to the termination of the transition and
award pay program. Unit salary costs increased from 1992 to 1993 due to a
decline in capacity of 10.8% which was not offset by an equal reduction
in the workforce.
- Rentals and landing fees decreased in 1994 compared to 1993 and 1992 for
the following reasons:
-- The Company generated more ASMs in 1994 with essentially the same
sized aircraft fleet as in 1993 which, in turn, caused the rate per
ASM to decrease;
-- Rent reductions were obtained at New York's Kennedy Airport and
Phoenix's Sky Harbor International Airport;
-- Rent expense for aircraft leases were reduced to reflect fair
market rates in August 1994 under fresh start reporting; and
-- Certain administrative office space was vacated as part of the
Company's facilities consolidation program.
- Aircraft fuel expense decreased year over year due to the decline in the
average price per gallon to 54.9 cents from 61.1 cents for 1993 and 62.7
cents for 1992.
- Agency commission expense increased in 1994 in comparison to 1993 and
1992 as a result of the increase in passenger revenue per ASM. In
addition, the 1994 commission expense increased because a higher
percentage of passenger revenues was generated by America West Vacations
which pays a higher average commission rate on its sales.
- Aircraft maintenance materials and repair expense increased in 1994 as
the result of an increase in average daily utilization of the fleet to
11.2 hours per day in 1994 from 10.7 hours and 10.5 hours for 1993 and
1992, respectively. This higher level of utilization resulted in
increases in line maintenance materials usage, engine repairs and
component repairs.
- Depreciation and amortization expense decreased slightly in 1994 compared
to 1993 as the result of a decrease in depreciation expense arising from
the re-valuation of property and equipment under fresh start reporting
which was partially offset by an increase in amortization expense arising
from the amortization of the reorganization value in excess of amounts
allocable to identifiable assets under fresh start reporting.
Depreciation and amortization expense was higher in 1993 than in 1992
largely as the result of increased heavy engine overhauls.
18
<PAGE> 19
- Restructuring charges incurred in 1992 consisted of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
<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 from 101
aircraft to 87 aircraft during 1992 and eliminated two of five aircraft
types it operated. Additionally, the number of employees was reduced by
approximately 1,500 employees and service was terminated to ten cities by
the end of 1992.
- The increase in other operating expense for 1994 compared to 1993 and
1992 is due to increased advertising costs and other expenses related to
increased passenger traffic such as credit card discount fees, booking
fees, catering expenses and supplies.
Nonoperating expenses (net of nonoperating income) were $327.9 million on a
combined basis for 1994, $83.1 million for 1993 and $56.9 million for 1992.
Interest expense increased to $56.6 million in 1994 compared to $54.2 million in
1993 and $55.8 million in 1992. The increase in interest expense is primarily
the result of the issuance of $123 million of senior unsecured notes in
connection with the Company's emergence from bankruptcy. In conformity with SOP
90-7, the Company ceased accruing and paying interest on certain prepetition
long-term debt so long as the Company remained a debtor-in-possession. Had the
Company continued to accrue interest on such debt, interest expense for 1994,
1993 and 1992 would have been $67.3 million, $73.0 million and $73.9 million,
respectively. The Company incurred expenses of $273.7 million in 1994, $25
million in 1993 and $16.2 million in connection with its efforts to reorganize
under Chapter 11. See Note 1 of Notes to Financial Statements for further
discussion with respect to reorganization.
Income tax expense increased significantly after August 26, 1994 due to the
impact of fresh start reporting. The amortization of the excess reorganization
value is not deductible for income tax purposes giving rise to an effective tax
rate for financial reporting purposes that is significantly greater than the
current U.S. corporate statutory rate of 35 percent. Nevertheless the Company's
actual income tax liability (i.e., income taxes payable) is considerably lower
than income tax expense for financial reporting purposes due principally to the
utilization of net operating loss and certain tax credit carryforwards. Income
tax expense for 1993 and January 1 through August 25, 1994 reflects the benefit
of the Company's net operating losses. In 1992, a net operating loss
carryforward existed for financial reporting and tax purposes and thus no income
tax benefit was recorded.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents increased to $279.4 million at June
30, 1995 from $182.6 million at December 31, 1994. Net cash provided from
operating activities increased to $179.9 million for the six months ended June
30, 1995 from $139.2 million for the six months ended June 30, 1994, an increase
of $40.7 million. The increase was primarily due to the increase in advance
ticket sales in the second quarter of 1995 as compared to the second quarter of
1994. Net cash used in investing activities increased to $52.0 million for the
six months ended June 30, 1995 from $34.7 million for the six months ended June
30, 1994, an increase of $17.3 million primarily related to increased
expenditures for heavy engine overhauls. Net cash used in financing activities
was $31.1 million for the six months ended June 30, 1995 compared to $27.2
million for the six months ended June 30, 1994 due to an increase in debt
repayments.
The Company has a working capital deficiency which has decreased to $47.1
million at June 30, 1995 from $47.9 million at December 31, 1994. Operating with
a working capital deficiency is typical in the airline industry as tickets sold
for transportation which has not yet been provided are classified as a current
liability
19
<PAGE> 20
while the related income producing assets, the aircraft, are classified as
non-current. Despite the working capital deficiency, the Company expects to meet
all of its obligations as they become due.
The Company's long-term debt maturities through 1997 consist primarily of
principal amortization of notes payable secured by certain of the Company's
aircraft. Such maturities were $26.0 million, $58.8 million and $48.6 million,
respectively, for the remainder of 1995, 1996 and 1997. Management expects to
fund these requirements with cash from operations.
At June 30, 1995, the Company had net operating loss carryforwards ("NOL")
and general business tax credit carryforwards of approximately $530.5 million
and $12.7 million, respectively. Under Section 382 of the Internal Revenue Code
of 1986, as amended, if a loss corporation has an "ownership change" within a
designated testing period, its ability to use its NOL and credit carryforwards
is subject to certain limitations. The Company is a loss corporation within the
meaning of Section 382. The issuance of certain common stock by the Company
pursuant to the plan of reorganization resulted in an ownership change within
the meaning of Section 382. This ownership change has resulted in an annual
limitation (the "Section 382 Limitation") upon the Company's ability to offset
any post-change taxable income with pre-change NOL. Should the Company generate
insufficient taxable income in any post-change taxable year to fully utilize the
Section 382 Limitation of that year, any excess limitation will be carried
forward to use in subsequent tax years, provided the pre-change NOL has not been
exhausted nor has the carryforward period expired.
The Company's reorganization and the associated implementation of fresh
start reporting gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35 percent. Nevertheless, the Company's actual
income tax liability (i.e., income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to tax attributes (including NOLs, subject to certain limitations)
of the Predecessor Company that serve to reduce the Company's actual income tax
liability. To the extent the tax attributes of the Predecessor Company reduce
the Company's actual income tax liability below the amount of expense reflected
in the financial statements, that difference is applied to reduce the carrying
balance of the Company's Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets.
At June 30, 1995, the Company was obligated to lease five aircraft under a
put agreement with GPA (the "GPA Put Agreement") with deliveries to start no
earlier than January 1, 1996 and end by June 30, 1999. Under the agreement, new
or used B737-300, B757-200, or new or "like new" A320-200 aircraft may be put to
the Company at a rate of no more than two aircraft in 1996 and three aircraft
per year, thereafter. In addition, no more than four 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 deliveries under the AVSA A320 purchase contract (discussed
below) on a one-for-one basis. During each January of the put period, the
Company will negotiate the type and delivery dates for deliveries during the
year beginning in the following January. The negotiation deadline for 1996
deliveries has been postponed until November 30, 1995 by mutual agreement.
At June 30, 1995, the Company had commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), for a total of 24 Airbus A320-200
aircraft, with an aggregate net cost estimated at $1.1 billion. Delivery dates
of the aircraft fall in the years 1998 through 2001 with an option exercisable
by the Company to defer the 1998 delivery to 2001. The Company has the option to
cancel without cause up to four of these aircraft. In addition, if new A320
aircraft are delivered as a result of the GPA Put Agreement, the Company has the
right to cancel on a one-for-one basis, up to a maximum of seven non-consecutive
aircraft deliveries under the AVSA agreement, subject to certain conditions. In
April 1995, the Company took delivery of two new A320 aircraft under the GPA Put
Agreement. If the Company was to exercise its existing rights to cancel six
aircraft under the AVSA agreement, the aggregate net cost of commitments under
such agreement would be reduced to approximately $825 million.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for
20
<PAGE> 21
delivery beginning in 1998 through 2000 for use on certain of the A320 fleet.
Such engines have an estimated aggregate cost of $42.3 million.
The Company has arranged for financing from AVSA for up to one-half of the
deliveries under the AVSA agreement, although the Company intends to seek
financing on more favorable terms from other sources. Additionally, the Company
will require capital from external sources to meet the balance of its financial
commitments for aircraft and spare engines. The Company intends to seek such
financing in the future when and as appropriate. There can be no assurance that
the Company will be able to obtain such capital in sufficient amounts or on
favorable terms. A default by the Company under any such commitment could have a
material adverse effect on the Company. In addition, pursuant to the Company's
growth plan, the Company expects to expand its fleet, increase frequencies to
existing cities and add destinations to its route system. This expansion will
require the lease of additional aircraft. There can be no assurance that the
Company will be able to negotiate such leasing arrangements in sufficient
amounts or on favorable terms.
As of September 1, 1995, the Company's fleet consisted of 91 aircraft of
which 22 aircraft meet the FAA's Stage II (but not Stage III) noise reduction
requirements and must be retired or significantly modified prior to the year
2000. Management is currently considering its options regarding such aircraft.
If the Company determines to modify such aircraft to comply with Stage III, the
required capital expenditures for such modifications are currently estimated to
be approximately $2 million per aircraft. There can be no assurance that the
Company will be able to obtain such capital in sufficient amounts or on
favorable terms.
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios and other financial
covenants with which the Company was in compliance at June 30, 1995.
The Company emerged from bankruptcy in August 1994 with increased liquidity
and a substantially improved capitalization. The Company has recently taken
steps to strengthen its balance sheet including in August 1995 the prepayment of
$48 million of its $123 million 11 1/4% Senior Unsecured Notes due 2001 and the
exchange of the remaining $75 million of such notes for $75 million 10 3/4%
Senior Unsecured Notes due 2005.
In September 1995, the Company announced that its Board of Directors
authorized the purchase of up to 2.5 million shares of its Class B Common Stock
in the open market over the next two years. The Company expects to purchase
shares pursuant to such program from time to time as opportunities for the
purchase of shares at attractive prices arise.
21
<PAGE> 22
BUSINESS
America West is the ninth largest commercial airline carrier in the United
States, operating through its principal hubs located in Phoenix, Arizona and Las
Vegas, Nevada, and a mini-hub located in Columbus, Ohio. The Company believes it
is the lowest cost full service carrier in the United States and during the six
months ended June 30, 1995, generated the highest operating margins among the
major domestic airlines. At September 1, 1995 the Company served 48
destinations, including three destinations in Mexico and one in Canada, with a
fleet of 91 aircraft. The Company offers service to an additional 24
destinations through an alliance agreement with Continental and 18 commuter
service and regional destinations through an alliance agreement with Mesa.
STRATEGY
America West's strategy seeks to achieve additional revenue growth and
profitability by capitalizing on the Company's key competitive strengths while
maximizing financial flexibility. This strategy focuses on (i) strengthening the
Company's position in its existing hubs through strategic expansion, (ii)
maintaining its position as a leading low cost full service carrier, (iii)
operating a modern, efficient and flexible fleet, and (iv) continuing to develop
its passenger base through key alliances. Principal elements of the Company's
strategy are as follows:
Strengthen Position in Existing Hubs through Strategic Expansion. America
West's growth plan is designed to capitalize on its strong positions in its
Phoenix and Las Vegas hubs. In connection with the Company's restructuring, the
Company's operations in Phoenix contracted somewhat during a period when
airlines generally were expanding their strategic hub operations. In September
1995, the Company announced a two-year plan to expand its principal hub
operations and increase connecting traffic and service to longer-haul nonstop
markets. The expansion plan provides for an increase in available seat miles of
29% and total departures of 17% and the addition of at least eight new cities to
the Company's route network.
As the Company adds aircraft required to support the expansion of the
Phoenix hub, the Company intends to continue to optimize asset utilization
through the expansion of its night flight service to Las Vegas. By utilizing
aircraft for this service that would otherwise be idle overnight, the Company is
able to compete in a low cost market segment without diminishing asset
availability for use in its Phoenix operations. The Company believes that its
existing service at its Columbus mini-hub is adequate based on current demand.
Maintain its Position as a Leading Low Cost Full Service Airline. America
West is committed to maintaining its low cost structure, which the Company has
achieved primarily through its favorable labor costs per ASM and asset
utilization enhancements. The Company has focused on increasing productivity at
all levels. For the twelve months ended June 30, 1995, the Company's workforce
decreased by 8.5% despite an increase in ASMs of 6.4%. In May 1995, a five-year
collective bargaining agreement with the Company's pilots became effective. The
terms of this contract are consistent with the Company's goal of maintaining a
low cost structure. Aircraft utilization has been enhanced through a
restructuring of the Company's route network including expansion of its Las
Vegas night flight program. The Company's fleet configuration, consisting of
three aircraft types, permits the Company to minimize spare parts inventories
and simplify maintenance and training operations.
Operate a Modern, Efficient and Flexible Fleet. The Company enjoys
operational efficiencies due to its modern, fuel efficient fleet. As of
September 1, 1995, the Company's fleet consisted of 59 Boeing 737s, 18 Airbus
A320s and 14 Boeing 757s, with an average age of approximately 9.6 years
compared to an estimated industry average of 11.3 years. Most of the Company's
existing aircraft are held under leases, including leases on 11 aircraft
expiring prior to December 1998. As a result, in the event general economic
conditions change adversely, the Company maintains flexibility to reduce its
fleet size by not renewing expiring aircraft leases. Management currently
intends to lease the additional aircraft necessary to support the Company's
expansion plan.
Continue to Develop Passenger Base through Alliances. The Company plans to
continue to capitalize on its alliance agreement with Continental to further
expand the Company's passenger base while achieving cost
22
<PAGE> 23
savings through the reduction of redundant labor and facilities. This agreement
provides for codesharing
arrangements, coordination of flight schedules, linking of frequent flyer
programs, sharing of ticket counter space, coordination of ground handling
operations and joint purchasing and marketing efforts. Through codesharing, each
airline is able to offer additional destinations to its customers without
materially increasing operating and capital expenses. Management believes that
its codesharing activities result in increased demand for travel on America West
and intends to pursue additional alliances as opportunities warrant.
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.
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 market were served directly.
The Company is the leading airline serving Phoenix Sky Harbor International
Airport with approximately 38% of all enplanements during 1994 and is second in
the McCarran International Airport in Las Vegas with approximately 26% of all
enplanements during 1994. In both markets the Company's principal competitor is
Southwest Airlines, which handled approximately 31% and 30% of enplanements in
Phoenix and Las Vegas, respectively, in 1994. As of June 30, 1995 the Company
served 41 destinations from its Phoenix hub and 38 destinations from its Las
Vegas hub. As of June 30, 1995, the Company provided non-stop jet service to 11
destinations from Columbus. During 1994, the Company enplaned approximately 24%
of the Columbus traffic compared to approximately 23% for USAir, the Company's
principal competitor at Columbus. The Company offers service to an additional 24
destinations through its alliance with Continental and 18 commuter service and
regional destinations through an alliance with Mesa.
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 the
success of its operations in Phoenix and Las Vegas is in part due to such
airports being among the world's largest 25 in passenger traffic and such cities
being among the fastest growing in the nation. In addition, the Company believes
these hubs are well positioned for continued growth due to their geographically
favorable locations with strategic access to key Southwestern and West Coast
markets, relatively low operating costs, year-round fair weather, and modern,
uncongested facilities.
Growth Plan. In September 1995, the Company announced a two-year growth
plan which provides for an increase in ASMs of 29% and total departures of 17%
in order to capture additional long-haul traffic at its hubs. The growth plan
contemplates increased total departures at Phoenix from 173 in September 1995 to
204 by September 1997. Non-stop cities served from Phoenix would increase from
43 to 51. The expansion would include new service to major business destinations
such as Detroit, Cleveland, San Antonio and Miami as will as new or additional
nonstop service from Phoenix to existing America West markets on the East Coast,
including Boston, Philadelphia, Newark, Atlanta and Orlando. In addition, flight
frequencies would be increased to better serve existing West Coast destinations
and to expand connecting opportunities through Phoenix to long-haul flights to
the East and Midwest. The Company anticipates only a modest increase in total
employment to facilitate its growth plan.
The Company believes its growth at Phoenix will support concurrent
expansion of the Company's Las Vegas night flight service. The growth plan
provides for Las Vegas night flight departures to increase from 40 in September
1995 to 50 by September 1997. The Company believes that service at its Columbus
mini-hub reflects current demand.
Continental Alliance. The Company's alliance agreement with Continental
provides for code-sharing arrangements, coordinating flight schedules, sharing
ticket counter space, linking frequent flyer programs and membership clubs, and
coordinating ground handling operations. Through the alliance, the Company's
Phoenix hub is able to attract a share of the connecting traffic previously
served at Continental's Denver hub which has been downsized during the past few
years. Through codesharing, each airline is able to offer
23
<PAGE> 24
additional destinations to its customers without materially increasing operating
and capital expenses. By placing its designation code on certain of
Continental's flights, America West is able to offer single carrier connecting
service to cities that it does not independently serve. These single carrier
code shared flights generally are afforded superior ranking over multi-carrier
connecting flights in the displays of computer reservation systems used by U.S.
travel agents when booking reservations. Management believes that its
codesharing activities result in increased demand for travel on America West.
The Company has also realized significant cost savings through this alliance
primarily through the consolidation of airport facilities and resources and the
elimination of duplicative costs for labor and equipment at key locations. In
addition, through joint purchasing, both carriers may receive greater volume
discounts on certain cost items.
Mesa Alliance. America West has entered into a codesharing agreement with
Mesa designed to establish Mesa as a feeder carrier for the Company at its
Phoenix hub. The codesharing agreement provides 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. Through this alliance, the Company has added 18 destinations
to its route network. Mesa operates under the name "America West Express" and
has incorporated the color scheme and commercial logo of America West on certain
aircraft utilized on these routes. In August 1994, the Company and Mesa agreed
to extend the term of the codesharing agreement until 2004. Recently, Mesa began
to offer jet service under its codesharing agreement with the Company.
Other Codesharing Agreements. The Company also has codesharing agreements
with Northwest Airlines and Aeromexico.
America West Vacations. 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 1994, this division sold approximately 749,000 room nights, and
approximately 53,250 rental car days, handled approximately 501,400 passengers
and generated approximately $161 million in gross package sales.
AIRCRAFT
At September 1, 1995, the Company operated a fleet of 59 Boeing 737s, 18
Airbus A320s and 14 Boeing 757s as follows:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER AVERAGE LEASE
AIRCRAFT TYPE STATUS (1) AIRCRAFT AGE (YRS.) TERM (YRS.)
---------------------------------------- ---------- ------ ---------- -----------
<S> <C> <C> <C> <C>
B737-100................................ Owned 1 25.9 --
B737-200................................ Owned 5 16.5 --
B737-200................................ Leased 16 15.9 4.9
B737-300................................ Leased 26 8.4 4.4
B737-300................................ Owned 11 6.8 --
B757-200................................ Leased 12 9.1 9.6
B757-200................................ Owned 2 5.9 --
A320-200................................ Leased.. 18 5.2 15.9
--
91 9.6 8.3
==
</TABLE>
- ---------------
(1) 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.
Beginning in November 1995 through December 1998, leases for 21 of the
Company's aircraft are scheduled to terminate (such aircraft are 14 Boeing
B737-300s, five Boeing B737-200s, and two Boeing B757-200s). At the option of
the lessor, the lease for one of the B737-300 aircraft may be extended for up to
48 months, and the leases for 10 of the B737-300 aircraft may each be extended
for up to 60 months, but only
24
<PAGE> 25
at rates below current market rentals. There are no contractual options to
extend any other of such leases. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
LABOR RELATIONS
During the Reorganization, the Company reduced its employee compensation.
Subsequently, the Company began certain initiatives to increase compensation,
including adoption of the Total Pay Program, to provide employees with a pay and
benefits package which is competitive with other low-cost airlines and local
employers. To offset such increases in compensation and to maintain its
competitive advantage as a low cost operator, the Company began to focus on
increasing productivity.
In January 1995, the Company announced its new compensation program, the
Total Pay Program. This program will increase non-executive pay by approximately
$25 million in fiscal 1995. In addition, performance awards of up to 25% of base
pay will be made to employees provided certain annually established operating
income targets are attained. This increase in compensation was more than offset
by a strategic overhaul of the Company's work processes which reduced its
workforce by approximately 1,100 employees. The Company also has the America
West 1994 Incentive Equity Plan which authorizes the grant of various stock,
stock-related and cash awards to employees and non-employee directors of the
Company. Such plan was approved by the Company stockholders at the 1995 Annual
Meeting of Stockholders in May 1995.
In October 1993, ALPA was certified by the National Mediation Board as the
bargaining representative of the Company's pilots. In May 1995, a five-year
collective bargaining agreement with the Company's pilots became effective. The
terms of this contract are consistent with the Company's goal of maintaining its
low unit cost structure. Specifically, the agreement provides for a salary level
increase at a compound annual rate of approximately 5.7% annually and includes
provisions relating to pilot productivity which management estimates will result
in productivity increases of approximately 2% per year. A significant portion of
such salary level increase was effected in May 1995 in order to provide the
pilots with a pay and benefits package competitive with other low cost carriers
and local employers. Salary level increases after the May 1995 increase will
occur through April 2000 and will increase at a compound annual rate of
approximately 2.5%. Other terms of the agreement include a single pay scale for
all aircraft types, flexible work rules, management's right to staff the airline
and to enter into strategic alliances and the preclusion of sympathy work
stoppages.
In June 1994, the National Mediation Board accepted the AFA petition to
represent the Company's flight attendants. In September 1994, the Company's
flight attendants voted in favor of AFA representation and contract negotiations
are ongoing. In April 1994, the Transportation Workers Union ("TWU") filed a
petition to represent the Company's fleet service personnel which petition was
rejected in December 1994. The International Brotherhood of Teamsters ("IBT")
filed applications to represent the Company's mechanics including related
personnel and the Company's flight simulator technicians in August and September
1994, respectively. Both of these applications were rejected in December 1994,
and the IBT thereafter withdrew another pending application previously filed
with respect to stock clerks. The TWU filed an application to represent the
Company's dispatcher and assistant dispatcher personnel in April 1995. This
application was rejected in June 1995. There have been numerous attempts by
unions to organize the employees of the Company, and the Company expects such
organization efforts to continue in the future. The Company cannot predict the
terms of any future collective bargaining agreement and therefore the effect, if
any, on the Company's operations or financial performance.
EMPLOYEES
At July 31, 1995, the Company employed 8,229 full-time and 2,419 part-time
employees, the equivalent of 10,083 full-time employees.
25
<PAGE> 26
COMPETITION AND MARKETING
The airline industry is highly competitive and 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, resulting in lower industry yields with little or no
increase in traffic levels. America West competes with other major full service
airlines based on price and, due to its low cost structure, is able to compete
with other low cost carriers in its short haul local markets. The entry of
additional carriers on many of the Company's routes (as well as increased
competition from or the introduction of new services by established carriers)
could negatively impact America West's results of operations. America West
competes with a number of major airlines on medium- and long-haul routes through
its hubs and with Southwest Airlines for short-haul flights at its Phoenix and
Las Vegas hubs and with USAir at its Columbus mini-hub.
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 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. In addition,
the Company began testing electronic or paperless ticketing on May 15, 1995
which the Company believes may reduce distribution costs.
FREQUENT FLYER PROGRAM
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 by using
the services of other program participants such as hotels, car rental firms and
other specialty services and by flying certain partner carriers. Through the
Company's alliance agreement with Continental, the Company has formed a frequent
flyer program partnership. FlightFund and One Pass members may now earn and
redeem mileage credit in connection with flights to all America West and
Continental destinations. 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.
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. Travel is valid up to one year from the date of ticketing.
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.
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 2.2 million participants.
At December 31, 1994, 1993 and 1992, the Company estimated that approximately
369,000, 238,000 and 238,000 travel awards were expected to be redeemed.
Correspondingly, the Company had an accrued liability of $9.8 million, $7.4
million and $7.3 million for 1994, 1993 and 1992, respectively. The accrual is
based upon the Company's estimates of mileage earned that will eventually be
redeemed for a travel award.
26
<PAGE> 27
The number of FlightFund travel awards redeemed for round-trip travel for
the years ended December 31, 1994, 1993 and 1992, was approximately 109,000,
99,000 and 106,000, respectively, representing 2.6%, 2.8% 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.
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
includes 28 gates and approximately 258,200 square feet at December 31, 1994.
The Company also leases approximately 25,000 square feet of additional space at
the airport for administrative offices and pilot training. The Company owns a
660,000 square foot maintenance and technical support facility that includes
four hangar bays, hangar shops, two flight simulator bays, and warehouse and
commissary facilities.
In Las Vegas, the Company leases approximately 80,000 square feet of space
at McCarran International Airport, which includes seven gates and adjoining
holding room areas. At the Company's Columbus 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. Pursuant to the Company's alliance
agreement with Continental, certain of the station operations for both carriers
have been consolidated in an effort to reduce operating expenses.
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.
GOVERNMENT REGULATIONS
Noise Abatement and Other Restrictions. 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 III noise levels, which is the FAA
designation for the quietest commercial jets. These regulations will require
carriers to gradually phase out their noisier jets, either replacing them with
quieter Stage III jets or equipping them with hush kits to comply with noise
abatement regulations, over a five-year period commencing December 31, 1994. As
of September 1, 1995, the Company's fleet consisted of 91 aircraft of which 22
aircraft meet the FAA's Stage II (but not Stage III) noise reduction
requirements and must be retired or significantly modified prior to the year
2000. Management is currently considering its options regarding such aircraft.
Numerous airports, including those serving Boston, Denver, Los Angeles,
Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange
County, Washington, D.C., Burbank and Long Beach have imposed restrictions such
as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on number of average daily departures, which limit the
ability of air carriers to provide service to or increase service at such
airports. In February 1995, the Company obtained approval to increase service at
Orange County's John Wayne Airport, which is a capacity controlled airport, by
five daily flights. The Port Authority of New York and New Jersey is considering
a phaseout of Stage II 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 the noise abatement requirements of the airports listed above.
Fuel Tax Increases. In August 1993, the federal government increased taxes
on fuel, including aircraft fuel, by 4.3 cents per gallon. Airlines were exempt
from this tax increase until October 1, 1995. This new tax
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<PAGE> 28
will increase the Company's annual operating expenses by approximately $13
million based upon its 1994 fuel consumption levels. A bill to extend the
airline exemption for two years has recently been passed by the Ways and Means
Committee of the House of Representatives. There can be no assurance that such
bill will be enacted by Congress.
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. While the
Company endeavors at each of its facilities to assure compliance with
environmental laws and regulations, from time to time, operations of the Company
have resulted or may result in certain noncompliance with applicable
requirements under environmental laws for which the Company incurs or may incur
cleanup and related costs. The Company believes, however, that any such
noncompliance or cleanup liability under current environmental laws and
regulations would not have a material adverse effect on the Company's results of
operations and financial condition.
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. Six of the Company's 91 aircraft are
currently affected by these aging aircraft ADs and are in compliance with such
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 Kennedy Airport and LaGuardia
Airport, 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. All slots must be used on 80% of the dates during each two-month
reporting period. 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 Kennedy
Airport, four slots at New York City's LaGuardia Airport, four slots at
Chicago's O'Hare International Airport and six slots at Washington's National
Airport. Four of the slots at Washington's National airport are subject to
expiration annually in December. One year renewals have been sought and obtained
each year since 1989 when the slots were first
28
<PAGE> 29
acquired. The Company is seeking renewals for these slots for 1996 but no
assurance can be given that such renewals will be obtained. The average
utilization rates by the Company of all the foregoing slots range from 86% to
100%.
Civil Reserve Air Fleet 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.
LEGAL PROCEEDINGS
The Company emerged from bankruptcy on the Effective Date after operating
as a debtor-in-possession since June 27, 1991, when the Company filed a
voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code. The
Bankruptcy Court confirmed the Company's plan of reorganization (the "Plan") on
August 10, 1994. Pursuant to the Plan, the previously outstanding equity
interests in the Company were canceled as of the Effective Date and new stock
was issued. In addition, the Company's obligations to certain prepetition
creditors were restructured and general unsecured nonpriority prepetition
creditors received, in full satisfaction of their claims, shares of Class B
Common Stock and cash. The Plan also provided for the disposition of numerous
other matters, including the satisfaction of certain other prepetition claims in
accordance with negotiated settlement agreements, the disposition of 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 the release of the Company's employees from all obligations
arising under the Company's stock purchase plan in consideration for the
cancellation of the shares of the stock securing such obligations. As
contemplated by the Plan, certain administrative and priority tax claims remain
pending against the Company, which, if ultimately allowed by the Bankruptcy
Court, would represent general obligations of the Company. Such claims include
claims of various state and local tax authorities, most of which represent
ordinary course pre-bankruptcy tax obligations not paid during the pendency of
the bankruptcy proceedings, certain indemnification obligations under
contractual obligations assumed by the Company pursuant to the Plan, and various
other matters.
In connection with the state and local tax claims, the Company has reserved
certain amounts believed by management to be adequate. With respect to ongoing
indemnity obligations, the Company has been informed by one of its aircraft
sublessors that it may assert an administrative claim, in an unspecified amount,
as a result of the Internal Revenue Service potentially disallowing certain tax
benefits claimed by the head lessor of certain aircraft which are subleased to
the Company. The Company is unable to predict whether the Internal Revenue
Service will prevail in matters asserted against the head lessor and whether the
Company will incur any liability in connection with such claims, or the amount
of any such liability, if incurred.
In August 1991, the 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 cooperated with the Commission's
informal inquiry. On March 29, 1994, the Company's Board of Directors approved
the submission of an offer of settlement for the purpose of resolving the
inquiry through the entry of a consent decree pursuant to which the Company
would, while neither admitting nor denying any violation of the securities laws,
agree to comply with its future reporting obligations under Section 13 of the
Exchange Act. The Company was advised on May 6, 1994 that the Commission agreed
to accept the Company's offer of settlement. In order to implement the
settlement, on May 12, 1994 the Commission issued an "Order Instituting
Proceedings Pursuant to Section 21C of the Exchange Act and Opinion and Order of
the Commission" (the "Order") finding the Company's Form 10-K for the year
ending December 31, 1990, violated Section 13(a) of the Exchange Act and Rule
13a-1 thereunder, and that the Company's Form 10-Q for the first quarter of 1991
violated Section 13(a) of the Exchange Act and Rule 13a-13 thereunder, and
ordered that the Company cease and desist from violating Section 13(a) of the
Exchange Act and Rules 13a-1 and 13a-13 promulgated under the Exchange Act. The
Order provides that the Company neither admits nor denies any violation of the
securities laws.
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<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the executive officers and directors of the
Company as of September 1, 1995, is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------- --- --------------------------------------------------
<S> <C> <C>
William A. Franke.................... 58 Chairman of the Board and Chief Executive Officer
A. Maurice Myers..................... 55 President, Chief Operating Officer and Director
Julia Chang Bloch.................... 53 Director
Stephen F. Bollenbach................ 53 Director
Frederick W. Bradley, Jr. ........... 68 Director
James G. Coulter..................... 35 Director
John F. Fraser....................... 65 Director
John L. Goolsby...................... 53 Director
Richard C. Kraemer................... 52 Director
John R. Power, Jr. .................. 39 Director
Larry L. Risley...................... 50 Director
Frank B. Ryan........................ 59 Director
Richard P. Schifter.................. 42 Director
John F. Tierney...................... 50 Director
Raymond S. Troubh.................... 69 Director
Thomas F. Derieg..................... 55 Senior Vice President -- Operations
John R. Garel........................ 37 Senior Vice President -- Marketing and Sales
Robert S. Nichols, Jr................ 49 Senior Vice President -- Customer Service
W. Douglas Parker.................... 33 Senior Vice President and Chief Financial Officer
Michael A. Vescuso................... 50 Senior Vice President -- Human Resources
Martin J. Whalen..................... 55 Senior Vice President -- Corporate Affairs
C. A. Howlett........................ 51 Vice President -- Public Affairs
Stephen L. Johnson................... 39 Vice President -- Legal Affairs
</TABLE>
DIRECTORS OF THE COMPANY
WILLIAM A. FRANKE. Chairman of the Board and Chief Executive
Officer -- (Executive Committee). Mr. Franke was named Chairman of the Board of
Directors in September 1992. On January 1, 1994, 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 Franke &
Company, Inc., a financial services 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 restructuring. In May 1990, the Circle K Corporation filed a
voluntary petition to reorganize under Chapter 11 of the United States
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. From 1990 until 1993, Mr. Franke also served in
various other capacities at Circle K Corporation. Mr. Franke was also involved
in the restructuring of the Valley National Bank of Arizona (now Bank One of
Arizona). Mr. Franke serves as a director of Phelps Dodge Corp., Central
Newspapers Inc. and the Air Transport Association of America.
A. MAURICE MYERS. President and Chief Operating Officer. Mr. Myers was
named President and Chief Operating Officer on January 1, 1994 and was named to
the Board of Directors in 1994. In August 1995, Mr. Myers announced his desire
to retire from the Company at or near the end of 1995. Prior to joining America
West, Mr. Myers was the president and chief executive officer of Aloha Airgroup,
an aviation services corporation which owns and operates Aloha Airlines and
Aloha Island Air. Mr. Myers joined Aloha in
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<PAGE> 31
1983 as vice president of marketing and became its president and chief executive
officer in June 1985. Mr. Myers is a member of the board of directors of
Hawaiian Electric Industries.
JULIA CHANG BLOCH. Ms. Bloch has been a member of America West's Board of
Directors since August 26, 1994. She is the group executive vice president,
corporate relations of Bank of America Corporation and has held that position
since June 1993. Ms. Bloch served as the U.S. Ambassador to Nepal from September
1989 through May 1993. Ms. Bloch is a board member of the American Refugee
Committee and the Himalaya Foundation and serves as a trustee of the Asian Art
Museum and the Asia Society.
STEPHEN F. BOLLENBACH. (Compensation Committee.) Mr. Bollenbach has been a
member of America West's Board of Directors since August 26, 1994. He became
chief financial officer of The Walt Disney Company in May 1995. Prior to May
1995, he was president and chief executive officer of Host Marriott Corp. Mr.
Bollenbach served as chief financial officer of the Promus Companies from 1986
to 1990 and served as chief financial officer for the Trump Organization from
1990 to 1992. He served as executive vice president and chief financial officer
of The Marriott Corporation from 1992 until 1993. He serves as a director of
Host Marriott Corporation, Carr Realty Corporation and Mid-America Apartment
Communities, Inc.
FREDERICK W. BRADLEY, JR. (Compensation Committee, Executive Committee.)
Mr. Bradley has been a member of America West's Board of Directors since
September 1992. Immediately prior to joining the Board of Directors, Mr. Bradley
was a senior advisor with Simat, Helliesen & Eichner, Inc. Mr. Bradley formerly
was a senior vice president of Citibank/Citicorp's Global Airline and Aerospace
business. Mr. Bradley joined Citibank/Citicorp in 1958. In addition, Mr. Bradley
is a member of the board of directors of Shuttle, Inc. (USAir Shuttle) and the
Institute of Air Transport, Paris, France. Mr. Bradley also is chairman of the
board of directors of Aircraft Lease Portfolio Securitization 94-1 Ltd.
JAMES G. COULTER. (Executive Committee). Mr. Coulter has been a member of
America West's Board of Directors since August 26, 1994. Since 1992, Mr. Coulter
has been a managing director of Texas Pacific Group, an investment firm. From
1986 to August 1992, Mr. Coulter was vice president of Keystone, Inc. (formerly
Robert M. Bass Group, Inc.), a private investment firm based in FortWorth,
Texas. From April 1993 until he became a member of the Company's Board, Mr.
Coulter was a member of the board of directors of Continental. Mr. Coulter also
serves as a director of American Savings Bank and Allied Waste Industries, Inc.
JOHN F. FRASER. Mr. Fraser has been a member of America West's Board of
Directors since August 26, 1994. He is vice chairman of Russel Metals, Inc., a
metals distribution and processing company that was formed when Federal
Industries, Ltd. and FedMet, Inc. was joined together in May 1995. Mr. Fraser
was chairman and chief executive officer of Federal Industries Ltd. from March
1991 to May 1995, and president and chief executive officer from May 1978 to
March 1991. Mr. Fraser was a member of the Board of Directors of Continental
from August 1993 through August 3, 1994. Mr. Fraser is a director of Air Canada,
Bank of Montreal, Coca-Cola Beverages Limited, Ford Motor Company of Canada,
Limited, Inter-City Products Corporation, Investors Group Inc., Shell Canada
Limited and The Thomson Corporation.
JOHN L. GOOLSBY. (Audit Committee.) Mr. Goolsby has been a member of
America West's Board of Directors since August 26, 1994. He has been the
president of The Hughes Corporation and The Howard Hughes Corporation (formerly
named the Summa Corporation), the principal operating companies of the Howard
Hughes Estate, since 1988, and has been the chief executive officer of those
companies since 1990. In addition, Mr. Goolsby serves as a director of Nevada
Power Company and Bank of America Nevada. He also serves as a trustee of The
Donald W. Reynolds Foundation and the UNLV Foundation.
RICHARD C. KRAEMER. (Compensation Committee.) Mr. Kraemer has been a
member of America West's Board of Directors since September 1992. He is a
director and serves as president, chief executive officer and chief operating
officer of UDC Homes, Inc., a Phoenix-based homebuilding company which he joined
in 1975. UDC Homes, Inc. filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in April 1995.
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<PAGE> 32
JOHN R. POWER, JR. (Executive Committee.) Mr. Power has been a member of
America West's Board of Directors since August 26, 1994. He is president of The
Patrician Corporation, an investment company. Prior to joining The Patrician
Corporation, Mr. Power served as vice president at Continental Bank.
LARRY L. RISLEY. (Audit Committee.) Mr. Risley has been a member of
America West's Board of Directors since August 26, 1994. He has been the chief
executive officer and chairman of the board of directors of Mesa since the
founding of the company in 1983. From 1979 to 1982, Mr. Risley was president of
Mesa Aviation Services, Inc.
FRANK B. RYAN. (Audit Committee.) Dr. Ryan has been a member of America
West's Board of Directors since March 17, 1995. Since August 1990, Dr. Ryan has
been a professor of mathematics and of computational and applied mathematics and
formerly the vice president of external affairs of Rice University. From 1988 to
1990, Dr. Ryan served as president and chief executive officer of Contex
Electronics, Inc., an electronic component manufacturing company. Dr. Ryan
serves on the board of directors of Danielson Holding Company, Inc. and as a
governor advisor to Rice University.
RICHARD P. SCHIFTER. (Compensation Committee.) Mr. Schifter has been a
member of America West's Board of Directors since August 26, 1994. He has been a
managing director of Texas Pacific Group, an investment firm, since July 1994.
Mr. Schifter serves of counsel to the Washington D.C. based law firm of Arnold &
Porter, where he was an associate from 1979 to 1986 and a partner from 1986 to
July 1994.
JOHN F. TIERNEY. Mr. 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 in such capacity since 1993. From 1981 to 1993, he served as chief
financial officer of GPA.
RAYMOND S. TROUBH. (Audit Committee.) Mr. Troubh has been a member of
America West's Board of Directors since August 26, 1994. He is a financial
consultant and currently serves on the board of directors of ADT Limited,
American Maize Products Co., Applied Power Inc., ARIAD Pharmaceuticals, Inc.,
Becton, Dickinson and Company, Benson Eyecare Corporation, Foundation Health
Corporation, General American Investors Company, Manville Corporation, Olsten
Corporation, Riverwood International Corporation, Time Warner Inc., Petrie
Stores Corporation, Triarc Companies, Inc. and WHX Corporation.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information respecting the names, ages, positions and
offices with the Company of the executive officers of the Company other than
Messrs. Franke and Myers who are described above.
THOMAS F. DERIEG. Senior Vice President -- Operations. Mr. Derieg joined
the Company in July 1994. For the preceding seven years, Mr. Derieg served as
Senior Vice President -- Operations at Aloha Airgroup, Inc. in Honolulu. 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.
JOHN R. GAREL. Senior Vice President -- Marketing and Sales. Mr. Garel
joined the Company in April 1995. From 1993 until early 1995, Mr. Garel was the
Chief Executive Officer of Cadmus Journal Services, a division of Cadmus
Communications located in Baltimore. Prior to that, Mr. Garel was with Northwest
Airlines, serving from 1990 to 1992 as Vice President, Financial Planning and
Analysis and, thereafter, as Vice President, Market Development and Area
Marketing. From 1982 to 1990, Mr. Garel worked for American Airlines in several
management and senior capacities.
ROBERT S. NICHOLS, JR. Senior Vice President -- Customer Service. Mr.
Nichols joined the Company in April 1995. Before joining the Company, Mr.
Nichols spent 27 years with Marriott Hotels, Resorts & Suites. From 1991 until
1994 Mr. Nichols held the position of Senior Vice President, Total Quality
Management. From 1984 to 1991 Mr. Nichols served as Regional Vice President from
1982 to 1984 as Vice President, Human Resources Development and before that in a
number of other positions with Marriott.
W. DOUGLAS PARKER. Senior Vice President and Chief Financial Officer. Mr.
Parker joined the Company in June 1995. Previously, he served for four years at
Northwest Airlines, most recently as Vice
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<PAGE> 33
President and Assistant Treasurer and previously as Vice President of Financial
Planning and Analysis. Prior to his position at Northwest, Mr. Parker served in
various positions at American Airlines.
MICHAEL A. VESCUSO. Senior Vice President -- Human Resources. Mr. Vescuso
joined the Company in September 1994. Prior to such time, Mr. Vescuso worked as
an organizational and management development consultant. From 1990 to 1992 he
was the Director, Organization and Development of Frito-Lay, Inc. From 1978 to
1990, he held several senior management positions at HBJ, Inc., including the
position of human resources officer.
MARTIN J. WHALEN. Senior Vice President -- Corporate Affairs. Mr. Whalen
joined the Company in July 1986 and served as Senior Vice
President -- Administration and General Counsel until February 1995. 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.
C. A. HOWLETT. Vice President -- Public Affairs. Mr. Howlett joined the
Company in January 1995. Prior to such time, Mr. Howlett maintained a government
relations practice as a principal at the law firm of Lewis and Roca in Phoenix.
Mr. Howlett's prior work experience has included senior positions with Salt
River Project, the City of Phoenix and The White House where he served as
special assistant to President Ronald Reagan for intergovernmental affairs.
STEPHEN L. JOHNSON. Vice President -- Legal Affairs. Mr. Johnson joined
the Company in February 1995. From 1993 to 1994, Mr. Johnson served as Senior
Vice President and General Counsel to GE Capital Aviation Services Limited, in
Shannon, Ireland. From 1989 to 1993 Mr. Johnson was employed by GPA Group plc,
also in Shannon, from 1989 to 1991 as Vice President and Senior Counsel and from
1991 to 1993 as Senior Vice President and General Counsel to GPA's Leasing
Division. From 1982 until 1989, Mr. Johnson was engaged in the private practice
of law.
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<PAGE> 34
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information for the years ended December 31,
1994, 1993 and 1992 with respect to compensation for services to America West
paid to the chief executive officer and the five most highly compensated
executive officers of the Company during 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)(1) COMPENSATION($)(2)
- ------------------------------------- ---- --------- ------------------ ------------------
<S> <C> <C> <C> <C>
William A. Franke(3)................. 1994 450,000 5,625 1,224,375
Chairman of the Board and 1993 450,000 -- --
Chief Executive Officer 1992 131,250 -- --
A. Maurice Myers(4).................. 1994 376,442 104,688 421,415
President and Chief
Operating Officer
Martin J. Whalen..................... 1994 142,464 2,406 190,883
Senior Vice President -- Corporate 1993 134,400 4,368 3,873
Affairs and Secretary 1992 134,400 -- 3,808
Raymond T. Nakano(5)................. 1994 132,447 2,237 190,103
Vice President and Controller 1993 124,950 4,061 1,973
1992 124,950 -- 975
Thomas P. Burns(6)................... 1994 130,592 2,205 105,058
Vice President -- Sales 1993 123,200 4,004 3,385
1992 123,200 -- 3,659
Alphonse E. Frei(7).................. 1994 129,249 2,807 98,479
Senior Vice President -- Finance 1993 156,800 5,096 4,798
and Chief Financial Officer 1992 156,800 -- 4,731
</TABLE>
- ---------------
(1) For officers other than Mr. Myers, reflects amounts paid under the Company's
Transition Pay Program.
(2) Includes a Reorganization success bonus paid to Mr. Franke in the form of
125,000 shares of Class B Common Stock, valued at $9.795 per share.
Includes Reorganization success bonuses paid in cash to Messrs. Myers,
Whalen, Nakano and Burns of $400,000, $185,000, $185,000 and $100,000,
respectively. Includes matching contributions made by the Company under the
Company's 401(k) plan for Messrs. Whalen, Nakano, Burns and Frei (i) in
1994 of $4,091, $4,128, $4,135 and $1,913, respectively, (ii) in 1993 of
$2,081, $998, $1,908 and $2,249, respectively, and (iii) in 1992 of $2,016,
$0, $2,182 and $2,182, respectively. Also includes premiums paid by the
Company for life insurance for Messrs. Whalen, Nakano, Burns and Frei (i)
in 1994 of $1,792, $975, $923 and $2,443, respectively, (ii) in 1993 of
$1,792, $975, $1,477 and $2,549, respectively, and (iii) in 1992 of $1,792,
$975, $1,477 and $2,549, respectively. Includes a severance payment to Mr.
Frei of $94,123 in 1994. For Mr. Myers, includes $21,415 in life insurance
premiums paid by the Company in 1994.
(3) Mr. Franke's employment with the Company commenced on September 17, 1992.
(4) Mr. Myers recently announced that he will retire from the Company on
December 31, 1995. Other annual compensation reflects payment of a $100,000
transition allowance in connection with commencement of employment with the
Company and $4,688 paid to Mr. Myers under the Company's Transition Pay
Program.
(5) Mr. Nakano's employment with the Company ended in August 1995.
(6) Mr. Burns' employment with the Company ended in May 1995.
(7) Mr. Frei's employment with the Company ended in July 1994.
34
<PAGE> 35
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
POTENTIAL MARKETABLE
VALUE AT ANNUAL RATE OF
INDIVIDUAL GRANTS STOCK PRICE
- ----------------------------------------------------------------------------------- APPRECIATION
NUMBER OF PERCENT OF EXERCISE FOR OPTION TERM
SECURITIES TOTAL OPTIONS PRICE EXPIRATION -----------------------
NAME UNDERLYING OPTIONS GRANTED IN 1994 ($/SHARE) DATE 5% 10%
- --------------------- ------------------ --------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William A. Franke.... 355,000 100% $8.75 12/1/2005 $1,953,565 $4,950,475
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of December 1, 1994, the Company entered into an employment
agreement with William A. Franke for service as the Chairman of the Board and
Chief Executive Officer of the Company for a term of one year with a possible
one-year extension at Mr. Franke's election with the approval of the Company's
Board of Directors. Under the agreement, Mr. Franke is to receive an annual cash
base salary of at least $300,000, which amount may be increased at the Board's
discretion. The agreement provides for (i) restricted stock grants for an
aggregate of 66,334 shares of Class B Common Stock, (ii) options to purchase
355,000 shares of Class B Common Stock at an exercise price of $8.75 per share,
and (iii) options to be granted at fair market value on the date of grant to
purchase an aggregate of an additional 300,000 shares of Class B Common Stock.
The options covering 400,000 of such shares are subject to vesting schedules.
All of such options become fully vested and exercisable upon a "change in
control" (as defined in the agreement) or in the event Mr. Franke's employment
is terminated by reason of death or disability. The agreement also provides for
a $2 million term life insurance policy for the benefit of beneficiaries
designated by Mr. Franke, an allowance for administrative expenses of $50,000
per year and severance provisions that generally would apply upon termination of
Mr. Franke's employment in the amount of $1.5 million if the termination is
prior to August 25, 1996 and $1 million if the termination is after such date.
In September 1994, the Company issued to Mr. Franke 125,000 fully-vested
shares of Class B Common Stock as a Reorganization success bonus. The Company
also loaned $470,282 to Mr. Franke for the purpose of enabling him to pay the
income taxes attributable to such bonus. The loan (i) is payable in two equal
installments on September 26, 2000 and September 26, 2001, (ii) bears interest
(payable semi-annually) at the rate of 8% per annum (11% per annum after
maturity) and (iii) is secured by a pledge of 62,500 of the bonus shares, but is
otherwise non-recourse to Mr. Franke.
Effective as of January 1, 1994, the Company entered into an employment
agreement with A. Maurice Myers for service as President and Chief Operating
Officer of the Company for a two-year term with automatic one-year extensions
unless prior written notice is given by either party. Pursuant to the agreement,
Mr. Myers is to receive an annual base salary of $375,000 for the period ended
December 31, 1994 and $400,000 for the period beginning January 1, 1995, which
amount may be increased in the Board's discretion. Pursuant to the agreement,
the Company paid to Mr. Myers in 1994 a lump sum transition allowance of
$100,000 and a Reorganization success bonus of $400,000. In addition, the
Company made a $200,000 non-recourse home loan to Mr. Myers due 2003. In 1994,
the Company also made a $320,000 non-recourse loan to Mr. Myers in connection
with the exercise of certain options to purchase common stock of his previous
employer and related taxes which loan is due 90 days after the term of the
agreement or earlier upon certain events. Both loans bear interest at the
applicable federal rate. The agreement also provides for certain pension
benefits and severance provisions that provide for payments of up to 150% of Mr
Myers' base salary that generally would apply upon termination of his
employment. In 1995, under the Incentive Plan, the Company granted to Mr. Myers
an option to purchase 200,000 shares of Class B Common Stock at an exercise
price of $8.75 per share.
DIRECTOR COMPENSATION
Each director who is not an officer or employee of the Company currently
receives an annual retainer of $15,000 and $1,000 for each Board or committee
meeting attended. Pre-Reorganization directors each received an annual retainer
of $25,000 and $1,000 for each Board or committee meeting attended. Directors
35
<PAGE> 36
are also entitled to certain air travel benefits. Pursuant to the America West
Airlines, Inc. 1994 Incentive Equity Plan as approved by the stockholders at the
annual meeting in May 1995, (i) each non-employee director who served on the
Board of Directors on December 31, 1994 was awarded an option to purchase 3,000
shares of Class B Common Stock and (ii) each new non-employee director elected
after December 1, 1994 will automatically receive on the date of election an
option to purchase 3,000 shares of Class B Common Stock. In addition, each
non-employee director will be automatically granted an option to purchase 3,000
shares of Class B Common Stock on the day after each annual stockholders'
meeting (commencing with the 1995 Annual Meeting).
OTHER ARRANGEMENTS
Mr. Franke, Chairman of the Board of Directors, is also the president of
the financial services firm, Franke & Company Inc. In order to assist Mr. Franke
with certain costs associated with his service as Chairman and Chief Executive
Officer, the Company pays Franke & Company Inc. an office overhead allowance of
$4,167 per month in exchange for which Franke & Co. provides Mr. Franke's
secretarial and administrative support.
MANAGEMENT RIGHTS AGREEMENT
On the Effective Date, the Company and TPG entered into a Management Rights
Agreement ("Management Rights Agreement") pursuant to which TPG is entitled,
subject to certain restrictions, (i) to make proposals, recommendations and
suggestions to the Company relating to the business and affairs of the Company,
(ii) discuss the affairs of the Company with officers, directors and
accountants, and (iii) examine the Company's books and records. Proposals and
recommendations made pursuant the Management Rights Agreement will not be
binding on the Company and information provided to TPG will be subject to
confidentiality and various other restrictions.
COMPENSATION COMMITTEE INTERLOCKS
Two members of the pre-Reorganization Board and the pre-Reorganization
Compensation Committee, John F. Tierney and Declan Treacy, were elected to the
Board of Directors pursuant to a certain management letter agreement, as amended
and restated, between the Company and its debtor-in-possession lenders,
including GPA. Both Mr. Tierney and Mr. Treacy are executives of GPA. The
management letter agreement terminated in connection with the Reorganization and
Mr. Treacy's term expired on August 25, 1994. GPA's representation on the
Company's Board is now determined pursuant to the Stockholders' Agreement and a
voting agreement entered into between GPA and AmWest. Mr. Tierney continues to
be a member of the Board, but is no longer a member of the Compensation
Committee.
GPA is a major supplier of leased aircraft and engines to the Company and
provided financing to the Company prior to and during the bankruptcy
proceedings. In June 1994, in connection with the Reorganization, the Company
entered into a 1994 Put Agreement with GPA providing GPA with a right to lease
up to eight aircraft to the Company. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Liquidity and Capital
Resources." In connection with the 1994 Put Agreement and for other
consideration, GPA was paid approximately $30.5 million and issued certain
equity securities by the Company as part of the Reorganization. This agreement
replaced a similar agreement with GPA involving 10 aircraft (none of which were
ever leased to the Company).
Lease payments from America West to GPA under an agreement initially
entered into in September 1990 (the "Aircraft Finance Agreement") and under a
1991 Put Agreement totaled approximately $63 million in 1994. As of December 31,
1994, the Company was obligated to pay approximately $1.1 billion over the life
of the 16 aircraft leases under the Aircraft Finance Agreement. Payments by the
Company to GPA under a debtor-in-possession financing facility established in
September 1991 were approximately $61 million in 1994.
Richard P. Schifter, a member of the Company's Board of Directors, and of
the Compensation Committee is a vice president of TPG Advisors, which is the
general partner of TPG GenPar, the general
36
<PAGE> 37
partner of TPG. TPG received Class A Common Stock and Class B Common Stock and
warrants to purchase Class B Common Stock in exchange for its investment in
America West pursuant to the Reorganization. Mr. Schifter serves of counsel to
the law firm of Arnold & Porter, where he was a partner until July 1994. America
West from time to time engages Arnold & Porter for certain legal services, not
any of which are performed by Mr. Schifter.
Each of the Company transactions described above was the result of
arms'-length negotiation among the parties thereto and was 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.
37
<PAGE> 38
CERTAIN TRANSACTIONS
The Company has certain alliance agreements with Continental and Mesa. See
"Business -- Operations." Pursuant to a codesharing agreement with Mesa entered
into in December 1992 (which was prior to Mesa becoming a significant
stockholder), the Company assesses a per passenger charge for facilities,
reservations and other services from Mesa for enplanements on the Mesa system.
Such payments by Mesa to the Company totalled approximately $2.5 million for
1994.
On October 14, 1994, the Company issued $13 million of its 11 1/4% Senior
Unsecured Notes due 2001 ("11 1/4% Notes") to Fidelity (defined herein) and $10
million of such notes to Lehman (defined herein) in satisfaction of certain
claims and other prepetition obligations totalling approximately $25 million
held by Fidelity and Lehman. In connection with the issuance of such notes,
Fidelity and Lehman also received cash payments of $2.1 million and $1.2
million, respectively, representing the portion of claims and other prepetition
obligations not satisfied by the issuance of the notes and other payments made
in connection with the settlement of such claims. In addition, Fidelity held an
additional $100 million principal amount of the 11 1/4% Notes. In August 1995,
the Company repurchased $48 million principal amount of the 11 1/4% Notes and
exchanged the remaining $75 million principal amount of such notes for 10 3/4%
Senior Unsecured Notes due 2005. In connection with such transaction, Fidelity
was paid a fee equal to 3 5/8% of the principal amount of the new notes
($2,718,750). Fidelity and Lehman are principal stockholders of the Company. See
"Principal Stockholders" and "Selling Securityholders."
In 1994, the Company made certain loans to William A. Franke and A. Maurice
Myers, both executive officers of the Company. For a description of such loans,
see "Management -- Employment Agreements."
38
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the outstanding
Common Stock of the Company by (i) each person who is known to the Company to
own beneficially 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 September
27, 1995. The beneficial ownership information set forth below does not include
any shares that may be issued to the holders shown below upon the final
adjudication of certain claims pending in connection with proceedings relating
to the Company's Reorganization; however, the sale by such holders of any such
shares is registered pursuant to the Registration Statement of which this
Prospectus is a part.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS A AND B
BENEFICIALLY OWNED BENEFICIALLY OWNED COMBINED
---------------------- ------------------------------ VOTING POWER
BENEFICIAL OWNER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
- ------------------------------------------- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
TPG Partners, L.P.(2)...................... 774,495 64.5% 6,924,818(3) 15.1% 43.1%
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Continental Airlines, Inc.(4).............. 325,505 27.1% 2,311,094(5) 5.2% 17.7%
2929 Allen Parkway
Houston, Texas 77019
Mesa Air Group, Inc.(6).................... 100,000 8.3% 2,985,239(7) 6.7% 7.6%
2525 30th Street
Farmington, New Mexico 87401
Lehman Brothers Inc........................ -- -- 4,604,067(8) 10.4% 4.4%
200 Vesey Street
American Express Tower
World Financial Center
New York, NY 10285-1800
FMR Corp................................... -- -- 4,299,221(9) 9.7% 4.1%
82 Devonshire Street
Boston, MA 02109
GPA Group plc.............................. -- -- 2,284,615(10) 5.1% 2.2%
GPA House
Shannon, County Clare
Ireland
William A. Franke.......................... -- -- 421,334(11) 1.0% *
A. Maurice Myers........................... -- -- -- -- --
Martin J. Whalen........................... -- -- 36(12) * *
Raymond T. Nakano.......................... -- -- 4(13) -- --
Thomas P. Burns............................ -- -- 101(14) * *
Alphonse E. Frei........................... -- -- 187(15) * *
Julia Chang Bloch.......................... -- -- -- -- --
Stephen F. Bollenbach...................... -- -- -- -- --
Frederick W. Bradley, Jr................... -- -- -- -- --
James G. Coulter(16)....................... 1,100,000 91.6% 9,235,912(3)(5) 19.9% 60.3%
John F. Fraser............................. -- -- -- -- --
John L. Goolsby............................ -- -- 1,500 * *
Richard C. Kraemer......................... -- -- -- -- --
John R. Power, Jr.......................... -- -- -- -- --
Larry L. Risley(17)........................ 425,505 35.4% 5,296,333(7)(5) 11.7% 25.2%
Frank B. Ryan(18).......................... -- -- -- -- --
Richard P. Schifter(19).................... 774,495 64.5% 6,924,818(3) 15.1% 43.1%
John F. Tierney(20)........................ -- -- 2,284,615(21) 5.1% 2.2%
Raymond S. Troubh.......................... -- -- 2,500 * *
All executive officers and directors as a
group (21 persons)....................... 1,200,000 100.0% 14,931,428(22) 30.5% 68.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Information with respect to each beneficial owner of 5% of the Company's
Common Stock is based solely on Schedules 13G filed by such beneficial
owners with the Securities and Exchange Commission.
39
<PAGE> 40
(2) TPG is a Delaware limited partnership whose general partner is TPG GenPar,
L.P., a Delaware limited partnership ("TPG GenPar"). The general partner of
TPG GenPar is TPG Advisors, Inc., a Delaware corporation ("TPG Advisors").
The executive officers and directors of TPG Advisors are: David Bonderman
(director and president), James G. Coulter (director and vice president),
William Price (director and vice president), James O'Brien (vice president,
treasurer and secretary), Richard P. Schifter (vice president) and Richard
A. Ekleberry (vice president). Includes shares owned by TPG Parallel I,
L.P., a Delaware limited partnership ("TPG Parallel"), and Air Partners II,
L.P., a Texas limited partnership ("Air Partners II"). The general partner
of each of TPG Parallel and Air Partners II is TPG GenPar. No other persons
control TPG, TPG GenPar, TPG Advisors, TPG Parallel or Air Partners II.
(3) Includes 1,911,523 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(4) Mr. Bonderman is also director and chairman of the board of Continental and
Mr. Price is a director of Continental. Mr. Bonderman, Mr. Coulter and Mr.
Price, 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 own beneficially a significant percentage of Continental's
common stock.
(5) Includes 802,860 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(6) Larry L. Risley, a director of the Company, is the chairman and chief
executive officer of Mesa.
(7) Includes 799,767 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(8) Includes 293,242 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants.
(9) Includes 658,009 shares of Class B Common Stock that may be acquired upon
the exercise of Warrants. The shares are owned directly by various funds
and accounts advised by Fidelity Management & Research Company ("FMRC") or
Fidelity Management Trust Company ("FMTC"), including Fidelity Copernicus
Fund, L.P., Belmont Capital Partners II, L.P. and Belmont Fund, L.P. See
"Selling Securityholders." FMRC, a wholly owned subsidiary of FMR Corp., is
an investment advisor which is registered under Section 203 of the
Investment Advisors Act of 1940 and which provides investment advisory
services to more than 30 investment companies which are registered under
Section 8 of the Investment Company Act of 1940 and serves as investment
advisor to certain other funds which are generally offered to limited
groups of investors. FMTC, a wholly owned subsidiary of FMR Corp., and a
bank as defined in Section 3(a)(6) of the Exchange Act, serves as trustee
or managing agent for various private investment accounts, primarily
employee benefit plans and serves as investment advisor to certain other
funds which are generally offered to limited groups of investors.
(10) Includes 1,384,615 shares that may be acquired upon exercise of Warrants.
(11) Includes 255,000 shares of Class B Common Stock that may be acquired upon
exercise of stock options.
(12) Includes 16 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(13) Includes 3 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(14) Includes 74 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(15) Includes 137 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
(16) Represents shares of Class A Common Stock and Class B Common Stock held by
TPG and Continental. In connection with Mr. Coulter's positions described
in footnote (2) above, Mr. Coulter may be deemed to own beneficially such
shares. Mr. Coulter disclaims beneficial ownership of such shares.
(17) Represents shares held by Mesa and Continental. Through his position as
chairman and chief executive officer of Mesa and his position in Air
Partners, L.P., Mr. Risley may be deemed to own beneficially such shares.
Mr. Risley disclaims beneficial ownership of such shares.
(18) Dr. Frank B. Ryan became a member of the Board of Directors on March 17,
1995.
(19) Represents shares held by TPG. In connection with Mr. Schifter's position
described in footnote (2) above, Mr. Schifter may be deemed to own
beneficially such shares. Mr. Schifter disclaims beneficial ownership of
such shares.
(20) Represents shares held by GPA. Through his position at GPA, Mr. Tierney may
be deemed to own beneficially such shares. Mr. Tierney disclaims beneficial
ownership of such shares.
(21) Includes 1,384,615 shares that may be acquired upon exercise of Warrants.
(22) Includes 5,153,995 shares of Class B Common Stock that may be acquired upon
exercise of Warrants.
40
<PAGE> 41
STOCKHOLDERS' AGREEMENTS
On the Effective Date, the Company, AmWest, GPA, and certain designated
stockholder representatives entered into an agreement (the "Stockholders'
Agreement") with respect to certain matters involving the Company. Upon the
dissolution of AmWest, which occurred immediately following the Effective Date,
the provisions of the Stockholders' Agreement with respect to AmWest became
binding upon TPG, Continental and Mesa. As used below, "AmWest" means TPG,
Continental and Mesa in their capacities as successors-in-interest to AmWest
under the Stockholders' Agreement.
The Stockholders' Agreement provides that, for a period lasting until the
first annual meeting after the third anniversary of the Effective Date (the
"Voting Period"), 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 2% of the voting equity securities of
the Company; and (iii) five independent directors (the "Independent Directors")
initially including (a) three directors designated by the official committee of
the unsecured creditors, (b) one member designated by the official committee of
the equity security holders and (c) one director designated by the
pre-Reorganization Board of Directors from among the executive officers of the
Company. The Stockholders' Agreement provides that during the Voting Period,
AmWest and GPA will vote all shares of Common Stock owned by them in favor of
the re-election of the initially designated Independent Directors for as long as
such Independent Directors continue to serve.
In addition, AmWest and GPA 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 are required by the Stockholders' Agreement to
recuse themselves from voting on or receiving information on any matters
involving negotiations or direct competition between their respective companies
and America West.
In addition, the Stockholder's Agreement provides that until the annual
meeting after the third anniversary of the Effective Date, approval of
transactions in which AmWest or its affiliates may participate will require the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares of each class of common stock of the Company entitled to
vote, voting as a single class and excluding any shares owned by AmWest or any
of its affiliates. Transactions to which such restriction applies include any
merger or consolidation of the Company with or into AmWest or its affiliates,
any sale or other disposition of all or a substantial part of the assets of the
Company to AmWest or its affiliates and certain other transactions in which
AmWest or its affiliates would acquire an increased ownership of equity
securities in the Company. The Company does not believe these restrictions will
have any adverse effects on the stockholders of the Company.
Under the terms of the Stockholders' Agreement, neither AmWest nor any
affiliate 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 others
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.
41
<PAGE> 42
SELLING SECURITYHOLDERS
The Selling Securityholders are shown in the table below. In connection
with the Reorganization, the partners of AmWest, together with Lehman Brothers
Inc. ("Lehman") and Fidelity Management Trust Company and its affiliates
("Fidelity"), as assignees of AmWest, invested $205.3 million in consideration
for the issuance of securities by the Company, consisting of 1,200,000 shares of
Class A Common Stock at a price of $7.467 per share; 12,981,636 shares of Class
B Common Stock, including 12,259,821 shares at a price of $7.467 per share and
721,815 shares at $8.889 per share; 2,769,231 Warrants; and $100 million
principal amount of senior notes. In addition, TPG and Fidelity, as the holders
of preferred equity interests of the Company, each received $250,000 and TPG
purchased 125,000 shares of Class B Common Stock (representing shares acquired
pursuant to certain subscription rights at a price of $8.889 per share). The
Company also executed letter agreements with Fidelity and Lehman reflecting the
principal terms relating to the settlement of certain prepetition claims held by
Fidelity and by Lehman. Pursuant to these letters, on October 14, 1994, the
Company issued an additional $23 million of senior notes to Fidelity and Lehman
in exchange for full satisfaction of approximately $25 million of prepetition
secured claims and pre-payment of a $1.3 million lease obligation. Additionally,
cash aggregating $2.1 million and $1.2 million was paid to Fidelity and Lehman,
respectively.
In exchange for certain concessions principally arising from cancellation
of the right of GPA to lease to America West 10 Airbus A320 aircraft at
specified rates, GPA, received 900,000 shares of Class B Common Stock; 1,384,615
Warrants; a cash payment of approximately $30.5 million; the right to require
the Company to lease up to eight aircraft; and the right to designate one
director of the Company for so long as GPA owns 2% of the Common Stock of the
Company.
In addition, 125,000 shares of Class B Common Stock issued to Mr. Franke in
connection with a Reorganization success bonus are covered by the Registration
Statement of which this Prospectus is a part.
The following table sets forth as of September 27, 1995 the name of each
Selling Securityholder, and the amount of the Securities owned by each such
Selling Securityholder which are subject to being offered hereby. Except for
William A. Franke, whose beneficial ownership includes shares that may be
acquired by him upon the exercise of certain options, the securities subject to
offering and sale by the Selling Securityholders pursuant hereto constitute all
of the holdings of such securities by such Selling Securityholders. For the
respective percentages of the Company's securities beneficially owned by each
Selling Securityholder (including such ownership as may be attributed to such
securityholders) prior to the offering, see "Principal Stockholders." The shares
reflected in the following table do not include shares that may be issued to
Selling Securityholders upon the final adjudication of certain claims pending in
connection with proceedings relating to the Company's Reorganization. Any such
shares issued to Selling Securityholders will also be subject to being offered
hereby.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CLASS A CLASS B NUMBER OF
COMMON STOCK COMMON STOCK(1) WARRANTS
------------ --------------- ---------
<S> <C> <C> <C>
TPG Partners, L.P................................. 642,078 5,741,150 1,584,915
TPG Parallel I, L.P. ............................. 64,699 578,338 159,580
Air Partners II, L.P. ............................ 67,718 605,330 167,028
Continental Airlines, Inc......................... 325,505 2,311,094 802,860
Mesa Air Group, Inc............................... 100,000 2,985,239 799,767
GPA Group plc..................................... -- 2,284,615 1,384,615
Fidelity Copernicus Fund, L.P..................... -- 2,656,823 100,116
Belmont Capital Partners II, L.P.................. -- 627,811 524,521
Belmont Fund, L.P................................. -- 616,078 33,372
Lehman Brothers Inc............................... -- 4,575,601 293,242
William A. Franke................................. -- 125,000 --
--------- ---------- ---------
TOTAL................................... 1,200,000 23,107,079 5,850,016
========= ========== =========
</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.
42
<PAGE> 43
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, 100,000,000 shares of Class B Common
Stock, $.01 par value, and 48,800,000 shares of preferred stock, $.01 par value
(the "Preferred Stock"). As of September 1, 1995, there were 1,200,000
outstanding shares of Class A Common Stock and 43,966,891 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 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," the former
partners of AmWest currently own in the aggregate 100% of the outstanding Class
A Common Stock and 19.8% of the outstanding Class B Common Stock, which
collectively represent approximately 66.1% of the total voting power of the
outstanding Common Stock. In addition, those partners hold Warrants to acquire
an additional 3,514,150 shares of Class B Common Stock that, if exercised, would
increase their voting control to 68.4%. See "Principal Stockholders --
Stockholders' Agreement" below for a discussion of arrangements regarding the
composition of the Board of Directors of the Company.
Holders of Class A Common Stock may at any time elect to convert such
shares into an equal number of shares of Class B Common Stock. Class B Common
Stock is not convertible into Class A Common Stock.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company is
authorized to issue 48,800,000 shares of Preferred Stock. The Company's Board of
Directors by resolution may authorize the issuance of the Preferred Stock as a
class, in one or more series, having the number of shares, designations,
relative voting rights, dividend rights, liquidation and other rights
preferences, and limitations that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
43
<PAGE> 44
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 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 non-U.S.
citizens, unless such shares are registered on a separate stock record (the
"Foreign Stock Record"). The Company's bylaws further provide that no shares
will be registered on the Foreign Stock Record if the amount so registered would
exceed the Foreign Ownership Restrictions. Registration on the Foreign Stock
Record is made in chronological order based on the date the Company receives a
written request for registration.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation and Restated Bylaws
(collectively, the "Charter Documents") provide, to the fullest extent permitted
by Delaware law as it may from time to time be amended, that no director shall
be liable to the Company or any stockholder for monetary damages for breach of
fiduciary duty as a director. Delaware law currently provides that such waiver
may not apply to liability (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders), or (iv) for any transaction from which the
director derived any improper personal benefit. The Charter Documents further
provide that the Company will indemnify each of its directors and officers to
the full extent permitted by Delaware law and may indemnify certain other
persons as authorized by law.
Additionally, America West has entered into written agreements with each
person who served as a director or executive officer of America West as of the
date of an investment agreement executed in connection with the Reorganization
(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.
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,
44
<PAGE> 45
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.
TRANSFER AGENT
The transfer agent for the Common Stock is First Interstate Bank of
California, whose address is 707 Wilshire Blvd., Los Angeles, California 90017.
DESCRIPTION OF WARRANTS
GENERAL
The Warrants were issued under a Warrant Agreement dated August 25, 1994
(the "Warrant Agreement") between the Company and First Interstate Bankcorp as
warrant agent (the "Warrant Agent"). The material terms of the Warrants and the
Warrant Agreement are summarized below. The statements under this caption
relating to the Warrants and the Warrant Agreement are summaries only, however,
and do not purport to be complete. Such summaries make use of terms defined in
the Warrant Agreement and are qualified in their entirety by express reference
to the Warrant Agreement, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. All section references under this
heading are references to sections of the Warrant Agreement.
Each of the 5,850,016 Warrants offered hereby entitles the registered
holder to purchase from the Company one share of Class B Common Stock at a price
of $12.74 ("the Exercise Price") subject to adjustment as provided in the
Warrant Agreement. The Warrants are exercisable by the holders at any time
before August 25, 1999 (the "Expiration Date"). (Section 3.01)
CERTAIN TERMS OF THE WARRANTS
Exercise of Warrants. Warrants may be exercised by surrendering the
Warrant Certificate evidencing such Warrants at the Warrant Agent's Office with
the Election to Exercise form duly completed and executed. Surrendered Warrant
Certificates must be accompanied by payment in full to the Warrant Agent for the
account of the Company (i) in cash, (ii) by certified or official bank check or
(iii) by any combination of (i) or (ii) the Warrant Price for each share of
Class B Common Stock as to which Warrants are exercised and any applicable taxes
that the Company is not required to pay as set forth in Sections 4.08 or 6.01.
(Section 3.02(a)).
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
45
<PAGE> 46
payment of a dividend in Common Stock or certain combinations, subdivisions, or
reclassifications of the Common Stock, (b) the issuance to holders of Common
Stock (without any charge to such holders) of rights, options or warrants
entitling the holders thereof to purchase Common Stock (or securities
convertible into Common Stock) at a price per share less than the then-current
market price per share, and (c) certain distributions by the Company to holders
of Common Stock of evidences of its indebtedness or assets (excluding any cash
dividend or distribution out of retained earnings), all as described in the
Warrant Agreement. The Company is not required to make any adjustment to the
Warrant Price unless such adjustment could require an increase or decrease of at
least $.05 in the Warrant Price then subject to adjustment; provided, however,
that any adjustments that are not made for this reason must be carried forward
and taken into account in any subsequent adjustment. (Section 4.01) The Company
may, at its option, reduce the Warrant Price at any time.
Rights Upon Consolidation, Merger, Sale, Transfer or Reclassification. In
the event of certain consolidations with or mergers of the Company into another
corporation or in the event of certain leases, sales or conveyances of the
property of the Company to another corporation, the holder of each outstanding
Warrant shall have the right to receive, upon exercise of the Warrant, the kind
and amount of shares, securities, property or cash receivable upon such
consolidation, merger, lease, sale or conveyance by a holder of one share of
Class B Common Stock. (Section 4.05(a))
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, each holder of a Warrant may receive, upon exercise of such
Warrant in accordance with the Warrant Agreement, the same kind and amount of
any stock, securities or assets as may be issuable, distributable or payable on
any such dissolution, liquidation, or winding up with respect to each share of
Class B Common Stock of the Company. (Section 4.05(b))
In the event of certain reclassifications or changes of the shares of Class
B Common Stock issuable upon exercise of the Warrants or in the event of the
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation in which the holders of the shares of
Common Stock thereafter receive shares, other securities, property or cash for
such shares of Common Stock, each holder of a Warrant shall have the right to
receive, upon exercise of the Warrant, the kind and amount of shares, other
securities, property or cash receivable upon such reclassification or change.
(Section 4.05(c))
Rights as Warrantholders. A holder of Warrants does not have any rights
whatsoever as a stockholder of the Company, either at law or equity, including
but not limited to the right to vote at, or to receive notice of, any meeting of
stockholders of the Company. The consent of any holder is not required with
respect to any action or proceeding of the Company nor do holders, by reason of
the ownership or possession of a Warrant, 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)
TRANSFER AGENT
The transfer agent for the Warrants is First Interstate Bank of California,
whose address is 707 Wilshire Blvd., Los Angeles, California 90017.
PLAN OF DISTRIBUTION
Selling Securityholders may sell or distribute their Securities in
transactions through such underwriters (as may be approved by the Company),
brokers, dealers or agents from time to time or through privately negotiated
transactions, including in distributions to shareholders or partners or other
persons affiliated with one or more Selling Securityholder; 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
46
<PAGE> 47
Class A Common Stock beneficially owned by the transferor; provided, however,
that the preceding will not prohibit any person from transferring or otherwise
disposing of all shares of Common Stock owned by such person; (ii) all of the
Securities issued to the Selling Securityholders shall bear the legend that the
Securities may not be sold, transferred or otherwise disposed of except in
accordance with applicable securities laws; and (iii) the former partners of
AmWest have agreed that subject to certain exceptions they will not, prior to on
or about August 25, 1997, sell in a single transaction or related transaction
51% or more of the combined voting power of all shares of Common Stock then
outstanding unless other holders of Common Stock shall have been given a
reasonable opportunity to participate therein on a pro rata basis and at the
same price per share and on the same economic terms and conditions applicable to
AmWest. See "Principal Stockholders -- Stockholders' Agreement."
The distribution of the Securities may be effected from time to time in one
or more transactions (which may involve crosses or block transactions) (i) in
the over-the-counter market, (ii) in transactions otherwise than in the
over-the-counter market or (iii) through the writing of options on the
Securities (whether such options are listed on an options exchange or
otherwise). Any of such transactions may be effected at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. If the Selling Securityholders effect such
transactions by selling Securities to or through underwriters, brokers, dealers
or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or commissions from purchasers of Securities for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents might be in excess of those
customary in the types of transactions involved). The Selling Securityholders
and any brokers, dealers or agents that participate in the distribution of the
Securities might be deemed to be underwriters, and any profit on the sale of
Securities by them and any discounts, concessions or commissions received by any
such underwriters, brokers, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. Selling Securityholders may
pledge their Securities from time to time in connection with such
Securityholders' financing arrangements. Copernicus may pledge some of its Class
B Common Stock to Bear, Stearns Securities Corp. To the extent any such pledgees
exercise their rights to foreclose on any such pledge, and sell the underlying
Securities, such pledgees may be deemed underwriters with respect to such
Securities and sales by them may be effected under this Prospectus. The Company
will not receive any of the proceeds from the sale of any of the Securities by
the Selling Securityholders.
At the time a particular offer of Securities is made, a Prospectus
Supplement, to the extent required, will be distributed which will set forth the
aggregate amount and type of Securities being offered, the names of the Selling
Securityholders, the purchase price, the amount of expenses of the offering and
the terms of the offering, including the name or names of any underwriters,
brokers, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the Securities may
not simultaneously engage in market making activities with respect to the
Securities for a period, depending upon certain circumstances, of either two
days or nine days prior to the commencement of such distribution. In addition
and without limiting the foregoing, the Selling Securityholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders.
Under the securities laws of certain states, the Securities may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the Securities may not be sold unless the Securities have been
registered or qualify for sale in such state or an exemption from registration
or qualification is available and is complied with.
47
<PAGE> 48
LEGAL MATTERS
The validity of the shares of Common Stock and certain legal matters
relating to Warrants offered hereby have been passed upon for the Company by
Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements and financial statement schedule of America West
Airlines, Inc., as of December 31, 1994 and 1993, and for the period August 26,
1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994 and for
each of the years in the two-year period ended December 31, 1993, have been
included herein and in the registration statements in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The reports of KPMG Peat Marwick LLP for the period August 26, 1994 to
December 31, 1994, the period January 1, 1994 to August 25, 1994, and as of
December 31, 1994 contain an explanatory paragraph that states the financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis than those of the Predecessor Company and therefore, are not
comparable in all respects.
48
<PAGE> 49
AMERICA WEST AIRLINES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994
Independent Auditors' Report........................................................ F-2
Balance Sheets as of December 31, 1994 and 1993..................................... F-3
Statements of Operations for the periods August 26, 1994 to December 31, 1994,
January 1, 1994 to August 25, 1994 and the Years ended December 31, 1993 and
1992............................................................................. F-4
Statements of Cash Flows for the periods August 26, 1994 to December 31, 1994,
January 1, 1994 to August 25, 1994 and the Years ended December 31, 1993 and
1992............................................................................. F-5
Statements of Stockholders' Equity (Deficiency) for the periods August 26, 1994 to
December 31, 1994, January 1, 1994 to August 25, 1994 and the Years ended
December 31, 1993 and 1992....................................................... F-6
Notes to Financial Statements....................................................... F-7
CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 1995
Condensed Balance Sheets as of June 30, 1995 (Unaudited) and December 31, 1994...... F-24
Condensed Statements of Operations for the six month periods ended June 30, 1995 and
1994 (Unaudited)................................................................. F-26
Condensed Statements of Cash Flows for the six month periods ended June 30, 1995 and
1994 (Unaudited)................................................................. F-27
Notes to Condensed Financial Statements............................................. F-28
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Airlines, Inc.
We have audited the accompanying balance sheets of America West Airlines,
Inc. as of December 31, 1994 and 1993, and the related statements of operations,
cash flows and stockholders' equity (deficiency) for the period August 26, 1994
to December 31, 1994, the period January 1, 1994 to August 25, 1994, and for
each of the years in the two-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.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the period August 26, 1994 to December 31, 1994, the period January 1,
1994 to August 25, 1994, and for each of the years in the two-year period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements, on August 25,
1994, America West Airlines, Inc. emerged from bankruptcy. The financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis than those of the Predecessor Company and, therefore, are not
comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 24, 1995
F-2
<PAGE> 51
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
----------- | -----------
1994 | 1993
----------- | -----------
<S> <C> | <C>
ASSETS |
Current assets: |
Cash and cash equivalents......................................................................... $ 182,581 | $ 99,631
Accounts receivable, less allowance for doubtful accounts of $3,531 in 1994 and $3,030 in 1993.... 57,474 | 65,744
Expendable spare parts and supplies, less allowance for obsolescence of $483 in 1994 and $7,231 |
in 1993......................................................................................... 24,179 | 28,111
Prepaid expenses.................................................................................. 29,284 | 34,939
----------- | -----------
Total current assets........................................................................ 293,518 | 228,425
----------- | -----------
Property and equipment: |
Flight equipment.................................................................................. 452,177 | 872,104
Other property and equipment...................................................................... 92,169 | 180,607
----------- | -----------
544,346 | 1,052,711
Less accumulated depreciation and amortization.................................................... 15,882 | 385,776
----------- | -----------
528,464 | 666,935
Equipment purchase deposits....................................................................... 26,074 | 51,836
----------- | -----------
554,538 | 718,771
----------- | -----------
Restricted cash..................................................................................... 28,578 | 46,296
Reorganization value in excess of amounts allocable to identifiable assets, net..................... 645,703 | --
Other assets, net................................................................................... 22,755 | 23,251
----------- | -----------
$1,545,092 | $1,016,743
=========== | ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) |
Current liabilities: |
Current maturities of long-term debt.............................................................. $ 65,198 | $ 125,271
Accounts payable.................................................................................. 77,569 | 62,957
Air traffic liability............................................................................. 127,356 | 118,479
Accrued compensation and vacation benefits........................................................ 15,776 | 11,704
Accrued interest.................................................................................. 13,109 | 8,295
Accrued taxes..................................................................................... 27,061 | 14,114
Other accrued liabilities......................................................................... 15,376 | 11,980
----------- | -----------
Total current liabilities................................................................... 341,445 | 352,800
----------- | -----------
Estimated liabilities subject to Chapter 11 proceedings............................................. -- | 381,114
Long-term debt, less current maturities............................................................. 465,598 | 396,350
Manufacturers' and deferred credits................................................................. 116,882 | 73,592
Other liabilities................................................................................... 25,721 | 67,149
Commitments and contingencies |
Stockholders' equity (deficiency): |
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued at December 31, |
1994............................................................................................ -- | --
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and outstanding |
1,200,000 shares at December 31, 1994........................................................... 12 | --
Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and outstanding |
43,936,272 shares at December 31, 1994.......................................................... 439 | --
Preferred stock, $.25 par value. Authorized 50,000,000 shares; Series C 9.75% convertible |
preferred stock, issued and outstanding 73,099 shares at December 31, 1993; $1.33 per share |
cumulative dividend............................................................................. -- | 18
Common stock, $.25 par value. Authorized 90,000,000 shares; issued and outstanding 25,291,102 at |
December 31, 1993............................................................................... -- | 6,323
Additional paid-in capital........................................................................ 587,149 | 197,010
Retained earnings (deficit)....................................................................... 7,846 | (438,626)
----------- | -----------
595,446 | (235,275)
Less deferred compensation and notes receivable -- employee stock purchase plans.................. -- | 18,987
----------- | -----------
Total stockholders' equity (deficiency)..................................................... 595,446 | (254,262)
----------- | -----------
$1,545,092 | $1,016,743
=========== | ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 52
AMERICA WEST AIRLINES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR COMPANY
COMPANY | -----------------------------------------
------------- | PERIOD FROM
PERIOD FROM | JANUARY 1
AUGUST 26 TO | TO YEARS ENDED DECEMBER 31,
DECEMBER 31, | AUGUST 25, -------------------------
1994 | 1994 1993 1992
------------- | ----------- ---------- ----------
<S> <C> | <C> <C> <C>
Operating revenues: |
Passenger................................................ $ 437,775 | $ 882,140 $1,246,564 $1,214,816
Cargo.................................................... 16,648 | 27,645 40,161 42,077
Other.................................................... 15,343 | 29,243 38,639 37,247
------------- | ----------- ---------- ----------
Total operating revenues............................. 469,766 | 939,028 1,325,364 1,294,140
------------- | ----------- ---------- ----------
Operating expenses: |
Salaries and related costs............................... 117,562 | 213,722 305,429 324,255
Rentals and landing fees................................. 90,822 | 173,710 274,708 338,391
Aircraft fuel............................................ 58,165 | 100,646 166,313 186,042
Agency commissions....................................... 37,265 | 78,988 106,368 106,661
Aircraft maintenance materials and repairs............... 17,590 | 28,109 31,000 38,366
Depreciation and amortization............................ 26,684 | 56,694 81,894 86,981
Restructuring charges.................................... -- | -- -- 31,316
Other.................................................... 82,807 | 179,653 238,598 256,940
------------- | ----------- ---------- ----------
Total operating expenses............................. 430,895 | 831,522 1,204,310 1,368,952
------------- | ----------- ---------- ----------
Operating income (loss).............................. 38,871 | 107,506 121,054 (74,812)
------------- | ----------- ---------- ----------
Nonoperating income (expenses): |
Interest income.......................................... 3,834 | 470 728 1,418
Interest expense (contractual interest of $44,747, |
$72,961 and $73,931 for the periods ended August 25, |
1994, and December 31, 1993 and 1992, respectively).... (22,636) | (33,998) (54,192) (55,826)
Loss on disposition of property and equipment............ (398) | (1,659) (4,562) (1,283)
Reorganization expense, net.............................. -- | (273,659) (25,015) (16,216)
Other, net............................................... 65 | 131 (89) 14,958
------------- | ----------- ---------- ----------
Total nonoperating expenses, net..................... (19,135) | (308,715) (83,130) (56,949)
------------- | ----------- ---------- ----------
Income (loss) before income taxes and extraordinary |
item............................................... 19,736 | (201,209) 37,924 (131,761)
------------- | ----------- ---------- ----------
Income taxes............................................... 11,890 | 2,059 759 --
------------- | ----------- ---------- ----------
Income (loss) before extraordinary item.............. 7,846 | (203,268) 37,165 (131,761)
------------- | ----------- ---------- ----------
Extraordinary gain on elimination of debt.................. -- | 257,660 -- --
------------- | ----------- ---------- ----------
Net income (loss).................................... $ 7,846 | $ 54,392 $ 37,165 $ (131,761)
============= | =========== ========= =========
Earnings (loss) per share: |
Primary: |
Income (loss) before extraordinary item................ $ .17 | $ (7.03) $ 1.50 $ (5.58)
Extraordinary item..................................... -- | 9.02 -- --
------------- | ----------- ---------- ----------
Net income (loss).................................... $ .17 | $ 1.99 $ 1.50 $ (5.58)
============= | =========== ========= =========
Fully Diluted: |
Income (loss) before extraordinary item................ $ .17 | $ (4.96) $ 1.04 $ (5.58)
Extraordinary item..................................... -- | 6.37 -- --
------------- | ----------- ---------- ----------
Net income (loss).................................... $ .17 | $ 1.41 $ 1.04 $ (5.58)
============= | =========== ========= =========
Shares used for computation: |
Primary.................................................. 45,127 | 28,550 27,525 23,914
============= | =========== ========= =========
Fully diluted............................................ 45,127 | 40,452 41,509 23,914
============= | =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 53
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR COMPANY
COMPANY | --------------------------------------
------------- | PERIOD FROM
PERIOD FROM | JANUARY 1 YEARS ENDED DECEMBER
AUGUST 26 TO | TO 31,
DECEMBER 31, | AUGUST 25, ----------------------
1994 | 1994 1993 1992
------------- | ----------- -------- ---------
<S> <C> | <C> <C> <C>
Cash flows from operating activities: |
Net income (loss)........................................... $ 7,846 | $ 54,392 $ 37,165 $(131,761)
Adjustments to reconcile net income (loss) to cash provided |
by operating activities: |
Depreciation and amortization............................. 15,538 | 56,694 81,894 86,981
Amortization of deferred overhauls........................ 356 | -- -- --
Amortization of reorganization value in excess of amounts |
allocable to identifiable assets........................ 11,145 | -- -- --
Amortization of manufacturers' and deferred credits....... (3,961) | (2,966) (5,186) (5,869)
Loss on disposition of property and equipment............. 398 | 1,659 4,562 1,283
Restructuring charges..................................... -- | -- -- 31,316
Reorganization items...................................... -- | 185,226 18,167 3,188
Extraordinary gain on extinguishment of debt.............. -- | (257,660) -- --
Other..................................................... 1,178 | (383) (554) 866
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, net........... 27,439 | (18,769) (927) 19,418
Decrease (increase) in spare parts and supplies, net...... 1,165 | 397 6,320 (2,384)
Decrease in prepaid expenses.............................. 4,371 | 1,284 2,627 812
Decrease (increase) in other assets and restricted cash... 1,219 | 12,971 (5,295) (1,141)
Increase (decrease) in accounts payable................... (17,289) | (15,557) 9,014 (8,473)
Increase (decrease) in air traffic liability.............. (26,452) | 30,510 8,749 30,723
Increase (decrease) in accrued compensation |
and vacation benefits................................... (11,667) | 15,739 (1,300) (1,491)
Increase in accrued interest.............................. 7,517 | 4,694 10,368 25,640
Increase (decrease) in accrued taxes...................... (2,104) | 25,999 (1,764) 2,968
Increase (decrease) in other accrued liabilities.......... (13,785) | 67,429 644 18,204
Increase (decrease) in other liabilities.................. (4,996) | (19,443) (11,126) 6,465
------------- | ----------- -------- ---------
Net cash provided by (used in) operating activities..... (2,082) | 142,216 153,358 76,745
Cash flows from investing activities: |
Purchases of property and equipment......................... (14,658) | (61,271) (54,324) (69,208)
Decrease in equipment purchase deposits..................... -- | -- -- 14,425
Proceeds from disposition of property....................... 600 | 334 3,715 383
------------- | ----------- -------- ---------
Net cash used in investing activities................... (14,058) | (60,937) (50,609) (54,400)
Cash flows from financing activities: |
Proceeds from issuance of DIP financing..................... -- | -- -- 53,000
Proceeds from issuance of debt.............................. -- | 100,000 -- 22,804
Repayment of debt including DIP financing................... (23,355) | (173,699) (77,501) (75,871)
Issuance of common stock.................................... 3 | 114,862 -- --
------------- | ----------- -------- ---------
Net cash provided by (used in) financing activities..... (23,352) | 41,163 (77,501) (67)
------------- | ----------- -------- ---------
Net increase (decrease) in cash and cash equivalents.... (39,492) | 122,442 25,248 22,278
------------- | ----------- -------- ---------
Cash and cash equivalents at beginning of period.............. 222,073 | 99,631 74,383 52,105
------------- | ----------- -------- ---------
Cash and cash equivalents at end of period.................... $ 182,581 | $ 222,073 $ 99,631 $ 74,383
============ | =========== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 54
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994
AND THE YEARS ENDED DECEMBER 31, 1993, AND 1992
(IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
AND NOTES
CONVERTIBLE CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE --
PREFERRED COMMON COMMON COMMON PAID-IN EARNINGS/ EMPLOYEE STOCK
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) PURCHASE PLANS TOTAL
----------- ------- ------- ------- ---------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992.. $ 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 Series B 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)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 336,277 shares
of common stock pursuant
to convertible preferred
stock dividends.......... -- -- -- 84 2,932 -- -- 3,016
Employee stock purchase
plan:
Cancellation of 7,678
shares of common stock at:
$1.19-$4.03 per share.... -- -- -- (2 ) (49) -- 43 (8)
Deferred compensation.... -- -- -- -- (1) -- 606 605
Issuance of 108,825 shares
of common stock pursuant
to exercise of stock
options.................. -- -- -- 27 166 -- -- 193
Net income................. -- -- -- -- -- 54,392 -- 54,392
Eliminate predecessor
equity accounts in
connection with fresh
start.................... (18) -- -- (6,432 ) (200,058) 206,508 -- --
Eliminate employee stock
receivable............... -- -- -- -- -- (18,338) 18,338 --
Record excess of
reorganization value over
identifiable assets...... -- -- -- -- -- 668,702 -- 668,702
Sale of 1,200,000 shares of
Class A common stock and
14,000,000 shares of Class
B common stock........... -- 12 140 -- 114,710 -- -- 114,862
Issuance of 29,925,000
shares of new Class B
common stock............. -- -- 299 -- 472,339 (472,638) -- --
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at August 25, 1994. -- 12 439 -- 587,049 -- -- 587,500
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 272 shares of
common stock pursuant to
exercise of stock
warrants................. -- -- -- -- 3 -- -- 3
Issuance of 11,000 shares
of restricted stock...... -- -- -- -- 97 -- -- 97
Net income................. -- -- -- -- -- 7,846 -- 7,846
----- ------- ------- ------- ---------- ----------- -------- ---------
Balance at December 31, 1994. $ -- $12 $ 439 $ -- $ 587,149 $ 7,846 $ -- $ 595,446
====== ==== ====== ======= ========= ========= ======= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 55
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
America West Airlines, Inc., (the "Predecessor Company") filed a voluntary
petition on June 27, 1991, to reorganize under Chapter 11 of the U.S. Bankruptcy
Code. On August 10, 1994, the Plan of Reorganization ("Plan"), filed by the
Predecessor Company, was confirmed and became effective on August 25, 1994 (the
"Effective Date"). On August 25, 1994, America West Airlines, Inc., (the
"Reorganized Company" or the "Company") adopted fresh start reporting in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute
of Certified Public Accountants. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a consistent
basis with such pre-reorganization financial statements and are not comparable
in all respects to financial statements prior to reorganization. For accounting
purposes, the inception date of the Reorganized Company is deemed to be August
26, 1994. A vertical black line is shown in the financial statements to separate
the Reorganized Company from the Predecessor Company since they have not been
prepared on a consistent basis of accounting.
1. CHAPTER 11 REORGANIZATION
The following occurred upon the Effective Date:
- The partners of AmWest Partners, L.P. ("AmWest"), a limited partnership
which includes TPG Partners, L.P. ("TPG"); Continental Airlines, Inc.
("Continental"); and Mesa Airlines, Inc. ("Mesa"); together with Lehman
Brothers, Inc. ("Lehman") and Fidelity Investments ("Fidelity"), as
assignees of AmWest, invested $205.3 million in consideration for the
issuance of securities by the Reorganized Company, consisting of (i)
1,200,000 shares of Class A Common Stock at a price of $7.467 per share;
(ii) 12,981,636 shares of Class B Common Stock, consisting of 12,259,821
shares at a price of $7.467 per share and 721,815 shares at $8.889 per
share (representing shares acquired as a result of cash elections made by
unsecured creditors); (iii) 2,769,231 Warrants to purchase shares of
Class B Common Stock at an exercise price of $12.74 per share and (iv)
$100 million principal amount of 11 1/4% Senior Unsecured Notes, due
September 1, 2001. AmWest was dissolved immediately after the Effective
Date with all rights being delegated to the partners and assignees of
AmWest.
- Pre-existing equity interests of the Company were cancelled, the
Company's obligations to certain prepetition creditors were restructured
and general unsecured nonpriority prepetition creditors received, in full
satisfaction of their claims, their pro rata share of approximately
26,053,185 shares of Class B Common Stock and $6,416,214 in cash. Holders
of the Company's pre-existing common equity interests received, on a pro
rata basis, 2,250,000 shares of Class B Common Stock and Warrants to
purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant
to the exercise of subscription rights, holders of pre-existing equity
interests received 1,615,179 shares of Class B Common Stock for an
aggregate purchase price of $14,357,326 ($8.889 per share), including
holders of pre-existing preferred equity interests. TPG and Fidelity, the
holders of preferred equity interests of the Predecessor Company received
their pro rata share of (i) $500,000 in cash and (ii) 125,000 shares of
Class B Common Stock for an aggregate purchase price of $1,111,125.
- In exchange for certain concessions principally arising from cancellation
of the right of GPA Group plc and/or its affiliates ("GPA") to lease to
America West 10 Airbus A320 aircraft, GPA received Class B Common Stock,
a cash payment and certain rights (note 13).
- The Company entered into certain Alliance Agreements with Continental and
Mesa relating to code-sharing, schedule coordination and certain other
relationships and agreements. With respect to Mesa, a pre-existing code
share agreement was extended to August 2004.
F-7
<PAGE> 56
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- The Company executed letter agreements with Fidelity and Lehman relating
to the settlement of certain prepetition claims. On October 14, 1994, the
Company issued an additional $23 million of 11 1/4% Senior Unsecured
Notes, due September 2001, and made a prepayment of a $1.3 million lease
obligation. Additionally, cash payments of $2.1 million and $1.2 million
were made to Fidelity and Lehman, respectively.
- The Plan also provided 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 the release of the Company's employees from all
obligations arising under the Company's stock purchase plan in
consideration for the cancellation of the shares of Predecessor Company
stock securing such obligations.
As of December 31, 1994, distributions on $295 million of allowed general
unsecured claims had been made. Approximately 21.6 million shares of the
Company's Class B Common Stock and cash proceeds equivalent to an additional
524,000 shares have been distributed in settlement. The remaining shares will be
distributed as the remaining general unsecured claims are allowed. To the extent
that the total allowed amount of claims is less than the $345 million reserve
set by the Bankruptcy Court, the holders of such claims will receive a
supplemental distribution.
Reorganization expense recorded by the Predecessor Company consisted of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD FROM DECEMBER 31,
JANUARY 1 TO -------------------
AUGUST 25, 1994 1993 1992
--------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Professional fees and other expenses related to
the Chapter 11 proceedings...................... $ 31,959 $ 9,419 $16,498
Adjustments of assets and liabilities to fair
value........................................... 166,829 -- --
Provisions for settlement of claims............... 66,626 18,231 1,748
Reorganization success bonuses.................... 11,956 -- --
Interest income................................... (3,711) (2,635) (2,030)
--------- ------- -------
$ 273,659 $25,015 $16,216
========= ======= =======
</TABLE>
2. FRESH START REPORTING
In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with SOP 90-7. The fresh start reporting common
equity value of $587.5 million was determined by the Company with the assistance
of its financial advisors. The significant factors used in the determination of
this value were analyses of industry, economic and overall market conditions and
the historical and estimated performance of the Company as well as of the
airline industry, discussions with various potential investors and certain other
financial analyses.
Under fresh start reporting, the reorganization value of the entity has
been allocated to the Company's assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
balance sheet as of December 31, 1994. 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
statements of operations. The more significant of these adjustments relate to
reduced depreciation expense on property and equipment, increased amortization
expense relating to reorganization value in excess of amounts allocable to
identifiable assets, and increased interest expense and reduced aircraft rent
expense for leases adjusted to fair market rental rates.
F-8
<PAGE> 57
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effects of the Plan and fresh start reporting on the balance sheet at
the Effective Date are as follows (in thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
PREDECESSOR ISSUE OF REORGANIZED
COMPANY DEBT DEBT & FRESH START COMPANY
AUG. 25, 1994 DISCHARGE STOCK ADJUSTMENTS AUG. 25, 1994
------------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 156,401 $(140,284) $205,956 $ -- $ 222,073
Accounts receivable, net..................... 77,682 -- 6,831 -- 84,513
Expendable spare parts and supplies.......... 27,715 -- -- (2,371) 25,344
Prepaid expenses............................. 34,540 -- -- (885) 33,655
------------- --------- -------- ----------- -------------
Total current assets........................... 296,338 (140,284 ) 212,787 (3,256) 365,585
Property and equipment, net.................... 702,442 -- -- (138,830) 563,612
Restricted cash................................ 30,503 -- -- -- 30,503
Reorganization value in excess of amounts
allocable
to identifiable assets....................... -- -- -- 668,702 668,702
Other assets, net.............................. 24,497 -- 1,575 (2,449) 23,623
------------- --------- -------- ----------- -------------
Total assets................................... $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
============ ========= ======== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current maturities of long-term debt......... $ 119,185 $(65,014 ) $ -- $ -- $ 54,171
Accounts payable............................. 98,080 6,500 -- 969 105,549
Air traffic liability........................ 153,808 -- -- -- 153,808
Accrued compensation and vacation benefits... 27,443 -- -- -- 27,443
Accrued interest............................. 5,620 -- -- -- 5,620
Accrued taxes................................ 26,613 14,405 -- -- 41,018
Other accrued liabilities.................... 29,161 -- -- -- 29,161
------------- --------- -------- ----------- -------------
Total current liabilities...................... 459,910 (44,109 ) -- 969 416,770
Estimated liabilities subject to Chapter 11
proceedings.................................. 382,769 (382,769 ) -- -- --
Long-term debt, less current maturities........ 368,939 28,934 100,000 -- 497,873
Manufacturers' and deferred credits............ 70,625 -- -- 51,530 122,155
Other liabilities.............................. 57,932 -- -- (30,205) 27,727
Stockholders' equity (deficiency):
Preferred stock.............................. 18 -- -- (18) --
Common stock, Predecessor Company............ 6,432 -- -- (6,432) --
Common stock, Reorganized Company............ -- -- 152 299 451
Additional paid in capital................... 200,058 -- 114,710 272,281 587,049
Accumulated deficit.......................... (474,565) 257,660 (500) 217,405 --
------------- --------- -------- ----------- -------------
(268,057) 257,660 114,362 483,535 587,500
Deferred compensation and notes receivable --
employee stock purchase plans.............. 18,338 -- -- (18,338) --
------------- --------- -------- ----------- -------------
Total stockholders' equity (deficiency)........ (286,395) 257,660 114,362 501,873 587,500
------------- --------- -------- ----------- -------------
Total liabilities & stockholders' equity
(deficiency)................................. $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
============ ========= ======== ========== ============
</TABLE>
- ---------------
(a) To record the discharge or reclassification of prepetition obligations as
well as the repayment in cash of $77.6 million of D.I.P. financing and a
$62.7 million priority term loan.
(b) To record proceeds received from the issuance of new debt and equity
securities and to record the preferred stock settlement payment of $500,000
and the receipt of approximately $1.1 million for the purchase of Class B
Common Stock.
(c) To record adjustments to reflect assets and liabilities at fair market
values and to record reorganization value in excess of amounts allocable to
identifiable assets.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Reporting for Bankruptcy Proceedings
The Company implemented the guidance as to financial reporting by entities
that have filed petitions with the Bankruptcy Court, provided by SOP 90-7 in the
accompanying financial statements.
F-9
<PAGE> 58
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to SOP 90-7, prepetition 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 and are classified as "Liabilities Subject
to Chapter 11 Proceedings". The accrual for interest on such unsecured or
undersecured liabilities was discontinued from the period June 27, 1991 to
August 25, 1994, the Effective Date of the Plan.
(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 deposits securing certain letters of credit
and cash held in Company accounts, but pledged to an institution which processes
credit card sales transactions.
(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 were recorded at cost as of December 31, 1993 and at
fair market value as of August 25, 1994; subsequent acquisitions are recorded at
cost. Interest capitalized on advance payments for aircraft acquisitions and on
expenditures for aircraft improvements are part of these costs. Interest
capitalized was $621,000 for the period August 26, 1994 through December 31,
1994. No interest was capitalized while the Company was in bankruptcy. Property
and equipment is depreciated and amortized to residual values over the estimated
useful lives or the lease term, whichever is less, using the straight-line
method.
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 aircraft
maintenance materials and repairs for the Reorganized Company, as part of fresh
start reporting, and in depreciation and amortization expense for the
Predecessor Company. 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) Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1994 is approximately $11.1 million. As more fully discussed at
Note 9, with respect to the period ended December 31, 1994, a reduction in
reorganization value in excess of amounts allocable to identifiable assets of
$11.9 million was recorded as a result of the utilization of Predecessor Company
tax attributes. The Company assesses the recoverability of this asset based upon
expected future undiscounted cash flows and other relevant information.
F-10
<PAGE> 59
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) 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.
(h) 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. Unamortized amounts were written off at
the Effective Date.
(i) Deferred Credit -- Operating Leases
Operating leases were adjusted to fair market value at the Effective Date.
The net present value of the difference between the contractual lease rates and
the fair market rates has been recorded as a deferred credit in the accompanying
balance sheets. The deferred credit will be increased through charges to
interest expense and decreased on a straight-line basis as a reduction in rent
expense over the applicable lease periods. At December 31, 1994, the unamortized
balance of the deferred credit was $116.9 million.
(j) 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.
(k) 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.
(l) 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 9, adoption of the new standard changed 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
general business credits by use of the flow-through method.
(m) Per Share Data
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflect net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding, dilutive common stock equivalents (stock
options and warrants), and the conversion of outstanding convertible preferred
stock as well as for the Predecessor Company the conversion of convertible
F-11
<PAGE> 60
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subordinate debentures. Fully diluted earnings per share reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from the
assumed exercise of common stock equivalents but only if the effect of such
adjustments are dilutive.
(n) Reclassification
Certain prior period reclassifications have been made in the Predecessor
Company's financial statements to conform to the Reorganized Company's
presentation.
4. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
-------------- | --------------
1994 | 1993
-------------- | --------------
(IN THOUSANDS) | (IN THOUSANDS)
<S> <C> | <C>
SECURED |
Notes payable, fixed interest rates of 6.00% to 10.79% and |
floating interest rates of various LIBOR + 1.5% to 3.5%, |
installments due through 2008............................. $307,077 | $402,448
Borrowings under lines of credit, floating interest rates of |
Prime + 1% to three month LIBOR + 4%, installments due |
through 1999. No available borrowings remain. ............ 24,225 | 18,589
Notes payable, floating interest rate of Prime + 1%, |
installments |
due through 1999. (a)..................................... 34,097 | --
DIP financing............................................... -- | 83,577
------- | --------
365,399 | 504,614
UNSECURED |
11 1/4% senior notes, face amount of $123 million, interest |
only payments until due in 2001. (b)...................... 120,843 | --
Notes payable, fixed interest rates of 6% to 8% and floating |
interest rates of three month LIBOR + 3%, installments due |
through 2000. ............................................ 41,752 | 10,734
Other....................................................... 2,802 | 6,273
------- | --------
165,397 | 17,007
Total long-term debt.............................. 530,796 | 521,621
Less: current maturities.......................... (65,198) | (125,271)
-------- | --------
$465,598 | $396,350
======== | ========
</TABLE>
- ---------------
(a) Approximately $29.5 million was drawn on a letter of credit facility that
secured certain industrial development bonds (the "Bonds") used by the
Company to build its aircraft maintenance facility in Phoenix, Arizona (the
"Hangar"). The issuer of the letter of credit facility was in turn
reimbursed for such draws under a reimbursement agreement among the Company,
that issuer and a certain bank group (the "Banks"). The reimbursement
agreement was secured by the Hangar. At the Effective Date, the Company and
the Banks agreed to facilitate repayment of the obligation created under the
reimbursement agreement with two loans, the principal loan for $29.5 million
and the interest loan for $6.5 million. These two loans are secured by the
Hangar. The interest loan is repaid with monthly level principal payments
and interest at the prime rate plus 1% and matures in August 1996.
Amortization of the principal loan is calculated over 12 years with a five
year maturity in August 1999; and payments are made monthly of level
principal and interest at the prime rate plus 1%, with the balance of the
loan, or $12.5 million, being due at its maturity. Additionally, if the
Company does not re-market the Bonds prior to August 25, 1995 (the proceeds
from which will be used to retire the then outstanding balance of the
F-12
<PAGE> 61
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal loan), the Company is required to make an additional $5.0 million
principal repayment under the principal loan in October 1995.
(b) On the Effective Date, the Company issued $100 million of 11 1/4% Senior
Unsecured Notes (the "Senior Notes") at a discount of 1.575% as part of the
investment by AmWest, and on October 14, 1994, the Company issued an
additional $23 million of the Senior Notes. The notes mature in September,
2001 and interest is payable in arrears semi-annually commencing on March 1,
1995. The Senior Notes may be redeemed at the option of the Company; (i)
prior to September 1, 1997; (a) at any time, in whole but not in part, at a
redemption price of 105% of the principal amount of the Senior Notes plus
accrued and unpaid interest, if any, to the redemption date or; (b) from
time to time in part from the net proceeds of a public offering of its
capital stock at a redemption price equal to 105% of the principal amount,
plus accrued and unpaid interest, if any, to the redemption date except for
amounts mandatorily redeemed; (ii) on or after September 1, 1997 at any time
in whole or from time to time in part, at a redemption price equal to the
following percentage of principal redeemed, plus accrued and unpaid interest
to the date of redemption, if redeemed during the 12-month period beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
--------------------------------------- ----------
<S> <C>
1997................................. 105.0%
1998................................. 103.3%
1999................................. 101.7%
2000................................. 100.0%
</TABLE>
The Senior Notes are also subject to mandatory redemption if the Company
consummates a Public Offering Sale, as defined in the Indenture, prior to
September 1, 1997, and immediately prior to such consummation, the Company
has cash and cash equivalents, not subject to any restriction on
disposition of at least $100 million. Then the Company shall redeem the
Senior Notes at a redemption price equal to 104% of the aggregate principal
amount of the Senior Notes so redeemed plus accrued and unpaid interest to
the redemption date. The aggregate redemption price and accrued unpaid
interest of the Senior Notes to be redeemed shall equal the lesser of: (a)
50% of the net proceeds of such Public Offering Sale and; (b) the excess if
any of; (i) $20 million and; (ii) the amount of any net offering proceeds
of any Public Offering Sale received prior to September 1, 1997. The
Indenture contains a limitation on investment covenant with which the
Company was in compliance at December 31, 1994.
At December 31, 1994, the estimated maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995.................................... $ 65,198
1996.................................... 55,566
1997.................................... 48,316
1998.................................... 44,653
1999.................................... 57,203
Thereafter.............................. 259,860
--------
$530,796
========
</TABLE>
Secured financings totaling $361 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $422.6 million at
December 31, 1994.
Prepetition long-term debt totaling approximately $224 million was included
in Estimated Liabilities Subject to Chapter 11 Proceedings at December 31, 1993.
As part of the reorganization, approximately $85.6 million of long-term debt was
restructured and included as long-term debt secured at December 31, 1994.
F-13
<PAGE> 62
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios and other financial covenants for
which the Company was in compliance at December 31, 1994.
5. CAPITAL STOCK
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 preferences, and limitation that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
Common Stock
The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.
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, will be made in
the same class of common stock as that held by the recipient of the dividend.
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.
Pursuant to the Stockholders' Agreement, the partners and assignees of
AmWest and GPA will vote all shares of 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 until the third annual meeting.
In addition to the voting and other provisions of the Stockholders'
Agreement, AmWest and GPA agreed that (i) the partners and assignees of AmWest
will vote in favor of GPA's nominee to the Company's Board of Directors, and
(ii) GPA will vote in favor of the partners and assignees of AmWest's nine
nominees to the Company's Board of Directors for so long as (a) the partners and
assignees of AmWest own 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.
Warrants
The Company issued approximately 10.4 million Warrants to purchase Class B
Common Stock with an exercise price of $12.74 per share as part of the
reorganization. The Warrants are exercisable by the holders anytime before
August 25, 1999 and 10.4 million shares of Class B Common Stock have been
reserved for the exercise of these warrants.
6. RESTRICTED STOCK AND STOCK OPTIONS
In December 1994, the Company's Board of Directors approved the America
West Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan") subject to
approval of the stockholders. Under the Incentive Plan, up to 3.5 million shares
of Class B Common Stock may be issued to cover all outstanding awards under this
plan, of which, no more than 1.5 million will be issued as Restricted Stock or
Bonus Stock. The Company's Board of Directors granted 11,000 shares of
restricted stock under the Incentive Plan and recorded compensation expense of
$96,250 based on the fair value of $8.75 at the date of grant. Additionally,
1,267,000 options to purchase common stock at $8.75 per share, the fair value at
date of grant were granted
F-14
<PAGE> 63
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under the Incentive Plan. Also, 39,000 options to purchase common stock were
granted at $8.75 per share, the fair value at date of grant, to members of the
Board of Directors who are not employees of the Company. As of December 31,
1994, 11,000 shares of restricted stock were vested and 255,000 options to
purchase common stock were exercisable, both contingent upon stockholder
approval of the Incentive Plan.
7. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering essentially
all employees of the Company. Participants may contribute from 1 to 15% of their
pre-tax earnings to a maximum of $9,240 in 1995. In April 1994, the Company
increased the Company matched portion from 25% to 50% 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 $3.8 million, $2.1 million
and $2 million in 1994, 1993 and 1992, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
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, Including Current Maturities (at December 31, 1994)
The fair value of long-term debt, including current maturities, was
approximately $515 million based on quoted market prices for the same or similar
debt including debt of comparable remaining maturities.
Long-term Debt Including Current Maturities and Estimated Liabilities
Subject to
Chapter 11 Proceedings (December 31, 1993)
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.
9. INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). The Predecessor Company had adopted SFAS
109 as of January 1, 1993. 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.
Income tax expense:
For the periods shown below, the Company recorded income tax expense as
follows:
F-15
<PAGE> 64
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR COMPANY
COMPANY | --------------------------------------
------------------ | YEARS ENDED
PERIOD FROM | PERIOD FROM DECEMBER 31,
AUGUST 26 TO | JANUARY 1 TO -------------
DECEMBER 31, 1994 | AUGUST 25, 1994 1993 1992
------------------ | ------------------ ---- ------
(IN THOUSANDS) | (IN THOUSANDS)
<S> <C> | <C> <C> <C>
Current taxes: |
Federal............................... $ -- | $1,869 $675 $ --
State................................. 36 | 190 84 --
---------- | ------- ---- ----
36 | 2,059 759 --
Deferred taxes:......................... -- | -- -- --
Income tax expense attributable to |
reorganization items.................. 11,854 | -- -- --
-------- | ------- ---- ----
Income tax expense...................... $ 11,890 | $2,059 $759 $
======== | ====== ==== ====
</TABLE>
With respect to the period August 26, 1994 to December 31, 1994, income tax
expense pertains both to income before extraordinary item as well as certain
adjustments necessitated by the effectiveness of the Plan and the resultant
fresh start adjustments to the Company's financial statements. The Company's
reorganization and the associated implementation of fresh start reporting gave
rise to significant items of expense for financial reporting purposes that are
not deductible for income tax purposes. In large measure, it is these
nondeductible (for income tax purposes) expenses that result in an effective tax
rate (for financial reporting purposes) significantly greater than the current
U.S. corporate statutory rate of 35 percent. Nevertheless, the Company's actual
income tax liability (i.e., income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to the utilization of certain tax attributes of the Predecessor
Company that serve to reduce the Company's actual income tax liability. The
excess of financial expense over the Company's actual income tax liability
(approximately $11.8 million) is applied to reduce the carrying balance of the
Company's reorganization value in excess of amounts allocable to identifiable
assets.
For the periods January 1, 1994 to August 25, 1994, and years ended
December 31, 1993 and 1992, income tax expense pertains solely to income before
extraordinary item. No income tax expense was recognized with respect to the
extraordinary gain resulting from the cancellation of indebtedness that occurred
in connection with the effectiveness of the Plan as such gain is not subject to
income taxation.
A reconciliation of taxes at the federal statutory rate ("expected taxes")
of 35% to those reflected in the financial statements (the "effective rate") is
as follows:
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
------------------ | ---------------------------------
PERIOD FROM | PERIOD FROM YEAR ENDED
AUGUST 26 TO | JANUARY 1 TO DECEMBER 31,
DECEMBER 31, 1994 | AUGUST 25, 1994 1993
------------------ | ------------------ ------------
(IN THOUSANDS) | (IN THOUSANDS)
<S> <C> | <C> <C>
Taxes at U.S. statutory rate...................... $ 6,908 | $ 19,758 $ 13,273
Benefit of loss carryforwards..................... -- | (17,889) (12,598)
State taxes....................................... 1,663 | 190 84
Amortization of reorganization value in excess |
of amounts allocable to identifiable assets..... 3,901 | -- --
Other............................................. (582) | -- --
-------- | -------- --------
Total................................... $ 11,890 | $ 2,059 $ 759
======== | ======== ========
</TABLE>
F-16
<PAGE> 65
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1994, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for Federal
income tax purposes of approximately $557.9 million, $12.7 million and $.57
million, respectively. The net operating loss carryforwards expire during the
years 1999 through 2009 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. Further, as a result of a statutory "ownership change" (as
defined for purposes of sec.382 of the Internal Revenue Code) that occurred as a
result of the effectiveness of the Company's Plan of Reorganization, the
Company's ability to utilize its net operating loss and business tax credit
carryforwards may be restricted. The alternative minimum tax credit may be
carried forward without expiration and is available to offset future income tax
payable.
Composition of Deferred Tax Items:
The Company has not recognized any net deferred tax items as of December
31, 1994. 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 are a result of
the temporary differences related to the items described as follows:
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
----------------- | ----------------------------------------
DECEMBER 31, 1994 | AUGUST 25, 1994 DECEMBER 31, 1993
----------------- | ------------------ -----------------
(IN THOUSANDS) | (IN THOUSANDS)
<S> <C> | <C> <C>
Deferred income tax liabilities: |
Property and equipment, principally |
depreciation and fresh start |
differences.......................... $ (71,425) | $ (70,367) $(105,242)
--------- | ---------- ---------
Deferred tax assets: |
Aircraft leases........................... 63,354 | 65,787 20,594
Reorganization expenses................... 32,654 | 32,654 16,527
Net operating loss carryforwards.......... 215,119 | 210,939 212,124
Tax credit carryforwards.................. 13,272 | 13,272 12,706
Other..................................... 10,892 | 13,809 9,707
-------- | -------- --------
Total deferred tax assets....... 335,291 | 336,461 271,658
-------- | -------- --------
Valuation allowance....................... (263,866) | (266,094) (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 principally for the portion of its deductible
temporary differences, including net operating loss and other carryforwards that
may not be available due to expirations or other limitations after consideration
of net reversals of future taxable and deductible amounts. 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. If the Company, in future tax periods, were to
recognize tax benefits attributable to tax attributes of the Predecessor Company
(such as net operating loss and other carryforwards), any such benefit would be
applied to reduce the balance of reorganization value in excess of amounts
allocable to identifiable assets.
10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest, net of amounts capitalized, during the period
August 26, 1994 through December 31, 1994, January 1, 1994 through August 25,
1994 and the years ended December 31, 1993 and 1992 was approximately $11
million, $29 million, $44 million and $46 million, respectively.
F-17
<PAGE> 66
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash paid for income taxes during the period August 26, 1994 through
December 31, 1994, January 1, 1994 through August 25, 1994 and the year ended
December 31, 1993 was $425,000, $1,253,000 and $537,000, respectively.
Cash flows from reorganization items in connection with the Chapter 11
proceedings were as follows:
<TABLE>
<CAPTION>
JANUARY 1 TO YEARS ENDED DECEMBER 31,
AUGUST 25, ----------------------------
1994 1993 1992
------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest received on cash accumulations................ $ 3,711 $ 2,635 $ 2,030
Professional fees paid for services rendered........... (23,563) (7,372) (11,346)
D.I.P. financing issuance costs paid................... -- (1,378) (1,760)
</TABLE>
In addition, during the period August 26 through December 31, 1994, January
1, 1994 through August 25, 1994 and the years ended December 31, 1993 and 1992,
the Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
-------------- | -----------------------------------------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, | AUGUST 25, -------------------------
1994 | 1994 1993 1992
-------------- | ------------- ------- -------
(IN THOUSANDS) | (IN THOUSANDS)
<S> <C> | <C> <C> <C>
Equipment acquired through capital |
leases.................................. $ -- | $ 138 $ 709 $ 437
Conversion of long-term debt to common |
stock................................... -- | -- 1,938 3,685
Notes payable issued to seller............ -- | -- 818 22,804
Notes payable issued for administrative |
claims.................................. -- | -- 11,597 --
Accrued interest reclassified to long-term |
debt.................................... -- | 5,563 15,137 16,443
Draws taken by third parties letter of |
credit.................................. -- | -- -- 11,201
Preferred dividend declared but unpaid.... -- | -- -- 1,672
Issuance of stock as success bonus........ -- | 1,224 -- --
</TABLE>
11. EXTRAORDINARY ITEM
The extraordinary gain recorded in the period January 1 through August 25,
1994 includes $257.7 million from the discharge of indebtedness pursuant to the
consummation of the Plan of Reorganization.
12. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1994, the Company had 68 aircraft under operating leases
with remaining terms ranging from five months to approximately 23 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. 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.
F-18
<PAGE> 67
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
including those leases entered into through February 1995 are as follows:
(IN THOUSANDS)
1995.................................... $ 212,340
1996.................................... 205,236
1997.................................... 185,753
1998.................................... 163,520
1999.................................... 159,989
Thereafter.............................. 1,172,241
----------
$2,099,079
==========
Rent expense (excluding landing fees) was approximately $245 million, $245
million and $307 million for the combined twelve months ended December 31, 1994
and the years ended December 31, 1993 and 1992, respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $11.5 million and bank letters of credit of $17.6 million. The
letters of credit are collateralized by $17.6 million of restricted cash as of
December 31, 1994.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used to
fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
International 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.
On August 25, 1994, the Company entered into a Restated and Amended Trust
Indenture in which the Series 1989 and Series 1990 Bonds were retired
contemporaneously with the issuance of the Series 1994A and Series 1994B Bonds.
Pursuant to the agreement, payment of principal and interest at 8.3% on the
Series 1994A Bonds commenced on the Effective Date and ends on January 1, 2006
while payment of principal and interest at 8.2% on the Series 1994B Bonds
commenced on the Effective Date and ends on January 1, 1999. At December 31,
1994, the outstanding balance was $21.2 million.
(c) Aircraft and Related Equipment Acquisitions
At December 31, 1994, the Company had on order a total of 24 Airbus
A320-200 aircraft with an aggregate net cost estimated at $1.1 billion. Delivery
dates of the aircraft will fall in the years 1998 through 2000 with an option to
defer the 1998 deliveries. If new A320 aircraft are delivered as a result of the
renegotiated put agreement (described below), the Company will have the right to
cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft
deliveries hereunder, subject to certain conditions. The Company also has the
option to cancel without cause up to an additional four aircraft, and the
Company has the right to assign all or some of these delivery positions to
Continental.
At December 31, 1994, the Company had a put agreement for eight aircraft
with deliveries to start not earlier than June 30, 1995 and end on June 30,
1999. Under the agreement, new or "like new" A320-200, or new or used B737-300
or B757-200 aircraft may be put to the Company at a rate of no more than two
aircraft in 1995, and, with respect to each ensuing year during the put period,
of no more than three aircraft. 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 deliveries under 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
F-19
<PAGE> 68
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dates of the put aircraft for that year. The puts will require 150-day notice
and will be leased at fair market rates for terms ranging from three to eighteen
years, depending on the type and condition of the aircraft. In 1995, three
aircraft (one used B737-300 in February and two new A320-200s in April) will be
delivered to the Company under this agreement. As part of the agreement, certain
cash payments and securities were issued to the put holder pursuant to the Plan
(see Note 13).
The Company had certain aircraft purchase contracts with Boeing. In
connection with the Plan, the Company reached a settlement in which the purchase
contracts were rejected and equipment purchase deposits were kept by Boeing in
full settlement of the rejection damages.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the A320 fleet. Such engines have an estimated
aggregate cost of $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include the progress payments that will be made in cash, as
opposed to being financed under an existing progress payment financing facility.
(IN THOUSANDS)
1995....................................... $ 3,223
1996....................................... 32,608
1997....................................... 58,230
1998....................................... 379,309
1999....................................... 355,540
2000....................................... 350,863
----------
$1,179,773
==========
At December 31, 1994, the Company has significant capital commitments for a
number of new aircraft, as discussed above. Although the Company has arranged
for financing for up to one-half of such commitment, the Company will require
substantial capital from external sources to meet the remaining financial
commitments. The Company 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.
(d) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. At December 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 the 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-20
<PAGE> 69
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against the
Company, which, if ultimately allowed by the Bankruptcy Court, would represent
general obligations of the Company. Such claims include claims of various state
and local tax authorities and certain contractual indemnification obligations.
Management cannot predict whether or to what extent any of the pending
administrative and priority tax claims will result in liabilities to the
Company. Should such liabilities be incurred, future operating results could be
adversely affected. However, based on information currently available,
management believes that the disposition will not have a material adverse effect
on the Company's financial condition.
13. RELATED PARTY TRANSACTIONS
In exchange for certain concessions principally arising from cancellation
of the right of GPA to lease to America West 10 Airbus A320 aircraft at
specified rates, GPA received (i) 900,000 shares of Class B Common Stock; (ii)
1,384,615 Warrants to purchase shares of Class B Common Stock at an exercise
price of $12.74 per share; (iii) a cash payment of approximately $30.5 million;
(iv) the rights to require the Company to lease up to eight aircraft of types
operated by the Company, which rights must be exercised by June 30, 1999.
The Company has entered into various aircraft and leasing arrangements with
GPA at terms comparable to those obtained from third parties for similar
transactions. The Company leases 16 aircraft from GPA and the rental payments
for such leases amount to $63.1 million, $63.1 million, and $63.8 million for
the combined twelve months ended December 31, 1994, 1993 and 1992, respectively.
As of December 31, 1994, the Company was obligated to pay approximately $1.1
billion under these leases which expire at various times through the year 2013.
The Company has entered into Alliance Agreements with Continental and Mesa,
both of whom invested in the Company. Pursuant to a code-sharing agreement with
Mesa entered into in December 1992, the Company collects a per-passenger charge
for facilities, reservations and other services from Mesa for enplanements on
the Mesa system. Such payments by Mesa to the Company totaled $2.5 million and
$1.9 million for the twelve months ended December 31, 1994 and 1993,
respectively.
In October 1994, the Company issued an additional $23.0 million of 11 1/4%
Senior Unsecured Notes to Fidelity and Lehman in exchange for full settlement of
certain prepetition unsecured claims. Additionally, cash payments of $2.1
million and $1.3 million were made to Fidelity and Lehman, respectively.
14. 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 continued business operations as debtor-in-possession. These prepetition
liabilities were settled as part of the Plan and were classified as "Estimated
liabilities subject to Chapter 11 proceedings" prior to the Effective Date.
Estimated liabilities subject to Chapter 11 proceedings as of December 31,
1993 consisted of the following:
Long-term debt (including convertible subordinated
debentures of $138.9 million)......................... $224,642
Accounts payable and accrued liabilities................ 113,945
Accrued interest........................................ 16,808
Accrued taxes........................................... 25,719
--------
$381,114
========
F-21
<PAGE> 70
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. 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 restructuring.......................................... $ 9,529
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 primarily by aircraft fleet
reductions and other operational changes. The Company has reduced its fleet to
87 aircraft and has reduced the number of aircraft types in the fleet from five
to three.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues....................... $ 127,315 $342,451
Operating income............................... 8,336 30,535
Nonoperating expense, net...................... (5,293) (13,842)
Income tax expense............................. (1,825) (10,065)
Net income..................................... 1,218 6,628
Earnings per share:
Primary...................................... .03 .15
Fully diluted................................ .03 .15
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 -- PREDECESSOR COMPANY QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues....................... $345,264 $363,351 230,413
Operating income............................... 37,750 44,146 25,610
Nonoperating expense, net (a).................. (21,943) (23,171) (263,601)
Income tax expense............................. (632) (839) (588)
Net income (a)................................. 15,175 20,136 19,081
Earnings per share:
Primary...................................... .56 .74 .69
Fully diluted................................ .40 .52 .49
</TABLE>
F-22
<PAGE> 71
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1993 -- PREDECESSOR COMPANY
- -----------------------------------------------
<S> <C> <C> <C> <C>
Total operating revenues....................... 316,605 324,910 335,113 348,736
Operating income............................... 17,168 25,179 32,981 45,726
Nonoperating expense, net...................... (14,990) (14,710) (18,285) (35,145)
Income tax expense............................. (44) (209) (293) (213)
Net income..................................... 2,134 10,260 14,403 10,368
Earnings per share:
Primary...................................... .09 .41 .56 .40
Fully diluted................................ .09 .28 .38 .28
</TABLE>
- ---------------
(a) During the third quarter of 1994, the Company recorded reorganization
expenses of $255.4 million as well as an extraordinary gain of $257.7
million from the discharge of debt pursuant to the Plan of Reorganization.
F-23
<PAGE> 72
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 279,392 $ 182,581
Accounts receivable, less allowance for doubtful accounts of
$3,930 in 1995 and $3,531 in 1994............................. 79,657 57,474
Expendable spare parts and supplies, less allowance for
obsolescence of $1,254 in 1995 and $483 in 1994............... 27,210 24,179
Prepaid expenses................................................. 42,504 29,284
--------- ---------
Total current assets.......................................... 482,763 293,518
--------- ---------
Property and equipment:
Flight equipment................................................. 498,020 452,177
Other property and equipment..................................... 94,736 92,169
-------- --------
592,756 544,346
Less accumulated depreciation and amortization................... 42,236 15,882
-------- --------
550,520 528,464
Equipment purchase deposits...................................... 27,489 26,074
-------- --------
578,009 554,538
-------- -------
Restricted cash.................................................... 30,019 28,578
Reorganization value in excess of amounts allocable to identifiable
assets, net...................................................... 609,287 645,703
Other assets, net.................................................. 27,039 22,755
---------- -----------
$1,673,117 $1,545,092
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-24
<PAGE> 73
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................. $ 63,282 $ 65,198
Accounts payable................................................. 90,708 77,569
Air traffic liability............................................ 217,901 127,356
Accrued compensation and vacation benefits....................... 21,613 15,776
Accrued interest................................................. 11,991 13,109
Accrued taxes.................................................... 54,659 27,061
Other accrued liabilities........................................ 15,743 15,376
--------- ----------
Total current liabilities..................................... 475,897 341,445
--------- ----------
Long-term debt, less current maturities............................ 438,204 465,598
Deferred credits................................................... 112,812 116,882
Other liabilities.................................................. 24,439 25,721
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no
shares issued at June 30, 1995 or December 31, 1994........... -- --
Class A common stock, $.01 par value. Authorized 1,200,000
shares; issued and outstanding 1,200,000 shares at June 30,
1995 and December 31, 1994.................................... 12 12
Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 43,966,685 shares at June 30,
1995 and 43,936,272 at December 31, 1994...................... 440 439
Additional paid-in capital....................................... 587,384 587,149
Retained earnings................................................ 33,929 7,846
--------- ----------
Total stockholders' equity.................................... 621,765 595,446
--------- ----------
$1,673,117 $1,545,092
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-25
<PAGE> 74
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR REORGANIZED PREDECESSOR
COMPANY COMPANY COMPANY COMPANY
------------ ------------ ---------- ----------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger................................ $374,979 $ 340,617 $698,438 $ 665,044
Cargo.................................... 10,935 10,998 22,311 21,489
Other.................................... 14,002 11,736 24,957 22,082
-------- --------- -------- ---------
Total operating revenues.............. 399,916 363,351 745,706 708,615
Operating expenses:
Salaries and related costs............... 95,871 83,013 185,051 162,484
Rentals and landing fees................. 69,689 66,576 137,943 132,835
Aircraft fuel............................ 42,787 37,862 82,481 75,794
Agency commissions....................... 31,360 30,820 60,325 59,931
Aircraft maintenance materials and
repairs............................... 14,115 10,973 26,879 18,902
Depreciation and amortization............ 20,202 22,045 40,330 43,198
Other.................................... 72,935 67,916 134,845 135,575
-------- --------- -------- ---------
Total operating expenses.............. 346,959 319,205 667,854 626,719
-------- --------- -------- ---------
Operating income...................... 52,957 44,146 77,852 81,896
Nonoperating income (expenses):
Interest income.......................... 4,085 183 6,959 344
Interest expense (contractual interest of
$17,526 and $33,963 for the three
months and six months ended June 30,
1994, respectively)................... (15,579) (12,893) (31,458) (26,068)
Loss on disposition of property and
equipment............................. (302) (728) (1,225) (1,270)
Reorganization expense, net.............. -- (9,862) -- (18,258)
Other, net............................... 36 129 37 138
-------- --------- -------- ---------
Total nonoperating expenses, net...... (11,760) (23,171) (25,687) (45,114)
-------- --------- -------- ---------
Income before income taxes................. 41,197 20,975 52,165 36,782
-------- --------- -------- ---------
Income taxes............................... 20,324 839 26,082 1,471
-------- --------- -------- ---------
Net income................................. 20,873 20,136 26,083 35,311
Retained earnings (deficit) at beginning of
period................................... 13,056 (423,451) 7,846 (438,626)
-------- --------- -------- ---------
Retained earnings (deficit) at end of
period................................... $ 33,929 $ (403,315) $ 33,929 $ (403,315)
======== ========= ======== =========
Earnings per share:(a)
Primary:
Net income............................ $ .46 $ .74 $ .58 $ 1.30
======== ========= ======== =========
Fully Diluted:
Net income............................ $ .45 $ .52 $ .58 $ .92
======== ========= ======== =========
Shares used for computation:
Primary............................... 45,167 28,255 45,166 28,704
======== ========= ======== =========
Fully diluted......................... 48,085 40,158 48,019 40,607
======== ========= ======== =========
</TABLE>
- ---------------
(a) Historical per share data for the Predecessor Company is not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
See accompanying notes to condensed financial statements.
F-26
<PAGE> 75
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
----------- | ----------
SIX MONTHS | SIX MONTHS
ENDED | ENDED
JUNE 30, | JUNE 30,
1995 | 1994
----------- | ----------
<S> <C> | <C>
Cash flows from operating activities: |
Net income......................................................... $ 26,083 | $ 35,311
Adjustments to reconcile net income to cash provided by operating |
activities: |
Depreciation and amortization................................... 23,914 | 43,198
Amortization of manufacturers' and deferred credits............. (5,350) | (2,225)
Amortization of deferred overhauls.............................. 2,784 | --
Amortization of reorganization value in excess of amounts |
allocable to identifiable assets............................... 16,416 | --
Loss on disposition of property and equipment................... 1,225 | 1,270
Reorganization items, net....................................... -- | 3,703
Other........................................................... 1,675 | (283)
Changes in operating assets and liabilities: |
Increase in accounts receivable, net............................ (21,942) | (12,463)
Increase in spare parts and supplies, net....................... (3,027) | (511)
Decrease (increase) in prepaid expenses......................... (13,220) | 2,051
Decrease (increase) in other assets and restricted cash......... 16,025 | (5,201)
Increase in accounts payable.................................... 11,859 | 8,923
Increase in air traffic liability............................... 90,545 | 45,467
Increase in accrued compensation and vacation benefits.......... 5,837 | 821
Increase (decrease) in accrued interest......................... (1,053) | 5,130
Increase in accrued taxes....................................... 27,598 | 13,190
Increase in other accrued liabilities........................... 602 | 7,141
Decrease in other liabilities................................... (113) | (6,337)
-------- | --------
Net cash provided by operating activities..................... 179,858 | 139,185
Cash flows from investing activities: |
Purchase of property and equipment................................. (50,707) | (34,981)
Long-term investment............................................... (1,750) | --
Proceeds from disposition of property.............................. 483 | 269
-------- | --------
Net cash used in investing activities......................... (51,974) | (34,712)
Cash flows from financing activities: |
Repayment of debt.................................................. (31,074) | (27,182)
Exercise of warrants............................................... 1 | --
-------- | --------
Net cash used in financing activities......................... (31,073) | (27,182)
-------- | --------
Net increase in cash and cash equivalents..................... 96,811 | 77,291
-------- | --------
Cash and cash equivalents at beginning of period..................... 182,581 | 99,631
-------- | --------
Cash and cash equivalents at end of period........................... $ 279,392 | $176,922
======== | ========
</TABLE>
See accompanying notes to condensed financial statements.
F-27
<PAGE> 76
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
America West Airlines, Inc. (the "Predecessor Company") filed a voluntary
petition on June 27, 1991 to reorganize (the "Reorganization") under Chapter 11
of the U.S. Bankruptcy Code. On August 10, 1994, the Plan of Reorganization
("Plan"), filed by the Predecessor Company, was confirmed and became effective
on August 25, 1994 (the "Effective Date"). For a detailed discussion of the
Company's Plan, refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994. On August 25, 1994, America West Airlines, Inc. (the
"Reorganized Company" or the " Company") adopted fresh start reporting in
accordance with Statement of Position 90-7, "Financing Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute
of Certified Public Accountants. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a basis
consistent with such pre-reorganization financial statements and are not
comparable in all respects to financial statements prior to reorganization. For
accounting purposes, the inception date of the Reorganized Company is deemed to
be August 26, 1994. A vertical black line is shown in the financial statements
to separate the Reorganized Company from the Predecessor Company since they are
not comparable.
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission but do not include all information and footnotes
required by generally accepted accounting principles pursuant to such rules and
regulations. In the opinion of management, the condensed financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a
fair presentation. Certain prior year amounts have been reclassified to conform
with current year presentation. The accompanying condensed financial statements
should be read in conjunction with the financial statements and related note
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
2. PER SHARE DATA
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflect net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents, but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding, dilutive common stock equivalents (stock
options and warrants), and for the Predecessor Company the conversion of
outstanding convertible preferred stock and the conversion of convertible
subordinated debentures. Fully diluted earnings per share reflect net income
adjusted for interest on borrowing effectively reduced by the proceeds from the
assumed exercise of common stock equivalents, but only if the effects of such
adjustment are dilutive.
3. RESTRICTED STOCK AND STOCK OPTIONS
In December 1994, the Company's Board of Directors approved the American
West Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan" or "Plan").
The stockholders of the Company approved the Incentive Plan at the Annual
Meeting held in May 1995. Under the Incentive Plan, up to 3,500,000 shares of
Class B Common Stock may be issued to cover awards under the Plan, of which no
more than 1,500,000 will be issued as restricted stock or bonus stock. As of
June 30, 1995, the Company's Board of Directors granted under the Incentive Plan
41,334 shares of restricted stock and options to purchase 1,492,000 shares of
Class B Common Stock at the fair market value on the date of grant. Also,
options to purchase 75,000 shares of Class B Common Stock have been granted at
the fair market value on date of grant to members of the Board of Directors who
are not employees of the Company. As of June 30, 1995, 26,167 shares of
restricted stock were vested and 291,000 options to purchase shares of Class B
Common Stock were exercisable.
F-28
<PAGE> 77
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) upon its emergence from bankruptcy. The
Predecessor Company had adopted SFAS 109 as of January 1, 1993.
INCOME TAX EXPENSE:
For the periods shown below, the Company recorded income tax expense as
follows:
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR REORGANIZED | PREDECESSOR
COMPANY | COMPANY COMPANY | COMPANY
-------------- | -------------- ------------- | -------------
THREE MONTHS | THREE MONTHS SIX MONTHS | SIX MONTHS
ENDED | ENDED JUNE 30, ENDED | ENDED
JUNE 30, 1995 | 1994 JUNE 30, 1995 | JUNE 30, 1994
-------------- | -------------- ------------- | -------------
<S> <C> | <C> <C> | <C>
(IN THOUSANDS) | |
Current taxes: | |
Federal................................ $ 594 | $713 $ 604 | $ 1,163
State.................................. 1,132 | 126 1,150 | 308
-------- | --------- -------- | -------
1,726 | 839 1,754 | 1,471
Deferred taxes........................... -- | -- -- | --
Income tax expense attributable to | |
Reorganization items................... 18,598 | N/A 24,328 | N/A
-------- | --------- -------- | -------
Income tax expense....................... $ 20,324 | $839 $26,082 | $ 1,471
======== | ========= ======== | =========
</TABLE>
For the three and six months ended June 30, 1995, income tax expense
pertains both to income from continuing operations as well as certain
adjustments necessitated by the effectiveness of the Plan and the resultant
fresh start adjustments to the Company's financial statements. The Company's
Reorganization and the associated implementation of fresh start reporting gave
rise to significant items of expense for financial reporting purposes that are
not deductible for income tax purposes. In large measure, it is these
nondeductible (for income tax purposes) expenses that result in income tax
expense (for financial reporting purposes) significantly greater than taxes
computed at the current U.S. corporate statutory rate of 35 percent.
Nevertheless, the Company's actual income tax liability (i.e., income taxes
payable) is considerably lower than income tax expense shown for financial
reporting purposes.
For the three and six months ended June 30, 1994, income tax expense
pertains solely to income from continuing operations.
5. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes during the six months ended June
30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
-------------- --------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
-------------- --------------
<S> <C> <C>
(IN THOUSANDS)
Interest (net of amounts capitalized).................. $ 26,848 $ 20,615
======= =======
Income taxes........................................... $ 19 $ 1,207
======= =======
</TABLE>
In addition, during the six months ended June 30, 1995 and 1994, the
Company had the following non-cash financing and investing activities:
F-29
<PAGE> 78
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
------------- | -------------
SIX MONTHS | SIX MONTHS
ENDED | ENDED
(IN THOUSANDS) JUNE 30, 1995 | JUNE 30, 1994
------------- | -------------
<S> <C> | <C>
Equipment acquired through capital leases.................. $ -- | $ 138
====== | ======
Accrued interest reclassified to long-term debt............ $ 65 | $ 4,268
====== | ======
Notes payable issued to seller............................. $ 1,415 | $ --
====== | ======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
(a) Leases
At June 30, 1995, the Company was obligated to lease five aircraft under a
put agreement with deliveries to start no earlier than January 1, 1996 and end
by June 30, 1999. Under the agreement, new or used B737-300, B757-200, or new or
"like new" A320-200 aircraft may be put to the Company at a rate of no more than
two aircraft in 1996 and three aircraft per year, thereafter. In addition, no
more than four 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 deliveries
under 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 for deliveries during the year beginning in the following January. The
negotiation deadline for 1996 deliveries has been postponed until September 30,
1995 by mutual agreement.
In July 1995, the Company entered into agreements to lease two Boeing
737-300 aircraft. Under the agreements, the leased aircraft have a term of two
years with payments due monthly.
(b) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against the
Company which, if ultimately allowed by the Bankruptcy Court, would represent
general obligations of the Company. Such claims include claims of various state
and local tax authorities and certain contractual indemnification obligations.
Management cannot predict whether or not and to what extent, if any, the pending
administrative and priority tax claims will result in liabilities to the
Company. Should such liabilities be incurred, future operating results could be
adversely affected. However, based on information currently available,
management believes that the disposition will not have a material adverse effect
on the Company's financial condition.
7. REORGANIZATION EXPENSE
Reorganization expense is comprised of items of income, expense, gain or
loss that were realized or incurred by the Company as a result of the
Reorganization. Such items consisted of the following at June 30, 1994.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1994 JUNE 30, 1994
(IN THOUSAND) -------------- -------------
<S> <C> <C>
Professional fees and other expenses...................... $ 7,063 $12,127
Provision for settlement of claims........................ 4,500 8,680
Interest income........................................... (1,701) (2,549)
------- -------
$ 9,862 $18,258
======= =======
</TABLE>
F-30
<PAGE> 79
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR 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 THE 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
Risk Factors.......................... 7
Use of Proceeds....................... 10
Price Range of Class B Common Stock
and Warrants........................ 10
Dividend Policy....................... 10
Capitalization........................ 11
Selected Financial Data............... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 22
Management............................ 30
Certain Transactions.................. 38
Principal Stockholders................ 39
Selling Securityholders............... 42
Description of Capital Stock.......... 43
Description of Warrants............... 45
Plan of Distribution.................. 46
Legal Matters......................... 48
Experts............................... 48
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
AMERICA WEST AIRLINES
1,200,000 SHARES
CLASS A COMMON STOCK
18,698,704 SHARES
CLASS B COMMON STOCK
5,850,016 CLASS B
COMMON STOCK WARRANTS
------------------------
PROSPECTUS
------------------------
OCTOBER 5, 1995
======================================================
