<PAGE> 1
Rule 424(b)(3)
File No. 33-54243
AMERICA WEST AIRLINES
1,200,000 SHARES CLASS A COMMON STOCK
13,548,549 SHARES CLASS B COMMON STOCK
5,734,673 CLASS B COMMON STOCK WARRANTS
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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) 13,548,549 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) 5,734,673
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 any national securities 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" BEGINNING 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 January 29, 1996
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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 nine months of 1995, generated the second highest
operating margin among the major domestic airlines. At December 31, 1995, the
Company served 50 destinations, including five destinations in Mexico and one in
Canada, with a fleet of 93 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 and Las Vegas, based on
revenue passenger miles, with approximately 35% and 26% of total revenue
passenger miles, respectively, in the nine months ended September 30, 1995. 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. The Company's operating cost per available seat mile
("ASM") for the first nine months of 1995 was 7.05 cents, which was
approximately 17% 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 12 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%.
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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 and efficient 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 September 30, 1995, the Company's
workforce decreased by 8.3% despite an increase in ASMs of 7.9%. 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. In December 1995, the Company outsourced its
heavy aircraft maintenance, which management estimates will save the Company
approximately $35 million over the five-year term of the agreement. This
outsourcing reduced the Company's workforce by approximately 500. 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 and Efficient Fleet. The Company enjoys operational
efficiencies due to its modern, fuel efficient fleet. At December 31, 1995, the
Company's fleet consisted of 61 Boeing 737s, 18 Airbus A320s and 14 Boeing 757s,
with an average age of approximately 9.9 years. Most of the Company's existing
aircraft are held under leases, including leases on 24 aircraft expiring prior
to December 1998. As a result, in the event general economic conditions change
adversely, the Company may 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.
As a part of America West's ongoing strategy, the Company from time to time
evaluates opportunities for additional alliances and code sharing arrangements
as well as investment opportunities pursuant to which the Company may capitalize
on its key strengths and market position.
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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
13,548,549 shares of Class B Common Stock
Common Stock Outstanding......... 1,200,000 shares of Class A Common Stock
44,141,330 shares of Class B Common
Stock(1)
Total.................. 45,341,330 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 national
securities exchange or authorization for
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"
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(1) Excluding 12,580,619 shares of Class B Common Stock reserved for issuance
upon exercise of outstanding Warrants and options as of December 31, 1995.
Warrants:
Securities Registered............ 5,734,673 Warrants, each entitling the
holder to purchase one share of Class B
Common Stock at a price of $12.74 per share
and such shares of Class B Common Stock.
Warrants Outstanding............. 10,380,286 Warrants(1)
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 is subject to adjustment in certain
events, including (i) the issuance of a
dividend in or other distribution of Common
Stock to holders of Common Stock; (ii)
certain combinations, subdivisions or
reclassifications of the Common Stock; and
(iii) certain 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"
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(1) As of December 31, 1995.
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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. Statements of operations data subsequent to August 25,
1994 and balance sheet data as of December 31, 1994 and September 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 Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY(1)
| ------------------------------------
REORGANIZED COMPANY | PERIOD
-------------------------------------------| FROM
NINE MONTHS PERIOD FROM PERIOD FROM | JANUARY 1 YEARS ENDED DECEMBER
ENDED AUGUST 26 TO AUGUST 26 TO| TO 31,
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,| AUGUST 25, -----------------------
1995 1994 1994 | 1994 1993 1992
------------- ------------- ------------| ---------- ---------- ----------
<S> <C> <C> <C> | <C> <C> <C>
(UNAUDITED)|
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
STATEMENTS OF OPERATIONS DATA: |
Operating revenues........................ $ 1,154,333 $ 127,315 $ 469,766 | $ 939,028 $1,325,364 $1,294,140
Operating income (loss)................... 132,012 8,336 38,871 | 107,506 121,054 (74,812)
Income (loss) before income taxes and |
extraordinary items..................... 95,278 3,043 19,736 | (201,209) 37,924 (131,761)
Income (loss) before extraordinary |
items................................... 48,782 1,218 7,846 | (203,268) 37,165 (131,761)
Extraordinary items(2).................... (984) -- -- | 257,660 -- --
Net income (loss)......................... 47,798 1,218 7,846 | 54,392 37,165 (131,761)
Earnings (loss) per share(3): |
Primary................................. 1.04 .03 .17 | 1.99 1.50 (5.58)
Fully diluted........................... 1.03 .03 .17 | 1.41 1.04 (5.58)
BALANCE SHEET DATA (AT END OF PERIOD): |
Working capital deficiency................ $ (77,306) $ (50,646) $ (47,927)| $(163,572) $ (124,375) $ (201,567)
Total assets.............................. 1,642,831 1,619,175 1,545,092 | 1,053,780 1,016,743 1,036,441
Long-term debt, less current |
maturities(4)........................... 376,655 492,056 465,598 | 597,839 620,992 647,015
Total stockholders' equity (deficiency)... 643,488 588,718 595,446 | (286,395) (254,262) (294,613)
OPERATING DATA: |
Available seat miles (in millions)........ 14,503 1,803 6,424 | 11,636 17,190 19,271
Revenue passenger miles (in millions)..... 10,035 1,100 3,972 | 8,261 11,221 11,781
Passenger load factor (%)................. 69.2 61.0 61.8 | 71.0 65.3 61.1
Yield per revenue passenger mile |
(cents)................................. 10.79 10.79 11.02 | 10.68 11.11 10.31
Passenger revenue per available seat mile |
(cents)................................. 7.47 6.58 6.81 | 7.58 7.25 6.30
Operating cost per available seat mile |
(cents)................................. 7.05 6.60 6.71 | 7.15 7.01 7.10
Full time equivalent employees (at end of |
period)................................. 9,786 10,675 10,715 | 10,849 10,544 10,233
</TABLE>
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(1) Includes net expenses incurred by the Predecessor Company in connection with
its reorganization of $273.7 million for the period January 1 to August 25,
1994 and $25.0 million and $16.2 million for the years ended December 31,
1993 and 1992, respectively.
(2) Includes (i) an extraordinary loss of $984,000 in the nine months ended
September 30, 1995 resulting from the exchange of debt by the Company and
(ii) an extraordinary gain of $257.7 million in the period from January 1 to
August 25, 1994 resulting from the discharge of indebtedness pursuant to the
consummation of the Company's plan of reorganization.
(3) Historical per share data for the Predecessor Company are not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(4) 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 September 30, 1995, the Company had $442.3 million of long-term
indebtedness (including current maturities). America West does not have
available lines of credit or significant unencumbered assets. 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 December 31, 1995, the
Company had commitments for a total of 24 Airbus A320-200 aircraft for delivery
beginning in 1999. The aggregate net cost of such aircraft is based on formulae
that include certain price indices (including indices for various aircraft
components such as metal products) for periods preceding the various delivery
dates. Based on an assumed 5% annual price escalation, the Company estimates
such aggregate net cost to be approximately $1.2 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 acceptable terms. In
addition, pursuant to the Company's growth plan, the Company is expanding its
fleet, increasing frequencies to existing cities and adding 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
acceptable 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 or will
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." At December 31, 1995, approximately 557,000 shares of Class B
Common Stock remain with an escrow agent pending final resolution of claims in
connection with the bankruptcy. All other securities issued pursuant to the
bankruptcy have been distributed.
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INCREASES IN FUEL PRICES
Fuel costs constituted approximately 13% of America West's total operating
expenses during 1995. 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, commercial aviation
fuel was exempt from this tax increase; however, the exemption expired on
September 30, 1995 and the Company began paying such tax on October 1, 1995. The
expiration of such exemption will increase the Company's annual operating
expenses by approximately $13.4 million based upon its 1995 fuel consumption
levels. Various bills have been introduced in Congress that include an extension
of the fuel tax exemption; however, none have been enacted to date and there can
be no assurance that such an extension will be enacted. 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 Line 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 (the
"NMB") 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. In January 1996, the Company's ground operations workers petitioned
the NMB for a union representation election requesting that the Transportation
Workers Union represent them. In January 1996, the International Brotherhood of
Teamsters filed an application with the NMB seeking to be certified as the
bargaining representative for the Company's mechanics, including related
personnel. See "Business -- Legal Proceedings." 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 condition. See
"Business -- Labor Relations."
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 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. At December 31, 1995, the Company's fleet
consisted of 93 aircraft of which 21 aircraft meet the FAA's Stage II (but not
Stage III) noise reduction requirements and must be retired or significantly
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<PAGE> 9
modified prior to the year 2000. These modifications may require substantial
capital expenditures. 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 that could
significantly increase the cost of airline operations by imposing additional
requirements or restrictions on operations. Laws and regulations have been
considered from time to time that would prohibit or restrict the ownership and
transfer of airline routes or slots.
CONCENTRATION OF VOTING POWER; INFLUENCE OF CERTAIN PRINCIPAL STOCKHOLDERS
At December 31, 1995, TPG Partners, L.P. ("TPG") (together with its
affiliates TPG Parallel I, L.P. ("TPG Parallel") and Air Partners II, L.P. ("Air
Partners II")), Continental and Mesa owned in the aggregate 12,219,481 shares of
the outstanding Class B Common Stock (assuming the exercise of all Warrants held
by such persons) and 100% of the Company's Class A Common Stock, and thereby
controlled approximately 67.1% of the total voting power of America West. As a
result, TPG, TPG Parallel, Air Partners II, 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 each of
TPG, TPG Parallel and Air Partners II 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 Continental's common stock. Mr.
Bonderman is also a director and chairman of the board of directors of
Continental and Mr. Price is a director of Continental. 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, TPG, TPG Parallel and Air Partners II will not
differ from the interests of the Company or that any such 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 in which TPG, TPG Parallel, Air Partners II,
Continental and Mesa participated, 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 Board of
Directors of up to 15 members, 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 first annual
meeting after August 25, 1997, the approval of certain 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 (other than
Mesa). Transactions to which such restriction applies include any merger or
consolidation of the Company with or into AmWest or any of its affiliates, any
sale or other disposition of all or a substantial part of the assets of the
Company to AmWest or any of its affiliates and certain other transactions with
or involving the Company in which AmWest or any of its affiliates would acquire
an increased percentage ownership of voting equity securities in the Company.
The shareholder voting requirements specified above will not apply to a proposed
action approved or recommended by (i) the Board of Directors and (ii) at least
three Independent Directors, unless otherwise required by applicable law. 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
9
<PAGE> 10
Effective Date, the provisions of the Stockholders' Agreement with respect to
AmWest became binding upon TPG, TPG Parallel, Air Partners II, 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 stock 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 U.S.
citizens. See "Description of Capital Stock -- Limitation on Voting by Foreign
Owners."
10
<PAGE> 11
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
sales prices of the Class B Common Stock and the Warrants as reported on the
NYSE.
<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
Fourth Quarter................................... 19 12 5/8 8 5/8 4 3/4
Year ended December 31, 1996
First Quarter (through January 26)............... 18 3/4 15 1/2 9 6 3/8
</TABLE>
On January 26, 1996, the last reported sales price on the New York Stock
Exchange of the Class B Common Stock was $17 5/8 per share and of the Warrants
was $8 1/4 per Warrant. As of January 26, 1996, the approximate number of
holders of record of Class B Common Stock, Class A Common Stock and Warrants was
15,984, 10 and 15,336, 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
September 30, 1995, the Company's ability to pay dividends, together with any
other restricted payments, would be limited to an aggregate of $162.4 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."
11
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 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.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------
(IN THOUSANDS)
<S> <C>
Long-term debt, including current maturities..................... $ 442,306
Stockholders' equity:
Class A Common Stock (1,200,000 shares authorized and 1,200,000
shares issued and outstanding).............................. 12
Class B Common Stock (100,000,000 shares authorized and
43,967,378 shares issued and outstanding(1))................ 440
Additional paid-in capital..................................... 587,392
Retained earnings.............................................. 55,644
--------
Total stockholders' equity............................. 643,488
----------
Total capitalization............................................. $1,085,794
==========
</TABLE>
- ---------------
(1) Excludes 12,628,571 shares of Class B Common Stock reserved for issuance
upon exercise of Warrants and options at September 30, 1995.
12
<PAGE> 13
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 September 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>
REORGANIZED COMPANY | PREDECESSOR COMPANY(1)
-------------------------------------------|----------------------------------------------------------------
| PERIOD
NINE | FROM
MONTHS PERIOD FROM PERIOD FROM | JANUARY 1
ENDED AUGUST 26 TO AUGUST 26 TO| TO YEARS ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,| 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... $ 1,154,333 $ 127,315 $ 469,766 | $ 939,028 $1,325,364 $1,294,140 $1,413,925 $1,315,804
Operating income |
(loss)............. 132,012 8,336 38,871 | 107,506 121,054 (74,812) (104,657) (31,631)
Income (loss) before |
income taxes and |
extraordinary |
items.............. 95,278 3,043 19,736 | (201,209) 37,924 (131,761) (222,016) (76,695)
Income (loss) before |
extraordinary |
items.............. 48,782 1,218 7,846 | (203,268) 37,165 (131,761) (222,016) (76,695)
Extraordinary |
items(2)........... (984) -- -- | 257,660 -- -- -- 2,024
Net income (loss).... 47,798 1,218 7,846 | 54,392 37,165 (131,761) (222,016) (74,671)
Earnings (loss) per |
share(3): |
Primary............ 1.04 .03 .17 | 1.99 1.50 (5.58) (10.39) (4.15)
Fully diluted...... 1.03 .03 .17 | 1.41 1.04 (5.58) (10.39) (4.15)
BALANCE SHEET DATA |
(AT END OF PERIOD): |
Working capital |
deficiency......... $ (77,306) $ (50,646) $ (47,927)| $(163,572) $ (124,375) $ (201,567) $ (51,158) $ (94,671)
Total assets......... 1,642,831 1,619,175 1,545,092 | 1,053,780 1,016,743 1,036,441 1,111,144 1,165,256
Long-term debt, less |
current |
maturities(4)...... 376,655 492,056 465,598 | 597,839 620,992 647,015 726,514 620,701
Total stockholders' |
equity |
(deficiency)....... 643,488 588,718 595,446 | (286,395) (254,262) (294,613) (166,510) 21,141
OPERATING DATA: |
Available seat miles |
(in millions)...... 14,503 1,803 6,424 | 11,636 17,190 19,271 20,627 18,286
Revenue passenger |
miles (in |
millions).......... 10,035 1,100 3,972 | 8,261 11,221 11,781 13,030 11,114
Passenger load factor |
(%)................ 69.2 61.0 61.8 | 71.0 65.3 61.1 63.2 60.8
Yield per revenue |
passenger mile |
(cents) 10.79 10.79 11.02 | 10.68 11.11 10.31 10.22 11.17
Passenger revenue per |
available seat mile |
(cents)............ 7.47 6.58 6.81 | 7.58 7.25 6.30 6.46 6.79
Operating cost per |
available seat mile |
(cents)............ 7.05 6.60 6.71 | 7.15 7.01 7.10 7.36 7.37
Full time equivalent |
employees (at end |
of period)......... 9,786 10,675 10,715 | 10,849 10,544 10,233 11,561 12,933
</TABLE>
- ---------------
(1) Includes net expenses incurred by the Predecessor Company in connection with
its reorganization of $273.7 million for the period January 1 to August 25,
1994 and $25.0 million, $16.2 million and $58.4 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
(2) Includes (i) an extraordinary loss of $984,000 in the nine months ended
September 30, 1995 resulting from the exchange of debt by the Company, (ii)
an extraordinary gain of $257.7 million in the period from January 1 to
August 25, 1994 resulting from the discharge of indebtedness pursuant to the
consummation of the plan of reorganization and (iii) an extraordinary gain
of $2.0 million in 1990 resulting from the purchase and retirement of
convertible subordinated debentures.
(3) Historical per share data for the Predecessor Company are not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(4) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
13
<PAGE> 14
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
12 consecutive quarters of profitability beginning with the first quarter of
1993.
The Company continually evaluates 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 with one of the lowest cost structures among the major
U.S. airlines. 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 at a compound annual rate of approximately 2.5%.
Also consistent with its goal of maintaining a low cost structure, in
December 1995, the Company outsourced its heavy aircraft maintenance to Tramco,
a division of The B.F.Goodrich Company. Based on current costs associated with
the Company's maintenance operations, management estimates the outsourcing
arrangement will save the Company approximately $35 million over the five-year
term of the agreement. This outsourcing reduced the Company's workforce by
approximately 500. Costs associated with the outsourcing will result in a
restructuring charge against fourth quarter 1995 operating income of
approximately $10.5 million.
Commencing October 1, 1995, operating costs of the Company were affected by
the expiration of a 4.3 cents per gallon federal tax exemption for commercial
aviation fuel. The expiration of such exemption will increase the Company's
annual operating expenses by approximately $13.4 million based upon its 1995
fuel consumption levels. Various bills have been introduced in Congress that
include an extension of the fuel tax exemption; however, none have been enacted
to date and there can be no assurance that such an extension will be enacted.
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 and the effects 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
14
<PAGE> 15
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 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 including the financial statement accounting for income taxes.
However, actual cash flows, including cash taxes payable, do not materially
change as a result of fresh start reporting.
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, have had and 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 additional information
regarding fresh start reporting, see Notes 2, 3 and 9 of Notes to Financial
Statements.
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, 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, second and third quarters of
1995. In total, net income increased to $20.9 million and $21.7 million in the
second and third quarters of 1995, respectively, compared to $5.2 million for
the first quarter.
15
<PAGE> 16
SELECTED OPERATING DATA
The table below sets forth selected operating data for America West. The
data for the nine months ended September 30, 1994 and the year ended December
31, 1994 are shown on a combined basis for the Reorganized and Predecessor
Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------- --------------------------------------------------
COMBINED PERCENT COMBINED PERCENT PERCENT
BASIS CHANGE BASIS 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)............ 14,503 13,439 7.9 18,060 17,190 19,271 5.1 (10.8)
Revenue passenger miles
(in millions)............ 10,035 9,361 7.2 12,233 11,221 11.781 9.0 (4.8)
Load factor (percent)...... 69.2 69.7 (0.7) 67.7 65.3 61.1 3.7 6.9
Yield per revenue passenger
mile (cents)............. 10.79 10.69 0.9 10.79 11.11 10.31 (2.9) 7.8
Revenue per available
seat mile:
Passenger (cents)........ 7.47 7.45 0.3 7.31 7.25 6.30 0.8 15.1
Total (cents)............ 7.96 7.93 0.4 7.80 7.71 6.72 1.2 14.7
Passenger enplanements
(in thousands)........... 12,563 11,927 5.3 15,669 14,740 15,173 6.3 (2.9)
Average stage length
(miles).................. 687 670 2.5 676 645 631 4.8 2.2
Average passenger journey
(miles).................. 996 990 0.6 979 970 990 0.9 (2.0)
Average daily aircraft
utilization (hours)...... 11.4 11.1 2.7 11.2 10.7 10.5 4.7 1.9
Aircraft (end of period)... 91 85 7.1 87 85 87 2.4 (2.3)
Full time equivalent
employees (end of
period).................. 9,786 10,675 (8.3) 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. The data for the nine months
ended September 30, 1994 and the year ended December 31, 1994 are shown on a
combined basis for the Reorganized and Predecessor Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
---------------------------- ---------------------------------------------------------------
COMBINED PERCENT COMBINED PERCENT PERCENT
BASIS CHANGE BASIS CHANGE CHANGE
1995 1994 1995-1994 1994 1993 1992 1994-1993 1993-1992
---- -------- ---------- ----------- ---------- ----------- --------- ---------
(IN CENTS) (IN CENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and related costs.... 1.96 1.84 6.5 1.83 1.78 1.68 2.8 6.0
Rentals and landing fees...... 1.45 1.48 (2.0) 1.47 1.60 1.76 (8.1) (9.1)
Aircraft fuel................. .87 .87 -- .88 .97 .97 (9.3) --
Agency commissions............ .64 .67 (4.5) .64 .62 .55 3.2 12.7
Aircraft maintenance materials
and repairs................. .31 .24 29.2 .25 .18 .20 38.9 (10.0)
Depreciation and
amortization................ .42 .47 (10.6) .47 .48 .45 (2.1) 6.7
Restructuring charges......... -- -- -- -- -- .16 -- (100.0)
Other......................... 1.40 1.50 (6.7) 1.45 1.38 1.33 5.1 3.8
---- ---- ----- ---- ---- ---- ------ ----
7.05 7.07 (0.3) 6.99 7.01 7.10 (.3) (1.3)
==== ==== ===== ==== ==== ==== ====== ====
</TABLE>
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the (i) nine-month
period ended September 30, 1995 and the combined period from January 1 to August
25, 1994 and August 26 to September 30, 1994 and (ii) periods August 26 to
December 31, 1994, January 1 to August 25, 1994 and the years ended December 31,
1993 and 1992. The Company's results of operations for the periods subsequent to
August 25, 1994 have not been prepared on a
16
<PAGE> 17
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.
Nine Month Period Ended September 30, 1995 and the Combined Period
from January 1 to August 25, 1994 and August 26 to September 30, 1994
For the nine months ended September 30, 1995 and 1994, the Company realized
net income of $47.8 million and a combined $55.6 million, respectively. Net
income for the nine month period of 1995 included income tax expense for
financial reporting purposes of $46.5 million compared to a combined $3.9
million in the 1994 period. The increase in income tax expense for financial
reporting purposes resulted principally from the adoption of fresh start
reporting. Net income for the combined nine month period of 1994 included
reorganization expense of $273.7 million and an extraordinary gain of $257.7
million.
Total operating revenues were $1,154 million for the nine months ended
September 30, 1995 compared to a combined $1,066 million for the nine month
period of 1994. Passenger revenues increased 8.2 percent to $1,083 million
during the nine months ended September 30, 1995. Cargo and other revenues
increased 8.9 percent to $71.5 million for the nine months of 1995. The balance
of other revenues includes revenues generated primarily from alcoholic beverage
sales, headset rentals and service charges.
Capacity, as measured by ASMs, increased 7.9 percent for the nine months
ended September 30, 1995 compared to the 1994 period, primarily due to an
increase in the Company's average stage length of 2.5 percent and the addition
of six aircraft to the fleet. Revenue passenger miles increased 7.2 percent for
the nine months ended September 30, 1995 compared to the 1994 period. Load
factor decreased by 0.5 points and yield increased 0.9 percent for the nine
months ended September 30, 1995 compared to the 1994 period.
Operating expense per ASM decreased to 7.05 cents for the nine months ended
September 30, 1995 from 7.07 cents for the combined 1994 period. The changes in
the components of operating expense per ASM are explained as follows:
- The increase in salaries and related costs is primarily the result of
accruals totaling $9.5 million for the nine months ended September 30,
1995 to provide for performance awards related to the Company's
profitability. In addition, such costs were affected in May 1995 by a
significant initial increase in pilot salaries under their collective
bargaining agreement and the adoption of the Company's Total Pay Program
in January 1995. These pay increases were effected in order to make
employees' compensation levels more competitive with those of other low
cost carriers and local employers. These pay increases were partially
offset by improvements in productivity and through a reduction in the
size of 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. Such decrease in
aircraft rent was partially offset by the addition of six aircraft to the
fleet.
- The average price per gallon of aircraft fuel increased slightly to 54.6
cents for the 1995 period from 54.0 cents for the combined 1994 period.
Also, fuel consumption was higher in the 1995 period than in the 1994
period due to an increase in capacity as discussed above.
- Agency commissions decreased due to a change in the proportion of tickets
sold through travel agencies as compared to direct sales to passengers
through the Company's reservation system.
- Aircraft maintenance materials and repairs increased largely as the
result of a change in the classification of the amortization expense
associated with capitalized heavy engine and airframe overhauls, a flight
hour agreement involving certain auxiliary power units and an increase in
hours flown per aircraft. For the nine months ended September 30, 1995
amortization of capitalized maintenance totaling $6.6 million is included
in aircraft maintenance materials and repairs. Amortization of
capitalized maintenance totaling $24.0 million for the 1994 combined nine
month period is included in depreciation and amortization expense. The
level of aircraft maintenance materials and repairs amortization
decreased $17.4 million for the nine months ended September 30, 1995
compared
17
<PAGE> 18
to the 1994 period. The balance of capitalized overhauls 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 nine months of 1995 were $6.9
million and $41.9 million, respectively.
- Depreciation and amortization expense decreased $24.0 million due to the
classification change discussed above and $3.0 million from the
re-valuation of property and equipment under fresh start reporting. These
decreases were partially offset by an increase of $24.3 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 primarily due to a reduction in
property taxes and the fixed nature of certain other costs.
Net nonoperating expenses decreased $277.3 million to $36.7 million for the
nine months ended September 30, 1995 from a combined $314 million for the 1994
period. This net decrease resulted from: a decrease in reorganization expense of
$273.7 million since the Company emerged from bankruptcy; an increase in
interest income of $9.6 million due to higher cash and cash equivalent balances
in 1995; partially offset by a net increase in interest expense of $5.1 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 an increase in interest expense due to the re-valuation of aircraft leases
to market rates as part of fresh start reporting.
Income tax expense for financial reporting purposes for the nine months
ended September 30, 1995 increased to $46.5 million from a combined $3.9 million
in 1994 resulting principally from the adoption of fresh start reporting. 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 to December 31, 1994, January 1 to August 25, 1994 and
the years ended December 31, 1993 and 1992
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 combined 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 ASM increased slightly on a combined basis 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 ASMs 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.
18
<PAGE> 19
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 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. 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 John F. Kennedy Airport
and Phoenix Sky Harbor International Airport;
-- Rent expense for aircraft leases were reduced to fair market rates
in August 1994 under fresh start reporting; and
-- The Company vacated certain administrative office space as part of
its 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
19
<PAGE> 20
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.
- 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 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 on a combined basis for 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 while 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 $249.9 million at
September 30, 1995 from $182.6 million at December 31, 1994. Net cash provided
from operating activities increased to $245.2 million for the nine months ended
September 30, 1995 from a combined $131.0 million for the nine months ended
September 30, 1994, an increase of $114.2 million. The increase was primarily
due to the increase in advance ticket sales in the third quarter of 1995 as
compared to the third quarter of 1994. Net cash used in investing activities
increased to $81.3 million for the nine months ended September 30, 1995 from a
combined $61.8 million for the nine months ended September 30, 1994, an increase
of $19.5 million primarily related to increased expenditures for capitalized
overhauls. Net cash used in financing activities was $96.6 million for the nine
months ended September 30, 1995 compared to a combined $35.3 million net cash
provided for the nine months ended September 30, 1994 due to an increase in debt
net repayments of $17.0 million offset by the issuance of common stock of $114.9
million in the 1994 period.
20
<PAGE> 21
The Company has a working capital deficiency which has increased to $77.3
million at September 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 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. At September 30, 1995, such maturities were $20.5 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 September 30, 1995, the Company had net operating loss carryforwards
("NOL") and general business tax credit carryforwards of approximately $489.8
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 for 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.
The Company is obligated to lease five aircraft under a put agreement with
GPA Group plc (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.
At December 31, 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 delivery dates that fall in the years 1999 through 2001. The
aggregate net cost of such aircraft is based on formulae that include certain
price indices (including indices for various aircraft components such as metal
products) for periods preceding the various delivery dates. Based on an assumed
5% annual price escalation, the Company estimates such aggregate net cost to be
approximately $1.2 billion. 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 were to exercise its existing rights to cancel six aircraft under
the AVSA agreement, the aggregate net cost (based upon the assumptions described
above) of commitments under such agreement would be reduced to approximately
$873 million.
21
<PAGE> 22
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 certain of the A320 fleet. Such engines have an
estimated aggregate cost of $42.2 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 other equipment orders. 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
terms acceptable to the Company. 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 or purchase of additional
aircraft. There can be no assurance that the Company will be able to negotiate
such leasing or purchase arrangements in sufficient quantities or on terms
acceptable to the Company.
At December 31, 1995, the Company's fleet consisted of 93 aircraft of which
21 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 terms
acceptable to the Company.
Capital expenditures for the years ended December 31, 1995, 1994 and 1993
were approximately $107.4 million, $75.9 million and $54.3 million,
respectively. Capital expenditures for 1996 are expected to increase due
principally to an increase in capitalized engine overhauls and expenditures for
computer systems and equipment, resulting in total capital expenditures
currently estimated to be approximately $150.0 million. The Company currently
intends to fund such expenditures with cash from operations.
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 September 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. In December 1995, the Company
amended its repurchase program by including authorization to purchase Warrants.
The Company expects to purchase shares and Warrants pursuant to such program
from time to time as opportunities for such purchases at attractive prices
arise. As of December 31, 1995, the Company had purchased 112,000 shares of
Class B Common Stock at prices ranging from $13.63 to $14.00 and had not
purchased any Warrants.
In December 1995, the Company remarketed The Industrial Development
Authority of the City of Phoenix, Arizona Variable Rate Airport Facility Revenue
Bonds (America West Airlines, Inc. Project) Series 1986. These bonds were
originally issued to finance the construction of the Company's maintenance
facility at Phoenix Sky Harbor International Airport. As required under the then
existing reimbursement agreement, the Company used the net proceeds from the
remarketing to prepay the then existing debt in the amount of $28.9 million. The
new bonds are backed by an irrevocable direct pay letter of credit issued by the
Industrial Bank of Japan, Limited, Los Angeles Agency, which letter of credit is
secured by the Company's maintenance facility and related improvements and a
pledge of cash or cash equivalents.
22
<PAGE> 23
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 nine
months ended September 30, 1995, generated the second highest operating margins
among the major domestic airlines. At December 31, 1995 the Company served 50
destinations, including five destinations in Mexico and one in Canada, with a
fleet of 93 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 and efficient 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 ASMs 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 September 30, 1995, the Company's
workforce decreased by 8.3% despite an increase in ASMs of 7.9%. 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. In December 1995, the Company outsourced its
heavy aircraft maintenance, which management estimates will save the Company
approximately $35 million over the five-year term of the agreement. This
outsourcing reduced the Company's workforce by approximately 500. 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 and Efficient Fleet. The Company enjoys operational
efficiencies due to its modern, fuel efficient fleet. At December 31, 1995, the
Company's fleet consisted of 61 Boeing 737s, 18 Airbus A320s and 14 Boeing 757s,
with an average age of approximately 9.9 years. Most of the Company's existing
aircraft are held under leases, including leases on 24 aircraft expiring prior
to December 1998. As a result, in the event general economic conditions change
adversely, the Company may 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
23
<PAGE> 24
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.
As a part of America West's ongoing strategy, the Company from time to time
evaluates opportunities for additional alliances and code sharing arrangements
as well as investment opportunities pursuant to which the Company may capitalize
on its key strengths and market position.
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 and McCarran International Airport in Las Vegas, based upon revenue
passenger miles, with approximately 35% and 26% of total revenue passenger
miles, respectively, in the nine months ended September 30, 1995. In both
markets the Company's principal competitor is Southwest Airlines, with
approximately 24% and 15% of total revenue passenger miles in Phoenix and Las
Vegas, respectively, in the first nine months of 1995. At December 31, 1995 the
Company served 43 destinations from its Phoenix hub and 38 destinations from its
Las Vegas hub. At December 31, 1995, the Company provided non-stop jet service
to 11 destinations from Columbus. During the first nine months of 1995, the
Company had approximately 49% of Columbus revenue passenger miles compared to
approximately 15% 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 its
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 well 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 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 additional
destinations to its customers without materially increasing operating and
capital expenses. By
24
<PAGE> 25
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 1995, this division sold approximately 795,000 room nights and
approximately 89,738 rental car days, handled approximately 516,000 passengers
and generated approximately $180 million in gross package sales.
AIRCRAFT
At December 31, 1995, the Company operated a fleet of 61 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 26.2 --
B737-200................................ Owned 5 16.8 --
B737-200................................ Leased 16 16.3 4.6
B737-300................................ Leased 28 8.8 4.1
B737-300................................ Owned 11 7.2 --
B757-200................................ Leased 12 9.4 9.3
B757-200................................ Owned 2 6.3 --
A320-200................................ Leased.. 18 5.5 15.6
--
93 9.9 7.8
======
</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 January 1996 through December 1998, leases for 24 of the
Company's aircraft are scheduled to terminate (such aircraft are 16 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 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 Financial Condition and Results of Operations."
25
<PAGE> 26
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 increased 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. In addition, in December 1995, the Company
further reduced its workforce by approximately 500 in connection with the
outsourcing of its heavy aircraft maintenance. The Company's 1994 Incentive
Equity Plan authorizes the grant of various stock, stock-related and cash awards
to employees and non-employee directors of the Company.
In October 1993, ALPA was certified by the NMB 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% 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 NMB 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. In January 1996, the Company's ground operations workers petitioned
the NMB for a union representation election requesting that the Transportation
Workers Union represent them. In January 1996, the IBT filed an application with
the NMB seeking to be certified as the bargaining representative for the
Company's mechanics, including related personnel. See "-- Legal Proceedings."
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 December 31, 1995, the Company employed 7,678 full-time and 2,370
part-time employees, the equivalent of 8,712 full-time employees.
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.
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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. Effective
January 8, 1996, the Company implemented electronic or paperless ticketing which
the Company believes will reduce distribution costs in the future.
FREQUENT FLYER PROGRAM
All major U.S. airlines have established frequent flyer programs to
encourage travel on that particular carrier. America, offers the FlightFund
program that allows members to earn mileage credits by flying America West, 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 Continental's One
Pass program 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.
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.
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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. At
December 31, 1995, the Company's fleet consisted of 93 aircraft of which 21
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 current 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. Initially, commercial
aviation fuel was exempt from this tax; however, the exemption expired on
September 30, 1995 and the Company began paying such tax on October 1, 1995. The
expiration of such exemption will increase the Company's annual operating
expenses by approximately $13.4 million based upon its 1995 fuel consumption
levels. Various bills have been introduced in Congress that include an extension
of the fuel tax exemption; however, none have been enacted to date and there can
be no assurance that such an extension will be enacted.
Passenger Facility 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
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<PAGE> 29
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 federal, state and local agencies, including
laws governing air, water and waste discharge activities. While the Company
strives to comply with environmental laws and regulations, the Company has
incurred and may incur costs to comply with applicable environmental laws
including soil and groundwater cleanup and other related response costs. The
Company believes, however, that under current environmental laws and regulations
these costs would not have a material adverse effect on the Company's financial
condition.
The Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA"), also known as Superfund, and comparable state laws impose
liability without regard to fault on certain classes of persons that may have
contributed to the release or threatened release of a "hazardous substance" into
the environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including the Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state-implemented
groundwater investigations. Although the Company occupies facilities at some of
these affected airports, the Company does not believe that its operations have
been included within the ambit of any of these investigations.
The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and the Company
expects that the costs of compliance will continue to increase.
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 aircraft 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. Five of the Company's 93
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 John F. 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
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<PAGE> 30
December. The average utilization rates by the Company of all the foregoing
slots range from 86% to 100% in 1995.
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 August 25, 1994 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 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.
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.
GPA, which subleases certain aircraft to the Company, has informed the
Company that it may assert a claim in an unspecified amount as a result of the
Internal Revenue Service potentially disallowing investment tax credits and
accelerated depreciation claimed by the head lessor of six of such aircraft.
Such a claim, if asserted, would be based on indemnification agreements between
the Company and GPA covering certain losses that GPA may incur pursuant to its
indemnification agreements with the head lessor. Under the terms of the
indemnity agreements between GPA and the Company, if such tax benefits were
fully or partially disallowed, the Company's monthly rental obligation under the
subleases from GPA could be increased by up to approximately $15,000 per
aircraft (approximately $1,080,000 per year for all six aircraft) for the term
of such subleases, each of which commenced during 1991 and expires in 2013. The
rental increase applicable to periods prior to the determination of an indemnity
obligation would be payable monthly over a 24-month period, with interest
calculated at a specified prime rate. The Company is unable to predict whether
the
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<PAGE> 31
Internal Revenue Service will prevail in matters asserted against the head
lessor or, consequently, whether the Company will incur any liability in
connection with such claims or the amount of any such liability, if incurred.
Based on information and relevant documents available to the Company, however,
management currently believes that it is unlikely that the disposition of these
matters will have a material adverse effect on the Company's financial
condition.
On November 9, 1995, a group of 71 individuals, who are current or former
employees of Continental commenced a lawsuit against Continental, Air Partners
II, AmWest Partners, AmWest Genpar, Inc. and the Company. The complaint, which
was filed in the Federal District Court for the Western District of Washington,
alleges that the plaintiffs were discharged from their employment as part of an
alleged plan to replace Continental's employees at certain stations with
relatively younger employees of the Company. The plaintiffs allegedly were
discharged from their employment after Continental and America West executed
agreements under which America West provides ground handling service for
Continental at certain locations. The plaintiffs pleaded claims against the
Company for conspiracy in violation of federal equal protection laws, and
state-law claims for wrongful discharge in violation of public policy,
intentional interference with business expectancy, and intentional and negligent
infliction of emotional distress. These claims, as well as claims for violation
of the federal Age Discrimination in Employment Act and for violation of various
state anti-discrimination statutes, also were asserted against the other
defendants. The plaintiffs requested that this litigation be certified as a
class action consisting of approximately 500 individuals, and seek
reinstatement, or, in the alternative, front pay, as well as economic and
emotional distress compensatory damages, and liquidated and punitive damages.
The plaintiffs filed a first amended complaint on December 6, 1995, which
replaced Air Partners II with Air Partners, L.P., as a defendant; there were no
other changes in the plaintiff's allegations. The Company and the other
defendants filed their answers to the plaintiffs' first amended complaint on
January 22, 1996. A motion to transfer this case to the Federal District Court
for the Southern District of Texas, which was filed by Continental on December
28, 1995, is pending before the court. Management believes that the plaintiffs'
claims are without merit, and the Company intends to defend vigorously this
litigation. Management believes that the disposition of this lawsuit will not
have a material adverse effect on the Company's financial condition.
Following the Company's outsourcing of its heavy aircraft maintenance (see
"Business -- Strategy" and "Business -- Labor Relations"), on December 27, 1995,
the IBT and five individuals commenced a lawsuit against the Company. The
complaint, which was filed in the Federal District Court for the Northern
District of Arizona, alleges that the individual plaintiffs were terminated
because they were IBT committee members or open supporters of the union and that
the Company wrongfully terminated approximately 500 employees in connection with
the outsourcing in violation of federal labor laws. The plaintiffs request that
the litigation be certified as a class action, ask for a judgment that the
Company violated the Railway Labor Act, and seek reinstatement for the
individual plaintiffs, compensatory damages for all plaintiffs and punitive
damages for the IBT. On January 16, 1996, the Company filed a motion to dismiss
the claims of the IBT and four of the individual plaintiffs and an answer in
respect of the claims of the fifth individual plaintiff. In the motion to
dismiss, the Company argued (i) that the IBT did not have standing to assert
claims on its own behalf or on behalf of the individual plaintiffs under
applicable law because it was not the collective bargaining representative of
the affected employees and (ii) that the claims of the four individual
plaintiffs should be dismissed because each signed an agreement releasing the
Company from any liability in connection with his termination (491 of
approximately 500 terminated employees signed release agreements, the remaining
terminated employees, including the fifth individual plaintiff, did not sign
release agreements). Management believes that these claims are without merit and
the Company intends to defend vigorously the litigation. Management believes
that the disposition of this lawsuit will not have a material adverse effect on
the Company's financial condition.
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<PAGE> 32
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the executive officers and directors of the
Company as of December 31, 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
Julia Chang Bloch.................... 53 Director
Stephen F. Bollenbach................ 53 Director
Frederick W. Bradley, Jr. ........... 68 Director
James G. Coulter..................... 36 Director
John F. Fraser....................... 65 Director
John L. Goolsby...................... 53 Director
Richard C. Kraemer................... 52 Director
John R. Power, Jr. .................. 40 Director
Larry L. Risley...................... 51 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
Stephen L. Johnson................... 39 Senior Vice President -- Legal Affairs
Robert S. Nichols, Jr................ 50 Senior Vice President -- Customer Service
W. Douglas Parker.................... 34 Senior Vice President and Chief Financial Officer
Michael A. Vescuso................... 50 Senior Vice President -- Human Resources
C. A. Howlett........................ 52 Vice President -- Public Affairs
</TABLE>
DIRECTORS OF THE COMPANY
Set forth below is information regarding the Company's directors.
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.
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 Foundation and the Asia Society.
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<PAGE> 33
STEPHEN F. BOLLENBACH. (Compensation Committee.) Mr. Bollenbach has been a
member of America West's Board of Directors since August 26, 1994. He became
senior executive vice president and 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 at which time he became president and chief executive officer of Host
Marriott Corporation until April 1995. He has served as a director of Host
Marriott Corporation, Carr Realty Corporation and Mid-America Apartment
Communities, and currently serves as a director of The Walt Disney Company.
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 92-1 Ltd. and
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 Fort Worth,
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. were 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 1994. Mr. Fraser is a director of Air Canada,
Bank of Montreal, Centra Gas Manitoba Inc., Coca-Cola Beverages Limited, Ford
Motor Company of Canada, Limited, Inter-City Products Corporation, 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.
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 May 1995. The plan for the reorganization of UDC Homes, Inc.
was confirmed by the bankruptcy court on October 3, 1995.
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
33
<PAGE> 34
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 was 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 Corporation 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. Mr. Schifter serves on the board of directors of Favorite Brands,
Inc.
JOHN F. TIERNEY. Mr. Tierney has served as a member of America West's
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,
Applied Power Inc., ARIAD Pharmaceuticals, Inc., Becton, Dickinson and Company,
Benson Eyecare Corporation, Foundation Health Corporation, General American
Investors Company, Manville Corporation, Olsten Corporation, Petrie Stores
Corporation, Riverwood International Corporation, Time Warner Inc., Triarc
Companies, Inc. and WHX Corporation.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information regarding the executive officers of the
Company other than Mr. Franke who is 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.
STEPHEN L. JOHNSON. Senior 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.
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.
34
<PAGE> 35
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 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.
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.
35
<PAGE> 36
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(5).................. 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(6)................. 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(7)................... 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(8).................. 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 only 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 retired from the Company in December 1995. Other annual
compensation reflects payment of a $100,000 transition allowance in
connection with commencement of employment with the Company in 1994 and
$4,688 paid to Mr. Myers under the Company's Transition Pay Program.
(5) Mr. Whalen retired from the Company in December 1995.
(6) Mr. Nakano's employment with the Company ended in August 1995.
(7) Mr. Burns' employment with the Company ended in May 1995.
(8) Mr. Frei's employment with the Company ended in July 1994.
36
<PAGE> 37
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
POTENTIAL MARKETABLE
VALUE AT ANNUAL RATE OF
INDIVIDUAL GRANTS STOCK PRICE
- ----------------------------------------------------------------------------------- APPRECIATION
NUMBER OF PERCENT OF EXERCISE FOR OPTION TERM
SECURITIES TOTAL OPTIONS PRICE EXPIRATION -----------------------
NAME UNDERLYING OPTIONS GRANTED IN 1994 ($/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 January 1, 1996, the Company entered into an employment
agreement with William A. Franke (which replaces as of such date Mr. Franke's
prior employment agreement). The agreement provides that Mr. Franke will serve
as the Chairman of the Board and Chief Executive Officer of the Company until
the earlier of December 31, 1998 or his successor as Chief Executive Officer
assumes the responsibilities of such office ("Phase I") and will serve solely as
Chairman of the Board of the Company for the period from the end of Phase I to
December 31, 1998 ("Phase II"). Under the Agreement, Mr. Franke is to receive an
annual base salary in the amount of (a) $500,000 during Phase I and (b) $100,000
during Phase II, which amounts may be increased at the discretion of the Board
of Directors. The agreement provides for a restricted stock grant of 108,000
shares of Class B Common Stock on January 1, 1996, subject to partial forfeiture
if the agreement is terminated for certain reasons. If requested by Mr. Franke,
the Company has agreed to loan to Mr. Franke up to $860,000 on a nonrecourse
basis for payment of taxes in connection with such stock grant, secured by a
pledge of a portion of such stock. In addition, the agreement provides that the
vesting of options previously granted to Mr. Franke under his prior employment
agreement (to purchase 250,000 shares of Class B Common Stock in the aggregate)
is accelerated, and such options are immediately exercisable. The agreement
provides for an additional grant of options to purchase 150,000 shares of Class
B Common Stock, vesting over three years, at an exercise price of $16.50 per
share (the fair market value on the date of grant). The vesting of such options
accelerate upon a "change of control" (as defined in the agreement) of the
Company or in the event Mr. Franke's employment is terminated by reason of death
or disability. The agreement also provides for (i) a $2 million term life
insurance policy for the benefit of beneficiaries designated by Mr. Franke, (ii)
certain travel privileges, (iii) approximately $50,000 per year as an
administrative expense allowance, (iv) certain registration rights in the event
the Company registers a sale of its equity securities and (v) a severance
payment ($1.5 million during Phase I and $1 million during Phase II) payable to
Mr. Franke if the agreement is terminated for certain reasons. The agreement
contains provisions relating to confidentiality of Company information and a
non-competion clause covering a period of 18 months after termination of the
agreement.
DIRECTOR COMPENSATION
Each director who is not an officer or employee of the Company currently
receives an annual retainer of $15,000 plus $1,000 for each Board or committee
meeting attended. Pre-Reorganization directors each received an annual retainer
of $25,000 plus $1,000 for each Board or committee meeting attended. Directors
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).
37
<PAGE> 38
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 to 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. Messrs. Tierney and Treacy are each executives of GPA. The
management letter agreement terminated in connection with the Reorganization and
Mr. Treacy's term as a director expired on August 25, 1994. GPA's representation
on the Company's Board of Directors is now determined pursuant to the
Stockholders' Agreement and a voting agreement entered into between GPA and
AmWest. Mr. Tierney continues to serve as a member of the Board of Directors,
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 the right to lease
up to eight aircraft to the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." In connection with the 1994 Put Agreement and for other
consideration, GPA was paid approximately $30.5 million and received certain
equity securities issued 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 thereof, is a vice president of TPG Advisors, which
is the general partner of TPG GenPar, the general partner of TPG, TPG Parallel
and Air Partners II. TPG, TPG Parallel and Air Partners II received Class A
Common Stock, Class B Common Stock and Warrants in exchange for AmWest's
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, none 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.
38
<PAGE> 39
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 (as defined herein) and
$10 million of such notes to Lehman (as 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 and 1995, the Company loaned Mr. Franke $470,282 and $203,136,
respectively, for the purpose of enabling him to pay income taxes attributable
to certain grants of Class B Common Stock made to Mr. Franke in 1994. In January
1996, the Company loaned Mr. Franke an additional $40,000 in connection with
such grants. The loans are each payable in two equal installments on September
26, 2000 and September 26, 2001. The 1994 loan bears interest (payable
semi-annually) at the rate of 8% per annum (11% per annum after maturity) and
the 1995 and 1996 loans bear interest at the rate of 6.02% per annum (10% per
annum after maturity). The loans are secured by a portion of the shares granted
to Mr. Franke, but are otherwise non-recourse to Mr. Franke.
In 1994, the Company made a $320,000 non-recourse loan to Mr. A. Maurice
Myers, the Company's former President and Chief Operating Officer, in connection
with the exercise of certain options to purchase common stock of his previous
employer and payment of related taxes. In addition, the Company loaned Mr. Myers
$200,000 due in December 1996 in connection with the purchase of a home. Such
loans bear interest at a federal funds rate. The $320,000 loan was repaid in
full in December 1995.
39
<PAGE> 40
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 Class A Common Stock or Class B
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 December 31, 1995 (unless otherwise noted).
In accordance with the rules of the Commission, the table below shows the
effect of the exercise of Warrants and stock options owned by the person or
persons in question, but in determining the denominator used to show percentage
ownership by such person or persons, does not assume the exercise of Warrants or
stock options by any other person. The column entitled "Class A and Class B
Combined Voting Power Percentage" in the table below shows the combined voting
power of the votes attributable to Class A Common Stock (each share of which is
entitled to 50 votes) and Class B Common Stock (each share of which is entitled
to one vote) of the holders thereof. Information in the table below assumes that
no shares of Class A Common Stock are converted into shares of Class B Common
Stock. For further information, see "Description of Capital Stock -- Class B
Common Stock and Class A Common Stock."
<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% 6,923,148(3) 15.0% 43.0%(3)
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Continental Airlines, Inc.(4)........ 325,505 27.1% 2,311,094(5) 5.1% 17.7%(5)
2929 Allen Parkway
Houston, Texas 77019
Mesa Air Group, Inc.(6).............. 100,000 8.3% 2,985,239(7) 6.6% 7.6%(7)
2525 30th Street
Farmington, New Mexico 87401
FMR Corp............................. -- -- 4,648,258(8) 10.4% 4.4%(8)
82 Devonshire Street
Boston, Massachusetts 02109
Lehman Brothers Holdings Inc......... -- -- 3,844,768(9) 8.7% 3.7%(9)
200 Vesey Street
American Express Tower
World Financial Center
New York, New York 10285-1800
GPA Group plc........................ -- -- 1,384,615(10) 3.0% 1.3%(10)
GPA House
Shannon, County Clare
Ireland
William A. Franke.................... -- -- 779,334(11) 1.7% *
A. Maurice Myers..................... -- -- 135,000(12) * *
Martin J. Whalen..................... -- -- -- -- --
Raymond T. Nakano.................... -- -- 4(13) * *
Thomas P. Burns...................... -- -- 101(14) * *
Alphonse E. Frei..................... -- -- 187(15) * *
Julia Chang Bloch.................... -- -- 6,000(16) * *
Stephen F. Bollenbach................ -- -- 6,000(16) * *
Frederick W. Bradley, Jr............. -- -- 6,000(16) * *
James G. Coulter(17)................. 1,100,000 91.7% 9,240,242(3)(5)(16) 19.7% 60.1%(3)(5)(16)
John F. Fraser....................... -- -- 6,000(16) * *
John L. Goolsby...................... -- -- 7,500(16) * *
Richard C. Kraemer................... -- -- 6,000(16) * *
John R. Power, Jr.................... -- -- 6,000(16) * *
Larry L. Risley(18).................. 425,505 35.5% 5,302,333(5)(7)(16) 11.6% 25.1%(5)(7)(16)
Frank B. Ryan(19).................... -- -- 6,000 * *
Richard P. Schifter(20).............. 774,495 64.5% 6,929,148(3)(16) 15.0% 43.0%(3)(16)
John F. Tierney(21).................. -- -- 1,390,615(10)(16) 3.1% 1.3%(10)(16)
Raymond S. Troubh.................... -- -- 8,500(16) * *
All executive officers and directors
above as a group (19 persons)...... 1,200,000 100.0% 14,594,722(22) 29.3% 68.0%(22)
</TABLE>
- ---------------
* Less than 1%.
40
<PAGE> 41
(1) Information with respect to each beneficial owner of 5% or more of a class
of the Company's Common Stock is based solely on Schedules 13D and 13G
filed by such beneficial owners with the Commission.
(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 64,699 shares of Class A Common
Stock and 418,758 shares of Class B Common Stock owned by TPG Parallel I,
L.P., a Delaware limited partnership ("TPG Parallel"), and 67,718 shares of
Class A Common Stock and 438,302 shares of Class B Common Stock owned by
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 1,583,688, 159,580 and 167,028 (totalling 1,910,296) shares of
Class B Common Stock that may be acquired upon the exercise of Warrants by
TPG, TPG Parallel and Air Partners II, respectively. Excludes 6,000 shares
of Class B Common Stock underlying stock options held by Mr. Schifter and
6,000 shares of Class B Common Stock underlying stock options held by Mr.
Coulter.
(4) Mr. Bonderman is also director and chairman of the board of directors 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 by Continental. Excludes 6,000 shares of Class B
Common Stock underlying stock options held by Mr. Coulter and 6,000 shares
of Class B Common Stock underlying stock options held by Mr. Risley.
(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 by Mesa and 2,129 shares of Class B Common Stock
owned by Regional Aircraft Services, Inc., an indirect wholly owned
subsidiary of Mesa. Excludes 6,000 shares of Class B Common Stock
underlying stock options held by Mr. Risley.
(8) As of January 10, 1996 includes 543,893 shares of Class B Common Stock that
may be acquired upon the exercise of Warrants. The Class B Common Stock and
Warrants 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.
(9) As of January 23, 1996 includes 293,242 shares of Class B Common Stock that
may be acquired upon the exercise of Warrants by Lehman Brothers Holdings
Inc.
(10) Consists of 1,384,615 shares of Class B Common Stock that may be acquired
upon exercise of Warrants by GPA.
(11) As of January 23, 1996 includes 505,000 shares of Class B Common Stock that
may be acquired upon exercise of stock options.
(12) Consists of 135,000 shares of Class B Common Stock that may be acquired
upon exercise of stock options.
(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) Includes 6,000 shares of Class B Common Stock that may be acquired upon
exercise of stock options.
(17) Includes shares of Class A Common Stock and Class B Common Stock
beneficially owned by TPG, TPG Parallel, Air Partners II and Continental.
In connection with Mr. Coulter's positions described in footnotes (2) and
(4) above, Mr. Coulter may be deemed to own beneficially such shares. Mr.
Coulter disclaims beneficial ownership of such shares.
41
<PAGE> 42
(18) Includes shares of Class A Common Stock and Class B Common Stock
beneficially owned 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.
(19) Dr. Frank B. Ryan became a member of the Board of Directors on March 17,
1995.
(20) Includes shares of Class A Common Stock and Class B Common Stock
beneficially owned by TPG, TPG Parallel and Air Partners II. 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.
(21) Includes shares of Class B Common Stock that may be acquired upon exercise
of Warrants 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.
(22) Includes 5,603,753 shares of Class B Common Stock that may be acquired upon
exercise of Warrants and stock options.
STOCKHOLDERS' AGREEMENTS
On August 25, 1994 (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, TPG Parallel, Air Partners II, Continental
and Mesa. As used below, "AmWest" means TPG, TPG Parallel, Air Partners II,
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 August 25, 1997 (the "Voting Period"), America West's
Board of Directors will be comprised of up to 15 members consisting of (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 (assuming
the exercise of all Warrants); 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, assuming the
exercise of all Warrants, 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 confidential information on any
matters involving negotiations or direct competition between their respective
companies and America West.
In addition, the Stockholders' Agreement provides that until the first
annual meeting after August 25, 1997, the approval of certain 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 (but not
excluding shares owned by Mesa). Transactions to which such restriction applies
include any merger or consolidation of the Company with or into AmWest or any of
its affiliates, any sale or other disposition of all or a substantial part of
the assets of the Company to AmWest or
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<PAGE> 43
any of its affiliates and certain other transactions with or involving the
Company in which AmWest or any of its affiliates would acquire an increased
percentage ownership of voting equity securities in the Company. The stockholder
voting requirements specified above will not apply to a proposed action approved
by (i) the Board of Directors and (ii) at least three Independent Directors,
unless otherwise required by applicable law. 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 and to any
related transaction, the total number of shares of Class B Common Stock
beneficially owned by the transferor is less than twice the total number of
shares of Class A Common Stock beneficially owned by the transferor, except in
certain circumstances (which include a transfer or disposition of all shares of
Common Stock owned by such person, subject to other applicable provisions of the
Stockholders' Agreement).
In addition, the Stockholders' Agreement provides that, for a period
lasting until the first annual meeting after August 25, 1997, without the prior
written consent of the Company given pursuant to a resolution adopted by the
affirmative vote of not less than 75% of all directors of the Company, 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
all shares of Common Stock then outstanding, other than (i) pursuant to or in
connection with a tender or exchange offer for all shares of Common Stock and
for the benefit of all holders of Class B Common Stock on a pro rata basis at
the same price per share and on the same economic terms, (ii) to any affiliate
of AmWest or any affiliate of AmWest's partners, (iii) pursuant to a bankruptcy
or insolvency proceeding, (iv) pursuant to judicial order, legal process,
execution or attachment, (v) in a public offering or (vi) in any other
transaction where the purchase price per share is equal to or less than the
then-current market price per share.
TPG, TPG Parallel and Air Partners II have entered into an agreement with
Continental pursuant to which such parties have granted Continental the right of
first refusal to purchase all, but not less than all, of the America West
securities that they may propose to sell, and have agreed to notify Continental
prior to selling any such securities. Continental would have the right to
purchase such securities on the same terms and conditions that such securities
would have been sold, or at a market price. Under the agreement, TPG, TPG
Parallel and Air Partners II have agreed to share with Continental certain of
the proceeds from their sale or disposition of the securities of America West
covered by the agreement, if such sharing of proceeds is necessary to ensure
that Continental receives a specified rate of return on its investment in the
securities of America West.
See "Description of Capital Stock -- Class B Common Stock and Class A
Common Stock" for information regarding ownership of the Company's Common Stock.
SELLING SECURITYHOLDERS
The Selling Securityholders are shown in the table below. In connection
with the Reorganization, the partners of AmWest, together with Lehman Brothers
Holdings Inc. ("Lehman") and Fidelity Management Trust Company and certain of
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 $13 million and $10 million
of senior notes to Fidelity and Lehman, respectively, in exchange for full
satisfaction of approximately $25 million of prepetition
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<PAGE> 44
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 voting equity
securities (assuming the exercise of all Warrants) of the Company. GPA
subsequently sold its 900,000 shares of Class B Common Stock.
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 January 22, 1996 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 (i)
William A. Franke, whose beneficial ownership includes shares that may be
acquired by him upon the exercise of certain options and certain other shares of
Class B Common Stock, and (ii) certain Securities held by Fidelity and Lehman
that they acquired in the open market, 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 certain of the
Selling Securityholders (including such ownership as may be attributed to such
securityholders) prior to the offering, see "Principal Stockholders" and
"Description of Capital Stock -- Class B Common Stock and Class A Common Stock."
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CLASS A CLASS B NUMBER OF
COMMON STOCK COMMON STOCK WARRANTS
------------ --------------- ---------
<S> <C> <C> <C>
TPG Partners, L.P................................. 642,078 4,155,792 1,583,688
TPG Parallel I, L.P. ............................. 64,699 418,758 159,580
Air Partners II, L.P. ............................ 67,718 438,302 167,028
Continental Airlines, Inc......................... 325,505 1,508,234 802,860
Mesa Air Group, Inc............................... 100,000 2,185,472 799,767
GPA Group plc..................................... -- -- 1,384,615
Fidelity Copernicus Fund, L.P..................... -- 357,020 --
Belmont Capital Partners II, L.P.................. -- 416,767 524,521
Belmont Fund, L.P................................. -- 391,678 19,372
Lehman Brothers Holdings Inc...................... -- 3,551,526 293,242
William A. Franke................................. -- 125,000 --
------------ --------------- ---------
TOTAL................................... 1,200,000 13,548,549 5,734,673
=========== ============= ========
</TABLE>
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 December 31, 1995, there were 1,200,000
outstanding shares of Class A Common Stock and 44,141,330 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
Restated Bylaws (collectively, the "Charter Documents") 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.
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<PAGE> 45
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 TPG, TPG
Parallel, Air Partners II, Continental and Mesa 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 50 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," as of December 31,
1995, certain assignees of AmWest (TPG, TPG Parallel, Air Partners II,
Continental and Mesa) owned in the aggregate 100% of the outstanding Class A
Common Stock and 12,219,481 shares of the outstanding Class B Common Stock
(assuming the exercise of all Warrants held by such persons), which collectively
represented approximately 67.1% of the total voting power of America West. As a
result of certain agreements and understandings among TPG, TPG Parallel, Air
Partners II, Continental, Mesa and GPA, such parties comprise a "group" within
the meaning of Section 13(d)(3) of the Exchange Act, and accordingly each of
such parties may be deemed to beneficially own the securities of the Company
owned by the others. As of December 31, 1995, such parties collectively owned
13,604,096 shares of Class B Common Stock (assuming the exercise of all Warrants
held by such parties) and 100% of the outstanding Class A Common Stock, which
collectively represented approximately 67.5% of the total voting power of
America West. See "Principal Stockholders -- Stockholders' Agreement" above for
a discussion of arrangements regarding the composition of the Board of Directors
of the Company.
Holders of Class A Common Stock may at any time elect to convert such
shares into an equal number of shares of Class B Common Stock. Class B Common
Stock is not convertible into Class A Common Stock.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company is
authorized to issue 48,800,000 shares of Preferred Stock. The Company's Board of
Directors by resolution may authorize the issuance of the Preferred Stock as a
class, in one or more series, having the number of shares, designations,
relative voting rights, dividend rights, liquidation and other rights,
preferences and limitations that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
LIMITATION ON VOTING BY FOREIGN OWNERS
The Certificate of Incorporation defines "Foreign Ownership Restrictions"
as "applicable statutory, regulatory and interpretive restrictions regarding
foreign ownership or control of U.S. air carriers (as amended or modified from
time to time)." Such restrictions currently require that no more than 25% of the
voting stock of the Company be beneficially 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 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. 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
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<PAGE> 46
registered on a separate stock record (the "Foreign Stock Record"). The
Company's Restated 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 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 (the "DGCL")
(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 fullest extent permitted by Delaware law and may indemnify
certain other persons as authorized by law.
Additionally, America West 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 (as defined below) executed in connection with the
Reorganization 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 DGCL. In general, Section 203 of the DGCL ("Section 203") 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 or its affiliates 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" 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
approved the transactions contemplated by a third revised investment agreement
("Investment Agreement") executed in connection with the Reorganization 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, the
Stockholders' Agreement provides that until the first annual meeting after
August 25, 1997, the approval of certain 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 (but not excluding shares
owned by Mesa). Transactions to which such restriction applies include any
merger or consolidation of the Company with or into AmWest or any of its
affiliates, any sale or other disposition of all or a substantial part of the
assets of the Company to AmWest or any of its affiliates and certain other
transactions with or involving the Company in which AmWest or any of its
affiliates would acquire an increased percentage ownership of voting equity
securities in the Company. The stockholder voting requirements specified above
will not apply to a proposed action approved by (i) the Board of Directors and
(ii) at least three Independent Directors, unless otherwise required by
applicable law. The Company does not believe these restrictions will have any
adverse effects on the stockholders of the Company.
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<PAGE> 47
TRANSFER AGENT
The transfer agent for the Common Stock is First Interstate Bank of
California, whose address is 707 Wilshire Boulevard, 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 Bancorp 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 5,734,673 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 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) of the exercise 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, 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 exercise price for the Warrants and the
number of shares of Class B Common Stock purchasable upon exercise of each
Warrant are subject to adjustment in certain events, including (a) the payment
of a dividend in Common Stock or combinations, subdivisions, or
reclassifications of the Common Stock, (b) the issuance to holders of Class B
Common Stock (without any charge to such holders) of rights, options or warrants
entitling the holders thereof to purchase Common Stock (or securities
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<PAGE> 48
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
exercise price unless such adjustment would require an increase or decrease of
at least $.05 in the exercise 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 exercise 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. No consent of any holder of Warrants is 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 Boulevard, 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 Securityholders; 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 related transaction, the total number of shares of Class B Common
Stock beneficially owned by the transferor is less than twice the total number
of shares of Class A Common Stock beneficially owned by the transferor;
provided, however, that the preceding will not prohibit any person from
transferring or otherwise disposing of all shares of Common Stock owned by such
person, subject to other applicable provisions of the Stockholders' Agreement;
(ii) all of the Securities
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<PAGE> 49
issued to such Selling Securityholders shall bear a legend to the effect that
the Securities may not be sold, transferred or otherwise disposed of except in
accordance with applicable securities laws and the Stockholders' Agreement; and
(iii) subject to certain exceptions they will not, prior to the end of the
Voting Period, without the prior written consent of the Company given pursuant
to a resolution adopted by the affirmative vote of not less than 75% of all of
the directors of the Company, sell in a single transaction or a related series
of transactions shares of Common Stock representing 51% or more of the combined
voting power of all shares of Common Stock then outstanding, other than pursuant
to or in connection with a tender or exchange offer for all shares of Common
Stock and for the benefit of all holders of Class B Common Stock on a pro rata
basis at the same price per share and on the same economic terms. 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. Fidelity Copernicus Fund, L.P. 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.
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.
49
<PAGE> 50
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 statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The reports of KPMG Peat Marwick LLP 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.
50
<PAGE> 51
AMERICA WEST AIRLINES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1995
Condensed Balance Sheets as of September 30, 1995 (Unaudited) and December 31,
1994............................................................................. Q-2
Condensed Statements of Operations for the nine month period ended September 30,
1995 and for the periods August 26, 1994 to September 30, 1994, and January 1,
1994 to August 25, 1994 (Unaudited).............................................. Q-4
Condensed Statements of Cash Flows for the nine month period ended September 30,
1995 and for the periods August 26, 1994 to September 30, 1994, and January 1,
1994 to August 25, 1994 (Unaudited).............................................. Q-5
Notes to Condensed Financial Statements............................................. Q-6
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994
Independent Auditors' Report........................................................ F-1
Balance Sheets as of December 31, 1994 and 1993..................................... F-2
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-3
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-4
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-5
Notes to Financial Statements....................................................... F-6
</TABLE>
Q-1
<PAGE> 52
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 249,854 $ 182,581
Accounts receivable, less allowance for doubtful accounts of
$3,814 in 1995 and $3,531 in 1994............................. 92,197 57,474
Expendable spare parts and supplies, less allowance for
obsolescence of $1,671 in 1995 and $483 in 1994............... 28,219 24,179
Prepaid expenses................................................. 41,819 29,284
----------- ------------
Total current assets.......................................... 412,089 293,518
----------- ------------
Property and equipment:
Flight equipment................................................. 526,354 452,177
Other property and equipment..................................... 98,626 92,169
----------- ------------
624,980 544,346
Less accumulated depreciation and amortization................... 58,331 15,882
----------- ------------
566,649 528,464
Equipment purchase deposits...................................... 27,489 26,074
----------- ------------
594,138 554,538
----------- ------------
Restricted cash.................................................... 29,210 28,578
Reorganization value in excess of amounts allocable to identifiable
assets, net...................................................... 581,428 645,703
Other assets, net.................................................. 25,966 22,755
----------- ------------
$ 1,642,831 $1,545,092
========= ==========
</TABLE>
See accompanying notes to condensed financial statements.
Q-2
<PAGE> 53
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................. $ 65,651 $ 65,198
Accounts payable................................................. 91,922 77,569
Air traffic liability............................................ 227,426 127,356
Accrued compensation and vacation benefits....................... 27,827 15,776
Accrued interest................................................. 7,393 13,109
Accrued taxes.................................................... 54,207 27,061
Other accrued liabilities........................................ 14,969 15,376
------------- ------------
Total current liabilities..................................... 489,395 341,445
------------- ------------
Long-term debt, less current maturities............................ 376,655 465,598
Deferred credits................................................... 110,041 116,882
Other liabilities.................................................. 23,252 25,721
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no
shares issued at September 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 September
30, 1995 and December 31, 1994................................ 12 12
Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 43,967,378 shares at September
30, 1995 and 43,936,272 at December 31, 1994.................. 440 439
Additional paid-in capital....................................... 587,392 587,149
Retained earnings................................................ 55,644 7,846
------------- ------------
Total stockholders' equity.................................... 643,488 595,446
------------- ------------
$ 1,642,831 $1,545,092
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
Q-3
<PAGE> 54
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR
----------------------------- | COMPANY
NINE MONTHS PERIOD FROM | ------------
ENDED AUGUST 26 TO | PERIOD FROM
SEPTEMBER SEPTEMBER | JANUARY 1 TO
30, 30, | AUGUST 25,
1995 1994 | 1994
------------ ------------ | ------------
(UNAUDITED) |
<S> <C> <C> | <C>
Operating revenues: |
Passenger............................................ $1,082,858 $118,592 | $ 882,140
Cargo................................................ 32,613 4,258 | 27,645
Other................................................ 38,862 4,465 | 29,243
-------- --------- | --------
Total operating revenues.......................... 1,154,333 127,315 | 939,028
-------- --------- | --------
Operating expenses: |
Salaries and related costs........................... 283,869 33,047 | 213,722
Rentals and landing fees............................. 210,203 25,823 | 173,710
Aircraft fuel........................................ 126,664 15,694 | 100,646
Agency commissions................................... 93,147 10,508 | 78,988
Aircraft maintenance materials and repairs........... 44,735 4,768 | 28,109
Depreciation and amortization........................ 60,648 6,699 | 56,694
Other................................................ 203,055 22,440 | 179,653
-------- --------- | --------
Total operating expenses.......................... 1,022,321 118,979 | 831,522
-------- --------- | --------
Operating income.................................. 132,012 8,336 | 107,506
-------- --------- | --------
Nonoperating income (expenses): |
Interest income...................................... 11,114 1,083 | 470
Interest expense (contractual interest of $44,747 for |
the period from January 1, 1994 to August 25, |
1994)............................................. (45,461) (6,358) | (33,998)
Loss on disposition of property and equipment........ (2,515) (53) | (1,659)
Reorganization expense, net.......................... -- -- | (273,659)
Other, net........................................... 128 35 | 131
-------- --------- | --------
Total nonoperating expenses, net.................. (36,734) (5,293) | (308,715)
-------- --------- | --------
Income (loss) before income taxes and extraordinary |
items................................................ 95,278 3,043 | (201,209)
-------- --------- | --------
Income taxes........................................... 46,496 1,825 | 2,059
-------- --------- | --------
Income (loss) before extraordinary items............... 48,782 1,218 | (203,268)
-------- --------- | --------
Extraordinary items, net of taxes...................... (984) -- | 257,660
-------- --------- | --------
Net income............................................. 47,798 1,218 | 54,392
Retained earnings (deficit) at beginning of period..... 7,846 -- | (438,626)
-------- --------- | --------
Fresh start adjustments.............................. -- -- | 384,234
-------- --------- | --------
Retained earnings at end of period..................... $ 55,644 $ 1,218 | $ --
======== ========= | ========
Earnings (loss) per share:(a) |
Primary: |
Income (loss) before extraordinary items.......... $ 1.06 $ .03 | $ (7.03)
Extraordinary items, net of taxes................. (.02) -- | 9.02
-------- --------- | --------
Net income........................................ $ 1.04 $ .03 | $ 1.99
======== ========= | ========
Fully Diluted: |
Income (loss) before extraordinary items.......... $ 1.05 $ .03 | $ (4.96)
Extraordinary items, net of taxes................. (.02) -- | 6.37
-------- --------- | --------
Net income........................................ $ 1.03 $ .03 | $ 1.41
======== ========= | ========
Shares used for computation: |
Primary........................................... 46,354 45,125 | 28,550
======== ========= | ========
Fully diluted..................................... 48,256 45,125 | 40,452
======== ========= | ========
</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.
Q-4
<PAGE> 55
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| PREDECESSOR
| COMPANY
REORGANIZED COMPANY | -----------
----------------------------- | PERIOD FROM
NINE MONTHS PERIOD FROM | JANUARY 1
ENDED AUGUST 26 TO | TO
SEPTEMBER 30, SEPTEMBER 30, | AUGUST 25,
1995 1994 | 1994
------------- ------------- | -----------
(UNAUDITED) |
<S> <C> <C> | <C>
Cash flows from operating activities: |
Net income............................................ $ 47,798 $ 1,218 | $ 54,392
Adjustments to reconcile net income to cash provided |
by (used in) operating activities: |
Depreciation and amortization...................... 36,374 3,913 | 56,694
Amortization of reorganization value in excess of |
amounts allocable to identifiable assets......... 24,274 2,786 | --
Amortization of deferred overhauls................. 6,647 -- | --
Amortization of deferred credits................... (8,121) (1,408) | (2,966)
Loss on disposition of property and equipment...... 2,515 53 | 1,659
Reorganization items............................... -- -- | 185,226
Extraordinary (gain) loss on extinguishment of |
debt............................................. 984 -- | (257,660)
Other.............................................. 3,433 298 | (383)
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, net.... (34,275) 12,196 | (18,769)
Decrease (increase) in spare parts and supplies, |
net.............................................. (4,395) (585) | 397
Decrease (increase) in prepaid expenses............ (12,535) (2,687) | 1,284
Decrease in other assets and restricted cash....... 37,907 35 | 12,971
Increase (decrease) in accounts payable............ 13,073 (10,185) | (15,557)
Increase in air traffic liability.................. 100,070 2,205 | 30,510
Increase (decease) in accrued compensation and |
vacation benefits................................ 12,051 (14,126) | 15,739
Increase (decrease) in accrued interest............ (5,651) 2,978 | 4,694
Increase (decrease) in accrued taxes............... 27,146 (4,407) | 25,999
Increase (decrease) in other accrued liabilities... (172) (3,871) | 67,429
Increase (decrease) in other liabilities........... (1,950) 346 | (19,443)
-------- -------- | --------
Net cash provided by (used in) operating |
activities.................................... 245,173 (11,241) | 142,216
Cash flows from investing activities: |
Purchase of property and equipment.................... (81,102) (948) | (61,271)
Proceeds from disposition of property................. 1,597 84 | 334
Long-term investment.................................. (1,750) -- | --
-------- -------- | --------
Net cash used in investing activities............ (81,255) (864) | (60,937)
Cash flows from financing activities: |
Repayment of debt..................................... (93,524) (5,899) | (173,699)
Debt issue costs...................................... (3,130) -- | --
Issuance of long-term debt............................ -- -- | 100,000
Issuance of common stock.............................. -- -- | 114,862
Exercise of warrants.................................. 9 -- | --
-------- -------- | ---------
Net cash provided by (used in) financing |
activities.................................... (96,645) (5,899) | 41,163
-------- -------- | ---------
Net increase (decrease) in cash and cash |
equivalents................................... 67,273 (18,004) | 122,442
-------- -------- | ---------
Cash and cash equivalents at beginning of period........ 182,581 222,073 | 99,631
-------- -------- | ---------
Cash and cash equivalents at end of period.............. $ 249,854 $ 204,069 | $ 222,073
======== ======== | =========
</TABLE>
See accompanying notes to condensed financial statements.
Q-5
<PAGE> 56
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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, "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 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 notes
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 America
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 Incentive Plan, of
which no more than 1,500,000 will be issued as restricted stock or bonus stock.
As of September 30, 1995, the Company's Board of Directors granted under the
Incentive Plan 41,334 shares of restricted stock and options to purchase
2,136,000 shares of Class B Common Stock at the fair market value on the date of
grant ranging from $7.25 to $15.00. Also, options to purchase 75,000 shares of
Class B Common Stock have been granted at the fair market value on date of
grant, which range from $8.00 to $9.75, to members of the Board of Directors who
are not
Q-6
<PAGE> 57
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
employees of the Company. As of September 30, 1995, 33,750 shares of restricted
stock were vested and 291,000 options to purchase shares of Class B Common Stock
were exercisable.
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
(exclusive of extraordinary items) as follows:
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
-------------------------------------------| ---------------
NINE MONTHS PERIOD FROM AUGUST | PERIOD FROM
ENDED 26 TO SEPTEMBER 30,| JANUARY 1 TO
(IN THOUSANDS) SEPTEMBER 30, 1995 1994 | AUGUST 25, 1994
------------------- -------------------| ---------------
<S> <C> <C> | <C>
Current taxes: |
Federal.................................... $ 1,274 $ 742 | $ 1,869
State...................................... 2,420 108 | 190
-------- --------- | --------
3,694 850 | 2,059
Deferred taxes............................... -- -- | --
Income tax expense attributable to |
Reorganization items....................... 42,802 975 | --
-------- --------- | ------- -
Income tax expense........................... $46,496 $ 1,825 | $ 2,059
======== ========= | ========
</TABLE>
For the nine months ended September 30, 1995 and the period from August 26
to September 30, 1994, income tax expense pertains 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 period from January 1 to August 25, 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 period January 1, 1994
through August 25, 1994, August 26 through September 30, 1994 and the nine
months ended September 30, 1995 was as follows:
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
----------------------------------------- | ------------------
NINE MONTHS PERIOD FROM AUGUST | PERIOD FROM
ENDED 26 TO SEPTEMBER | JANUARY 1 TO
(IN THOUSANDS) SEPTEMBER 30, 1995 30, 1994 | AUGUST 25, 1994
------------------ ------------------ | ------------------
<S> <C> <C> | <C>
Interest (net of amounts |
capitalized of $2,044 in |
1995).......................... $ 42,734 $2,405 | $ 29,253
Income taxes..................... $ 60 $ 416 | $ 1,237
</TABLE>
Q-7
<PAGE> 58
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, during the period January 1, 1994 through August 25, 1994,
August 26 through September 30, 1994 and the nine months ended September 30,
1995, the Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
----------------------------------------- | ------------------
NINE MONTHS PERIOD FROM AUGUST | PERIOD FROM
ENDED 26 TO SEPTEMBER | JANUARY 1 TO
SEPTEMBER 30, 1995 30, 1994 | AUGUST 25, 1994
------------------ ------------------ | ------------------
<S> <C> <C> | <C>
(IN THOUSANDS) |
Equipment acquired through |
capital leases................. $ -- $ -- | $ 138
Accrued interest reclassified to |
long-term debt................. $ 65 $ -- | $5,563
Notes payable issued to seller... $ 5,723 $ -- | $ --
Exchange of debt................. $ 75,000 $ -- | $ --
</TABLE>
6. EXTRAORDINARY ITEM
During the third quarter of 1995, the Company had an extraordinary loss of
$984,000, net of a tax benefit of $984,000, or $0.02 per common share, relating
to 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 of 10 3/4% Senior Unsecured Notes due 2005.
The extraordinary gain recorded in the third quarter of 1994 includes
$257.7 million from the discharge of indebtedness pursuant to the consummation
of the Plan of Reorganization.
7. COMMITMENTS AND CONTINGENCIES
(a) Leases
At September 30, 1995, the Company was obligated to lease five aircraft
under a put agreement (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 on a one-
for-one basis.
(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.
(c) Aircraft Acquisitions
At September 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
Q-8
<PAGE> 59
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 other equipment orders. 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
terms acceptable to the Company. 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 or purchase of additional
aircraft. There can be no assurance that the Company will be able to negotiate
such leasing or purchase arrangements in sufficient amounts or on terms
acceptable to the Company.
8. 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 August 25, 1994.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
(IN THOUSANDS) TO AUGUST 25, 1994
------------------
<S> <C>
Professional fees and other expenses......................................... $ 31,959
Adjustment to fair value..................................................... 166,829
Provision for settlement of claims........................................... 66,626
Reorganization success bonuses............................................... 11,956
Interest income.............................................................. (3,711)
--------
$273,659
========
</TABLE>
Q-9
<PAGE> 60
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-1
<PAGE> 61
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-2
<PAGE> 62
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-3
<PAGE> 63
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-4
<PAGE> 64
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-5
<PAGE> 65
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 Holdings 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-6
<PAGE> 66
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 -------------------
(IN THOUSANDS) AUGUST 25, 1994 1993 1992
--------------- ------- -------
<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-7
<PAGE> 67
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-8
<PAGE> 68
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 for 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-9
<PAGE> 69
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-10
<PAGE> 70
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-11
<PAGE> 71
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-12
<PAGE> 72
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 limitations 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-13
<PAGE> 73
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-14
<PAGE> 74
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
------------------ | --------------------------------------
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-15
<PAGE> 75
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-16
<PAGE> 76
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-17
<PAGE> 77
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995................................................... $ 212,340
1996................................................... 205,236
1997................................................... 185,753
1998................................................... 163,520
1999................................................... 159,989
Thereafter............................................. 1,172,241
--------------
$2,099,079
===========
</TABLE>
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 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 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-18
<PAGE> 78
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.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995........................................................... $ 3,223
1996........................................................... 32,608
1997........................................................... 58,230
1998........................................................... 379,309
1999........................................................... 355,540
2000........................................................... 350,863
--------------
$1,179,773
===========
</TABLE>
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-19
<PAGE> 79
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 (in thousands):
<TABLE>
<S> <C>
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
========
</TABLE>
F-20
<PAGE> 80
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-21
<PAGE> 81
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1993 -- PREDECESSOR COMPANY QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
<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-22
<PAGE> 82
======================================================
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....................... 11
Price Range of Class B Common Stock
and Warrants........................ 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 23
Management............................ 32
Certain Transactions.................. 39
Principal Stockholders................ 40
Selling Securityholders............... 43
Description of Capital Stock.......... 44
Description of Warrants............... 47
Plan of Distribution.................. 48
Legal Matters......................... 49
Experts............................... 50
Index to Financial Statements......... Q-1
</TABLE>
======================================================
======================================================
AMERICA WEST AIRLINES
1,200,000 SHARES
CLASS A COMMON STOCK
13,548,549 SHARES
CLASS B COMMON STOCK
5,734,673 CLASS B
COMMON STOCK WARRANTS
------------------------
PROSPECTUS
------------------------
JANUARY 29 ,1996
======================================================
