<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
File Number 333-93393
THE DATE OF THIS PROSPECTUS IS MARCH 17, 2000
PROSPECTUS
$253,826,000
AMERICA WEST AIRLINES, INC.
PASS THROUGH CERTIFICATES, SERIES 1999-1
This prospectus relates to new pass through certificates to be issued by
two separate pass through trusts. Each certificate represents an ownership
interest in the property held by the trust that issued the certificate. The
proceeds of this financing were used to finance ten aircraft for use in our
current operations as a commercial airline. The certificates do not represent
interests in or obligations of America West or any of our affiliates.
The new certificates will be offered in exchange for outstanding
certificates previously issued in September 1999 pursuant to an offering exempt
from the SEC's registration requirements. The new certificates will have the
same material financial terms and will represent the same fractional undivided
interest in the trusts as the outstanding certificates they are replacing.
Certificateholders will receive scheduled payments of interest on each
January 2 and July 2, beginning January 2, 2000. Certificateholders will also
receive scheduled payments of principal on each January 2, and July 2 in
scheduled years, beginning on or after January 2, 2000.
The Class G certificates will rank senior to the Class C certificates.
Morgan Stanley Capital Services Inc. will provide a liquidity facility for
each class of certificates in an amount sufficient to make three semiannual
interest payments.
Ambac Assurance Corporation has issued an insurance policy to support the
payment of interest on the Class G certificates when due and the payment of
principal on the final legal distribution date.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
FINAL EXPECTED
PASS THROUGH CERTIFICATES FACE AMOUNT INTEREST RATE DISTRIBUTION DATE PRICE TO PUBLIC
- ------------------------- ------------ ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1999-1G........................... $233,668,000 7.93% January 2, 2019 100%
1999-1C........................... $ 20,158,000 8.54% January 2, 2006 100%
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You should rely only on the information provided in this prospectus
including the information incorporated by reference. We have not authorized
anyone to provide you with different information. We are not offering the
certificates in any state where the offer is not permitted. We do not claim the
accuracy of the information in this prospectus as of any date other than the
date stated on the cover.
We include cross-references in this prospectus to captions where you can
find further related discussions. The following table of contents provides the
pages on which these captions are located. You can find a glossary of terms
where capitalized terms used in this prospectus are defined under the caption
"Glossary" in Appendix I of this prospectus.
AVAILABLE INFORMATION
We are filing with the SEC a registration statement on Form S-4 relating to
the new certificates. This prospectus is a part of the registration statement,
but the registration statement includes additional information and also attaches
exhibits that are referenced in this prospectus. You can review a copy of the
registration statement through the SEC's "EDGAR" System (Electronic Data
Gathering, Analysis and Retrieval) that is available on the SEC's web site
(http://www.sec.gov).
We are required to file publicly certain information under the Securities
Exchange Act of 1934. All of our public filings are also available on EDGAR,
including reports, proxy statements and other information. You may also read and
copy all of our public filings at the SEC's public reference room in Washington,
D.C. or in their facilities in New York and Chicago. Please call the SEC at
(800) SEC-0330 for further information on the operation of the public reference
rooms. All filings by our parent corporation, America West Holding Corporation,
is also available at the offices of the New York Stock Exchange.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information we file with the
SEC, which means that we can disclose information to you by referring you to
those documents. The information incorporated by reference is considered to be
part of this prospectus, and information that we later file with the SEC will
automatically update the information in this prospectus.
We incorporate by reference all annual, quarterly and current reports we
filed during 1999. These include the annual report on Form 10-K for the year
ended December 31, 1998, the quarterly reports on Forms 10-Q filed for the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999 and the
current report on Form 8-K filed on July 21, 1999. We also incorporate by
reference the portions of the proxy statement for the annual stockholder meeting
held on May 21, 1999, that were incorporated by reference in the Form 10-K. Any
future annual, quarterly or current reports and proxy materials filed prior to
the end of the exchange offer are incorporated by reference.
As a recipient of this prospectus, you may request a copy of any document
we incorporate by reference, except exhibits to the documents (unless the
exhibits are specifically incorporated by reference), at no cost, by writing or
call us at: Corporate Secretary, America West Airlines, Inc., 4000 E. Sky Harbor
Blvd., Phoenix, Arizona 85034; (480) 693-0800. In order to ensure timely
delivery of the documents, please make any such request no later than five
business days prior to the expiration of the exchange offer.
2.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................. 5
FINANCING THE ACQUISITION OF
AIRCRAFT.......................... 5
THE CERTIFICATES.................... 6
CASH FLOW STRUCTURE................. 7
THE EQUIPMENT NOTES................. 9
EXCHANGE OFFER...................... 10
ERISA CONSIDERATIONS................ 10
USE OF PROCEEDS..................... 10
AMERICA WEST........................ 10
RATIO OF EARNINGS TO FIXED
CHARGES........................... 11
SELECTED FINANCIAL DATA............. 12
RISK FACTORS........................ 13
Risk Factors Relating to the
Certificates...................... 13
Because the appraisal values may not
reflect the realizable value of
the aircraft, the proceeds from
the sale of the aircraft may not
be sufficient to pay all of the
certificateholders................ 13
The holders of Class C certificates
may not receive the full amount of
payments that they are due to
receive because their right to
payments on the related series of
equipment notes is subordinate to
the Class G certificates.......... 13
If an Indenture Default occurs and
is continuing, the Controlling
Party may not protect and/or
maximize the financial interests
of certificateholders............. 13
The amount of distributions that
foreign certificateholders receive
will be reduced because of tax
withholdings...................... 14
If a secondary market for the
certificates does not develop, you
may not be able to resell any of
your certificates................. 14
Owner participants could control
aircraft-related matters to the
exclusion of the loan trustees.... 14
Risk Factors Relating to the Policy
Provider.......................... 14
If the financial condition of the
policy provider declines, the
ratings on the certificates may
decline........................... 14
Policy protection may be limited or
delayed because the policy only
covers payment of principal on the
final legal distribution date for
the Class G certificates.......... 14
There is no policy protecting
payments relating to the Class C
certificates...................... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
If the policy provider is the
Controlling Party, it may take
actions that are beneficial to the
policy provider and the holders of
the Class G certificates but
detrimental to the holders of the
Class C certificates.............. 15
Risk Factors Relating to America
West and the Airline Industry..... 15
The airline industry and the markets
we serve are highly competitive
and we may be unable to compete
effectively against carriers with
substantially greater resources or
low-cost structures............... 15
Our high level of debt may limit our
ability to fund general corporate
requirements, limit our
flexibility in responding to
competitive developments and
increase our vulnerability to
adverse economic and industry
conditions........................ 15
Efforts by labor unions to organize
our employees have occurred in the
past and we expect will occur in
the future, which could divert
management attention and increase
our operating expenses............ 16
The stockholders who effectively
control the voting power of our
parent company could take actions
that would favor their own
personal interests to the
detriment of our interests........ 16
Any fluctuations in fuel costs could
affect our operating expenses and
results........................... 16
Our operating costs could increase
as a result of past, current or
new regulations that impose
additional requirements and
restrictions on airline
operations........................ 17
THE EXCHANGE OFFER.................. 18
General............................. 18
The Exchange Offer.................. 18
Tendering Outstanding Certificates
in the Exchange Offer............. 19
Book-Entry Transfer................. 21
Guaranteed Delivery Procedures...... 21
Withdrawal of Tenders............... 22
Conditions.......................... 22
Exchange Agent...................... 22
Transferability of New
Certificates...................... 23
Alternative Use of Shelf
Registration Statement............ 23
Fees and Expenses................... 24
REMAINING PROSPECTUS DISCLOSURE..... 25
THE PARTIES......................... 25
THE MATERIAL AGREEMENTS............. 25
</TABLE>
3.
<PAGE> 4
<TABLE>
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PAGE
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<S> <C>
DESCRIPTION OF THE NEW
CERTIFICATES...................... 26
General............................. 26
Certificates Represent an Ownership
Interest in the Corresponding
Trust............................. 26
Subordination....................... 27
Payments And Distributions.......... 27
Pool Factors........................ 30
Reports To Certificateholders....... 31
Indenture Defaults and Certain
Rights Upon An Indenture
Default........................... 32
Purchase Rights of
Certificateholders................ 35
PTC Event of Default................ 35
Merger, Consolidation And Transfer
Of Assets......................... 35
Modifications of the Pass Through
Trust Agreements and Certain Other
Agreements........................ 36
Mandatory Terms..................... 38
Liquidation of Original Trusts...... 40
Termination of the Trusts........... 41
The Trustees........................ 41
Book-Entry; Delivery and Form....... 41
DESCRIPTION OF THE DEPOSIT
AGREEMENTS........................ 43
General............................. 43
DESCRIPTION OF THE ESCROW
AGREEMENTS........................ 43
DESCRIPTION OF THE LIQUIDITY
FACILITIES........................ 44
General............................. 44
Drawings............................ 44
Reimbursement of Drawings........... 46
Liquidity Events of Default......... 47
Liquidity Provider.................. 47
DESCRIPTION OF THE POLICY AND THE
POLICY PROVIDER AGREEMENT......... 48
The Policy.......................... 48
General............................. 50
The Policy Provider Agreement....... 51
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DESCRIPTION OF THE INTERCREDITOR
AGREEMENT......................... 52
Intercreditor Rights................ 52
Priority of Distributions........... 52
Priority of Distributions if a
Triggering Event Has Occurred..... 53
Voting of Equipment Notes........... 54
The Subordination Agent............. 55
DESCRIPTION OF THE AIRCRAFT AND THE
APPRAISALS........................ 56
The Aircraft........................ 56
The Appraisals...................... 56
Deliveries of Aircraft.............. 58
DESCRIPTION OF THE EQUIPMENT
NOTES............................. 58
General............................. 58
Leveraged Lease Financing........... 58
Subordination....................... 60
Principal And Interest Payments..... 60
Redemption.......................... 60
Security............................ 61
Loan To Value Ratios Of Equipment
Notes............................. 62
Limitation of Liability............. 63
Indenture Defaults, Notice And
Waiver............................ 63
Remedies............................ 64
Modification of Indentures and
Leases............................ 66
Indemnification..................... 67
The Leases.......................... 67
U.S. FEDERAL INCOME TAX
CONSEQUENCES...................... 74
Exchange of Outstanding Certificates
for New Certificates.............. 74
ERISA CONSIDERATIONS................ 74
PLAN OF DISTRIBUTION................ 77
LEGAL MATTERS....................... 78
EXPERTS............................. 78
APPENDIX I--GLOSSARY................ A-I-1
APPENDIX II--APPRAISAL
LETTERS........................... A-II-1
</TABLE>
4.
<PAGE> 5
PROSPECTUS SUMMARY
- - THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE NEW CERTIFICATES,
READ THE ENTIRE PROSPECTUS AND THE EXHIBITS TO THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS IS A PART.
- - THROUGHOUT THIS PROSPECTUS, "WE", "US" AND "AMERICA WEST" REFER TO AMERICA
WEST AIRLINES, INC. AND "HOLDINGS" REFERS TO AMERICA WEST HOLDINGS
CORPORATION, OUR PARENT COMPANY.
- - PLEASE REFER TO THE SECTIONS ENTITLED "THE PARTIES" AND "THE MATERIAL
AGREEMENTS" FOR A SUMMARY OF THE MAIN PARTIES AND MATERIAL AGREEMENTS
DISCUSSED IN THIS PROSPECTUS.
FINANCING THE ACQUISITION OF AIRCRAFT
In September 1999, the Class G trust sold Class G certificates in the face
amount of $232,668,000 and the Class C trust sold Class C certificates in the
face amount of $20,158,000. The proceeds from the sale of these outstanding
certificates financed ten aircraft delivered to America West between August 1999
and February 2000. ABN AMRO Bank N.V., as depositary, took deposit of the
proceeds not used on the sale date to finance aircraft on that date. The
deposits were subsequently withdrawn in connection with the delivery and
financing of each aircraft. The certificates represent an ownership interest in
the trust property of the trust that issued that particular class of
certificates. A certificateholder's interest in a trust is equal to the pro rata
interest in the property of that trust equal to the ratio of the principal
amount of certificates owned by the holder to the aggregate face amount of all
of the certificates issued by that trust.
One of the primary assets of either trust is the equipment notes of the related
series issued in connection with separate aircraft financing transactions for
each of the ten aircraft. For a more complete description of the trust property,
see "Description of the New Certificates -- Certificates Represent an Ownership
Interest in the Corresponding Trust." The equipment notes issued for each
aircraft are secured by a security interest in that aircraft and by an
assignment of rights under the lease of that aircraft to America West, including
the right to receive the rental payments under that lease that serve to pay the
scheduled interest and principal on those equipment notes. The trust "passes
through" to the holders of the certificates of that trust all payments of
interest and principal paid on the equipment notes held in the trust. The two
series of equipment notes reflect different interest rates and priority of
payment. Each trust holds the equipment notes of a single series. The 7.93%
interest rate relating to the Class G certificates and the 8.54% interest rate
relating to the Class C certificates corresponds with the interest rate accruing
on the series of equipment notes held by the related trust. In effect, the
certificateholders hold interests in trusts that own equipment notes secured by
each of the ten aircraft as well as the leases and rentals payable on these
aircraft where America West is the lessee.
The equipment notes issued for each of the ten aircraft were issued as part of a
separate leveraged lease financing for each of the aircraft. In each leveraged
lease financing a grantor trust, commonly known as an owner trust, acting on
behalf of an equity investor was formed to acquire an aircraft, and that owner
trust leased that aircraft to us. A grantor trust, as used in these financings,
is a trust established by the equity investor, as grantor, and a bank or trust
company, as an owner trustee, where the grantor is treated as the owner of the
property in the trust for income tax purposes. The issuance by the owner trust
of Series C and Series G equipment notes helped finance a portion of an owner
trust's acquisition cost of its aircraft. Under this arrangement, the related
trust used the proceeds from the sale of each class of certificates to purchase
the related series of equipment notes. For a more detailed description and
diagram of the leveraged lease structure, see "Description of the Equipment
Notes -- Leveraged Lease Financing."
5.
<PAGE> 6
THE CERTIFICATES
The chart below contains summary information about each class of certificates.
<TABLE>
<CAPTION>
CLASS G CLASS C
CERTIFICATES CERTIFICATES
----------------- -----------------
<S> <C> <C>
Aggregate Face Amount..................................... $233,668,000 $20,158,000
Interest Rate on Related Equipment Notes.................. 7.93% 8.54%
Ratings:
Moody's................................................. Aaa Baa3
Standard & Poor's....................................... AAA BBB
Initial Loan to Aircraft Value (cumulative)(1)............ 56.8% 61.1%
Expected Principal Distribution Window (in years)......... 0.3 - 19.3 0.3 - .3
Initial Average Life (in years)........................... 11.5 2.9
Regular Distribution Dates................................ Jan. 2 and July 2 Jan. 2 and July 2
Final Expected Regular Distribution Date(2)............... Jan. 2, 2019 July 2, 2006
Final Legal Distribution Date(3).......................... July 2, 2020 January 2, 2007
Minimum Denomination...................................... $100,000 $100,000
Section 1110 Protection(4)................................ Yes Yes
Liquidity Facility Coverage(5)............................ 3 semiannual 3 semiannual
interest payments interest payments
Liquidity Facility Amount at July 2, 2000(5).............. $27,153,979 $2,187,035
Policy Provider Coverage(6)............................... Yes No
</TABLE>
(1) As in any secured financing, an important consideration for the lender
is the amount of its loan relative to the value of the asset being
financed. The greater the difference between the value and the loan
amount, the more secure the lender will be because it can better suffer
asset depreciation or distress sales if it must foreclose on the lien
of its security. The initial loan to aircraft values measure the ratio
of (a) in the case of the Class G certificates, the aggregate principal
amount of Series G equipment notes relating to all aircraft, and in the
case of the Class C certificates the aggregate principal amount of
equipment notes with respect to all aircraft to (b) the aggregate
appraised value of all aircraft, and were determined as of July 2,
2000. They assume that the aggregate appraised value of all aircraft
will be $401,582,133.
We have agreed that all agreements to finance the lease of any aircraft
will have a term requiring that, as of the delivery date of an
aircraft, the initial loan to aircraft value for that aircraft will be
no more than the percentages set forth below:
<TABLE>
<CAPTION>
AIRCRAFT FINANCED MAXIMUM INITIAL LOAN
WITH RESPECT TO: TO AIRCRAFT VALUE
----------------- --------------------
<S> <C>
Series G Equipment Notes................................. 57.0%
Series C Equipment Notes................................. 62.0%
</TABLE>
(2) Equipment notes will mature on or before the final expected regular
distribution date for the certificates issued by the trusts that own
them.
(3) The final legal distribution date for each class of certificates is the
final expected regular distribution date for that class of certificates
plus eighteen months, which represents the maximum period the liquidity
provider will service interest payments. The eighteen month liquidity
period is the period required by the rating agencies for transactions
of this type, which period reflects the expected maximum time it should
take to repossess and liquidate the aircraft collateral.
(4) A loan trustee with respect to each aircraft has the benefit of Section
1110 of the U.S. Bankruptcy Code with respect to that aircraft, which
will enable the loan trustee to take possession of that aircraft within
60 days of America West being a debtor under Chapter 11 of the U.S.
Bankruptcy Code, unless we agree to perform all of our obligations
under the related lease financing and cure all defaults other than
those relating to our bankruptcy or financial condition.
(5) If certificateholders do not receive regular payments of interest on
the equipment notes, then Morgan Stanley Capital Services, Inc., as
liquidity provider, will provide for the interest portion of those
payments for up to three consecutive scheduled payments.
(6) If Class G certificateholders do not receive payments of principal or
interest relating to the Class G certificates, then Ambac Assurance
Corporation, as policy provider, will pay to the Class G
certificateholders the interest on each regular distribution date and
the related outstanding pool balances no later than the Class G
certificates' Final Legal Distribution Date.
6.
<PAGE> 7
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the cash flows and structure for
the certificates.
[CASH FLOW CHART]
- -------------------------
(1) Each leased aircraft is subject to a separate lease and the related
indenture.
(2) Funds held as deposits relating to each trust were withdrawn to purchase
equipment notes on behalf of that trust during the delivery period of the
aircraft.
(3) The initial amount of the liquidity facility for each trust, taken
together, will cover three consecutive semiannual interest payments with
respect to each trust, except that the liquidity facility for any trust
will not cover interest payable by the depositary on the deposits relating
to such trust.
(4) The policy covers distributions relating to the Class G certificates. The
policy does not cover premiums, default interest, withholding taxes or any
amounts payable in respect of the Class C certificates.
7.
<PAGE> 8
SCHEDULED PAYMENTS AND SPECIAL PAYMENTS
Scheduled payments on January 2 and July 2 are funded by interest payments due
on the same dates for both the equipment notes and the deposits and principal
payments due on the same dates for the equipment notes. In addition to scheduled
payments, certificateholders may also receive special payments if, prior to
scheduled maturity, we redeem, or the trustee purchases, the equipment notes
from any of the trusts. Special payments, if due, would be made from the
proceeds of redemptions and purchases of equipment notes within 20 days of the
date that certificateholders receive notice that they are entitled to the
payment. These special payments will be made up of the principal, interest and,
in some instances, a premium payable by us.
PAYMENT RANKINGS
Under the intercreditor agreement, Wilmington Trust Company, as subordination
agent, will generally distribute regularly scheduled payments received on the
equipment notes in the following order:
1. to Morgan Stanley Capital Services, Inc., the liquidity provider, to cover
any obligations to reimburse or pay all amounts owing to it under each
liquidity facility;
2. distributions due to Class G certificateholders;
3. obligations owing to the policy provider;
4. distributions due to Class C certificateholders; and
5. fees and expenses to the subordination agent and the trustees.
If a Triggering Event occurs, the subordination agent will not distribute
payments received on the equipment notes to the holders of Class G or Class C
certificates until prior obligations are paid, including administrative expenses
and obligations to the liquidity provider and policy provider. Payments made by
the liquidity provider and the policy provider are not subject to the
subordination provisions of the intercreditor agreement.
For a more detailed description of the distribution of payments received with
respect to the equipment notes, see "Description of the Intercreditor
Agreement--Priority of Distributions."
LIQUIDITY FACILITIES FOR UP TO THREE CONSECUTIVE SCHEDULED PAYMENTS
A liquidity facility for each class of certificates is intended to enhance the
likelihood that certificateholders will receive the interest payable on the
certificates. Morgan Stanley Capital Services, Inc. is the liquidity provider of
each liquidity facility. If certificateholders do not receive regular payments
of interest on the equipment notes, the liquidity provider will provide for the
interest portion of the payments for up to three consecutive scheduled payments.
We refer to the funds that the liquidity provider advances to Wilmington Trust
Company, as subordination agent, to make these payments as "interest drawings."
These interest drawings can not be used to fund any principal or premium
payments relating to the certificates. Additionally, when the liquidity provider
makes an interest drawing, the subordination agent is obligated to reimburse the
liquidity provider for the full amount of the interest drawing ahead of the
certificateholders, to the extent funds are available.
POLICY COVERAGE ON THE CLASS G CERTIFICATES
Ambac Assurance Corporation, the policy provider, has issued an insurance policy
to support the payment of interest relating to the Class G certificates on each
regular distribution date and the payment of principal on the final legal
distribution date of July 2, 2020 (or earlier under some circumstances). The
policy does not cover any amounts payable on the Class C certificates.
Additionally, the policy provider
8.
<PAGE> 9
may be in a position to take actions that are detrimental to the holders of the
Class C certificates. The policy does not cover any of the following:
(1) shortfalls attributable to the liability for withholding taxes;
(2) any premium, prepayment penalty or other accelerated payment which may
become due on or with respect to any Class G certificate; nor
(3) any failure of the subordination agent or the Class G trustee to make
any payment due to the holders of the Class G certificates from the
funds received.
For a more detailed description of the policy and the limitations of its
coverage, see "Description of the Policy and the Policy Provider Agreement" and
"Risk Factors--Risk Factors Relating to the Policy Provider."
THE EQUIPMENT NOTES
An owner trust formed to acquire an aircraft issued two series of equipment
notes to Wilmington Trust Company, as subordination agent, for each financed
aircraft. These are referred to as the Series G equipment notes and the Series C
equipment notes. Each trust purchased the series of equipment notes that have
identical interest rates.
REDEMPTION AND PURCHASE
If normal use of an aircraft is disrupted, the owner trust may cause that
aircraft to be replaced or may redeem the equipment notes issued for that
aircraft. The redemption price in this case would be equal to the aggregate
unpaid principal amount of the applicable equipment notes, together with accrued
interest but without a premium. The owner trust may also redeem the equipment
notes at a price equal to the aggregate unpaid principal amount of those notes,
together with accrued interest and a premium. Additionally, an owner trustee or
an affiliated entity may purchase all of the equipment notes issued for an
aircraft if we default on our lease obligations. The purchase price if we
default would be equal to the aggregate unpaid principal amount of these notes,
together with accrued interest and, in limited circumstances, a premium. Any
redemption would result in a special payment to the certificateholders.
SECURITY
Each equipment note is secured by the aircraft financed by that equipment note
and by the lease related to that aircraft, but not by any other aircraft or the
lease related to any other aircraft. In addition, any default that occurs under
any indenture or lease will only affect that indenture or lease and will not
affect any other indenture or lease. An indenture is the agreement governing the
issuance of the equipment notes and which grants the security in an aircraft.
SUBORDINATION
The Series C equipment notes are subordinate to the Series G equipment notes. In
effect, this means that on each payment date under an indenture the principal of
and interest on Series G equipment notes will be made before similar payments
are made on Series C equipment notes. Additionally, as described in "Risk
Factors Relating to the Certificates--The holders of Class C certificates may
not receive the full amount of payments that they are due to receive because
their right to payments on the related series of equipment notes is subordinate
to the Class C certificates," if there is a default on the equipment notes, the
holders of Class C certificates of certificates may not receive the full amount
of payments that they are due to receive.
INTERCREDITOR RIGHTS
In general, holders of a majority of the outstanding principal of equipment
notes issued under a particular indenture will direct the applicable loan
trustee as to whether or not to take any actions in connection with
9.
<PAGE> 10
that indenture. If an event of default under an indenture occurs, until the
default is cured, the Controlling Party of that indenture may be able to
accelerate and sell all but not less than all of the equipment notes issued by
that indenture.
For a more detailed discussion of the selection and powers of the Controlling
Party, see "Description of the Intercreditor Agreement--Intercreditor
Rights--Controlling Party" and for the related risks, see "Risk Factors Relating
to the Certificates--If an Indenture Default occurs and is continuing, the
Controlling Party may not protect and/or maximize the financial interests of
certificateholders."
EXCHANGE OFFER
The September 1999 sale by the pass through trusts of the outstanding
certificates to Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Smith Barney Inc., and the resale by these initial purchasers of the
outstanding certificates with institutional investors, were exempt from
registration requirements of the SEC but, as a result, the outstanding
certificates are not freely tradable. By registering the new certificates with
the SEC certificateholders can exchange their outstanding certificates for new
certificates that have the same financial terms as the outstanding certificates
and in an equal principal amount. The main difference is that the new
certificates, by being registered with the SEC, will be free of the transfer
restrictions currently imposed on the outstanding certificates.
To participate in the exchange offer, certificateholders must deliver their
outstanding certificates for exchange no later than 5:00 p.m., New York time, on
April 14, 2000. This expiration date may be extended under some circumstances.
Certificateholders must also deliver a completed and signed letter of
transmittal with tender of their outstanding certificates. A letter of
transmittal has been sent to certificateholders and a form can be found as an
exhibit to the registration statement filed with the SEC. For a more complete
description of the procedures for participating in the exchange offer, see "The
Exchange Offer."
ERISA CONSIDERATIONS
In general, employee benefit plans subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended, or ERISA, or Section 4975 of the
Internal Revenue Code of 1986, as amended, or entities which may be deemed to
hold the assets of any ERISA plan, may not be eligible to purchase the
certificates. For a more complete description of ERISA matters, see "ERISA
Considerations."
USE OF PROCEEDS
There will be no cash proceeds payable to us as a result of the issuance of new
certificates in the exchange offer. Proceeds from the sale of the outstanding
certificates funded equipment notes used to finance the acquisition of ten new
aircraft delivered between August 1999 and February 2000.
AMERICA WEST
We are the ninth largest commercial airline carrier in the United States,
operating through our principal hubs located in Phoenix, Arizona and Las Vegas,
Nevada, and a mini-hub located in Columbus, Ohio. We are the lowest cost major
airline in the United States. As of September 30, 1999, we served 60
destinations, including seven destinations in Mexico and one in Canada, with a
fleet of 121 aircraft. We offered service to an additional 40 destinations
through alliance arrangements with other airlines.
We seek to maximize our market share by operating primarily through a hub and
spoke network, the strategy employed by all but one of the major airlines in the
United States. We are the leading airline serving Phoenix based on available
seat miles and takeoffs and landings and the leading airline serving Las Vegas
based on available seat miles. Available seat miles is an airline industry
measurement of production. It represents one seat flown one mile. We believe
that the success of our operations in Phoenix and Las Vegas is in part due to
those cities' airports being among the world's largest 25 in passenger numbers
and
10.
<PAGE> 11
those cities being among the fastest growing in the nation. In addition, we
believe that our hubs are well positioned for continued growth due to their
geographically favorable locations with strategic access to key Southwest and
West Coast markets, relatively low operating costs, year-round fair weather and
modern, uncongested facilities.
We are a Delaware corporation. Our executive offices are located at 4000 E. Sky
Harbor Boulevard., Tempe, Arizona 85034, and our telephone number is (480)
693-0800. America West Holdings Corporation is a Delaware corporation that
became the holding company for America West effective midnight December 31,
1996. The only material assets of Holdings are the capital stock of America West
and the capital stock of The Leisure Company, a travel and leisure subsidiary.
RATIO OF EARNINGS TO FIXED CHARGES
The following information for the period from January 1, 1994 through August 25,
1994 relates to America West's predecessor. Information for the period August
26, 1994 through December 31, 1994, for the years ended December 31, 1995, 1996,
1997 and 1998 and for the nine months ended September 30, 1998 and 1999 relates
to America West. The information as to America West has not been prepared on a
consistent basis of accounting with the information as to the predecessor due to
our adoption in August 1994 of fresh start reporting in accordance with the
American Institute of Certified Public Accountants' Statement of Position
90-7--"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code."
For the period from January 1, 1994 through August 25, 1994, $201.2 million
would have been required to achieve a ratio of earnings to fixed charges of 1.0.
The ratio of earnings to fixed charges for the period August 26, 1994 to
December 31, 1994, and for the years ended December 31, 1995, 1996, 1997 and
1998, was 1.38, 1.73, 1.24, 1.98 and 2.20, respectively. The ratio of earnings
to fixed charges for the nine months ended September 30, 1998 and September 30,
1999 was 2.35 and 2.28, respectively.
For purposes of calculating this ratio, earnings consist of earnings before
taxes, minority interest and extraordinary items plus interest expense (net of
capitalized interest), the portion of rental expense deemed representative of
the interest expense and amortization of previously capitalized interest. Fixed
charges consist of interest expense and the portion of rental expense
representative of interest expense.
11.
<PAGE> 12
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of and for (i) the years ended
December 31, 1998, 1997, 1996 and 1995, the period August 26, 1994 through
December 31, 1994, and the period January 1, 1994 to August 25, 1994, are
derived from the financial statements of America West, which financial
statements have been audited by KPMG LLP, independent certified public
accountants and (ii) the nine month periods ended September 30, 1999 and 1998
are derived from the unaudited condensed financial statements of America West
incorporated by reference in this Prospectus. 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 financial
statements as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, and the report thereon, are
incorporated by reference in this Prospectus. The information presented below
under the caption "Operating Data" is unaudited. 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.
<TABLE>
<CAPTION>
REORGANIZED COMPANY
------------------------------------------------------------------------------------------
NINE MONTHS PERIOD FROM
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, AUGUST 26 TO
----------------------- ------------------------------------------------- DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ------------
(UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $1,594,549 $1,475,866 $1,968,714 $1,874,956 $1,739,526 $1,550,642 $ 469,766
Operating income...................... 161,796 163,062 197,846 162,573 68,666(1) 154,732 38,871
Income before income taxes and
extraordinary items.................. 154,832 153,873 184,557 140,673 34,493 108,378 19,736
Income before extraordinary items..... 87,765 83,874 103,016 75,330 9,610 54,770 7,846
Extraordinary items(2)................ -- -- -- -- (1,105) (984) --
Net income............................ 87,765 83,874 103,016 75,330 8,505 53,786 7,846
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency).......... $ 22,611 $ (149,230) $ (104,356) $ (161,456) $ (170,907) $ 70,416 $ (47,927)
Total assets.......................... 1,776,091 1,622,212 1,594,644 1,547,331 1,597,677 1,588,709 1,545,092
Long-term debt, less current
maturities........................... 155,659 214,933 207,906 272,760 330,148 373,964 465,598
Total stockholder's equity............ 853,613 753,675 769,225 684,768 622,780 649,472 595,446
OPERATING DATA (UNAUDITED):
Available seat miles (in millions).... 19,329 18,070 24,307 23,568 21,625 19,421 6,424
Revenue passenger miles (in
millions)............................ 13,170 12,340 16,374 16,204 15,321 13,313 3,972
Passenger load factor (%)............. 68.1 68.3 67.4 68.8 70.9 68.5 61.8
Yield per revenue passenger mile
(cents).............................. 11.45 11.30 11.35 10.89 10.69 10.91 11.02
Passenger revenue per available seat
mile (cents)......................... 7.80 7.72 7.65 7.49 7.57 7.48 6.81
Operating cost per available seat mile
(cents).............................. 7.41 7.27 7.29 7.27 7.73(1) 7.19 6.71
Fulltime equivalent employees (at end
of period)........................... 11,422 10,458 10,067 9,615 9,652 8,712 10,715
<CAPTION>
PREDECESSOR
COMPANY
------------
PERIOD FROM
JANUARY 1 TO
AUGUST 25,
1994
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $ 939,028
Operating income...................... 107,506
Income before income taxes and
extraordinary items.................. (201,209)
Income before extraordinary items..... (203,268)
Extraordinary items(2)................ 257,660
Net income............................ 54,392
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency).......... $ --
Total assets.......................... --
Long-term debt, less current
maturities........................... --
Total stockholder's equity............ --
OPERATING DATA (UNAUDITED):
Available seat miles (in millions).... 11,636
Revenue passenger miles (in
millions)............................ 8,261
Passenger load factor (%)............. 71.0
Yield per revenue passenger mile
(cents).............................. 10.68
Passenger revenue per available seat
mile (cents)......................... 7.58
Operating cost per available seat mile
(cents).............................. 7.15
Fulltime equivalent employees (at end
of period)........................... 10,849
</TABLE>
- -------------------------
(1) Reflects a $65.1 million nonrecurring special charge relating to America
West's negotiation of its AVSA S.A.R.L. aircraft purchase agreement and
writedown of certain aircraft related inventory and equipment and
underutilized facilities as well as certain other adjustments. The special
charge increased cost per available seat mile by .30 cents for the year
ended December 31, 1996.
(2) Includes (i) an extraordinary loss of $1.1 million in 1996 relating to
prepayment of the 10 3/4% Notes, (ii) an extraordinary loss of $984,000 in
1995 resulting from the exchange of debt by America West and (iii) $257.7
million in 1994 resulting from the discharge of indebtedness pursuant to
the consummation of the plan of reorganization.
12.
<PAGE> 13
RISK FACTORS
RISK FACTORS RELATING TO THE CERTIFICATES
BECAUSE THE APPRAISAL VALUES MAY NOT REFLECT THE REALIZABLE VALUE OF THE
AIRCRAFT, THE PROCEEDS FROM THE SALE OF THE AIRCRAFT MAY NOT BE SUFFICIENT TO
PAY ALL OF THE CERTIFICATEHOLDERS.
You should not rely on the appraisal values as an indicator of the value
that will be realized if the aircraft are sold. We cannot assure you that the
proceeds from a sale or other means of disposal of an aircraft will be
sufficient to fully fund payments due to certificateholders. The assumptions and
methodologies used by the three independent aircraft appraisal companies
described in the appraisals annexed at Appendix II of this prospectus may differ
from the assumptions and methodologies of other appraisal companies, which could
produce very different values for the aircraft. An appraisal is only an estimate
of value and is not necessarily an accurate indication of how much we will pay
to purchase an aircraft. In addition, the realizable value of the aircraft if
any remedies are pursued under the indenture used to acquire that aircraft
following an event of default may depend on the supply and condition of other
available aircraft, the supply of buyers and general economic conditions.
THE HOLDERS OF CLASS C CERTIFICATES MAY NOT RECEIVE THE FULL AMOUNT OF PAYMENTS
THAT THEY ARE DUE TO RECEIVE BECAUSE THEIR RIGHT TO PAYMENTS ON THE RELATED
SERIES OF EQUIPMENT NOTES IS SUBORDINATE TO THE CLASS G CERTIFICATES.
Holders of Class C certificates will not receive payments on the Class C
certificates until holders of the Class G certificates receive the amounts due
to them. In addition, upon a default on a series of equipment notes, the
subordination agent will be required to distribute payments received on the
Series C equipment notes to those certificateholders scheduled to receive
payments on the equipment notes on which the default occurred. In this situation
the remaining Series C equipment notes may not earn enough interest to fully
fund distributions due to the holders of the corresponding class of
certificates. Accordingly, if there is a default on equipment notes, the holders
of Class C certificates may not receive the full amount of payments that they
are due to receive, even if the equipment notes are eventually paid in full.
IF AN INDENTURE DEFAULT OCCURS AND IS CONTINUING, THE CONTROLLING PARTY MAY NOT
PROTECT AND/OR MAXIMIZE THE FINANCIAL INTERESTS OF CERTIFICATEHOLDERS.
The Controlling Party refers to the party that can control decisions
regarding the exercise of remedies if an Indenture Default occurs and is
continuing. During a continuing Indenture Default, the Controlling Party can
direct the subordination agent to sell any or all of the equipment notes,
instructs the loan trustee under the applicable indenture to accelerate the
equipment notes issued under that indenture and direct the foreclosure of the
lien created under the indenture. The actions taken by the Controlling Party in
these circumstances may not protect and/or maximize the financial interests of
the holders of one or more classes of certificates. For example, if the
Controlling Party directs the sale of the equipment notes, the proceeds from the
sale may not be sufficient to cover expected distributions on the certificates.
This is because the market for equipment notes may be limited at any given time
and the Controlling Party may not obtain prices necessary to cover the expected
distribution on the certificates. If proceeds from a sale, or acceleration of
equipment notes, are insufficient to cover expected distributions,
certificateholders will not have any claim for the shortfall against America
West. Additionally, because the equipment notes are not cross-collateralized,
proceeds from the sale of an aircraft in excess of the amounts due on equipment
notes related to that aircraft will not be available to cover losses, if any, on
any other equipment notes.
13.
<PAGE> 14
THE AMOUNT OF DISTRIBUTIONS THAT FOREIGN CERTIFICATEHOLDERS RECEIVE WILL BE
REDUCED BECAUSE OF TAX WITHHOLDINGS.
Taxes will be withheld from distributions made relating to original trusts
and deposits that are made to foreigners that have beneficial ownership of
certificates. These taxes will be withheld because of the possibility that the
original trusts may be treated as partnerships engaged in U.S. trades or
businesses for U.S. federal income tax purposes. This effectively will reduce
the size of distributions to foreign certificateholders. Foreign investors may
file a U.S. federal income tax return to request refunds for any amounts
withheld, but we cannot assure foreign investors that the taxing authorities
will extend the refund in a timely manner, if at all. Additionally, foreign
investors must agree when acquiring a certificate to indemnify the original
trust and Wilmington Trust Company, as the original trustee and paying agent,
against liability for improperly failing to withhold tax.
IF A SECONDARY MARKET FOR THE CERTIFICATES DOES NOT DEVELOP, YOU MAY NOT BE ABLE
TO RESELL ANY OF YOUR CERTIFICATES.
Prior to the exchange offer, there was no public market for the
certificates. Accordingly, a secondary market for the certificates may not
develop and even if one does, it might not continue or it might not be
sufficiently liquid to allow you to resell any of your certificates.
OWNER PARTICIPANTS COULD CONTROL AIRCRAFT-RELATED MATTERS TO THE EXCLUSION OF
THE LOAN TRUSTEES.
Owner participants in the grantor trusts that own the aircraft have the
right to request that revisions be made to transaction documents. Additionally,
prior to a default under the applicable indenture, the owner participant will be
able to approve the selection of counsel that will furnish legal opinions and
any appraisers or accountants. The owner participants can take these actions
even if the actions run counter to the loan trustee's or the certificateholder's
interests. An owner participant also will have the right to approve the sublease
of an aircraft to sublessees not otherwise permitted by the related lease and to
approve the bill of sale used if any aircraft is ever substituted after an event
of loss.
RISK FACTORS RELATING TO THE POLICY PROVIDER
IF THE FINANCIAL CONDITION OF THE POLICY PROVIDER DECLINES, THE RATINGS ON THE
CERTIFICATES MAY DECLINE.
The "AAA" rating by Standard & Poor's and the "Aaa" rating by Moody's of
the Class G certificates are based, primarily, on the existence of an insurance
policy insuring the complete and timely payment of interest relating to the
Class G certificates on each regular distribution date and the payment of
principal on or in some cases before the final legal distribution date. Ambac
Assurance Corporation, the policy provider, issued the policy. If the policy
provider's financial condition declines or if it becomes insolvent, the
subordination agent may be unable to recover the full amount due under the
policy. Additionally, a decline or insolvency could lead Standard & Poor's or
Moody's to downgrade the ratings of the Class G Certificates because of a
concern that the policy provider may be unable to make payments to the holders
of the Class G certificates under the policy. For information on the financial
information generally available relating to the policy provider, see
"Description of the Policy and the Policy Provider Agreement--The Policy".
POLICY PROTECTION MAY BE LIMITED OR DELAYED BECAUSE THE POLICY ONLY COVERS
PAYMENT OF PRINCIPAL ON THE FINAL LEGAL DISTRIBUTION DATE FOR THE CLASS G
CERTIFICATES.
Although the subordination agent may make drawings under the policy for
interest payments on each regular distribution date, the subordination agent
generally may not make drawings for principal payments until the final legal
distribution date for the Class G certificates. This may limit or delay the
protection afforded to holders of Class G certificates under the policy.
14.
<PAGE> 15
THERE IS NO POLICY PROTECTING PAYMENTS RELATING TO THE CLASS C CERTIFICATES.
The policy provides no coverage for the Class C certificates. The policy's
support on interest payments and principal payments is limited to the Class G
certificates and, as a result, the policy will only run to the benefit of the
holders of the Class G certificates.
IF THE POLICY PROVIDER IS THE CONTROLLING PARTY, IT MAY TAKE ACTIONS THAT ARE
BENEFICIAL TO THE POLICY PROVIDER AND THE HOLDERS OF THE CLASS G CERTIFICATES
BUT DETRIMENTAL TO THE HOLDERS OF THE CLASS C CERTIFICATES.
If an Indenture Default occurs and is continuing and the policy provider is
the Controlling Party, the policy provider will generally be able to direct the
exercise of all remedies. The policy provider will be the Controlling Party
unless the policy provider defaults or the liquidity provider has the right to
become the Controlling Party. As the Controlling Party, the policy provider will
be in a position to take actions that are beneficial to the policy provider and
the holders of the Class G certificates but detrimental to the holders of the
Class C certificates.
RISK FACTORS RELATING TO AMERICA WEST AND THE AIRLINE INDUSTRY
THE AIRLINE INDUSTRY AND THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND WE MAY
BE UNABLE TO COMPETE EFFECTIVELY AGAINST CARRIERS WITH SUBSTANTIALLY GREATER
RESOURCES OR LOW-COST STRUCTURES.
The airline industry is highly competitive and industry earnings are
typically volatile. We compete with other airlines on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. We compete against both larger carriers with
substantially greater resources than we have available as well as smaller
carriers with low-cost structures. Many of our larger competitors have
proprietary reservation systems and more expansive marketing and advertising
programs than we do and smaller carriers may be able to offer prices at
discounts lower than we are able to offer. We may be unable to compete
effectively against carriers with substantially greater resources or low-cost
structures.
Most of the markets we serve are highly competitive. The markets we serve
are frequently high volume vacation destinations, most of which are likely to
experience discounted fares because ticket prices are a leading consideration
among leisure travel consumers. At our Phoenix and Las Vegas hubs, our principal
competitor is Southwest Airlines. However, we also compete against new carriers
that enter the airline industry, many of which have low-cost structures and
initiate price discounting. Price discounting occurs when a carrier offers
discounts or promotional fares to passengers. The entry of additional new
carriers in many of our markets, as well as increased competition from or the
introduction of new services by existing carriers, could reduce the numbers of
tickets we sell and therefore affect our operating results.
If the rates of travel on the routes that we serve decrease or if
competition increases between carriers, we may not be able to compete
effectively and our operating results could decline both in absolute terms and
in relation to the operating results of our competitors.
OUR HIGH LEVEL OF DEBT MAY LIMIT OUR ABILITY TO FUND GENERAL CORPORATE
REQUIREMENTS, LIMIT OUR FLEXIBILITY IN RESPONDING TO COMPETITIVE DEVELOPMENTS
AND INCREASE OUR VULNERABILITY TO ADVERSE ECONOMIC AND INDUSTRY CONDITIONS.
As of September 30, 1999, we owed approximately $155.7 million of long-term
debt (less current maturities). Much of this debt is secured by a large portion
of our assets, leaving us with a limited number of assets to use to obtain
additional financing which we may need if we encounter adverse industry
conditions or a prolonged economic recession in the future. Our high level of
debt and the financial and other covenants in our debt instruments may also
limit our ability to fund general corporate requirements, including working
capital and capital expenditures, limit our flexibility in responding to
competitive developments and increase our vulnerability to adverse economic and
industry conditions.
15.
<PAGE> 16
We have outstanding orders to purchase aircraft as well as option rights to
purchase additional aircraft. We have arranged for financing for a portion of
our outstanding orders to purchase the aircraft, but we will have to look to
outside sources to finance the remaining aircraft. We cannot guarantee that we
will be able to obtain enough capital to finance the remainder of the aircraft,
and if we default on our commitments to purchase aircraft, our ability to
execute our business strategy could be materially impaired.
EFFORTS BY LABOR UNIONS TO ORGANIZE OUR EMPLOYEES HAVE OCCURRED IN THE PAST AND
WE EXPECT WILL OCCUR IN THE FUTURE, WHICH COULD DIVERT MANAGEMENT ATTENTION AND
INCREASE OUR OPERATING EXPENSES.
In the recent past, labor unions have made several attempts to organize our
employees, and we expect that these efforts will continue. Currently, the
Transport Workers Union is seeking to organize our customer service
representatives and reservations agents. Certain groups of our employees have
chosen to be represented by unions and we are currently negotiating collective
bargaining agreements with some of these groups. We cannot predict which, if
any, other groups of employees may seek union representation or the outcome of
collective bargaining agreements that we may be forced to negotiate in the
future. The negotiation of these agreements could divert management attention
and result in increased operating expenses and lower net revenues. If we are
unable to negotiate acceptable collective bargaining agreements, we might have
to wait through "cooling off" periods, which are often followed by union-
initiated work actions, including strikes. Depending on the type and duration of
work action we endure, our operating expenses could increase significantly.
THE STOCKHOLDERS WHO EFFECTIVELY CONTROL THE VOTING POWER OF OUR PARENT COMPANY
COULD TAKE ACTIONS THAT WOULD FAVOR THEIR OWN PERSONAL INTERESTS TO THE
DETRIMENT OF OUR INTERESTS.
Currently, three stockholders collectively control approximately 50% of the
total voting power of America West Holdings Corporation, our parent corporation.
These stockholders, TPG Partners, L.P., TPG Parallel I, L.P. and Air Partners
II, L.P. are all controlled by the same company, TPG Advisors, Inc. Since TPG
Advisors, Inc. is an investment firm, its strategic objectives may be different
than both the short-term or long-term objectives of our board of directors
and/or management. We cannot guarantee that the controlling stockholders
identified above will not try to influence Holding's business in a way that
would favor their own personal interests to the detriment of our interests.
Because Holdings owns all of our outstanding shares, these three stockholders
effectively may also be able to control our airline activities, including our
obligations in this offering.
ANY FLUCTUATIONS IN FUEL COSTS COULD AFFECT OUR OPERATING EXPENSES AND RESULTS.
The price and supply of jet fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments, regional
production patterns and environmental concerns. Since fuel is the principal raw
material used in our business, accounting for approximately 11% of our total
operating expenses in 1999, price escalations or reductions in the supply of jet
fuel will increase our operating expenses and cause our operating results to
decline. For example, with our current level of fuel consumption, a one cent per
gallon increase in jet fuel prices will cause our annual operating results to
decline by $4.6 million. We have implemented a "fuel hedging" program to manage
the risk and effect of fluctuating jet fuel prices on our business. Our hedging
program tries to offset increases in jet fuel costs by acquiring derivative
instruments keyed to the future price of heating oil, effectively resulting in a
lower net cost of jet fuel. Despite this program, we may not be adequately
protected against jet fuel costs. First, we have not executed hedging
transactions beyond June 2000. Second, our hedging program covers only
approximately 36% of jet fuel costs in the first quarter of 2000 and 23% of jet
fuel costs in the second quarter of 2000. Finally, our program primarily
addresses our exposure to fuel requirements on the East Coast as opposed to the
more volatile West Coast jet fuel prices, even though we primarily serve the
Western United States and purchase a substantially larger portion of our jet
fuel requirements on the West Coast compared to our larger competitors. For
these reasons, the protective measures we have adopted to
16.
<PAGE> 17
protect against increases in jet fuel costs may be inadequate and our operating
results are susceptible to decline.
OUR OPERATING COSTS COULD INCREASE AS A RESULT OF PAST, CURRENT OR NEW
REGULATIONS THAT IMPOSE ADDITIONAL REQUIREMENTS AND RESTRICTIONS ON AIRLINE
OPERATIONS.
The airline industry is heavily regulated. Both federal and state
governments from time to time propose laws and regulations that impose
additional requirements and restrictions on airline operations. Implementing
these measures, such as recently enacted aviation ticket taxes and passenger
safety measures, has increased operating costs for America West and the airline
industry as a whole. Depending on the implementation of these and other laws,
our operating costs could increase significantly. We cannot predict which laws
and regulations will be adopted or the changes and increased expense that they
could cause. Accordingly, we cannot guarantee that future legislative and
regulatory acts will not have a material impact on our operating results.
17.
<PAGE> 18
THE EXCHANGE OFFER
This section summarizes key provisions of the exchange and registration
rights agreement we entered into with the trustees and the initial purchasers of
the outstanding certificates, which we filed as an exhibit to the registration
statement of which this prospectus is a part.
GENERAL
Under the registration rights agreement, we agreed, at no cost to the
certificateholders, to register certificates with the SEC to allow holders to
trade the certificates. This registration event would take one of two forms set
forth below:
Registration Event
(1) Exchange Offer Registration Statement. An exchange offer would allow
holders to exchange the outstanding certificates for new certificates,
which will have terms identical in all material respects to the
outstanding certificates, except that the new certificates will not
contain transfer restrictions or interest rate increases as described
below and the new certificates will be available only in book-entry
form.
(2) Shelf Registration Statement. Alternatively, we agreed to register the
outstanding certificates for resale through a shelf registration
statement if:
(a) any changes in law or applicable interpretations of the staff of the
SEC would not permit us to effect the exchange offer,
(b) the exchange offer is not completed within 210 days after we issued
the outstanding certificates, which was September 21, 1999 or
(c) holders who are not eligible to participate in the exchange offer
request that we do so.
If we fail to complete the exchange offer or, alternatively, to have a
shelf registration statement declared effective within 210 calendar days of
September 21, 1999, the annual interest rate on the equipment notes and deposits
will be increased by 0.50% from the 210th day until either the exchange offer is
completed, a shelf registration statement is declared effective or the date on
which all of the outstanding certificates are transferable by holders (other
than affiliates or former affiliates of America West) without further
registration.
If during any 12-month period the shelf registration statement ceases to be
effective for more than 60 days, whether or not consecutive, the annual interest
rate on the equipment notes and, if applicable, the deposits will be increased
by 0.50% from the 61st day after the shelf registration statement ceases to be
effective until the shelf registration statement again becomes effective.
THE EXCHANGE OFFER
We agreed to register new certificates with the SEC to allow holders of all
outstanding certificates to exchange their certificates for the new
certificates. This prospectus, together with a letter of transmittal, is being
sent to all registered holders of outstanding certificates as of March 17, 2000
to allow holders to exchange their outstanding certificates.
Our Obligations to Effect an Exchange Offer
(1) File a registration statement to register the new certificates by
January 19, 2000;
(2) cause the registration statement to become effective by March 19,
2000;
(3) keep the registration statement effective while the exchange offer is
open, which must be no fewer than 30 days; and
(4) complete the exchange offer by April 18, 2000.
18.
<PAGE> 19
The exchange offer will commence upon effectiveness of the registration and
terminate 30 calendar days after the exchange offer commences, unless extended.
We have the sole discretion to extend the exchange offer by notifying the
exchange agent and mailing an announcement of the extension to the holders of
outstanding certificates. However, if the exchange offer is not completed by
April 18, 2000, the interest rate on the equipment notes and deposits is subject
to increase.
We have the right to delay acceptance of any outstanding certificates in
the exchange offer, to extend the exchange offer or to terminate the exchange
offer and not permit acceptance of outstanding certificates not previously
accepted if any of the conditions set forth under "--Conditions" occur. We can
also amend the terms of the exchange offer in any manner we deem advantageous to
the holders of the outstanding certificates. We will notify the exchange agent
as promptly as practicable in the event of any delay in acceptance, extension,
termination or amendment. If the exchange offer is amended in a manner we
determine is a material change, we will promptly disclose the amendment in a
manner reasonably calculated to inform the holders of the outstanding
certificates of the amendment. We have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
With some exceptions, holders of outstanding certificates who do not
exchange their outstanding certificates for new certificates in the exchange
offer will no longer be entitled to registration rights. They will also not be
able to offer or sell their outstanding certificates unless the outstanding
certificates are subsequently registered with the SEC or traded in a transaction
exempt from the Securities Act of 1933 and applicable state securities laws.
After the exchange offer is completed, we will not generally be required to
subsequently register the outstanding certificates.
TENDERING OUTSTANDING CERTIFICATES IN THE EXCHANGE OFFER
Only a holder of outstanding certificates may tender certificates in the
exchange offer. The term "holder" here refers to any person in whose name
outstanding certificates are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. Any beneficial owner of outstanding certificates registered in the name
of a broker, dealer, commercial bank, trust company or other nominee who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his behalf. If a beneficial owner wants to tender
on his own behalf, he must, prior to completing and executing a letter of
transmittal and delivering his outstanding certificates, either make appropriate
arrangements to register ownership of the outstanding certificates in his name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Subject to the conditions set forth under "--Conditions", we will accept
for exchange all outstanding certificates validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the date the exchange offer expires.
Outstanding certificates may be tendered only in integral multiples of $1,000.
There is no minimum principal amount of outstanding certificates that must be
tendered in order for the exchange offer to take place. The tender by a holder
of outstanding certificates will constitute an agreement between the holder and
the Company in accordance with the letter of transmittal.
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all outstanding certificates properly tendered will be accepted and the new
certificates will be issued promptly after acceptance of the outstanding
certificates. The exchange agent will act as agent for the tendering holders of
outstanding certificates for the purposes of receiving the new certificates and
delivering new certificates to such holders. Any new certificates issued will be
of the same class and for an equal face amount as the outstanding certificates
tendered. For purposes of the exchange offer, outstanding certificates will be
deemed to have been accepted for exchange when, as and if we have given oral or
written notice thereof to the exchange agent.
19.
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Requirements for Tendering Outstanding Certificates in the Exchange Offer
(1) Complete, sign and date the letter of transmittal or a facsimile
thereof. The letter of transmittal will be mailed to registered holders with a
copy of this prospectus.
(a) Guaranteed Signatures May Be Required. Signatures on a letter of
transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by any member firm of a registered national securities
exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor"
institution within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934 unless the outstanding
certificates are tendered by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal or
for the account of an eligible guarantor institution.
(b) Bond Powers May be Required. If the letter of transmittal is
signed by a person other than the registered holder of any
outstanding certificates, the outstanding certificates must be
endorsed or accompanied by bond powers and a proxy which
authorizes such person to tender the outstanding certificates on
behalf of the registered holder, in each case as the name of the
registered holder or holders appears on the outstanding
certificates.
(c) Fiduciaries Should Identify Themselves. If the letter of
transmittal or any outstanding certificates or bond powers are
signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by us, evidence
satisfactory to us, of their authority to so act must be submitted
with the letter of transmittal.
(2) Mail or otherwise deliver the completed letter of transmittal, and any
other items noted below, to the exchange agent by 5:00 p.m., New York
City time, on or before the date the exchange offer expires. No items
should be sent to us.
(3) Any of the three methods discussed below can be used to deliver the
certificates representing the outstanding certificates to the exchange
agent on or before the date the exchange offer expires. The method of
delivery is up to the holder, who bears the risk of non-delivery.
(a) Send the actual certificates representing the outstanding
certificates to the exchange agent with the letter of transmittal.
If delivery is by mail, insured registered mail is recommended.
(b) If available, make a book-entry delivery of the outstanding
certificates into the exchange agent's account at The Depository
Trust Company, or DTC. Certain brokers, dealers, commercial banks,
trust companies and other nominees who hold outstanding
certificates through DTC must tender their certificates in this
way. Beneficial owners of outstanding certificates registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person promptly if they
wish to tender outstanding certificates in the exchange offer.
(c) Holders who cannot deliver their outstanding certificates or who
cannot complete the procedures for delivery by book-entry transfer
of the outstanding certificates on or before the date the exchange
offer expires, must, in order to participate in the exchange
offer, tender their outstanding certificates according to the
guaranteed delivery procedures set forth below under "--Guaranteed
Delivery Procedures".
All questions as to the validity, form, eligibility and withdrawal of the
tendered outstanding certificates will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all outstanding certificates if they are not
properly tendered or are unlawful in the opinion of our counsel. Unless waived
by us, any defects or irregularities in connection
20.
<PAGE> 21
with tenders of outstanding certificates must be cured within such time as we
determine. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties.
Neither America West, the exchange agent nor any other person is under any
duty to notify holders of outstanding certificates of defects or irregularities
regarding tenders of outstanding certificates, nor shall any of them be liable
for failure to give such notification. Tenders of outstanding certificates will
not be deemed to have been made until irregularities have been cured or waived.
Any outstanding certificates received by the exchange agent that are not
properly tendered or cured of defects or irregularities will be returned to the
holder by the exchange agent, without cost to the holder, as soon as practicable
following the expiration of the exchange offer.
In addition, we reserve the right to purchase or make offers for any
outstanding certificates that remain outstanding after the exchange offer
expires, to terminate the exchange offer, and to purchase outstanding
certificates in the open market if permitted by applicable law. The terms of any
purchase or offer by us could differ from the terms of the exchange offer.
BOOK-ENTRY TRANSFER
For purposes of the exchange offer, the exchange agent will establish an
account relating to the outstanding certificates at DTC within two business days
after the date of this prospectus. Any tendering financial institution that is a
participant in DTC's book-entry transfer facility system must make a book-entry
delivery of the outstanding certificates by causing DTC to transfer such
certificates into the exchange agent's account in accordance with DTC's
Automated Tender Offer Program, or ATOP, procedures for transfers. Any holder of
outstanding certificates using ATOP should transmit its acceptance to DTC on or
prior to the expiration of the exchange offer or comply with the guaranteed
delivery procedures described below. DTC will verify the acceptance of
outstanding certificates, execute a book-entry transfer of the tendered
outstanding certificates into the exchange agent's account at DTC and then send
to the exchange agent confirmation of the book-entry transfer, including an
agent's message confirming that DTC has received an express acknowledgment from
the holder that the holder has received and agrees to be bound by the letter of
transmittal and that the trust and America West may enforce the Letter of
Transmittal against such holder.
GUARANTEED DELIVERY PROCEDURES
A registered holder may use the procedures described below if:
- the holder desires to tender certificates but the certificates are not
immediately available;
- the holder's outstanding certificates will not reach the exchange agent
before the expiration of the exchange offer; or
- the procedures for book entry transfer cannot be completed on a timely
basis.
This procedure can only be handled by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor" institution within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. Prior to
the expiration of the exchange offer, we must receive from one of these eligible
institutions a properly completed and duly executed letter of transmittal or a
facsimile thereof and a Notice of Guaranteed Delivery, substantially in the form
provided by facsimile transmission, mail or hand delivery. The Notice of
Guaranteed Delivery must identify the name and address of the holder of
outstanding certificates, the amount of certificates tendered and a statement
guaranteeing that within three trading days of the execution of the notice the
certificates for all tendered outstanding certificates or a book-entry
confirmation will be deposited by the eligible institution with the exchange
agent. Actual delivery of the outstanding certificates or a book-entry
confirmation within the three day period is required.
21.
<PAGE> 22
WITHDRAWAL OF TENDERS
Tenders of outstanding certificates may be withdrawn by a holder at any
time prior to 5:00 p.m., New York City time on the date the exchange offer
expires by notifying the exchange agent in writing. A notice of withdrawal must
specify the name of the person having tendered the outstanding certificates to
be withdrawn, identify the certificates to be withdrawn including the principal
amount of the certificates, and if the certificates were transmitted, specify
the name in which the outstanding certificates are registered, if different from
that of the withdrawing holder. If certificates were delivered to the exchange
agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal. The signatures on the notice of
withdrawal must be guaranteed by an eligible institution unless the holder is an
eligible institution. If outstanding certificates were tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn certificates and otherwise comply with the
procedures of such facility.
We will have final and binding authority to determine all questions as to
the validity, form and eligibility, including time of receipt, of notices of
withdrawal. Any outstanding certificates so withdrawn will be deemed not to have
been validly tendered for exchange. Any outstanding certificates tendered for
exchange but which were not exchanged for any reason will be returned to the
holder without cost to the holder as soon as practicable after withdrawal.
Outstanding certificates which were tendered by book-entry transfer into the
exchange agent's account at the book-entry transfer facility will be credited to
an account maintained with the book-entry transfer facility for the outstanding
certificates as soon as practicable after withdrawal. Properly withdrawn
certificates may be retendered following the procedures described above at any
time on or prior to the date the exchange offer expires.
CONDITIONS
We may terminate or amend the exchange offer before the acceptance of
outstanding certificates if we determine that we are not permitted to effect the
exchange offer because of any change in law or applicable interpretations
thereof by the SEC. In addition, we will not knowingly accept tenders of
outstanding certificates from "affiliates" of America West within the meaning of
Rule 405 under the Securities Act of 1933 or from any other holder who is not
eligible to participate in the exchange offer under applicable law or
interpretations by the SEC. We will also not accept tenders if the new
certificates to be received by the holder in the exchange offer would not be
tradable by the holder without restriction under the Securities Act of 1933 and
the Securities Exchange Act of 1934 and without material restrictions under the
"blue sky" or securities laws of substantially all of the states of the United
States.
EXCHANGE AGENT
Wilmington Trust Company is the exchange agent for the exchange offer.
Questions and requests for assistance and requests for additional copies of this
prospectus or of the letter of transmittal should be directed to the exchange
agent addressed as follows:
<TABLE>
<S> <C>
By Mail or Overnight Delivery: By Hand:
Wilmington Trust Company Wilmington Trust Company
1100 North Market Street 1105 North Market Street, 1st Floor
Wilmington, Delaware 19890-0001 Wilmington, Delaware 19890
Attention: Tammy Young Attention: Corporate Trust Operations
Facsimile Transmission:
(302) 651-1079
Confirm by Telephone:
(302) 651-8474
</TABLE>
22.
<PAGE> 23
TRANSFERABILITY OF NEW CERTIFICATES
Based on interpretations by the staff of the SEC, we believe that most
holders of new certificates will be able to transfer the new certificates
without compliance with the registration and prospectus delivery requirements of
the Securities Act of 1933. We expect this to be the case as long as the new
certificates are acquired in the ordinary course of the holders' business and
the holders are not engaged in, and do not intend to engage in, a distribution
of the new certificates and have no arrangement with any person to participate
in a distribution of the new certificates. Broker-dealers who acquired
outstanding certificates directly from the trustee for resale under an exemption
under the Securities Act of 1933, or any holder that is an "affiliate" of
America West as defined in Rule 405 of the Securities Act of 1933 must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933.
The SEC staff interpretations relied on are set forth in no-action letters
issued to third parties, including Exxon Capital Holdings Corporation, SEC
No-Action Letter (available April 13, 1989), Morgan Stanley & Co., Incorporated,
SEC No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993).
Other than broker-dealers and affiliates, holders who wish to tender their
outstanding certificates in the exchange offer will be required to the following
representations to us in the letter of transmittal.
Representations Required by Holders to Tender Outstanding Certificates in
Exchange Offer
(1) The holder is not an affiliate of America West nor a broker-dealer
tendering outstanding certificates acquired directly from us for its
own account;
(2) the holder will acquire the new certificates in the ordinary course of
its business; and
(3) the holder is not engaged in, and does not intend to engage in, a
distribution of the new certificates and has no arrangement or
understanding to participate in a distribution of the new
certificates.
Each broker-dealer that receives new certificates for its own account in
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new certificates. By so acknowledging and by
delivering a prospectus, the broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new certificates where the
broker-dealer acquired the exchanged certificates as a result of market-making
activities or other trading activities. We agree to make copies of this
prospectus available to broker-dealers for 180 days after the exchange offer
expires.
ALTERNATIVE USE OF SHELF REGISTRATION STATEMENT
If changes in the law or other circumstances do not allow us to effect the
exchange offer, we will file a shelf registration statement to allow resales of
the outstanding certificates.
Our Obligations if the Shelf Registration Statement Alternative is Pursued
(1) File with the SEC as soon as practicable a shelf registration
statement covering resales of the outstanding certificates;
(2) use our best efforts to have the shelf registration statement declared
effective within 180 calendar days of September 21, 1999; and
(3) use our best efforts to keep the shelf registration statement
effective for two years after it is declared effective, or a shorter
period if all of the outstanding certificates covered by the shelf
registration statement have been sold or are freely transferable under
Rule 144 of the Securities Act of 1933.
23.
<PAGE> 24
FEES AND EXPENSES
We will pay the expenses of soliciting tenders in the exchange offer. The
principal solicitation for tenders is being made by mail; however, additional
solicitations may be made by telegraph, telephone, telecopy, electronic mail or
in person by officers and regular employees of ours. We will pay other expenses
incurred in connection with the exchange offer, including fees and expenses of
the exchange agent and trustee and accounting, legal, printing and related fees
and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses. We may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of the prospectus
and related documents to the beneficial owners of the outstanding certificates,
and in handling or forwarding tenders for exchange.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding certificates in the exchange offer. Certain other transfer taxes may
be imposed on the tendering holder unless satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the letter of
transmittal.
24.
<PAGE> 25
REMAINING PROSPECTUS DISCLOSURE
The remaining sections of this prospectus identify in greater detail the
material terms of the agreements that apply to the pass through certificates and
our acquisition of ten aircraft with the proceeds from the sale of the
certificates. The following sections are summaries only and may not contain all
of the information you may consider important in deciding whether to exchange,
acquire or transfer certificates.
The references to section numbers in parentheses in the following sections
refer you to the relevant section of the agreement governing the terms
described. This will help you to locate the precise legal language governing the
terms we describe. Unless otherwise noted, the section references are to the
pass through trust agreements.
We have minimized the use of defined terms in the remainder of this
prospectus. However, in order to ensure the accuracy of our disclosure, some
terms remain capitalized or are referenced in quotes. You can find a definition
of these terms in the "Glossary" in Appendix I of this prospectus.
THE PARTIES
<TABLE>
<S> <C>
Exchange Agent
Trustee
Subordination Agent
Paying Agent
Loan Trustee........................... Wilmington Trust Company
Depositary............................. ABN AMRO Bank N.V., acting through its Chicago branch
Liquidity Provider..................... Morgan Stanley Capital Services, Inc.
Policy Provider........................ Ambac Assurance Corporation
Appraisal Firms........................ AVITAS, Inc., AvSolutions, Inc. and Morten Beyer and
Agnew, Inc.
</TABLE>
THE MATERIAL AGREEMENTS
Every material agreement summarized in this prospectus was filed as an exhibit
to the registration statement of which this prospectus is a part. Below is a
list of each agreement and a brief description of the purpose of the agreement
in the transaction described in this prospectus. You should read these
agreements to get a complete understanding of the transaction. Upon request,
copies of these agreements will be furnished to any prospective investor in the
certificates. Requests for such agreements should be addressed to Wilmington
Trust Company, as trustee. See also "Available Information" at the front of this
prospectus to find out other ways you can obtain copies of these agreements.
Pass Through Trust
Agreements.................... These agreements between America West and
Wilmington Trust Company, as trustee, relate to
the formation of the pass through trusts that
issue the certificates and that hold the
equipment notes that generate the cash flow to
make payments on the certificates. Separate
agreements exist for the Class G trust and the
Class C trust.
Revolving Credit Agreement.... These agreements govern the liquidity
facilities provided by Morgan Stanley Capital
Services, Inc., as liquidity provider, to cover
up to three semiannual interest payments.
Separate agreements exist for the Class G and
Class C certificates.
Intercreditor Agreement....... This agreement governs the priority of
distribution of payments to certificateholders
and the rights of the various parties to
control remedies and alterations to the
financing agreements.
25.
<PAGE> 26
Exchange and Registration
Rights Agreement.............. This agreement governs our obligation to
register the outstanding certificates either by
completing an exchange offer or, alternatively,
filing a shelf registration statement.
Deposit Agreements............ These agreements govern the deposit of the
proceeds from the sale of the outstanding
certificates and the management of the funds
deposited prior to the application of the
proceeds to finance the aircraft. Separate
agreements exist for the deposits made from the
sale of Class G and Class C certificates.
Escrow and Paying Agent
Agreement..................... These agreements govern the holding of the
deposit proceeds under the Deposit Agreements
for the benefit of the certificateholders and
the ability of the trustee of each pass through
trust to withdraw these deposits to purchase
equipment notes. Separate agreements exist for
the Class G trust and the Class C trust.
Insurance and Indemnity
Agreement..................... This agreement governs the certificate guaranty
insurance policy provided by Ambac Assurance
Corporation, the policy provider, to support
the payments on the Class G certificates.
Note Purchase Agreement....... This agreement governs the terms of the
purchase of equipment notes by the trustee to
finance each aircraft.
DESCRIPTION OF THE NEW CERTIFICATES
GENERAL
Once registered with the SEC, new Class G certificates will be issued by
the Class G trust and new Class C certificates will be issued by the Class C
trust. A separate pass through trust agreement governs the issuance of each
class of new certificates. Holders of outstanding certificates will then be able
to exchange their outstanding certificates for these new certificates until the
expiration of the exchange offer. The terms governing both the Class G trust and
the Class C trust are substantially the same, except as described under
"--Subordination" below and except that the principal amount and scheduled
principal repayments of the equipment notes held by each trust and the interest
rate and maturity date of the equipment notes held by each trust will differ.
However, the financial terms of the new Class G certificates will be the same as
the outstanding Class G certificates and the financial terms of the new Class C
certificates will be the same as the outstanding Class C certificates.
CERTIFICATES REPRESENT AN OWNERSHIP INTEREST IN THE CORRESPONDING TRUST
Each new certificate will represent a fractional undivided interest in the
trust property of the trust that issued that class of certificates. (Section
3.01) The trust property of each trust consists of the items listed below:
TRUST PROPERTY FOR EACH TRUST
- --------------------------------
(1) equipment notes of the series relating to that trust acquired under
the note purchase agreement and issued to Wilmington Trust Company as
subordination agent, on behalf of that trust, in connection with the
delivery of each aircraft;
(2) the rights of that trust to acquire equipment notes of the series
relating to that trust under the note purchase agreement;
(3) the rights of that trust under the intercreditor agreement, including
any funds received under the intercreditor agreement;
26.
<PAGE> 27
(4) all money received under the liquidity facility for that trust;
(5) with respect to the Class G trust, all money received under the
certificate guaranty insurance policy; and
(6) funds from time to time deposited with the trustee in accounts
relating to that trust, including interest on the deposits relating to
that trust.
All payments and distributions made relating to a certificate will be made
only from the trust property of the trust that issued the certificate. (Section
3.11) The certificates do not represent an interest in or obligation of America
West, the trustees, any of the loan trustees or owner trustees in their
individual capacities or any owner participant. Accordingly, the holders of the
certificates must look to the trust property of the trust that issued to it its
certificates for receipt of expected cash flows which, generally speaking on an
ongoing basis, means the payments of principal of and interest on the equipment
notes of that trust.
Certificateholders of a trust have rights relating to any deposits made
from the proceeds of the sale of the certificates issued by that trust. These
rights stem from escrow receipts that are affixed to each certificate. When
certificates are transferred, the rights relating to the deposits are
transferred to the new holder. A certificateholder's rights under the escrow
receipts are not trust property of each trust.
SUBORDINATION
The intercreditor agreement sets forth terms and conditions of the
distribution of payments, including payments received by the subordination agent
in respect of equipment notes. Distributions on the Class G certificates will be
made prior to distributions on the Class C certificates. Distributions on all
classes of certificates may be subordinate to other payment obligations,
including payments to the liquidity provider and policy provider. For a more
detailed description of the priority of payments, see "Description of the
Intercreditor Agreement--Priority of Distributions."
PAYMENTS AND DISTRIBUTIONS
The following description of distributions on the certificates should be
read together with the description of the intercreditor agreement because the
intercreditor agreement may change the effect of the following provisions in the
event of a default.
Scheduled payments of interest on the deposits and of interest or principal
on the equipment notes will be paid to certificateholders on regular
distribution dates. The holders of the Class G certificates will receive
interest accruing on both the deposits corresponding to the Class G trust and
any Series G equipment notes purchased by the Class G trust at an annual rate of
7.93%. The holders of the Class C certificates will receive interest accruing on
both the deposits corresponding to the Class C trust and any Series C equipment
notes purchased by the Class C trust at an annual rate of 8.54%. The
certificates are referred to as pass through certificates because the payments
on the deposits and equipment notes equal the payments owing on the certificates
and are "passed through" to the certificateholders.
Payments of Interest
The deposits held relating to each trust and the equipment notes held in
each trust will accrue interest at the applicable annual rate for certificates
to be issued by the trust shown on the cover page of this prospectus. Interest
will be payable on January 2 and July 2 of each year, commencing on January 2,
2000. In the case of equipment notes issued after January 2, 2000, interest will
be payable commencing with the first such date to occur after initial issuance
of those notes. Interest payments will be distributed to certificateholders of a
trust on each such date until the final distribution date for that trust, except
that payments on the equipment notes may be changed as provided in the
intercreditor agreement. Interest is calculated on the basis of a 360-day year
consisting of twelve 30-day months.
27.
<PAGE> 28
Morgan Stanley Capital Services, Inc., the liquidity provider, is providing
a liquidity facility for each class of certificates in an aggregate amount
sufficient to pay interest on the certificates at the applicable interest rate
for up to three successive regular distribution dates. A separate liquidity
facility was entered into with the Class G trust and the Class C trust. Holders
of Class G certificates will only receive drawings under the liquidity facility
for the Class G trust and holders of Class C certificates will only receive
drawings under the liquidity facility for the Class C trust. For a more detailed
description of the terms and limitations of the liquidity facilities, see
"Description of the Liquidity Facilities."
Payments of interest on the Class G certificates are also supported by a
certificate guaranty insurance policy issued by Ambac Assurance Corporation, the
policy provider. The payments under the policy will be made only after use of
any available funds under the liquidity facility for the Class G trust and any
funds in a cash collateral account previously funded from that liquidity
facility. For a more detailed description of the terms and limitations of the
policy, see "Description of the Policy and the Policy Provider Agreement."
Payments of Principal
Payments of principal of the equipment notes held in each trust are
scheduled to be received by the trustee on January 2 and July 2 in certain years
depending upon the terms of the equipment notes held in that trust, commencing
on or after January 2, 2000.
Payment of principal of the Class G certificates on the final legal
distribution date and, in some limited circumstances earlier, will be supported
by the policy provided by the policy provider. For more details on the policy,
see "Description of the Policy and the Policy Provider Agreement--The Policy".
Distribution of Scheduled Payments
On each regular distribution date, the paying agent distributes to
certificateholders any payments of interest on the deposits relating to the
applicable trust. Also on each regular distribution date, the trustee
distributes to certificateholders any payments of principal and interest on the
equipment notes or relating to other trust property held in each trust. Each
certificateholder of each trust will be entitled to receive its proportionate
share of any distribution of scheduled payments of interest on the deposits
relating to that trust and, subject to the intercreditor agreement, of principal
or interest on equipment notes held on behalf of that trust. Each distribution
of scheduled payments will generally be made by the applicable paying agent or
trustee to the certificateholders of record of the relevant trust on the record
date applicable to that scheduled payment. (Sections 4.01 and 4.02, and Section
2.03 of the Escrow Agreement) If a scheduled payment is not received by the
applicable paying agent or trustee on a regular distribution date but is
received within five days of the regular distribution date, it will be
distributed to the holders of record on the date received. If it is received
after the five-day period, it will be treated as a special payment and
distributed as described below.
Distribution of Special Payments and Certain Policy Drawings
A trustee may receive from time to time payments of principal of, and
interest and premium on, the equipment notes on dates other than scheduled
payment dates. These special payments may occur if the equipment notes owned by
the trust are sold or redeemed early, in which case the payments will be
distributed on the date of the early redemption or purchase, or if scheduled
payments are more than five days late. The term "special payment" also refers to
any unused deposits distributed after the delivery period termination date or
the occurrence of a Triggering Event, together with accrued and unpaid interest
and a premium that we pay. These unused deposits will be distributed 35 days
after the paying agent receives notice of the event requiring the distribution.
This special payment will be scheduled to be distributed on a date 35 days after
the paying agent has received notice of the event requiring the distribution
unless that date is within ten days before or after a regular distribution date,
in which case the special payment will be made on that regular distribution
date.
28.
<PAGE> 29
Each trustee will mail a notice to the certificateholders of the applicable
trust to inform them of the scheduled special distribution date, the related
record date, the amount of the special payment and the reason for the special
payment. This notice will be mailed at least 20 days before the scheduled
distribution of the special payment in the case of a redemption or purchase of
the equipment notes held in the related trust or the occurrence of a Triggering
Event. In the case of any other special payment, the notice will be mailed as
soon as practicable after the trustee has confirmed that it has received funds
for the special payment. (Section 4.02(c)) Each distribution of a special
payment, other than a final distribution, will be made by the trustee to the
certificateholders of record of the applicable trust on the record date for that
special payment. (Section 4.02(b)) See "--Indenture Defaults and Certain Rights
Upon an Indenture Default" and "Description of the Equipment Notes--Redemption"
for a description of the effect of an Indenture Default or redemption on these
payments.
In the case of the distribution of proceeds from any "No Proceeds Drawing"
or "Avoidance Drawing" as described in "Description of the Policy and the Policy
Provider Agreement--The Policy," the Class G trustee will mail a notice to the
certificateholders of the Class G trust stating the scheduled special
distribution date, the related record date, the amount of the distribution and
the reason for the distribution. This notice will be mailed at least 20 days
before the date these proceeds are scheduled to be distributed. Each such
distribution will be made by the Class G trustee to the certificateholders of
record of the Class G trust on the record date applicable to that distribution.
(Section 4.02(c))
Maintenance of Accounts
Each pass through trust agreement requires that the trustee establish and
maintain, for the benefit of the certificateholders of the related trust, one or
more non-interest bearing accounts to deposit payments representing scheduled
payments received by the trustee. The trustee is also required to establish and
maintain, for the benefit of the certificateholders of the related trust, one or
more accounts for the deposit of payments representing special payments received
by the trustee. These special payment accounts will be non-interest bearing
except the trustee will be required to invest amounts in the account in
permitted investments to the extent practicable. The trustee is required to
deposit any payments it receives in the appropriate account. (Section 4.01) All
amounts so deposited will be distributed by the trustee on a regular
distribution date or a special distribution date, as appropriate. (Section 4.02)
Each escrow agreement requires that the paying agent establish and
maintain, for the benefit of the holders of receipts relating to the deposits,
one or more non-interest bearing accounts. The paying agent is required to
deposit interest on the deposits in the appropriate account. All amounts so
deposited will be distributed by the paying agent on a regular distribution date
or special distribution date, as appropriate.
Final Distribution
The final distribution for each trust will be made only upon presentation
and surrender of the certificates for that trust at the office or agency of the
trustee specified in the notice given by the trustee of the final distribution.
The trustee will mail notice of the final distribution to the certificateholders
of that trust, specifying the date for the final distribution and the amount of
the distribution. (Section 11.01) See "Termination of the Trusts" below for a
more detailed description. Distributions relating to certificates issued in
global form will be made as described in "Book Entry; Delivery and Form" below.
Weekend or Holiday Distribution Date
If any regular distribution date or special distribution date is a
Saturday, Sunday or other day on which commercial banks are authorized or
required to close in New York, New York, Phoenix, Arizona, Wilmington, Delaware,
or Hartford, Connecticut distributions scheduled to be made on that regular
distribution date or special distribution date will be made on the next
succeeding business day without additional interest.
29.
<PAGE> 30
POOL FACTORS
Pool Balance
The "pool balance" as of any distribution date represents the portion of
the original aggregate face amount of the certificates issued by a particular
trust that has not been distributed to certificateholders of that trust. It will
be computed after giving effect to any distribution to applicable
certificateholders to be made on that date. (Section 1.01)
Pool Factor
The "pool factor" represents the percentage of the original amount of
certificates issued by a trust that remains undistributed. The pool factor as of
any distribution date will be computed after giving effect to any special
distribution of unused deposits, payment of principal of the equipment notes or
payment of other trust property held in that trust to be made on that date.
(Section 1.01) The pool factor for each trust was 1.0000000 when the outstanding
certificates were initially issued and will decline as the pool balance of that
trust is reduced. The amount of a certificateholder's proportionate share of the
pool balance of a trust can be determined by multiplying the par value of the
holder's certificate of that trust by the pool factor for that trust as of the
applicable distribution date. Notice of the pool factor and the pool balance for
each trust will be mailed to certificateholders of that trust on each
distribution date. (Section 4.03)
Aggregate Principal Amortization Schedule
The following table shows an assumed amortization schedule for the
equipment notes held in each trust and resulting pool factors for that trust.
The actual aggregate principal amortization schedule applicable to a trust and
the resulting pool factors may differ from those set forth below. As these
amortization schedules are subject to change if the assumptions do not hold
true, America West is not contractually obligated to comply with them. However,
the amortization schedule for the equipment notes issued relating to an aircraft
must comply with the mandatory economic terms for the financing of an aircraft.
The following table assumes the following:
- that each aircraft will be delivered in the scheduled month;
- that the trusts purchase equipment notes in the maximum principal amount
for all aircraft;
- that no early redemption or purchase of equipment notes occurs;
- that no default occurs in the payment of principal or interest on the
equipment notes;
- that no Triggering Event occurs; and
- that there is no drawing under the certificate guaranty insurance policy,
other than in respect of interest on the certificates.
If any of these assumptions do not occur, the assumed amortization schedule
below will differ.
<TABLE>
<CAPTION>
1999-1G TRUST 1999-1C TRUST
EQUIPMENT NOTES EQUIPMENT NOTES
SCHEDULED SCHEDULED 1999-1C TRUST
PAYMENTS OF 1999-1G TRUST PAYMENTS OF EXPECTED POOL
REGULAR DISTRIBUTION DATE PRINCIPAL EXPECTED POOL FACTOR PRINCIPAL FACTOR
- ------------------------- --------------- -------------------- --------------- -------------
<S> <C> <C> <C> <C>
January 2, 2000.............. $5,387,382.98 0.9769443 $3,085,129.91 0.8469526
July 2, 2000................. 0.00 0.9769443 0.00 0.8469526
January 2, 2001.............. 6,414,664.01 0.9494922 2,507,586.93 0.7225560
July 2, 2001................. 0.00 0.9494922 0.00 0.7225560
January 2, 2002.............. 7,060,279.46 0.9192772 3,770,663.17 0.5355005
July 2, 2002................. 0.00 0.9192772 0.00 0.5355005
</TABLE>
30.
<PAGE> 31
<TABLE>
<CAPTION>
1999-1G TRUST 1999-1C TRUST
EQUIPMENT NOTES EQUIPMENT NOTES
SCHEDULED SCHEDULED 1999-1C TRUST
PAYMENTS OF 1999-1G TRUST PAYMENTS OF EXPECTED POOL
REGULAR DISTRIBUTION DATE PRINCIPAL EXPECTED POOL FACTOR PRINCIPAL FACTOR
- ------------------------- --------------- -------------------- --------------- -------------
<S> <C> <C> <C> <C>
January 2, 2003.............. 8,014,608.99 0.8849781 3,987,376.87 0.3376944
July 2, 2003................. 0.00 0.8849781 0.00 0.3376944
January 2, 2004.............. 9,365,617.80 0.8448972 3,958,605.13 0.1413155
July 2, 2004................. 0.00 0.8448972 0.00 0.1413155
January 2, 2005.............. 12,495,401.20 0.7914222 1,695,711.66 0.0576906
July 2, 2005................. 0.00 0.7914222 0.00 0.0576906
January 2, 2006.............. 13,083,696.06 0.7354295 19,162,926.33 0.0000000
July 2, 2006................. 0.00 0.7354295 0.00 0.0000000
January 2, 2007.............. 11,209,721.45 0.6874567 0.00 0.0000000
July 2, 2007................. 3,095,483.98 0.6742093 0.00 0.0000000
January 2, 2008.............. 31,069,003.55 0.6609169 0.00 0.0000000
July 2, 2008................. 6,408,747.64 0.6334902 0.00 0.0000000
January 2, 2009.............. 3,385,324.07 0.6190025 0.00 0.0000000
July 2, 2009................. 54,670,310.34 0.5947359 0.00 0.0000000
January 2, 2010.............. 3,069,836.70 0.5815983 0.00 0.0000000
July 2, 2010................. 42,439,182.39 0.5634393 0.00 0.0000000
January 2, 2011.............. 2,501,500.00 0.5527340 0.00 0.0000000
July 2, 2011................. 6,422,511.70 0.5252483 0.00 0.0000000
January 2, 2012.............. 2,266,831.17 0.5155472 0.00 0.0000000
July 2, 2012................. 8,733,335.37 0.4781723 0.00 0.0000000
January 2, 2013.............. 4,991,073.36 0.4568126 0.00 0.0000000
July 2, 2013................. 7,171,109.55 0.4261233 0.00 0.0000000
January 2, 2014.............. 8,144,628.68 0.3912677 0.00 0.0000000
July 2, 2014................. 12,065,086.82 0.3396343 0.00 0.0000000
January 2, 2015.............. 6,717,588.43 0.3108858 0.00 0.0000000
July 2, 2015................. 48,269,264.36 0.2902315 0.00 0.0000000
January 2, 2016.............. 12,146,939.44 0.2382477 0.00 0.0000000
July 2, 2016................. 2,561,617.20 0.2272851 0.00 0.0000000
January 2, 2017.............. 14,110,504.32 0.1668981 0.00 0.0000000
July 2, 2017................. 4,443,412.96 0.1478822 0.00 0.0000000
January 2, 2018.............. 21,448,979.41 0.0560896 0.00 0.0000000
July 2, 2018................. 633,454.03 0.0533787 0.00 0.0000000
January 2, 2019.............. 12,472,900.58 0.0000000 0.00 0.0000000
</TABLE>
If there occurs (1) any change in the scheduled repayments or (2) any
redemption, purchase, default or special distribution, the pool factors and pool
balances of each trust so affected will be recomputed and certificateholders of
the affected trust will be notified promptly after the delivery period
termination date in the case of clause (1) and promptly after the occurrence of
any event described in clause (2).
REPORTS TO CERTIFICATEHOLDERS
On each distribution date, the applicable paying agent and trustee will
include a report with each distribution of a scheduled payment or special
payment to certificateholders. The report will set forth the
31.
<PAGE> 32
following information (per $1,000 aggregate principal amount of certificates for
each trust, as to (2), (3), (4) and (5) below):
(1) the aggregate amount of funds distributed on that distribution date,
indicating the amount allocable to each source including any portion
paid by the liquidity provider and/or the policy provider;
(2) the amount of the distribution allocable to principal and the amount
allocable to premium (including any premium we pay with respect to
unused deposits), if any;
(3) the amount of the distribution under the pass through trust agreement
allocable to interest;
(4) the amount of the distribution under the escrow agreement allocable to
interest; and
(5) the pool balance and pool factor for the trust. (Section 4.03)
As long as the certificates are registered in the name of DTC or its
nominee, on the record date prior to each distribution date, the applicable
trustee will request from DTC a securities position listing containing the names
of all DTC participants reflected on DTC's books as holding interests in the
certificates on that record date. On each distribution date, the applicable
paying agent and trustee will mail to each such DTC participant the statement
described above and will make available additional copies as requested by the
DTC participant for forwarding to certificateholders. (Section 4.03(a); Section
2.03 of the Escrow Agreement)
After the end of each calendar year, the applicable trustee and paying
agent will prepare a report for each holder of certificates at any time during
the preceding calendar year containing the sum of the amounts of distributions
listed in clauses (1), (2), (3), (4) and (5) above relating to the trust for
that calendar year. If that person was a certificateholder during only a portion
of that calendar year, the report may contain information for only the
applicable portion of that calendar year. The trustee will also prepare any
other items that are readily available to the trustee and which a
certificateholder may reasonably request to prepare its U.S. federal income tax
returns. (Section 4.03(b)) The reports and other items described in this section
will be prepared based on information supplied to the trustee by DTC
participants and will be delivered by the trustee to DTC participants to be
available for forwarding by DTC participants to certificateholders in the manner
described above. (Section 4.03(b))
If the certificates are issued in the form of physical certificates, the
applicable paying agent and trustee will prepare and deliver the information
described above to each record holder of a certificate issued by that trust as
the name appears on the records of the registrar of the certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An Indenture Default under an indenture could result in certificateholders
receiving less than the full expected distribution of principal of and interest
on the equipment notes held by the pass through trust that issued the
certificates they own. An Indenture Default for an aircraft we lease will
include an event of default under the related lease. Since the equipment notes
issued under an indenture may be held in more than one trust, a continuing
Indenture Default under that indenture would affect the equipment notes issued
under that indenture held by each such trust. There are no cross-default
provisions in the indentures or in the leases. This means that events resulting
in an Indenture Default under any particular indenture may or may not result in
an Indenture Default under any other indenture, and a Lease Event of Default
under any particular lease may or may not constitute a Lease Event of Default
under any other lease. If an Indenture Default occurs in fewer than all of the
indentures, remedies may be exercised only against the aircraft subject to the
Indenture Default while payments of principal and interest on the equipment
notes issued under indentures for which a default has not occurred will continue
to be made as originally scheduled. This lack of a cross-default could therefore
result in partial redemptions of the certificates and could exacerbate the risks
to the holders of the Class C certificates described in "Risk Factors Relating
to the Certificates -- The holders of Class C certificates may not receive the
full amount of payments that
32.
<PAGE> 33
they are due to receive because their right to payments on the related series of
equipment notes is subordinate to the Class G certificates."
Right to Cure
The applicable owner trustee and owner participant may have the right to
cure Indenture Defaults under an indenture that result from a default under the
related lease. The Indenture Default will be considered cured if the owner
trustee or the owner participant exercises any such cure right.
Resignation of Trustee In the Event of a Conflict of Interest
If the equipment notes outstanding under an indenture are held by more than
one trust, then each trust will hold equipment notes with different terms than
the notes held in other trusts. In these circumstances, the holders of
certificates issued by different trusts may have diverging or conflicting
interests. If the same institution acts as trustee of multiple trusts, the
trustee could be faced with a potential conflict of interest upon an Indenture
Default. In this event, each trustee faced with a conflict will resign as
trustee of one or all such trusts, and one or more successor trustees would be
appointed as replacements. Wilmington Trust Company is the initial trustee under
each trust.
Consequence of Continuing Indenture Default
If any Indenture Default under any indenture occurs and is continuing, the
Controlling Party may direct the loan trustee to accelerate the equipment notes
issued under that indenture and thereafter direct the loan trustee in the
exercising of remedies under that indenture and may direct the holder of the
equipment notes to sell the equipment notes issued under that indenture. The
holder of the equipment notes is the subordination agent, acting on behalf of
the respective trusts; the equipment notes are issued in the name of the
subordination agent in order to effect properly the subordination provisions of
the intercreditor agreement. See "Description of Intercreditor
Agreement--Intercreditor Rights--Sale of Equipment Notes and Aircraft" for a
more detailed description of the Controlling Party and its rights.
The proceeds of the sale of equipment notes will be distributed pursuant to
the provisions of the intercreditor agreement. Any such proceeds will be
deposited in the applicable special payments account and distributed to the
holders of the applicable trust on a special distribution date. (Sections 4.01
and 4.02) The market for equipment notes when an Indenture Default exists may be
very limited and the price is uncertain. If the equipment notes are sold for
less than their outstanding principal amount, the Class C certificateholders
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against America West, any liquidity
provider, the policy provider, any owner trustee, any owner participant or any
trustee.
Following an Indenture Default, all payments received by the trustee or
with respect to equipment notes issued under the applicable indenture, other
than scheduled payments received on a regular distribution date, will be treated
as special payments and deposited in a special payments account. All amounts
deposited in the special payments and deposited in a special payments account
will be distributed to the certificateholders on a special distribution date. In
addition, if the applicable owner participant or owner trustee exercises its
option to redeem or purchase the outstanding equipment notes issued under the
applicable indenture, the proceeds from that redemption or purchase will be
deposited in the special payments account for the applicable trust. These
amounts will then be distributed to the certificateholders on a special
distribution date. (Section 4.01 and 4.02).
Any funds held in the special payments account for a trust will, to the
extent practicable, be invested and reinvested by the trustee of that trust in
permitted investments pending the distribution of those funds on a special
distribution date. (Section 4.04) These permitted investments include
obligations of the United States or its agencies or instrumentalities in which
the full faith and credit of the United States is pledged and which mature in
not more than 60 days or a lesser time as may be required for the distribution
of the funds on a special distribution date. (Section 1.01)
33.
<PAGE> 34
Notice to Certificateholders of Default
Each pass through trust agreement provides that the trustee of the related
trust will, within 90 days after the occurrence of any default, give notice to
the certificateholders of that trust of all uncured or unwaived defaults known
to it relating to that trust. However, in the case of default in a payment of
principal, premium, if any, or interest on any of the equipment notes held in a
trust, the applicable trustee will be protected in withholding a notice of
default if it in good faith determines that withholding the notice is in the
interests of the certificateholders. (Section 7.02) The term "default" as used
in this paragraph only means the occurrence of an Indenture Default relating to
equipment notes held by the trust as described above, except that in determining
whether any Indenture Default has occurred, any related grace period or notice
will be disregarded.
Trustee Entitled to Security or Indemnity
Each pass through trust agreement requires the trustee to act with a
specified standard of care while an Indenture Default is continuing. In
addition, each pass through trust agreement contains a provision entitling the
trustee to be offered reasonable security or indemnity by the certificateholders
of that trust against costs, expenses and liabilities before proceeding to
exercise any right or power under the pass through trust agreement at the
request of those certificateholders. (Section 7.03(e)) While the type of
security or indemnity will depend upon the nature of the certificateholders'
request, the trustee is likely to seek an explicit agreement of the
certificateholders to indemnify it for the specified actions requested to be
taken and payment of the various fees and expenses it may incur in complying
with the request.
Rights of Certificateholders
Subject to qualifications in the pass through trust agreements and the
applicable intercreditor agreement, the certificateholders of each trust holding
certificates evidencing fractional undivided interests aggregating not less than
a majority in interest in that trust will have certain rights. These rights
include the ability to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable trustee or exercising any
trust or power conferred on the trustee, including any right of the trustee as
Controlling Party under the intercreditor agreement or as holder of the
equipment notes. (Section 6.04)
In some cases, the holders of the certificates of a trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of that trust may waive any past "event of default" under that trust, including
an Indenture Default, or may direct the trustee or loan trustee to waive any
past Indenture Default and its consequences. Some defaults, however, may not be
waived. Defaults that may not be waived are as follows:
Defaults That May Not Be Waived
(1) a default in the deposit of any scheduled payment or special payment
or in the distribution thereof;
(2) a default in payment of the principal, premium, if any, or interest
with respect to any of the equipment notes; and
(3) a default in respect of any covenant or provision of the related pass
through trust agreement that cannot be modified or amended without the
consent of each certificateholder of the trust affected thereby.
(Section 6.05)
Each indenture will provide that, with some exceptions, the holders of the
majority in aggregate unpaid principal amount of the equipment notes issued
under that indenture may on behalf of all holders waive any past default or
Indenture Default. Notwithstanding these provisions of the indentures, under the
intercreditor agreement only the Controlling Party will be entitled to waive any
past default or Indenture Default.
34.
<PAGE> 35
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the trustee and to each certificateholder of the
same class, the holders of Class C certificates will have the right within 180
days to purchase all, but not less than all, of the Class G certificates, and,
whether or not this right is exercised, the policy provider will thereafter have
the right to purchase all, but not less than all, of the Class G certificates.
In each case, the purchase price will equal the pool balance of the relevant
class or classes of certificates plus accrued and unpaid interest on the pool
balance to the date of purchase, without premium, but including any other
amounts due to the certificateholders of such class or classes. In each case, if
prior to the end of the ten-day period, any other certificateholder of the same
class notifies the purchasing certificateholder that the other certificateholder
wants to participate in the purchase, then the other certificateholder may join
with the purchasing certificateholder to purchase the certificates
proportionately based on the interest in the trust held by each
certificateholder. (Section 6.01(b))
PTC EVENT OF DEFAULT
Any failure to make expected principal distributions on any class of
certificates on any regular distribution date other than the final legal
distribution date will not constitute a PTC Event of Default for those
certificates. A PTC Event of Default for the most senior outstanding class of
certificates resulting from an Indenture Default under all indentures will
constitute a Triggering Event. See "Description of the Intercreditor
Agreement--Priority of Distributions" for a discussion of the consequences of a
Triggering Event.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
We are prohibited from consolidating with or merging into any other
corporation or transferring substantially all of our assets as an entirety to
any other corporation unless all the requirements noted below are satisfied:
Requirements for Consolidation, Merger or Transfer of Assets
(1) the surviving successor or transferee corporation is a citizen of the
United States as defined in Title 49 of the United States Code
relating to aviation;
(2) the surviving successor or transferee corporation is a United States
certificated air carrier;
(3) the surviving successor or transferee corporation expressly assumes
all of our obligations in the pass through trust agreements, the note
purchase agreement, the indentures, the participation agreements and
the leases;
(4) we have delivered a certificate indicating that the transaction
complies with these conditions (Section 5.02); and
(5) additionally, after giving effect to the transaction, no Lease Event
of Default has occurred and is continuing. (Leases, Section 13.2)
The pass through trust agreements, the note purchase agreement, the
indentures, the participation agreements and the leases do not and will not
contain any covenants or provisions that would give any trustee or
certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of America West.
35.
<PAGE> 36
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each pass through trust agreement contains provisions permitting us to
amend or supplement the pass through trust agreement or the other material
agreements without the consent of the holders of any of the certificates of a
trust for the reasons listed below:
Basis for Amendments or Supplements to Pass Through Trust Agreements
(1) to reflect that another corporation is the successor to America West
and has assumed our covenants under the agreements;
(2) to add to our covenants for the benefit of holders of certificates or
to surrender any right or power conferred upon us under the
agreements;
(3) to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the pass through trust agreement or the
other agreements, or to cure any ambiguity, correct any mistake or
modify any other provisions with respect to matters or questions
arising under those agreements;
(4) to comply with any requirement of the SEC, any applicable law, rules
or regulations of any exchange or quotation system on which the
certificates may be listed, any regulatory body or the registration
rights agreement to effect the exchange offer;
(5) to modify, eliminate or add to the provision of the pass through trust
agreement to the extent necessary to continue qualification under the
Trust Indenture Act of 1939 and to add to the pass through trust
agreement other provisions as may be expressly permitted by the Trust
Indenture Act;
(6) to provide for a successor trustee or to add to or change any
provision of the pass through trust agreement as to the trustee as
necessary to facilitate the administration of the trust created under
that agreement by more than one trustee;
(7) to provide certain information to the trustee as required under the
pass through trust agreement; or
(8) to modify or eliminate provisions relating to the transfer or exchange
of new certificates or the certificates upon completion of the
exchange offer or effectiveness of the shelf registration statement.
Any amendment or supplement listed above may be made only if it does not
adversely affect the status of the trust as a grantor trust under Subpart E,
Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code
for U.S. federal income tax purposes. (Section 9.01)
Each pass through trust agreement also contains provisions permitting us,
with the consent of a majority in interest of the certificateholders of the
related trust and with the consent of the applicable owner trustee, which
consent cannot be unreasonably withheld, to execute amendments or supplements to
add any provisions to, or change or eliminate any of the provisions of, the pass
through trust agreement or the various agreements or to modify the rights and
obligations of the certificateholders. No amendment or supplement may, without
the consent of each affected certificateholder, have any of the effects
identified below:
Amendments or Supplements That Require Consent of the Affected Holder
(1) Reduce in any manner the amount of, or delay the timing of, any
receipt by the trustee (or, with respect to the deposits, the
certificateholders) of payments on the deposits, the equipment notes
or other trust property held in the applicable trust or distributions
for any certificate related to that trust, or change the date or place
of any payment relating to any certificate, or make distributions
payable in coin or currency other than that provided for in the
certificates, or
36.
<PAGE> 37
impair the right of any certificateholder to institute suit for the
enforcement of any such payment when due;
(2) permit the disposition of any equipment note held in the trust, except
as provided in the pass through trust agreement, or otherwise deprive
any certificateholder of the benefit of the ownership of the
applicable equipment notes;
(3) alter the priority of distributions specified in the intercreditor
agreement in a manner adverse to the certificateholders;
(4) reduce the percentage of the aggregate fractional undivided interests
of the trust provided for in the pass through trust agreement that is
required in order to obtain the consent of the holders for that
supplement or for any waiver provided for in the pass through trust
agreement;
(5) modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or
receipt of payment; or
(6) adversely affect the status of the trust as a grantor trust under
Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A of the
Internal Revenue Code for U.S. federal income tax purposes. (Section
9.02)
Actions by Trustee Upon Receipt of Consent to Amend or Supplement any
Agreement
In the event that a trustee, as holder or beneficial owner through the
subordination agent of any equipment note in trust for the benefit of the
certificateholders of the relevant trust or as Controlling Party under the
intercreditor agreement, receives a request for a consent to any amendment,
modification, waiver or supplement under any indenture, any participation
agreement, any lease, any equipment note or any other related document, the
trustee will promptly send a notice of the proposed amendment, modification,
waiver or supplement to each certificateholder of the relevant trust as of the
date of the notice. The notice will request direction from the
certificateholders regarding the matters set forth below:
Information Requested by Trustee from Certificateholders
(1) whether or not to take or refrain from taking, or direct the
subordination agent to take or refrain from taking, any action which a
holder of that equipment note or the Controlling Party has the option
to take;
(2) whether or not to give or execute, or direct the subordination agent
to give or execute, any waivers, consents, amendments, modifications
or supplements as a holder of that equipment note or as Controlling
Party; and
(3) how to vote, or direct the subordination agent to vote, any equipment
note if a vote has been called for with respect to the amendment,
modification, waiver or supplement.
Provided a request for certificateholder direction is made, in directing
any action or casting any vote or giving any consent as the holder of any
equipment note, or in directing the subordination agent in any of the foregoing,
the trustee will:
(1) if the trustee is acting other than as Controlling Party, vote for or
give consent to any such action with respect to the equipment note in
the same proportion as that of (x) the aggregate face amounts of all
certificates actually voted in favor of or for giving consent to the
action by direction of certificateholders to (y) the aggregate face
amount of all outstanding certificates of the relevant trust; and
(2) if the trustee is acting as the Controlling Party, vote as directed in
the direction by the certificateholders evidencing fractional undivided
interests aggregating not less than a majority in interest in the
relevant trust.
37.
<PAGE> 38
For purposes of the direction just described, a certificate is deemed
"actually voted" if the certificateholder has delivered to the trustee an
instrument evidencing consent to the direction prior to two business days before
the trustee directs the action or casts the vote or gives the consent.
Notwithstanding the foregoing, but subject to certain rights of the
certificateholders under the relevant pass through trust agreement and subject
to the intercreditor agreement, the trustee may, in its own discretion and at
its own direction, consent and notify the relevant loan trustee of the consent,
or direct the subordination agent to consent and notify the relevant loan
trustee of the consent, to any amendment, modification, waiver or supplement
under the relevant document, if an indenture default has occurred and is
continuing, or if the amendment, modification, waiver or supplement will not
materially adversely affect the interests of the certificateholders. (Section
10.01)
MANDATORY TERMS
The description of the agreements in this prospectus is based on the forms
of agreements contemplated by the note purchase agreement. The terms of the
agreements actually entered into may differ from the forms of the agreements
and, consequently, may differ from the description of the agreements in this
prospectus.
However, under the note purchase agreement, the terms of these agreements
are required (a) to contain the Mandatory Document Terms and (b) not to vary the
Mandatory Economic Terms. In addition, we must certify to the trustees that any
modifications do not materially and adversely affect the certificateholders or
the policy provider. We also must obtain written confirmation from each rating
agency that the use of modified agreements will not result in a withdrawal,
suspension or downgrading of the rating of any class of certificates. Further,
under the note purchase agreement, it is a condition precedent to the obligation
of each trustee to purchase the equipment notes related to the financing of an
aircraft that no Triggering Event has occurred. The trustees will have no right
or obligation to purchase equipment notes after the delivery period termination
date.
The Mandatory Economic Terms, as defined in the note purchase agreement,
require, among other things, compliance with the items below:
Requirements of the Mandatory Economic Terms
(1) the maximum principal amount of all the equipment notes issued
relating to an aircraft cannot exceed the maximum principal amount of
equipment notes indicated for each aircraft as set forth in
"Description of the Aircraft and the Appraisals--The Appraisals"
under the column "Maximum Principal Amount of Equipment Notes";
(2) the average life of the equipment notes related to each aircraft may
not be less than 10.5 years nor more than 13.0 years in the case of
the Series G equipment notes and not to be less than 2.0 years nor
more than 3.5 years in the case of the Series C equipment notes, in
each case from September 21, 1999;
(3) as of the first regular distribution date following the delivery of
the last aircraft to be delivered, the average life cannot be more
than 11.5 years in the case of Class G certificates and 3.0 years in
the case of Class C certificates, in each case from September 21,
1999;
(4) the loan to aircraft value ratio relating to each aircraft at the
time the related equipment notes are issued and on any subsequent
regular distribution date cannot exceed 57.0% in the case of the
Series G equipment notes and 62.0% in the case of the Series C
equipment notes, in each case computed on the basis of an assumed
value of that aircraft no greater than the value for the aircraft
under "Description of the Aircraft and the Appraisals--The
Appraisals" under the column "Appraised Value" and the depreciation
assumption defined in the third paragraph under "Description of the
Equipment Notes--Loan to Value Ratios of Equipment Notes";
(5) the final maturity date of the Series G equipment notes cannot extend
beyond January 2, 2019 and the Series C equipment notes cannot extend
beyond January 2, 2006;
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(6) at the delivery period termination date, the aggregate principal
amount of all Series G equipment notes must be equal to the aggregate
face amount of the Class G certificates and the aggregate principal
amount of all Series C equipment notes cannot exceed, but may be less
than, the original aggregate face amount of the Class C certificates,
it being understood that the pool balance of the Class C certificates
will be reduced to the extent it exceeds the aggregate principal
amount of all Series C equipment notes;
(7) the interest rate applicable to each series of equipment notes must
be equal to the rate applicable to the certificates issued by the
corresponding trust;
(8) the payment dates for the equipment notes and basic rent under the
leases must be January 2 and July 2;
(9) basic rent, stipulated loss values, early buy-out amount and
termination values under the leases must be sufficient to pay amounts
due with respect to the related equipment notes;
(10) the amounts payable under the all-risk aircraft hull insurance
maintained for each aircraft must be sufficient to pay the applicable
stipulated loss value, subject to certain rights of self-insurance;
and
(11) the following must be provided as set forth in the form of
participation agreements, lease and indentures:
(a) the past due rate in the indentures and the leases;
(b) the Make-Whole Premium payable under the indentures;
(c) the provisions relating to the redemption and purchase of equipment
notes in the indentures;
(d) the minimum liability insurance amount on aircraft in the leases;
(e) the interest rate payable with respect to stipulated loss value in
the leases; and
(f) the indemnification of the loan trustees, subordination agent,
liquidity provider, the policy provider, trustees and escrow agents
with respect to taxes and expenses.
The Mandatory Document Terms prohibit modifications in any material adverse
respect to specified provisions of the participation agreements, lease and
indentures contemplated by the note purchase agreement. Prohibited modifications
to the Mandatory Document Terms are identified below.
Prohibited Modifications Under the Mandatory Document Terms
--------------------------------------------------------------------------
(1) In the case of the indentures, the following modifications are
prohibited:
(a) to the granting clause of the indentures so as (1) to deprive the
registered holders of the equipment notes of a security interest in
the aircraft, some of our rights under the purchase agreement with
the aircraft manufacturer and any of the leases or (2) to eliminate
the obligations intended to be secured by the indenture;
(b) to provisions relating to the issuance, redemption, purchase,
payments, and ranking of the equipment notes, including the
obligation to pay a premium;
(c) to provisions regarding indenture defaults, remedies relating to
indenture defaults and rights of the owner trustee and owner
participant in such circumstances;
(d) to provisions relating to any replaced airframe or engines with
respect to an aircraft; and
(e) to the provision that New York law will govern the indentures.
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(2) In the case of the leases, modifications are prohibited to certain of
our obligations, including:
(a) to pay basic rent, stipulated loss value, early buy-out amount and
termination value to the trustee of a leased aircraft;
(b) to record the leased aircraft indenture with the Federal Aviation
Administration and to maintain that indenture as a first-priority
perfected mortgage on the related aircraft;
(c) to furnish opinions relating to a replacement airframe; and
(d) to consent to the assignment of the lease by the owner trustee as
collateral under the indenture, as well as modifications which
would either alter the provision that New York law will govern the
leases or would deprive the loan trustee of rights expressly
granted to it under the leases.
(3) In the case of the participation agreements, the following
modifications are prohibited:
(a) to conditions to the obligations of the trustees to purchase the
equipment notes issued relating to an aircraft involving good title
to that aircraft, obtaining a certificate of airworthiness for that
aircraft, entitlement to the benefits of Section 1110 of the
Bankruptcy Code relating to that aircraft and filings of documents
with the Federal Aviation Administration;
(b) to the provisions restricting the ability of a registered holder of
equipment notes to transfer those notes;
(c) to provisions so as to deprive the registered holders of equipment
notes of a first priority security interest in the aircraft;
(d) to provisions requiring the delivery of legal opinions; and
(e) to the provision that New York law will govern the participation
agreements.
Notwithstanding the foregoing, any Mandatory Document Term may be modified
to correct or supplement any provision which may be defective or to cure any
ambiguity or correct any mistake, provided that such action does not materially
adversely affect the interests of the registered holders of equipment notes, the
subordination agent, the liquidity provider, the policy provider, the loan
trustee or the certificateholders.
LIQUIDATION OF ORIGINAL TRUSTS
Each of the trusts established at the time of the original issuance of the
certificates will transfer and assign all of its assets and rights to a
newly-created successor trust. This transfer will occur on the earlier of (1)
the first business day after May 30, 2000 or, if later, the fifth business day
after the delivery period termination date or (2) the fifth business day after a
Triggering Event.
The successor trusts will have substantially identical terms as the
original trusts except that the successor trusts will not have the right to
purchase new equipment notes and Delaware law will govern the original trusts
and New York law will govern the successor trusts. The trustee of each of the
original trusts will also act as trustee of the corresponding successor trust
and each new trustee will assume the obligations of the original trustee. The
purpose of each successor trust is the same as each original trust, namely to
hold the trust property that is used to make distributions from the trust. Each
of the certificates will represent the same interest in the successor trust as
it represented in the original trust immediately prior to their transfer and
assignment. Unless the context otherwise requires, all references in this
prospectus applicable to the original trusts will apply to the successor trusts
after the transfer. The original trust will continue until the transfer is
effected. The original trusts may be treated as partnerships for United States
federal income tax purposes but the successor trust will, in the opinion of tax
counsel, be treated as grantor trusts. The purpose of using both original and
successor trusts in this transaction is intended to limit the risk of
partnership tax characterization to the original trusts.
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TERMINATION OF THE TRUSTS
The obligations of America West and the applicable trustee relating to a
trust will terminate upon the distribution of all amounts required to be
distributed to the certificateholders of that trust and the disposition of all
property held in that trust. The applicable trustee will send to each
certificateholder of that trust notice of the termination of that trust, the
amount of the proposed final payment and the proposed date for the distribution
of the final payment for that trust. The final distribution to any
certificateholder of that trust will be made only upon surrender of the
certificateholder's certificates at the office or agency of the applicable
trustee specified in the notice of termination. (Section 11.01)
THE TRUSTEES
The trustee for each trust is Wilmington Trust Company.
Except in limited circumstances, the trustees make no representations as to
the validity or sufficiency of the pass through trust agreements, the
certificates, the intercreditor agreement, the equipment notes, the deposit
agreements, the escrow agreements, the indentures, the participation agreements,
the leases or other related documents. (Sections 7.04 and 7.15) The trustee of
any trust is not liable for any action by it in good faith under the direction
of the holders of a majority in interest of the certificates of such trust. In
general, the trustees are under no obligation to exercise any of their rights or
powers at the request of any holders of certificates issued thereunder unless
the trustees are offered reasonable security and indemnity. (Section 7.03(e))
The trustees in their individual or any other capacity may acquire and hold
certificates issued thereunder and, subject to certain conditions, may otherwise
deal with America West, with any owner trustee or loan trustee with the same
rights they would have if they were not the trustees. (Section 7.05)
Any trustee may resign at any time, in which case we will appoint a
successor trustee. If any trustee is no longer eligible to continue as trustee,
becomes incapable of acting as trustee or becomes insolvent, we may remove the
trustee. Additionally, the policy provider or any holder of the certificates of
such trust for at least six months may, on behalf of such holder and all others
similarly situated, petition any court of competent jurisdiction to remove such
trustee and the appointment of a successor trustee. The resignation or removal
of the trustee does not become effective until the successor trustee accepts the
appointment. (Sections 7.09 and 7.10) It is possible that a different trustee
could be appointed to act as the successor trustee for each trust. All
references in this prospectus to the trustee should be read to consider the
possibility that the trusts could have different successor trustees in the event
of a resignation or removal.
We will pay or cause to be paid the applicable trustee's fees and expenses.
(Section 7.07)
BOOK-ENTRY; DELIVERY AND FORM
The new certificates of each trust will be represented by one or more
permanent global certificates, in definitive, fully registered form without
interest coupons. The global certificates will be deposited with the trustee as
custodian for The Depository Trust Company, or DTC, and registered in the name
DTC or its nominee.
The Depository Trust Company
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. DTC participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to other indirect participants
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such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Neither America West nor the trustee has any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the global certificates and a successor depositary is not appointed within 90
days, the trusts will issue certificates in definitive, fully registered form in
exchange for the global certificates.
Ownership of Global Certificates
Ownership of beneficial interests in global certificates is limited to DTC
participants or persons who hold interests through DTC participants. Ownership
of beneficial interests in the global certificates is shown on, and the transfer
of that ownership is effected only through, records maintained by DTC or its
nominee with respect to interests of DTC participants and the records of DTC
participants with respect to interests of persons other than participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities. These laws may limit the market for beneficial
interests in the global certificates.
So long as DTC or its nominee is the registered owner or holder of the
global certificates, DTC or its nominee, as the case may be, will be considered
the sole record owner or holder of the certificates represented by those global
certificates. No beneficial owners of an interest in the global certificates
will be able to transfer that interest except in accordance with DTC's
applicable procedures, in addition to procedures under the pass through trust
agreements and, if applicable, the Euroclear System or Cedel Bank Societe
Anonyme.
Payments of Principal and Interest on the Global Certificates
Payments of the principal of, premium, if any, and interest on the global
certificates will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither America West, the trustee, nor any paying
agent is responsible or liable for the records relating to or payments made on
account of beneficial ownership interests in the global certificates.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the global certificates,
will credit the accounts of DTC participants in amounts proportionate to their
respective beneficial ownership interest in the global certificates. We also
expect that payments by participants to owners of beneficial interests in the
global certificates will be governed by standing instructions and customary
practices. Those payments will be the responsibility of those participants.
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DESCRIPTION OF THE DEPOSIT AGREEMENTS
GENERAL
ABN AMRO Bank N.V., acting through its Chicago branch, is the depositary.
The escrow agent for each trust entered into a separate deposit agreement under
which the depositary established separate accounts into which the proceeds from
the sale of outstanding certificates were deposited. The escrow agent, at the
request from the trustee of the trust, made withdrawals to purchase equipment
notes. On each regular distribution date the depositary will pay to the paying
agent, for distribution to the certificateholders of the applicable trust, an
amount equal to interest accrued on the deposits relating to such trust.
Except in respect of the aircraft financed on the date of issuance of the
outstanding certificates, upon each delivery of an aircraft during the delivery
period, the trustees for each trust asked the applicable escrow agent to
withdraw deposits to enable the trustee to purchase equipment notes of the
series applicable to that trust. Accrued but unpaid interest on all withdrawn
deposits will be paid on the next regular distribution date. Any deposit that is
withdrawn but not used to purchase equipment notes will be re-deposited by each
trustee into an account relating to the applicable trust. The deposits relating
to each trust and interest paid on the deposits will not be subject to the
subordination provisions of the intercreditor agreement and will not be
available to pay any other amount on the certificates.
As at the date of this prospectus, all of the deposits were withdrawn to
finance the purchase of the aircraft.
DESCRIPTION OF THE ESCROW AGREEMENTS
Each escrow agent, each paying agent, each trustee and the initial
purchasers of the outstanding certificates have entered into a separate escrow
agreement for the benefit of the certificateholders of each trust as holders of
the escrow receipts affixed to the certificates. The cash proceeds of the
initial sale of the outstanding certificates of each trust were deposited on
behalf of the escrow agent with the depositary. The escrow agreement instructs
the escrow agent of each trust (1) to permit the trustee of the trust to cause
funds to be drawn from the deposits on or prior to the delivery period
termination date to enable the trustee to purchase equipment notes and (2) to
direct the depositary to pay interest on the deposits for distribution to the
holders of escrow receipts.
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DESCRIPTION OF THE LIQUIDITY FACILITIES
GENERAL
Morgan Stanley Capital Services, Inc., the liquidity provider, has entered
into a separate revolving credit agreement, or liquidity facility, with the
subordination agent relating to the certificates of each of the trusts. Under
the liquidity facility, the liquidity provider will, if necessary, make one or
more Interest Drawings at the Required Amount sufficient to pay interest
relating to the certificates of that trust on up to three successive semi-annual
regular distribution dates without regard to any future payments of principal on
the certificates. The amount of these advances will be based on the interest
rates shown on the cover page of this prospectus for those certificates. The
liquidity facility relating to each trust will not cover interest payable by the
depository on the deposits relating to that trust.
The liquidity facility for each trust is intended to enhance the likelihood
of timely receipt by the certificateholders of that trust of the interest
payable in respect of the certificates of that trust on up to three consecutive
semiannual regular distribution dates. If interest payment defaults occur which
exceed the amount covered by or available under the liquidity facility for any
trust, the certificateholders of that trust will bear their allocable share of
the deficiencies to the extent that there are no other sources of funds,
including, in the case of the Class G trust, funds from the certificate guaranty
insurance policy. Although Morgan Stanley Capital Services, Inc. is the initial
liquidity provider for each of the trusts, it may be replaced by one or more
other entities with respect to the trusts. Therefore, the liquidity provider for
each trust may differ. The obligations of Morgan Stanley Capital Services to
make advances under the initial liquidity facilities are fully and
unconditionally guaranteed by Morgan Stanley Dean Witter & Co.
DRAWINGS
The initial amount available under the liquidity facilities for the Class G
trust and the Class C trust at July 2, 2000, the first regular distribution date
after the scheduled delivery period termination date will be $27,153,979 and
$2,187,035, respectively. This assumes that equipment notes in the maximum
principal amount relating to all aircraft are acquired by the trusts and that
all interest and principal due on or prior to July 2, 2000 is paid.
The maximum amount available to be drawn under the liquidity facility
relating to any trust on any regular distribution date to fund any shortfall of
interest for certificates of that trust will not exceed the Maximum Available
Commitment.
The liquidity facility for any trust does not allow drawings to pay for
principal of or premium relating to the certificates of that trust or any
interest relating to the certificates of that trust in excess of the interest
rate on those certificates for that trust or more than three semiannual
installments of interest or principal of or interest or premium relating to the
certificates of any other trust. (Liquidity Facilities, Section 2.02;
Intercreditor Agreement, Section 3.6)
Each payment by the liquidity provider under each liquidity facility
reduces the Maximum Available Commitment under that liquidity facility by the
amount of that payment, subject to reinstatement as described below.
With respect to any drawings under the liquidity facility for any trust,
upon reimbursement of the liquidity provider in full for the amount of those
drawings plus interest thereon, the Maximum Available Commitment under that
liquidity facility in respect of interest on the certificates of that trust will
be reinstated to an amount not to exceed the then Required Amount of that
liquidity facility. However, the liquidity facility will not be reinstated at
any time after (1) a Liquidity Event of Default has occurred and is continuing
and (2) less than 65% of the then aggregate outstanding principal amount of all
equipment notes are Performing Equipment Notes. With respect to any other
drawings under that liquidity facility, amounts available to be drawn under the
facility are not subject to reinstatement. The Required Amount of the liquidity
facility for any trust will be automatically reduced from time to time to an
amount equal to the next three successive interest payments due on the
certificates of that trust, without regard to expected
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future payment of principal of those certificates, at the interest rate for that
trust. (Liquidity Facilities, Section 2.04(a); Intercreditor Agreement Section
3.6(j))
Possible Replacement of the Liquidity Facility; Downgrade Drawing
The certificateholders are relying on the credit of the liquidity provider
to fund the drawings described above as and when required. In order to protect
the interests of the certificateholders following the deterioration of the
liquidity provider's credit, there are procedures to replace the liquidity
facility of the liquidity provider. A liquidity facility will be subject to
replacement by a replacement facility if at any time either:
(1) the short-term unsecured debt rating of any liquidity provider for any
trust or, if applicable, of any guarantor of the obligations of that
liquidity provider, then issued by either rating agency is lower than
the Threshold Rating or
(2) any guarantee of a liquidity provider's obligations under the relevant
liquidity facilities ceases to be in full force and effect or becomes
invalid or unenforceable or the guarantor denies its liability under
the liquidity facility.
If the liquidity facility is not replaced within ten days after notice of
the downgrading or any event relating to the guarantee or guarantor described in
clause (2) above occurs, the subordination agent will request a Downgrade
Drawing and will hold the proceeds in a cash collateral account for that trust
as cash collateral to be used for the same purposes and under the same
circumstances as cash payments of drawings under the liquidity facility would be
used. (Liquidity Facilities, Section 2.02(c); Intercreditor Agreement, Section
3.6(c)). The result of a Downgrade Drawing is, effectively, that the liquidity
provider is replaced by cash; therefore the certificateholders of the related
trust will no longer be bearing the credit risk of the liquidity provider to
make available drawings as and when required under its liquidity facility.
Expiration of Liquidity Provider's Obligations
The liquidity facility for each trust provides that the relevant liquidity
provider's obligations under that liquidity facility will expire on the earliest
of the following:
(1) 364 days after the initial issuance date of the certificates;
(2) the date on which the subordination agent delivers to the liquidity
provider a certification that all of the certificates of that trust
have been paid in full;
(3) the date on which the subordination agent delivers to the liquidity
provider a certification that a replacement facility has been
substituted for that liquidity facility;
(4) the fifth business day following receipt by the subordination agent of
a notice of termination of a liquidity facility from that liquidity
provider (see "--Liquidity Events of Default"); or
(5) the date on which no amount is or may, by reason of reinstatement,
become available for drawing under that liquidity facility.
Each liquidity facility provides that its scheduled expiration date may be
extended for additional 364-day periods.
Replacement of any Liquidity Facility
The intercreditor agreement provides for the replacement of any liquidity
facility for any trust, other than a liquidity facility which expires no earlier
than 15 days later than the final legal distribution date for the related class,
in the event that that liquidity facility is not extended at least 25 days prior
to its then scheduled expiration date. In the event that liquidity facility is
not so extended or replaced by the 25th day prior to its then scheduled
expiration date, the subordination agent will request a Non-Extension Drawing in
an amount equal to the then Maximum Available Commitment under the liquidity
facility and hold the proceeds in the cash collateral account for that trust as
cash collateral to be used for the same purposes
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and under the same circumstances, and subject to the same conditions, as cash
payments of drawings under that liquidity facility would be used. (Liquidity
Facilities, Section 2.02(b))
We may, at our option, with or without cause, arrange for a replacement
facility at any time to replace the liquidity facility for any trust, including
any replacement facility described in the following sentence. In general, we may
not replace the initial liquidity provider prior to the fifth anniversary of the
date the outstanding certificates were issued. In addition, if any liquidity
provider determines not to extend its liquidity facility, then that liquidity
provider may, at its option, arrange for a replacement facility to replace that
liquidity facility during the period no earlier than 40 days and no later than
25 days prior to the then scheduled expiration date of that liquidity facility.
If any replacement facility is provided at any time after a downgrade drawing or
a Non-Extension Drawing under any liquidity facility, the funds with respect to
that liquidity facility on deposit in the cash collateral account for that trust
will be returned to the liquidity provider being replaced. (Intercreditor
Agreement, Section 3.6(e))
Final Drawing Upon Termination of any Liquidity Facility
The intercreditor agreement provides that, upon receipt by the
subordination agent of a notice of termination with respect to any liquidity
facility from the liquidity provider, the subordination agent will request a
Final Drawing under that liquidity facility in an amount equal to the then
Maximum Available Commitment under the liquidity facility and will hold the
proceeds in the cash collateral account for the related trust as cash collateral
to be used for the same purposes and under the same circumstances as cash
payments of drawings under that liquidity facility would be used. (Liquidity
Facilities, Section 2.02(d); Intercreditor Agreement, Section 3.6(i))
Mechanics of Drawings
Drawings under any liquidity facility will be made by delivery by the
subordination agent of a certificate in the form required by that liquidity
facility. Upon receipt of that certificate, the liquidity provider is obligated
to make payment of the drawing requested thereby in immediately available funds.
Upon payment by any liquidity provider of the amount specified in any drawing
under any liquidity facility, the liquidity provider will be fully discharged of
its obligations under that liquidity facility relating to the drawing and will
not thereafter be obligated to make any further payments under that liquidity
facility in respect of the drawing to the subordination agent or any other
person. (Liquidity Facility, Section 2.2(f))
REIMBURSEMENT OF DRAWINGS
Amounts drawn under any liquidity facility by reason of an Interest Drawing
or the Final Drawing will be immediately due and payable, together with interest
on the amount of that drawing, with respect to the period from the date of its
borrowing to but excluding the third business day following the applicable
liquidity provider's receipt of the notice of the Interest Drawing, at the Base
Rate plus 2.0% per annum, and thereafter, at LIBOR for the applicable interest
period plus 2.0% per annum. The subordination agent will be obligated to
reimburse amounts only if the subordination agent has funds available.
Downgrade Drawing or Non-Extension Drawing
The amount drawn under the liquidity facility for any trust by reason of a
Downgrade Drawing or a Non-Extension Drawing will be treated as set forth below:
Treatment of Amount Drawn Under a Liquidity Facility
(1) the amount will be released on any distribution date to the relevant
liquidity provider to the extent that the amount exceeds the Required
Amount;
(2) any portion of the amount withdrawn from the cash collateral account
for those certificates to pay interest on the certificates will be
treated in the same way as Interest Drawings; and
(3) the balance of the amount will be invested.
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The Downgrade Drawing or Non-Extension Drawing under any liquidity
facility, other than any portion applied to the payment of interest on the
certificates, will bear interest with respect to the period from the date of
borrowing to but excluding the third business day following the liquidity
provider's receipt of the notice of the Downgrade Drawing or Non-Extension
Drawing, at the Base Rate plus 0.35% per annum, and thereafter at LIBOR for the
applicable interest period plus 0.35% per annum. The subordination agent will be
obligated to pay that interest only if it has funds available. (Liquidity
Facilities, Section 2.06)
LIQUIDITY EVENTS OF DEFAULT
If (1) any Liquidity Event of Default under any liquidity facility has
occurred and is continuing and (2) less than 65% of the aggregate outstanding
principal amount of all equipment notes are Performing Equipment Notes, the
applicable liquidity provider may, in its discretion, give a notice of
termination of the related liquidity facility the effect of which will be as
follows:
Effect of Notice of Termination Due to Liquidity Event of Default
(1) that liquidity facility will expire on the fifth business day after
the date on which the termination notice is received by the
subordination agent;
(2) the subordination agent will promptly request, and the liquidity
provider to make, a Final Drawing under that liquidity facility in an
amount equal to the then Maximum Available Commitment under that
liquidity facility;
(3) any drawing remaining unreimbursed as of the date of termination will
be automatically converted into a Final Drawing under that liquidity
facility and
(4) all amounts owing to the liquidity provider will automatically become
accelerated.
Notwithstanding the foregoing, the subordination agent will be obligated to pay
amounts owing to the liquidity provider only to the extent of available funds
after giving effect to the payments in accordance with the provisions under
"Description of the Intercreditor Agreement--Priority of Distributions."
(Liquidity Facilities, Section 6.01) Upon the circumstances described below
under "Description of the Intercreditor Agreement--Intercreditor
Rights--Controlling Party," a liquidity provider may become the Controlling
Party relating to the exercise of remedies under the indentures. (Intercreditor
Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The initial liquidity provider for the Class G trust and the Class C trust
is Morgan Stanley Capital Services, Inc., a subsidiary of Morgan Stanley Dean
Witter & Co. Morgan Stanley Capital Services commenced operations in August 1985
and was established to conduct, primarily as principal, an interest rate,
currency and equity derivatives products business, though it also engages in a
variety of other related transactions.
Morgan Stanley Dean Witter, the guarantor of Morgan Stanley Capital
Services' obligations under its liquidity facilities, is a global financial
services firm. Morgan Stanley Dean Witter has long-term unsecured debt ratings
of Aa3 from Moody's Investors Service, Inc. and A+ from Standard & Poor's
Ratings Services and short-term unsecured debt ratings of P-1 from Moody's and
A-1 from Standard & Poor's. Morgan Stanley Dean Witter files reports, proxy
statements and other information with the SEC pursuant to the information
requirements of the Securities Exchange Act of 1934. This information can be
inspected and copied at the public reference facilities of the SEC, or
electronically accessed through the Internet, as described in this prospectus
under "Available Information and Reports to Certificateholders."
The description of Morgan Stanley Capital Services and Morgan Stanley Dean
Witter above has been provided by them but neither Morgan Stanley Capital
Services or Morgan Stanley Dean Witter has been involved in the preparation of
or accepts responsibility for this prospectus. Morgan Stanley & Co.
Incorporated, a subsidiary of Morgan Stanley Dean Witter and an affiliate of
Morgan Stanley Capital Services, was an initial purchaser of the outstanding
certificates.
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DESCRIPTION OF THE POLICY AND
THE POLICY PROVIDER AGREEMENT
THE POLICY
Ambac Assurance Corporation, the policy provider, has issued its insurance
policy in favor of the subordination agent for the benefit of the Class G
trustee and holders of the Class G certificates. The intercreditor agreement
directs the subordination agent to make a drawing under the policy under the
following five circumstances:
Interest Drawings
If on any regular distribution date, other than the final legal
distribution date, after giving effect to the subordination provisions of the
intercreditor agreement and any amounts received by the escrow agent in an
account for the paying agent of the Class G certificates in respect of accrued
interest on the Class G deposits, any drawing paid under the Class G liquidity
facility in respect of interest due on the Class G certificates on the
distribution date and any withdrawal of funds from the Class G cash collateral
account in respect of such interest, the subordination agent does not then have
sufficient funds available for the payment of all amounts due and owing in
respect of accrued interest on the Class G certificates at the interest rate for
Class G certificates, the subordination agent is to request a policy drawing
under the policy in an amount sufficient to enable the subordination agent to
pay the accrued interest on the Class G certificates.
Proceeds Deficiency Drawing
If on any special distribution date, other than an Election Distribution
Date, established by the subordination agent by reason of its receipt of a
special payment constituting the proceeds of any Series G equipment note or the
related Trust Indenture Estate or Collateral, as the case may be, after giving
effect to the subordination provisions of the intercreditor agreement and to the
application of any amounts received by the escrow agent in the Class G paying
agent account in respect of accrued interest on the Class G deposits, any
drawing paid under the Class G liquidity facility in respect of interest due on
the Class G certificates on such distribution date and any withdrawal of funds
in the Class G cash collateral account in respect of such interest, the
subordination agent does not then have sufficient funds available for a
reduction in the outstanding pool balance of the Class G certificates by an
amount equal to the outstanding principal amount of such equipment note,
determined immediately prior to the receipt of such proceeds, plus interest on
the amount of such reduction accrued at the interest rate for the period from
the immediately preceding regular distribution date to such special distribution
date, the subordination agent is to request a policy drawing under the policy in
an amount sufficient to enable the subordination agent to pay the amount of such
reduction plus such accrued interest.
No Proceeds Drawing
On the first business day that is 24 months after the last date on which
any payment was made on any Series G equipment note as to which there has
subsequently been a failure to pay principal or that has subsequently been
accelerated, if the subordination agent has not received a special payment
constituting proceeds from the disposition of that equipment note or the related
Trust Indenture Estate or Collateral, as the case may be, the subordination
agent is to request a policy drawing under the policy in an amount equal to the
then outstanding principal amount of that equipment note plus accrued interest
thereon at the interest rate relating to the Class G certificates from the
immediately preceding regular distribution date to that special distribution
date. The subordination agent will give prompt notice to each trustee, the
liquidity provider and the policy provider setting forth the non-receipt of any
such special payment and which notice is to be given not less than 25 days prior
to that special distribution date. After the payment by the policy provider in
full of the amount of principal and accrued interest for the policy drawing, the
subordination agent will have no right to make any further policy drawing in
respect of any subsequent sale or other disposition of the defaulted Series G
equipment note.
48.
<PAGE> 49
Notwithstanding the foregoing, under a Policy Provider Election the policy
provider has the right at the end of any such 24-month period, so long as no
Policy Provider Default has occurred and is continuing, to elect instead:
(a) to pay on that special distribution date an amount equal to any
shortfall in the scheduled principal and interest that came due on
that equipment note, without regard to the acceleration thereof,
during that 24-month period, after giving effect to the application of
funds received from the Class G liquidity facility, the Class G cash
collateral account and any Policy Drawings, in each case, attributable
to such interest;
(b) thereafter, on each regular distribution date until the establishment
of an Election Distribution Date, to permit drawings under the policy
for an amount equal to the scheduled principal and interest that were
to become due on that equipment note on the related payment date,
without regard to any acceleration thereof; and
(c) on any Election Distribution Date, the subordination agent shall be
required, in each case, to make a policy drawing for an amount equal
to the then outstanding principal balance of such equipment note and
accrued interest thereon at the interest rate for the Class G
certificates from the immediately preceding regular distribution date
to the Election Distribution Date, after giving effect to the
application of funds, if any, received from the Class G liquidity
facility and the Class G cash collateral account attributable to that
interest, less any policy drawings previously paid by the policy
provider in respect of principal on that equipment note, without
derogation of the policy provider's continuing obligations for all
previous Policy Drawings that remain unpaid in respect of such
equipment note.
The intercreditor agreement instructs the subordination agent to make each
drawing under the policy.
In addition, regardless of whether or not the policy provider makes a
Policy Provider Election, the policy provider will, at the end of that 24-month
period, amend if not previously amended, the policy to provide for the payment
to the liquidity provider of interest accruing on the outstanding drawings under
the Class G and Class C liquidity facilities from and after the end of that
24-month period as and when that interest becomes due in accordance with that
liquidity facility.
Final Policy Drawing
If on the final legal distribution date of the Class G certificates after
giving effect to the subordination provisions of the intercreditor agreement and
to the application of any amounts received by the escrow agent in the Class G
paying agent account in respect of accrued interest on the Class G deposits, any
drawing paid under the Class G liquidity facility in respect of interest
included in the final distributions and any withdrawal of funds in the Class G
cash collateral account in respect of interest included in the final
distributions, the subordination agent does not then have sufficient funds
available for the payment in full of the final distributions, calculated as at
such date but excluding any accrued and unpaid premium, on the Class G
certificates, the subordination agent is to request a policy drawing under the
policy in an amount sufficient to enable the subordination agent to pay the
final distributions, calculated as at such date but excluding any accrued and
unpaid premium, on the Class G certificates.
Avoidance Drawing
If at any time the subordination agent has actual knowledge of the issuance
of any Order, the subordination agent is to give prompt notice to each trustee,
each liquidity provider and the policy provider of that order and prior to the
expiration of the policy, to request a policy drawing for the relevant
Preference Amount and to deliver to the policy provider a copy of the
documentation required by the policy with respect to that Order. To the extent
that any portion of the Preference Amount is to be paid to the subordination
agent and not to any receiver, conservator, debtor-in-possession or trustee in
bankruptcy as provided in the policy, the subordination agent will establish as
a special distribution date the date that is the earlier of the third business
day that immediately precedes the expiration of the policy and the
49.
<PAGE> 50
business day that immediately follows the 25th day after that notice for
distribution of that portion of the proceeds of the policy drawing. With respect
to that special distribution date, the subordination agent is to request a
policy drawing for the relevant Preference Amount and to deliver to the policy
provider a copy of the documentation required by the policy with respect to that
Order.
GENERAL
All requests by the subordination agent for a policy drawing are to be made
by it no later than 1:00 p.m. New York City time on or, in the case of any
Preference Amount, at least three days prior to, the applicable distribution
date and in the form required by the policy and delivered to the policy provider
in accordance with the policy. All proceeds of any policy drawing are to be
deposited by the subordination agent in the Policy Account and from there paid
to the Class G trustee for distribution to the holders of the Class G
certificates without regard to the subordination provisions of the intercreditor
agreement. In the case of any Preference Amounts, however, all or part of the
policy drawing will be paid directly to the bankruptcy receiver, debtor-in-
possession or trustee to the extent such amounts have not been paid by the
certificateholders. If any request for a policy drawing is rejected as not
meeting the requirements of the policy, the subordination agent is to resubmit
that request so as to meet those requirements.
The policy provides that if a request for a policy drawing is properly
submitted or resubmitted it will pay to the subordination agent for deposit in
the Policy Account the applicable payment under the policy no later than 4:00
p.m. on the later of the relevant distribution date and the date the request is
received by the policy provider if the request is received by 1:00 p.m. on that
date or the next Policy Business Day if the request is received after that time.
The policy provider will be subrogated to all of the rights of the holders
of the Series G equipment notes to the extent provided in the intercreditor
agreement and will not be subrogated to the Class G certificates. Once any
payment under the policy is paid to the subordination agent, the policy provider
will have no further obligation in respect of those payments. THE POLICY
PROVIDER WILL NOT BE REQUIRED TO MAKE ANY PAYMENT EXCEPT AT THE TIMES AND IN THE
AMOUNTS AND UNDER THE CIRCUMSTANCES EXPRESSLY SET FORTH IN THE POLICY.
The policy does not cover:
(1) shortfalls, if any, attributable to the liability of the Class G trust,
the Class G trustee or the subordination agent for withholding taxes,
if any (including interest and penalties in respect of that liability);
(2) any premium, prepayment penalty or other accelerated payment, which at
any time may become due on or with respect to any Class G certificate;
or
(3) any failure of the subordination agent or the Class G trustee to make
any payment due to the holders of the Class G certificates from funds
received.
The policy provider's obligation under the policy will be discharged to the
extent that funds are received by the subordination agent for distribution to
the Class G trustee and the holders of Class G certificates, whether or not the
funds are properly distributed by the subordination agent or the Class G
trustee.
The policy is noncancellable. The policy expires and terminates without any
action on the part of the policy provider or any other person on the earlier of:
(1) July 3, 2021 and
(2) the date that is one year and one day following the date on which the
pool balance of the Class G certificates and all interest at the
interest rate for the Class G certificates has been paid in full,
unless a request for a policy drawing has been made prior thereto, in
which case upon payment by the policy provider of amounts due under the
policy pursuant to such request.
No portion of the premium under the policy is refundable for any reason
including payment, or provision being made for payment.
50.
<PAGE> 51
The policy is issued under and pursuant to and will be construed under, the
laws of the State of New York, without giving effect to the conflict of laws
principles that might invoke the substantive laws of other jurisdictions.
THE POLICY PROVIDER AGREEMENT
America West, the subordination agent and the policy provider have entered
into an insurance and indemnity agreement pursuant to which we agreed to
reimburse the policy provider for amounts paid pursuant to claims made under the
policy. Under the agreement, we agree to pay the policy provider a premium for
the policy based on the pool balance of the Class G certificates and a fee in
connection with any prepayment of the certificates, including by reason of an
acceleration of the underlying equipment notes, but excluding a prepayment
associated with an event of loss of an aircraft, and to reimburse the policy
provider for expenses.
51.
<PAGE> 52
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
INTERCREDITOR RIGHTS
Controlling Party
Under any indenture at any given time, the loan trustee will be directed in
taking, or refraining from taking, any action under that indenture or relating
to the equipment notes issued under that indenture by the Controlling Party,
including acceleration of the equipment notes and foreclosing the lien on the
aircraft securing the equipment notes, in each case, in accordance with their
terms. See "Description of the Certificates--Indenture Defaults and Certain
Rights Upon an Indenture Default" and below at "--Voting of Equipment Notes" for
a description of the rights of the certificateholders of each trust to direct
the respective trustees.
For purposes of giving effect to the rights of the Controlling Party, the
trustees other than the Controlling Party will irrevocably agree, and the
certificateholders, other than the certificateholders represented by the
Controlling Party, will be deemed to agree by virtue of their purchase of
certificates, that the subordination agent, as record holder of the equipment
notes, will exercise its voting rights in respect of the equipment notes as
directed by the Controlling Party. (Intercreditor Agreement, Section 2.6) For a
description of certain limitations on the Controlling Party's rights to exercise
remedies, see "Description of the Equipment Notes--Remedies" and to exercise
certain other voting rights, see below at "--Voting of Equipment Notes".
Sale of Equipment Notes or Aircraft
Following the occurrence and during the continuation of an indenture
default, the Controlling Party will be entitled to accelerate, and, subject to
the provisions of the immediately following sentence, may direct the
subordination agent, as the registered holder of the equipment notes, to sell
all (but not less than all) of the equipment notes issued under that indenture
to any person. So long as any certificates are outstanding, during nine months
after the earlier of:
(1) the acceleration of the equipment notes under any indenture; and
(2) our bankruptcy or insolvency, without the consent of each trustee, no
aircraft subject to the lien of the indenture relating to the
defaulted equipment notes, or the defaulted equipment notes, may be
sold if the net proceeds from the sale would be less than the Minimum
Sale Price for the aircraft or those equipment notes.
In addition, the amount and payment dates of rentals payable by us under
the lease for a leased aircraft may not be adjusted, if, as a result of the
adjustment, the discounted present value of all rentals would be less than 75%
of the discounted present value of the rentals payable by us under the lease
before giving effect to the adjustment, in each case, using the weighted average
interest rate of the equipment notes issued under that indenture as the discount
rate. (Intercreditor Agreement, Section 4.1(a))
The subordination agent may from time to time during the continuance of an
indenture default and before the occurrence of a Triggering Event commission LTV
Appraisals relating to an aircraft at the request of the Controlling Party.
(Intercreditor Agreement, Section 4.1(a)(iii))
PRIORITY OF DISTRIBUTIONS
So long as no Triggering Event has occurred, payments relating to the
equipment notes and other payments received on any distribution date will be
promptly distributed by the subordination agent on that distribution date in the
following order of priority:
Priority of Distributions if No Triggering Event Has Occurred
(1) to pay all accrued and unpaid Liquidity Expenses to the liquidity
provider and all accrued and unpaid Policy Expenses to the policy
provider;
52.
<PAGE> 53
(2) to pay interest accrued on the Liquidity Obligations, as determined
after giving effect to payments by the policy provider to the
liquidity provider, to the liquidity provider and interest accrued on
Policy Provider Obligations to the policy provider, proportionately;
(3) to pay or reimburse the liquidity provider for the Liquidity
Obligations, other than amounts payable pursuant to clauses (1) and
(2) above and as determined after giving effect to payments by the
policy provider to the liquidity provider, and/or, if applicable, to
replenish each cash collateral account up to the applicable Required
Amount;
(4) to pay Expected Distributions on the Class G certificates to the
holders of Class G certificates;
(5) to pay or reimburse the policy provider for any Policy Provider
Obligations, other than amounts payable pursuant to clauses (1) and
(2) above and any Excess Reimbursement Obligations;
(6) to pay Expected Distributions on the Class C certificates to the
holders of Class C certificates;
(7) to pay any Excess Reimbursement Obligations to the policy provider;
and
(8) to pay fees and expenses of the subordination agent and the trustees.
(Intercreditor Agreement, Sections 2.4 and 3.2)
PRIORITY OF DISTRIBUTIONS IF A TRIGGERING EVENT HAS OCCURRED
Upon the occurrence of a Triggering Event and at all times after the
Triggering Event, all funds received by the subordination agent in respect of
the equipment notes and certain other payments will be promptly distributed by
the subordination agent in the following order of priority:
(1) to pay Administrative Expenses;
(2) to the liquidity provider to pay the Liquidity Expenses and to the
policy provider to pay the Policy Expenses;
(3) to the liquidity provider, to pay interest accrued on the Liquidity
Obligations, as determined after giving effect to certain payments by
the policy provider to the liquidity provider, and to the policy
provider to pay interest accrued on certain Policy Provider
Obligations, proportionately;
(4) to the liquidity provider, to pay the outstanding amount of all
remaining Liquidity Obligations as determined after giving effect to
certain payments by the policy provider to the liquidity provider
and/or, if applicable, with respect to any particular liquidity
facility, unless (a) less than 65% of the aggregate outstanding
principal amount of all equipment notes are Performing Equipment
Notes and a Liquidity Event of Default has occurred and is continuing
under that liquidity facility or (b) a Final Drawing has occurred
under that liquidity facility, to replenish the cash collateral
account with respect to that liquidity facility up to the Required
Amount for the related class of certificates less the amount of any
repayments of Interest Drawings under that liquidity facility while
subclause (a) is applicable;
(5) to pay fees, taxes, charges and other amounts payable to the
subordination agent, any trustee or any certificateholder;
(6) to pay Adjusted Expected Distributions on the Class G certificates to
the holders of Class G certificates;
(7) to the policy provider, to pay the Policy Provider Obligations, other
than amounts payable pursuant to clauses (1), (2) and (3) above and
any Excess Reimbursement Obligations;
(8) to pay Adjusted Expected Distributions on the Class C certificates to
the holders of Class C certificates; and
(9) to pay any Excess Reimbursement Obligations to the policy providers.
53.
<PAGE> 54
(Intercreditor Agreement, Section 3.3)
The priority of distributions after a Triggering Event will have the effect
of requiring the distribution to the holders of Class G certificates of payments
received relating to the series of equipment notes applicable to the Class C
certificates. If this should occur, the interest accruing on the equipment notes
would in the aggregate be less than the interest accruing on the remaining
certificates because those certificates include a relatively greater proportion
of Class or Classes with relatively higher interest rates. As a result of these
possible interest shortfalls, the holders of Class C certificates may not
receive the full amount due to them after a Triggering Event even if all
equipment notes are eventually paid in full.
Payments in respect of the deposits relating to a trust will not be subject
to the subordination provisions of the Intercreditor Agreement.
Interest Drawings under the liquidity facility and withdrawals from the
cash collateral account, in each case in respect of interest on the certificates
of any trust, will be distributed to the trustee for that trust and drawings
under the policy will be distributed by the Class G trustee, notwithstanding the
priority of distributions set forth in the intercreditor agreement and otherwise
described in this prospectus. All amounts on deposit in the cash collateral
account for any trust that are in excess of the Required Amount will be paid to
the applicable liquidity provider in accordance with the provisions of the
intercreditor agreement.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the certificates of any trust, any premium paid on
the equipment notes held in that trust that has not been distributed to the
certificateholders of that trust, other than such premium or a portion thereof
applied to the payment of interest on the certificates of that trust or the
reduction of the pool balance of that trust, will be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
After a Triggering Event occurs and any equipment note becomes a
Non-Performing Equipment Note, the subordination agent will obtain LTV
Appraisals for the aircraft as soon as practicable and additional LTV Appraisals
on or prior to each anniversary of the date of the initial LTV Appraisals.
However, if the Controlling Party reasonably objects to the appraised value of
the aircraft shown in the LTV Appraisals, the Controlling Party will have the
right to obtain or cause to be obtained substitute LTV Appraisals including LTV
Appraisals based upon physical inspection of the aircraft.
VOTING OF EQUIPMENT NOTES
In the event that the subordination agent, as the registered holder of any
equipment note, receives a request for its consent to any amendment,
modification, consent or waiver under that equipment note, the related
indenture, lease, participation agreement or other related document;
(1) if no indenture default has occurred and is continuing with respect to
that indenture, the subordination agent will request direction from the
trustee of the trust which holds each series of those equipment notes
and vote or consent in accordance with the directions of the trustee.
So long as the final distribution on the Class G certificates has not
been made or any Policy Provider Obligations remain outstanding and no
Policy Provider Default has occurred and is continuing, the
subordination agent will request directions from the policy provider
rather than the Class G trustee with respect to the Series G equipment
notes held in the Class G trust and
(2) if any indenture default has occurred and is continuing with respect to
that indenture,
the subordination agent will exercise its voting rights as directed by the
Controlling Party, subject to certain limitations.
However, no such amendment, modification, consent or waiver will, without
the consent of the liquidity provider and the policy provider, reduce the amount
of rent, supplemental rent or stipulated loss values payable by us under any
lease. (Intercreditor Agreement, Section 9.1(b))
54.
<PAGE> 55
THE SUBORDINATION AGENT
Wilmington Trust Company is the subordination agent under the intercreditor
agreement. We and our affiliates may from time to time enter into banking and
trustee relationships with the subordination agent and its affiliates. The
subordination agent's address is Rodney Square North, 1100 North Market Street,
Wilmington, Delaware, Attention: Corporate Trust Administration.
The subordination agent may resign at any time, in which event a successor
subordination agent will be appointed as provided in the intercreditor
agreement. The Controlling Party may remove the subordination agent for cause as
provided in the intercreditor agreement. In these circumstances, a successor
subordination agent will be appointed. Any resignation or removal of the
subordination agent and appointment of a successor subordination agent does not
become effective until acceptance or the appointment and assumption of its
obligations by the successor subordination agent. (Intercreditor Agreement,
Section 8.1)
55.
<PAGE> 56
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The aircraft acquired with the proceeds from the sale of the certificates
consisted of five Airbus A319-132 aircraft and five Airbus A320-232 aircraft.
All ten aircraft were manufactured by Airbus Industrie, G.I.E., a consortium of
European aerospace manufacturing companies and were purchased from AVSA
S.A.R.L., an affiliate of Airbus that is Airbus' marketing arm and with which we
have our purchase agreement to acquire the aircraft. The aircraft were newly or
recently delivered by the manufacturer at the time that the equipment notes
relating to a delivered aircraft were issued. The aircraft were designed to
comply with Stage 3 noise level standards, which are the most restrictive
regulatory standards currently in effect in the United States for aircraft noise
abatement. The manufacturer no longer has any interest in the aircraft except
for any warranty obligations as are contracted in its purchase agreement with
us.
The Airbus A319-100 series aircraft is a medium range aircraft with a
seating capacity of approximately 124 passengers. The engine type utilized on
America West's A319-132 aircraft is expected to be International Aero Engines
V2524-A5 engines.
The Airbus A320-200 series aircraft is a medium range aircraft with a
seating capacity of approximately 150 passengers. The engine type utilized on
America West's A320-232 aircraft is expected to be International Aero Engines
V2527-A5 engines.
THE APPRAISALS
The table below sets forth the appraised values and additional information
regarding the aircraft.
<TABLE>
<CAPTION>
MAXIMUM
PRINCIPAL APPRAISED VALUE
EXPECTED AMOUNT OF ---------------------------------------
AIRCRAFT REGISTRATION MANUFACTURER'S EQUIPMENT DELIVERY
TYPE NUMBER SERIAL NUMBER NOTES(1) MONTH AVITAS AVSOLUTIONS MBA
- -------- ------------ -------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A319-132 N807AW 1064 $23,163,200 Aug. 1999 $35,200,000 $38,980,000 $37,900,000
A319-132 N808AW 1088 23,192,133 Sept. 1999 35,200,000 38,980,000 38,040,000
A319-132 N809AW 1111 23,299,600 Oct. 1999 35,300,000 39,250,000 38,190,000
A319-132 N810AW 1116 23,328,533 Nov. 1999 35,300,000 39,250,000 38,330,000
A319-132 N811AW 1178 23,626,133 Feb. 2000 36,000,000 39,560,000 38,760,000
A320-232 N654AW 1050 27,501,133 Aug. 1999 43,500,000 45,030,000 44,540,000
A320-232 N655AW 1075 27,538,333 Sept. 1999 43,500,000 45,030,000 44,720,000
A320-232 N656AW 1079 27,680,933 Oct. 1999 43,700,000 45,350,000 44,890,000
A320-232 N657AW 1083 27,680,933 Oct. 1999 43,700,000 45,350,000 44,890,000
A320-232 N658AW 1166 28,071,533 Feb. 2000 44,500,000 45,740,000 45,590,000
</TABLE>
- -------------------------
(1) The actual principal amount issued for an aircraft may be less depending on
the circumstances of the financing of that aircraft. The aggregate
principal amount of all of the equipment notes will not exceed the
aggregate face amount of the certificates.
The appraised values identified in the foregoing chart were determined by
the following three independent aircraft appraisal and consulting firms: AVITAS,
Inc., AvSolutions, Inc. and Morten Beyer and Agnew, Inc. Each appraiser was
asked to provide its opinion as to the appraised value of each aircraft
projected as of the scheduled delivery month of each aircraft. These opinions
were furnished as of June 10, 1999, July 6, 1999 and July 13, 1999,
respectively. As part of this process, all three appraisers performed "desk-top"
appraisals without any physical inspection of the aircraft. Each of these
appraisals is based on definitions promulgated by the Appraisal Program of the
International Society of Transport Aircraft Trading, a non-profit association of
management personnel from banks, leasing companies, airlines, manufacturers,
brokers, and others who have a vested interest in the commercial aviation
industry and have established technical and ethical recognition as expert
appraisers. The appraisers delivered letters summarizing their respective
appraisals, copies of which are annexed to this prospectus as Appendix II.
56.
<PAGE> 57
Please read these letters for a complete discussion of the assumptions and
methodologies used in each of the appraisals. The methodologies of each
appraiser can be summarized as follows:
(1) AVITAS, Inc. used a methodology that relies on data pertaining to
actual market transactions, various analytical techniques including
replacement cost analysis, income analysis and should-cost analysis (a
blend of income analysis and replacement cost analysis), a proprietary
forecasting model and extensive industry experience;
(2) AvSolutions, Inc. used a methodology that relies on cross-sectional
data to compare reported market values of aircraft in each of several
general categories and to determine the relationship between the value
of each aircraft and its characteristics, such as age, model
designation, service configuration and engine type; and
(3) Morton Beyer & Agnew, Inc. used a methodology that relies on the
historical trend of values to project future values.
The appraisers made several assumptions to arrive at their valuations,
including:
(1) the aircraft are valued for their highest and best use;
(2) the parties to the hypothetical sale transaction are willing, able,
prudent and knowledgeable and under no unusual pressure for a prompt
sale; and
(3) the transaction would be negotiated in an open and unrestricted market
on an arm's-length basis, for cash or equivalent consideration, and
given an adequate amount of time for effective exposure to prospective
buyers.
An appraisal is only an estimate of value, is not indicative of the price
at which an aircraft may be purchased from the manufacturer and should not be
relied upon as a measure of realizable value. The proceeds realized upon a sale
of any aircraft may be less than the aircraft's appraised value. The value of
the aircraft if remedies under the applicable indenture are exercised will
depend on market and economic conditions, the availability of buyers, the
condition of the aircraft and other similar factors. Accordingly, we cannot
assure you that the proceeds realized on any exercise of remedies with respect
to the equipment notes and the aircraft pursuant to the applicable indenture
would be as appraised or sufficient to satisfy in full payments due on the
equipment notes issued under the indenture or the certificates.
The "Maximum Principal Amount of Equipment Notes" for each aircraft
specified in the above chart represents the maximum principal amount of
equipment notes that will be issued for that aircraft. That amount per aircraft
was determined using a number of criteria, including the following:
Criteria for Determining Maximum Principal Amount of Equipment Notes
(1) the Mandatory Economic Terms specify a maximum loan-to-value ratio for
each aircraft based on the appraised values;
(2) since we anticipated doing lease financings for each aircraft, we have
sought to have a leverage amount that optimizes the economics of the
lease financings; and
(3) Moody's Investors Service, Inc. and Standard & Poor's Ratings Service,
as a condition to the issuance of their ratings, require us to
maintain no more than a specified level of debt for the aircraft.
The actual level of the Maximum Principal Amount of Equipment Notes for
each aircraft was determined by us in association with our lease advisors to
satisfy the foregoing criteria. Such level for any aircraft relates to the
specified appraisal value for that aircraft only in the sense that by comparing
the two, one can determine the loan-to-value for each aircraft.
57.
<PAGE> 58
DELIVERIES OF AIRCRAFT
The aircraft were delivered under our purchase agreement with AVSA from
August 1999 to February 2000. See the table under "--The Appraisals" for the
month of delivery of each aircraft.
As at the date of this prospectus, all of the aircraft have been financed.
All of these aircraft were delivered to us in, or shortly after, the month
scheduled for delivery.
DESCRIPTION OF THE EQUIPMENT NOTES
GENERAL
The equipment notes have been issued in two series with respect to each
aircraft, Series G equipment notes and the Series C equipment notes. The
equipment notes with respect to each aircraft were issued under a separate
leased aircraft indenture between State Street Bank and Trust Company of
Connecticut, N.A., as owner trustee of a trust for the benefit of the owner
participant who will be the beneficial owner of that aircraft and Wilmington
Trust Company, as the leased aircraft indenture trustee.
LEVERAGED LEASE FINANCING
Each of the ten aircraft has been financed under separate leveraged lease
financings. A leveraged lease financing is a financing technique that enables
the party that seeks to acquire an asset, such as an aircraft, to finance the
acquisition of the asset by means of a lease at favorable costs and economic
terms compared to, for example, a mortgage financing, by having another party
act as the owner and lessor of the asset. In order for a leveraged lease to make
economic sense, the lessee must have insufficient income and tax liability to
take advantage of the tax benefits associated with the acquisition and ownership
of the asset and for the lessee to find an investor that has sufficient income
and tax liability to act as the owner and lessor of the asset. By acquiring the
asset, the lessor, in effect, passes along to the lessee a portion of the tax
benefits associated with the asset ownership in the form of reduced lease
payments. The result of the lease transaction is that the lessor makes an
adequate return and the lessee's net financing cost for the asset is less than
if purchased. The "leverage" in a leveraged lease financing is the borrowing by
the lessor of a portion of the purchase price of the asset from one or more
lenders.
Accordingly, in a leveraged lease the lessor purchases the asset using its
own money and money borrowed from lenders and leases the asset to the lessee.
The lenders in a leveraged lease are granted a mortgage on the asset being
financed and an assignment of the lease of the asset; under that lease, the
lessee is obligated to make lease rental payments that are sufficient to pay the
scheduled debt service on the lessor's borrowings from its lenders.
In the leveraged lease of large-ticket items like aircraft, transactions
are often structured interposing an owner trust, that is, a special purpose
grantor trust, created for the benefit of the investor in the asset, to act as
the lessor. The purpose of the owner trust is to insulate the lessee and lenders
from the credit risk of the investor and to insulate the investor from risks
associated with the ownership of the asset. In this structure, the investor is
called an "owner participant" and the trustee acting on behalf of the owner
trust is called the "owner trustee."
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The following diagram illustrates how we effected the leveraged lease
financing in connection with each of the aircraft. Ten separate transactions
similar to the transactions illustrated in the diagram have occurred.
[Transaction Structure for Leased and Owned Aircraft Diagram]
(1) We may sell aircraft we own to the owner trust in a leveraged lease
transaction. In some instances, the owner trust may purchase aircraft
directly from the manufacturer or from other persons.
(2) Each leased aircraft is subject to a separate lease.
(3) Because the owner trustee assigns these payments to the loan trustee, we
make these payments directly to the loan trustee.
(4) Because the sale of the certificates occurred prior to the closing of
each leveraged lease transaction, the proceeds from the sale of
certificates not used on the certificates' issuance date for the
financing of aircraft were initially held in escrow by the escrow agent
and deposited with the depositary. The depositary then held these funds
as interest-bearing deposits. In connection with each leveraged lease
transaction, other than those where the aircraft was financed on the
date of initial issuance of the outstanding certificates, amounts were
withdrawn from the deposit for the respective trust and used to acquire
equipment notes.
As displayed by the diagram, in connection with the leveraged lease of each
aircraft, the owner participant, who is the beneficial owner of the owner trust
established for the purpose of owning the relevant aircraft, contributes a
portion of the purchase price of the aircraft to the owner trust. The owner
trust enters into an indenture with the loan trustee providing for a security
interest in the leased aircraft, the assignment of the lease and the issuance of
equipment notes to finance the remaining portion of the purchase price of an
aircraft. The owner trustee sells the Series G and Series C equipment notes to
the Class G and Class C trusts. The Series G and Series C equipment notes are
issued to Wilmington Trust Company, as subordination agent, on behalf of those
trusts, in order to properly effect the subordination provisions of the
intercreditor agreement. As each aircraft is financed, the Class G and Class C
trusts either use the proceeds of the initial sale of the Class G and Class C
certificates, as was the case in respect of two of the aircraft, or withdraw
deposits to purchase the applicable equipment notes and, in either case, pass
such amounts through to the loan trustee who, in turn, forwards the proceeds to
the owner trust as payment for the equipment notes. The owner trustee, then,
using the equity contribution of the owner participant and the proceeds from the
sale of the equipment notes, uses that money to pay the
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purchase price for the aircraft being financed. Immediately following the
purchase of the aircraft by the owner trust, the owner trust leases the aircraft
to America West.
Under each lease, we are obligated to make or cause to be made rental and
other payments to the related leased aircraft trustee on behalf of the related
owner trustee, which rental and other payments will be at least sufficient to
pay in full when due all payments of principal and interest required to be made
on the equipment notes issued with respect to that leased aircraft. The
equipment notes issued with respect to the leased aircraft are not, however,
direct obligations of ours or guaranteed by us. Our rental obligations under
each lease are general obligations of ours.
SUBORDINATION
Series C equipment notes issued relating to any aircraft will be
subordinated in right of payment to Series G equipment notes issued relating to
that aircraft. On each equipment note payment date, payments of interest and
principal due on Series G equipment notes issued relating to any aircraft will
be made prior to payments of interest and principal due on Series C equipment
notes issued relating to that aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the intercreditor agreement, interest paid on
the equipment notes held in each trust will be passed through to the
certificateholders of each trust on the dates and at the rate per annum set
forth on the cover page of this prospectus with respect to certificates issued
by the trust until the final expected regular distribution date for that trust.
Subject to the provisions of the intercreditor agreement, principal paid on the
equipment notes held in each trust will be passed through to the
certificateholders of the trust in scheduled amounts on the dates set forth in
this prospectus until the final expected regular distribution date for that
trust.
Interest will be payable on the unpaid principal amount of each equipment
note at the rate applicable to that equipment note on January 2 and July 2 in
each year, commencing on the first such date to occur after initial issuance of
the equipment note. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Scheduled principal payments on the equipment notes will be made on January
2 and July 2 in certain years, commencing on or after January 2, 2000. See
"Description of the Certificates--Pool Factors" for a discussion of the
scheduled payments of principal of the equipment notes and possible revisions to
the scheduled payments.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the equipment notes is not a business day, such payment
will be made on the next succeeding business day without any additional
interest.
REDEMPTION
Event of Loss
If an Event of Loss occurs with respect to any aircraft and the aircraft is
not replaced by us under the related lease, the equipment notes issued relating
to that aircraft will be redeemed, in whole, in each case at a price equal to
the aggregate unpaid principal amount of the equipment notes issued relating to
that aircraft, together with accrued interest thereon to, but not including, the
date of redemption, but without premium, on a special distribution date.
(Indentures, Section 2.10(a))
America West Optional Redemptions
If we exercise our right to terminate a lease because the related aircraft
has become obsolete or surplus to our needs, the equipment notes relating to
that aircraft will be redeemed, in whole, on a special distribution date at a
price equal to the aggregate unpaid principal amount of the equipment notes
issued
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with respect to that aircraft, together with accrued interest to, but not
including, the date of redemption, plus a Make-Whole Premium. (Indentures,
Section 2.10(b)).
All of the equipment notes issued relating to an aircraft may be redeemed
prior to maturity as part of a refunding or refinancing of the equipment notes
under the applicable participation agreement at a price equal to the aggregate
unpaid principal of the equipment notes issued relating to that aircraft,
together with accrued interest to, but not including, the date of redemption,
plus a Make-Whole Premium. (Indentures, Section 2.11) If notice of a redemption
has been given in connection with a refinancing of equipment notes, the notice
may be revoked not later than three days prior to the proposed redemption date.
(Indentures, Section 2.12)
In addition, all of the equipment notes issued with respect to any lease
may be redeemed prior to maturity with a Make-Whole Premium on a special
distribution date in connection with our exercise of options or elections
relating to the purchase of the aircraft subject to that lease.
If any of the events listed below occur, then, in each case all, but not
less than all, of the equipment notes issued with respect to the related
aircraft may be purchased by the owner trustee or owner participant on the
applicable purchase date at a price equal to the aggregate unpaid principal
thereof, together with accrued and unpaid interest to, but not including, the
date of purchase, but without any premium; provided that a Make-Whole Premium
will be payable if the equipment notes are to be purchased pursuant to clause
(1) below when a Lease Event of Default has occurred and continued for fewer
than 180 days. (Indentures, Section 2.13)
Events Triggering Right to Redemption
-------------------------------------
(1) One or more Lease Events of Default has occurred and is continuing.
(2) In the event of a bankruptcy proceeding involving us, (a) during the
period in which Section 1110 of the U.S. Bankruptcy Court applies, the
trustee in the proceeding or America West does not agree to perform
its obligations under the related lease or (b) at any time after
agreeing to perform the obligations, the trustee or America West
ceases to perform the obligations such that the stay period applicable
under the U.S. Bankruptcy Code comes to an end.
(3) The equipment notes relating to that aircraft have been accelerated or
the leased aircraft trustee with respect to the related equipment
notes takes action or notifies the applicable owner trustee that it
intends to take action to foreclose the lien of the related leased
aircraft indenture or otherwise commence the exercise of any
significant remedy under that indenture or the related lease.
SECURITY
The equipment notes issued relating to each aircraft will be secured by all
of the following items:
Security for Equipment Notes
----------------------------
(1) an assignment by the related owner trustee to the related loan trustee
of that owner trustee's rights under the lease with respect to the
related aircraft leased by us, including the right to receive payments
under the applicable lease;
(2) a mortgage to the related loan trustee of that aircraft, subject to
our rights under the lease; and
(3) an assignment to the related loan trustee of some of the owner
trustee's rights under the purchase agreement we entered into with the
related manufacturer.
Prior to an indenture default, the owner participant relating to any
aircraft will have the right, to the exclusion of the related loan trustee, to
approve as satisfactory counsel furnishing legal opinions, appraisers and
accountants. Also, the owner participant will have the right, to the exclusion
of the related loan
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trustee, to approve the identity of permitted sublessees not otherwise permitted
by the related lease, and to approve the forms of certain documentation required
for the substitution of aircraft following an event of loss.
Unless and until the related loan trustee has foreclosed upon the lien of
the related indenture, the loan trustee may not exercise the balance of the
rights of the owner trustee under the related lease, such as the amendment or
modification of the lease, without the concurrence of the owner trustee.
However, in all instances, the right of the loan trustee to exercise remedies
under the related lease are rights exclusive to the loan trustee. The assignment
by the owner trustee to the loan trustee of its rights under the related lease
will also exclude certain rights of the owner trustee and the related owner
participant to receive the following:
- indemnification by us for certain matters;
- insurance proceeds payable to the owner trustee in its individual
capacity or to the owner participant under public liability insurance
maintained by us under the lease or by the owner trustee or owner
participant;
- insurance proceeds payable to the owner trustee in its individual
capacity or to the owner participant under certain casualty insurance
maintained by the owner trustee or owner participant under the lease; and
- certain reimbursement payments made by us to the owner trustee.
(Indentures, Granting Clause and Section 5.02)
The equipment notes are not cross-collateralized, and, consequently, the
equipment notes issued in respect of any one aircraft will not be secured by any
of the other aircraft or replacement aircraft or the leases related thereto.
Funds, if any, held from time to time by the loan trustee with respect to
any aircraft, including funds held as the result of an Event of Loss to that
aircraft or termination of the lease relating thereto, will be invested and
reinvested by the loan trustee, at our direction (except in the case of certain
indenture defaults), in investments described in the related indenture.
(Indentures, Section 5.09)
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The following tables show examples of loan to aircraft value ratios, or
LTVs, for the equipment notes issued relating to aircraft as of the regular
distribution dates that occur after the scheduled date of original issuance of
those equipment notes, assuming that the equipment notes in the maximum
principal amount are issued for each aircraft. We used these examples to prepare
the assumed amortization schedule, although the amortization schedule for the
equipment notes issued for an aircraft may vary from the assumed amortization
schedule so long as it complies with the Mandatory Economic Terms. This means
that the tables below may not apply in the case of any particular aircraft.
The LTV was obtained by dividing (1) the outstanding balance, assuming no
payment default, of the equipment notes determined immediately after giving
effect to the payments scheduled to be made on each such regular distribution
date by (2) the assumed value of the aircraft securing the equipment notes.
The following tables assume that the value of each aircraft depreciates by
approximately 3% of the initial appraised value per year for the first 15 years
after delivery of that aircraft and by approximately 4% of the initial appraised
value per year thereafter. Other rates or methods of depreciation would result
in materially different LTVs, and we cannot assure you (1) that the depreciation
rates and method assumed for the purposes of the tables are the ones most likely
to occur or (2) as to the actual future value of any aircraft. The tables should
not be considered a forecast or prediction of expected or likely LTVs, but
simply a mathematical calculation based on one set of assumptions.
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<TABLE>
<CAPTION>
AIRBUS MODEL A319-132 AIRBUS MODEL A320-232
--------------------------------------- ---------------------------------------
EQUIPMENT NOTE ASSUMED LOAN TO EQUIPMENT NOTE ASSUMED LOAN TO
OUTSTANDING AIRCRAFT VALUE OUTSTANDING AIRCRAFT VALUE
DATE BALANCE VALUE RATIO BALANCE VALUE RATIO
- ---- -------------- ---------- ------- -------------- ---------- -------
(MILLIONS) (MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
July 2, 2000 $23.63 $38.11 62.0% $28.07 $45.28 62.0%
July 2, 2001 22.41 36.96 60.6 27.23 43.92 62.0
July 2, 2002 21.75 35.82 60.7 26.04 42.56 61.2
July 2, 2003 21.00 34.68 60.6 24.70 41.20 60.0
July 2, 2004 19.88 33.53 59.3 23.25 39.84 58.4
July 2, 2005 18.67 32.39 57.7 21.94 38.49 57.0
July 2, 2006 17.81 31.25 57.0 21.16 37.13 57.0
July 2, 2007 16.77 30.10 55.7 19.92 35.77 55.7
July 2, 2008 16.00 28.96 55.3 19.02 34.41 55.3
July 2, 2009 15.24 27.82 54.8 18.11 33.05 54.8
July 2, 2010 14.48 26.67 54.3 17.21 31.69 54.3
July 2, 2011 13.34 25.53 52.2 15.85 30.34 52.2
July 2, 2012 12.57 24.39 51.6 14.94 28.98 51.6
July 2, 2013 11.43 23.25 49.2 13.58 27.62 49.2
July 2, 2014 10.29 22.10 46.5 12.22 26.26 46.6
July 2, 2015 8.76 20.96 41.8 10.41 24.90 41.8
July 2, 2016 7.24 19.43 37.3 8.42 23.09 36.4
July 2, 2017 5.06 17.91 28.3 6.20 21.28 29.1
July 2, 2018 2.64 16.39 16.1 3.23 19.47 16.6
July 2, 2019 0.00 0.00 NA 0.00 0.00 NA
</TABLE>
LIMITATION OF LIABILITY
The equipment notes issued relating to the aircraft are not direct
obligations of, or guaranteed by, us, any owner participant or any owner trustee
in its individual capacity. None of the owner trustees, the owner participants
or the loan trustees, or any of their affiliates, will be personally liable to
any holder of an equipment note or, in the case of the owner trustees and the
owner participants, to the loan trustees for any amounts payable under the
equipment notes or, except as provided in each indenture, for any liability
under that indenture. All payments of principal of, premium, if any, and
interest on the equipment notes issued relating to any aircraft, other than
payments made in connection with (x) an optional redemption or purchase of
equipment notes issued with respect to a leased aircraft by the related owner
trustee or the related owner participant or (y) the election by an owner trustee
to retain title to an aircraft subject to a termination for obsolescence will be
made only from the assets subject to the lien of the indenture with respect to
that aircraft or the income and proceeds received by the related loan trustee
from those assets, including rent payable by us under the lease with respect to
that aircraft.
Except as otherwise provided in the indentures, no owner trustee or loan
trustee, in its individual capacity, will be answerable or accountable under the
indentures or under the equipment notes under any circumstances except for its
own willful misconduct or gross negligence. None of the owner participants will
have any duty or responsibility under any of the leased aircraft indentures or
the equipment notes to the loan trustees or to any holder of any equipment note.
INDENTURE DEFAULTS, NOTICE AND WAIVER
There are no cross-default provisions in the indentures or in the leases.
Consequently, events resulting in an Indenture Default under any particular
indenture may or may not result in an Indenture Default occurring under any
other indenture, and a Lease Event of Default under any particular lease may or
may not constitute a Lease Event of Default under any other lease.
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Equity Cure Rights
If we fail to make any semiannual basic rental payment due under any lease,
within a specified period after that failure the applicable owner trustee may
furnish to the loan trustee the amount due on the equipment notes issued with
respect to the related leased aircraft, together with any interest on account of
the delayed payment. In that case, the loan trustee and the holders of
outstanding equipment notes issued under that indenture may not exercise any
remedies otherwise available under that indenture or lease as the result of the
failure to make the rental payment, unless the related owner trustee has
previously cured three or more immediately preceding semiannual basic rental
payment defaults or, in total, six or more previous semiannual basic rental
payment defaults. The applicable owner trustee also may cure other defaults by
us in the performance of its obligations under any lease that can be cured with
the payment of money. (Indentures, Section 4.03)
The holders of a majority in principal amount of the outstanding equipment
notes issued with respect to any aircraft, by notice to the loan trustee, may on
behalf of all the holders waive any existing default and its consequences under
the indenture with respect to that aircraft, except a default in the payment of
the principal of, or premium or interest on any such equipment notes or a
default in respect of any covenant or provision of the indenture that cannot be
modified or amended without the consent of each holder of equipment notes.
(Indentures, Section 4.08)
REMEDIES
If an Indenture Default occurs and is continuing, the related loan trustee
or the holders of a majority in principal amount of the equipment notes
outstanding under the related indenture may, subject to the applicable owner
participant's or owner trustee's right to cure, declare the principal of all
equipment notes issued under the indenture immediately due and payable, together
with all accrued but unpaid interest. In the event of a reorganization
proceeding involving us that is instituted under Chapter 11 of the U.S.
Bankruptcy Code, if no other Lease Event of Default and no other Indenture
Default, other than the failure to pay the outstanding amount of the equipment
notes which by such declaration shall have become payable, exists at any time
after the consummation of the proceeding, such declaration will be automatically
rescinded without any further action on the part of any holder of equipment
notes. The holders of a majority in principal amount of equipment notes
outstanding under an indenture may rescind any declaration at any time before
the judgment or decree for the payment of the money so due is entered if (1)
there has been paid to the related loan trustee an amount sufficient to pay all
principal, interest, and premium, if any, on any the equipment notes, to the
extent the amounts have become due otherwise than by such declaration of
acceleration and (2) all other indenture defaults and events which with the
passing of time would become indenture defaults have been cured. (Indentures,
Section 4.04(b))
Each indenture provides that if an Indenture Default has occurred and is
continuing, the related loan trustee may exercise certain rights or remedies
available to it under the indenture or under applicable law, including, if the
corresponding lease has been declared in default, one or more of the remedies
under that lease with respect to the aircraft subject to that lease. If an
Indenture Default arises solely by reason of one or more events or circumstances
which constitute a Lease Event of Default, the related loan trustee's right to
exercise remedies under an indenture is subject, with certain exceptions, to its
having proceeded to exercise one or more of the dispossessory remedies under the
lease with respect to the leased aircraft. The requirement to exercise one or
more of these remedies under the lease will not apply in circumstances where the
exercise has been involuntarily stayed or prohibited by applicable law or court
order for a continuous period in excess of 60 days or such other period as may
be specified in Section 1110(a)(1)(A) of the U.S. Bankruptcy Code plus an
additional period, if any, resulting from:
(1) the trustee or debtor-in-possession in the proceeding agreeing to
perform its obligations under that lease with the approval of the
applicable court and its continuous performance of that lease under
Section 1110(a)(1)(A-B) of the U.S. Bankruptcy Code or the loan
trustee's consent to an extension of such period;
(2) such loan trustee's failure to give any requisite notice; or
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(3) our assumption of that lease with the approval of the relevant court
and its continuous performance of the lease as so assumed. See "--The
Leases--Events of Default under the Leases".
These remedies may be exercised by the related loan trustee to the
exclusion of the related owner trustee, subject to certain conditions specified
in the indenture, and to our exclusion, subject to the terms of the lease. Any
aircraft sold in the exercise of such remedies will be free and clear of any
rights of those parties, including our rights under the lease with respect to
the aircraft. No exercise of any remedies by the related loan trustee may affect
our rights under any lease unless a Lease Event of Default has occurred and is
continuing. (Indentures, Section 4.04; Leases, Section 15)
Section 1110 of the U.S. Bankruptcy Code
Section 1110 of the U.S. Bankruptcy Code provides that the right of
lessors, conditional vendors and holders of security interests with respect to
"equipment," as defined in Section 1110 of the U.S. Bankruptcy Code, to take
possession of the equipment in compliance with the provisions of a lease,
conditional sale contract or security agreement, as the case may be, is not
affected by any of the following events:
Events That Do Not Affect Rights with Respect to Equipment
(1) the automatic stay provision of the U.S. Bankruptcy Code, which
enjoins repossessions by creditors for the duration of the
reorganization period;
(2) the provision of the U.S. Bankruptcy Code allowing the trustee in
reorganization to use property of the debtor during the reorganization
period;
(3) Section 1129 of the U.S. Bankruptcy Code, which governs the
confirmation of plans of reorganization in Chapter 11 cases; and
(4) any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right to take possession of an aircraft
may not be exercised for 60 days following the date of commencement of the
reorganization proceedings and may not be exercised at all if, within the 60-day
period or a longer period consented to by the lessor, conditional vendor or
holder of a security interest, the trustee in reorganization agrees to perform
the debtor's obligations that become due on or after that date and cures all
existing defaults, other than defaults resulting solely from the financial
condition, bankruptcy, insolvency or reorganization of the debtor.
"Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as "an aircraft, aircraft engine, propeller, appliance, or spare part, as
defined in section 40102 of title 49 of the U.S. Code, that is subject to a
security interest granted by, leased to, or conditionally sold to a debtor that
is a citizen of the United States, as defined in section 40102 of title 49 of
the U.S. Code, holding an air carrier operating certificate issued by the
Secretary of Transportation pursuant to chapter 447 of title 49 of the U.S. Code
for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more
of cargo."
Opinion of America West Counsel
It is a condition to the trustee's obligation to purchase equipment notes
with respect to each aircraft that our outside counsel, which is expected to be
Vedder, Price, Kaufman & Kammholz, provide its opinion to the trustees that the
owner trustee, as lessor under the lease for that aircraft, and the loan
trustee, as assignee of the owner trustee's rights under the lease pursuant to
the related indenture, will be entitled to the benefits of Section 1110 of the
U.S. Bankruptcy Code with respect to the airframe and engines comprising the
aircraft. For a description of limitations on the loan trustee's exercise of
rights contained in the indentures, see "--Indenture Defaults, Notice and
Waiver".
The opinion of Vedder, Price, Kaufman & Kammholz will not address the
possible replacement of an aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the
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contemporaneous delivery of an opinion of counsel to the effect that the related
loan trustee will be entitled to Section 1110 benefits with respect to the
replacement unless there was, subsequent to the delivery of the aircraft, a
change in law or court interpretation that results in Section 1110 benefits not
being available. The opinion of Vedder, Price, Kaufman & Kammholz will also not
address the availability of Section 1110 with respect to any possible sublessee
of an aircraft subleased by us.
During 1998, the U.S. District Court for the District of Colorado issued
two opinions arising from the bankruptcy proceedings of Western Pacific
Airlines, Inc. relating to Section 1110. The decisions held that, once an
airline debtor reaffirms its obligations and cures its defaults under an
aircraft lease within the prescribed period in accordance with Section 1110, the
lessor under that lease is not entitled to repossess the aircraft under Section
1110 if the airline subsequently defaults under that lease. The opinion of
Vedder, Price, Kaufman & Kammholz will state that, in the firm's opinion, the
District Court holding is erroneous because it is inconsistent with the
overriding purpose of Section 1110 to protect lessors of, and creditors served
by, qualifying aircraft against being stayed from exercising their rights while
defaults under their leases or financing agreements remain uncured. Certain
legislation amending the U.S. Bankruptcy Code, including Section 1110, is
currently under consideration by Congress. The amendments to Section 1110, if
enacted, would statutorily override the Western Pacific decisions. Appeals of
such decisions were dismissed without consideration of the substantive issues.
Reimbursement of Loan Trustee Expenses
If an Indenture Default under any indenture occurs and is continuing, any
sums held or received by the related loan trustee, subject to limited
exceptions, may be applied to reimburse the loan trustee for any tax, expense or
other loss incurred by it and to pay any other amounts due to the loan trustee
prior to any payments to holders of the equipment notes issued under that
indenture. (Indentures, Sections 3.03 and 3.04)
Bankruptcy or Like Proceedings of an Owner Participant
In the event of bankruptcy, insolvency, receivership or like proceedings
involving an owner participant, it is possible that, notwithstanding that the
applicable leased aircraft is owned by the related owner trustee in trust, the
leased aircraft and the related lease and equipment notes might become part of
the proceeding. In this event, payments under that lease or on such equipment
notes might be interrupted and the ability of the related loan trustee to
exercise its remedies under the related indenture might be restricted, although
the loan trustee would retain its status as a secured creditor in respect of the
related lease and the related leased aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
equipment notes outstanding under any indenture, the provisions of the indenture
and any related lease, participation agreement or trust agreement may not be
amended or modified, except to the extent indicated below.
Some provisions of any indenture, lease, participation agreement and trust
agreement, may be amended or modified by the contracting parties without the
consent of any holders of the equipment notes outstanding under the indenture.
In the case of each lease, these provisions include, among others, provisions
relating to (1) the return to the related owner trustee of the related leased
aircraft at the end of the term of the applicable lease, except to the extent
that such amendment would affect the rights or exercise of remedies under the
applicable lease, and (2) the renewal of the applicable lease and the option to
purchase the related leased aircraft so long as the same would not adversely
affect the holders of any equipment notes. (Indentures, Section 9.01(a)) In
addition, any indenture may be amended without the consent of the holders of
equipment notes to, among other things, cure any defect or inconsistency in such
indenture or the equipment notes issued under that indenture, provided that the
change does not adversely affect the interests of any holder. (Indentures,
Section 9.01(c))
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Without the consent of the holder of each equipment note outstanding under
any indenture affected thereby, no amendment or modification of that indenture
may among other things have the effect noted below:
Amendments or Modifications of an Indenture Requiring Consent of Each
Holder of Equipment Notes
(1) reduce the principal amount of, or premium, if any, or interest
payable on, any equipment notes issued under the indenture or change
the date on which any principal or premium, if any, or interest is due
and payable;
(2) permit the creation of any security interest with respect to the
property subject to the lien of that indenture, except as provided in
that indenture, or deprive any holder of an equipment note issued
under that indenture of the benefit of the lien of the indenture upon
the property subject to that indenture; or
(3) reduce the percentage in principal amount of outstanding equipment
notes issued under that indenture necessary to modify or amend any
provision of that indenture or to waive compliance with that
indenture. (Indentures, Section 9.01(b))
INDEMNIFICATION
We are required to indemnify each loan trustee, each owner participant,
each owner trustee, each liquidity provider, the policy provider, the
subordination agent, the escrow agent and each trustee, but not the holders of
certificates, for certain losses, claims and other matters. We are required
under certain circumstances to indemnify each owner participant against the loss
of depreciation deductions and other benefits allowable for certain income tax
purposes with respect to the related leased aircraft. Each owner participant
will be required to indemnify the related loan trustee and the holders of the
equipment notes issued with respect to the leased aircraft in which that owner
participant has an interest for certain losses that may be suffered as a result
of the failure of such owner participant to discharge liens or claims on or
against the assets subject to the lien of the related indenture.
THE LEASES
Each aircraft is leased to us by the relevant owner trustee under the
relevant lease agreement.
Lease Term Rentals and Payments
Each aircraft is leased separately by the relevant owner trustee to us for
a term commencing on the date on which the aircraft is acquired by the owner
trustee and expiring on a date not earlier than the latest maturity date of the
relevant equipment notes, unless terminated prior to the originally scheduled
expiration date as permitted by the applicable lease. The semiannual basic rent
payment under each lease is payable by us on January 2 or July 2 during the term
of that lease, and will be assigned by the owner trustee under the corresponding
indenture to provide the funds necessary to make scheduled payments of principal
and interest due from the owner trustee on the equipment notes issued under that
indenture.
In certain cases, the semiannual basic rent payments under the leases may
be adjusted, but each lease provides that under no circumstances will scheduled
rent payments by us be less than the scheduled payments on the related equipment
notes. Any balance of each semiannual basic rent payment under each lease, after
payment of amounts due on the equipment notes issued under the indenture
corresponding to the lease, will be paid over to the related owner trustee.
(Leases, Section 3; Indentures, Section 3.01)
Net Lease; Maintenance
We are obligated under each lease, among other things and at our expense,
to keep each aircraft duly registered and insured, to pay all costs of operating
the aircraft and to maintain, service, repair and overhaul the aircraft so as to
keep it in as good an operating condition as when delivered to us, ordinary
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wear and tear excepted, and without taking into consideration hours and cycles,
and in such condition as required to maintain the airworthiness certificate for
the aircraft in good standing at all times, including temporary storage or
maintenance periods and the grounding of similar aircraft by the applicable
aviation authority. (Leases, Sections 7.1, 8.1 and Annexes C and D)
Possession, Sublease and Transfer
We may operate an aircraft or we may be able to permit other persons to
operate an aircraft. Normal interchange and pooling agreements with respect to
any engine are permitted. Subleases are also permitted to U.S. air carriers and
foreign air carriers that have their principal executive office in countries
that are listed in the applicable indenture, subject to a reasonably
satisfactory legal opinion that, among other things, that country would
recognize owner trustee's title to, and the loan trustee's security interest in
respect of, the applicable aircraft. In addition, a sublessee may not be subject
to insolvency or similar proceedings at the commencement of that sublease.
(Leases, Section 7) Permitted foreign air carriers are not limited to those
based in a country that is a party to the Convention on the International
Recognition of Rights in Aircraft (Geneva 1948). It is uncertain to what extent
the relevant loan trustee's security interest would be recognized if an aircraft
were registered or located in a jurisdiction not a party to the convention.
Moreover, in the case of an Indenture Default, the ability of the related loan
trustee to realize upon its security interest in an aircraft could be adversely
affected as a legal or practical matter if the aircraft were registered or
located outside the United States.
Registration
Subject to the next paragraph, we are required to keep each aircraft duly
registered with the Federal Aviation Administration, except if the relevant
owner trustee or owner participant fails to meet the applicable citizenship
requirements, and to record each lease, subject to the citizenship requirements,
and indenture and certain other documents under Title 49 of the U.S. Code
relating to aviation. (Leases, Section 7) The recordation of the indenture and
other documents with respect to each aircraft is intended to give the relevant
loan trustee a first priority perfected security interest in the aircraft
whenever it is located in the United States or any of its territories and
possessions. The Convention on the International Recognition of Rights in
Aircraft provides that the security interest will also generally be recognized
in those jurisdictions that have ratified or adhere to the convention.
So long as no Lease Event of Default exists, we have the right to register
an aircraft in a country other than the United States at our own expense in
connection with a permitted sublease of that aircraft to a permitted foreign air
carrier, subject to some conditions in the related participation agreement.
These conditions include a requirement that the lien of the applicable indenture
continue as a first priority security interest in the applicable aircraft.
(Leases, Section 7.1.2; Participation Agreements, Section 7.6.11)
Liens
We are required to maintain each aircraft free of any liens, other than the
rights of the relevant loan trustee, the holders of the related equipment notes,
America West, the owner participant and owner trustee arising under the
applicable indenture, the lease or the other operative documents related to the
lease, and other than limited liens permitted under the documents, including but
not limited to those listed below; provided that in the case of the liens
described in clauses (1), (2) and (3) below, the liens and proceedings do not
involve any material risk of the sale, forfeiture or loss of the aircraft or the
interest of any participant in the aircraft or impair the lien of the relevant
indenture. (Leases, Section 6) The following liens are permitted:
Additional Permitted Liens
(1) liens for taxes either not yet due or being contested in good faith by
appropriate proceedings;
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(2) materialmen's, mechanics' and other similar liens arising in the
ordinary course of business and securing obligations that either are
not yet delinquent for more than 60 days or are being contested in
good faith by appropriate proceedings;
(3) judgment liens so long as such judgment is discharged or vacated
within 60 days or the execution of the judgment is stayed pending
appeal and discharged, vacated or reversed within 60 days after
expiration of such stay;
(4) insurers' salvage rights; and
(5) any other lien as to which we have provided a bond or other security
adequate in the reasonable opinion of the related owner trustee or
loan trustee, as the case may be.
Replacement of Parts; Alterations
We are obligated to replace all parts at our expense that may from time to
time be incorporated or installed in or attached to any aircraft and that may
become lost, damaged beyond repair, worn out, stolen, seized, confiscated or
rendered permanently unfit for use. We or any permitted sublessee have the
right, at our own expense, to make alterations, modifications and additions with
respect to each aircraft as we deem desirable in the proper conduct of our
business and to remove parts which we deem to be obsolete or no longer suitable
or appropriate for use, so long as the alteration, modification, addition or
removal does not impair the condition or airworthiness and does not materially
diminish the fair market value, utility, or remaining useful life of the related
aircraft, airframe or engine. (Leases, Section 8.1 and Annex C)
Insurance
We are required to maintain, at our expense or at the expense of a
permitted sublessee, all-risk aircraft hull insurance covering each aircraft, at
all times in an amount not less than the stipulated loss value of that aircraft.
The amount of this insurance is required to be at least equal to the aggregate
outstanding principal amount of the equipment notes related to the aircraft,
together with accrued interest. However, after giving effect to self-insurance
permitted as described below, the amount payable under the insurance for any
aircraft may be less than the amounts payable with respect to the equipment
notes issued with respect to that aircraft. In the event of a loss involving
insurance proceeds in excess of $5,000,000 per occurrence, if the insurers make
payment to other than the repairer of the loss, the proceeds up to the
stipulated loss value of the relevant aircraft will be payable to the applicable
loan trustee, for so long as the relevant indenture is in effect. In the event
of a loss involving insurance proceeds of up to $5,000,000 the proceeds will be
payable directly to us so long as the owner trustee has not notified the
insurance underwriters that a Lease Event of Default exists. So long as the loss
does not constitute an Event of Loss, insurance proceeds will be applied to
repair or replace the property. (Leases, Section 11 and Annex D)
In addition, we are obligated to maintain comprehensive airline liability
insurance relating to each aircraft at our expense or at the expense of a
permitted sublessee, including, without limitation, passenger legal liability,
bodily injury liability, property damage liability and contractual liability,
exclusive of manufacturer's product liability insurance. Insurers of recognized
responsibility must underwrite the liability insurance. The amount of the
liability insurance coverage per occurrence may not be less than the amount of
comprehensive airline liability insurance from time to time applicable to
aircraft owned or leased and operated by us of the same type and operating on
similar routes as the aircraft. (Leases, Section 11.1 and Annex D)
We are also required to maintain war-risk, hijacking or allied perils
insurance if we or any permitted sublessee operate any aircraft or any related
airframe or engine in any area of recognized hostilities, unless governmental
indemnity is obtained in its place, or if we or any permitted sublessee maintain
the insurance relating to other aircraft operated by us or any permitted
sublessee on the same routes on which the aircraft is operated. (Leases, Section
7.1.5 and Annex D)
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We may self-insure under a program applicable to all aircraft in our fleet,
but the amount of the self-insurance in the aggregate may not exceed 50% of the
largest replacement value of any single aircraft in our fleet or 1.5% of the
average aggregate insurable value during the preceding calendar year of all
aircraft on which we carry insurance, whichever is less, unless an insurance
broker of national standing certifies that the standard among all other major
U.S. airlines is a higher level of self-insurance, in which case we may
self-insure the aircraft to such higher level. In addition, we may self-insure
to the extent of any applicable deductible per aircraft that does not exceed
industry standards for major U.S. airlines. (Leases, Section 11.1 and Annex D)
In respect of each aircraft, we are required to name as additional insured
parties the relevant loan trustee and holders of the equipment notes and the
relevant owner participant and owner trustee, in its individual capacity and as
owner of that aircraft, and in some cases certain other parties under all
liability, hull and property and war risk, hijacking and allied perils insurance
policies required with respect to the aircraft. In addition, the insurance
policies maintained under the leases will be required to provide that, in
respect of the interests of only additional insured persons, the insurance will
not be invalidated or impaired by any act or omission of ours or any other
person and to insure the respective interests of the additional insured persons,
regardless of any breach or violation of any representation, warranty,
declaration, term or condition contained in the policies by us, any permitted
sublessee or any other person. (Leases, Annex D)
Lease Termination
Unless a Lease Event of Default has occurred and is continuing, we may
terminate any lease on any payment date occurring on or after the fifth
anniversary of the date on which that lease commenced, if we make a good faith
determination that the leased aircraft subject to that lease is economically
obsolete or surplus to our requirements. We are required to give notice of our
intention to exercise our right of termination described in this paragraph at
least 90 days prior to the proposed date of termination, which notice may be
withdrawn up to ten business days prior to the proposed date; provided that we
may give only five such termination notices. In this situation, unless the owner
trustee elects to retain title to that aircraft, we are required to use
commercially reasonable efforts to sell such aircraft as an agent for the owner
trustee, and the owner trustee will sell the aircraft on the date of termination
to the highest cash bidder. If the sale occurs, the equipment notes related to
the sale are required to be prepaid. If the net proceeds to be received from the
sale are less than the termination value for that aircraft, which is expressed
always to be sufficient to pay the aggregate outstanding principal amount of the
equipment notes related to the aircraft, together with accrued interest, we are
required to pay to the applicable owner trustee an amount equal to the excess,
if any, of the applicable termination value for that aircraft over such net
proceeds. Upon payment of termination value for that aircraft and an amount
equal to the Make-Whole Premium, if any, payable on the date of payment,
together with certain additional amounts, the lien of the relevant indenture
will be released, the relevant lease will terminate, and our obligation to make
scheduled rent payments under the related lease will cease. (Leases, Section 9;
Indentures, Sections 2.10(b) and 10.01)
The owner trustee under any lease has the option to retain title to the
aircraft subject to that lease if we have given a notice of termination under
that lease. The owner trustee will then pay to the applicable loan trustee an
amount sufficient to prepay the outstanding principal of and interest on the
equipment notes issued relating to that aircraft but we will be obligated to pay
the Make-Whole Premium in respect thereof, in which case the lien of the
relevant indenture will be released, the relevant lease will terminate and our
obligation to make scheduled rent payments under that lease will cease. (Leases,
Section 9; Indentures, Sections 2.10(b) and 10.01)
Events of Loss
If an Event of Loss occurs with respect to the airframe or the airframe and
engines of an aircraft, we must elect within 45 days after the occurrence either
to make payment with respect to that Event of Loss or to replace the airframe
and any engines. Not later than the first business day following the earliest of
(1) the 120th day following the date of occurrence of the Event of Loss, and (2)
the fourth business day
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following the receipt of the insurance proceeds in respect of the Event of Loss,
we must take either of the steps noted below:
Alternative Steps Required Upon an Event of Loss
(1) pay to the applicable owner trustee the stipulated loss value of the
aircraft, together with some additional amounts, but, in any case,
without any Make-Whole Premium;
(2) unless any Lease Event of Default or failure to pay basic rent under
the relevant lease or bankruptcy defaults have occurred and are
continuing, substitute an airframe, or airframe and one or more
engines, as the case may be, for the airframe, or airframe and
engine(s), that suffered the Event of Loss. (Leases, Sections 10.1.1,
10.1.2 and 10.1.3; Indentures, Section 2.10(a))
If we elect to replace an airframe, or airframe and one or more engines, as
the case may be, that suffered the Event of Loss, we will convey to the related
owner trustee title to an airframe, or airframe and one or more engines, as the
case may be, and the replacement airframe or airframe and engines must be the
same model as the airframe or airframe and engines to be replaced or an improved
model. The airframe, or airframe and one or more engines, as the case may be,
must also have a value, utility and remaining useful life, without regard to
hours or cycles remaining until the next regular maintenance check, at least
equal to the airframe or airframe and engines to be replaced, assuming that the
airframe and engines had been maintained in accordance with the related lease.
We are also required to provide to the relevant loan trustee and the relevant
owner trustee and owner participant reasonably acceptable opinions of counsel to
the effect, among other things, that (1) specified documents have been duly
filed under Title 49 of the U.S. Code relating to aviation or comparable
applicable law of the relevant jurisdiction of registration and (2) the owner
trustee and loan trustee, as assignee of lessor's rights and interests under the
lease, will be entitled to the benefits of Section 1110 of the U.S. Bankruptcy
Code with respect to any replacement airframe unless, as a result of a change in
law or court interpretation, the benefits are not then available. (Leases,
Sections 10.1.3 and 10.3)
If we elect not to replace the airframe, or airframe and engine(s), then
upon payment of the stipulated loss value for that aircraft, together with all
additional amounts then due and unpaid with respect to that aircraft, which must
be at least sufficient to pay in full as of the date of payment thereof the
aggregate unpaid principal amount under those equipment notes together with
accrued but unpaid interest thereon and all other amounts due and owing in
respect of those equipment notes, the lien of the indenture and the lease
relating to that aircraft will terminate with respect to that aircraft, our
obligation to make the scheduled rent payments will cease and the related owner
trustee will transfer all of its right, title and interest in and to the related
aircraft to us (or, if directed by us, the aircraft insurers). The stipulated
loss value and other payments made under the leases by us will be deposited with
the applicable loan trustee. (Leases, Section 10.1.2; Indentures, Sections 3.02
and 10.01)
If an Event of Loss occurs with respect to an engine alone, we will be
required to replace the engine within 60 days after the occurrence of the Event
of Loss with another engine, free and clear of all liens other than permitted
liens. The replacement engine will be the same make and model as the engine to
be replaced, or an improved model, suitable for installation and use on the
airframe, and having a value, utility and remaining useful life, without regard
to hours or cycles remaining until overhaul, at least equal to the engine to be
replaced, assuming that the replaced engine had been maintained in accordance
with the relevant lease immediately prior to the occurrence of the Event of
Loss. (Leases, Section 10.2) We may, whether or not an Event of Loss has
occurred with respect to any engine, replace that engine with a replacement
engine satisfying the same conditions for a replacement engine following an
Event of Loss. (Leases, Section 10.2.3)
Renewal and Purchase Options
In connection with the exercise of an Early Purchase Option, we are
required with respect to the equipment notes relating to the aircraft being
purchased either (1) to pay to the related owner trustee
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funds at least sufficient to pay any principal of and interest and Make-Whole
Premium, if any, on the equipment notes or (2) to assume on a full recourse
basis the obligations of the related owner trustee under the equipment notes,
the related indenture and the related participation agreement. (Leases, Section
17.3; Indentures, Sections 2.10 and 2.15)
If we elect to purchase an aircraft and pay the amount described in clause
(1) above, then upon payment to the related owner trustee of the full purchase
price for that aircraft determined in accordance with the related lease and all
other amounts owing to the parties to the related participation agreement, the
owner trustee will transfer all of its right, title and interest in and to an
aircraft to us and the related lease and the lien of the related indenture will
terminate. If we elect to purchase the aircraft and assume the obligations of
the owner trustee described in clause (2) above, then the related operative
agreements will be amended to provide for the assumption of the obligations on a
full recourse basis by us, maintaining for the benefit of the holders of the
equipment notes the security interest in that aircraft created by the related
indenture. In the event of an assumption, we will either furnish an opinion to
the loan trustee that the assumption does not result in a taxable gain or loss
for the certificateholders for U.S. federal tax purposes or an indemnity for the
benefit of the certificateholders in form and substance reasonably satisfactory
to loan trustee. (Leases, Section 17.3; Indentures, Sections 2.10 and 2.15)
At the end of the term of each lease after final maturity of the related
equipment notes and subject to some conditions, we will have certain options to
renew the lease for additional limited periods. In addition, we may have the
right at the end of the term of each lease to purchase the aircraft subject to
that lease for an amount to be calculated in accordance with the terms of that
lease. (Leases, Section 17)
Events of Default under the Leases
Lease Events of Default under each lease include, among other things, the
items listed below:
Lease Events of Default
(1) our failure to make any payment of basic rent, stipulated loss value
or termination value under the lease within ten business days after it
becomes due, or failure by us to pay any other amount due under the
lease or under any other related operative document within 30 days
from and after the date of any written demand from the owner trustee;
(2) our failure to make any excluded payment within 30 days after written
notice that the failure constitutes a Lease Event of Default is given
by the relevant owner participant to us and the relevant loan trustee;
(3) our failure to carry and maintain insurance on and in respect of the
aircraft, airframe and engines, in accordance with the provisions of
that lease;
(4) our failure to perform or observe in any material respect any other
covenant or agreement to be performed or observed by us under that
lease or the related participation agreement or any other related
operative document, other than the related tax indemnity agreement
between us and the owner participant, and the failure continues
unremedied for a period of 30 days after written notice of the failure
by the applicable owner trustee or loan trustee unless the failure is
capable of being corrected and we are diligently proceeding to correct
the failure, in which case there will be no Lease Event of Default
unless and until the failure continues unremedied for a period of 180
days after receipt of the notice;
(5) any representation or warranty made by us in that lease or the related
participation agreement or in any other related operative document,
other than in the related tax indemnity agreement between us and the
related owner participant, proves to have been untrue or inaccurate in
any material respect at the time made, the representation or warranty
is material at the time in question and remains uncured to the extent
of the adverse impact thereof for more than 30 days after the date of
written notice to us; and
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(6) the occurrence of voluntary events of bankruptcy, reorganization or
insolvency of America West or the occurrence of involuntary events of
bankruptcy, reorganization or insolvency which continue undismissed,
unvacated or unstayed for a period of 90 days. (Leases, Section 14)
Remedies Exercisable upon Events of Default under the Lease
If a Lease Event of Default has occurred and is continuing, the applicable
owner trustee may, or, so long as the indenture is in effect, the applicable
loan trustee may, subject to the terms of the indenture, exercise one or more of
the remedies provided in the lease with respect to the related aircraft. These
remedies include the right to repossess and use or operate that aircraft, to
rescind or terminate that lease, to sell or re-lease that aircraft free and
clear of our rights, except as set forth in that lease, and retain the proceeds,
and to require us to pay, as liquidated damages, any due and unpaid basic rent
plus an amount, at the owner trustee's or, subject to the terms of the relevant
indenture, the loan trustee's, option, set forth below:
Alternative Amount of Payment Amount upon a Lease Event of Default
(1) the excess of the present value of all unpaid rent during the
remainder of the term of the related lease over the present value of
the fair market rental value of the aircraft for the remainder of the
term of the related lease; or
(2) the excess of the stipulated loss value of the aircraft subject to
that lease over the fair market sales value of that aircraft or, if
that aircraft has been sold, the net sales proceeds from the sale of
that aircraft. (Leases, Section 15; Indentures, Section 4.04)
Remedies under the owned aircraft indentures are discussed above under
"--Remedies".
Transfer of Owner Participant Interests
Subject to some restrictions, each owner participant may transfer all or
any part of its interest in the related leased aircraft. (Participation
Agreements, Section 10.1.1)
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U.S. FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF OUTSTANDING CERTIFICATES FOR NEW CERTIFICATES
The following summary describes the material U.S. federal income tax
consequences to certificateholders of the exchange of outstanding certificates
for new certificates. This summary is addressed to beneficial owners of
certificates that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any state therein, estates the income of which is subject to
U.S. federal income taxation regardless of its source, and trusts that meet the
following two tests: (1) a court in the United States is able to exercise
primary supervision over the administration of the trust and (2) one or more
U.S. persons have authority to control all substantial decisions of the trust
("U.S. Persons"), that will hold the certificates as capital assets.
The exchange of outstanding certificates for new certificates in the
exchange offer will not be a taxable event for U.S. federal income tax purposes.
The receipt of certificates in the exchange offer will be treated as a
continuation of the original investment in the certificates. As a result, a
holder whose outstanding certificate is accepted in the exchange offer will not
recognize gain or loss on the exchange. A tendering holder's tax basis in the
new certificates will be the same as the holder's tax basis in its outstanding
certificates. A tendering holder's holding period for the new certificates
received in the exchange offer will include its holding period for the
outstanding certificates surrendered.
THE FOREGOING SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
OF AN EXCHANGE OF OUTSTANDING CERTIFICATES FOR NEW CERTIFICATES IS ADDRESSED TO
BENEFICIAL OWNERS OF CERTIFICATES WHO ARE U.S. PERSONS THAT WILL HOLD
CERTIFICATES AS CAPITAL ASSETS. IT IS NOT INTENDED TO BE INDIVIDUAL TAX ADVICE.
ACCORDINGLY, ALL HOLDERS OF OUTSTANDING CERTIFICATES ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE EXCHANGE OF OUTSTANDING CERTIFICATES FOR NEW CERTIFICATE AND
OF THE OWNERSHIP AND DISPOSITION OF NEW CERTIFICATES RECEIVED IN THE EXCHANGE
OFFER IN LIGHT OF THEIR OWN INDIVIDUAL AND PARTICULAR CIRCUMSTANCES.
ERISA CONSIDERATIONS
In general, employee benefit plans subject to Title I of the Employee
Retirement Income Security Act of 1974, or ERISA, or Section 4975 of the
Internal Revenue Code of 1986 or entities which may be deemed to hold the assets
of any ERISA plan will not be eligible to purchase the certificates, unless
certain conditions apply and subject to the circumstances applicable to those
ERISA plans.
A fiduciary of an employee benefit plan subject to ERISA should consider
fiduciary standards under ERISA in the context of the particular circumstances
of that plan before authorizing an investment in the certificates. The fiduciary
should determine whether the investment satisfies ERISA's diversification and
prudence requirements and whether the investment is in accordance with the
documents and instruments governing the plan. In addition, ERISA and the
Internal Revenue Code prohibit a wide range of transactions involving an
employee benefit plan subject to ERISA and/or Section 4975 of the Internal
Revenue Code and persons who have specified relationships to the ERISA Plan.
These are referred to as "parties in interest" within the meaning of ERISA and
"disqualified persons" within the meaning of the Internal Revenue Code. These
prohibited transactions may require "correction" and may cause an ERISA plan
fiduciary to incur liabilities and the parties in interest or disqualified
persons to be subject to excise taxes.
Each of the owner participants, the manufacturers of the aircraft, the
holders of the equipment notes, the initial purchasers of the outstanding
certificates, the escrow agent, the depositary, the liquidity provider, the
policy provider and America West may be a party in interest or a disqualified
person with respect to an ERISA plan purchasing the certificates. Therefore, the
purchase by an ERISA plan of the certificates may give rise to a direct or
indirect prohibited transaction. Any person who is, or who in acquiring the
certificates is or may be using the assets of, an ERISA plan may purchase the
certificates, if that person determines that a statutory or an administrative
exemption from the prohibited transaction rules discussed
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below or otherwise available is applicable to their purchase and holding of the
certificates (or a participation interest therein).
Some statutory or administrative exemptions from the prohibited transaction
rules under ERISA and the Internal Revenue Code may be available to an ERISA
plan which is purchasing the certificates. Included among these exemptions are:
PTCE 90-1, regarding investments by insurance company pooled separate accounts;
PTCE 91-38, regarding investments by bank collective investment funds; PTCE
84-14, regarding transactions effected by a qualified professional asset
manager; PTCE 95-60, regarding investments by insurance company general accounts
or PTCE 96-23, regarding investments by an in-house professional asset manager.
Certain of the exemptions, however, do not afford relief from the prohibited
transaction rules under Section 406(b) of ERISA and Section 4975 (c)(I)(E)-(F)
of the Internal Revenue Code. In addition, there can be no assurance that any of
these administrative exemptions will be available with respect to any particular
transaction involving the certificates.
The Department of Labor has issued individual administrative exemptions to
certain underwriters which are substantially the same as the administrative
exemption issued to Morgan Stanley & Co. Incorporated (Prohibited Transaction
Exemption 90-24 et al., Exemption Application NO. D-8019 et al, 55 Fed. Reg.
20,548 (1990). This underwriter exemption generally exempts from the prohibited
transaction rules the initial purchase, the holding and the subsequent resale by
an ERISA plan of certificates in certain pass through trusts, the assets of
which pass through trust consist of secured credit instruments that bear
interest or are purchased at a discount in transactions by or between business
entities (including qualified equipment trust certificates secured by leases).
The limited relief provided by the Department of Labor in the underwriter
exemption is subject to several other conditions, including a requirement that
certificates acquired by an ERISA plan under the underwriter exemption have
received a rating at the time of acquisition by the ERISA plan that is in one of
the three highest rating categories from either Standard & Poor's or Moody's.
Under the underwriter exemption, an equipment trust certificate secured by a
lease will be considered qualified only under certain circumstances. The
underwriter exemption also requires that the acquisition of certificates by an
ERISA plan be on terms (including the price for the certificate) that are at
least as favorable to an ERISA plan as they would be in an arm's-length
transaction with an unrelated party, and that the rights and interests evidenced
by the certificates must not be subordinated to the rights and interests
evidenced by other certificates of the same trust estate.
With respect to the investment restrictions set forth in the underwriter
exemption, an investment in a certificate will evidence both an interest in the
respective original trust as well as an interest in the deposits held in escrow
by an escrow agent for the benefit of the certificateholder. Under the terms of
the escrow agreement, the proceeds from the offering of the certificates of each
class will be paid over by the initial purchasers of the outstanding
certificates to the depositary on behalf of the escrow agent (for the benefit of
such certificateholders as the holders of the escrow receipts) and will not
constitute property of the original trusts. Under the terms of each escrow
agreement, the escrow agent will be irrevocably instructed to enter into the
deposit agreements with the depositary and to effect withdrawals upon the
receipt of appropriate notice from the relevant trustee so as to enable the
trustee to purchase the identified equipment notes on the terms and conditions
set forth in the note purchase agreement. Interest on the deposits relating to
each trust will be paid to the certificateholders of that trust as holders of
escrow receipts through a paying agent appointed by the escrow agent. Pending
satisfaction of the conditions and withdrawal of these deposits, the escrow
agent's rights with respect to the deposits will remain plan assets subject to
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the prohibited transaction rules.
The Department of Labor has issued an amendment to the underwriter
exemption, 62 FR 39,021 (July 21, 1997), which allows the assets of a pass
through trust to include a prefunding account under certain circumstances. The
relief provided by this amendment is subject to several conditions, including a
requirement that the prefunding period end no later than the earliest to occur
of: (1) the date the amount on deposit in the prefunding account is less than
the minimum dollar amount specified in the pooling and servicing agreement; (2)
the date on which an event of default occurs under the pooling and servicing
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agreement; or (3) the date which is the later of three months or 90 days after
the closing date. Such restrictions on prefunding accounts may not be applicable
in certain circumstances where, although certain of the equipment securing
equipment trust certificates held by the trust have not been delivered on the
date of the issuance of such equipment trust certificates, such equipment trust
certificates otherwise constitute, at the time an ERISA plan acquires the pass
through certificates, secured credit instruments that bear interest. However,
there can be no assurance that the Department of Labor would agree that the
prefunding restrictions would not apply in such a case. Moreover, even if such
restrictions would not apply, no monitoring or other measures will be taken to
ensure that all of the conditions of the underwriter exemption, as amended, will
be satisfied.
It is clear that the underwriter exemption will not apply to subordinated
classes of certificates, such as the Class C certificates. It also appears that
the underwriter exemption will not apply to the purchase by Class C
certificateholders of Class G certificates in connection with the exercise of
their rights upon the occurrence and during the continuance of a Triggering
Event. In addition, for the reasons noted above, no assurance can be given that
the underwriter exemption will otherwise apply with respect to any particular
transaction involving the Class G certificates or the assets of the Class G
trust.
If an ERISA plan acquires a certificate, the ERISA plan's assets may
include both the certificate acquired and an undivided interest in the
underlying assets of the trust, unless the actual investment by "benefit plan
investors" in the certificates is not "significant" within the meaning of the
Department of Labor plan assets regulations. Consequently, the trust assets
could be deemed to be "plan assets" of such ERISA plan for purposes of the
fiduciary responsibility provisions of ERISA and the prohibited transaction
rules. Any person who exercises any authority or control with respect to the
management or disposition of the assets of an ERISA plan is considered to be a
fiduciary of that ERISA plan. The trustee could, therefore, become a fiduciary
of ERISA plans that have invested in the certificates and be subject to general
fiduciary requirements of ERISA in exercising its authority with respect to the
management of the assets of the trust. If the trustee becomes a fiduciary with
respect to the ERISA plans purchasing the certificates, there may be an improper
delegation by such ERISA plans of the responsibility to manage plan assets. In
order to avoid such prohibited transactions, each investing ERISA plan, by
purchasing that certificates, will be deemed to have directed the trust to
invest in the assets held in such trust. Any ERISA plan purchasing the
certificates must ensure that any statutory or administrative exemption from the
prohibited transaction rules on which the ERISA plan relies with respect to its
purchase or holding of the certificates also applies to the ERISA plan's
indirect holding of the assets of the trust.
Governmental plans and certain church plans, each as defined under ERISA,
are not subject to the prohibited transaction rules. These plans may, however,
be subject to federal, state or local laws or regulations which may affect their
investment in the certificates. Any fiduciary of a governmental or church plan
considering a purchase of the certificates must determine the need for, and the
availability, if necessary, of any exemptive relief under any such laws or
regulations.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of an ERISA plan, governmental plan or church plan
considering the purchase and holding of the certificates should consult with its
legal advisors regarding the consequences of such purchase and holding. By its
purchase and acceptance of a certificate, each certificateholder will be deemed
to have represented and warranted that either (1) no ERISA plan assets have been
used to purchase the certificate, or (2) one or more prohibited transaction
statutory or administrative exemptions applies such that the use of such ERISA
plan assets to purchase and hold the certificate will not constitute a
non-exempt prohibited transaction.
EACH ERISA PLAN FIDUCIARY, AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH
PLAN SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON ERISA PLANS UNDER ERISA,
SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY OF THE
CERTIFICATES.
76.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new certificates for its own account in
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new certificates. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new certificates received in exchange for outstanding
certificates where the outstanding certificates were acquired as a result of
market-making activities or other trading activities. We have agreed that we
will make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale. In addition, until that date
all broker-dealers effecting transactions in the new certificates may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new certificates by
broker-dealers. New certificates received by broker-dealers for their own
account in the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new certificates or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new certificates. Any
broker-dealer that resells new certificates that were received by it for its own
account in the exchange offer and any broker or dealer that participates in a
distribution of such new certificates may be deemed to be an "underwriter"
within the meaning of the Securities Act of 1933. Any profit of any resale of
new certificates and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act of 1933.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933.
Starting on the date the exchange offer expires, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
other than commissions or concessions of any brokers or dealers, fees of counsel
to the holders and certain transfer taxes. We will indemnify the holders of the
new certificates (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act of 1933.
77.
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LEGAL MATTERS
The validity of the new certificates is being passed upon for America West
by Vedder, Price, Kaufman & Kammholz, special counsel for America West.
EXPERTS
The financial statements and financial statement schedule of America West
Airlines, Inc. as of December 31, 1998 and 1997, and for each of the years in
the three-year period ended December 31, 1998, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The references to AvSolutions, AVITAS and MBA, and to their respective
appraisal reports, dated as of July 6, 1999, June 10, 1999, and July 13, 1999,
respectively, are included in reliance upon the authority of each firm as an
expert with respect to the matters contained in its appraisal report.
78.
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GLOSSARY
"Adjusted Expected Distributions" means, with respect to the certificates of any
trust on any Current Distribution Date, the sum of (x) accrued and unpaid
interest on the certificates (excluding interest, if any, payable with respect
to the deposits relating to the trust) and (y) the greater of:
(A) the difference between (x) the pool balance of the certificates as of the
immediately preceding distribution date (or, if the Current Distribution
Date is the first distribution date, the original aggregate face amount of
the certificates of that trust) and (y) the pool balance of the
certificates as of the Current Distribution Date calculated on the basis
that (1) the principal of the Non-Performing Equipment Notes held in that
trust has been paid in full and the payments have been distributed to the
holders of the certificates, (2) the principal of the Performing Equipment
Notes held in that trust has been paid when due (but without giving effect
to any acceleration of Performing Equipment Notes) and the payments have
been distributed to the holders of the certificates and (iii) the principal
of any equipment notes formerly held in that trust that have been sold has
been paid in full and such payment has been distributed to the holders of
the certificates, but without giving effect to any reduction in the pool
balance as a result of any distribution attributable to deposits occurring
after the immediately preceding distribution date (or, if the Current
Distribution Date is the first distribution date, occurring after the
initial issuance of the certificates of that trust); and
(B) the amount of the excess, if any, of (1) the pool balance of that class of
certificates as of the immediately preceding distribution date (or, if the
Current Distribution Date is the first distribution date, the original
aggregate face amount of the certificates of that trust), less the amount
of the deposits for that class of certificates as of the preceding
distribution date (or, if the Current Distribution Date is the first
distribution date, the original aggregate amount of the deposits for that
class of certificates) other than any portion of the deposits thereafter
used to acquire equipment notes pursuant to the note purchase agreement,
over (2) the Aggregate LTV Collateral Amount for that class of certificates
for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will not
apply.
"Administrative Expenses" means out-of-pocket expenses actually incurred by the
subordination agent, the liquidity provider, the policy provider or any trustee
or to reimburse any certificateholder, the liquidity provider or the policy
provider for payments made to the subordination agent or any trustee to protect
or realize the value of the equipment notes or any collateral or any Trust
Indenture Estate.
"Aggregate LTV Collateral Amount" for any class of certificates for any
distribution date means the sum of the applicable LTV Collateral Amounts for
each aircraft, minus the pool balance for each class of certificates, if any,
senior to that class, after giving effect to any distribution of principal on
that distribution date with respect to the senior class or classes.
"Appraised Current Market Value" of any aircraft means the lower of the average
and the median of the most recent three LTV Appraisals of that aircraft.
"Average Life Date" for any equipment note will be the date which follows the
time of determination by a period equal to the Remaining Weighted Average Life
of that equipment note.
"Base Rate" means a fluctuating interest rate per annum in effect from time to
time, which rate per annum will at all times be determined by the calculation
below:
(1) the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for that day (or, if it is not a
business day, the next preceding business day) by the Federal Reserve
Bank of New York, or if the rate is not so published for any day that
is a business day, the average of the quotations for the day for such
transactions received by the liquidity provider from three Federal
funds brokers of recognized standing selected by it, plus
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(2) one-quarter of one percent ( 1/4 of 1%).
"Controlling Party" of an indenture means
(1) the policy provider until payment of the final distributions to the
holders of the Class G certificates and no obligation to the policy
provider remain outstanding or, if the policy provider has defaulted
and has not cured the default, the Class G trustee; or
(2) upon payment of the final distributions to the holders of Class G
certificates and if either no obligations owing to the policy provider
remain outstanding or a default by the policy provider has occurred and
is continuing, the Class C trustee.
Notwithstanding the foregoing, at any time after 18 months from the earliest to
occur of the events set forth below, the liquidity provider with the highest
outstanding amount of unreimbursed Liquidity Obligations (so long as the
liquidity provider has not defaulted in its obligation to make any advance under
any liquidity facility) will have the right to elect to become the Controlling
Party with respect to any indenture as follows:
Time at Which Liquidity Provider May Elect to Become Controlling Party
(1) the date on which the entire available amount under any liquidity
facility has been drawn (for any reason other than a Downgrade Drawing
or a Non-Extension Drawing) and remain unreimbursed;
(2) the date on which the entire amount of any Downgrade Drawing or
Non-Extension Drawing has been withdrawn from the relevant cash
collateral account to pay interest on the relevant class of
certificates and remain unreimbursed; or
(3) the date on which all equipment notes have been accelerated (provided,
that prior to the delivery period termination date the aggregate
outstanding principal amount thereof exceeds $100 million).
Notwithstanding the foregoing, the policy provider will remain the Controlling
Party so long as no Policy Provider Default has occurred and is continuing and
either of the following occur:
(1) the policy provider amends the policy to cover payments of all
drawings and interest on the policy owing to the liquidity provider
under the Class G and Class C liquidity facilities (determined without
regard to the availability of funds for the payment by the
subordination agent) and certain other conditions are met, including
the rating agencies confirming that they will not withdraw, suspend or
downgrade their ratings on any class of certificates; or
(2) the policy provider pays to the liquidity provider all outstanding
drawings and interest owing to the liquidity provider under the Class
G and Class C liquidity facilities including all interest accrued
thereon to such date.
"Current Distribution Date" means any applicable distribution date.
"delivery period termination date" refers to the earlier of the end of the
delivery period or the acquisition by the trusts of the equipment notes for all
aircraft.
"Downgrade Drawing" means a drawing by the subordination agent of the Maximum
Available Commitment under a liquidity facility.
"Early Purchase Option" means our option to elect to purchase an aircraft and
terminate the related lease prior to the end of the term of that lease (1) on
the lease payment date, if any, agreed by the owner participant for that
aircraft in connection with an early buy-out option or (2) under some
circumstances, on any lease payment date, if we would be required to make
indemnity payments with respect to that aircraft in excess of a certain
designated amount, which indemnity payments could be avoided through a purchase
by us of that aircraft.
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"Election Distribution Date" means (1) on any business day elected by the policy
provider upon 20 days' notice to request the subordination agent, or (2)
following either the occurrence and continuation of a Policy Provider Default or
the sale or other disposition of that equipment note or its underlying
collateral, on any business day specified by the subordination agent upon 20
days' notice. Each of the business days identified in (1) and (2) are special
distribution dates.
"Event of Loss" with respect to an aircraft, airframe or any engine means any of
the events noted below:
(1) the destruction, damage beyond practical or economic repair or
rendition of that property permanently unfit for normal use;
(2) the actual or constructive total loss or any damage or requisition of
title or use of that property which results in an insurance settlement
on the basis of a total loss or a constructive or compromised total
loss;
(3) any theft, hijacking or disappearance of that property for a period of
180 days or more or, if earlier, the first to occur of the last day of
the term of the related lease (if that property is subject to a lease)
or the date on which we have confirmed in writing that we cannot
recover that property;
(4) any seizure, condemnation, confiscation, taking or requisition of
title to that property by any governmental entity or purported
governmental entity (other than the country of registration of the
relevant aircraft) for a period exceeding 180 days (exceeding 90 days
in the case of a requisition of title) or, if earlier, at the end of
the term of the related lease (in the case of a leased aircraft);
(5) in the case of any leased aircraft, any seizure, condemnation,
confiscation, taking or requisition of use of that property by any
U.S. government entity that continues until the 30th day after the
last day of the term of the relevant lease (unless the owner trustee
has elected not to treat the event as an Event of Loss); and
(6) as a result of any law, rule, regulation, order or other action by the
Federal Aviation Administration or any governmental entity, the use of
that property in the normal course of our business of passenger air
transportation is prohibited for 180 days.
The event described in paragraph (6) above will be an Event of Loss unless we,
prior to the expiration of the 180-day period, have undertaken and will be
diligently carrying forward steps which are necessary or desirable to permit the
normal use of the property, but in any event if the use has been prohibited for
a period of two consecutive years; provided that no Event of Loss will be deemed
to have occurred if the prohibition has been applicable to our entire U.S. fleet
of similar property and we, prior to the expiration of the two-year period, have
conformed at least one unit of property in our fleet to the requirements of any
law, rule, regulation, order or other action and commenced regular commercial
use of the same and will be diligently carrying forward, in a manner which does
not discriminate against applicable property in so conforming the property,
steps which are necessary or desirable to permit the normal use of the property
by us, but in any event if the use has been prohibited for a period of three
years or, in the case of the leased aircraft, the use will be prohibited at the
expiration of the term of the relevant lease. (Leases, Annex A)
"Excess Reimbursement Obligations" means, (1) in the event of any Policy
Provider Election, the portion of the Policy Provider Obligations that
represents, when added to that portion of any Liquidity Obligations that
represents, interest on the Series G equipment note in respect of which the
Policy Provider Election has been made in excess of 24 months of interest at the
interest rate applicable to that equipment note and (2) any interest on the
Liquidity Obligations in respect of the Class G and Class C liquidity facilities
paid by the policy provider to the liquidity provider from and after the end of
the 24-month period referred to under the caption "Description of the Policy and
the Policy Provider Agreement--The Policy--No Proceeds Drawing".
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"Expected Distributions" means, with respect to the certificates of any trust on
any Current Distribution Date, the sum of (x) accrued and unpaid interest on
those certificates (excluding interest, if any, payable with respect to the
deposits relating to that trust) and (y) the difference between (A) the pool
balance of those certificates as of the immediately preceding distribution date
(or, if the Current Distribution Date is the first distribution date, the
original aggregate face amount of the certificates of that trust) and (B) the
pool balance of those certificates as of the Current Distribution Date
calculated on the basis that (1) the principal of the equipment notes held in
that trust has been paid when due (whether at stated maturity, upon redemption,
prepayment, purchase or acceleration or otherwise) and these payments have been
distributed to the holders of those certificates and (2) the principal of any
equipment notes formerly held in that trust that have been sold has been paid in
full and these payments have been distributed to the holders of those
certificates, but without giving effect to any reduction in the pool balance as
a result of any distribution attributable to deposits occurring after the
immediately preceding distribution date (or, if the Current Distribution Date is
the first distribution date, occurring after the initial issuance of the
certificates of that trust). For purposes of calculating Expected Distributions
with respect to the certificates of any trust, any premium paid on the equipment
notes held in that trust which has not been distributed to the
certificateholders of that trust (other than a premium or a portion thereof
applied to the payment of interest on the certificates of that trust or the
reduction of the pool balance of that trust) will be added to the amount of the
Expected Distributions. For purposes of determining the priority of
distributions on account of the redemption, purchase or prepayment of all of the
equipment notes issued under an indenture, clause (x) of the definition of
Expected Distributions will be deemed to read as follows: "(x) accrued, due and
unpaid interest on those certificates together with (without duplication)
accrued and unpaid interest on a portion of the certificates equal to the
outstanding principal amount of the equipment notes held in trust and being
redeemed, purchased or prepaid (immediately prior to such redemption, purchase
or prepayment), in each case excluding interest, if any, payable with respect to
the deposits related to that trust."
"Final Distributions" means, with respect to the certificates of any trust on
any distribution date, will be calculated under the following formula:
Calculation of Distributions
(1) the aggregate amount of all accrued and unpaid interest on those
certificates (excluding interest, if any, payable on the deposits
relating to the trust), plus
(2) the pool balance of those certificates as of the immediately preceding
distribution date (less the amount of the deposits for that class of
certificates as of the preceding distribution date other than any
portion of the deposits thereafter used to acquire equipment notes
pursuant to the note purchase agreement).
For purposes of calculating Final Distributions with respect to the certificates
of any trust, any premium paid on the equipment notes held in that trust which
has not been distributed to the certificateholders of that trust (other than the
premium or a portion thereof applied as the payment of interest on the
certificates of that trust on the reduction of the pool balance of that trust)
will be added to the amount of the Final Distributions.
"Final Drawing" means a drawing by the subordination agent under a liquidity
facility in an amount equal to the Maximum Available Commitment under that
liquidity facility at the time of the drawing as a result of the termination of
the liquidity facility by the applicable liquidity provider.
"final legal distribution date" for the Class G certificates is July 2, 2020 and
for the Class C certificates is July 2, 2007.
"Indenture Default" means an event of default under any indenture, including:
(1) the occurrence of any Lease Event of Default under the related lease;
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(2) the failure by the related owner trustee (other than as a result of a
lease default or Lease Event of Default) to pay any interest or
principal or premium, if any, when due, under that indenture or under
any equipment note issued under that indenture that continues for more
than ten business days, in the case of principal, interest or
Make-Whole Premium, and, in all other cases, 30 days after the
relevant owner trustee or owner participant receives written demand
from the related loan trustee or holder of an equipment note;
(3) the failure by the related owner participant or the related owner
trustee (in its individual capacity) to discharge certain liens that
continue after notice and specified cure periods;
(4) any representation or warranty made by the related owner trustee or
owner participant in the related agreements, or certain related
documents furnished to the loan trustee pursuant to those agreements,
being false or incorrect in any material respect when made that
continues to be material and adverse to the interests of the loan
trustee or registered holders of equipment notes and remains
unremedied after notice and specified cure periods;
(5) failure by the related owner trustee or owner participant to perform
or observe in any material respect any covenant or obligation for the
benefit of the loan trustee or holders of equipment notes under the
related indenture or certain related documents that continues after
notice and specified cure periods;
(6) the registration of the related aircraft ceasing to be effective as a
result of the owner participant not being a citizen of the United
States, as defined in Title 49 of the United States Code relating to
aviation (subject to a cure period); and
(7) the occurrence of certain events of bankruptcy, reorganization or
insolvency of the related owner trustee or owner participant
(Indentures, Section 4.02).
"Interest Drawings" means a drawing made by the subordination under the
liquidity facility on any distribution date to pay interest then due and payable
on the certificates of the applicable pass through trust at the Stated Interest
Rate for that pass through trust.
"Lease Event of Default" means an event of default under any lease, as described
in "Description of the Equipment Notes -- The Leases -- Events of Default under
the Leases."
"LIBOR" means, with respect to any interest period, the rate per annum appearing
on Page 3750 (British Bankers Association-LIBOR) of the Dow Jones Markets
Service (or any successor or substitute page of the service, or any successor to
or substitute for the service, providing rate quotations comparable to those
currently provided on such page applicable to deposits in dollars in the London
interbank market) at approximately 11:00 a.m. (London time) two business days
before the first day of that interest period, at the rate for dollar deposits
with a maturity comparable to that interest period. In the event that the rate
is not available for any reason, then LIBOR with respect to any interest period
will be the average rate per annum (rounded upwards if necessary to the next
1/16 of 1%) at which deposits in dollars are offered for the relevant interest
period by three banks of recognized standing selected by the liquidity provider
in the London interbank market at approximately 11:00 a.m. (London time) two
business days before the first day of such interest period in an amount
approximately equal to the principal amount of the advance to which such
interest period is to apply and for a period of time comparable to that interest
period.
"Liquidity Event of Default" means an event of default under each liquidity
facility, including (1) the acceleration of all the equipment notes and (2) some
bankruptcy or similar events involving America West. (Liquidity Facilities,
Section 1.01)
"Liquidity Expenses" means all amounts owing to the liquidity provider under
each liquidity facility or other agreements other than any interest accrued on
the liquidity facility or the amount of any drawing under a liquidity facility.
"Liquidity Obligations" means the obligations to reimburse or to pay the
liquidity provider all principal, interest, fees and other amounts owing to it
under each liquidity facility or certain other agreements.
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"LTV Appraisal" means a fair market value appraisal, which may be a "desktop"
appraisal, performed by any appraiser or any other nationally recognized
aircraft appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
"LTV Collateral Amount" of any aircraft for any class of certificates means, as
of any distribution date, the lesser of (1) the LTV Ratio for that class of
certificates multiplied by the appraised current market value of such aircraft
(or with respect to any aircraft which has suffered an event of loss under and
as defined in the relevant lease, in the case of a leased aircraft, or
indenture, in the case of an owned aircraft, the amount of the insurance
proceeds paid to the related loan trustee in respect thereof to the extent then
held by that loan trustee (and/or on deposit in an account for special payments)
or payable to that loan trustee in respect thereof) and (2) the outstanding
principal amount of the equipment notes secured by that aircraft after giving
effect to any principal payments of the equipment notes on or before that
distribution date.
"LTV Ratio" means 57.0% for the Class G certificates and 62.0% for the Class C
certificates.
"Make-Whole Premium" means, with respect to any equipment note, an amount (as
determined by an independent investment banker of national standing selected by
us) equal to the excess, if any, determined under the following calculation:
Calculation of Make-Whole Premium
(1) the present value of the remaining scheduled payments of principal and
interest to maturity of that equipment note computed by discounting
the payments on a semiannual basis on each payment date (assuming a
360-day year of twelve 30-day months) using a discount rate equal to
the Treasury Yield, minus
(2) the outstanding principal amount of that equipment note plus accrued
interest to the date of determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means, at
the date of determination with respect to any equipment note, the interest rate
(expressed as a decimal and, in the case of United States Treasury bills,
converted to a bond equivalent yield) determined to be the annual rate equal to
the semiannual yield to maturity for United States Treasury securities maturing
on the Average Life Date of that equipment note and trading in the public
securities markets either as determined by interpolation between the most recent
weekly average yield to maturity for two series of United States Treasury
securities trading in the public securities markets, (1) one maturing as close
as possible to, but earlier than, the Average Life Date of that equipment note
and (2) the other maturing as close as possible to, but later than, the Average
Life Date of that equipment note, in each case as published in the most recent
H.15(519) or, if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of that equipment note is reported
in the most recent H.15(519), the weekly average yield to maturity as published
in such H.15(519). As used in the definition of Treasury Yield, "H.15(519)"
means, the weekly statistical release designated as such, or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The date of determination of a Make-Whole Premium is the third business day
prior to the applicable payment or redemption date and the "most recent
H.15(519)" means the H.15(519) published prior to the close of business on the
third business day prior to the applicable payment or redemption date.
"Mandatory Document Terms" means the Mandatory Document Terms described under
"Description of the New Certificates -- Mandatory Terms."
"Mandatory Economic Terms" means the Mandatory Economic Terms described under
"Description of the New Certificates -- Mandatory Terms."
"Maximum Principal Amount of Equipment Notes" means the Maximum Principal Amount
of Equipment Notes described under "Description of the Aircraft and the
Appraisals -- The Appraisals."
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"Maximum Available Commitment" means an amount equal to the then Required Amount
of that liquidity facility less the aggregate amount of each advance outstanding
under that liquidity facility at that time.
"Minimum Sale Price" means, with respect to any aircraft or the equipment notes
issued in respect of that aircraft, at any time, the lesser of (1) 75% of the
appraised current market value of that aircraft and (2) the aggregate
outstanding principal amount of those equipment notes, plus accrued and unpaid
interest thereon.
"Non-Extension Drawing" means a drawing by the subordination agent of the
Maximum Available Commitment under a liquidity facility at the time of the
drawing, as a result of the liquidity facility not being extended or replaced by
the 25th day prior to its then scheduled expiration date.
"Non-Performing Equipment Note" means an equipment note that is not a Performing
Equipment Note.
"Order" means the order referred to in the definition of the term "Preference
Amount" below.
"owner participant" means the owner of the beneficial interest of an owner trust
in a leverage lease transaction.
"Performing Equipment Note" means an equipment note issued under an indenture
with respect to which no payment default has occurred and is continuing (without
giving effect to any acceleration); provided that in the event of a bankruptcy
proceeding involving America West under Title 11 of the United States Code, the
Bankruptcy Code, the following items will not be taken into consideration:
(1) any payment default existing during the 60-day period under Section
1110(a)(1)(A) of the Bankruptcy Code (or such longer period as may
apply under Section 1110(b) of the Bankruptcy Code), unless during
this Section 1110 period the trustee in the proceeding or America West
refuses to assume or agree to perform its obligations under the lease
related to that equipment note; and
(2) any payment default occurring after the date of the order of relief in
the proceeding, if such payment default is cured under Section
1110(a)(1)(B) of the Bankruptcy Code before the later of 30 days after
the date of that default or the expiration of the Section 1110 period.
(Intercreditor Agreement, Section 1.1)
"Policy Business Day" for the purposes of the "Description of the Policy and the
Policy Provider Agreement," means any day that is not a Saturday, a Sunday or
other day on which banking institutions in New York City or in the city in which
the Corporate Trust Office of the subordination agent or the office of the
policy provider is located are authorized or obligated by law or executive order
to close.
"Policy Drawing" means any payment of a claim under the policy.
"Policy Expenses" means all amounts (including amounts in respect of expenses or
indemnities) owing to the policy provider under the insurance indemnity
agreement or other agreements other than the amount of any Policy Drawing and
any interest accrued on any Policy Provider Obligation.
"Policy Provider Default" means the occurrence of any of the following events:
(1) the policy provider fails to make a payment required under the policy
and this failure remains unremedied for two business days following the delivery
of written notice of the failure to the policy provider;
(2) the policy provider (a) files any petition or commences any case or
proceeding under any provisions of any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (b) makes
a general assignment for the benefit of its creditors or (c) has an order for
relief entered against it under any federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization that is final and
nonappealable; or
A-I-7
<PAGE> 86
(3) a court of competent jurisdiction, the Wisconsin Department of
Insurance or another competent regulatory authority enters a final and
nonappealable order, judgment or decree (a) appointing a custodian, trustee,
agent or receiver for the policy provider or for all or any material portion of
its property or (b) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the policy provider (or taking of possession of
all or any material portion of the policy provider's property).
"Policy Provider Election" means the Policy Provider Election described under
"Description of the Policy and the Policy Provider Agreement -- The Policy -- No
Proceeds Drawing."
"Policy Provider Obligations" means all reimbursement and other amounts,
including fees and indemnities, due to the policy provider under the insurance
indemnity agreement but does not include any interest on Policy Drawings except,
if the Class G liquidity provider has failed to honor any Interest Drawing,
interest on any Policy Drawing made to cover the shortfall attributable to that
failure by the Class G liquidity provider in an amount equal to the amount of
interest that would have accrued on the Interest Drawing if the Interest Drawing
had been made at the interest rate applicable to the Interest Drawing until the
Policy Drawing has been repaid in full, up to a maximum of three Policy
Drawings. For the avoidance of doubt, Policy Provider Obligations include
reimbursement of, and interest on, the Liquidity Obligations in respect of the
Class G and Class C liquidity facilities paid by the policy provider to the
liquidity provider.
"pool balance" for each trust or for the certificates issued by any trust
indicates, as of any date, represents the portion of the original aggregate face
amount of the certificates issued by that trust that has not been distributed to
certificateholders.
"pool factor" for each trust as of any distribution date is the quotient
(rounded to the seventh decimal place) computed by dividing the pool balance by
the original aggregate face amount of the certificates of that trust.
"Preference Amount" means any payment of principal or interest at the interest
rate on the Series G equipment notes made to the trustee or the subordination
agent or (without duplication) any payment of the pool balance of or interest at
the interest rate on the Class G certificates or any payment of the proceeds of
any drawing under the Class G liquidity facility made to a holder which has
become recoverable or been recovered from the trustee, the subordination agent
or the holders of the Class G certificates (as the case may be) as a result of
such payment being determined or deemed a preferential transfer pursuant to the
United States Bankruptcy Code or otherwise rescinded or requested to be returned
in accordance with a final, nonappealable order of a court of competent
jurisdiction.
"PTC Event of Default" under each pass through trust agreement means the failure
to pay within ten business days of the due date either: the outstanding pool
balance of the applicable class of certificates on the final legal distribution
date for that class or the interest due on that class of certificates on any
distribution date (unless the subordination agent has made Interest Drawings, a
withdrawal from the Cash Collateral Account for that class of certificates, or a
drawing under the policy, in an aggregate amount sufficient to pay the interest
and has distributed that amount to the relevant trustee).
"Remaining Weighted Average Life" on a given date with respect to any equipment
note is the number of days equal to the quotient obtained under the following
calculation:
Calculation of Remaining Weighted Average Life
- ----------------------------------------------------
(1) divide the sum of each of the products obtained by multiplying
(a) the amount of each then remaining scheduled payment of principal of
that equipment note, by
(b) the number of days from and including that determination date to
but excluding the date on which the payment of principal is
scheduled to be made, by
(2) the then outstanding principal amount of that equipment note.
A-I-8
<PAGE> 87
"replacement facility" for any liquidity facility will mean an irrevocable
revolving credit agreement in substantially the form of the replaced liquidity
facility, including reinstatement provisions, or in such other form (which may
include a letter of credit) as will permit the rating agencies to confirm in
writing their respective ratings then in effect for the certificates (before the
downgrading of such ratings, if any, as result of (i) the downgrading of the
liquidity provider or, if applicable, any guarantor of its obligations or (ii)
any guarantee of the liquidity provider's obligations ceasing to be in full
force and effect or becoming invalid or unenforceable or such guarantor denying
its liability thereunder, but, in each case, without regard to the policy) and
in the case of the Class G liquidity facility only, be consented to by the
policy provider, which consent may not be unreasonably withheld or delayed, in a
face amount (or in an aggregate face amount) equal to the amount of interest
distributable on the certificates of that trust (at the interest rate for that
trust, and without regard to expected future principal payments) on the three
regular distribution dates following the date of replacement of that liquidity
facility and issued by a person having unsecured short-term debt ratings issued
by both rating agencies which are equal to or higher than the Threshold Rating.
(Intercreditor Agreement, Section 1.1)
"Required Amount" means, for any day and with respect to either trust, the sum
of the aggregate amount of interest, calculated at the interest rate applicable
to the certificates issued by that trust, that would be payable in respect of
the certificates on each of the three successive semiannual regular distribution
dates immediately following that day or, if that day is a regular distribution
date, on that day and the succeeding two regular distribution dates, in each
case calculated based on the pool balance for the certificates of that trust on
that day and without regard to expected future payments of principal on the
certificates. (Liquidity Facilities, Section 1.1) The pool balance for purposes
of the definition of Required Amount with respect to the Class G liquidity
facility will, in the event of any Policy Provider Election, be deemed to be
reduced by the amount (if positive) by which (a) the then outstanding principal
balance of each Series G equipment note in respect of which that Policy Provider
Election has been made shall exceed (b) the amount of any policy drawings
previously paid by the policy provider in respect of principal on that Series G
equipment note. In addition, the liquidity facility with respect to each trust
will not cover interest payable by the depositary on the deposits relating to
that trust.
"Threshold Rating" means the short-term unsecured debt rating of P-1 by Moody's
Investor Service, Inc. and A-1 by Standard & Poor's Ratings Service for either
liquidity facility.
"Triggering Event" refers to (1) defaults under all indentures that result in an
event of default on the most senior class of certificates, (2) the acceleration
of all of the outstanding equipment notes or (3) some bankruptcy or insolvency
events involving America West.
A-I-9
<PAGE> 88
APPENDIX II--APPRAISAL LETTERS
A-II-1
<PAGE> 89
[AVITAS LETTERHEAD]
AMERICA WEST AIRLINES
JUNE
20, 1999
INTRODUCTION
AVITAS, Inc. has been retained by America West Airlines (the "Client") to
provide its opinion as to the Base Value for five Airbus A319-100 and five
A320-200 aircraft. The subject aircraft are identified and their values are set
forth in Figure 1 in this report.
The values presented in this report assume that this aircraft will be in
new, "flyaway" condition and fully certificated for commercial operations. We
have further assumed that the subject aircraft will be operated under the air
transport regulations of a major nation.
The values presented in this report do not take into consideration fleet
sales, attached leases, tax considerations or other factors that might be
considered in structuring the terms and conditions of a specific transaction.
These factors do not directly affect the value of the aircraft itself but can
affect the economics of the transaction. Therefore, the negotiated striking
price in an aircraft transaction may take into consideration factors such as the
present value of the future lease stream, the terms and conditions of the
specific lease agreement and the impact of tax considerations.
DEFINITIONS
AVITAS's value definitions conform to those of the International Society of
Transport Aircraft Trading ("ISTAT") adopted in January 1994, and are summarized
as follows:
- BASE VALUE is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration
of its "highest and best use." An aircraft's Base Value is founded in the
historical trend of values and in the projection of value trends and
presumes an arm's-length, cash transaction between willing and
knowledgeable parties, acting prudently, with an absence of duress and
with a reasonable period of time for marketing. Base Value typically
assumes that an aircraft's physical condition is average for an aircraft
of its type and age, and its maintenance time status is at mid-life,
mid-time (or benefiting from an above-average maintenance status if it is
new or nearly new).
[AVITAS GRAPHIC]
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<PAGE> 90
AIRCRAFT VALUE
AVITAS's opinion as to the value of the subject aircraft is presented below
in millions of U.S. dollars.
The Base Value of a new aircraft is the modal price paid by an average
operator in a single unit or small lot sale. Actual transaction prices may be
either above or below that level due to a number of factors. For example, a
launch order or a large fleet order may result in discounts, whereas a single
unit sale to a small operator who needs a substantial amount of support may be
approaching the list price.
Furthermore, implicit in these values is AVITAS's assumption that the new
aircraft will remain with the original operator for at least two years. If a
newly delivered aircraft comes onto the market, the seller is at an immediate
disadvantage as he is likely to be in competition with the manufacturer who can
offer training and support.
FIGURE 1
<TABLE>
<CAPTION>
<C> <C> <C> <S> <C>
- ---------------------------------------------------------------------------------------------
AMERICA WEST AIRLINES
AIRCRAFT VALUES
(US$ MILLIONS)
- ---------------------------------------------------------------------------------------------
DELIVERY BASE
REG. NO. TYPE ENGINES DATE VALUE
- ---------------------------------------------------------------------------------------------
N807AW A319-100 V2524-A5 Aug-99 $35.2
- ---------------------------------------------------------------------------------------------
N808AW A319-100 V2524-A5 Sep-99 35.2
- ---------------------------------------------------------------------------------------------
N809AW A319-100 V2524-A5 Oct-99 35.3
- ---------------------------------------------------------------------------------------------
N810AW A319-100 V2524-A5 Nov-99 35.3
- ---------------------------------------------------------------------------------------------
N811AW A319-100 V2524-A5 Feb-00 36.0
- ---------------------------------------------------------------------------------------------
N654AW A320-200 V2527-A5 Aug-99 43.5
- ---------------------------------------------------------------------------------------------
N655AW A320-200 V2527-A5 Sep-99 43.5
- ---------------------------------------------------------------------------------------------
N656AW A320-200 V2527-A5 Oct-99 43.7
- ---------------------------------------------------------------------------------------------
N657AW A320-200 V2527-A5 Oct-99 43.7
- ---------------------------------------------------------------------------------------------
N658AW A320-200 V2527-A5 Feb-00 44.5
- ---------------------------------------------------------------------------------------------
</TABLE>
GENERAL MARKET OVERVIEW
INTRODUCTION
AVITAS believes that the aircraft market is poised to experience a downturn
in the market cycle. While these economic changes tend to precipitate a feeling
of panic in the industry, it is important to note that the cycle presents an
opportunity to invest soundly for those who have the proper resources and
confidence.
Orders are believed to have reached their peak in 1998. Lagging behind
slightly are deliveries, which in 1999 are scheduled to be over 1,200. Aircraft
deferrals notwithstanding, 1999 will represent the peak for deliveries in this
cycle. In comparison, approximately 933 aircraft were delivered in 1998 and 650
in 1997.
Competition between Airbus and Boeing has kept the cost of new aircraft at
a comfortable level and low inflation has been beneficial to the financing of
large deals. The changing structure of Airbus will continue to affect pricing by
bringing market competition to the foreground. U.S. airlines experienced their
best financial year ever in 1998 due to strong domestic demand and healthy
fares. They shared their wealth by ordering large numbers of narrowbodies.
Margin over market share appears to be the new strategy as carriers take
advantage of low fuel prices and restructure to lower their operating costs.
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<PAGE> 91
BACKGROUND--AIRBUS A319
The A319 program was launched in June 1993 and the first aircraft of the
type was certified in April 1996. The aircraft seats 124 passengers in a typical
two-class configuration or 154 in a maximum seating configuration. It has a
basic range of 2,000 nautical miles with a MTOW of 141,100 pounds and an
optional range of 3,500 nautical miles with a MTOW of 149,900 pounds. The A319
has a fuselage 12 feet shorter than that of the A320, accomplished by removing
two fuselage plugs.
The design of this new aircraft is focused on maintaining a high degree of
commonality with the A320 and the A321 so that an existing A319 operator could
easily transition to its larger versions, where almost all of the major systems
of the A319 are exactly the same.
The A319 is available with either CFM56-5A or IAE V2500-A5 engine and meets
the noise abatement requirements outlined in U.S. FAR Part 36, Stage 3, and ICAO
Annex 16, Chapter 3 regulations.
CURRENT MARKET--AIRBUS A319-100
CURRENT MARKET
AVITAS believes that A319 current market is firm, representative of the
narrowbody market as a whole. The aircraft type has a solid operator base and
backlog and the benefit of commonality with other Airbus products. Airbus has
during the last year captured some strategically important orders from formerly
Boeing loyal airlines and lessors. The A319 competes with the Boeing 737-300 and
- -700 aircraft, of which there are currently a combined 1,187 aircraft in service
and 292 on firm order.
HISTORIC MARKET DEVELOPMENT
The development of the A319, A320, and A321 characterizes the market
strategy of Airbus to build an entire family of aircraft capable of
accommodating a wide range of travel demands while maintaining a high degree of
commonality. Operators that have a mixed fleet of A319, A320s and A321s will a
have greater ability to match capacity to demand, reduce operating cost,
increase crew productivity and simplify ground handling. This is shown by the
fact that all but one current operator of A319 aircraft or with A319 aircraft on
order are present A320 customers.
AVAILABILITY
As of May 1999, AVITAS is not aware of any used aircraft available. This is
in line with expectations for such a new aircraft program.
CURRENT OPERATOR BASE AND BACKLOG
As of April there were 140 A319-100 aircraft in service and 404 on firm
order.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
It is AVITAS's opinion that expansion of the A319's operator base will
primarily come from existing A320 operators. Of minor concern is the trend
surfacing in recent orders whereby the orderholders have likely ordered the
aircraft with the flexibility to convert to A320 or A321 aircraft; however, the
strength of the A320 family of aircraft in the market has overall positive
implications for the A319. With a backlog of 404 firm orders among 17 airline
operators and four leasing companies and acceptance in the North American
market, the A319 values should remain firm for the foreseeable future.
BACKGROUND--AIRBUS A320 SERIES
The A320, a Stage 3 compliant short to medium range twin-engine jetliner,
was launched in 1984 with certification in 1988. The original was the A320-100,
of which there are only 18 in service among two airline operators. The -100
aircraft have no wing center tank which limits the range and payload.
3
<PAGE> 92
The A320-200 was first flown and delivered in 1988 to Air France and
British Caledonian Airways. Its typical configuration includes a two-person
cockpit crew with capacity for 150 passengers but the aircraft can seat 164 in a
single-class arrangement. The A320 has a range of 3,000 nautical miles with 150
passengers. It is powered by CFM56-5A1/-5A3, V2500-A1/A5 and V2527-A5 engines,
with thrust ranging from 25,000 pounds to 26,500 pounds. The maximum takeoff
weight (MTOW) ranges from 162,000 pounds to 169,750 pounds. A technically
advanced aircraft, the A320 includes such design concepts as fly-by-wire flight
controls, centralized maintenance reporting system, side stick controllers in
the cockpit and the use of composite materials in the major elements of primary
structures including the horizontal and vertical stabilizers.
The A320 has a common type rating with the A319 and the A321, which means
that they can be operated as one aircraft type with cost saving advantages in
crew training and maintenance procedures.
CURRENT MARKET--AIRBUS A320-200
CURRENT MARKET
AVITAS is of the opinion that the current market for the Airbus A320 series
aircraft is firm. This is evidenced by a low level of availability and high
demand for the type, which AVITAS attributes to a strong Stage 3 narrowbody
aircraft market. Airbus has enjoyed a great deal of success in 1998 with the
A320 aircraft and has received several large and strategically important orders
from traditional Boeing customers. In addition, the Asian crisis has left this
family of aircraft largely unscathed, as only a handful A320 orders have been
canceled.
HISTORIC MARKET DEVELOPMENT
The A320 market was very soft during the early 1990s with an excess supply
of new aircraft being delivered into a depressed market. This was caused not
only by bankruptcies of several carriers with A320s on order, but also by the
speculative buying of A320s by leasing companies. Additionally, Airbus had to
take on Boeing, which already had an established market base for its 737
product. During 1994 and 1995, the market for the aircraft firmed substantially
and has since then remained stable.
AVAILABILITY
As of May 1999, AVITAS is aware of one A320-200s available for ACMI lease
from Interscaldes Management. Availability for A320 aircraft has been
consistently low for several months. In May 1998, there were 18 A320-200 on the
market.
OPERATOR BASE AND BACKLOG
As of April 1999, there were 710 aircraft in service and 351 on firm order.
The operator base is significant with 87 airlines, and major leasing companies
having 97 firm orders.
OUTLOOK AND FUTURE ASSET RISK ANALYSIS
AVITAS believes that the A320-200 will continue to be a significant
competitor in the 150-seat market well into the future with competition from
Boeing 737-400 and the 737-800. The A320 has more range than the 737-400 and
slightly higher seat capacity. The 737-800 has approximately the same range
(3,000 nautical miles) but 12 more seats than the A320 (exact number of seats
depends on seat configuration).
The A320-200 has a well-established population of aircraft currently in
service among a broad operator base. This coupled with the 351 aircraft on firm
order scheduled for delivery throughout the year 2006 indicates the future
market base for the type is due to expand significantly and residual values will
remain firm.
4
<PAGE> 93
Pratt & Whitney is developing the PW 8000 engine for a new generation A320,
which may enter service in 2005. With the introduction of the PW 8000, the
engine manufacturer hopes to reduce maintenance costs, and lower fuel
consumption. This will improve an already technologically advanced aircraft.
COVENANTS
Unless otherwise noted, the values presented in this report assume an
arm's-length, free market transaction for cash between informed, willing and
able parties free of any duress to complete the transaction. If a distress sale
becomes necessary, a substantial discount may be required to quickly dispose of
the equipment.
AVITAS does not have, and does not intend to have, any financial or other
interest in the subject aircraft. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the express consent of the Client.
This report represents the opinion of AVITAS and is intended to be advisory
only in nature. Therefore, AVITAS assumes no responsibility or legal liability
for any action taken, or not taken, by the Client or any other party, with
regard to this equipment. By accepting this report, all parties agree that
AVITAS shall bear no such responsibility or legal liability including liability
for special or consequential damage.
STATEMENT OF INDEPENDENCE
AVITAS hereby states that this valuation report has been independently
prepared and fairly represents AVITAS's opinion of the subject aircraft's value.
/s/ SUSANNA BLACKMAN
- ---------------------------------------------------------
Susanna Blackman
Manager--Appraisal Operations
5
<PAGE> 94
APPENDIX A--AVITAS APPRAISAL METHODOLOGY
At AVITAS, we undertake formal periodic value reviews of the approximately
ten dozen aircraft types that we regularly track as well as value updates as
market events and movements require. The primary value opinions we develop are
Market Value, Base Value and Future Base Value. An aircraft's Market Value is
the price at which you could sell the aircraft under the market conditions
prevailing at the time in question and its Base Value is the theoretical value
of the aircraft assuming a balanced market in terms of supply and demand. In
reaching our value opinions, we use data on actual market transactions, various
analytical techniques, a proprietary forecasting model and our own extensive
industry experience. And while Market Value and Base Value embody different
value concepts, we are continually cross checking their relationships to
determine if our value opinions are reasonable given existing market conditions.
Our broad aviation industry backgrounds are critically important; they add
a diversity of viewpoints and a high degree of realism to our value opinions.
Our backgrounds include: aircraft design, performance analysis, traffic and
yield forecasting, fleet forecasting, aircraft finance, the negotiation of
aircraft loans, finance leases and operating leases, problem deal workouts,
repossessions, aircraft sales, jetliner manufacturing, maintenance and overhaul
activities, econometric modeling and forecasting, market research, and database
development.
- MARKET VALUE In determining Current Market Values, we use a blend of
techniques and tools. First, through various services and our extensive
personal contacts, we collect as much actual transaction data as
possible on aircraft sales, leases, financings and scrappings. Our
published values assume airframes, engines and landing gear to be
halfway through their various overhaul and/or life cycles. Because sales
of half-life aircraft rarely occur, and because sales can include spare
engines, parts, attached lease streams, tax considerations and other
factors, judgment and experience are important in adjusting actual
transaction data to represent clean, half-life Market Values. In
addition, because over the last several years there have been a large
number of aircraft leases, our experience and knowledge of the market is
used to make value inferences from lease rentals and terms.
As a supplement to transaction data, and in some cases in the absence of
actual market activity, we also use other methods to assist in framing Market
Value opinions. We use several analytical tools because we do not believe that
there is any one technique which always results in the "right" number.
Replacement cost analysis can simply be the cost of a new airplane of the same
model or it can be used where it is possible to reproduce an aircraft. It is
often helpful in framing the upper limit of an aircraft's value, particularly
for modified or upgraded aircraft. Examples would be a passenger aircraft such
as the 747-100 which can be converted into freighter configuration or a Stage 2
airplane which can be hushkitted to Stage 3 compliance. Value in use or income
analysis is another technique in which an aircraft's earning capacity over time
is determined and the present value of those earnings is calculated. Because
different operators have different costs, yields and hurdle rates of return,
this technique can yield a range of values. Therefore, the appraiser must use
his judgment to determine what value in that range represents a Market Value
representative of the overall marketplace. Another powerful tool which we use is
should-cost analysis, which is a blend of replacement cost and value in use
analysis. This technique is used when there is little or no market data on a
particular airplane type but there is on similar or competing types. By
analyzing the economic and operational profiles of competing aircraft, the
appraiser is able to impute what the aircraft in question should cost to
position it competitively.
Once we have formulated our own internal Market Value opinions, we present
them to a small, select group of outside aviation experts--individuals in the
fields of aircraft manufacturing, sales, remarketing, financing and forecasting
who we know well and regard very highly--for their review and frank comments. We
consider this "reality check," which often results in further value refinements,
to be a critical part of our value process in that it helps us combat "ivory
tower syndrome."
- BASE VALUE The determination of Base Value, an aircraft's balanced
market, long term value, is a highly subjective matter, one in which
even the most skilled appraisers may have widely
6
<PAGE> 95
divergent views. We use three main tools in developing Base Values.
First, we use our own research, judgment and perceptions of each
aircraft type's long term competitive strengths and weaknesses vis-a-vis
both competing aircraft types and the marketplace as a whole. Second, we
utilize a transaction-based computer forecasting model developed by a
former AVITAS director and refined over the years. Based on thousands of
actual market transactions, the model sets forth a series of value
curves which describe the value behaviors of aircraft under different
circumstances. Third, we do a final reality check by comparing our
opinion of an aircraft's Base Value to our opinion of its Current Market
Value and current marketplace conditions.
We analyze each aircraft model to determine its historic, current and
projected competitive position with respect to similar aircraft types in terms
of mission capability (i.e., what are the aircraft's capabilities and to what
extent does the market require those capabilities), economic profile and market
penetration. As a result of weighing those factors, we assign a numerical
"strength" to each aircraft for each year of its economic life, where Strength
10 represents the strongest value performance and Strength 1 the weakest. The
model then takes those strength factors and translates them into the aircraft's
Base and Future Base Values based on its actual replacement cost (or theoretical
replacement cost if it is no longer in production). After Base Values have been
calculated, we compare them to our Current Market Value opinions as a
calibration check of the computer model. In the infrequent case where the
marketplace for that aircraft is in balance, Base Value and Current Market Value
should be the same. In most cases, though, we must subjectively compare Base
Value with Current Market Value to see if we believe the relationship is
reasonable. This may highlight where Base Value inputs require further
refinements. Because of the dynamics of the aircraft marketplace and our
continuing recalibration, Base Value opinions are not static.
7
<PAGE> 96
[AVSOLUTIONS LETTERHEAD]
July 6, 1999
Mr. Doug Parker
Executive Vice President
America West Airlines
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Dear Mr. Parker:
Aviation Solutions Inc. (AvSOLUTIONS) is pleased to provide this opinion on
the base value, as of July 1999, of five Airbus Industrie A319-100 aircraft and
five Airbus Industrie A320-200 aircraft (the aircraft). The Airbus A319-100
aircraft are powered by IAE V2524-A5 engines. The Airbus A320-200 aircraft are
powered by IAE V2527-A5 engines. The total of ten aircraft will be delivered new
to America West Airlines between the third quarter of 1999 and the first quarter
of 2000. A listing of the A319-100 and A320-200 aircraft is provided as
attachment 1 of this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value of
an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
equivalent consideration, and given an adequate amount of time for effective
market exposure to prospective buyers, which AvSOLUTIONS considers to be ten to
twenty months.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current and future
values of aircraft and the associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then postulated and compared with reported market values
at a specified point in time. Such data reflect the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effect of obsolescence due to the evolutionary development and implementation of
new designs and materials.
<PAGE> 97
Page 2
America West Airlines
The product of the analysis identifies the relationship between the value
of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of different size and different design
philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
and future market values implies that the actual value realized will fall within
a range of values. Therefore, if a contemplated value falls within the specified
confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by America West Airlines and from data within
AvSOLUTIONS' own database. In determining the base value of the subject Airbus
A319-100 and Airbus A320-200 aircraft, the following assumptions have been
researched and determined:
1. AvSOLUTIONS has not inspected these aircraft or their maintenance
records; accordingly, AvSOLUTIONS cannot attest to their specific
location or condition.
2. The aircraft will be delivered new to America West Airlines between the
third quarter of 1999 and the first quarter of 2000.
3. The aircraft will be certified, maintained and operated under United
States Federal Aviation Regulation (FAR) part 121.
4. All mandatory inspections and Airworthiness Directives have been
complied with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be
at least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
attachment 1.
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal
liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
the Client's express consent.
<PAGE> 98
Page 3
America West Airlines
AvSOLUTIONS hereby states that this valuation report has been independently
prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of
their values. AvSOLUTIONS further states that it has no present or contemplated
future interest or association with the subject aircraft.
Signed,
/s/ BRYANT LYNCH
--------------------------------------
Bryant Lynch
Manager, Commercial Appraisals
<PAGE> 99
MORTEN BEYER & AGNEW
- --------------------------------------------------------------------------------
AVIATION CONSULTING FIRM
APPRAISAL OF
FIVE AIRBUS A319-132
AND
FIVE AIRBUS A320-231/-232 AIRCRAFT
PREPARED FOR:
AMERICA WEST AIRLINES
JULY 13, 1999
<TABLE>
<S> <C>
Washington, D.C. London
8180 Greensboro Drive Lahinch 62, Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone +703 847 6598 Phone +44 1342 716248
Fax +703 847 1911 Fax +44 1342 718967
</TABLE>
<PAGE> 100
I. INTRODUCTION AND EXECUTIVE SUMMARY
Morten Beyer & Agnew (MBA) has been retained by America West Airlines to
determine the Base Values of five A319-132 and five Airbus A320-231/-232
passenger aircraft. The aircraft are further identified in Section II of this
report.
Based on the information set forth in this report, it is our opinion that
the aggregate Base Value of the aircraft in this portfolio is $415,850,000 with
their respective individual values noted in Section II.
MBA uses the definition of certain terms, such as Current Market Value and
Base Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and
established a technical and ethical recognition as expert appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the
most likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Market Value
(MV) assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) states that market circumstances
are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an
idealized aircraft and market combination and will not necessarily reflect the
actual Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
II. AIRCRAFT & BASE VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
A319 & A320 AIRCRAFT
- ---------------------------------------------------------------------------------------
TAIL NUMBER DELIVERY DATE ENGINE TYPE BASE VALUES
- ---------------------------------------------------------------------------------------
807 (A319-132) August 1999 V2524-A5 $37,900,000
- ---------------------------------------------------------------------------------------
808 (A319-132) September 1999 V2524-A5 $38,040,000
- ---------------------------------------------------------------------------------------
809 (A319-132) October 1999 V2524-A5 $38,190,000
- ---------------------------------------------------------------------------------------
810 (A319-132) November 1999 V2524-A5 $38,330,000
- ---------------------------------------------------------------------------------------
811 (A319-132) February 2000 V2524-A5 $38,760,000
- ---------------------------------------------------------------------------------------
A319-132 TOTAL $191,370,000
- ---------------------------------------------------------------------------------------
654 (A320-231) August 1999 V2500-A1 $44,540,000
- ---------------------------------------------------------------------------------------
655 (A320-231) September 1999 V2500-A1 $44,720,000
- ---------------------------------------------------------------------------------------
656 (A320-232) October 1999 V2527-A5 $44,890,000
- ---------------------------------------------------------------------------------------
657 (A320-232) October 1999 V2527-A5 $44,890,000
- ---------------------------------------------------------------------------------------
658 (A320-232) February 2000 V2527-A5 $45,590,000
- ---------------------------------------------------------------------------------------
A320-232 TOTAL $224,630,000
- ---------------------------------------------------------------------------------------
GRAND TOTAL $415,850,000
- ---------------------------------------------------------------------------------------
</TABLE>
III. CURRENT MARKET CONDITIONS
A319--A320-200--A321-100/-200
The A320 was Airbus' first all new design since the launch of the original
A300 in 1971. The program was initiated in 1983 and logged almost 400 orders
prior to first delivery in 1988. The A320s are now
<PAGE> 101
offered with both the CFM-56 and the IAE V-2500 engine, with the CFM version
having a long head start. The A320 has achieved a wide market base on all
continents, with a total of 79 current operators to date.
The A321, a stretched version designed to directly challenge the 757-200
and bridge the gap between the A320 and A330/340, was launched in 1989. The
first deliveries were made to Lufthansa and Alitalia in early 1994. Seating in
the A321 was increased to 186 (and more in all-coach configurations) from a
nominal 150 in the A320 and the gross weight increased by 19,200 pounds.
The A319 is the opposite of the A321--that is, a truncated version of the
original aircraft. The program was officially launched with a modest
six-aircraft order by leasing giant ILFC in late 1992. Prospects were not
encouraging as more than one year went by before subsequent orders were placed.
However, Air Canada provided a major boost to Airbus with an order of 35 A319s
in April 1994 (35 now delivered). Ironically, the carrier had reportedly decided
against ordering new aircraft to replace its aging DC-9 fleet when Fokker
Aircraft convinced the carrier to re-examine the benefits of new airframes. ACA
Chairman Hollis Harris agreed, but Fokker lost the battle to its European
competitor.
The Northwest and Air Canada situations are significant due to the Airbus
family concept factor, (common type ratings and minimal differences training for
pilots of the A319 through A340 aircraft), which is the core of the
manufacturer's goal to develop entire fleets with major carriers. Air Canada,
which operates A320s already, chose this Airbus concept with both the A319 order
and an eight-plane A340 order as well. Northwest Airlines, which operates 65
A320s (and has 5 on order) ordered 50 A319s and switched their A340 order for 16
A330s for delivery beyond 2000. Other carriers, including Air France and
Lufthansa, operate at least three of these five types, but the European
influence may tilt decision-makers at airlines such as these. Airbus believes
its concept will give its new designs significant advantages over Boeing
aircraft, and the 1997 and 1998 order books indicate it is doing just that. MBA
believes the combination of extremely efficient designs and the inherent savings
in training and other costs make the Airbus family an attractive avenue for an
entire fleet refurbishment, as US Airways' commitment for 400-some aircraft
appears to justify.
United's 1994 order for 50 A320s, plus an option for 50 more was announced
as a 727 replacement, of which United still operates 52 and has 34 A320s on
order. It is obvious that other airlines will use their large orders to surplus
older aircraft as well. Alitalia, with 22 A321s in service and three on order,
is replacing its stable of MD-82s. As mentioned, Air Canada's commitments for
the A319 will eventually go to reduce the fleet count of DC-9s. Thus the advent
of the A320 family is hastening the retirement of older, far less efficient
jets. The A320s currently in service are operating at seat mile costs as low as
half of that for older aircraft. The combination of all the above factors leads
us to believe the A320 family will enjoy a long production run and in-service
useful life, with strong residual values.
The A320 also offers the advantage of being able to carry seven LD-3 cargo
containers--a feat not even the 767 can perform. The fuselage is approximately
10 inches wider than that of the 727/737/757 series, offering wider aisles and
roomier seats--a feature much appreciated by passengers. There are no cargo or
Combi models currently offered by Airbus, although such a configuration is
obviously possible
ECONOMICS
The A320/321 vies with the 757 for top honors as the most efficient
aircraft in service. Great fuel efficiency, new technology design and low
operating cost parameters all combine to give these aircraft among the lowest
seat mile costs of any being built or in service. The MBA Model indicates that
both will produce very satisfactory operating and net ratios well into the next
century. The A319 will not be quite as favorable, as is the case with most
truncated derivatives (747SP, L-1011-500). They will, however, provide enough
incentive for larger carriers (likely with Airbus aircraft already) to order and
place them at the bottom of the capacity scale in their fleets.
TOTAL NUMBER OF A319S ON MARKET, APRIL 1999: NONE
TOTAL NUMBER OF A320S ON MARKET, APRIL 1999: FIVE
2
<PAGE> 102
IV. A319 PROFILE
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
A319 FLEET STATISTICS
- -----------------------------------------------------------------------------
AS OF APRIL 1999
- -----------------------------------------------------------------------------
Number of Ordered Aircraft 570
- -----------------------------------------------------------------------------
Number of Delivered Aircraft 131
- -----------------------------------------------------------------------------
Number of Cancelled Aircraft 16
- -----------------------------------------------------------------------------
Backlog 423
- -----------------------------------------------------------------------------
Options 342
- -----------------------------------------------------------------------------
Delivered in the last 12 months 50
- -----------------------------------------------------------------------------
Number of Destroyed Aircraft 0
- -----------------------------------------------------------------------------
Number of Retired Aircraft 0
- -----------------------------------------------------------------------------
Number of Parked Aircraft 0
- -----------------------------------------------------------------------------
Number of Aircraft in Operation 131
- -----------------------------------------------------------------------------
Number of Operators 12
- -----------------------------------------------------------------------------
Number of Leased Aircraft 31
- -----------------------------------------------------------------------------
Number of Owned Aircraft 100
- -----------------------------------------------------------------------------
</TABLE>
NOTE: There were only three A319-132 aircraft delivered to America West Airlines
as of April 1999.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
A319 ENGINE DISTRIBUTION
- -----------------------------------------------------------------------------
AS OF APRIL 1999
- -----------------------------------------------------------------------------
CFM56-5A 67 Aircraft
- -----------------------------------------------------------------------------
CFM56-5B 34 Aircraft
- -----------------------------------------------------------------------------
V2522-A5 26 Aircraft
- -----------------------------------------------------------------------------
V2524-A5 4 Aircraft
- -----------------------------------------------------------------------------
TOTAL 131 Aircraft
- -----------------------------------------------------------------------------
</TABLE>
3
<PAGE> 103
Geographic dispersion of the A319 operator base was as follows:
[GEOGRAPHIC DISPERSION OF A319 OPERATOR BASE GRAPHIC]
V. A320 PROFILE
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------
A320 FLEET STATISTICS
- -----------------------------------------------------------------------------
AS OF APRIL 1999
- -----------------------------------------------------------------------------
Number of Ordered Aircraft 1,273
- -----------------------------------------------------------------------------
Number of Delivered Aircraft 716
- -----------------------------------------------------------------------------
Number of Cancelled Aircraft 98
- -----------------------------------------------------------------------------
Backlog 459
- -----------------------------------------------------------------------------
Options 166
- -----------------------------------------------------------------------------
Delivered in the last 12 months 80
- -----------------------------------------------------------------------------
Number of Destroyed Aircraft 6
- -----------------------------------------------------------------------------
Number of Retired Aircraft 0
- -----------------------------------------------------------------------------
Number of Parked Aircraft 5
- -----------------------------------------------------------------------------
Number of Aircraft in Operation 710
- -----------------------------------------------------------------------------
Number of Operators 79
- -----------------------------------------------------------------------------
Number of Leased Aircraft 366
- -----------------------------------------------------------------------------
Number of Owned Aircraft 344
- -----------------------------------------------------------------------------
</TABLE>
NOTE: There were 21 A320-231 and 12 A320-232 aircraft delivered to America West
Airlines as of April 1999.
4
<PAGE> 104
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------
A320 ENGINE DISTRIBUTION
- -----------------------------------------------------------------------------
AS OF APRIL 1999
- -----------------------------------------------------------------------------
CFM56-5A 359 Aircraft
- -----------------------------------------------------------------------------
CFM56-5B 74 Aircraft
- -----------------------------------------------------------------------------
V2500-A1 142 Aircraft
- -----------------------------------------------------------------------------
V2527-A5 119 Aircraft
- -----------------------------------------------------------------------------
V2527E-A5 16 Aircraft
- -----------------------------------------------------------------------------
TOTAL 710 Aircraft
- -----------------------------------------------------------------------------
</TABLE>
Geographic dispersion of the A320 operator base was as follows:
[GEOGRAPHIC DISPERSION OF A320 OPERATOR BASE GRAPHIC]
VI. COVENANTS
This report has been prepared for the exclusive use of America West
Airlines and shall not be provided to other parties by MBA without the express
consent of America West Airlines.
MBA certifies that this report has been independently prepared and that it
fully and accurately reflects MBA's opinion as to the Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Base Value of the
subject aircraft and is intended to be advisory only, in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken, or not
taken, by America West Airlines or any other party with regard to the subject
5
<PAGE> 105
aircraft. By accepting this report, all parties agree that MBA shall bear no
such responsibility or legal liability.
PREPARED BY:
/s/ TEO OZDENER
--------------------------------------
TEO OZDENER, M.SC., P.ENG.
VICE PRESIDENT--TECHNICAL
REVIEWED BY:
/s/ MORTEN S. BEYER
--------------------------------------
MORTEN S. BEYER, APPRAISER FELLOW
CHAIRMAN & CEO
ISTAT CERTIFIED SENIOR APPRAISER
6
