<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10140
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0418245
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4000 EAST SKY HARBOR BLVD. PHOENIX, ARIZONA 85034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (480) 693-0800
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES /XX/ NO / /
INDICATE BY CHECKMARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGES ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT.
YES /XX/ NO / /
THE COMPANY HAS 1,000 SHARES OF CLASS B COMMON STOCK AS OF OCTOBER 31, 2000.
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF AMERICA WEST HOLDINGS CORPORATION,
MEETS THE CONDITION SET FORTH IN GENERAL INSTRUCTION H(1) (a) AND (b) OF FORM
10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT
TO GENERAL INSTRUCTION H (2).
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ......................... $ 88,119 $ 105,545
Short-term investments ............................ 41,832 15,617
Investment in equity securities ................... 20,723 16,433
Accounts receivable, net .......................... 155,524 102,014
Advances to parent company and affiliate, net ..... 256,054 248,335
Expendable spare parts and supplies, net .......... 50,877 49,327
Prepaid expenses .................................. 61,931 33,903
---------- ----------
Total current assets .......................... 675,060 571,174
---------- ----------
Property and equipment:
Flight equipment .................................. 881,010 801,541
Other property and equipment ...................... 214,674 197,394
Equipment purchase deposits ....................... 97,099 79,399
---------- ----------
1,192,783 1,078,334
Less accumulated depreciation and amortization .... 438,278 378,185
---------- ----------
Net property and equipment .................... 754,505 700,149
---------- ----------
Other assets:
Restricted cash ................................... 32,045 31,624
Reorganization value in excess of amounts
allocable to identifiable assets, net ......... 276,880 291,801
Other assets, net ................................. 59,071 68,747
---------- ----------
Total other assets ............................ 367,996 392,172
---------- ----------
$1,797,561 $1,663,495
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 3
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY (UNAUDITED)
Current liabilities:
Current maturities of long-term debt .............. $ 55,416 $ 45,171
Accounts payable .................................. 138,794 130,752
Air traffic liability ............................. 234,928 175,528
Accrued compensation and vacation benefits ........ 33,480 48,227
Accrued taxes ..................................... 90,548 54,775
Other accrued liabilities ......................... 46,827 35,462
---------- ----------
Total current liabilities ..................... 599,993 489,915
---------- ----------
Long-term debt, less current maturities ............... 145,844 155,168
Deferred credits and other liabilities ................ 95,452 105,175
Deferred tax liability, net ........................... 30,768 30,768
Commitments and contingencies
Stockholder's equity:
Common Stock $.01 par value. Authorized,
issued and outstanding; 1,000 shares .......... -- --
Additional paid-in capital ........................ 519,747 519,748
Retained earnings ................................. 405,757 362,721
---------- ----------
Total stockholder's equity .................... 925,504 882,469
---------- ----------
$1,797,561 $1,663,495
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger ..................... $ 549,320 $ 504,793 $ 1,639,853 $ 1,507,661
Cargo ......................... 8,357 9,877 27,784 31,275
Other ......................... 20,780 19,224 60,518 55,613
----------- ----------- ----------- -----------
Total operating revenues .. 578,457 533,894 1,728,155 1,594,549
----------- ----------- ----------- -----------
Operating expenses:
Salaries and related costs .... 142,001 124,990 408,382 362,507
Aircraft rents ................ 83,692 69,655 244,651 200,757
Other rents and landing fees .. 34,689 32,089 96,738 92,939
Aircraft fuel ................. 98,591 60,171 257,450 157,604
Agency commissions ............ 22,471 29,461 67,694 89,903
Aircraft maintenance materials
and repairs ............... 63,754 55,613 185,474 156,237
Depreciation and amortization . 12,742 13,339 39,188 37,336
Amortization of excess
reorganization value ...... 4,974 4,974 14,922 14,922
Other ......................... 116,463 104,754 353,446 320,548
----------- ----------- ----------- -----------
Total operating expenses .. 579,377 495,046 1,667,945 1,432,753
----------- ----------- ----------- -----------
Operating income (loss) ........... (920) 38,848 60,210 161,796
----------- ----------- ----------- -----------
Nonoperating income (expenses):
Interest income ............... 6,850 5,101 16,910 14,016
Interest expense, net ......... (5,621) (7,419) (17,003) (23,243)
Gain on sale of investment .... -- -- 15,515 --
Other, net .................... 8,868 (384) 9,829 2,263
----------- ----------- ----------- -----------
Total nonoperating income
(expenses), net ........... 10,097 (2,702) 25,251 (6,964)
----------- ----------- ----------- -----------
Income before income taxes ........ 9,177 36,146 85,461 154,832
----------- ----------- ----------- -----------
Income taxes ...................... 9,926 14,831 42,425 67,067
----------- ----------- ----------- -----------
Net income (loss) ................. $ (749) $ 21,315 $ 43,036 $ 87,765
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by operating activities ........... $ 194,267 $ 169,527
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............. (206,808) (225,792)
Sales (purchases) of short-term investments ..... (26,215) 21,781
Proceeds from sales of property and equipment ... 38,303 184,822
Equipment purchase deposits and other ........... (7,200) (5,000)
--------- ---------
Net cash used in investing activities ....... (201,920) (24,189)
--------- ---------
Cash flows from financing activities:
Repayment of debt ............................... (41,568) (171,341)
Proceeds from issuance of debt .................. 32,000 162,074
Repurchase of warrants .......................... -- (3,377)
Other ........................................... (205) --
--------- ---------
Net cash used in financing activities ........ (9,773) (12,644)
--------- ---------
Net increase (decrease) in cash and cash
equivalents ..................................... (17,426) 132,694
--------- ---------
Cash and cash equivalents at beginning of period .... 105,545 107,234
--------- ---------
Cash and cash equivalents at end of period .......... $ 88,119 $ 239,928
========= =========
Cash, cash equivalents, and short-term investments
at end of period ................................ $ 129,951 $ 245,632
========= =========
Cash paid for:
Interest, net of amounts capitalized ............ $ 12,200 $ 19,294
========= =========
Income taxes paid ............................... $ 2,735 $ 3,496
========= =========
Non-cash financing activities:
Notes payable issued for equipment purchase
deposits .................................... $ 31,500 $ 17,500
========= =========
Notes payable canceled under the aircraft
purchase agreement .......................... $ 21,000 $ 31,500
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by America West Airlines, Inc., ("AWA" or the "Company"), a wholly
owned subsidiary of America West Holdings Corporation ("Holdings"), pursuant to
the rules and regulations of the Securities and Exchange Commission and in
accordance with those rules and regulations, certain information and footnotes
required by generally accepted accounting principles have been omitted. In the
opinion of management, the condensed financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation. Certain prior year amounts have been reclassified to conform with
current year presentation. The accompanying condensed financial statements
should be read in conjunction with the financial statements and related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
2. ADVANCES TO PARENT COMPANY AND AFFILIATE
As of September 30, 2000, AWA had advances to Holdings of $241.8 million.
In addition, AWA had net advances of $14.3 million to The Leisure Company
("TLC"), a wholly owned subsidiary of Holdings.
3. INVESTMENT IN EQUITY SECURITIES
As of September 30, 2000, AWA owned one million shares of GetThere.com
common stock, which were classified as trading securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). The estimated fair value of this investment at that date was
approximately $17.7 million based on the quoted market price of GetThere.com
common stock. AWA recognized an unrealized holding gain of $8.8 million related
to the GetThere.com shares that was included in earnings in the third quarter of
2000. AWA sold all one million shares of GetThere.com for approximately $17.8
million in October 2000.
4. FLIGHT EQUIPMENT
In July 2000 AWA announced firm orders for four A319 aircraft to be
delivered in 2001. These A319 aircraft represent the exercise of four of AWA's
existing option rights under its 1999 aircraft purchase agreement with AVSA
S.A.R.L., an affiliate of Airbus Industrie ("AVSA").
In the third quarter of 2000, AWA also entered into aircraft lease
arrangements for two new A319 and three new A320 aircraft, with lease terms
ranging from 12 to 22 years.
In October 2000 AWA exercised its option rights with respect to four A319
aircraft to be delivered in 2001 through 2003 as part of its 1999 aircraft
purchase agreement with AVSA.
5. FINANCING TRANSACTION
In July 2000 America West Airlines 2000-1 Pass Through Trusts issued
$253.3 million of Pass Through Trust Certificates in connection with the
financing of eight Airbus A319 aircraft and two Airbus A320 aircraft. The
combined effective interest rate on the financing is 8.49%. One A319 and one
A320 aircraft that are the subject of this financing were delivered in the third
quarter of 2000 and one A319 aircraft was delivered in October 2000. The
remaining seven aircraft will be delivered between November 2000 and March 2001.
6
<PAGE> 7
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The Pass Through Trust Certificates were issued by separate pass through
trusts which will hold equipment notes issued upon delivery of the financed
aircraft which will be secured by a security interest in such aircraft. The
equipment notes will be issued in respect of, at AWA's election, a leveraged
lease financing or a mortgage financing of the relevant aircraft. A major third
party finance company has agreed to provide equity for leveraged lease
transactions on six of the ten aircraft. The Pass Through Trust Certificates are
not direct obligations of, nor guaranteed by, AWA.
6. SEGMENT DISCLOSURES
AWA is one reportable segment. Accordingly, the segment reporting
financial data required by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" is
included in the accompanying balance sheets and statements of income.
7
<PAGE> 8
AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
America West's third quarter 2000 financial results continued to be
negatively impacted by the sharp increase year-over-year in jet fuel prices and
the airline's poor operating performance in the first half of the quarter. In
late July, AWA announced a comprehensive plan to improve customer service and
the airline's reliability, including a 3.5% reduction in the number of scheduled
aircraft. This reduction provided four additional spare aircraft to substitute
for others that may not be available because of maintenance requirements,
weather or air traffic control, and to increase access to aircraft for
performing reliability-related maintenance. From August 15 through September 30,
completion factor averaged 98% versus 94% in July, a 64% reduction in average
daily cancellations. In the month of October, AWA's completion factor declined
from this level due to weather and air traffic control delays.
The following discussion provides an analysis of AWA's results of
operations for the third quarter and nine months ended September 30, 2000 and
material changes compared to the third quarter and nine months ended September
30, 1999.
The table below sets forth selected operating data for AWA.
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
2000 1999 2000-1999 2000 1999 2000-1999
------- ------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aircraft (end of period) ............................. 133 121 9.9 133 121 9.9
Average daily aircraft utilization (hours) ........... 10.8 11.6 (6.9) 11.0 11.8 (6.8)
Available seat miles (in millions) ................... 6,881 6,540 5.2 20,194 19,329 4.5
Block hours .......................................... 130,047 124,878 4.1 384,495 367,204 4.7
Average stage length (miles) ......................... 884 865 2.2 875 860 1.7
Average passenger journey (miles) .................... 1,232 1,339 (8.0) 1,299 1,299 --
Revenue passenger miles (in millions) ................ 5,026 4,663 7.8 14,381 13,170 9.2
Load factor (percent) ................................ 73.0 71.3 1.7 pts 71.2 68.1 3.1 pts
Passenger enplanements (in thousands) ................ 5,178 4,895 5.8 14,996 13,882 8.0
Yield per revenue passenger mile (cents) ............. 10.93 10.83 0.9 11.40 11.45 (0.4)
Revenue per available seat mile:
Passenger (cents) ................................. 7.98 7.72 3.4 8.12 7.80 4.1
Total (cents) ..................................... 8.41 8.16 3.1 8.56 8.25 3.8
Fuel consumption (gallons in millions) ............... 108.4 105.6 2.7 316.4 309.0 2.4
Average fuel price (cents per gallon) ................ 91.0 57.0 59.7 81.4 51.0 59.6
Average number of full-time equivalent employees ..... 12,461 11,475 8.6 12,117 11,208 8.1
</TABLE>
8
<PAGE> 9
AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
The table below sets forth the major components of operating cost per
available seat mile ("CASM") for AWA.
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
2000 1999 2000-1999 2000 1999 2000-1999
----- ----- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
(in cents)
Salaries and related costs...... 2.06 1.91 8.0 2.02 1.88 7.8
Aircraft rents.................. 1.22 1.07 14.2 1.21 1.04 16.6
Other rents and landing fees.... .50 .49 2.8 .48 .48 (0.4)
Aircraft fuel................... 1.43 .92 55.7 1.28 .81 56.4
Agency commissions.............. .33 .45 (27.5) .34 .46 (27.9)
Aircraft maintenance materials
and repairs..................... .93 .85 9.0 .92 .81 13.6
Depreciation and amortization... .19 .20 (9.2) .19 .19 0.5
Amortization of excess
reorganization value............ .07 .08 (5.0) .07 .08 (4.3)
Other........................... 1.69 1.60 5.7 1.75 1.66 5.5
---- ---- ---- ----
8.42 7.57 11.2 8.26 7.41 11.4
==== ==== ==== ====
</TABLE>
Three Months Ended September 30, 2000 and 1999
For the three months ended September 30, 2000, AWA realized an operating
loss of $0.9 million compared to $38.8 million of operating income in last
year's third quarter. Income tax expense for financial reporting purposes was
$9.9 million for the 2000 third quarter on pretax income of $9.2 million. This
compares to $14.8 million of tax expense in the third quarter of 1999 on $36.1
million of pretax income. AWA's effective tax rate increases sharply as pretax
earnings decrease primarily as a result of the amortization of excess
reorganization value expense, which is not deductible for tax purposes.
Accordingly, AWA's book tax rate increased to 108% in the 2000 third quarter
from 41% in the 1999 third quarter.
Total operating revenues for the 2000 third quarter were a record $578.5
million. Passenger revenues were a record $549.3 million for the three months
ended September 30, 2000, an increase of $44.5 million or 8.8% from the 1999
quarter. A 7.8% increase in revenue passenger miles ("RPM") more than offset a
5.2% increase in capacity as measured by available seat miles ("ASM"), resulting
in a 1.7 point increase in load factor (the percentage of available seats that
are filled with revenue passengers). Passenger revenue per available seat mile
("RASM") for the quarter increased 3.4% to 7.98 cents despite a 2.2% increase in
average stage length. Revenue per passenger mile ("yield") increased 0.9% to
10.93 cents from 10.83 cents. Cargo revenues decreased 15.4% to $8.4 million due
to lower freight and mail volumes. Other revenues increased 8.1% to $20.8
million for the third quarter of 2000 due primarily to expansion and increased
profitability of AWA's code sharing agreement with Mesa Airlines.
CASM increased 11.2% to 8.42 cents in the third quarter of 2000 from 7.57
cents for the comparable 1999 period largely due to higher fuel prices and the
airline's operating reliability issues which led to a reduction in ASMs without
a corresponding reduction in total expenses. As a result, operating expenses
increased $84.3 million in the third quarter of 2000 or 17.0% as compared to the
1999 third quarter, while ASMs increased only 5.2%. Significant changes in the
components of CASM are explained as follows:
- Salaries and related costs per ASM increased 8.0% primarily due to a
higher number of employees in the 2000 period to support anticipated
growth and an increase in salaries and related costs per employee.
The average number of full time equivalent employees ("FTE")
increased 8.6% in the quarter while ASMs increased only 5.2% due to
the operating reliability issues. Average salaries and related costs
per FTE increased 4.6%, primarily due to a new collective bargaining
agreement with the Company's fleet service workers, which was
entered into in June 2000.
9
<PAGE> 10
AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
- Aircraft rent expense per ASM increased 14.2% due to the net
addition of 12 leased aircraft to the fleet during the 2000 quarter
as compared to 1999 and the effect of a sale/leaseback transaction
in August 1999 involving six previously owned aircraft.
- Other rents and landing fees expense per ASM increased 2.8% in the
third quarter of 2000 primarily due to higher airport rentals ($2.0
million) and landing fees ($0.8 million).
- Aircraft fuel expense per ASM increased 55.7% primarily due to a
59.7% increase in the average price per gallon of fuel to 91.0 cents
in the 2000 quarter from 57.0 cents in 1999.
- Agency commissions expense per ASM decreased 27.5% as an increase in
the percentage of non-commissionable revenue in the third quarter of
2000, primarily due to increased usage of the Company's website, and
a decrease in the base commission rate from 8% to 5%, effective
October 18, 1999, more than offset the increase in commissions
resulting from higher passenger revenues in the 2000 third quarter.
- Aircraft maintenance materials and repairs expense per ASM increased
9.0% principally due to higher airframe maintenance costs ($4.6
million) and capitalized maintenance amortization expense related to
aircraft D-Checks and accessories ($1.9 million) in the third
quarter of 2000 when compared to the 1999 third quarter. These
increases were offset in part by lower engine capitalized
maintenance amortization expense ($0.5 million).
- Depreciation and amortization expense per ASM decreased 9.2% due
primarily to a decrease in airframe depreciation resulting from the
sale/leaseback of six aircraft in August 1999.
- Amortization of excess reorganization value expense per ASM
decreased 5.0% due to the 5.2% increase in ASMs.
- Other operating expenses per ASM increased 5.7% to 1.69 cents from
1.60 cents primarily due to a $4.5 million decrease in expense in
the 1999 period resulting from a reduction in the estimated
liability for travel awards associated with AWA's frequent flyer
program. Higher professional, technical and legal fees ($2.2
million), interrupted trip and baggage claim expenses ($1.1 million)
and costs resulting from growth contributed to the increase in other
operating expenses in the 2000 third quarter. Growth-related costs
include aircraft refueling charges and fuel taxes ($1.9 million),
catering expense ($1.8 million), ground handling ($1.5 million),
computer reservation system booking fees ($1.1 million), traffic
liability insurance ($1.0 million), advertising ($1.0 million),
furnished accommodations and per diem ($1.0 million), credit card
discount fees ($1.0 million), telephone and other communications
charges ($0.7 million), guard services ($0.5 million) and aircraft
cleaning ($0.4 million). These increases were offset in part by the
recovery of $4.1 million from the settlement of a lawsuit related to
certain software applications that were previously written off and a
$3.1 million quarter-over-quarter decrease in Year 2000 remediation
costs.
AWA had nonoperating pretax income of $10.1 million in the third quarter
of 2000 as compared to $2.7 million of nonoperating pretax expenses in the 1999
third quarter. The period-over-period change was primarily due to an $8.8
million unrealized gain in the 2000 period related to an investment in one
million shares of GetThere.com common stock, which are classified as trading
securities in the Company's consolidated balance sheet. (See Note 3, "Investment
in Equity Securities" in Notes to Condensed Consolidated Financial Statements.)
Net interest expense decreased $1.8 million in the third quarter of 2000
primarily due to lower average outstanding debt resulting from the
sale/leaseback of six aircraft in August 1999 and interest income increased $1.7
million primarily due to higher interest rates in the 2000 period.
10
<PAGE> 11
AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
Nine Months Ended September 30, 2000 and 1999
For the nine months ended September 30, 2000, AWA realized operating
income of $60.2 million, a 62.8% decrease from the previous $161.8 million
operating income in the nine months ended September 30, 1999. Income before
income taxes for the nine month period in 2000 was $85.5 million compared to
$154.8 million in 1999.
Total operating revenues for the nine months ended September 30, 2000 were
a record $1.7 billion. Passenger revenues were a record $1.6 billion for the
nine months ended September 30, 2000, an increase of $132.2 million or 8.8% from
the 1999 period. RPMs increased 9.2% while capacity as measured by ASMs
increased 4.5%, resulting in a 3.1 point increase in load factor. RASM increased
4.1% to 8.12 cents for the nine months ended September 30, 2000 despite a 1.7%
increase in average stage length. Yield decreased 0.4% to 11.40 cents from 11.45
cents. Cargo revenues decreased 11.2% to $27.8 million due to lower freight and
mail volumes. Other revenues increased 8.8% to $60.5 million for the nine months
ended September 30, 2000 due primarily to expansion and increased profitability
of AWA's code sharing agreement with Mesa Airlines.
CASM increased 11.4% to 8.26 cents in the nine months ended September 30,
2000 from 7.41 cents for the comparable 1999 period largely due to higher fuel
prices and the airline's operating reliability issues which led to a reduction
in ASMs without a corresponding reduction in total expenses. As a result,
operating expenses increased $235.2 million for the nine months ended September
30, 2000 or 16.4% as compared to the 1999 period, while ASMs increased only
4.5%. Significant changes in the components of CASM are explained as follows:
- Salaries and related costs per ASM increased 7.8% primarily due to a
higher number of employees in the 2000 period to support anticipated
growth and an increase in salaries and related costs per employee.
The average number of FTEs increased 8.1% in the period while ASMs
increased only 4.5% due to the operating reliability issues. Average
salaries and related costs per FTE increased 4.2%, primarily due to
a new collective bargaining agreement with the Company's fleet
service workers, which was entered into in June 2000 and contractual
wage increases required by the Company's pilot and flight attendant
agreements.
- Aircraft rent expense per ASM increased 16.6% due primarily to the
net addition of 12 leased aircraft to the fleet during the 2000
period as compared to 1999 and the effect of a sale/leaseback
transaction in August 1999 involving six previously owned aircraft.
- Aircraft fuel expense per ASM increased 56.4% due to a 59.6%
increase in the average price per gallon of fuel to 81.4 cents in
the 2000 period from 51.0 cents in 1999.
- Agency commissions expense per ASM decreased 27.9% as an increase in
the percentage of non-commissionable revenue in the 2000 nine month
period, primarily due to increased usage of the Company's website,
and a decrease in the base commission rate from 8% to 5%, effective
October 18, 1999, more than offset the increase in commissions
resulting from higher revenue for the nine months ended September
30, 2000.
- Aircraft maintenance materials and repairs expense per ASM increased
13.6% primarily due to higher airframe maintenance costs ($19.0
million) and capitalized maintenance amortization expense related to
aircraft D-Checks and accessories ($4.7 million) for the 2000 period
when compared to the comparable period in 1999.
- Amortization of excess reorganization value expense per ASM
decreased 4.3% due to the 4.5% increase in ASMs.
11
<PAGE> 12
AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
- Other operating expenses per ASM increased 5.5% to 1.75 cents from
1.66 cents primarily due to higher interrupted trip and baggage
claim expenses driven by the airline's operational challenges ($12.6
million), professional, technical and legal fees ($5.7 million), and
higher costs resulting from growth. Growth-related costs include
catering expense ($5.8 million), computer reservation system booking
fees ($5.0 million), aircraft refueling charges and fuel taxes ($4.1
million), furnished accommodations and per diem ($3.6 million),
ground handling ($3.4 million), credit card discount fees ($3.3
million), advertising ($2.9 million), guard services ($1.4 million),
traffic liability insurance ($1.3 million) and aircraft cleaning
($1.2 million). A $4.4 million decrease in expense in the 1999
period resulting from a reduction in the estimated liability for
travel awards associated with AWA's frequent flyer program also
contributed to the increase in other operating expenses in the 2000
period. These increases were offset in part by an $18.9 million
period-over-period decrease in Year 2000 remediation costs and the
recovery of $4.1 million from the settlement of a lawsuit related to
certain software applications that were previously written off.
AWA had nonoperating pretax income of $25.3 million for the nine months
ended September 30, 2000 as compared to $7.0 million of nonoperating pretax
expenses in the 1999 period. The period-over-period change was primarily due to
a $15.5 million gain on sale of 500,000 warrants to purchase common stock of
Priceline.com, Inc. in the first quarter of 2000 and an $8.8 million unrealized
gain related to an investment in one million shares of GetThere.com common
stock, which are classified as trading securities in the Company's consolidated
balance sheet, in the third quarter of 2000. (See Note 3, "Investment in Equity
Securities" in Notes to Condensed Consolidated Financial Statements.) Net
interest expense decreased $6.2 million in the first nine months of 2000
primarily due to lower average outstanding debt resulting from the
sale/leaseback of six aircraft in August 1999 and interest income increased $2.9
million due to higher interest rates in the 2000 period. The 1999 nine month
period benefited from a $2.7 million gain on sale of the Company's investment in
30,000 shares of Priceline.com common stock in the second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents and short-term investments
increased to $130.0 million at September 30, 2000 from $121.2 million at
December 31, 1999. Net cash provided by operating activities increased to $194.3
million for the nine months ended September 30, 2000 from $169.5 million in 1999
due primarily to a period-over-period decrease in advances to Holdings which was
offset in part by lower net income in the 2000 period. Net cash used in
investing activities increased to $201.9 million for the nine months ended
September 30, 2000 from $24.2 million for the 1999 period primarily due to the
sale/leaseback transaction in the 1999 period which generated proceeds of $114.1
million from the sale of six aircraft. The 2000 period included purchases of
short-term investments totaling $26.2 million compared to sales of $21.8 million
of short-term investments in 1999. Net cash used in financing activities was
$9.8 million for the nine months ended September 30, 2000 compared to $12.6
million in the 1999 period. The 2000 period included $32.0 million of borrowing
to fund the acquisition of a new A320 aircraft. This borrowing was subsequently
repaid in full as a result of a sale/leaseback transaction. The 2000 period also
included long-term debt repayments of $9.6 million. The 1999 period included two
borrowings under AWA's revolving credit facility totaling $162.1 million, of
which $94.3 million was repaid in April 1999 with the remaining $67.8 million
repaid in October 1999. The 1999 period also included purchases of AWA warrants
totaling $3.4 million and long-term debt repayments of $9.3 million.
Long-term debt maturities through 2002 consist primarily of principal
amortization of notes payable secured by certain of AWA's aircraft. Such
maturities are $35.6 million, $9.8 million and $9.7 million, respectively, for
the remainder of 2000, 2001 and 2002. Management expects to fund the remaining
long-term debt maturities with cash from operations or by refinancing the
underlying obligations, subject to availability and market conditions.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
At September 30, 2000, AWA had firm commitments to AVSA to purchase a
total of 40 Airbus aircraft, with five remaining to be delivered in 2000. The
remaining 35 aircraft will be delivered in 2001 through 2004. AWA also has 21
options and 25 purchase rights to purchase aircraft in the "A320 family" of
aircraft (A318s, A319s, A320s and A321s) for delivery in 2004 through 2008. In
October 2000 AWA exercised its option rights with respect to four A319 aircraft
to be delivered in 2001 through 2003 as part of its 1999 aircraft purchase
agreement with AVSA. The aggregate net cost of firm commitments remaining under
the aircraft order, including the four A319 aircraft ordered in October 2000, is
approximately $1.6 billion.
In July 2000 America West Airlines 2000-1 Pass Through Trusts issued
$253.3 million of Pass Through Trust Certificates in connection with the
financing of eight Airbus A319 aircraft and two Airbus A320 aircraft to be
purchased from AVSA. The combined effective interest rate on the financing is
8.49%. One A319 and one A320 aircraft that are the subject of this financing
were delivered in the third quarter of 2000 and one A319 aircraft was delivered
in October 2000. The remaining seven aircraft will be delivered between November
2000 and March 2001.
The Pass Through Trust Certificates were issued by separate pass through
trusts which will hold equipment notes issued upon delivery of the financed
aircraft which will be secured by a security interest in such aircraft. The
equipment notes will be issued in respect of, at AWA's election, a leveraged
lease financing or a mortgage financing of the relevant aircraft. A major third
party finance company has agreed to provide equity for leveraged lease
transactions on six of the ten aircraft. The Pass Through Trust Certificates are
not direct obligations of, nor guaranteed by, AWA.
AWA intends to seek additional financing (which may include public debt
financing or private financing) in the future when and as appropriate to support
these aircraft orders. There can be no assurance that sufficient funding will be
obtained for all aircraft. A default by AWA under the AVSA purchase commitment
could have a material adverse effect on AWA.
AWA has in place a $125 million senior secured revolving credit facility
with a group of financial institutions that will expire in December 2002. The
credit agreement is secured by certain assets of AWA. As of September 30, 2000,
$111.8 million was available for borrowing based on the value of the assets
pledged. There were no outstanding borrowings as of September 30, 2000.
In October 2000 AWA sold one million shares of GetThere.com common stock
for approximately $17.8 million.
Capital expenditures for the nine months ended September 30, 2000 and 1999
were approximately $206.8 million and $225.8 million, respectively. Included in
these amounts are capital expenditures for capitalized maintenance of
approximately $93.1 million for the nine months ended September 30, 2000 and
$83.3 million for the nine months ended September 30, 1999.
Certain of AWA's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios and other financial covenants
with which AWA was in compliance at September 30, 2000.
OTHER INFORMATION
LABOR RELATIONS
The Company is in the process of negotiating with the Air Line Pilots
Association ("ALPA") on a new contract for AWA's pilots. The existing contract
with ALPA became amendable in May 2000. In addition, the Company is in
negotiations with the International Brotherhood of Teamsters ("IBT") on a
first contract covering the Company's stock clerks, a work group of
approximately 50 employees. The Company cannot predict the form of these
future collective bargaining agreements and therefore the effect, if any,
on AWA's operations or financial performance.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
ADDITIONAL INFORMATION
The air travel business historically fluctuates in response to general
economic conditions. The airline industry is sensitive to changes in economic
conditions that affect business and leisure travel and is highly susceptible to
events that result in declines in air travel, such as political instability,
regional hostilities, recession, fuel price escalation, inflation, adverse
weather conditions, consumer preferences, labor instability or regulatory
oversight. The Company's results of operations for interim periods are not
necessarily indicative of those for an entire year, because the travel business
is subject to seasonal fluctuations. Due to the greater demand for air and
leisure travel during the summer months, revenues in the airline and leisure
travel industries in the second and third quarters of the year tend to be
greater than revenues in the first and fourth quarters of the year.
This discussion contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "anticipate", "estimate", "project", "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. In addition to the factors identified above,
among the key factors that may have a direct bearing on the Company's results
are competitive practices in the airline and travel industries generally and
particularly in the Company's principal markets, the ability of the Company to
meet existing financial obligations in the event of adverse industry or economic
conditions or to obtain additional capital to fund future commitments and
expansion, the Company's relationship with employees and the terms of future
collective bargaining agreements and the impact of current and future laws and
governmental regulations affecting the airline and travel industries and the
Company's operations. For additional discussion of such risks see "Business -
Risk Factors," included in Item 1 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 which is on file with the Securities and
Exchange Commission. Any forward-looking statements speak only as of the date
such statements are made.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
(a) Commodity Price Risk
As of September 30, 2000 the Company had entered into price basis swap
transactions which fix the spread between West Coast jet fuel prices and heating
oil futures. Further, the Company had entered into a costless collar transaction
which established an upper and lower limit on heating oil futures prices. These
transactions are in place with respect to approximately 20% of projected fuel
volumes for the fourth quarter.
The use of such transactions in the Company's fuel hedging program could
result in the Company not fully benefiting from certain declines in heating oil
futures prices or certain declines in the spread between West Coast jet fuel
prices and heating oil futures. At September 30, 2000 the Company estimates that
a 10% change in the price of West Coast jet fuel relative to heating oil futures
would have changed the fair value of existing basis swap contracts by
approximately $0.1 million. In addition, a 10% increase in heating oil futures
prices would have changed the fair value of the costless collar by approximately
$1.5 million while a 10% decrease in heating oil futures prices would have
changed the fair value by approximately $2.6 million.
As of October 31, 2000 approximately 27% of AWA's remaining 2000 fuel
requirements are hedged.
(b) Interest Rate Risk
The Company's exposure to interest rate risk relates primarily to its
variable rate long-term debt obligations. At September 30, 2000 the Company's
variable-rate long-term debt obligations of approximately $16.2 million
represented approximately 11.1% of its total long-term debt. If interest rates
increased 10% in 2000, the impact on the Company's results of operations would
not be material.
15
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
*10.38 (1) Amendment No. 4, dated July 1, 2000, to the A319/320
Purchase Agreement dated as of September 12, 1997
between AVSA S.A.R.L. and AWA.
*10.39 (1) Amendment No. 5, dated October 12, 2000, to the
A319/320 Purchase Agreement dated as of September 12,
1997 between AVSA S.A.R.L. and AWA.
*27.1 Financial Data Schedule.
-----------------------------
* Filed herewith.
(1) The Company has sought confidential treatment for portions of the
referenced exhibit.
b. Reports on Form 8-K
None
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
By /s/ W. Douglas Parker
------------------------------
W. Douglas Parker
President
DATED: November 14, 2000
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
*10.38 (1) Amendment No. 4, dated July 1, 2000, to the A319/320
Purchase Agreement dated as of September 12, 1997
between AVSA S.A.R.L. and AWA.
*10.39 (1) Amendment No. 5, dated October 12, 2000, to the
A319/320 Purchase Agreement dated as of September 12,
1997 between AVSA S.A.R.L. and AWA.
*27.1 Financial Data Schedule.
---------------------
* Filed herewith.
(1) The Company has sought confidential treatment for portions of the
referenced exhibit.
18
