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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12649
AMERICA WEST HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 86-0847214
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
111 WEST RIO SALADO PARKWAY (480) 693-0800
TEMPE, ARIZONA 85281 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
CLASS B COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
COMMISSION FILE NUMBER 1-10140
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 86-0418245
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
4000 E. SKY HARBOR BOULEVARD (480) 693-0800
PHOENIX, ARIZONA 85034-3899 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SENIOR UNSECURED NOTES DUE 2005
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER EACH OF THE REGISTRANTS (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 X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SECTION 229.405 UNDER THE SECURITIES EXCHANGE ACT OF
1934) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF EACH OF
THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. __
AS OF MARCH 20, 2000, THERE WERE 35,258,623 SHARES OF AMERICA WEST HOLDINGS
CORPORATION CLASS B COMMON STOCK, $.01 PAR VALUE ISSUED AND OUTSTANDING. AS OF
SUCH DATE, BASED ON THE CLOSING SALES PRICE, 34,688,025 SHARES OF CLASS B COMMON
STOCK, HAVING AN AGGREGATE MARKET VALUE OF APPROXIMATELY $520,320,375 WERE HELD
BY NON-AFFILIATES. FOR PURPOSES OF THE ABOVE STATEMENT ONLY, ALL DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANTS ARE ASSUMED TO BE AFFILIATES. AS OF MARCH
20, 2000, ALL OUTSTANDING EQUITY SECURITIES OF AMERICA WEST AIRLINES, INC. WERE
OWNED BY AMERICA WEST HOLDINGS CORPORATION.
WITH RESPECT TO AMERICA WEST AIRLINES, INC., INDICATE BY CHECK MARK WHETHER
THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY
SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE
DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES X NO
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT RELATED TO AMERICA WEST HOLDINGS
CORPORATION'S 2000 ANNUAL MEETING OF STOCKHOLDERS, WHICH PROXY STATEMENT WILL BE
FILED UNDER THE SECURITIES EXCHANGE ACT OF 1934 WITHIN 120 DAYS OF THE END OF
AMERICA WEST HOLDINGS CORPORATION'S FISCAL YEAR ENDED DECEMBER 31, 1999, ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
AMERICA WEST AIRLINES, INC., A WHOLLY OWNED SUBSIDIARY OF AMERICA WEST
HOLDINGS CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED
DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION J(2).
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TABLE OF CONTENTS
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PART I
Item 1. Business ..................................................................................... 1
Item 2. Properties ................................................................................... 15
Item 3. Legal Proceedings ............................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters ........................ 18
Item 6. Selected Consolidated Financial Data ......................................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................. 29
Item 8A. Consolidated Financial Statements and Supplementary Data -- America West Holdings Corporation 30
Item 8B. Financial Statements and Supplementary Data -- America West Airlines, Inc. .................. 51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........ 67
PART III
Item 10. Directors and Executive Officers of the Registrants ......................................... 67
Item 11. Executive Compensation ...................................................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 67
Item 13. Certain Relationships and Related Transactions .............................................. 67
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............................. 68
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Note Concerning Forward-Looking Information
This Report 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. 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
Company's ability to negotiate 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 this Report on Form 10-K. Any forward-looking
statements speak only as of the date such statements are made.
PART I
This combined Form 10-K is filed by each of America West Holdings
Corporation and its wholly owned subsidiary, America West Airlines, Inc. America
West Holdings Corporation is referred to as "Holdings" or "the Company" or "our
Company", and America West Airlines is sometimes referred to as "AWA" or "the
Airline". The Leisure Company, the other wholly owned subsidiary of Holdings, is
sometimes referred to as TLC. The term "we" is used to refer to management of
the Company, the Airline or TLC, as the context requires.
ITEM 1. BUSINESS
OVERVIEW OF OUR COMPANY'S BUSINESSES
Holdings is the parent company of AWA and TLC. We believe that the holding
company structure improves the Company's ability to manage separate business
segments effectively and that Holdings provides a platform for further expansion
of the Company's travel-related businesses. The Company intends to continue to
evaluate investment and expansion opportunities that would allow it to
capitalize on the key strengths and market positions of AWA, TLC and Holdings'
e-commerce business.
AWA is the ninth largest commercial airline carrier in the United States,
operating through its principal hubs located in Phoenix, Arizona and Las Vegas,
Nevada, and a mini-hub located in Columbus, Ohio. AWA has the lowest cost
structure of all major full-service domestic airlines in the United States. The
Company's operating cost per available seat mile ("CASM") for 1999 was 7.52
cents, which was approximately 23% less than the average CASM of the other major
domestic airlines. At December 31, 1999, the Airline served 59 destinations,
including seven destinations in Mexico and one in Canada, with a fleet of 123
aircraft and offered service to an additional 84 destinations through alliance
arrangements with other airlines.
TLC arranges and sells leisure travel products that may include airfare,
hotel accommodations, ground transportation, and a variety of other travel
options. TLC's largest brand, America West Vacations, has significant strength
in the Las Vegas destination market and also has presence in other vacation
destinations such as Arizona, California, Florida, Mexico and Canada.
Together, Holdings and its subsidiaries employed 13,336 people on December
31, 1999.
STRATEGY
The Company seeks to maximize stockholder value by capitalizing on the
Company's key competitive strengths while maintaining financial flexibility. The
principal elements of our strategy are to grow America West Airlines, to improve
the Airline's unit revenues, to maintain the Airline's strategic cost advantage,
to ensure financial flexibility for the future and to pursue strategic
e-commerce opportunities in the travel and travel-related industries.
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GROW THE AIRLINE
The Company intends to continue growing the Airline primarily by increasing
service to and from Phoenix and Las Vegas. The Phoenix and Las Vegas markets are
among the fastest growing in the United States, and the Company believes that
its Phoenix hub remains undersized relative to its potential. In execution of
this strategy, AWA has increased available seat miles ("ASMs") 20% over the past
three years with the majority of this growth focused on strengthening AWA's
position at Phoenix. Compared with 1999, ASMs are expected to increase
approximately 10% in 2000 and approximately 10% annually through 2003. The
growth will be focused on adding frequencies from Phoenix to existing business
markets and, to a lesser degree, to markets not previously served by AWA.
The Airline has expanded its reach outside of its core markets through
alliances. AWA has codesharing arrangements with Continental Airlines, Mesa
Airlines, British Airways, Northwest Airlines and EVA Airways of Taiwan, and has
received United States government approval for a codesharing agreement with Air
China. These alliances allow the Airline to expand its passenger base without
significant increases in capital or operating expense and in some cases, achieve
cost savings through economies of scale and joint purchasing agreements. The
Company believes that alliances are an efficient means of developing new markets
and increasing travel opportunities for its customers. We anticipate continuing
to pursue such relationships with existing alliance partners and other domestic
and international carriers.
IMPROVE THE AIRLINE'S UNIT REVENUES
Due to AWA's leisure oriented hub markets in Phoenix and Las Vegas, the
competitive nature of many of the western U.S. markets where the Airline flies,
and the Airline's size relative to its competition, AWA's passenger revenue per
available seat mile ("RASM") is approximately 15% less than the average RASM for
the ten largest airlines in the United States. One of the Company's primary
opportunities to improve profitability is to close that RASM gap through three
main efforts: growing in key business markets; investing in scheduling and
revenue management automation and technology; and improving the quality of the
Airline's products. Our efforts to improve unit revenues were successful in 1999
- - AWA's passenger RASM improved by 2.4% over 1998, while the industry average
RASM decreased by 0.3% over the same period. Looking forward, we believe that
substantial opportunity exists to further improve AWA's unit revenues by
continuing the strategic growth plan, improving operating performance and
continuing to enhance the Airline's customer service, frequent flyer programs
and onboard products.
MAINTAIN STRATEGIC COST ADVANTAGE
The Company is committed to maintaining AWA's low cost structure, which we
believe offers a significant competitive advantage over other major full-service
airlines. AWA's CASM is approximately 23% less than the average CASM of the ten
largest airlines in the United States. AWA has achieved this low cost structure
primarily through employee productivity, favorable labor costs per ASM and
industry-leading aircraft utilization.
ENSURE FINANCIAL FLEXIBILITY
The airline and travel industries are cyclical in nature. Because of this,
an important element of the Company's strategy is to maintain financial
flexibility as protection against a downturn in the business cycle. A key
component of this strategy is AWA's aircraft leasing plan. As of December 31,
1999, and through the end of 2004, leases for 56 aircraft will expire. As a
result, if economic conditions change adversely during that period, the Airline
can delay the growth of its fleet and its aircraft-related financial obligations
by electing to not renew these aircraft leases. Another component of this
strategy is the Company's compensation system for its non-union employees, which
includes a variable pay element based largely on the Company's operating income
level. The Company further enhances its financial flexibility by maintaining a
$125 million senior secured revolving credit facility with certain financial
institutions.
PURSUE STRATEGIC E-COMMERCE OPPORTUNITIES
In January 2000 we established an e-business division to manage our
electronic business, Internet initiatives and on-line investments. The
objectives of this division include improving customer service, generating
additional
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revenue, reducing our distribution, procurement and other costs through
business-to-business Internet applications and related automation and creating
shareholder value through equity holdings in e-business partners. The e-business
division will provide additional opportunities for customers to purchase airline
seats or vacation packages conveniently over the Internet and will complement,
support and expand our existing successful commercial relationships and equity
partnerships with other companies that offer discount airfares, travel packages
and other services direct to consumers via the Internet.
We have already made significant progress in our efforts to create value
through equity positions in our partners. During 1999 we recognized pretax gains
of approximately $24 million, primarily through our partnership with
Priceline.com. In addition, we hold equity stakes in four on-line ventures that
are not yet public and we are in investment discussions with several others.
In addition to partnering with e-business concerns, we continued to develop
and refine our profitable leisure travel business by pursuing opportunities to
transfer some of The Leisure Company lines of business to e-commerce companies
in exchange for cash and equity in these entities. In February 2000, we signed a
letter of intent to sell America West Golf Vacations for equity in
Book4golf.com, a Canadian publicly traded company. Book4golf.com is a provider
of Internet-based, real-time, golf tee time reservations systems. America West
Golf Vacations arranges complete golf vacation packages including air
transportation, hotel accommodations, rental car and guaranteed tee times at
premier golf courses in Arizona, Nevada, California and Mexico. In March 2000,
we reached an agreement to sell a majority interest in TLC's retail operations,
National Leisure Group ("NLG") and The Vacation Store ("TVS"), to Softbank
Capital LP and General Catalyst LLP. Holdings will retain a twelve percent
passive ownership interest in the restructured venture leaving TLC well
positioned to capitalize on future NLG and TVS business growth. We believe that
transferring the golf and retail businesses to entities that are focused on
selling golf and retail vacation packages over the Internet will allow us to
increase vacation package sales while also generating equity returns. The
transactions related to the sale of both America West Golf Vacations and the
retail vacations businesses are subject to certain regulatory and other
approvals, among other things.
AMERICA WEST AIRLINES
THE AIRLINE'S OPERATIONS
AWA is the ninth largest commercial airline and our unit cost is the lowest
of all full-service airlines in the United States. The Airline reported
approximately $2.1 billion in revenues in 1999, an increase in annual revenues
of 9.1% over revenues reported in 1998 and 38% over those reported in 1995. The
Airline operates through its hubs in Phoenix, Arizona and Las Vegas, Nevada and
a mini-hub in Columbus, Ohio. At the end of 1999 the Airline operated a fleet of
123 aircraft flying approximately 604 flights each day and served 59
destinations directly and offered service to another 84 destinations through
AWA's alliance agreements with other carriers.
We seek to maximize AWA's market share and profitability by operating the
Airline through a hub and spoke network, the strategy employed by all but one of
the ten largest airlines in the United States. AWA is the leading airline
serving Phoenix based on ASMs and takeoffs and landings and the leading airline
serving Las Vegas based on ASMs.
We believe that the success of the Airline's operations in Phoenix and Las
Vegas is due to a number of factors including:
- - Phoenix is the seventh largest city in the United States and its
metropolitan area is the 14th largest in the country.
- - The attractiveness of Phoenix and Las Vegas as business and leisure
destinations.
- - The size of those cities' airports. Phoenix Sky Harbor International
Airport is the 7th largest airport in the United States based on
takeoffs and landings and Las Vegas McCarran International Airport is
the 13th largest airport in the country by that measure.
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- - The geographically favorable location of those cities with convenient
access to and connecting opportunities for passengers travelling to or
from key southwest and west coast markets and vacation destinations in
Mexico.
- - The relatively low operating costs incurred in those cities'
metropolitan areas and at those airports.
The Phoenix and Las Vegas metropolitan areas are among the fastest growing
in the country. Moreover, we believe that our Phoenix hub remains undersized
compared to other airlines' hubs of similar or smaller populations and airport
size. Therefore, we believe that the Airline's hubs are well positioned for the
continued growth that is one of the key elements of our strategy.
Toward that end, the Company has increased service in Phoenix from 174 daily
jet departures at year-end 1995 to 257 at December 31, 1999. America West's goal
is to increase daily jet departures to 300 by year-end 2001 primarily by adding
flight frequencies in existing markets with demonstrated profitability. America
West has a 27% market share of Phoenix-originating passengers and is working
aggressively to capture a greater share of this traffic.
As a key element of America West's strategy to improve unit revenues we
have placed a greater emphasis on the business traveler over the past three
years. Tailoring its schedule to attract a greater percentage of high-yield
business flyers, America West has added nonstop destinations and increased
flight frequencies to major business destinations. Inventory-management systems,
much improved over the last two years, assure that good seats are available to
the Company's most-frequent and most-lucrative travelers.
At the same time, the sales and marketing focus on the business traveler
has been increased. A revamped Flight Fund frequent-flyer program was introduced
in early 1999, which includes more domestic and international destinations for
free award travel, as well as for elite level members (predominantly business
travelers), unlimited first class upgrades, increased mileage-credit bonuses and
non-expiring miles. The America West fleet also is undergoing an upgrade, with
new Airbus A319s and A320s being added. Airbus A318 aircraft will be added to
the fleet in 2003. The Airbus aircraft offer wider, more comfortable cabins and
more first class seats than the Boeing 737s that traditionally have been the
mainstay of America West's fleet. The improved in-flight services include
enhanced meal service and in-flight entertainment in first class and in coach on
long-haul flights.
The Company is also committed to providing quality customer service and
reliability. In this regard, we were less successful in 1999. A key focus for
America West going forward will be improving the Company's operational
reliability. In April 1999 the Company effected a management reorganization
establishing two new organizations within America West, the Operations Group and
the Corporate Group. The existing division structure was repositioned under
those two umbrellas. This change improves management focus on operations,
underlines the Company's commitment to safety, and allows effective pursuit of
the Airlines' growth. The Operations Group, led by Gil Mook, has a new senior
management team in place to oversee and improve the Company's operations.
ALLIANCES WITH OTHER AIRLINES
AWA has alliance agreements with Continental Airlines, Mesa Airlines,
British Airways, Northwest Airlines and EVA Airways of Taiwan, and has received
United States government approval for an alliance arrangement with Air China.
AWA's alliance agreement with Continental Airlines provides for codesharing
arrangements, coordinating flight schedules, sharing ticket counter space and
coordinating ground handling operations. The arrangement also allows AWA
FlightFund (the Airline's frequent flyer program) members to earn credits for
travel on Continental and for frequent flyer benefits earned by AWA customers to
be redeemed for travel on Continental's system.
By codesharing, each airline is able to offer additional destinations to its
customers under its flight designator code without materially increasing
operating expenses and capital expenditures. The arrangement also provides that
AWA personnel handle Continental's ticket counter and ground operations at
certain airports in the western and southwestern United States and that
Continental's personnel handle those operations for AWA at certain airports in
the east, midwest and south. Through its alliance arrangement with Continental,
AWA offered service to an additional 59 destinations as of December 31, 1999 and
achieves cost savings primarily through the consolidation of
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airport facilities and resources and elimination of duplicative costs for labor
and equipment.
Mesa Airlines, ("Mesa"), operating as America West Express, provides
regional feeder service to and from the Airline's Phoenix hub to destinations in
the western United States and northern Mexico flying, principally, regional jets
and large turboprop aircraft. In addition, Mesa operates America West Express
regional jet service to and from the Airline's mini-hub in Columbus, Ohio to
midwest and eastern business markets. As of December 31, 1999, 16 regional jets
were committed to America West Express Service. Through its alliance
arrangement with Mesa, AWA offered America West Express service to an additional
25 destinations as of December 31, 1999. The alliance arrangement with Mesa
provides for the Airline's management of coordinated flight schedules and all
America West Express marketing and sales. All reservations are booked under
AWA's flight designator code. America West Express passengers connecting to or
from an AWA flight can purchase one airfare for their entire trip.
AWA's alliance agreement with British Airways allows British Airways to
offer connecting service to and from British Airways' flights to Phoenix, San
Francisco and Los Angeles onward to certain destinations served by the Airline.
The arrangement also allows AWA FlightFund members to earn credit for travel on
British Airways and for frequent flyer benefits earned by AWA customers to be
redeemed for travel on British Airways' system.
Through AWA's alliance agreements with Northwest Airlines and EVA Airways,
AWA provides connecting service from those airlines' Pacific routes to Las Vegas
and Phoenix. Upon implementation of the alliance agreement with Air China, AWA
will provide connecting service to Las Vegas and Phoenix from Air China's
Pacific routes.
AIRLINE COMPETITION AND MARKETING
The airline industry is highly competitive. Airlines compete on the basis of
pricing, scheduling (frequency and flight times), on-time performance, frequent
flyer programs, on-board products and other services. AWA competes with a number
of major airlines on medium and long haul routes to and from and through its
hubs and with a number of carriers for short haul flights at its Phoenix and Las
Vegas hubs and its Columbus mini-hub. AWA competes with other major full service
airlines based on price and, due to its low cost structure, is able to compete
with other low cost carriers in both short and long haul markets. The entry of
additional carriers in many of AWA's markets (as well as increased services by
established carriers) could negatively impact AWA's results of operations. For
additional discussion of industry competition and related government regulation,
see "Risk Factors -- 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" and, generally,
"Government Regulations."
Most tickets for travel on AWA are sold by travel agents. Travel agents
generally receive commissions based on the price of tickets sold. AWA and other
airlines often pay additional commissions in connection with special revenue
programs, competing not only with respect to the price of tickets sold but also
with respect to the amount of commissions paid. Effective October 18, 1999, AWA
reduced the travel agency base commission rate from 8% to 5% with a maximum
payment of $50 for each round trip flight. We believe that commission structure,
together with AWA's program of additional commissions in connection with special
programs, is competitive with the commission programs of the other major United
States airlines.
Most tickets sold by travel agents are sold through computer reservation
systems that are controlled by other airlines. Travel agents' reliance on those
computer reservation systems have, from time to time, significantly increased
the cost of making reservations, which costs are born by airlines which
subscribe to the computer reservation systems, including AWA.
AWA has sought to address these issues through several initiatives. First,
AWA's electronic or paperless ticketing program responds to customer needs and
reduces distribution costs for tickets booked directly through the Airline's
reservation system and through travel agencies. During 1999 approximately 60% of
the Airline's tickets were processed electronically, up from 50% during 1998.
Second, AWA provides the ability for its customers to book tickets directly
through the Internet using the Airline's web site located at
www.americawest.com, thus avoiding the more expensive computer reservation
systems. Bookings through Americawest.com and other travel-related Internet
sites were approximately 7% of total 1999 bookings, up from 1% in 1998.
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Federal regulations have been promulgated that are intended to diminish
preferential scheduling displays and other practices with respect to computer
reservation systems that place AWA and other similarly situated users at a
competitive disadvantage to airlines controlling the systems. Those regulations
are presently under review by the Department of Transportation ("DOT"). The
Airline is participating aggressively in the federal rule making process related
to computer reservations systems.
FREQUENT FLYER PROGRAM
All major United States airlines offer frequent flyer programs to encourage
travel on that airline and customer loyalty. AWA offers the FlightFund program
which allows members to earn mileage credits by flying AWA and America West
Express, by flying on certain partner airlines including Continental Airlines
and British Airways and by using the services of a wide variety of other program
participants such as hotels, rental car agencies and other specialty services.
Through the FlightFund Program, accumulated mileage credits can be redeemed
for free travel on AWA and America West Express and certain partner airlines
including Continental and British Airways and for first class upgrades on AWA.
Use of mileage credits is subject to industry standard restrictions including
blackout dates. The Airline must purchase space on other airlines
to accommodate FlightFund redemption travel on those airlines.
The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
passenger based on expected redemptions. Those incremental costs are based on
expectations of expenses to be incurred on a per passenger basis and include
food, beverages, supplies, fuel, liability insurance and ticketing costs which
are accrued as FlightFund members accumulate mileage credits. No profit or
overhead margin is included in the accrual for those incremental costs.
Non-revenue FlightFund travel accounted for 3.2%, 3.5% and 3.2% of total revenue
passenger miles for the years ended December 31, 1999, 1998 and 1997,
respectively. We do not believe that non-revenue FlightFund travel results in
any significant displacement of revenue passengers.
THE AIRLINE'S FLEET
At December 31, 1999, the Airline operated a fleet of 123 aircraft having an
average age of 10.1 years. The Airline's aircraft acquisition program will
provide the aircraft necessary to allow the Airline to continue its strategic
growth. Terminations of aircraft operating leases scheduled to occur over the
next several years will allow the Airline flexibility to manage the growth of
its fleet size and related financial obligations in response to unfavorable
economic conditions.
In 2000 the Airline intends to take delivery of 14 new aircraft and expects
to operate a fleet of 137 aircraft at the end of 2000 having an average age of
10.2 years.
The Airline's fleet at the end of 1999 and as expected at the end of 2000
are described in the table below:
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NUMBER 12/31 AVERAGE AGE (YRS.) 12/31
AIRCRAFT APPROX. ------------------- ------------------------
TYPES NO. SEATS 1999 2000 1999 2000
----- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
B737-200 113 14 14 18.2 19.2
B737-300 132 47 48 12.2 13.2
B757-200 190 13 13 13.2 14.2
A319-100 124 10 18 0.6 1.0
A320-200 150 39 44 6.2 6.7
--- --- ---- ----
Totals 123 137 10.1 10.2
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As of March 29, 2000, AWA had firm commitments to purchase or acquire by
operating lease a total of 15 Airbus A318-100, 14 Airbus A319-100 and 14 Airbus
A320-200 aircraft for delivery in 2000 through 2004. The Airline also has 25
options and 25 purchase rights to acquire aircraft in the "A320 family" of
aircraft (A318s, A319s, A320s and A321s) for delivery in 2004 through 2008. As
of March 29, 2000, leases for 56 of the Airline's aircraft were scheduled to
terminate through the end of 2004.
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The following table illustrates the Airline's committed orders, purchase
options and scheduled lease terminations over 2001-2004:
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Firm Orders 2001 2002 2003 2004
----------- ---- ---- ---- ----
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A318-100/319-100/A320-200 8 5 10 10
Purchase Rights/Options
-----------------------
A318/A319/A320/A321 0 0 0 3
Scheduled Lease Terminations
----------------------------
Total 10 14 25 4
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For further details on the Airline's commitments to acquire aircraft and
financing strategies and capital requirements for aircraft, see "Risk Factors --
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." and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations --Liquidity and Capital Resources."
EMPLOYEES AND LABOR RELATIONS
The Company's businesses are labor intensive with wages, salaries and
benefits representing approximately 25% of the Company's operating expenses
during 1999.
As of December 31, 1999, the Airline employed 9,911 full-time and 2,746
part-time employees, for a full-time equivalent of 11,536 employees ("FTEs"). We
believe that the Airline's workforce is very productive, compared to workforces
employed at other major United States airlines. As AWA pursues its growth
strategy, we believe that this productivity will be improved as economies of
scale will allow the Airline to increase the size of its workforce
proportionately less than the growth in number of aircraft or ASMs.
The Airline's non-union employees are compensated on a pay-for-performance
basis under which salaries and wages are determined in part by performance
evaluations by an employee's superiors and peers. To encourage increased
productivity, the Airline awards performance bonuses, referred to as AWArd Pay,
to eligible, non-executive, non-union employees provided certain annually
established targets are achieved. AWArd Pay bonuses could range from 5% of base
pay if those targets are met to 25% of base pay if those targets are
significantly exceeded. Following the Company's and the Airline's record
financial results in 1999, the Airline paid AWArd Pay performance bonuses equal
to 11.8% of eligible employees' 1999 base pay.
A large majority of the employees of the major airlines in the United States
are represented by labor unions. There have been numerous attempts by unions to
organize AWA's employees and we expect those organization efforts to continue in
the future. As illustrated by the table below, several groups of AWA's employees
have selected union representation and negotiated collective bargaining
agreements with the Airline. We cannot predict the outcome of any continuing or
future efforts to organize the Airline's employees or the terms of any future
labor agreements or the effect, if any, on the Company's or AWA's operations or
financial performance. For more discussion, see "Risk Factors --Efforts by labor
unions to organize AWA's employees have occurred in the past and we expect will
occur in the future, which could divert management attention and increase our
operating expenses."
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<TABLE>
<CAPTION>
EMPLOYEE APPROX. NO. OF CONTRACT CONTRACT
GROUP EMPLOYEES UNION EFFECTIVE AMENDABLE
----- --------- ----- --------- ---------
<S> <C> <C> <C> <C>
Pilots 1,560 Airline Pilots Association May 1995 May 2000
Dispatchers 60 Transportation Workers Union March 1998 March 2003
Maintenance technicians
and related personnel 500 International Brotherhood of October 1998 October 2003
Teamsters
Flight Attendants 2,300 Association of Flight Attendants May 1999 May 2004
Fleet Service 2,000 Transportation Workers Union - -
Stock Clerks 60 International Brotherhood of - -
Teamsters
</TABLE>
On March 20, 1999, the Company reached a tentative agreement with the
Association of Flight Attendants ("AFA"), which represents AWA's approximately
2,300 flight attendants, on a five-year collective bargaining agreement. The
agreement was ratified on April 30, 1999.
All of the collective bargaining agreements are consistent with our
productivity objectives and cost advantage, include flexible work rules, and
prohibit sympathy strikes. None of those contracts restrict management's ability
to make key strategic decisions, including entering into or expanding alliances
or considering acquisitions.
In January 1999 the Airline's approximately 2,000 fleet service workers
voted to be represented by the Transportation Workers Union ("TWU"). In
September 1999 AWA's stock clerks voted to be represented by the International
Brotherhood of Teamsters ("IBT"). The Company is in the process of negotiating
initial contracts with the TWU and IBT as bargaining representatives for the
fleet service workers and stock clerks, respectively. The Company has also begun
negotiations with the Air Line Pilots Association ("ALPA") on a new contract.
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.
THE LEISURE COMPANY
TLC'S OPERATIONS, PRODUCTS, MARKETING AND COMPETITION
The Leisure Company sells individual and group travel products such as air
and ground transportation, land-only accommodations, cruises, all-inclusive
vacation packages, and value-added services and amenities directly to the
consumer and through retail travel agencies. TLC focuses on simple, high-volume,
value-oriented products which are marketed on a national basis. TLC is one of
the largest providers of Las Vegas vacation packages in the United States.
The majority of TLC's sales are from vacations and tour packages for
destinations in Nevada, Arizona, California, Florida, Mexico and Canada sold
under TLC's largest brand, America West Vacations. In addition to the core
wholesale brand family of America West Vacations products, TLC distributes
products under multiple wholesale brands through affiliations with other
airlines and suppliers to expand destination coverage. In 1998 TLC also began
retail sales of leisure travel products.
At December 31, 1999, TLC, TVS and NLG employed 679 full-time employees. TLC
employees are compensated in a variety of different ways depending on their
work, including hourly pay plus bonuses, in the case of the telephone sales
representatives, hourly pay plus commissions, in the case of travel agents, and
a pay for performance plan very similar to that described above for the
Airline's employees. To encourage productivity, TLC awards performance bonuses
to eligible, non-executive, non-union employees provided certain established
targets are achieved. Those performance bonuses can range from 2.5% of base pay
if those targets are met to 20% of base pay if those targets are materially
exceeded. TLC paid performance bonuses equal to 8.2% of base pay to eligible
employees for 1999.
The Vacation Store, acquired in November 1998, and National Leisure Group,
acquired in May 1999, are national retail leisure travel companies that
specialize in the marketing, packaging and retail distribution of cruise and
resort vacations. These acquisitions added established retail networks to TLC's
largely wholesale travel product line.
In February 2000, TLC signed a letter of intent to sell America West Golf
Vacations for equity in Book4golf.com, a public company whose stock is traded
on the Canadian Venture Exchange. Book4golf.com is a provider of Internet-based,
real-time, golf tee time reservations systems. America West Golf Vacations
arranges complete golf vacation packages including air transportation, hotel
accommodations, rental car and guaranteed tee times at premier golf courses in
Arizona, Nevada, California and Mexico.
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<PAGE> 12
In March 2000 Holdings and TLC reached an agreement to sell a majority interest
in TLC's retail operations, NLG and TVS, to Softbank Capital LP and General
Catalyst LLP. Holdings will retain a twelve percent passive ownership interest
in the restructured venture, leaving TLC well positioned to capitalize on future
NLG and TVS business growth. The transactions related to the sale of both
America West Golf Vacations and the retail vacations businesses are subject to
certain regulatory and other approvals, among other things.
The Leisure Company competes in a fragmented, consolidating vacation
industry that is highly competitive with low barriers to entry. Within the
wholesale segment of TLC's business, competitors are vying for customers through
national mass media and the arrangement of preferred supplier relationships.
Fewer larger competitors with stronger market positions and brand recognition
are beginning to emerge. The industry also faces disintermediation as suppliers
rely more on electronic distribution strategies aimed directly at consumers.
TLC remains focused on simple, high-volume products which have traditionally
provided high margins. TLC's strong position in Las Vegas, strong growth and
knowledge of the vacation package industry and mass marketing effectiveness have
helped strengthen TLC's positioning. TLC will continue to evaluate investment
and expansion opportunities in the leisure travel industry.
Currently, wholesale and retail travel sales are not subject to government
regulation to any significant extent.
THE COMPANY'S FACILITIES
Our Company's principal facilities include administrative office space
located in Tempe and Phoenix, Arizona; reservations centers and other call
centers located in Tempe and Reno, Nevada; and airport and airport related
facilities associated with the Airline's hubs in Phoenix and Las Vegas and
mini-hub in Columbus.
Several of those facilities recently have been or are in the process of
being replaced or upgraded. The new facilities will support key elements of the
Company's strategy and will accommodate the Airline's and TLC's planned growth,
allow the Company to improve employee morale by replacing outdated working
environments with improved facilities, reduce overall occupancy and
administrative costs, facilitate synergies by consolidating functions and take
advantage of improved and state of the art technologies and communications
systems that could not have been deployed in the replaced facilities.
The Company leases approximately 361,000 square feet of general office and
administrative space in Tempe for Holdings', the Airline's and TLC's
headquarters and administrative offices. In 1999 the Company moved its
headquarters and principal administrative functions to a newly constructed nine
story, 225,000 sq. ft. complex at the site of AWA's original headquarters
facility in Tempe.
AWA operates from Terminal 4 at Sky Harbor Airport and leases 42 gates,
ticket counter space and administrative offices comprising an aggregate of
approximately 330,000 sq. ft. of space. In November 1999 AWA occupied a new
concourse in Terminal 4 with approximately 65,000 sq. ft. of additional
concourse, ticket counter and office space and 12 additional gates. Two
additional gates will be available for occupancy in 2001.
The Airline leases approximately 168,000 sq. ft. of space at Las Vegas
McCarran International Airport, which includes 13 gates, ticket counter space
and concourse areas. AWA leases approximately 30,000 sq. ft. and seven gates at
Port Columbus International Airport.
Space for ticket counters, gates and back offices has been obtained at each
of the other airports operated by AWA personnel, either by lease from the
airport operator or by sublease from another airline. Space and facilities at
airports where AWA's operation is managed by Continental Airlines or Mesa
Airlines is provided by those airlines as part of AWA's alliance arrangements.
The Airline also owns a 375,000 sq. ft. maintenance and technical support
facility at Sky Harbor Airport on land leased from the City of Phoenix, which
includes four hangar bays, hangar shops, two flight simulator bays and pilot
training facilities and warehouse and commissary facilities.
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<PAGE> 13
In March 2000, we announced that AWA would develop an approximately 150,000
sq. ft. new flight training and systems operations control center to accommodate
AWA's pilot and flight attendant training, systems operational control and crew
scheduling functions to be located in Phoenix near Phoenix Sky Harbor
International Airport. We expect to begin construction later in 2000 with
completion expected by late summer or early fall 2001.
GOVERNMENT REGULATIONS
The airline industry is highly regulated as more fully described below.
DOT OVERSIGHT
AWA operates under a certificate of public convenience and necessity issued
by the DOT. Although regulation of domestic routes and fares was abolished by
the Airline Deregulation Act of 1978, the DOT retains the authority to alter or
amend AWA's certificate or to revoke that certificate for intentional failure to
comply with the terms and conditions of the certificate. In addition, the DOT
has jurisdiction over international tariffs and pricing, international routes,
computer reservation systems, domestic code share agreements, and economic and
consumer protection matters such as advertising, denied boarding compensation
and smoking and has the authority to impose civil penalties for violation of the
United States Transportation Code or DOT regulations.
As a member of the Air Transport Association, AWA voluntarily established a
customer service plan to provide additional information to passengers on flight
delays, cancellations or overbookings, to offer the lowest fare available, allow
reservations to be held or cancelled, provide prompt ticket refunds and be more
responsive to customer complaints. Under new legislation the DOT Inspector
General is to report to Congress by December 31, 2000 on the effectiveness of
the airlines' implementation of these plans. Based on this report Congress could
impose new consumer protection requirements on airlines including payments to
passengers for excessive flight delays and prohibition of the issuance on
non-refundable tickets. As a result of competitive pressures AWA and other
airlines would be limited in their ability to pass costs associated with
compliance with such laws to passengers. We cannot forecast the cost impact of
such measures if enacted.
FAA FUNDING
In 1997 new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration ("FAA"). Included in
the new law is a phase-in of a modified federal air transportation excise tax
structure with a system that includes: a domestic excise tax which started at
9% and declined to 7.5% in 1999; a domestic segment tax that started at $1.00
and increases to $3.00 by 2003; and an increase in taxes imposed on
international travel from $6.00 per international departure to an arrival and
departure tax of $12.00 (each way). Both the domestic segment tax and the
international arrival and departure tax are indexed for inflation. The
legislation also included a 7.5% excise tax on certain amounts paid to an air
carrier for the right to provide mileage and similar awards (e.g., purchase of
frequent flyer miles by a credit card company). As a result of competitive
pressures, AWA and other airlines have been limited in their ability to pass on
the cost of these taxes to passengers through fare increases.
In December 1997 the National Civil Aviation Review Commission (the "NCARC")
completed its Report to Congress on FAA funding and recommended implementation
of a cost based user fee system for air carriers. Congress is presently
considering the recommendations of the NCARC, which may result in enactment of a
new funding mechanism. The Company cannot currently estimate the effect the new
combination of ticket and segment taxes, or any change in those taxes as
recommended by the NCARC, will have on its operating results. There can be no
assurance that the new taxes or such changes will not have a material adverse
effect on the Company's financial condition and results of operations.
FUEL TAX
In August 1993 the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. The Company's annual operating expenses
increased by approximately $17.7 million for 1999 because of such fuel tax
increases. Total fuel taxes paid by the Company in 1999 were $26.9 million.
10
<PAGE> 14
PASSENGER FACILITY CHARGES
During 1990 Congress enacted legislation to permit airport authorities, with
prior approval from the DOT, to impose passenger facility charges ("PFCs") as a
means of funding local airport projects. These charges, which are intended to be
collected by the airlines from their passengers, are limited to $3.00 per
enplanement, and to no more than $12.00 per round trip. Congress has passed
legislation for reauthorization of airport funding programs, which increases the
current PFC cap to $4.50 per enplanement with a maximum per round trip of
$18.00. As a result of competitive pressure, AWA and other airlines have been
limited in their ability to pass on the cost of the PFCs to passengers through
fare increases.
SLOT RESTRICTIONS
At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Ronald Reagan Washington National Airport,
which have been designated "High Density Airports" by the FAA, there are
restrictions on the number of aircraft that may land and take off during peak
hours. In the future, these take-off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in further curtailment of services by, and increased operating costs for,
individual airlines, including AWA, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for non-use and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
All slots must be used on 80% of the dates during each two-month reporting
period. Failure to satisfy the 80% use rate will result in loss of the slot
which would revert to the FAA and be reassigned through a lottery arrangement.
Congress has passed legislation increasing the availability of slots at all
four High Density Airports. AWA will apply for slots to increase its services at
O'Hare, LaGuardia and National airports. There is no guarantee that AWA will be
granted additional slots at any of these airports. Under the new legislation,
slot restrictions at O'Hare Airport will be limited to the hours between 2:45
p.m. and 8:14 p.m. after July 1, 2001 and all slot restrictions are abolished
after July 1, 2002. At the New York airports, slot restrictions are abolished
after January 1, 2007.
AWA currently utilizes six slots at both Kennedy and LaGuardia Airports,
nine slots at O'Hare Airport and four slots at National Airport during the
restricted periods. AWA utilizes these slots more than the requisite 80% use
rate. Three of the slots at National Airport are subject to expiration in
December 2001, and AWA intends to file a timely application for renewal.
Approval of such application is discretionary by the FAA.
PERIMETER RULE AT WASHINGTON'S RONALD REAGAN NATIONAL AIRPORT
There is a federal prohibition on flights exceeding 1,250 miles operating
from or to National Airport. This "perimeter rule" results in AWA being unable
to fly non-stop to and from National Airport and its principal hubs. Congress
has passed legislation which would authorize the DOT to grant exceptions to the
1,250 mile perimeter rule for up to 12 slots per day. AWA intends to apply for
the right to provide daily Phoenix - National Airport and Las Vegas - National
Airport service. There is no guarantee that AWA will be granted any or all of
the slots it requests.
NOISE ABATEMENT AND OTHER RESTRICTIONS
Numerous airports served by AWA, including those at Boston, Burbank, Denver,
Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange County, San
Diego, San Francisco, San Jose and Washington, D.C., have imposed restrictions
such as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on the number of average daily departures, which limit
the ability of air carriers to provide service to or increase service at such
airports. AWA's Boeing 757-200s, Boeing 737-300s and Airbus A319s and A320s all
comply with the current noise abatement requirements of the airports listed
above.
AIRCRAFT MAINTENANCE AND OPERATIONS
AWA is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
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<PAGE> 15
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires AWA to
obtain operating, airworthiness and other certificates, which are subject to
suspension or revocation for cause. In addition, a combination of FAA and
Occupational Safety and Health Administration regulations on both federal and
state levels apply to all of AWA's ground-based operations.
AWA is also subject to the jurisdiction of the Department of Defense with
respect to its voluntary participation in their Commercial Passenger Airlift
program administered by the Air Force's Air Mobility Command.
AGING AIRCRAFT MAINTENANCE
The FAA issued several Airworthiness Directives ("ADs") in 1990 mandating
changes to the older aircraft maintenance programs. These ADs were issued to
ensure that the oldest portion of the nation's aircraft fleet remains airworthy
and require structural modifications to or inspections of those aircraft. All of
AWA's currently affected aircraft are in compliance with the aging aircraft
mandates. AWA constantly monitors its fleet of aircraft to ensure safety levels
that meet or exceed those mandated by the FAA and the DOT.
ADDITIONAL SECURITY AND SAFETY MEASURES
In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry-on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for selected airport employees,
significantly expanded use of bomb-sniffing dogs, certification of screening
companies, aggressive testing of existing security systems, expansion of aging
aircraft inspections to include non-structural components, development of
objective methods for carriers to monitor and improve their own level of safety
and installation of new ground proximity warning systems on all commercial
aircraft. We cannot forecast what additional security and safety requirements
may be imposed in the future or the costs or revenue impact that would be
associated with complying with such requirements.
ENVIRONMENTAL MATTERS
The Company is subject to regulation under major environmental laws
administered by federal, state and local agencies, including laws governing air,
water and waste discharge activities. While the Company strives to comply with
environmental laws and regulations, the Company has incurred and may incur costs
to comply with applicable environmental laws, including soil and groundwater
cleanup and other related response costs. We believe, however, that under
current environmental laws and regulations these costs would not have a material
adverse effect on the Company's financial condition and results of operations.
The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state implemented
groundwater investigations. AWA occupies facilities at some of these affected
airports and is a member of a fuel handling consortium, which has experienced a
fuel leak into ground water at Phoenix Sky Harbor International Airport. The
Company does not believe that its operations have been included within the ambit
of any of these investigations and does not believe that its expenses associated
with the fuel leak at Phoenix Sky Harbor International Airport will be material.
The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and we expect that
the costs of compliance will continue to increase.
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<PAGE> 16
RISK FACTORS
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.
TLC's business is also highly competitive. TLC competes with wholesalers and
tour operators, some of which have substantially greater financial and other
resources than TLC.
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.
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 December 31, 1999, we owed approximately $155 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.
The Airline has outstanding orders to purchase aircraft as well as option
rights to purchase additional aircraft. AWA has arranged for financing for a
portion of the outstanding orders to purchase the aircraft, but will have to
look to outside sources to finance the remaining aircraft. We cannot guarantee
that the Airline will be able to obtain enough capital to finance the remainder
of the aircraft, and if the Airline defaults on commitments to purchase
aircraft, our ability to execute our business strategy could be materially
impaired.
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<PAGE> 17
EFFORTS BY LABOR UNIONS TO ORGANIZE AWA'S 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
AWA's employees, and we expect that these efforts will continue. Currently, the
Transport Workers Union is seeking to organize AWA's customer service
representatives and reservations agents. Certain groups of AWA's 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 expense could increase
significantly.
THE STOCKHOLDERS WHO EFFECTIVELY CONTROL THE VOTING POWER OF OUR 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 Holdings. 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 our
business in a way that would favor their own personal interests to the detriment
of our interests.
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 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.
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BROAD STOCK MARKET FLUCTUATIONS, QUARTERLY VARIATIONS IN OPERATING RESULTS
AND OTHER EVENTS OR FACTORS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR CLASS B
COMMON STOCK.
The stock market has experienced significant price and volume fluctuations
that have affected the market prices of equity securities of companies in the
airline industry and that often have been unrelated to the operating performance
of such companies. These broad market fluctuations may adversely affect the
market price of the Class B Common Stock of Holdings (the "Class B Common
Stock"). In addition, the market price of the Company's Class B Common Stock is
volatile and subject to fluctuations in response to quarterly variations in
operating results, announcements of new services by the Company or its
competitors, changes in financial estimates by securities analysts or other
events or factors, many of which are beyond the Company's control. See "Item 5.
Market for Registrants' Common Equity and Related Stockholder Matters."
ITEM 2. PROPERTIES
For a description of the Company's properties, see Item 1 of Part I of this
Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Holdings and its subsidiaries are parties to various legal proceedings,
including some purporting to be class actions, and some which demand large
monetary damages or other relief which, if granted, would require significant
expenditures.
In February 1999 Holdings, its directors and certain of its stockholders
were named as defendants in lawsuits filed on behalf of Holdings' stockholders
alleging various breaches of fiduciary duties in connection with the Board of
Directors' response to unsolicited expressions of interest proposing the
potential acquisition of Holdings or similar transactions. The plaintiffs
voluntarily dismissed these lawsuits without prejudice in July 1999. In
addition, the Company, Holdings and certain of Holdings' stockholders, executive
officers and directors have been named as defendants in lawsuits alleging
violations of the Securities Exchange Act of 1934, as amended, in connection
with Holdings' public disclosures regarding its business and prospects during
1997 and 1998. The defendants deny and are vigorously defending the claims set
forth in these lawsuits. While the outcome of these lawsuits cannot be predicted
with certainty, we currently expect that any liability arising from such
matters, to the extent not provided for through insurance or otherwise, will not
have a material adverse effect on the Company's business, financial condition
and results of operation.
Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
we currently expect that any liability arising from such matters, to the extent
not provided for through insurance or otherwise, will not have a material
adverse effect on the financial condition and results of operations of the
Company.
AWA leases six aircraft which may be subject to a claim in an unspecified
amount as a result of the Internal Revenue Service potentially disallowing
investment tax credits and accelerated depreciation claimed by the lessor of
such aircraft. Under the terms of indemnity agreements, if such tax benefits
were fully or partially disallowed, AWA's monthly payment obligation under the
agreements could be increased by up to approximately $15,000 per aircraft
(approximately $1,080,000 per year for all six aircraft) for the period from
1991 to 2013. The payment increase applicable to periods prior to the
determination of an indemnity obligation would be payable monthly over a
24-month period, with interest calculated at a specified prime rate. We are
unable to predict whether the Internal Revenue Service will prevail in matters
asserted against the lessor and, consequently, whether AWA will incur any
liability in connection with such claims or the amount of any such liability, if
incurred. Based on information and relevant documents available to the Company,
however, we currently believe that it is unlikely that the disposition of these
matters will have a material adverse effect on the Company's financial condition
and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 19
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information respecting the names, ages as of March 29,
2000, positions and offices with the Company of the executive officers of the
Company.
WILLIAM A. FRANKE, AGE 62. Chairman of the Board, President and Chief
Executive Officer of Holdings and AWA. Mr. Franke has served as Chairman of the
Board of Directors of AWA since September 1992 and as Chairman of the Board and
Chief Executive Officer of Holdings since its formation in December 1996. In
addition to his responsibilities at the Company, Mr. Franke serves as president
of Franke & Company, Inc., a financial services company he has owned since May
1987 and as a managing partner of Newbridge Latin America Fund, L.P. Mr. Franke
serves as a director of Phelps Dodge Corp., the Air Transport Association of
America, Beringer Wine Estates, Inc., ON Semiconductor, Inc., Alpargatas
S.A.I.C. and AerFi Group plc.
W. DOUGLAS PARKER, AGE 38. Executive Vice President of Holdings and
Executive Vice President, Corporate Group of AWA. Mr. Parker joined the Company
in June 1995 as Chief Financial Officer. In September 1997, Mr. Parker's
responsibilities were expanded to include oversight of AWA's planning,
scheduling and revenue management. He was elected to his present positions in
April 1999 and oversees all of AWA's finance, scheduling and revenue management,
sales and marketing, information technologies, administration and legal affairs.
From 1991 to June 1995, Mr. Parker worked at Northwest Airlines, most recently
as Vice President - Assistant Treasurer and Vice President Financial Planning
and Analysis.
GILBERT D. MOOK, AGE 57. Executive Vice President - Operations Group and
Chief Operating Officer of AWA. Mr. Mook joined the Company in April 1999. From
1983 through 1998, Mr. Mook was employed with Federal Express Corporation, where
he served as Senior Vice President - Air Operations Division from 1996 to 1998.
JOHN R. GAREL, AGE 41. President and Chief Executive Officer of The Leisure
Company. Mr. Garel joined AWA in April 1995 as Senior Vice President - Marketing
and Sales and was elected to his current position in July 1997. Mr. Garel has
announced that he will leave the Company effective March 31, 2000.
BERNARD L. HAN, AGE 35. Senior Vice President - Planning and Revenue
Management of AWA. Mr. Han joined AWA in January 1996 as Vice President -
Financial Planning and Analysis and was elected to his current position in May
1998. From 1991 through 1995, Mr. Han held management positions at Northwest
Airlines in financial planning, yield management, fleet planning and corporate
finance. Prior to that, Mr. Han worked for American Airlines in several
financial management positions.
C.A. HOWLETT, AGE 56. Senior Vice President - Public Affairs of AWA and
Holdings. Mr. Howlett joined AWA as Vice President - Public Affairs in January
1995. On January 1, 1997, he was appointed Vice President - Public Affairs of
Holdings. He was elected to his present positions in February 1999. Prior to
1995, Mr. Howlett maintained a government relations practice as a principal at
the law firm of Lewis and Roca in Phoenix. Mr. Howlett's prior work experience
included senior positions with Salt River Project, the City of Phoenix and The
White House where he served as special assistant to President Ronald Reagan for
intergovernmental affairs.
STEPHEN L. JOHNSON, AGE 43. Senior Vice President of Holdings and Senior
Vice President, Chief Administrative Officer and Assistant Corporate Group
Manager of AWA. Mr. Johnson joined the Company in February 1995 as Vice
President - Legal Affairs. In December 1995, Mr. Johnson was elected to the
position of Senior Vice President Legal Affairs and in December 1997, he was
elected to the position of Senior Vice President - Corporate Affairs of AWA and
Holdings. He was elected to his current positions in April 1999. From 1993 to
1994, Mr. Johnson served as Senior Vice President and General Counsel to GE
Capital Aviation Services Limited. From 1989 to 1993, Mr. Johnson was employed
by GPA Group plc, from 1991 to 1993 as Senior Vice President and General Counsel
to GPA's Leasing Division. Prior to joining GPA, Mr. Johnson was engaged in the
private practice of law.
16
<PAGE> 20
EVON L. JONES, AGE 35. Senior Vice President and Chief Information Officer
of Holdings and AWA. Mr. Jones joined the Company in November 1998. From 1995
until 1998, Mr. Jones served as Vice President - Global Financial Technologies
of American Express Company. From 1994 until 1995, he was employed as an
information technologies manager for Salomon Brothers. Prior to that, he served
as Assistant Vice President - Derivative Technologies for Lehman Brothers.
J. SCOTT KIRBY, AGE 32. Senior Vice President - E-Business of Holdings and
AWA. Mr. Kirby joined AWA in October 1995 as Senior Director - Schedules and
Planning. In October 1997 Mr. Kirby was elected to the position of Vice
President - Planning and in May 1998 he was named Vice President - Revenue
Management. He was elected to his current position in January 2000. From 1992 to
1995 Mr. Kirby was an operations research consultant for Sabre Decision
Technologies. From 1989 to 1992 he served as an economist in the Under Secretary
of Defense Program Acquisition and Evaluation Office at the Pentagon.
JEFFREY D. MCCLELLAND, AGE 40. Senior Vice President - Operations and
Assistant Operations Group Manager of AWA. Mr. McClelland joined the Company in
August 1999. From 1991 to 1999, Mr. McClelland worked at Northwest Airlines,
most recently as Senior Vice President - Finance and Controller. From 1988 to
1991, Mr. McClelland served in various financial analysis positions at American
Airlines. Prior to that, he spent six years as a pilot, flight instructor and
aviation safety officer with the United States Navy.
JACK RICHARDS, AGE 46. Chief Operating Officer of TLC. Mr. Richards joined
the Company in April 1999. From 1992 through 1998, Mr. Richards served as
President and Chief Operating Officer of Adventure Tours USA. Prior to that, Mr.
Richards held several management positions with American Trans Air, the last
being Vice President Tour Operations.
MICHAEL A. SMITH, AGE 46. Senior Vice President - Marketing and Sales of
AWA. Mr. Smith joined AWA in November 1997. From 1977 through 1997, Mr. Smith
served in various management positions with American Airlines, the last being
Managing Director - European Sales and Marketing.
MICHAEL R. CARREON, AGE 46. Vice President and Controller of AWA. Mr.
Carreon joined AWA in December 1994 as Senior Director - Corporate Audit and in
January 1996 was elected to his current position. From 1986 to 1994, Mr. Carreon
held accounting and audit-related management positions at United Airlines. From
1981 through 1986, he served in the Audit Services Practice of Arthur Andersen &
Co. in Chicago.
LINDA M. MITCHELL, AGE 41. Vice President and General Counsel of AWA. Ms.
Mitchell joined AWA in January 1996 as Senior Director - Legal Affairs and was
elected to her current position in February 2000. From 1992 to 1995, Ms.
Mitchell was in private practice with the law firm of Squire Sanders & Dempsey
LLP in Phoenix and from 1987 to 1991 she was with the law firm of Hopkins &
Sutter in Chicago. Prior to that Ms. Mitchell was a military intelligence
officer in the United States Army.
17
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective midnight December 31, 1996, AWA became a direct wholly owned
subsidiary of Holdings. Each share of Class A Common Stock of AWA was exchanged
for one share of Class A Common Stock of Holdings and each share of Class B
Common Stock of AWA was exchanged for one share of Class B Common Stock of
Holdings. As a result, Holdings became the successor issuer to AWA of the Class
A and Class B Common Stock. Also, each Warrant, which previously entitled
holders to purchase from AWA one share of Class B Common Stock of AWA, entitled
the holders to purchase from AWA one share of Class B Common Stock of Holdings
anytime before August 25, 1999. The Class A Common Stock of Holdings, par value
$.01 per share (the "Class A Common Stock"), is not publicly traded. The Class B
Common Stock, par value $.01 per share, and Warrants have been traded on the New
York Stock Exchange under the symbol "AWA" and "AWAws," respectively, since
August 26, 1994. Unexercised Warrants expired and trading ceased on August 25,
1999.
The following table sets forth, for the periods indicated, the high and low
sales prices of the Class B Common Stock and the Warrants as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK WARRANTS
--------------------- ------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
First Quarter................... $ 24 1/8 $ 16 $ 19 3/16 $ 6 1/2
Second Quarter.................. 22 3/4 16 1/2 10 3/4 5 1/4
Third Quarter................... 21 7/8 16 15/16 9 4 1/2
Fourth Quarter.................. 21 3/4 17 7/16 - -
Year Ended December 31, 1998
First Quarter................... 27 1/2 17 3/4 15 9/16 7 3/16
Second Quarter.................. 31 5/16 25 1/2 19 1/8 13 3/4
Third Quarter................... 30 3/8 12 5/16 18 3/16 3 1/2
Fourth Quarter.................. 17 11/16 9 9/16 7 7/8 3
</TABLE>
As of December 31, 1999, there were four record holders of Class A Common
Stock and approximately 8,912 record holders of Class B Common Stock.
Holdings has not paid cash dividends in any of the last three fiscal years
and does not anticipate paying cash dividends in the foreseeable future. We
expect that the Company will retain all available earnings generated by its
operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made at the discretion of
the Board of Directors and will depend upon the Company's operating results,
financial condition, capital requirements, general business conditions and such
other factors as the Board of Directors deems relevant. Certain debt instruments
of the Company restrict the Company's ability to pay cash dividends on its
Common Stock and make certain other restricted payments (as defined therein).
Under these restrictions, as of December 31, 1999, the Company's ability to pay
dividends, together with any other restricted payments, would be limited to an
aggregate of $3.3 million. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
In September 1995 the Company adopted a stock repurchase program. The
program was amended in December 1995, August 1997, August 1998 and May 1999.
During 1995 through 1999 the Company purchased approximately 13.5 million shares
of Class B Common Stock and 7.4 million Warrants. As of December 31, 1999, the
program authorized the Company to purchase 148,700 shares of issued and
outstanding Class B Common Stock. In February 2000 the Company's Board of
Directors approved the extension of the stock repurchase program to provide for
the repurchase of up to 3.0 million additional shares of Class B Common Stock
by December 31, 2002.
AWA has 1,000 shares of Common Stock outstanding, all of which are owned by
Holdings. There is no established public trading market for AWA's Common Stock.
AWA's ability to pay cash dividends on its Common Stock is restricted by the
debt instruments and in the manner described above.
18
<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated data presented below under the captions
"Consolidated Statements of Income Data" and "Consolidated Balance Sheet Data"
as of and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 are
derived from the audited consolidated financial statements of the Company. The
selected consolidated data should be read in conjunction with the consolidated
financial statements for the respective periods, the related notes and the
independent auditors' report.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated statements of income data:
Operating revenues................... $2,210,884 $2,023,284 $1,874,956 $1,739,526 $1,550,642
Operating expenses................... 2,006,333 1,814,221 1,713,130 1,670,860 1,395,910
Operating income..................... 204,551 209,063 161,826 68,666 154,732
Income before income taxes and
extraordinary items............... 206,150 194,346 140,001 34,493 108,378
Income taxes......................... 86,761 85,775 65,031 24,883 53,608
Income before extraordinary items.... 119,389 108,571 74,970 9,610 54,770
Extraordinary loss (a)............... - - - (1,105) (984)
Net income........................... 119,389 108,571 74,970 8,505 53,786
Earnings per share:
Basic:
Before extraordinary items.... 3.17 2.58 1.68 .21 1.21
Extraordinary items (a) ...... - - - (.02) (.02)
Net income.................... 3.17 2.58 1.68 .19 1.19
Diluted:
Before extraordinary items.... 3.03 2.40 1.63 .20 1.18
Extraordinary items (a) ...... - - - (.02) (.02)
Net income.................... 3.03 2.40 1.63 .18 1.16
Shares used for computation
Basic............................ 37,679 42,102 44,529 44,932 45,158
Diluted.......................... 39,432 45,208 46,071 47,733 46,327
Consolidated balance sheet data
(at end of period):
Total assets......................... $1,507,154 $1,525,030 $1,546,791 $1,597,650 $1,588,709
Long-term debt, less current
maturities........................ 155,168 207,906 272,760 330,148 373,964
Total stockholders' equity........... 714,169 669,458 683,570 622,753 649,472
</TABLE>
- ------------
(a) Includes (i) an extraordinary loss of $1.1 million in 1996 resulting from
the partial prepayment of its 10 3/4% Senior Unsecured Notes; and (ii) an
extraordinary loss of $984,000 in 1995 resulting from the exchange of debt
by the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Holdings became the holding company for AWA effective midnight, December 31,
1996. In January 1998 TLC, a subsidiary of Holdings', began operations as a new
leisure travel company to develop and grow the Company's vacation package tour
business. Holdings' primary business activity is ownership of all the capital
stock of AWA and TLC. Management's Discussion and Analysis of Financial
Condition and Results of Operations presented below relates to the consolidated
financial statements of Holdings presented in Item 8A. Financial statements for
AWA, Holdings' wholly owned subsidiary, are presented in Item 8B.
19
<PAGE> 23
1999 IN REVIEW
RECORD FINANCIAL RESULTS
In 1999 Holdings earned a record $119.4 million in consolidated net income,
a 10% increase above the previous record year in 1998. Diluted earnings per
share for the year were a record $3.03.
The Company's EBITDAR (operating income before depreciation, amortization
and rent) margin for 1999 was 29.4%, the highest of all major domestic airlines.
The Company believes that EBITDAR margin, which is a non-GAAP measurement, is
the best measure of relative airline operating performance. EBITDAR measures
operating performance before depreciation and aircraft rentals. By excluding
both rentals and depreciation, differences in the method of financing aircraft
acquisitions are eliminated. Cash earnings are distorted by differences in
financing aircraft as depreciation attributable to owned aircraft (including
those acquired through finance leases) is added back to cash earnings while
operating lease rentals are deducted. Operating profit is also flawed as a basis
of comparison because both the depreciation and interest element of aircraft
acquisitions are included in operating profit for aircraft acquired through
operating leases. While excluded from EBITDAR margin, depreciation, amortization
and rent are components of operating expense which are significant in
understanding and assessing the Company's financial performance. In addition,
the Company's use of EBITDAR margin may not be comparable to similarly titled
measures presented by other companies. 1999 marks the fifth consecutive year the
Company has led major domestic airlines in EBITDAR margin.
IMPROVED REVENUE PERFORMANCE
Total operating revenues increased 9.3% to a record $2.2 billion in 1999
from the Company's previous record of $2.0 billion in 1998. On a year-over-year
comparative basis, passenger revenue per available seat mile ("RASM") increased
2.4% to 7.83 cents in 1999. RASM for the other major domestic airlines decreased
0.3%. AWA's RASM improvement occurred despite a 4.9% increase in average stage
length due to additional flying in long-haul business markets. Factors
contributing to these 1999 gains included continued upgrading of the Company's
revenue management process, improved airline scheduling systems which allowed
the Company to optimize its scheduled flight times and a rational industry
pricing environment.
LOW UNIT COSTS
In 1999 the Company's operating cost per available seat mile ("CASM") was
7.52 cents, a 3.2% increase when compared with 1998. This was approximately 23%
less than the average CASM of the other major domestic airlines which increased
by 2.7%. The Company has achieved this low cost structure primarily through
employee productivity, favorable labor costs per ASM and industry-leading
aircraft utilization.
DEBT REDUCTION/EQUITY PURCHASES
Cash flows provided by operating and investing activities in 1999 were used
to reduce debt and repurchase equity:
- - Total long-term debt (including current maturities) was reduced from
$288 million at December 31, 1998 to $200 million at December 31, 1999,
a reduction of 31%. Over the last five years, the Company has reduced
total debt by approximately $330 million or 62%.
- - In May 1999 the Company's Board of Directors approved the extension of
the Company's stock repurchase program to provide for the repurchase of
up to 5.0 million shares of Class B Common Stock and all of AWA's then
publicly traded warrants by December 31, 2001. In 1999 the Company
purchased $122 million of equity as part of this program. Since the
program's inception in 1995, the Company has repurchased $313 million of
equity.
20
<PAGE> 24
FIRST QUARTER 2000 OUTLOOK
As discussed in "Risk Factors", included in Part I, Item I, "Business" of
this Form 10-K, fuel accounted for approximately 11% of the Company's total 1999
operating expenses. During 1999, the average cost per gallon of jet fuel rose
from a low of 43.1 cents in March 1999 to 63.6 cents in December 1999. This
trend has continued in the first quarter 2000. The average cost per gallon of
fuel for the two months ended February 29, 2000 was 73.2 cents, an increase of
61.4% over the same period in 1999. This upward trend in fuel prices will have a
significant negative impact on first quarter 2000 operating expenses.
In addition, AWA experienced operating challenges in the first quarter. In
January 2000 AWA's on-time performance, as reported by the United States
Department of Transportation, was 68.8%, and ranked ninth among the ten major
airlines. In February the Airline's automated flight management system, which
provides flight crews with flight plans, aircraft routing, air traffic control
management plans, en route and destination weather and fuel requirements, failed
for over five hours. Over a period a three days, this resulted in the
cancellation of over 280 flights, many more flight delays and significant
interrupted travel expenses for inconvenienced customers. In the first week of
March AWA experienced a significant number of weather-related cancellations and
delays due to winter storms in Phoenix and other key markets.
As a result of higher fuel prices and AWA's operating challenges, the
Company expects to report a decline in operating earnings in the first quarter
of 2000, versus the record first quarter of 1999.
RESULTS OF OPERATIONS
With commencement of TLC operations, Holdings 1999 operations consist of two
distinct lines of business for financial reporting purposes. Management believes
that a discussion of each of the business lines is appropriate to understand the
Company's results of operations. Management also believes that an improved
understanding of the Company's results can be gained by comparing the years
ended December 31, 1999 and 1998 to pro forma results for the year ended
December 31, 1997 which assumes TLC had commenced operations as a subsidiary of
Holdings on January 1, 1997. The unaudited pro forma statement of income
presented herein has been prepared based upon certain pro forma adjustments to
AWA's historical statement of income for the year ended December 31, 1997. The
1997 pro forma results are for information purposes only and are not necessarily
indicative of what actually would have been achieved if TLC had functioned as a
separate entity during 1997. In addition, the pro forma information is not
intended to be a projection of results that will be obtained in the future.
SUMMARY
Holdings earned record consolidated net income of $119.4 million in 1999, a
10% increase over 1998's previous record consolidated net income of $108.6
million. Diluted earnings per share for the year ended December 31, 1999 were a
record $3.03 compared to $2.40 for the year ended December 31, 1998.
Consolidated income tax expense for financial reporting purposes was $86.8
million in 1999 compared to $85.8 million in 1998.
In 1997 the Company recognized net income of $75.0 million and income tax
expense for financial reporting purposes of $65.0 million. Diluted earnings per
share for 1997 were $1.63.
AWA
The following discussion provides an analysis of AWA's results of operations
and reasons for material changes therein for the years ended December 31, 1999,
1998 and 1997.
21
<PAGE> 25
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
UNAUDITED
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenues:
Passenger..................................... $2,028,223 $1,858,551 $1,764,206
Cargo......................................... 41,936 45,551 51,699
Other......................................... 76,796 64,612 59,051
---------- ---------- ----------
Total operating revenues.................. 2,146,955 1,968,714 1,874,956
---------- ---------- ----------
Operating expenses:
Salaries and related costs.................... 498,490 448,049 410,292
Aircraft rents................................ 277,326 244,088 223,423
Other rents and landing fees.................. 122,034 119,089 119,470
Aircraft fuel................................. 220,380 194,360 243,423
Agency commissions............................ 114,742 117,483 143,900
Aircraft maintenance materials and repairs.... 218,319 182,844 146,618
Depreciation and amortization................. 48,442 49,026 48,158
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets....................... 19,896 19,896 22,444
Other......................................... 429,425 396,033 367,380
---------- ---------- ----------
Total operating expenses.................. 1,949,054 1,770,868 1,725,108
---------- ---------- ----------
Operating income................................... 197,901 197,846 149,848
---------- ---------- ----------
Nonoperating income (expenses):
Interest income............................... 19,593 20,682 17,432
Interest expense, net......................... (29,352) (33,807) (39,110)
Gain (loss) on disposition of property and
equipment................................. 1,095 (638) -
Other, net.................................... 11,737 474 (222)
---------- ---------- ----------
Total nonoperating income (expenses), net. 3,073 (13,289) (21,900)
---------- ---------- ----------
Income before income taxes................ $ 200,974 $ 184,557 $ 127,948
========== ========== ==========
</TABLE>
The table below sets forth selected operating data for AWA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENT PERCENT
------------------------------------ CHANGE CHANGE
1999 1998 1997 1999-1998 1998-1997
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Aircraft (end of period) ............................. 124 111 102 11.7 8.8
Average daily aircraft utilization (hours) ........... 11.6 12.0 12.3 (3.3) (2.4)
Available seat miles (in millions) ................... 25,912 24,307 23,568 6.6 3.1
Block hours (in thousands) ........................... 493 461 455 6.9 1.3
Average stage length (miles) ......................... 862 822 779 4.9 5.5
Average passenger journey (miles) .................... 1,303 1,218 1,134 7.0 7.4
Revenue passenger miles (in millions) ................ 17,711 16,374 16,204 8.2 1.0
Load factor (percent) ................................ 68.4 67.4 68.8 1.0pts (1.4)pts
Passenger enplanements (in thousands) ................ 18,704 17,792 18,331 5.1 (2.9)
Yield per revenue passenger mile (cents) ............. 11.45 11.35 10.89 0.9 4.2
Revenue per available seat mile:
Passenger (cents) ............................... 7.83 7.65 7.49 2.4 2.1
Total (cents) ................................... 8.29 8.10 7.96 2.3 1.8
Fuel consumption (gallons in millions) ............... 412 387 377 6.5 2.7
Average Fuel price (cents per gallon) ................ 53.4 50.3 64.6 6.2 (22.1)
Full-time equivalent employees (end of period) ....... 11,536 10,759 9,615 7.2 11.9
</TABLE>
22
<PAGE> 26
The table below sets forth the major components of CASM for AWA for the
applicable years. CASM for 1997 is based on pro forma operating expenses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- PERCENT PERCENT
PRO FORMA CHANGE CHANGE
1999 1998 1997 1999-1998 1998-1997
---- ---- ---- --------- ---------
(IN CENTS)
<S> <C> <C> <C> <C> <C>
Salaries and related costs.................... 1.92 1.84 1.74 4.3 5.7
Aircraft rents................................ 1.07 1.01 .95 5.9 6.3
Other rents and landing fees.................. .47 .49 .51 (4.1) (3.9)
Aircraft fuel................................. .85 .80 1.03 6.2 (22.3)
Agency commissions............................ .44 .48 .61 (8.3) (21.3)
Aircraft maintenance materials and repairs.... .84 .75 .62 12.0 21.0
Depreciation and amortization................. .19 .20 .20 (5.0) -
Amortization of reorganization values in excess
of amounts applicable to identifiable assets .08 .08 .10 - (20.0)
Other......................................... 1.66 1.64 1.56 1.2 5.1
---- ---- ----
7.52 7.29 7.32 3.2 (0.4)
==== ==== ====
</TABLE>
1999 COMPARED WITH 1998
For 1999 AWA realized operating income of $197.9 million, which was
relatively flat when compared to the $197.8 million of operating income
recognized in 1998. Income before income taxes for 1999 was a record $201.0
million compared to $184.6 million in 1998.
Total operating revenues for 1999 were a record $2.1 billion. Passenger
revenues were $2.0 billion in 1999, an increase of $169.7 million or 9.1% from
1998. RASM in 1999 increased 2.4% to 7.83 cents from 7.65 cents driven by a 0.9%
increase in revenue per passenger mile ("yield"). The increase in RASM and yield
occurred despite a 4.9% increase in average stage length due to increased flying
to long-haul business markets. Capacity, as measured by available seat miles
("ASMs") increased 6.6% in 1999 as compared to 1998 while load factor (the
percentage of available seats that are filled with revenue passengers) increased
by 1.0 points to 68.4%. Cargo revenues for 1999 decreased $3.6 million (7.9%)
due to lower freight and mail volumes. Other revenues, which consist primarily
of alcoholic beverage sales, contract service sales, service charges and Mesa
Airlines net revenues, increased $12.2 million (18.9%) due primarily to
expansion and increased profitability of AWA's codesharing agreement with Mesa
Airlines.
Operating expenses in 1999 increased $178.2 million, or 10.1% year-over-year
while ASMs increased 6.6% in 1999 as compared to 1998. As a result, CASM
increased 3.2% to 7.52 cents in 1999 from 7.29 cents in 1998. Significant
changes in the components of operating expense per ASM are explained as follows:
- Salaries and related costs per ASM increased 4.3% primarily due to a
higher number of employees in 1999 to support anticipated growth. Also,
contracts with the International Brotherhood of Teamsters ("IBT")
(signed October 1998) and the Association of Flight Attendants ("AFA")
(signed May 1999), covering the airline's mechanics and flight
attendants, respectively, included higher wage rates. Payroll expense
for maintenance-related personnel increased by $3.7 million (21.3%) and
flight attendant salaries increased $8.4 million (18.6%) in 1999. In
addition, the contract with Airline Pilots Association ("ALPA") (signed
May 1995) required longevity-related salary level increases. Payroll
expense for pilots increased by $11.2 million (8.8%) in 1999.
- Aircraft rent expense per ASM increased 5.9% due primarily to the net
addition of 12 leased aircraft to the fleet during 1999 as compared to
1998. The effect of a sale/leaseback transaction involving six
previously owned aircraft, which was completed in August 1999, increased
aircraft rent expense by approximately $5.5 million in 1999.
- Other rents and landing fees expense per ASM decreased 4.1% in 1999 due
to the 6.6% increase in ASMs. A decrease in aircraft part borrow costs
of $2.4 million was substantially offset by higher landing fees ($1.4
million) and airport rents ($1.0 million).
23
<PAGE> 27
- Aircraft fuel expense per ASM increased 6.2% due to a 6.2% increase in
the average price per gallon of fuel to 53.4 cents in 1999 from 50.3
cents in 1998.
- Agency commissions expense per ASM decreased 8.3% due to an increase in
the mix of non-commissionable revenue in 1999 as compared to 1998. A
decrease in the base commission rate from 8% to 5% effective October 18,
1999 and the institution of a $50 commission cap implemented on May 1,
1998 also contributed to the decrease.
- Aircraft maintenance materials and repairs expense per ASM increased
12.0% primarily due to a $21.9 million increase in capitalized
maintenance amortization expense for 1999 when compared to 1998 and
higher airframe maintenance costs ($5.7 million).
- Depreciation and amortization expense per ASM decreased 5.0% due
primarily to the airline extending the estimated depreciable service
lives of certain Boeing 737-200 aircraft that have been modified to meet
the FAA's Stage III noise requirements. This change increased the
average depreciable life by approximately four years. The sale/leaseback
transaction involving six previously owned aircraft, which was completed
in August 1999, also decreased depreciation and amortization expense by
approximately $4.0 million.
- Other operating expenses per ASM increased 1.2% to 1.66 cents from 1.64
cents primarily due to the effect in 1999 of non-salary related Year
2000 costs ($6.9 million), higher interrupted trip expense ($4.3
million) and higher costs resulting from growth. Growth-related costs
include catering costs ($3.6 million), refueling and service checks
($3.3 million), credit card discount fees ($2.8 million), EDS
reservation systems fees ($2.8 million), aircraft fuel tax ($2.4
million) and property taxes ($2.1 million). These increases were offset
in part by a $3.7 million gain on sale of AWA's investment in Equant, a
$2.6 million decrease in traffic liability insurance expense primarily
due to a rate decrease in 1999 and a $5.3 million decrease in expense
associated with AWA's frequent flyer program resulting from a reduction
in the estimated liability for travel awards.
Net non-operating expenses benefited from a $2.7 million gain on sale of
AWA's investment in 30,000 shares of Priceline.com ("Priceline") common stock in
June 1999. AWA also recognized an $11.9 million unrealized gain related to an
investment in 294,109 shares of Priceline common stock, which are classified as
trading securities in the Company's consolidated balance sheet. (See "(a) Fair
Value of Financial Instruments - Investment in Equity Securities" in Note 6,
"Financial Instruments and Risk Management.") Net interest expense decreased
$4.5 million in 1999 primarily due to lower average outstanding debt and
interest income decreased $1.1 million due to lower cash and cash equivalent
balances.
1998 COMPARED WITH 1997
For 1998 AWA realized record operating income of $197.8 million, a 32.0%
increase over the previous record $149.8 million of operating income recognized
in 1997. Income before income taxes for 1998 was also a record $184.6 million
compared to $127.9 million in 1997.
These record results were achieved despite a significant increase in
canceled flights during the 1998 third quarter as contract negotiations with the
airline's mechanics, represented by the IBT, continued. In late July 1998 AWA
undertook an aggressive recovery plan to improve operational performance. Also,
in October 1998 AWA entered into a five-year collective bargaining agreement
with the IBT. As a result of these factors, AWA experienced a significant
reduction in cancellations in the fourth quarter of 1998.
Total operating revenues for 1998 were $2.0 billion. Passenger revenues were
$1.9 billion in 1998, an increase of $94.3 million or 5.4% from 1997. RASM in
1998 increased 2.1% to 7.65 cents from 7.49 cents driven by a 4.2% increase in
yield. The increase in RASM and yield occurred despite a 5.5% increase in
average stage length due to increased flying to long-haul business markets and
the lapse of a federal transportation excise tax for the period January 1 to
March 6, 1997. ASMs increased 3.1% in 1998 as compared to 1997 while load factor
decreased by 1.4 points to 67.4%. Cargo and other revenues for 1998 ($110.2
million) were relatively flat when compared to 1997.
Operating expenses in 1998 increased $45.8 million, or 2.7% year-over-year
while ASMs increased 3.1% in 1998 as compared to 1997. As a result, CASM
decreased 0.5% to 7.29 cents in 1998 from 7.32 cents in 1997.
24
<PAGE> 28
Significant changes in the components of operating expense per ASM are explained
as follows:
- Salaries and related costs per ASM increased 5.9% primarily due to a
$11.5 million increase in the accrual for AWArd Pay resulting from
higher operating income in 1998. In addition, longevity-related salary
increases required by the collective bargaining agreement with the
airline's pilots and increased training contributed to an increase in
pilot salaries in 1998 by $9.5 million (8.1%) compared to 1997. Payroll
expense for maintenance-related personnel also increased by $5.0 million
(21.0%) in 1998 as a result of higher headcount to address
unsatisfactory operational performance in the third and fourth quarters
of 1998 and the IBT contract, which included higher wage rates and a
$1.4 million signing bonus.
- Aircraft rent expense per ASM increased 5.9% due primarily to the net
addition of nine leased aircraft to the fleet during 1998 as compared to
1997.
- Other rents and landing fees expense per ASM decreased 3.4% in 1998 due
to the 3.1% increase in ASMs. An increase in airport rents of $2.5
million was substantially offset by lower landing fees ($1.6 million) as
landings decreased by 3.2%.
- Aircraft fuel expense per ASM decreased 22.6% due to a 22.1% decrease in
the average price per gallon of fuel to 50.3 cents in 1998 from 64.6
cents in 1997.
- Agency commissions expense per ASM decreased 20.8% as the cost
reductions associated with the change in agency commission rate from 10%
to 8% in October 1997 and the institution of the $50 commission cap
implemented on May 1, 1998 more than offset the effects of higher
passenger revenues in 1998.
- Aircraft maintenance materials and repairs expense per ASM increased
20.9% primarily due to a $25.6 million increase in capitalized
maintenance amortization expense for 1998 when compared to 1997 and
higher airframe maintenance costs ($9.7 million).
- Amortization of excess reorganization value expense per ASM decreased
14.0% as a result of the reduction in the unamortized balance of excess
reorganization value due to the utilization of tax attributes of the
pre-reorganized AWA.
- Other operating expenses per ASM increased 5.2% to 1.64 cents from 1.56
cents primarily due to the effect in 1998 of non-salary related Year
2000 costs ($12.4 million), higher interrupted trip ($7.8 million) and
crew accommodation ($4.6 million) expenses, the write-off of certain
software applications ($4.5 million), and the $2.5 million FAA
settlement (see "(d) FAA Settlement" in Note 11, "Commitments and
Contingencies" in Notes to Consolidated Financial Statements). These
increases were offset by reduced advertising costs ($10.4 million) and
lower hull and traffic liability insurance rates ($5.1 million).
Net non-operating expenses decreased $8.6 million to $13.3 million in 1998
from $21.9 million in 1997 as net interest expense decreased $5.3 million in
1998 primarily due to lower average outstanding debt and interest income
increased $3.3 million due to higher cash and cash equivalent balances.
TLC
TLC's consolidated statements of income include the results of The Vacation
Store ("TVS"), acquired in November 1998, and the National Leisure Group
("NLG"), acquired in May 1999. TVS and NLG are national retail leisure travel
companies that specialize in the marketing, packaging and retail distribution of
cruise and resort vacations. These acquisitions add established retail networks
to TLC's largely wholesale travel product line. The following discussion
provides an analysis of TLC's results of operations and reasons for material
changes therein.
25
<PAGE> 29
THE LEISURE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating revenues.................. $231,373 $182,907 $ 210,762
Cost of goods sold.................. 166,982 128,143 158,011
-------- -------- ---------
Net revenues........................ 64,391 54,764 52,751
Total operating expenses............ 52,859 39,486 40,026
-------- -------- ---------
Operating income.................... 11,532 15,278 12,725
Nonoperating income (expense), net.. (177) 75 (1,387)
-------- -------- ---------
Income before income taxes.......... $ 11,355 $ 15,353 $ 11,338
======== ======== =========
Supplemental information:
Gross revenues...................... $261,421 $182,907 $ 210,762
======== ======== =========
</TABLE>
Note: Net revenues represent the gross profit earned on the sale of travel
services by The Leisure Company. This amount is included in Holdings'
consolidated operating revenues. Gross revenues represent the total
purchase price of all travel services booked by The Leisure Company.
1999 COMPARED WITH 1998
For 1999, TLC's consolidated income before income taxes was $11.4 million, a
decrease of $4.0 million when compared to 1998. Consolidated operating revenues
were $231.4 million or $48.5 million higher than 1998 due primarily to the
acquisition of TVS and NLG, which had 1999 revenues of $20.7 million and $45.8
million, respectively. Wholesale vacation package revenues were $15.0 million
lower than 1998 due primarily to lower passenger volumes. Gross revenues
increased $78.5 million compared to 1998 primarily due to TVS and NLG, which
contributed gross revenue of $23.7 million and $71.6 million, respectively, in
1999. Consolidated cost of goods sold was $167.0 million for 1999, an increase
of $38.9 million. The cost of retail packages sold by TVS and NLG was $17.3
million and $35.0 million, respectively. The cost of wholesale packages sold
decreased $10.9 million compared to 1998 due to lower passenger volumes, which
was partially offset by higher air and hotel costs. Consolidated gross profit
increased $9.6 million in 1999. Total consolidated operating expenses increased
$13.4 million for 1999 primarily due to the newly acquired companies, higher
infrastructure costs related to future growth needs and a year-over-year
increase in fees paid for services provided by AWA.
1998 COMPARED WITH 1997
TLC's income before income taxes for 1998 was $15.4 million, up $4.0 million
when compared to 1997 on a pro forma basis. Operating revenues fell $27.9
million due to AWA's improving yield profile, which resulted in less reliance on
vacation package traffic and therefore lower volumes for TLC. This shortfall was
offset by a reduction in cost of goods sold due to lower package volumes.
Overall, net revenues increased by $2.0 million while total operating expenses
were relatively unchanged in 1998 when compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
Holdings' unrestricted cash and cash equivalents and short-term investments
decreased to $127.8 million at December 31, 1999 from $135.8 million at December
31, 1998. Net cash provided by operating activities decreased to $269.3 million
in 1999 from $348.9 million in 1998, a decrease of $79.6 million. This decrease
was principally due to the period over period change in air traffic liability
which decreased by 8.0% in the 1999 period as compared to a 21% increase in the
1998 period. Air traffic liability represents ticket sales for transportation
which has not yet been provided. The acquisition of NLG by TLC in 1999 also
contributed to the decrease. Net cash used in investing activities decreased to
$106.8 million in 1999 from $212.7 million in 1998. This decrease was primarily
due to the sale in August 1999 of six aircraft for $114.1 million as part of a
sale/leaseback transaction. See "(d) Sale/Leaseback Transaction" in Note 11,
"Commitments and Contingencies" in Notes to Consolidated Financial Statements.
The 1999 period also included sales of short-term investments totaling $11.9
million in 1999 compared to purchases of $27.5 million of short-term investments
in 1998. Net cash used in financing activities was $158.7 million for the year
ended December 31, 1999 compared to $200.1 million in the 1998 period. The 1999
period included $162.1 million of borrowings under AWA's revolving credit
facility, $94.3 million of borrowings in February 1999
26
<PAGE> 30
and $67.8 million in August 1999. These borrowings were repaid in 1999 in
accordance with the terms of the credit facility. The 1999 period also included
proceeds of $32.8 million from the exercise of 2.6 million AWA Warrants to
purchase Holdings' Class B Common Stock and purchases of Holdings Class B Common
Stock and AWA Warrants under the Stock Repurchase Program totaling $121.7
million. In 1998 AWA repaid $30 million of revolving credit facility debt and
the Company repurchased $132.3 million of Holdings Class B Common Stock and AWA
Warrants.
Operating with a working capital deficiency is common in the airline
industry as tickets sold for transportation which has not yet been provided are
classified as a current liability while the related income producing assets, the
aircraft, are classified as non-current. The Company's working capital
deficiency at December 31, 1999 is $160.8 million.
As of December 31, 1999, the Company had $200.3 million of long-term debt
(including current maturities) which consists primarily of principal
amortization of notes payable secured by certain of the Company's aircraft.
Management expects to fund these requirements with cash from operations or
refinance these obligations, subject to availability and market conditions at
such time.
In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June
1 or December 1, 2010; and 100% on June 1, 2011 and thereafter. See "(b) Revenue
Bonds" in Note 11, "Commitments and Contingencies" in Notes to Consolidated
Financial Statements.
At December 31, 1999, AWA had firm commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), to purchase a total of 42 Airbus
aircraft. AWA also received 25 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. The aggregate net cost of firm commitments
remaining under the aircraft order is approximately $1.6 billion.
In September 1999 America West Airlines 1999-1 Pass Through Trusts issued
$253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by Holdings and AWA. The combined effective
interest rate on the financing is 8.22%. Four A319 and four A320 aircraft that
are the subject of this financing were delivered in 1999. The remaining two
aircraft were delivered in February 2000.
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.
In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility which
was entered into in December 1997. Borrowings under this credit facility will
accrue interest at either the "base rate" (prime rate or the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate) or the "adjusted
eurodollar rate" (LIBOR rate adjusted for certain reserve requirements in
respect to "Eurodollar liabilities") plus the applicable margin based on
Moody's rating of AWA's senior unsecured notes. The credit agreement is secured
by certain assets of AWA. As of December 31, 1999, $109.2 million was available
for borrowing based on the value of the assets pledged. There were no
outstanding borrowings as of December 31, 1999.
In February 2000 the Company's Board of Directors approved the extension
of the Company's stock repurchase program to provide for the repurchase of up
to 3.0 million additional shares of Class B Common Stock, in open market or
private transactions, by December 31, 2002.
In February 2000 TLC signed a letter of intent to sell America West Golf
Vacations to Book4golf.com, a provider of Internet-based, real-time, golf tee
time reservations systems. Book4golf.com and TLC will form a post-acquisition
strategic alliance to create and market golf vacation packages that can be
designed and purchased on-line, including tee times, green fees, golf lessons,
air travel, car rental and hotel accommodations. The consideration for the
America West Golf Vacations acquisition will be common shares and share
purchase warrants of Book4golf.com. The number of warrants will be based, in
part, upon certain performance driven criteria in the future. Book4golf.com has
reserved a price of $18.53 CDN per share for the common shares to be issued to
TLC and $22.00 CDN per common share for the common shares to be purchased upon
the exercise of the warrants. The transaction is subject to certain regulatory
and other approvals, among other things.
In March 2000 Holdings and TLC reached an agreement to sell a majority
interest in TLC's retail operations, NLG and TVS, to Softbank Capital LP and
General Catalyst LLP. Holdings will receive $48 million in cash and will retain
a twelve percent passive ownership interest in the restructured venture. At
closing, the Company expects to report a gain on sale of approximately $10
million. The transaction is subject to certain regulatory and other approvals,
among other things.
Capital expenditures for the years ended December 31, 1999, 1998 and 1997
were approximately $299.6 million, $177.0 million and $155.0 million,
respectively. Capital expenditures for capitalized maintenance were $112.8
million, $112.5 million and $86.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. 1999 capital expenditures include $67.8 million to
purchase one Airbus A319 and one Airbus A320 aircraft that were subsequently
refinanced through the sale of America West Airlines 1999-1 Pass Through Trust
Certificates as discussed above. Excluding these aircraft, 1999 capital
expenditures were approximately $231.8 million. Capital expenditures for 2000
are expected to increase to approximately $250 million due primarily to
increased expenditures for capitalized maintenance, computer systems and
equipment. The Company currently intends to fund such expenditures with cash
from operations.
27
<PAGE> 31
OTHER INFORMATION
LABOR RELATIONS
On March 20, 1999, the Company reached a tentative agreement with the AFA,
which represents AWA's approximately 2,300 flight attendants, on a five-year
collective bargaining agreement. The agreement was ratified on April 30, 1999.
In January 1999 AWA's approximately 2000 fleet service workers voted to be
represented by the Transportation Workers Union ("TWU"). In September 1999 AWA's
stock clerks voted to be represented by the IBT. The Company is in the process
of negotiating initial contracts with the TWU and IBT as bargaining
representatives for the fleet service workers and stock clerks, respectively.
The Company has also begun negotiations with ALPA on a new contract for AWA's
pilots. The existing contract with ALPA becomes amendable in May 2000. The
Company cannot predict the outcome or the form of these future collective
bargaining agreements and therefore the effect, if any, on AWA's operations or
financial performance.
INCOME TAXES
At December 31, 1999, the Company had net operating loss ("NOL"), general
business tax credit carryforwards and alternative minimum tax credit
carryforwards of approximately $180.6 million, $12.4 million and $566,000,
respectively. Under Section 382 of the Internal Revenue Code of 1986, as
amended, if a loss corporation has an "ownership change" within a designated
testing period, its ability to use its NOL and tax credit carryforwards is
subject to certain limitations. The Company is a loss corporation within the
meaning of Section 382. The issuance of certain common stock by the Company
pursuant to the plan of reorganization resulted in an ownership change within
the meaning of Section 382. This ownership change has resulted in an annual
limitation (the "Section 382 Limitation") upon the Company's ability to offset
any post-change taxable income with pre-change NOL. The Company's Section 382
Limitation is $36.2 million per year. Should the Company generate insufficient
taxable income in any post-change taxable year to utilize fully the Section 382
Limitation of that year, any excess limitation will be carried forward to use
in subsequent tax years, provided the pre-change NOL has not been exhausted and
the carryforward period has not expired. The amount of the limitation may under
certain circumstances be increased by the built-in gains in assets held by the
Company at the time of the ownership change that are recognized in the five
year period after the change. During 1999, the Company generated a $105 million
built-in gain resulting from a sale/leaseback transaction involving six
previously owned aircraft, thereby increasing the limitation under Section 382.
See "(d) Sale/Leaseback Transaction" in Note 11, "Commitments and
Contingencies" in Notes to Consolidated Financial Statements. The alternative
minimum tax credit may be carried forward indefinitely and is available to
reduce future income tax payable.
The Company's reorganization and the associated implementation of fresh
start reporting in 1994 gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., current income taxes payable) of $26.7 million in 1999 is
considerably lower than income tax expense shown for financial reporting
purposes of $86.8 million. This difference in financial expense compared to
actual income tax liability is in part attributable to the utilization of
certain tax attributes of the predecessor company that serve to reduce AWA's
actual income tax liability.
GOVERNMENT REGULATIONS
As a member of the Air Transport Association, AWA voluntarily established a
customer service plan to provide additional information to passengers on flight
delays, cancellations or overbookings, to offer the lowest fare available, allow
reservations to be held or cancelled, provide prompt ticket refunds and be more
responsive to customer complaints. Under legislation recently passed by Congress
the DOT Inspector General is to report to Congress by December 31, 2000 on the
effectiveness of the airlines' implementation of these plans. Based on this
report Congress could impose new consumer protection requirements on airlines
including payments to passengers for excessive flight delays and prohibition of
the issuance on non-refundable tickets. As a result of competitive pressures AWA
and other airlines would be limited in their ability to pass costs associated
with compliance with such laws to passengers. We cannot forecast the cost impact
of such measures if enacted.
28
<PAGE> 32
In 1997 new aviation taxes were imposed through September 30, 2007 to
provide funding for the FAA. Included in the new law is a phase-in of a modified
federal air transportation excise tax structure with a system that includes: a
domestic excise tax which started at 9% and declined to 7.5% in 1999; a domestic
segment tax that started at $1.00 and increases to $3.00 by 2003; and an
increase in taxes imposed on international travel from $6.00 per international
departure to an arrival and departure tax of $12.00 (each way). Both the
domestic segment tax and the international arrival and departure tax are indexed
for inflation. The legislation also included a 7.5% excise tax on certain
amounts paid to an air carrier for the right to provide mileage and similar
awards (e.g., purchase of frequent flyer miles by a credit card company). As a
result of competitive pressures, AWA and other airlines have been limited in
their ability to pass on the cost of these taxes to passengers through fare
increases.
In December 1997 the National Civil Aviation Review Commission (the "NCARC")
completed its Report to Congress on FAA funding and recommended implementation
of a cost based user fee system for air carriers. Congress is presently
considering the recommendations of the NCARC, which may result in enactment of a
new funding mechanism. The Company cannot currently estimate the effect the new
combination of ticket and segment taxes, or any change in those taxes as
recommended by the NCARC, will have on its operating results. There can be no
assurance that the new taxes or such changes will not have a material adverse
effect on the Company's financial condition and results of operations.
For additional information on government regulation and its effect on the
Company see "Government Regulations" in Item 1, Business.
FORWARD LOOKING INFORMATION
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. 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 this Report on Form 10-K.
Any forward-looking statements speak only as of the date such statements are
made.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
(a) COMMODITY PRICE RISK
Aircraft fuel costs accounted for approximately 11% of the Company's total
operating expenses during 1999. At current consumption levels, a one cent per
gallon change in the price of jet fuel would affect the Company's annual
operating results in 2000 by approximately $4.6 million. Accordingly, a
substantial change in the price of jet fuel would have a significant impact on
the Company's results of operations.
In 1996 AWA implemented a fuel hedging program to manage the risk from
fluctuating jet fuel prices. The program's objectives are to provide some
protection against extreme, upward movements in the price of jet fuel and to
protect AWA's ability to meet its annual fuel expense budget. Under the program,
AWA may enter into certain hedging transactions with approved counterparties for
future periods generally not exceeding twelve months.
29
<PAGE> 33
As of December 31, 1999, the Company had entered into fixed price swap and
costless collar transactions hedging approximately 14% of its projected 2000
fuel requirements including 36% related to the first quarter and 23% related to
the second quarter. The Company has not initiated hedge transactions for its
third and fourth quarter 2000 projected fuel requirements. The use of such
hedging transactions in the Company's fuel hedging program could result in the
Company not fully benefiting from certain declines in jet fuel prices. At
December 31, 1999 the Company estimates that a 10% increase in the price per
gallon of fuel would have changed the fair value of the existing hedging
contracts by $3.9 million. A 10% decrease in the price per gallon of fuel would
have changed the fair value of the existing hedging contracts by $3.4 million.
As of March 20, 2000, approximately 14% of AWA's 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 December 31, 1999, the Company's
variable-rate long-term debt obligations represented approximately 29% 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.
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST
HOLDINGS CORPORATION
Consolidated balance sheets of Holdings as of December 31, 1999 and 1998,
and the related consolidated statements of income, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31, 1999,
together with the related notes and the report of KPMG LLP, independent
certified public accountants, are set forth on the following pages.
30
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICA WEST HOLDINGS CORPORATION:
We have audited the accompanying consolidated balance sheets of America West
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America West
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Phoenix, Arizona
March 29, 2000
31
<PAGE> 35
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 112,174 $ 108,360
Short-term investments ............................................................ 15,617 27,485
Accounts receivable, less allowance for doubtful accounts of
$2,453 in 1999 and $3,545 in 1998 ............................................ 118,076 96,381
Expendable spare parts and supplies, less allowance for obsolescence
of $5,612 in 1999 and $4,112 in 1998 ......................................... 49,327 31,147
Prepaid expenses .................................................................. 42,809 38,730
----------- -----------
Total current assets .................................................... 338,003 302,103
----------- -----------
Property and equipment:
Flight equipment .................................................................. 801,541 931,134
Other property and equipment ...................................................... 208,961 157,718
Equipment purchase deposits ....................................................... 79,399 83,649
----------- -----------
1,089,901 1,172,501
Less accumulated depreciation and amortization .................................... 382,187 410,461
----------- -----------
707,714 762,040
----------- -----------
Other assets:
Restricted cash ................................................................... 35,579 35,262
Reorganization value in excess of amounts allocable to identifiable
assets, net .................................................................. 315,275 336,772
Deferred income taxes, net ........................................................ -- 28,054
Other assets, net ................................................................. 110,583 60,799
----------- -----------
461,437 460,887
----------- -----------
$ 1,507,154 $ 1,525,030
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .............................................. $ 45,171 $ 80,439
Accounts payable .................................................................. 149,816 112,563
Air traffic liability ............................................................. 192,799 209,525
Accrued compensation and vacation benefits ........................................ 49,865 48,338
Accrued taxes ..................................................................... 23,158 43,489
Other accrued liabilities ......................................................... 38,030 40,905
----------- -----------
Total current liabilities .................................................... 498,839 535,259
----------- -----------
Long-term debt, less current maturities ................................................ 155,168 207,906
Deferred credits and other liabilities ................................................. 106,989 112,407
Deferred tax liability, net ............................................................ 31,989 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued .. -- --
Class A common stock, $.01 par value. Authorized 1,200,000 shares;
issued and outstanding 1,100,000 shares at December 31, 1999 and
at December 31, 1998 .......................................................... 11 11
Class B common stock, $.01 par value. Authorized 100,000,000 shares;
issued and outstanding 48,561,916 shares in 1999, and 45,280,199 shares
in 1998 ....................................................................... 486 453
Additional paid-in capital ........................................................ 599,078 556,508
Retained earnings ................................................................. 373,067 253,678
----------- -----------
972,642 810,650
Less: Cost of Class B common stock in treasury, 13,384,795 shares in 1999
7,388,095 shares in 1998 and ................................................ (258,473) (141,192)
----------- -----------
Total stockholders' equity .............................................. 714,169 669,458
----------- -----------
$ 1,507,154 $ 1,525,030
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 36
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Passenger .......................................... $ 2,028,223 $ 1,858,551 $ 1,764,206
Cargo .............................................. 41,936 45,551 51,699
Leisure Co. net revenues ........................... 64,391 54,764 --
Other .............................................. 76,334 64,418 59,051
----------- ----------- -----------
Total operating revenues ........................ 2,210,884 2,023,284 1,874,956
----------- ----------- -----------
Operating expenses:
Salaries and related costs ......................... 500,351 450,220 418,212
Aircraft rents ..................................... 277,326 244,088 223,423
Other rents and landing fees ....................... 122,035 119,091 119,470
Aircraft fuel ...................................... 220,380 194,360 243,423
Agency commissions ................................. 114,742 117,483 151,293
Aircraft maintenance materials and repairs ......... 218,319 182,844 146,618
Depreciation and amortization ...................... 48,442 49,026 48,590
Amortization of reorganization value in excess of
amounts allocable to identifiable assets ........ 19,896 19,896 23,776
Leisure Co. expenses ............................... 52,859 39,486 --
Other .............................................. 431,983 397,727 338,325
----------- ----------- -----------
Total operating expenses ........................ 2,006,333 1,814,221 1,713,130
----------- ----------- -----------
Operating income ...................................... 204,551 209,063 161,826
----------- ----------- -----------
Nonoperating income (expenses):
Interest income .................................... 12,417 13,105 10,646
Interest expense, net .............................. (22,253) (26,050) (32,249)
Gain (loss) on disposition of property and equipment 1,095 (638) (1,710)
Other, net ......................................... 10,340 (1,134) 1,488
----------- ----------- -----------
Total nonoperating income (expenses), net ....... 1,599 (14,717) (21,825)
----------- ----------- -----------
Income before income taxes ...................... 206,150 194,346 140,001
----------- ----------- -----------
Income taxes .......................................... 86,761 85,775 65,031
----------- ----------- -----------
Net income ...................................... $ 119,389 $ 108,571 $ 74,970
=========== =========== ===========
Earnings per share:
Basic .............................................. $ 3.17 $ 2.58 $ 1.68
=========== =========== ===========
Diluted ............................................ $ 3.03 $ 2.40 $ 1.63
=========== =========== ===========
Shares used for computation:
Basic .............................................. 37,679 42,102 44,529
=========== =========== ===========
Diluted ............................................ 39,432 45,208 46,071
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 37
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 119,389 $ 108,571 $ 74,970
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................... 51,385 49,545 48,590
Amortization of capitalized maintenance ................ 113,679 89,347 66,143
Amortization of reorganization value ................... 21,496 21,496 23,776
Amortization of deferred credits ....................... (7,521) (6,798) (10,405)
Income taxes attributable to reorganization items ...... -- -- 59,444
Other .................................................. 3,258 14,316 5,843
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net ........ (21,693) (8,091) 18,677
Increase in expendable spare parts and supplies, net ... (18,180) (4,012) (5,712)
Decrease (increase) in prepaid expenses ................ (366) 93 10,551
Decrease (increase) in other assets, net ............... (51,984) 22,473 (32,464)
Increase (decrease) in accounts payable ................ 37,252 (31,136) 25,450
Increase (decrease) in air traffic liability ........... (16,727) 35,141 (40,907)
Increase in accrued compensation and vacation benefits.. 1,526 11,072 7,182
Increase (decrease) in accrued taxes ................... 39,603 55,913 (35,983)
Decrease in other accrued liabilities .................. (2,774) (1,554) (282)
Increase (decrease) in other liabilities ............... 955 (7,435) (8,871)
--------- --------- ---------
Net cash provided by operating activities ........... 269,298 348,941 206,002
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment .................... (299,571) (176,996) (154,969)
Sale (purchases) of short-term investments ............. 11,868 (27,485) 39,131
Proceeds from sales of property and equipment .......... 187,197 6,147 1,583
Equipment purchase deposits and other .................. (6,250) (14,415) (15,600)
--------- --------- ---------
Net cash used in investing activities ............... (106,756) (212,749) (129,855)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt ......................... 162,074 -- 30,000
Repayment of debt ...................................... (239,876) (72,245) (55,411)
Acquisition of treasury stock .......................... (118,278) (116,148) (2,434)
Acquisition of warrants ................................ (3,378) (16,175) (13,342)
Proceeds from exercise of AWA warrants ................. 32,781 325 71
Other .................................................. 7,949 4,108 (227)
--------- --------- ---------
Net cash used in financing activities ............... (158,728) (200,135) (41,343)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...... 3,814 (63,943) 34,804
--------- --------- ---------
Cash and cash equivalents at beginning of year ............ 108,360 172,303 137,499
--------- --------- ---------
Cash and cash equivalents at end of year .................. $ 112,174 $ 108,360 $ 172,303
========= ========= =========
Cash, cash equivalents and short-term investments at end
of year ................................................ $ 127,791 $ 135,845 $ 172,303
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 38
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL CLASS B
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 ........... $ 12 $ 446 $ 577,267 $ 70,137 $ (25,109) $ 622,753
--------- --------- --------- --------- --------- ---------
Issuance of 5,534 shares and
140,167 shares of Class B common
stock pursuant to the exercise of
stock warrants and stock options .... -- 2 1,452 -- -- 1,454
Issuance of 10,647 shares of
Class B common stock ................ -- -- 169 -- -- 169
Acquisition of 132,300 shares of
Class B treasury stock ............... -- -- -- -- (2,434) (2,434)
Issuance of 43 shares of Class B
treasury stock ...................... -- -- -- -- --
Repurchase of 1,911,523 warrants
at $6.98 per warrant ................ -- -- (13,342) -- -- (13,342)
Net income ............................. -- -- -- 74,970 -- 74,970
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 ........... 12 448 565,546 145,107 (27,543) 683,570
--------- --------- --------- --------- --------- ---------
Issuance of 25,560 shares and 353,000
shares of Class B common stock
pursuant to the exercise of stock
warrants and stock options
including tax benefit from the
exercise of stock options of $1,873 .. -- 4 6,702 -- -- 6,706
Issuance of 119,235 shares of
Class B common stock ................ -- 1 1,683 -- -- 1,684
Acquisition of 100,000 shares of
Class A treasury stock .............. (1) -- (1,811) -- -- (1,812)
Acquisition of 5,951,927 shares of
Class B treasury stock .............. -- -- -- -- (114,336) (114,336)
Issuance of 50,000 shares of Class B
treasury stock ...................... -- -- 563 -- 687 1,250
Repurchase of 2,906,867 warrants
at $5.56 per warrant ................ -- -- (16,175) -- -- (16,175)
Net income ............................. -- -- -- 108,571 -- 108,571
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 ........... 11 453 556,508 253,678 (141,192) 669,458
--------- --------- --------- --------- --------- ---------
Issuance of 2,573,060 shares and
481,420 shares of Class B common
stock pursuant to the exercise of
stock warrants and stock options
including tax benefit from the
exercise of stock options of $647 ... -- 31 41,346 -- -- 41,377
Issuance of 227,237 shares of
Class B common stock ................ -- 2 4,567 -- -- 4,569
Acquisition of 6,046,700 shares of
Class B treasury stock .............. -- -- -- -- (118,278) (118,278)
Issuance of 50,000 shares of Class B
treasury stock ...................... -- -- 35 -- 997 1,032
Repurchase of 377,400 warrants at
$8.95 per warrant ................... -- -- (3,378) -- -- (3,378)
Net income ............................. -- -- -- 119,389 -- 119,389
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1999 ........... $ 11 $ 486 $ 599,078 $ 373,067 $(258,473) $ 714,169
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
35
<PAGE> 39
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Holdings is the parent company for AWA and TLC. AWA is the ninth largest
commercial airline carrier in the United States serving 59 destinations in the
U.S., Canada and Mexico. In January 1998 TLC began operations as a new leisure
travel subsidiary of Holdings to develop and grow the Company's vacation package
tour business. TLC arranges and sells vacation packages that include hotel
accommodations, airfare, ground transportation and a variety of entertainment
options. Holdings' primary business activity is ownership of all the capital
stock of AWA and TLC.
(a) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Holdings and
its wholly owned subsidiaries AWA and TLC (collectively, the "Company"). All
significant inter-company balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's presentation.
(b) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments consist
of cash invested in certain debt securities with original maturities greater
than 90 days and less than one year. The debt securities are classified as
held to maturity and are carried at amortized cost which approximates fair
value.
(c) EXPENDABLE SPARE PARTS AND SUPPLIES
Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Interest capitalized on advance
payments for aircraft acquisitions and on expenditures for aircraft improvements
are part of these costs. Interest capitalized for the years ended December 31,
1999, 1998 and 1997 was $6.1 million, $4.9 million and $600,000, respectively.
Property and equipment is depreciated and amortized to residual values over the
estimated useful lives or the lease term, whichever is less, using the
straight-line method.
The estimated useful lives for the Company's ground property and equipment
range from three to 12 years for owned property and equipment and up to 22 years
for the technical support facility. The estimated useful lives of the Company's
owned aircraft, jet engines, flight equipment and rotable parts range from five
to 22 years. Leasehold improvements relating to flight equipment and other
property on operating leases are amortized over the life of the lease or the
life of the asset, whichever is shorter.
Effective October 1, 1998, AWA extended the estimated depreciable service
lives of certain owned Boeing 737-200 aircraft which have been modified to meet
the Federal Aviation Administration's ("FAA") Stage III noise reduction
requirements. This change increased the average depreciable life by
approximately four years and reduced depreciation expense in 1999 and 1998 by
approximately $8.0 million and $2.0 million, respectively.
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired as defined by Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
36
<PAGE> 40
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(e) RESTRICTED CASH
Restricted cash includes cash deposits securing certain letters of credit.
(f) AIRCRAFT MAINTENANCE AND REPAIRS
Routine maintenance and repairs are charged to expense as incurred. The cost
of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual for
the estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
recorded.
(g) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1999, 1998 and 1997 was $135.1 million, $113.6 million and $92.1
million, respectively. In accordance with SFAS No. 121, the Company assesses the
recoverability of this asset based upon expected future undiscounted cash flows
and other relevant information.
(h) FREQUENT FLYER AWARDS
The Company maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(i) DEFERRED CREDIT-OPERATING LEASES
Rents for operating leases were adjusted to fair market value when the
Company emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a
deferred credit in the accompanying consolidated balance sheets. The deferred
credit will be increased through charges to interest expense and decreased on a
straight-line basis as a reduction in rent expense over the applicable lease
periods. At December 31, 1999 and 1998, the unamortized balance of the deferred
credit was $72.2 million and $78.6 million, respectively.
(j) PASSENGER REVENUE
Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.
(k) ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1999, 1998 and 1997 was $23.7 million,
$20.6 million and $25.8 million, respectively.
(l) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
37
<PAGE> 41
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(m) STOCK OPTIONS
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. In accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company
provides pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and subsequent years as if the
fair-value-based method defined in SFAS No. 123 had been applied. (See Note 4,
"Stock Options and Awards.")
(n) NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for all derivative instruments
and hedging activities. SFAS No. 133 requires recognition of all derivatives as
either assets or liabilities in the balance sheet at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment ("fair value hedge"), a hedge of the exposure to
variable cash flows of a forecasted transaction ("cash flow hedge"), or a hedge
of the foreign currency exposure ("foreign currency hedge") of a net investment
in a foreign operation or a foreign currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In accounting for a fair value hedge, the derivative hedging
instrument will be measured at fair value with the mark to fair value being
recorded in earnings. In a cash flow hedge, the derivative hedging instrument
will be measured at fair value with the effective portion of the gains or losses
on the derivative hedging instrument initially being reported in other
comprehensive income. In June 1999 the Financial Accounting Standards Board
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133", which
defers the effective date of SFAS No. 133 to be effective for all fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 in 2001. SFAS
No. 133 is not expected to have a material effect on the Company's results of
operations or financial position.
(o) USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
38
<PAGE> 42
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 10.75% to 10.79%, averaging
10.78%, installments due 2000 through 2008 .............................. $ 87,245 $164,478
-------- --------
UNSECURED
10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
only payment until due in 2005 (a) ...................................... 48,820 48,612
Notes payable, interest rates of 90-day LIBOR +1.25%, averaging
7.44%, installments due through 2000 .................................... 35,000 45,500
Industrial development bonds, face amount of $29.3 million, fixed interest
rate of 6.3% due 2023 (b) .............................................. 29,008 28,995
Other ...................................................................... 266 760
-------- --------
113,094 123,867
-------- --------
Total long-term debt ....................................................... 200,339 288,345
Less: current maturities .................................................. 45,171 80,439
-------- --------
$155,168 $207,906
-------- --------
</TABLE>
(a) The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and interest
is payable in arrears semi-annually. The 10 3/4% Senior Unsecured Notes may
be redeemed at the option of the Company on or after September 1, 2001 at
any time in whole or from time to time in part, at a redemption price equal
to the following percentage of principal redeemed, plus accrued and unpaid
interest to the date of redemption, if redeemed during the 12-month period
beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
----------
<S> <C>
2000......... 105.375%
2001......... 103.583%
2002......... 101.792%
2003 and thereafter... 100.000%
</TABLE>
(b) The industrial development revenue bonds are due April 2023. Interest at
6.3% is payable semiannually (April 1 and October 1). The bonds are subject
to optional redemption prior to the maturity date on or after April 1, 2008,
in whole or in part, on any interest payment date at the following
redemption prices: 102 percent on April 1 or October 1, 2008; 101 percent on
April 1 or October 1, 2009; and 100 percent on April 1, 2010 and thereafter.
Secured financings totaling $87.2 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $141.9 million at
December 31, 1999.
At December 31, 1999, the estimated maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
<S> <C>
(in thousands)
2000................................ $ 45,171
2001................................ 9,847
2002................................ 9,674
2003................................ 9,674
2004................................ 8,989
Thereafter.......................... 116,984
---------
$ 200,339
</TABLE>
In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility which
was entered into in December 1997. Borrowings under this credit facility will
accrue interest at either the "base rate" (prime rate or the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate) or the
39
<PAGE> 43
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
"adjusted eurodollar rate" (LIBOR rate adjusted for certain reserve requirements
in respect to "Eurodollar liabilities") plus the applicable margin based on
Moody's rating of AWA's senior unsecured notes. The credit agreement is secured
by certain assets of AWA. As of December 31, 1999, $109.2 million was available
for borrowing based on the value of the assets pledged. There were no
outstanding borrowings as of December 31, 1999.
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios, limitations on
investments and restricted payments including cash dividends, and other
financial covenants with which the Company was in compliance at December 31,
1999.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly-owned subsidiary
of Holdings and each share of AWA Class A and Class B Common Stock was exchanged
for one share of Holdings Class A or Class B Common Stock.
Holdings' Class B Common Stock is listed on the New York Stock Exchange.
On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants were exercisable by the holders any time before August 25, 1999 and
10.4 million shares of Class B Common Stock were reserved for the exercise of
these warrants. As part of the holding company formation transaction, the AWA
warrants became rights to acquire shares of Holdings Class B Common Stock. AWA
made arrangements for the issuance of Holdings Class B Common Stock upon the
exercise of such warrants by purchasing an option from Holdings to acquire such
stock. AWA issued a $62.4 million note payable to Holdings due December 31, 2005
with an interest rate of 11%. Subsequently, Holdings made a capital contribution
to AWA by issuing a note payable to AWA for $62.4 million due December 31, 2045
with an interest rate of 10 7/8%. As of December 31, 1999, approximately 7.4
million warrants have been repurchased by AWA for approximately $51.0 million
and 2,621,208 warrants have been exercised at $12.74 per share. The balance of
unexercised warrants expired and were cancelled on August 25, 1999.
PREFERRED STOCK
The Company's Board of Directors by resolution may authorize the issuance of
the Preferred Stock as a class, in one or more series, having the number of
shares, designations, relative voting rights, dividend rights, liquidation and
other preferences and limitations that the Board of Directors fixes, without any
stockholder approval. No shares of Preferred Stock have been issued.
COMMON STOCK
The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of Common Stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
4. STOCK OPTIONS AND AWARDS
Under the 1994 Incentive Equity Plan, as amended (the "Plan"), the Company's
Board of Directors may grant stock options to officers and key employees. The
maximum number of shares of Class B Common Stock authorized for issuance under
the Plan is 9.0 million shares of which 1.8 million shares are available for
grant at December 31, 1999. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant, generally become
exercisable over a three-year period and expire if unexercised at the end of 10
years.
40
<PAGE> 44
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock option activity during the years indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Balance at December 31, 1996: 3,538,000 $ 13.68
Granted..................... 479,000 $ 15.54
Exercised................... (140,167) $ 9.87
Canceled.................... (425,333) $ 13.74
--------- -------
Balance at December 31, 1997: 3,451,500 $ 14.09
--------- -------
Granted..................... 1,867,000 $ 19.60
Exercised................... (353,000) $ 12.77
Canceled.................... (180,500) $ 16.02
--------- -------
Balance at December 31, 1998: 4,785,000 $ 16.26
--------- -------
Granted..................... 1,525,650 $ 19.53
Exercised................... (481,420) $ 16.51
Canceled.................... (591,993) $ 18.74
--------- -------
Balance at December 31, 1999: 5,237,237 $ 16.91
========= =======
</TABLE>
At December 31, 1999, options outstanding and exercisable by price range are
as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED OPTIONS AVERAGE
RANGE OF OPTIONS REMAINING AVERAGE CURRENTLY EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------------- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 8.00 - $12.00 1,330,584 6.47 $ 10.38 1,011,310 $ 10.18
$12.01 - $16.50 1,060,835 7.54 $ 13.92 793,515 $ 14.06
$16.51 - $20.00 1,060,000 8.73 $ 18.48 338,667 $ 17.94
$20.01 - $24.19 1,363,650 8.69 $ 21.61 401,667 $ 22.09
$24.20 - $29.19 422,168 8.23 $ 25.88 172,513 $ 26.06
--------- ---- ------- --------- -------
5,237,237 7.86 $ 16.91 2,717,672 $ 15.05
========= ==== ======= ========= =======
</TABLE>
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $8.83, $7.88 and $5.39, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: 1999 - expected dividend yield of 0.0%, risk-free
interest rate of 5.5%, volatility of 60.0% and an expected life of four years;
1998 - expected dividend yield of 0.0%, risk-free interest rate of 4.5%,
volatility of 52.6% and an expected life of four years; 1997 - expected dividend
yield of 0.0%, risk-free interest rate of 5.7%, volatility of 44.8% and an
expected life of four years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma (unaudited) amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income: As reported $ 119,389 $108,571 $ 74,970
========= ======== ========
Pro forma $114,323 $103,583 $ 72,214
========= ======== ========
Earnings per share:
Basic As reported $ 3.17 $ 2.58 $ 1.68
========= ======== ========
Pro forma $ 3.03 $ 2.46 $ 1.62
========= ======== ========
Diluted As reported $ 3.03 $ 2.40 $ 1.63
========= ======== ========
Pro forma $ 2.90 $ 2.29 $ 1.57
========= ======== ========
</TABLE>
41
<PAGE> 45
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Pro forma net income reflects only options granted during the years 1995
through 1999. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 is not considered.
Under the Plan, the Company granted 221,500 shares and 113,000 shares of
Class B Common Stock as restricted stock to certain officers and key employees
in 1999 and 1998, respectively. There were no grants of restricted stock in
1997. The Company recognized compensation expense of $856,000, $1.1 million and
$944,000 related to restricted stock in 1999, 1998 and 1997, respectively. At
December 31, 1999, 239,338 shares of restricted stock were vested.
The Plan also provides for the issuance of stock and grant of stock options
to non-employee directors. The Company has granted options to purchase 213,000
shares of Class B Common Stock to members of the Board of Directors who are not
employees of the Company. The options have a ten-year term and are exercisable
six months after the date of grant. As of December 31, 1999, 153,000 options
were outstanding and exercisable at prices ranging from $8.00 to $29.19 per
share. On December 31, 1999, 1998 and 1997, non-employee directors were also
granted Class B Common Stock pursuant to the Plan totaling 5,737 shares, 6,235
shares and 10,647 shares, respectively.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering essentially all
employees of the Company. Participants may contribute from 1 to 15% of their
pretax earnings to a maximum of $10,000 in 1999. The Company's matching
contribution is determined annually by the Board of Directors. The Company's
contribution expense to the plan totaled $7.6 million, $6.9 million and $6.1
million in 1999, 1998 and 1997, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash Equivalents, Short-term Investments and Receivables
The carrying amount approximates fair value because of the short-term nature
of these instruments.
Investment in Equity Securities
As of December 31, 1999, AWA owned 294,109 shares of Priceline common stock,
which was classified as trading securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
estimated fair value of this investment at that date was approximately $13.9
million based on the quoted market price of Priceline common stock. An
unrealized holding gain of $11.9 million related to the Priceline shares was
included in earnings in 1999. AWA sold all 294,109 shares of Priceline for
approximately $15.1 million in January 2000.
Long-term Debt
At December 31, 1999 and 1998, the fair value of long-term debt was
approximately $199 million and $292 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) FUEL PRICE RISK MANAGEMENT
Under its fuel hedging program, the Company may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
twelve months. Gains and losses on such transactions are recorded as adjustments
to fuel expense when the underlying fuel being hedged is used. As of December
31, 1999, the Company had entered into fixed price swap and costless collar
transactions hedging approximately 14% of its projected 2000 fuel requirements.
42
<PAGE> 46
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company is exposed to credit risks in the event any counterparty fails
to meet its obligations. The Company does not anticipate such non-performance as
counterparties are selected based on credit ratings, exposure to any one
counterparty is limited based on formal guidelines and the relative market
positions with such counterparties are closely monitored.
(c) CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to any significant concentration
of credit risk. Most of the Company's receivables result from tickets sold to
individual passengers through the use of major credit cards or to tickets sold
by other airlines and used by passengers on AWA. These receivables are
short-term, generally being settled shortly after the sale.
7. INCOME TAXES
The Company recorded income tax expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current Taxes:
Federal ........................... $23,503 $33,915 $ 2,483
State ............................. 3,215 5,214 3,104
------- ------- -------
Total current taxes ......... 26,718 39,129 5,587
------- ------- -------
Deferred taxes ....................... 60,043 46,646 --
------- ------- -------
Income taxes attributable to
reorganization items and other .... -- -- 59,444
------- ------- -------
Total income tax expense ............. $86,761 $85,775 $65,031
======= ======= =======
</TABLE>
The Company's emergence from bankruptcy reorganization in 1994 and the
associated implementation of fresh start reporting gave rise to significant
items of expense for financial reporting purposes that are not deductible for
income tax purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses and state income taxes that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., current income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to the utilization of certain tax attributes of the predecessor
company that serve to reduce the Company's current income tax liability. In 1997
the excess of financial expense over the Company's actual income tax liability
was applied to reduce the balance of the Company's reorganization value in
excess of amounts allocable to identifiable assets.
Income tax expense differs from amounts computed at the federal statutory
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at U.S. statutory rate.. $72,153 $68,021 $49,000
State income taxes, net of federal income..
tax benefit ............................ 6,620 7,803 5,655
Nondeductible amortization of
reorganization value in excess of
amounts allocable to identifiable
assets.................................. 7,524 7,524 8,322
Other, net ................................ 464 2,427 2,054
------- ------- -------
Total .................................. $86,761 $85,775 $65,031
======= ======= =======
</TABLE>
43
<PAGE> 47
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of December 31, 1999, the Company has available net operating loss
carryforwards ("NOL"), business tax credit carryforwards and alternative minimum
tax credit carryforwards for federal income tax purposes of approximately $180.6
million, $12.4 million and $566,000, respectively. The NOL expire during the
years 2005 through 2009 while the business credit carryforwards expire during
the years 2000 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of the Company's reorganization in 1994, the Company's ability to
utilize its NOL and business tax credit carryforwards may be restricted. The
alternative minimum tax credit may be carried forward without expiration and is
available to offset future income tax payable.
COMPOSITION OF DEFERRED TAX ITEMS:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of the Company's deferred tax assets and liabilities are
a result of the temporary differences related to the items described as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities
Property and equipment, principally depreciation and "fresh
start" differences ..................................... $(101,480) $(131,518)
Other ..................................................... (6,738) --
--------- ---------
Total deferred tax liability ............................. (108,218) (131,518)
--------- ---------
Deferred tax assets
Aircraft leases ........................................... 18,718 23,951
Frequent flyer accrual .................................... 4,790 6,541
Net operating loss carryforwards .......................... 68,301 91,587
Tax credit carryforwards .................................. 12,968 13,272
Other ..................................................... -- 52,769
--------- ---------
Total deferred tax assets .............................. 104,777 188,120
--------- ---------
Valuation allowance ...................................... (28,548) (28,548)
--------- ---------
Net deferred tax asset (liability) .................. $ (31,989) $ 28,054
========= =========
</TABLE>
SFAS No. 109, Accounting for Income Taxes, requires a "more likely than not"
criterion be applied when evaluating the realizability of a deferred tax asset.
The valuation allowance of $28.5 million is necessary because at this time the
Company has not determined it is more likely than not that the balance of the
deferred tax assets will be fully realized. The Company continues to monitor the
valuation allowance and will make adjustments as appropriate. If in future tax
periods, the Company were to recognize additional tax benefits related to items
attributable to the predecessor company such as net operating loss and other
carryforwards, such benefits would be applied to reduce further reorganization
value in excess of amounts allocable to identifiable assets.
44
<PAGE> 48
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing and
financing activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-cash transactions:
Notes payable issued for equipment purchase
deposits ........................................ $35,000 $45,500 $10,500
Notes payable canceled under the aircraft
purchase agreement .............................. 45,500 12,596 36,019
Cash transactions:
Interest paid, net of amounts capitalized .......... 19,920 22,184 30,830
Income taxes paid .................................. 56,062 20,963 205
</TABLE>
9. INVESTMENTS IN DEBT SECURITIES
Cash equivalents and short-term investments as of December 31 are classified
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Debt securities issued by the U.S. Treasury and other U.S. government
agencies ........................................................ $ -- $ 53,519
Corporate notes ..................................................... 61,135 82,195
Money Market Funds .................................................. 55,507 131
Other debt securities ............................................... 11,149 --
-------- --------
Total cash, cash equivalents and short-term investments .. $127,791 $135,845
======== ========
</TABLE>
10. EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income applicable to common stock ................ $ 119,389 $ 108,571 $ 74,970
=========== =========== ===========
Weighted average common shares outstanding ....... 37,678,947 42,102,211 44,528,575
=========== =========== ===========
Basic earnings per share ......................... $ 3.17 $ 2.58 $ 1.68
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Income applicable to common stock ................ $ 119,389 $ 108,571 $ 74,970
=========== =========== ===========
Share computation:
Weighted average common shares outstanding ..... 37,678,947 42,102,211 44,528,575
Assumed exercise of stock options and warrants.. 1,753,324 3,105,982 1,542,375
----------- ----------- -----------
Weighted average common shares
outstanding as adjusted .................. 39,432,271 45,208,193 46,070,950
=========== =========== ===========
Diluted earnings per share ....................... $ 3.03 $ 2.40 $ 1.63
=========== =========== ===========
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, options of 1,632,041,
1,843,391 and 1,089,016, respectively, are not included in the computation of
diluted EPS because the option exercise prices were greater than the average
market price of common stock. (See Note 15, "Subsequent Events".)
45
<PAGE> 49
11. COMMITMENTS AND CONTINGENCIES
(a) LEASES
As of December 31, 1999, the Company had 112 aircraft under operating leases
with remaining terms ranging from one year to approximately 21 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. Certain of the agreements require security deposits,
minimum return provisions and maintenance reserve payments and provide the
aircraft lessors with the option during the lease term to reset their respective
rentals to the greater of the existing rentals being paid under the leases or
the then current fair market rates. The Company also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.
At December 31, 1999, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000......... $ 343,709
2001......... 313,756
2002......... 282,360
2003......... 226,631
2004......... 181,563
Thereafter... 1,359,959
----------
$2,707,978
----------
</TABLE>
Rent expense (excluding landing fees) was approximately $365 million, $330
million and $308 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $26.3 million and bank letters of credit of $18.5 million. The
letters of credit are collateralized by $18.5 million of restricted cash as of
December 31, 1999.
(b) REVENUE BONDS
In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on
June 1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.
(c) AIRCRAFT ACQUISITIONS
At December 31, 1999, AWA had firm commitments to AVSA for a total of 15
Airbus A318-100, 12 Airbus A319-100 and 15 Airbus A320-200 aircraft with
delivery through 2004 at a net cost of approximately $1.6 billion. The agreement
with AVSA also includes options to purchase an additional 25 A320 family
aircraft during 2004 through 2006 and purchase rights for an additional 25 A320
series aircraft for delivery in 2007 to 2008.
The Company has an agreement with International Aero Engines ("IAE") which
provides for the purchase by the Company of seven new V2500-A5 spare engines
scheduled for delivery through 2000 for use on certain of the A320 fleet. At
December 31, 1999, the seven engines have an estimated aggregate cost of $30
million.
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.
46
<PAGE> 50
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000......... $356,467
2001......... 212,910
2002......... 193,006
--------
$762,383
--------
</TABLE>
In September 1999 America West Airlines 1999-1 Pass Through Trusts issued $253.8
million of Pass Through Trust Certificates in connection with the financing of
five Airbus A319 aircraft and five Airbus A320 aircraft to be purchased from
AVSA. The Pass Through Trust Certificates are not direct obligations of, nor
guaranteed by Holdings and AWA. The combined effective interest rate on the
financing is 8.22%. Four A319 and four A320 aircraft that are the subject of
this financing were delivered in 1999. The remaining two aircraft were delivered
in February 2000.
(d) SALE/LEASEBACK TRANSACTION
In August 1999, AWA entered into a sale/leaseback transaction whereby the
Company sold five Boeing 737-300 aircraft and one Boeing 757-200 aircraft for
approximately $114 million. To complete this transaction, the Company paid
approximately $49.3 million to retire mortgage debt outstanding on the
aircraft. The aircraft are being leased back from the purchaser for
approximately six years. The sale resulted in a $9.2 million gain for AWA,
which was deferred and is being amortized over the lease term as a reduction in
rent expense. The related lease is being accounted for as an operating lease.
The average annual lease payments, over the life of the leases, are $15.5
million.
(e) FAA SETTLEMENT
In July 1998 AWA and the FAA entered into an agreement to settle disputes
over alleged maintenance violations. Under the agreement, AWA did not admit any
wrongdoing, has implemented certain changes in maintenance oversight and paid a
civil penalty of $2.5 million. In July 1999 the FAA determined that AWA has
complied with the terms of the settlement agreement and waived an additional
civil penalty of $2.5 million which could have been assessed under the
agreement.
(f) CONTINGENT LEGAL OBLIGATIONS
Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
management currently expects that any liability arising from such matters, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial condition and results of operations of
the Company.
12. RELATED PARTY TRANSACTIONS
In March 1997 AWA purchased 1.91 million of its publicly traded warrants
from TPG and certain of its affiliates for approximately $13.3 million. TPG is
an investment firm that controls approximately 52% of the total voting power of
Holdings.
AWA has entered into various aircraft leasing arrangements with AerFi Group
plc ("AerFi"), formerly GPA Group plc, at terms comparable to those obtained
from third parties for similar transactions. William A. Franke, the Company's
Chairman, President and CEO, is a director and, indirectly, a minor shareholder
of AerFi. In addition, an affiliate of TPG purchased a large minority stake in
AerFi in November 1998 and has three representatives serving on AerFi's
five-member Board of Directors. AWA currently leases four aircraft
from AerFi and the rental payments for such leases amounted to $14.8 million,
$19.2 million and $31.9 million for the years ended December 31, 1999, 1998 and
1997, respectively. As of December 31, 1999, the Company was obligated to pay
approximately $191.8 million under the AerFi leases which expire at various
dates through the year 2013.
In June 1997 America West Airlines 1997-1 Pass Through Trusts issued $93.9
million of Pass Through Trust Certificates in connection with the refinancing of
four Airbus A320 aircraft. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of AerFi ("AerFi Subs"), the original lessees under the
restructured leases. As a result of the refinancing, AerFi, the AerFi Subs and
AWA also entered into a Put Termination Agreement which terminated arrangements
with AerFi pursuant to which AerFi could cause AWA to lease up to four
additional aircraft prior to June 30, 1999. Pursuant to the Put Termination
Agreement, AWA is obligated to make certain payments to the AerFi Subs. The
payments due to the AerFi Subs under the Put Termination Agreement were
approximately $1.9 million for each of the years 1999, 1998 and 1997.
As part of the Company's reorganization in 1994, Continental Airlines made
an investment in the Company, and the Company entered into an alliance agreement
related to code-sharing arrangements and ground handling operations. The Company
paid Continental approximately $31.7 million, $27.8 million and $25.2 million
and also received approximately $24.5 million, $20.5 million and $13.4 million
1999, 1998 and 1997, respectively, from Continental pursuant to these
agreements.
Mr. John F. Fraser, chairman of the board of Air Canada, served as a
director of the Company until May 20, 1998. The Company has a maintenance
contract with Air Canada on terms comparable to those obtained from third
parties for similar transactions. The Company's payments under the maintenance
contract were $17.3 million, $9.4 million and $5.9 million in 1999, 1998 and
1997, respectively.
47
<PAGE> 51
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 follows (in thousands
of dollars except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Operating revenues.................. $ 519,626 $ 569,480 $ 552,839 $ 568,939
Operating income.................... 50,715 75,591 41,198 37,047
Nonoperating income (expense), net.. (3,978) (273) (3,326) 9,176
Income tax expense.................. (20,798) (33,064) (15,659) (17,240)
Net income.......................... 25,939 42,254 22,213 28,983 (1)
Earnings per share:
Basic............................. .67 1.12 .60 .79
Diluted........................... .63 1.06 .57 .76
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1998
Operating revenues.................. $ 483,216 $ 533,695 $ 499,268 $ 507,105
Operating income.................... 49,407 76,741 45,986 36,929
Nonoperating expense, net........... (5,151) (2,993) (2,244) (4,329)
Income tax expense.................. (19,118) (32,331) (21,878) (12,448)
Net income.......................... 25,138 41,417 21,864 20,152
Earnings per share:
Basic............................. .57 .95 .52 .52
Diluted........................... .53 .86 .49 .51
</TABLE>
(1) Includes an $11.9 million pretax unrealized gain on the Company's
investment in Priceline common stock and $2.5 million of revenue
related to additional Priceline warrants granted to AWA in November
1999.
The sum of quarterly earnings per share amounts is not the same as annual
earnings per share amounts due to rounding.
48
<PAGE> 52
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. SEGMENT DISCLOSURES
Segment reporting financial data as of and for the years ended December 31,
1999, 1998 and 1997 follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
AIRLINE TLC OTHER/ELIMINATIONS TOTAL
------- --- ------------------ -----
<S> <C> <C> <C> <C>
Operating revenue.................... $ 2,146,955 $ 64,391 $ (462) $2,210,884
Depreciation & amortization.......... 48,442 2,943 - 51,385
Amortization of reorganization value. 19,896 1,600 - 21,496
Operating income .................... 197,901 11,532 (4,882) 204,551
Capital expenditures................. 293,424 6,147 - 299,571
Segment assets....................... 1,663,495 99,137 (255,478) 1,507,154
DECEMBER 31, 1998
AIRLINE TLC OTHER/ELIMINATIONS TOTAL
------- --- ------------------ -----
Operating revenue.................... $ 1,968,714 $ 54,764 $ (194) $2,023,284
Depreciation & amortization.......... 49,026 519 - 49,545
Amortization of reorganization value. 19,896 1,600 - 21,496
Operating income .................... 197,846 15,278 (4,061) 209,063
Capital expenditures................. 176,337 659 - 176,996
Segment assets....................... 1,594,644 57,823 (127,437) 1,525,030
DECEMBER 31, 1997
PRO FORMA
AIRLINE TLC OTHER/ELIMINATIONS TOTAL
------- --- ------------------ -----
Operating revenue.................... $ 1,874,956 $52,751 $(52,751) $1,874,956
Depreciation & amortization.......... 48,158 432 - 48,590
Amortization of reorganization value. 22,444 1,332 - 23,776
Operating income .................... 149,848 12,725 (747) 161,826
Capital expenditures................. 154,969 - - 154,969
Segment assets....................... 1,498,514 48,817 (540) 1,546,791
</TABLE>
Amounts included in the "Other/Eliminations" column reflect the elimination
of intercompany investments and transactions between AWA, Holdings and TLC.
15. SUBSEQUENT EVENTS
(a) STOCK REPURCHASE PROGRAM
In February 2000 the Company's Board of Directors approved the extension of
the Company's stock repurchase program to provide for the repurchase of up to
3.0 million additional shares of Class B Common Stock, in open market or private
transactions, by December 31, 2002.
(b) STRATEGIC ALLIANCE WITH BOOK4GOLF.COM
In February 2000 TLC signed a letter of intent to sell America West Golf
Vacations to Book4golf.com, a provider of Internet-based, real-time, golf tee
time reservation systems. Book4golf.com and TLC will form a post-acquisition
strategic alliance to create and market golf vacation packages that can be
designed and purchased on-line, including tee times, green fees, golf lessons,
air travel, car rental and hotel accommodations. The consideration for the
America West Golf Vacations acquisition will be common shares and share purchase
warrants of Book4golf.com. The number of warrants will be based, in part, upon
certain performance driven criteria in the future. Book4golf.com has reserved a
price of $18.53 CDN per share for the common shares to be issued to TLC and
$22.00 CDN per common share for the common shares to be purchased upon the
exercise of the warrants. The transaction is subject to certain regulatory and
other approvals.
49
<PAGE> 53
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(c) SALE OF RETAIL VACATIONS BUSINESS
In March 2000 Holdings and TLC reached an agreement to sell a majority
interest in TLC's retail operations, NLG and TVS, to Softbank Capital LP and
General Catalyst LLP. Holdings will receive $48 million in cash and will retain
a twelve percent ownership interest in the restructured venture. At closing, the
Company expects to report a gain on sale of approximately $10 million. The
transaction is subject to certain regulatory and other approvals.
50
<PAGE> 54
ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST AIRLINES,
INC. ("AWA")
Balance sheets of AWA as of December 31, 1999 and 1998, and the related
statements of income, cash flows and stockholder's equity for each of the years
in the three-year period ended December 31, 1999, together with the related
notes and the report of KPMG LLP, independent certified public accountants, are
set forth on the following pages.
51
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDER
AMERICA WEST AIRLINES, INC.:
We have audited the accompanying balance sheets of America West Airlines,
Inc. as of December 31, 1999 and 1998, and the related statements of income,
cash flows and stockholder's equity for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of America West Airlines, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Phoenix, Arizona
March 29, 2000
52
<PAGE> 56
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 105,545 $ 107,234
Short-term investments .................................................... 15,617 27,485
Accounts receivable, less allowance for doubtful accounts of
$2,005 in 1999 and $3,268 in 1998 ...................................... 102,014 87,048
Advances to parent company and affiliate, net ............................. 248,335 116,128
Expendable spare parts and supplies, less allowance for obsolescence
of $5,612 in 1999 and $4,112 in 1998 ................................... 49,327 31,147
Prepaid expenses .......................................................... 33,903 33,516
---------- ----------
Total current assets ................................................... 554,741 402,558
---------- ----------
Property and equipment:
Flight equipment .......................................................... 801,541 931,134
Other property and equipment .............................................. 197,394 152,298
Equipment purchase deposits ............................................... 79,399 83,649
---------- ----------
1,078,334 1,167,081
Less accumulated depreciation and amortization ............................ 378,185 408,065
---------- ----------
700,149 759,016
---------- ----------
Other assets:
Restricted cash ........................................................... 31,624 32,512
Reorganization value in excess of amounts allocable to identifiable
assets, net ............................................................ 291,801 311,697
Deferred income taxes, net ................................................ -- 27,440
Other assets, net ......................................................... 85,180 61,421
---------- ----------
408,605 433,070
---------- ----------
$1,663,495 $1,594,644
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt ...................................... $ 45,171 $ 80,439
Accounts payable .......................................................... 130,752 102,105
Air traffic liability ..................................................... 175,528 196,013
Accrued compensation and vacation benefits ................................ 48,227 47,081
Accrued taxes ............................................................. 54,775 40,809
Other accrued liabilities ................................................. 35,462 40,467
---------- ----------
Total current liabilities .............................................. 489,915 506,914
---------- ----------
Long-term debt, less current maturities ...................................... 155,168 207,906
Deferred credits and other liabilities ....................................... 105,175 110,599
Deferred tax liability, net................................................... 30,768 --
Commitments and contingencies
Stockholder's equity:
Class B common stock, $.01 par value. Authorized 1,000 shares; issued and
outstanding 1,000 shares ............................................... -- --
Additional paid-in capital ................................................ 519,748 523,126
Retained earnings ......................................................... 362,721 246,099
---------- ----------
Total stockholder's equity ......................................... 882,469 769,225
---------- ----------
$1,663,495 $1,594,644
========== ==========
</TABLE>
See accompanying notes to financial statements.
53
<PAGE> 57
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Passenger ....................................... $ 2,028,223 $ 1,858,551 $ 1,764,206
Cargo ........................................... 41,936 45,551 51,699
Other ........................................... 76,796 64,612 59,051
----------- ----------- -----------
Total operating revenues ................... 2,146,955 1,968,714 1,874,956
----------- ----------- -----------
Operating expenses:
Salaries and related costs ...................... 498,490 448,049 418,212
Aircraft rents .................................. 277,326 244,088 223,423
Other rents and landing fees .................... 122,034 119,089 119,470
Aircraft fuel ................................... 220,380 194,360 243,423
Agency commissions .............................. 114,742 117,483 151,293
Aircraft maintenance materials and repairs ...... 218,319 182,844 146,618
Depreciation and amortization ................... 48,442 49,026 48,590
Amortization of reorganization value in excess of
amounts allocable to identifiable assets ..... 19,896 19,896 23,776
Other ........................................... 429,425 396,033 337,578
----------- ----------- -----------
Total operating expenses ................... 1,949,054 1,770,868 1,712,383
----------- ----------- -----------
Operating income ..................................... 197,901 197,846 162,573
----------- ----------- -----------
Nonoperating income (expenses):
Interest income ................................. 19,593 20,682 17,432
Interest expense, net ........................... (29,352) (33,807) (39,110)
Gain (loss) on disposition of property and
equipment .................................... 1,095 (638) (1,710)
Other, net ...................................... 11,737 474 1,488
----------- ----------- -----------
Total nonoperating income (expenses), net ... 3,073 (13,289) (21,900)
----------- ----------- -----------
Income before income taxes .................. 200,974 184,557 140,673
----------- ----------- -----------
Income taxes ......................................... 84,352 81,541 65,343
----------- ----------- -----------
Net income .................................. $ 116,622 $ 103,016 $ 75,330
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
54
<PAGE> 58
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 116,622 $ 103,016 $ 75,330
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 48,442 49,026 48,590
Amortization of capitalized maintenance ................... 113,679 89,347 66,143
Amortization of reorganization value ...................... 19,896 19,896 23,776
Amortization of deferred credits .......................... (7,521) (6,798) (10,405)
Income taxes attributable to reorganization items ......... -- -- 59,444
Other ..................................................... 2,402 14,009 5,674
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net ............. (147,173) (115,471) 18,077
Increase in expendable spare parts and supplies, net ........ (18,180) (4,012) (5,712)
Decrease (increase) in prepaid expenses ..................... (387) 904 10,551
Decrease (increase) in other assets, net .................... (24,172) 43,267 (33,042)
Increase (decrease) in accounts payable ..................... 28,646 (38,803) 25,450
Increase (decrease) in air traffic liability ................ (20,485) 22,864 (40,907)
Increase in accrued compensation and vacation benefits ...... 1,145 10,530 7,192
Increase (decrease) in accrued taxes ........................ 72,174 51,706 (35,671)
Decrease in other accrued liabilities ....................... (5,938) (705) (1,262)
Increase (decrease) in other liabilities .................... 950 (7,435) (8,871)
--------- --------- ---------
Net cash provided by operating activities ............... 180,100 231,341 204,357
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment ......................... (293,424) (176,337) (154,969)
Sale (purchases) of short-term investments .................. 11,868 (27,485) 39,131
Proceeds from sales of property and equipment .............. 187,197 1,647 1,583
Equipment purchase deposits and other ....................... (6,250) (5,500) (15,600)
--------- --------- ---------
Net cash used in investing activities ................... (100,609) (207,675) (129,855)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of debt .............................. 162,074 -- 30,000
Repayment of debt ........................................... (239,876) (71,495) (55,411)
Acquisition of warrants ..................................... (3,378) (16,175) (13,342)
Other ....................................................... -- (400) (1,610)
--------- --------- ---------
Net cash used in financing activities ..................... (81,180) (88,070) (40,363)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...... (1,689) (64,404) 34,139
--------- --------- ---------
Cash and cash equivalents at beginning of year ................ 107,234 171,638 137,499
--------- --------- ---------
Cash and cash equivalents at end of year ...................... $ 105,545 $ 107,234 $ 171,638
========= ========= =========
Cash, cash equivalents and short-term investments at end of year $ 121,162 $ 134,719 $ 171,638
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 59
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL CLASS B
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 ................ $ -- $ -- $ 552,643 $ 70,137 $ -- $ 622,780
---------- ---------- ---------- ---------- ---------- ----------
Repurchase of 1,911,523 warrants at
$6.98 per warrant ...................... -- -- (13,342) -- -- (13,342)
Net income ................................ -- -- -- 75,330 -- 75,330
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 .............. -- -- 539,301 145,467 -- 684,768
Repurchase of 2,906,867
warrants at $5.56 per warrant .......... -- -- (16,175) -- -- (16,175)
Dividend to Holdings ...................... -- -- -- (2,384) -- (2,384)
Net income ................................ -- -- -- 103,016 -- 103,016
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 .............. -- -- 523,126 246,099 -- 769,225
---------- ---------- ---------- ---------- ---------- ----------
Repurchase of 377,400 warrants at
$8.95 per warrant ...................... -- -- (3,378) -- -- (3,378)
Net income ................................ -- -- -- 116,622 -- 116,622
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999.............. $ -- $ -- $ 519,748 $ 362,721 $ -- $ 882,469
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 60
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
America West Airlines, Inc. ("AWA"), is a wholly-owned subsidiary of America
West Holdings Corporation ("Holdings"), a Delaware corporation. Holdings'
primary business activity is ownership of all the capital stock of AWA, the
ninth largest commercial airline carrier in the United States serving 59
destinations in the U.S., Canada and Mexico.
(a) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments consist
of cash invested in certain debt securities with original maturities greater
than 90 days and less than one year. The debt securities are classified as held
to maturity and are carried at amortized cost which approximates fair value.
(b) EXPENDABLE SPARE PARTS AND SUPPLIES
Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(c) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Interest capitalized on advance
payments for aircraft acquisitions and on expenditures for aircraft improvements
are part of these costs. Interest capitalized for the years ended December 31,
1999, 1998 and 1997 was $6.1 million, $4.9 million and $600,000, respectively.
Property and equipment is depreciated and amortized to residual values over the
estimated useful lives or the lease term, whichever is less, using the
straight-line method.
The estimated useful lives for AWA's ground property and equipment range
from three to 12 years for owned property and equipment and up to 22 years for
the technical support facility. The estimated useful lives of AWA's owned
aircraft, jet engines, flight equipment and rotable parts range from five to 22
years. Leasehold improvements relating to flight equipment and other property on
operating leases are amortized over the life of the lease or the life of the
asset, whichever is shorter.
Effective October 1, 1998, AWA extended the estimated depreciable service
lives of certain owned Boeing 737-200 aircraft which have been modified to meet
the Federal Aviation Administration's ("FAA") Stage III noise reduction
requirements. This change increased the average depreciable life by
approximately four years and reduced depreciation expense in 1999 and 1998 by
approximately $8.0 million and $2.0 million, respectively.
AWA records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired as defined
by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
(d) RESTRICTED CASH
Restricted cash includes cash deposits securing certain letters of credit.
(e) AIRCRAFT MAINTENANCE AND REPAIRS
Routine maintenance and repairs are charged to expense as incurred. The cost
of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual for
the estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
recorded.
57
<PAGE> 61
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(f) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1999, 1998 and 1997 was $131.9 million, $112.0 million and $92.1
million, respectively. In accordance with SFAS No. 121, AWA assesses the
recoverability of this asset based upon expected future undiscounted cash flows
and other relevant information.
(g) FREQUENT FLYER AWARDS
AWA maintains a frequent travel award program known as "FlightFund" that
provides a variety of awards to program members based on accumulated mileage.
The estimated cost of providing the free travel, using the incremental cost
method as adjusted for estimated redemption rates, is recognized as a liability
and charged to operations as program members accumulate mileage.
(h) DEFERRED CREDIT-OPERATING LEASES
Rents for operating leases were adjusted to fair market value when AWA
emerged from bankruptcy in 1994. The net present value of the difference between
the stated lease rates and the fair market rates has been recorded as a deferred
credit in the accompanying balance sheets. The deferred credit will be increased
through charges to interest expense and decreased on a straight-line basis as a
reduction in rent expense over the applicable lease periods. At December 31,
1999 and 1998, the unamortized balance of the deferred credit was $72.2 million
and $78.6 million, respectively.
(i) PASSENGER REVENUE
Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.
(j) ADVERTISING COSTS
AWA expenses the costs of advertising as incurred. Advertising expense for
the years ended December 31, 1999, 1998 and 1997 was $14.4 million, $16.2
million and $25.8 million, respectively.
(k) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
(l) NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for all derivative instruments
and hedging activities. SFAS No. 133 requires recognition of all derivatives as
either assets or liabilities in the balance sheet at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment ("fair value hedge"), a hedge of the exposure to
variable cash flows of a forecasted transaction ("cash flow hedge"), or a hedge
of the foreign currency exposure ("foreign currency hedge") of a net investment
in a foreign operation or a foreign currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In accounting for a fair value hedge, the derivative hedging
instrument will be measured at fair value with the mark to fair value being
recorded in earnings. In a cash flow hedge, the derivative hedging instrument
will
58
<PAGE> 62
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
be measured at fair value with the effective portion of the gains or losses on
the derivative hedging instrument initially being reported in other
comprehensive income. In June 1999 the Financial Accounting Standards Board
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133", which
defers the effective date of SFAS No. 133 to be effective for all fiscal years
beginning after June 15, 2000. AWA will adopt SFAS No. 133 in 2001. SFAS No. 133
is not expected to have a material effect on AWA's results of operations or
financial position.
(m) USE OF ESTIMATES
Management of AWA has made certain estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(n) RECLASSIFICATION
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of
10.75% to 10.79%, averaging 10.78%, installments due 2000 through 2008. $ 87,245 $164,478
-------- --------
UNSECURED
10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
only payments until due in 2005 (a) ................................... 48,820 48,612
Notes payable, interest rates of 90-day LIBOR +1.25%, averaging
7.44%, installments due through 2000 .................................. 35,000 45,500
Industrial development bonds, face amount of $29.3 million, fixed interest
rate of 6.3% due 2023 (b) ............................................ 29,008 28,995
Other .................................................................... 266 760
-------- --------
113,094 123,867
----------------------
Total long-term debt ..................................................... 200,339 288,345
Less: current maturities ................................................ 45,171 80,439
-------- --------
$155,168 $207,906
======================
</TABLE>
(a) The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and interest
is payable in arrears semi-annually. The 10 3/4% Senior Unsecured Notes may
be redeemed at the option of AWA on or after September 1, 2001 at any time
in whole or from time to time in part, at a redemption price equal to the
following percentage of principal redeemed, plus accrued and unpaid
interest to the date of redemption, if redeemed during the 12-month period
beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
----------
<S> <C>
2000 ................. 105.375%
2001 ................. 103.583%
2002 ................. 101.792%
2003 and thereafter .. 100.000%
</TABLE>
(b) The industrial development revenue bonds are due April 2023. Interest at
6.3% is payable semiannually (April 1 and October 1). The bonds are subject
to optional redemption prior to the maturity date on or after April 1, 2008,
in whole or in part, on any interest payment date at the following
redemption prices; 102 percent on April 1 or October 1, 2008; 101 percent on
April 1 or October 1, 2009; and 100 percent on April 1, 2010 and thereafter.
59
<PAGE> 63
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Secured financings totaling $87.2 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $141.9 million at
December 31, 1999.
At December 31, 1999, the estimated maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
---------
<S> <C>
2000 ........ $ 45,171
2001 ........ 9,847
2002 ........ 9,674
2003 ........ 9,674
2004 ........ 8,989
Thereafter .. 116,984
--------
$200,339
</TABLE>
In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility
which was entered into in December 1997. Borrowings under this credit facility
will accrue interest at either the "base rate" (prime rate or the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate) or the "adjusted
eurodollar rate" (LIBOR rate adjusted for certain reserve requirements in
respect to "Eurodollar liabilities") plus the applicable margin based on Moody's
rating of AWA's senior unsecured notes. The credit agreement is secured by
certain assets of AWA. As of December 31, 1999, $109.2 million was available for
borrowing based on the value of the assets pledged. There were no outstanding
borrowings as of December 31, 1999.
Certain of AWA's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios, limitations on investments and
restricted payments including cash dividends, and other financial covenants with
which AWA was in compliance at December 31, 1999.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly-owned subsidiary
of Holdings and each share of AWA Class A and Class B Common Stock and options
to purchase Class B Common Stock were exchanged for one share of Holdings Class
A or Class B Common Stock and options to purchase Class B Common Stock.
Holdings' Class B Common Stock is listed on the New York Stock Exchange.
WARRANTS
On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants were exercisable by the holders any time before August 25, 1999 and
10.4 million shares of Class B Common Stock were reserved for the exercise of
these warrants. As part of the holding company formation transaction, the AWA
warrants became rights to acquire shares of Holdings Class B Common Stock. AWA
made arrangements for the issuance of Holdings Class B Common Stock upon the
exercise of such warrants by purchasing an option from Holdings to acquire such
stock. AWA issued a $62.4 million note payable to Holdings due December 31, 2005
with an interest rate of 11%. Subsequently, Holdings made a capital contribution
to AWA by issuing a note payable to AWA for $62.4 million due December 31, 2045
with an interest rate of 10 7/8%. AWA has the right on December 31, 2005 to
repay all or a portion of the then outstanding principal balance of its note
payable by offsetting by an equal amount the then outstanding principal balance
of its note receivable and thus, these notes have been offset in the
accompanying financial statements in accordance with applicable accounting
standards.
As of December 31, 1999, approximately 7.4 million warrants have been
repurchased by AWA for approximately $51.0 million and 2,621,208 warrants have
been exercised at $12.74 per share. The balance of unexercised warrants expired
and were cancelled on August 25, 1999.
60
<PAGE> 64
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
COMMON STOCK
The holders of common stock are entitled to one vote for each share of stock
held by the holder. Holders of common stock have no right to cumulate their
votes in the election of directors. The holders of common stock are entitled to
receive, when and if declared by the Board of Directors, out of the assets of
AWA which are by law available, dividends payable either in cash, in stock or
otherwise.
4. EMPLOYEE BENEFIT PLAN
AWA has a 401(k) defined contribution plan, covering essentially all
employees of AWA. Participants may contribute from 1 to 15% of their pretax
earnings to a maximum of $10,000 in 1999. AWA's matching contribution is
determined annually by the Board of Directors. AWA's contribution expense to the
plan totaled $7.4 million, $6.8 million and $6.1 million in 1999, 1998 and 1997,
respectively.
5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash Equivalents, Short-term Investments and Receivables
The carrying amount approximates fair value because of the short-term nature
of these instruments.
Investment in Equity Securities
As of December 31, 1999, AWA owned 294,109 shares of Priceline common stock,
which was classified as trading securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
estimated fair value of this investment at that date was approximately $13.9
million based on the quoted market price of Priceline common stock. An
unrealized holding gain of $11.9 million related to the Priceline shares was
included in earnings in 1999. AWA sold all 294,109 shares of Priceline for
approximately $15.1 million in January 2000.
Long-term Debt
At December 31, 1999 and 1998, the fair value of long-term debt was
approximately $199 million and $292 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) FUEL PRICE RISK MANAGEMENT
Under its fuel hedging program, AWA may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
twelve months. Gains and losses on such transactions are recorded as adjustments
to fuel expense when the underlying fuel being hedged is used. As of December
31, 1999, AWA had entered into fixed price swap and costless collar transactions
hedging approximately 14% of its projected 2000 fuel requirements.
AWA is exposed to credit risks in the event any counterparty fails to meet
its obligations. AWA does not anticipate such non-performance as counterparties
are selected based on credit ratings, exposure to any one counterparty is
limited based on formal guidelines and the relative market positions with such
counterparties are closely monitored.
(c) CONCENTRATION OF CREDIT RISK
AWA does not believe it is subject to any significant concentration of
credit risk. Most of AWA's receivables result from tickets sold to individual
passengers through the use of major credit cards or to tickets sold by other
airlines and used by passengers on AWA. These receivables are short-term,
generally being settled shortly after the sale.
61
<PAGE> 65
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. INCOME TAXES
AWA recorded income tax expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Taxes:
Federal ........................ $22,983 $29,322 $ 2,622
State .......................... 3,161 4,959 3,277
------- ------- -------
Total current taxes ...... 26,144 34,281 5,899
------- ------- -------
Deferred taxes .................... 58,208 47,260 --
------- ------- -------
Income taxes attributable to
reorganization items and other . -- -- 59,444
------- ------- -------
Total income tax expense .......... $84,352 $81,541 $65,343
------- ------- -------
</TABLE>
AWA's emergence from bankruptcy reorganization in 1994 and the associated
implementation of fresh start reporting gave rise to significant items of
expense for financial reporting purposes that are not deductible for income tax
purposes. In large measure, it is these nondeductible (for income tax purposes)
expenses and state income taxes that result in an effective tax rate (for
financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, AWA's actual cash income tax
liability (i.e., current income taxes payable) is considerably lower than income
tax expense shown for financial reporting purposes. This difference in financial
expense compared to actual income tax liability is in part attributable to the
utilization of certain tax attributes of the predecessor company that serve to
reduce AWA's actual income tax liability. In 1997 the excess of financial
expense over AWA's current income tax liability was applied to reduce the
balance of AWA's reorganization value in excess of amounts allocable to
identifiable assets.
Income tax expense differs from amounts computed at the federal statutory
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at U.S. statutory rate .. $70,341 $64,595 $49,236
State income taxes, net of federal income
tax benefit ............................. 6,418 7,431 5,967
Nondeductible amortization of
reorganization value in excess of
amounts allocable to identifiable
assets .................................. 6,964 6,964 8,322
Other, net ................................. 629 2,551 1,818
------- ------- -------
Total ................................... $84,352 $81,541 $65,343
======= ======= =======
</TABLE>
As of December 31, 1999, AWA has available net operating loss carryforwards
("NOL"), business tax credit carryforwards and alternative minimum tax credit
carryforwards for federal income tax purposes of approximately $180.6 million,
$12.4 million and $566,000, respectively. The NOL expire during the years 2005
through 2009 while the business credit carryforwards expire during the years
2000 through 2006. However, such carryforwards are not fully available to offset
federal (and in certain circumstances, state) alternative minimum taxable
income. Further, as a result of a statutory "ownership change" (as defined for
purposes of Section 382 of the Internal Revenue Code) that occurred as a result
of AWA's reorganization in 1994, AWA's ability to utilize its NOL and business
tax credit carryforwards may be restricted. The alternative minimum tax credit
may be carried forward without expiration and is available to offset future
income tax payable.
COMPOSITION OF DEFERRED TAX ITEMS:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of AWA's deferred tax assets and liabilities are a result
of the temporary differences related to the items described as follows:
62
<PAGE> 66
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities
Property and equipment, principally
depreciation and "fresh start"
differences............................................. $(101,666) $(131,518)
Other...................................................... (5,331) --
--------- ---------
Total deferred tax liabilities.......................... $(106,997) $(131,518)
--------- ---------
Deferred tax assets
Aircraft leases............................................ 18,718 23,951
Frequent flyer accrual..................................... 4,790 6,541
Net operating loss carryforwards........................... 68,301 91,587
Tax credit carryforwards................................... 12,968 13,272
Other...................................................... - 52,155
--------- ---------
Total deferred tax assets............................... 104,777 187,506
--------- ---------
Valuation allowance....................................... (28,548) (28,548)
--------- ---------
Net deferred tax asset (liability).................. $ (30,768) $ 27,440
========= =========
</TABLE>
Statement of Financial Accounting Standards ("SFAS"), No. 109, Accounting
for Income Taxes requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. The valuation allowance of
$28.5 million is necessary because at this time AWA has not determined it is
more likely than not that the balance of the deferred tax assets will be fully
realized. AWA continues to monitor the valuation allowance and will make
adjustments as appropriate. If in future tax periods, AWA were to recognize
additional tax benefits related to items attributable to the predecessor company
such as net operating loss and other carryforwards, such benefits would be
applied to reduce further reorganization value in excess of amounts allocable to
identifiable assets.
7. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing and
financing activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-cash transactions:
Notes payable issued for equipment purchase deposits $35,000 $45,500 $10,500
Notes payable canceled under the aircraft
purchase agreement ............................. 45,500 12,596 36,019
Cash transactions:
Interest paid, net of amounts capitalized .......... 19,920 22,184 30,830
Income taxes paid .................................. 3,677 20,963 205
</TABLE>
8. INVESTMENTS IN DEBT SECURITIES
Cash equivalents and short-term investments as of December 31 are classified
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Debt securities issued by the U.S. Treasury
and other U.S. government agencies ............................. $ -- $ 52,393
Corporate notes ................................................ 65,169 82,195
Money Market Funds ............................................. 47,507 131
Other debt securities .......................................... 8,486 --
-------- --------
Total cash equivalents and short-term investments $121,162 $134,719
======== ========
</TABLE>
63
<PAGE> 67
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
9. COMMITMENTS AND CONTINGENCIES
(a) LEASES
As of December 31, 1999, AWA had 112 aircraft under operating leases with
remaining terms ranging from one year to approximately 21 years. AWA has options
to purchase certain of the aircraft at fair market values at the end of the
lease terms. Certain of the agreements require security deposits, minimum return
provisions and maintenance reserve payments and provide the aircraft lessors
with the option during the lease term to reset their respective rentals to the
greater of the existing rentals being paid under the leases or the then current
fair market rates. AWA also leases certain terminal space, ground facilities and
computer and other equipment under noncancelable operating leases.
At December 31, 1999, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000 ....... $ 343,035
2001 ....... 313,082
2002 ....... 281,830
2003 ....... 226,390
2004 ....... 181,322
Thereafter.. 1,357,708
----------
$2,703,367
----------
</TABLE>
Rent expense (excluding landing fees) was approximately $365 million, $330
million and $308 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $26.3 million and bank letters of credit of $18.5 million. The
letters of credit are collateralized by $18.5 million of restricted cash as of
December 31, 1999.
(b) REVENUE BONDS
In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June
1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.
(c) AIRCRAFT ACQUISITIONS
At December 31, 1999, AWA had firm commitments to AVSA for a total of 15
Airbus A318-100, 12 Airbus A319-100 and 15 Airbus A320-200 aircraft with
delivery through 2004 at a net cost of approximately $1.6 billion. The agreement
also includes options to purchase an additional 25 A320 family aircraft during
2004 through 2006 and purchase rights for an additional 25 A320 series aircraft
for delivery in 2007 to 2008.
AWA has an agreement with International Aero Engines ("IAE") which provides
for the purchase by AWA of 12 new V2500-A5 spare engines scheduled for delivery
from 1998 through 2000 for use on certain of the A320 fleet. At December 31,
1999, five of the engines had been delivered. The seven remaining engines have
an estimated aggregate cost of $30 million.
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.
64
<PAGE> 68
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000 $356,467
2001 212,910
2002 193,006
--------
$762,383
--------
</TABLE>
In September 1999 America West Airlines 1999-1 Pass Through Trusts issued
$253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by Holdings and AWA. The combined effective
interest rate on the financing is 8.22%. Four A319 and four A320 aircraft that
are the subject of this financing were delivered in 1999. The remaining two
aircraft were delivered in February 2000.
(d) SALE/LEASEBACK TRANSACTION
In August 1999, AWA entered into a sale/leaseback transaction whereby the
Company sold five Boeing 737-300 aircraft and one Boeing 757-200 aircraft for
approximately $114 million. To complete this transaction, the Company paid
approximately $49.3 million to retire mortgage debt outstanding on the aircraft.
The aircraft are being leased back from the purchaser for approximately six
years. The sale resulted in a $9.2 million gain for AWA, which was deferred and
is being amortized over the lease term as a reduction in rent expense. The
related lease is being accounted for as an operating lease. The average annual
lease payments, over the life of the leases, are $15.5 million.
(e) FAA SETTLEMENT
In July 1998 AWA and the FAA entered into an agreement to settle disputes
over alleged maintenance violations. Under the agreement, AWA did not admit any
wrongdoing, has implemented certain changes in maintenance oversight and paid a
civil penalty of $2.5 million. In July 1999, the FAA determined that AWA has
complied with the terms of the settlement agreement and waived an additional
civil penalty of $2.5 million which could have been assessed under the
agreement.
(f) CONTINGENT LEGAL OBLIGATIONS
Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
management currently expects that any liability arising from such matters, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial condition and results of operations of
AWA.
10. ADVANCES TO PARENT COMPANY AND AFFILIATE
As of December 31, 1999, AWA had net advances to Holdings of $232.3 million.
In addition, AWA had net advances of $16.0 million to TLC, a wholly owned
subsidiary of Holdings.
11. RELATED PARTY TRANSACTIONS
In March 1997 AWA purchased 1.91 million of its publicly traded warrants
from TPG Partners, L.P. and certain of its affiliates for approximately $13.3
million. TPG is an investment firm that controls approximately 52% of the total
voting power of Holdings.
AWA has entered into various aircraft leasing arrangements with AerFi Group
plc ("AerFi"), formerly GPA Group plc, at terms comparable to those obtained
from third parties for similar transactions. William A. Franke, the Company's
Chairman, President and CEO, is a director and, indirectly, a minor shareholder
of AerFi. In addition, an affiliate of TPG purchased a large minority stake in
AerFi in November 1998 and has three representatives serving on AerFi's
five-member Board of Directors. AWA currently leases four aircraft from AerFi
and the rental payments for such leases amounted to $14.8 million, $19.2 million
and $31.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, AWA was obligated to pay approximately
$191.8 million under the AerFi leases which expire at various dates through the
year 2013.
In June 1997 America West Airlines 1997-1 Pass Through Trusts issued $93.9
million of Pass Through Trust Certificates in connection with the refinancing of
four Airbus A320 aircraft. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of AerFi, the original lessees under the restructured leases.
As a result of the refinancing, AerFi, the AerFi Subs and AWA also entered
into a Put Termination Agreement which terminated arrangements with AerFi
pursuant to which AerFi could cause AWA to lease up to four additional aircraft
prior to June 30, 1999. Pursuant to the Put Termination Agreement, AWA is
obligated to make certain payments to the AerFi Subs. The payments due to the
AerFi Subs under the Put Termination Agreement were approximately $1.9 million
for each of the years 1999, 1998 and 1997.
As part of AWA's reorganization in 1994, Continental Airlines made an
investment in AWA, and AWA entered into an alliance agreement related to
code-sharing arrangements and ground handling operations. AWA paid Continental
approximately $31.7 million, $27.8 million and $25.2 million and also received
approximately $24.5 million, $20.5 million and $13.4 million in 1999, 1998 and
1997, respectively, from Continental pursuant to these agreements.
65
<PAGE> 69
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Mr. John F. Fraser, chairman of the board of Air Canada, served as a
director of AWA until May 20, 1998. AWA has a maintenance contract with Air
Canada on terms comparable to those obtained from third parties for similar
transactions. AWA's payments under the maintenance contract were $17.3 million,
$9.4 million and $5.9 million in 1999, 1998 and 1997, respectively.
AWA provides air transportation and certain administrative services to The
Leisure Company, a wholly owned subsidiary of Holdings that was formed on
January 1, 1998. The cost of air transportation and administrative services are
negotiated on an arms length basis. In 1999 and 1998 AWA had net air
transportation sales to TLC of $54.8 million and $61.6 million, respectively,
and received $1.6 million and $1.9 million, respectively, under the services
agreement.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 follows (in thousands
of dollars):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Operating revenues ........ $ 506,462 $ 554,193 $ 533,894 $ 552,406
Operating income .......... 48,889 74,059 38,848 36,105
Nonoperating expense, net.. (4,098) (164) (2,702) 10,037
Income tax expense ........ (19,885) (32,351) (14,831) (17,285)
Net income ................ 24,906 41,544 21,315 28,857(1)
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Operating revenues ........ $ 470,953 $ 519,489 $ 485,424 $ 492,848
Operating income .......... 47,823 73,792 41,447 34,784
Nonoperating expense, net.. (4,891) (2,222) (2,076) (4,100)
Income tax expense ........ (18,540) (31,381) (20,078) (11,542)
Net income ................ 24,392 40,189 19,293 19,142
</TABLE>
(1) Includes an $11.9 million pretax unrealized gain on the Company's
investment in Priceline common stock and $2.5 million of revenue
related to additional Priceline warrants granted to AWA in November
1999.
13. SEGMENT DISCLOSURES
AWA is one reportable operating segment. Accordingly, the segment reporting
financial data required by SFAS No. 131 is included in the accompanying balance
sheets and statements of income.
66
<PAGE> 70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting continuing directors and nominees of the Company is
set forth under the caption "Election of Directors" in Holdings' Proxy Statement
relating to its 2000 Annual Meeting of Stockholders and is incorporated by
reference into this Form 10-K Report. The Proxy Statement will be filed with the
Securities and Exchange Commission in accordance with Rule 14a-6(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). With
the exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K Report, the Proxy Statement is not
being filed as a part hereof. Information respecting executive officers of
Holdings is set forth at Part I of this Report.
Information respecting compliance with Section 16(a) of the Exchange Act is
set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement and is incorporated by references into this
Form 10-K Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by Item 11 is set
forth under the captions "Executive Compensation", "Stock Option Grants and
Exercises", "Employment Agreements" and "Compensation Committee Interlocks" in
the Proxy Statement and is incorporated by reference into this Form 10-K Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management required by Item 12 is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
and is incorporated by reference into this Form 10-K Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
required by Item 13 is set forth under the captions "Employment Agreements" and
"Certain Transactions" in the Proxy Statement and is incorporated by reference
into this Form 10-K Report.
67
<PAGE> 71
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS.
The following financial statements and the Independent Auditors' Reports are
filed in Part II, Item 8A and 8B of this report on the pages indicated:
America West Holdings Corporation
Independent Auditors' Report - page 31.
Consolidated Balance Sheets - December 31, 1999 and 1998 -
page 32.
Consolidated Statements of Income-Years ended December 31,
1999, 1998 and 1997 - page 33.
Consolidated Statements of Cash Flows-Years ended December 31,
1999, 1998 and 1997 - page 34.
Consolidated Statements of Stockholders' Equity-Years ended
December 31, 1999, 1998 and 1997 page 35.
Notes to Consolidated Financial Statements - page 36.
America West Airlines. Inc.
Independent Auditors' Report - page 52.
Balance Sheets - December 31, 1999 and 1998 - page 53.
Statements of Income - Years ended December 31, 1999, 1998 and
1997 - page 54.
Statements of Cash Flows - Years ended December 31, 1999, 1998
and 1997 - page 55.
Statements of Stockholder's Equity - Years ended December 31,
1999, 1998 and 1997 - page 56.
Notes to Financial Statements - page 57.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------ -----
<S> <C>
2.2 Agreement and Plan of Merger, dated as of December 19, 1996,
by and among America West Holdings Corporation ("Holdings"),
America West Airlines, Inc. ("AWA") and AWA Merger, Inc., with
an effective date and time as of midnight on December 31, 1996
- Incorporated by reference to Exhibit 2.1 to Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.1 Restated Certificate of Incorporation of AWA (included in
Exhibit 2.2 above).
</TABLE>
68
<PAGE> 72
<TABLE>
<S> <C>
3.2 Restated Bylaws of AWA - Incorporated by reference to AWA's
Annual Report on Form 10-K dated December 31, 1994.
3.3 Section 4.18 of the Restated Bylaws of AWA (included in
Exhibit 2.2 above).
3.4 Certificate of Incorporation of Holdings (filed with the
Secretary of State of the State of Delaware on December 13,
1996) - Incorporated by reference to Exhibit 3.1 of Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.5 Bylaws of Holdings - Incorporated by reference to Exhibit 3.2
to Holdings' Registration Statement on Form 8-B dated January
13, 1997.
4.1 Indenture for 10 3/4% Senior Unsecured Notes due 2005 -
Incorporated by reference to Exhibit 4.1 to AWA's Form S-4
(No. 33-61099).
4.2 Form of Senior Note (included as Exhibit A to Exhibit 4.1
above).
4.3 Warrant Agreement dated August 25, 1994 between AWA and First
Interstate, N.A., as Warrant Agent - Incorporated by reference
to Exhibit 4.3 to AWA's Current Report on Form 8-K dated
August 25, 1994.
4.4 Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 Supplemental Warrant Agreement dated effective as of December
31, 1996 between AWA and Harris Trust Company of California,
as Warrant Agent - Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.7 Stock Option Agreement dated effective as of December 31,
1996, between Holdings and AWA Incorporated by reference to
Exhibit 4.5 to Holdings' Registration Statement on Form 8-B
dated January 13, 1997.
4.8 Registration Rights Agreement dated August 25, 1994 among AWA,
AmWest Partners, L.P. and other holders - Incorporated by
reference to Exhibit 4.6 to the AWA's Current Report on Form
8-K dated August 25, 1994.
4.9 Assumption of Certain Obligations Under Registration Rights
Agreement executed by Holdings for the benefit of TPG
Partners, L.P., TPG Parallel 1, L.P., Air Partners II, L.P.,
Continental Airlines, Inc., Mesa Airlines, Inc., Lehman
Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont
Fund, L.P. - Incorporated by reference to Exhibit 4.7 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.10 Form of Pass Through Trust Agreement, dated as of November 26,
1996, between AWA and Fleet National Bank, as Trustee -
Incorporated by reference to Exhibit 4.1 to AWA's Report on
Form 8-K dated November 26, 1996.
4.12 Form of Pass Through Trust Agreement, dated as of June 17,
1997, between AWA and Fleet National Bank, as Trustee -
Incorporated by reference to Exhibit 4.5 to AWA's Registration
Statement on Form S-3 (No. 33-327351).
4.13 Forms of Pass Through Trust Agreements, dated as of October 6,
1998, between AWA and Wilmington Trust Company, as Trustee -
Incorporated by reference to Exhibits 4.4, 4.5, 4.6, 4.7, 4.8
and 4.9 to AWA's Registration Statement on Form S-4 (No.
333-71615).
</TABLE>
69
<PAGE> 73
<TABLE>
<S> <C>
4.14 Pass Through Trust Agreements, dated as of September 21, 1999,
between AWA and Wilmington Trust Company, as Trustee, made
with respect to the formation of America West Airlines Pass
Through Trusts, Series 1999-1G-S, 1999-1G-O, 1999-1C-S and
1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, and 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, and
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and
1999-1G-O, and 8.54% Exchange Pass Through Certificates,
Series 1999-1C-S and 1999-1C-O - Incorporated by reference to
AWA's Quarterly Report on Form 10-Q for the period ended
September 30, 1999.
10.1 Alliance Agreements dated August 25, 1994 between AWA and
Continental Airlines, Inc. including the Master Ground
Handling Agreement, the Reciprocal Frequent Flyer
Participation Agreement, the Code Sharing Agreement, the Cargo
Special Pro-Rate Agreement, the Reciprocal Club Usage
Agreement and the Memorandum of Understanding Concerning
Technology Transfers-Incorporated by reference to Exhibit
10.12 to AWA's Current Report on Form 8-K dated August 25,
1994.
10.11 Airport Use Agreement dated July 1, 1989 among the City of
Phoenix, The Industrial Development Authority of the City of
Phoenix, Arizona and AWA ("Airport Use Agreement") -
Incorporated by reference to Exhibit 10-D(9) to AWA's Annual
Report on Form 10-K for the year ended December 31, 1989.
10.12 First Amendment dated August 1, 1990 to Airport Use Agreement
- Incorporated by reference to Exhibit 10-(D)(9) to AWA's
Quarterly Report on Form 10-Q for the period ended September
30, 1990.
10.19 Management Rights Agreement dated August 25, 1994 between TPG
Partners L.P., TPG Genpar, L.P. and AWA - Incorporated by
reference to Exhibit 10.47 to AWA's Registration Statement on
Form S-1 (No. 33-54243), as amended.
10.20(1) Amended and Restated V2500 Support Contract dated as of
October 7, 1998 between AWA and IAE International Aero Engines
AG and Side Letters Nos. 1 and 2 thereto - Incorporated by
reference to Exhibit 10.20 to AWA's Annual Report on Form 10-K
for the year ended December 31, 1998.
+10.21 Amended and Restated America West 1994 Incentive Equity Plan -
Incorporated by reference to Exhibit 10.21 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
+10.23 Employment Agreement dated as of February 17, 1998 among
Holdings, AWA, The Leisure Company and William A. Franke -
Incorporated by reference to Exhibit 10.23 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
+10.24 Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and Richard R. Goodmanson. - Incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.25(1) Airbus A320/A319 Purchase Agreement dated September 12, 1997
between AVSA S.A.R.L and AWA including Letter Agreements Nos.
1-10 - Incorporated by reference to Exhibit 10.26 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
10.26 Revolving Credit Agreement dated as of December 12, 1997 among
AWA and The Industrial Bank of Japan; Limited, Los Angeles
Agency as Agent for the Banks. - Incorporated by reference by
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
</TABLE>
70
<PAGE> 74
<TABLE>
<S> <C>
10.28(1) Amendment No. 1 dated March 31, 1998 to Airbus A320/A319
Purchase Agreement dated September 12, 1997 between AVSA
S.A.R.L. and AWA - Incorporated by reference to Exhibit 10.28
to Holdings' Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
10.29 Financing Agreement dated April 1, 1998 between the Industrial
Development Authority of the City of Phoenix, Arizona and AWA
- Incorporated by reference to Exhibit 10.29 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10.30 Indenture of Trust dated April 1, 1998 from the Industrial
Development Authority of the City of Phoenix, Arizona to
Norwest Bank, Arizona N.A. - Incorporated by reference to
Exhibit 10.30 to Holdings' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
10.31 Amendment No. 1 to Code Sharing Agreement dated June 29, 1994
between AWA and Continental Airlines, Inc. - Incorporated by
reference to Exhibit 10.31 to AWA's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.32(1) Amendment No. 2 dated as of December 9, 1998 to the A319/A320
Purchase Agreement between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.32 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
10.33 Amendment to Employment Agreement, dated as of January 15,
1999 among Holdings, AWA, The Leisure Company and William A.
Franke - Incorporated by reference to Exhibit 10.33 to AWA's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.34 Second Amendment to Airport Use Agreement dated as of August
25, 1995 - Incorporated by reference to Exhibit 10.34 to AWA's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.35 Indenture of Trust dated as of June 1, 1999 from The
Industrial Development Authority of the City of Phoenix,
Arizona to Bank One Arizona, N.A. - Incorporated by reference
to Exhibit 10.35 to AWA's Quarterly Report on Form 10-Q for
the period ended June 30, 1999.
*10.36(1) Amendment No. 3, dated October 14, 1999, to the A319/320
Purchase Agreement dated September 12, 1997 between AVSA,
S.A.R.L. and America West and Letter Agreement Nos. 1 - 8
thereto.
*21.1 Subsidiaries of Holdings.
*23.1 Consent of KPMG LLP.
24.1 Power of Attorney, pursuant to which amendments to this Annual
Report on Form 10-K may be filed, is included on the signature
pages of this Annual Report on Form 10-K.
*27.1 Financial Data Schedule. - America West Holdings Corporation
*27.2 Financial Data Schedule. - America West Airlines, Inc.
</TABLE>
* Filed herewith.
+ Represents a management contract or compensatory plan or
arrangement.
(1) The Company has sought confidential treatment for portions of
the referenced exhibit.
71
<PAGE> 75
(d) FINANCIAL STATEMENT SCHEDULES.
America West Holdings Corporation
Independent Auditors' Report on Schedule and Consent
- page 75.
Schedule II: Valuation and Qualifying Accounts - page
76.
America West Airlines, Inc.
Independent Auditors' Report on Schedule - page 77.
Schedule II: Valuation and Qualifying Accounts - page
78.
All other information and schedules have been omitted as not applicable or
because the required information is included in the financial statements or
notes thereto.
72
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Holdings Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICA WEST HOLDINGS CORPORATION
Date: March 29, 2000 By: /s/ William A. Franke
----------------------------------
William A. Franke,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West Holdings
Corporation, do hereby severally constitute and appoint William A. Franke, W.
Douglas Parker and Stephen L. Johnson and each or any of them, our true and
lawful attorneys and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ William A. Franke Chairman of the Board and Chief Executive Officer
------------------------------
William A. Franke (Principal Executive Officer)
/s/ W. Douglas Parker Executive Vice President and Director
------------------------------
W. Douglas Parker (Principal Financial and Accounting Officer)
/s/ Gilbert D. Mook. Executive Vice President and Director
------------------------------
Gilbert D. Mook
/s/ John L. Goolsby Director
------------------------------
John L. Goolsby
/s/ Walter T. Klenz Director
------------------------------
Walter T. Klenz
/s/ Richard C. Kraemer Director
------------------------------
Richard C. Kraemer
/s/ Robert J. Miller Director
------------------------------
Robert J. Miller
/s/ Denise M. O'Leary Director
------------------------------
Denise M. O'Leary
/s/ Richard P. Schifter Director
------------------------------
Richard P. Schifter
/s/ Jeffrey A. Shaw Director
------------------------------
Jeffrey A. Shaw
/s/John F. Tierney Director
------------------------------
John F. Tierney
</TABLE>
73
<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Airlines, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICA WEST AIRLINES, INC.
Date: March 29, 2000 By: /s/ William A. Franke
------------------------------------
William A. Franke,
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West Airlines, Inc.,
do hereby severally constitute and appoint William A. Franke, W. Douglas Parker
and Stephen L. Johnson and each or any of them, our true and lawful attorneys
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, and to file the same with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each or any of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents, and each of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ William A. Franke Chairman of the Board and Chief Executive Officer
-------------------------------
William A. Franke (Principal Executive Officer)
/s/ W. Douglas Parker Executive Vice President and Director
-------------------------------
W. Douglas Parker (Principal Financial Officer)
/s/ Gilbert D. Mook Executive Vice President, Chief Operating Officer and Director
-------------------------------
Gilbert D. Mook
/s/ Michael R. Carreon Vice President and Controller
-------------------------------
Michael R. Carreon (Principal Accounting Officer)
/s/ John L. Goolsby Director
-------------------------------
John L. Goolsby
/s/ Walter T. Klenz Director
-------------------------------
Walter T. Klenz
/s/ Richard C. Kraemer Director
-------------------------------
Richard C. Kraemer
/s/ Robert J. Miller Director
-------------------------------
Robert J. Miller
/s/ Denise M. O'Leary Director
-------------------------------
Denise M. O'Leary
/s/ Richard P. Schifter Director
-------------------------------
Richard P. Schifter
/s/ Jeffrey A. Shaw Director
-------------------------------
Jeffrey A. Shaw
/s/John F. Tierney Director
-------------------------------
John F. Tierney
</TABLE>
74
<PAGE> 78
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICA WEST HOLDINGS CORPORATION:
The audits referred to in our report dated March 29, 2000, included the
related consolidated financial statement schedule as listed in Item 14(d) for
the years ended December 31, 1999, 1998 and 1997, included herein. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
We consent to incorporation by reference in the Registration Statements
(Form S-8 No. 33-60555), (Form S-8 No. 333-26935), (Form S-8 No. 333-94361),
(Form S-3 No. 333-51107) and (Form S-3 No. 333-02129) of America West Holdings
Corporation of our report dated March 29, 2000, relating to the consolidated
balance sheets of America West Holdings Corporation and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
cash flows and stockholders' equity for each of the years in the three-year
period ended December 31, 1999 and the related consolidated financial statement
schedule, which report appears in the December 31, 1999, annual report on Form
10-K of America West Holdings Corporation.
KPMG LLP
Phoenix, Arizona
March 29, 2000
75
<PAGE> 79
AMERICA WEST HOLDINGS CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- ----------------------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
receivables:
Year ended December 31, 1999 $3,545 $3,188 $4,280 $2,453
====== ====== ====== ======
Year ended December 31, 1998 $3,850 $3,412 $3,717 $3,545
====== ====== ====== ======
Year ended December 31, 1997 $3,091 $3,000 $2,241 $3,850
====== ====== ====== ======
Allowance for obsolescence:
Year ended December 31, 1999 $4,112 $1,642 $ 142 $5,612
====== ====== ====== ======
Year ended December 31, 1998 $2,495 $1,699 $ 82 $4,112
====== ====== ====== ======
Year ended December 31, 1997 $1,713 $1,159 $ 377 $2,495
====== ====== ====== ======
</TABLE>
76
<PAGE> 80
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
THE BOARD OF DIRECTORS AND STOCKHOLDER
AMERICA WEST AIRLINES, INC.:
The audits referred to in our report dated March 29, 2000, included the
related financial statement schedule as listed in Item 14(d) for the years ended
December 31, 1999, 1998 and 1997, included herein. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG LLP
Phoenix, Arizona
March 29, 2000
77
<PAGE> 81
AMERICA WEST AIRLINES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1999 $3,268 $3,000 $4,263 $2,005
====== ====== ====== ======
Year ended December 31, 1998 $3,850 $3,000 $3,582 $3,268
====== ====== ====== ======
Year ended December 31, 1997 $3,091 $3,000 $2,241 $3,850
====== ====== ====== ======
Allowance for obsolescence:
Year ended December 31, 1999 $4,112 $1,642 $ 142 $5,612
====== ====== ====== ======
Year ended December 31, 1998 $2,495 $1,699 $ 82 $4,112
====== ====== ====== ======
Year ended December 31, 1997 $1,713 $1,159 $ 377 $2,495
====== ====== ====== ======
</TABLE>
78
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
2.2 Agreement and Plan of Merger, dated as of December 19, 1996,
by and among America West Holdings Corporation ("Holdings"),
America West Airlines, Inc. ("AWA") and AWA Merger, Inc., with
an effective date and time as of midnight on December 31, 1996
- Incorporated by reference to Exhibit 2.1 to Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.1 Restated Certificate of Incorporation of AWA (included in
Exhibit 2.2 above).
3.2 Restated Bylaws of AWA - Incorporated by reference to AWA's
Annual Report on Form 10-K dated December 31, 1994.
3.3 Section 4.18 of the Restated Bylaws of AWA (included in
Exhibit 2.2 above).
3.4 Certificate of Incorporation of Holdings (filed with the
Secretary of State of the State of Delaware on December 13,
1996) - Incorporated by reference to Exhibit 3.1 of Holdings'
Registration Statement on Form 8-B dated January 13, 1997.
3.5 Bylaws of Holdings - Incorporated by reference to Exhibit 3.2
to Holdings' Registration Statement on Form 8-B dated January
13, 1997.
4.1 Indenture for 10 3/4% Senior Unsecured Notes due 2005 -
Incorporated by reference to Exhibit 4.1 to AWA's Form S-4
(No. 33-61099).
4.2 Form of Senior Note (included as Exhibit A to Exhibit 4.1
above).
4.3 Warrant Agreement dated August 25, 1994 between AWA and First
Interstate, N.A., as Warrant Agent - Incorporated by reference
to Exhibit 4.3 to AWA's Current Report on Form 8-K dated
August 25, 1994.
4.4 Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 Supplemental Warrant Agreement dated effective as of December
31, 1996 between AWA and Harris Trust Company of California,
as Warrant Agent - Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.7 Stock Option Agreement dated effective as of December 31,
1996, between Holdings and AWA Incorporated by reference to
Exhibit 4.5 to Holdings' Registration Statement on Form 8-B
dated January 13, 1997.
4.8 Registration Rights Agreement dated August 25, 1994 among AWA,
AmWest Partners, L.P. and other holders - Incorporated by
reference to Exhibit 4.6 to the AWA's Current Report on Form
8-K dated August 25, 1994.
4.9 Assumption of Certain Obligations Under Registration Rights
Agreement executed by Holdings for the benefit of TPG
Partners, L.P., TPG Parallel 1, L.P., Air Partners II, L.P.,
Continental Airlines, Inc., Mesa Airlines, Inc., Lehman
Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont
Fund, L.P. - Incorporated by reference to Exhibit 4.7 to
Holdings' Registration Statement on Form 8-B dated January 13,
1997.
4.10 Form of Pass Through Trust Agreement, dated as of November 26,
1996, between AWA and Fleet National Bank, as Trustee -
Incorporated by reference to Exhibit 4.1 to AWA's Report on
Form 8-K dated November 26, 1996.
</TABLE>
79
<PAGE> 83
<TABLE>
<S> <C>
4.12 Form of Pass Through Trust Agreement, dated as of June 17,
1997, between AWA and Fleet National Bank, as Trustee -
Incorporated by reference to Exhibit 4.5 to AWA's Registration
Statement on Form S-3 (No. 33-327351).
4.13 Forms of Pass Through Trust Agreements, dated as of October 6,
1998, between AWA and Wilmington Trust Company, as Trustee -
Incorporated by reference to Exhibits 4.4, 4.5, 4.6, 4.7, 4.8
and 4.9 to AWA's Registration Statement on Form S-4 (No.
333-71615).
4.14 Pass Through Trust Agreements, dated as of September 21, 1999,
between AWA and Wilmington Trust Company, as Trustee, made
with respect to the formation of America West Airlines Pass
Through Trusts, Series 1999-1G-S, 1999-1G-O, 1999-1C-S and
1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, and 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, and
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and
1999-1G-O, and 8.54% Exchange Pass Through Certificates,
Series 1999-1C-S and 1999-1C-O - Incorporated by reference to
AWA's Quarterly Report on Form 10-Q for the period ended
September 30, 1999.
10.1 Alliance Agreements dated August 25, 1994 between AWA and
Continental Airlines, Inc. including the Master Ground
Handling Agreement, the Reciprocal Frequent Flyer
Participation Agreement, the Code Sharing Agreement, the Cargo
Special Pro-Rate Agreement, the Reciprocal Club Usage
Agreement and the Memorandum of Understanding Concerning
Technology Transfers-Incorporated by reference to Exhibit
10.12 to AWA's Current Report on Form 8-K dated August 25,
1994.
10.11 Airport Use Agreement dated July 1, 1989 among the City of
Phoenix, The Industrial Development Authority of the City of
Phoenix, Arizona and AWA ("Airport Use Agreement") -
Incorporated by reference to Exhibit 10-D(9) to AWA's Annual
Report on Form 10-K for the year ended December 31, 1989.
10.12 First Amendment dated August 1, 1990 to Airport Use Agreement
- Incorporated by reference to Exhibit 10-(D)(9) to AWA's
Quarterly Report on Form 10-Q for the period ended September
30, 1990.
10.19 Management Rights Agreement dated August 25, 1994 between TPG
Partners L.P., TPG Genpar, L.P. and AWA - Incorporated by
reference to Exhibit 10.47 to AWA's Registration Statement on
Form S-1 (No. 33-54243), as amended.
10.20(1) Amended and Restated V2500 Support Contract dated as of
October 7, 1998 between AWA and IAE International Aero Engines
AG and Side Letters Nos. 1 and 2 thereto - Incorporated by
reference to Exhibit 10.20 to AWA's Annual Report on Form 10-K
for the year ended December 31, 1998.
+10.21 Amended and Restated America West 1994 Incentive Equity Plan -
Incorporated by reference to Exhibit 10.21 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
+10.23 Employment Agreement dated as of February 15, 1998 among
Holdings, AWA, The Leisure Company and William A. Franke -
Incorporated by reference to Exhibit 10.23 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
+10.24 Employment Agreement dated as of February 15, 1997 among
Holdings, AWA and Richard R. Goodmanson. - Incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.25(1) Airbus A320/A319 Purchase Agreement dated September 12, 1997
between AVSA S.A.R.L and AWA including Letter Agreements Nos.
1-10 - Incorporated by reference to Exhibit 10.26 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
</TABLE>
80
<PAGE> 84
<TABLE>
<S> <C>
10.26 Revolving Credit Agreement dated as of December 12, 1997 among
AWA and The Industrial Bank of Japan; Limited, Los Angeles
Agency as Agent for the Banks. - Incorporated by reference by
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.28(1) Amendment No. 1 dated March 31, 1998 to Airbus A320/A319
Purchase Agreement dated September 12, 1997 between AVSA
S.A.R.L. and AWA - Incorporated by reference to Exhibit 10.28
to Holdings' Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
10.29 Financing Agreement dated April 1, 1998 between the Industrial
Development Authority of the City of Phoenix, Arizona and AWA
- Incorporated by reference to Exhibit 10.29 to Holdings'
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10.30 Indenture of Trust dated April 1, 1998 from the Industrial
Development Authority of the City of Phoenix, Arizona to
Norwest Bank, Arizona N.A. - Incorporated by reference to
Exhibit 10.30 to Holdings' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
10.31 Amendment No. 1 to Code Sharing Agreement dated June 29, 1994
between AWA and Continental Airlines, Inc. - Incorporated by
reference to Exhibit 10.31 to AWA's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.32(1) Amendment No. 2 dated as of December 9, 1998 to the A319/A320
Purchase Agreement between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.32 to AWA's Annual
Report on Form 10-K for the year ended December 31, 1998.
10.33 Amendment to Employment Agreement, dated as of January 15,
1999 among Holdings, AWA, The Leisure Company and William A.
Franke - Incorporated by reference to Exhibit 10.33 to AWA's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.34 Second Amendment to Airport Use Agreement dated as of August
25, 1995 - Incorporated by reference to Exhibit 10.34 to AWA's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.35 Indenture of Trust dated as of June 1, 1999 from The
Industrial Development Authority of the City of Phoenix,
Arizona to Bank One Arizona, N.A. - Incorporated by reference
to Exhibit 10.35 to AWA's Quarterly Report on Form 10-Q for
the period ended June 30, 1999.
*10.36(1) Amendment No. 3, dated October 14, 1999, to the A319/320
Purchase Agreement dated September 12, 1997 between AVSA,
S.A.R.L. and America West and Letter Agreement Nos. 1 - 8
thereto.
*21.1 Subsidiaries of Holdings.
*23.1 Consent of KPMG LLP.
24.1 Power of Attorney, pursuant to which amendments to this Annual
Report on Form 10-K may be filed, is included on the signature
pages of this Annual Report on Form 10-K.
*27.1 Financial Data Schedule. - America West Holdings Corporation
*27.2 Financial Data Schedule. - America West Airlines, Inc.
</TABLE>
* Filed herewith.
+ Represents a management contract or compensatory plan or
arrangement.
(1) The Company has sought confidential treatment for portions of
the referenced exhibit.
81
<PAGE> 1
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
AMENDMENT NO. 3
TO
THE A319/A320 PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 12, 1997
BETWEEN AVSA S.A.R.L.
AND
AMERICA WEST AIRLINES, INC.
This Amendment No. 3 (hereinafter referred to as the "Amendment") entered into
as of October , 1999, by and between AVSA S.A.R.L., a societe a
responsabilite limitee organized and existing under the laws of the Republic of
France, having its registered office located at 2, Rond Point Maurice Bellonte,
31700 Blagnac, France (hereinafter referred to as the "Seller") and AMERICA WEST
AIRLINES, INC., a corporation organized and existing under the laws of the State
of Delaware, United States of America, having its principal corporate office
located at Phoenix Sky Harbor International Airport, 4000 East Sky Harbor
Boulevard, Phoenix, Arizona 85034, U.S.A. (hereinafter referred to as the
"Buyer").
WITNESSETH:
WHEREAS, the Buyer and the Seller have entered into an A319/A320 Purchase
Agreement, dated as of September 12, 1997 (which agreement, as previously
amended by and supplemented with all Exhibits, Appendices, Letter Agreements and
amendments (including Amendment No. 1 executed on April 27, 1998, Amendment No.
2 executed on December 9, 1998 and Letter Agreement No. 1 to Amendment No. 2
executed on May 24, 1999) is hereinafter called the "Agreement"), which
Agreement relates to, inter alia, the sale by the Seller and the purchase by the
Buyer of certain firmly ordered Airbus Industrie A319-100 and A320-200 model
aircraft.
WHEREAS, the Buyer wishes to purchase and the Seller is willing to sell above
and beyond the Aircraft under the Agreement, fifteen (15) firm A318 aircraft and
twelve (12) firm A320 aircraft, plus twenty-five (25) A320 family type purchase
option aircraft, plus twenty-five (25) A320 family type purchase rights
(collectively, the "Additional Aircraft").
WHEREAS, the Buyer and the Seller agree to set forth in this Amendment all terms
and conditions applying to the Additional Aircraft.
1
<PAGE> 2
WHEREAS, the Buyer and the Seller further agree in this Amendment to amend
certain provisions under the Agreement relating to the sale of the Aircraft and
the Additional Aircraft.
WHEREAS, capitalized terms used herein and not otherwise defined in this
Amendment will have the meanings assigned to them in the Agreement. The terms
"herein," "hereof," and "hereunder" and words of similar import refer to this
Amendment.
NOW, THEREFORE IT IS AGREED AS FOLLOWS:
1 - STRUCTURE OF THE AMENDMENT
For reasons of convenience of reference to the Agreement, the Amendment
will contain the following structure:
(i) Paragraph 2 below will list additional definitions that apply
to the Additional Aircraft under this Amendment,
(ii) Paragraphs 3 through 6 will define the terms and conditions
applying to the Additional Aircraft by outlining respectively
the provisions in the Agreement and additional specific
provisions that apply to the Additional Aircraft,
(iii) Paragraphs 7 through 9 will define the general terms applying
to the Amendment,
(iv) The Letter Agreements include:
- Letter Agreement No. 1 as intentionally left blank,
- Letter Agreement No. 2 describing Additional Aircraft
order flexibility and specific flexibility matters
relating to the Aircraft as amended from the
Agreement,
- Letter Agreement No. 3 describing the purchase
incentives relating to the Additional Aircraft and
specific purchase incentives relating to the Aircraft
as amended from the Agreement,
- Letter Agreement No. 4 describing Aircraft and
Additional Aircraft predelivery payments, which
constitutes an amended and restated Letter Agreement
No. 4 to the Agreement,
- Letter Agreement No. 5 describing training matters
related to the Additional Aircraft,
- Letter Agreement No. 6 as intentionally left blank,
- Letter Agreement No. 7 describing performance
guarantees of the A318 Aircraft, and
- Letter Agreement No. 8 [...***...]
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(v) The Exhibits include:
- Exhibit A-1 regarding the A318 Standard Specification
and Exhibit A-2 regarding the A321 Standard
Specification,
- Exhibit B-1 regarding change orders to the A318
Standard Specification, Exhibit B-2 regarding change
orders to the A321 Standard Specification, Exhibit
B-3 regarding change orders to the A319 Standard
Specification and Exhibit B-4 regarding change orders
to the A320 Standard Specification,
- Exhibit C (intentionally left blank)
- Exhibit D-1 regarding the Aircraft Price Revision
Formula,
- Exhibit D-2 regarding the Revised Airframe Revision
Formula,
- Exhibit E regarding the Price Revision Formula for
the A321 Propulsion System
- Exhibits F as intentionally left blank,
- Exhibit G providing the Acceptance Certificate for
use with all Additional Aircraft
- Exhibit H regarding the Technical Publications, which
constitutes an amended and restated Exhibit H to the
Agreement.
2 - DEFINITIONS
The following additional definitions will be added to the Agreement:
A318 Aircraft - any or all of the Airbus Industrie A318-100 model
aircraft to be firmly purchased by the Seller and sold to the Buyer
pursuant to the Agreement as amended hereby, together with all
components, equipment, parts and accessories installed in or on such
aircraft and the A318 Propulsion System.
A318 Propulsion System - the two Pratt and Whitney PW6124 powerplants
to be installed on an A318 Aircraft or installed on an A318 Aircraft at
delivery, each composed of the powerplant (as such term is defined in
Chapters 70-80 of ATA Specification 100 (revision 21), but limited to
the equipment, components, parts and accessories included in the
powerplant, as so defined) that have been sold to the Manufacturer by
Pratt & Whitney.
A318 Specification - as defined in Subparagraph 3.2 A.1.1 of this
Amendment.
A318 Standard Specification - as defined in Subparagraph 3.2 A.1.1 of
this Amendment.
A319 Additional Aircraft - any or all of the Airbus Industrie A319-100
model aircraft to be firmly purchased by the Seller and sold to the
Buyer pursuant to the Agreement as amended hereby, together will all
components, equipment, parts and accessories installed in or on such
aircraft and the Propulsion Systems installed thereon.
3
<PAGE> 4
A320 Additional Aircraft - any or all of the Airbus Industrie A320-200
model aircraft to be firmly purchased by the Seller and sold to the
Buyer pursuant to the Agreement as amended hereby, together will all
components, equipment, parts and accessories installed in or on such
aircraft and the Propulsion Systems installed thereon.
A321 Additional Aircraft - any or all of the Airbus Industrie A321-100
model aircraft to be firmly purchased by the Seller and sold to the
Buyer pursuant to the Agreement as amended hereby, together will all
components, equipment, parts and accessories installed in or on such
aircraft and the Propulsion Systems installed thereon.
A321 Standard Specification- as defined in Subparagraph 6.2.A.2 of this
Amendment
A321 Specification- as defined in Subparagraph 6.2.A.2 of this
Amendment
A321 Propulsion System - the two (2) IAE V2533-A5 powerplants to be
installed on an A321 Aircraft or installed on an A321 Aircraft at
delivery, each composed of the powerplant (as such term is defined in
Chapters 70-80 of ATA Specification 100 (Revision 21), but limited to
the equipment, components, parts and accessories included in the
powerplant, as so defined), that have been sold to the Manufacturer by
International Aero Engines AG, and a nacelle and thrust reverser for
each such powerplant.
Additional Aircraft - as defined in the recitals hereto.
Additional Firm Aircraft - collectively or individually, the fifteen
(15) firm A318 Aircraft, the twelve (12) firm A320 Additional Aircraft,
and any Option Aircraft and Purchase Right Aircraft that the Buyer
firmly purchases from the Seller under the Agreement as amended hereby.
Aircraft Price Revision Formula - as set out in Exhibit D-1 to this
Amendment.
Option Aircraft - collectively or individually, the twenty-five (25)
A320 family type option aircraft that may be A318, A319, A320, or A321
type aircraft under the Agreement as amended hereby in accordance with
Letter Agreement No. 2 to this Amendment. Each option aircraft type may
be referred to individually in this Amendment as the A318 Option
Aircraft, A319 Option Aircraft, A320 Option Aircraft or A321 Option
Aircraft.
Purchase Right Aircraft - collectively or individually, the twenty-five
(25) A320 family type purchase right aircraft that may be A318, A319,
A320, or A321 type aircraft under the Agreement as amended hereby. Each
purchase right aircraft type may be referred to individually in this
Amendment as the A318 Purchase Right Aircraft, A319 Purchase Right
Aircraft, A320 Purchase Right Aircraft or A321 Purchase Right Aircraft.
4
<PAGE> 5
Revised Airframe Price Revision Formula - as set out in Exhibit D-2 to
this Amendment.
Quarterly Batch - the allotment of Additional Firm Aircraft scheduled
for delivery within a given calendar quarter in accordance with Letter
Agreement No. 2.
3 - A318 AIRCRAFT
3.1 The A318 Aircraft will be deemed an Aircraft as defined under the
Agreement for all definitional purposes but only for the purpose of the
following provisions, exhibits and letter agreements, provided however,
in cases where the Agreement specifically refers to the A319 Aircraft
in those provisions, such term will be deemed to also include the A318
Aircraft.
A. Main Agreement Provisions Applicable to the A318 Aircraft
(i) Subclause 2.1
(ii) Clause 3 (except that the terms Standard
Specification and Specification shall refer to the
A318 Standard Specification and the A318
Specification as set forth below in Subparagraph
3.2.A.1.1)
(iii) Subclauses 4.4 and 4.5
(iv) Clauses 5, 6, 7, and 8
(v) Subclauses 9.3 (except that references to Clause 2.3
therein shall mean Subparagraph 3.2.A.1.2 hereof),
9.4, 9.5 (except that reference to Clause 9.1 and 9.2
therein shall mean the applicable A318 Aircraft
delivery schedule under this Amendment), and 9.6
(vi) Clauses 10 (except that references to (a) Subclause
2.3 in Subclause 9.3 (which is referenced in Clause
10.1) and (b) Subclauses 9.1 and 9.2 shall refer
respectively to Subparagraph 3.2.A.1.2 and to the
applicable A318 Aircraft delivery schedule under this
Amendment), 11, 12 (except that reference to Letter
Agreements 6 through 10 of the Agreement shall
instead refer to Letter Agreements 7 and 8 of this
Amendment) and 13
5
<PAGE> 6
(vii) Clause 14, except that the first sentence of
Subclause 14.5.1 is replaced by the following
sentence: "Unless otherwise specifically stated,
revision service will be offered [...***...]
(viii) Clause 15, excluding Subclause 15.1.1, which is
amended and restated below in Subparagraph 3.2.A.5.1
(ix) Clauses 16, 17, 19, 20, 21, and 22
(x) Clause 18 except that reference to Clause 9 shall
mean the applicable A318 Aircraft delivery schedule
under this Amendment, reference to Subclause 2.3
shall mean Subparagraph 3.2.A.1.2, and reference to
Exhibits B1 and B2 shall mean Exhibit B1 of the
Amendment.
B. Exhibits to the Agreement Applicable to the A318 Aircraft
(i) Exhibit C
(ii) Exhibit F
(iii) Exhibit H, as amended and restated hereby
C. Letter Agreements to the Agreement Applicable to the A318
Aircraft
(i) Letter Agreement No. 1, provided, however, that (a)
the term "last Aircraft subject to firm order under
the Agreement" in Paragraph 2 therein will mean "
last A318 Aircraft under this Agreement, as amended"
and (b) the term "first Aircraft" in Subparagraph
5.2.5 [...***...] therein shall mean "first A318
Aircraft under the Agreement, as amended".
(ii) Letter Agreement No. 4, as amended and restated
hereby
(iii) Paragraph 5 of Letter Agreement No. 5 excluding
Subparagraph 5.1.2.
(iv) Letter Agreement No. 6, [...***...]
3.2 The following specific additional provisions will apply to the A318
Aircraft:
A.1 Sale and Purchase
A.1.1 A318 Aircraft Specification
The A318 Aircraft will be manufactured in accordance with the
A318-100 Standard Specification, Issue A, dated November 1998
(the "A318 Standard Specification" which is annexed hereto as
Exhibit A-1), as modified by the SCNs listed in Exhibit B-1
hereto and as may be further modified from time to time,
pursuant to the provisions of Clause 3 of the Agreement,
[...***...] (the "A318 Specification").
A.1.2 Certification
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<PAGE> 7
The Seller will obtain or cause to be obtained a US FAA Type
Certificate (transport category) for the Aircraft pursuant to
14 CFR Part 21 and in compliance with the applicable
provisions of 14 CFR Part 25 of the US Federal Aviation
Regulations or, in each case, their successor provisions.
Each A318 Aircraft will be delivered to the Buyer with a
Certificate of Airworthiness for Export issued by the LBA. The
A318 Aircraft will be delivered in a condition enabling the
Buyer (or a person eligible to obtain such certificate under
then applicable law) to obtain at the time of delivery a
Standard Airworthiness Certificate issued pursuant to 14 CFR
Part 21 of the US Federal Aviation Regulations or its
successor provisions. The Seller will have no obligation other
than as set forth in Subclause 3.4 of the Agreement, whether
before, at or after delivery of any A318 Aircraft, to make any
alterations to such A318 Aircraft to enable such A318 Aircraft
to meet FAA requirements for specific operation on routes
unique to the Buyer.
The Seller will comply with requirements issued by the Joint
Airworthiness Authorities (JAA), as and if applicable, for the
certification of the A318 Aircraft under this Subclause 3.2
A.1.2, in respect of the manufacture, sale and delivery of the
A318 Aircraft.
Except as set forth in this Subparagraph 3.2 A.1.2, the Seller
will not be required to obtain any other certificate or
approval with respect to the A318 Aircraft.
A.2 Base Price and Base Price Revision
A.2.1 Base Price of the A318 Aircraft
The Base Price of each A318 Aircraft (as defined in the A318
Standard Specification set forth in Exhibit A-1 hereto),
including A318 Propulsion Systems, BFE and SCNs set forth in
Exhibit B-1 hereto (Parts 1, 2 and 3 under the terms set forth
therein) at delivery conditions prevailing in January 1999,
is:
US $ [...***...]
US dollars - [...***...]
A.2.2 The Base Price of the A318 Aircraft is quoted at delivery
conditions prevailing in January 1999 and will be revised to
the actual delivery date of each A318 Aircraft in accordance
with the Aircraft Price Revision Formula set forth in Exhibit
D-1 hereto.
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<PAGE> 8
A.2.3 Final Contract Price
The Final Contract Price of an A318 Aircraft will be the sum
of:
(i) the Base Price of the Aircraft, as adjusted to the
date of delivery of such Aircraft in accordance with
Subparagraph 3.2 A.2.2 above;
(ii) the price (as of delivery conditions prevailing in
January 1999) of any SCNs constituting a part of such
A318 Aircraft that are entered after the date of
execution of this Amendment, as adjusted to the date
of delivery of such A318 Aircraft in accordance with
the Aircraft Price Revision Formula set forth in
Exhibit D-1 hereto;
(iii) any other amount resulting from any other provisions
of the Agreement as amended hereby and/or any other
written agreement between the Buyer and the Seller
relating to the A318 Aircraft and specifically making
reference to the Final Contract Price of an A318
Aircraft.
A.3 Predelivery Payments
The predelivery payments for the A318 Aircraft are set forth
in amended and restated Letter Agreement No. 4 hereto.
A.4 Delivery
A.4.1 A318 Firm Aircraft Delivery Schedule
Subject to the provisions of the Agreement and this Amendment,
the Seller will have the A318 Aircraft ready for delivery at
Daimler-Benz's works near Hamburg, Germany, and the Buyer will
accept the same, during the months set forth below:
8
<PAGE> 9
<TABLE>
<CAPTION>
AIRCRAFT NO. MONTH/YEAR OF DELIVERY AIRCRAFT NO. MONTH/YEAR OF DELIVERY
------------ ---------------------- ------------ ----------------------
<S> <C> <C> <C>
1 [...***...] 9 [...***...]
2 [...***...] 10 [...***...]
3 [...***...] 11 [...***...]
4 [...***...] 12 [...***...]
5 [...***...] 13 [...***...]
6 [...***...] 14 [...***...]
7 [...***...] 15 [...***...]
8 [...***...]
</TABLE>
The Seller will, no earlier than [...***...] provide the Buyer
with the [...***...] such A318 Aircraft will be tendered for
delivery to the Buyer in a condition which is "ready for
delivery" as set forth in Subclause 9.3 of the Agreement in
accordance with the Agreement as amended by this Amendment.
The Seller shall give the Buyer not less than [...***...]
notice of the date on which the A318 Aircraft will be tendered
for delivery to the Buyer in a condition which is "ready for
delivery" as set forth in Subclause 9.3 of the Agreement in
accordance with the Agreement as amended by this Amendment.
A.5 A318 Aircraft Field Assistance and Spares Representative
A.5.1 A318 Aircraft Resident Customer Support Representative
For purposes of the A318 Aircraft, Subclause 15.1.1 is amended
and restated as follows:
The Seller [...***...] acting in an advisory capacity for as
long as the Buyer operates the Aircraft or Additional
Aircraft. In addition, to support operation of the A318
Aircraft, the Seller will provide [...***...] of the first
A318 Aircraft. The RCSR(s) will be based, on a full-time
priority basis (but not exclusive to the Buyer), at the
Buyer's main base.
A.5.2 A318 Aircraft Spares Representative
The Seller will provide the Buyer [...***...] with a spares
representative [...***...] of the first A318 Aircraft. The
provisions of Subclauses 15.2, 15.3 and 15.4 of the Agreement
apply to this Subparagraph 3.2 A.5.2 for the spares
representative.
A.6 A318 Aircraft Order Flexibility
Order flexibility related to the A318 Aircraft is set forth in
Letter Agreement No. 2 to this Amendment.
A.7 A318 Aircraft Purchase Incentives
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Purchase incentives related to A318 Aircraft are set forth in
Letter Agreement No. 3 to this Amendment.
A.8 A318 Aircraft Training and Product Support Matters
Training and product support matters related to the A318
Aircraft are set forth in Letter Agreement No. 5 to this
Amendment.
A.9 A318 Aircraft Performance Guarantees
Performance guarantees related to the A318 Aircraft are as set
forth in Letter Agreement No. 7 to this Amendment.
A.10 [...***...]
A.11 [...***...]
4 - A319 ADDITIONAL AIRCRAFT
4.1 The A319 Additional Aircraft will be deemed an Aircraft or an A319
Aircraft (as the context requires) as defined under the Agreement for
all definitional purposes but only for the purpose of the following
provisions, exhibits and letter agreements.
A. Main Agreement Provisions Applicable to the A319 Additional
Aircraft
(i) Subclauses 2.1, 2.2.1 and 2.3
(ii) Clause 3
(iii) Subclauses 4.4 and 4.5
(iv) Clauses 5, 6, 7 and 8
(v) Subclauses 9.3, 9.4, 9.5 (except that reference to
Subclause 9.1 therein shall refer to the applicable
A319 Additional Aircraft delivery schedule under this
Amendment) and 9.6
(vi) Clauses 10, 11, 12 and 13
(vii) Clause 14, except that the first sentence of
Subclause 14.5.1 is replaced by the following
sentence: "Unless otherwise specifically stated,
revision service will be offered [...***...]."
(viii) Clause 15, [...***...].
(ix) Clauses 16, 17, 18 (except that reference to Clause 9
shall mean the applicable A319 Additional Aircraft
delivery schedule herein and that reference to
Exhibits B1 and B2 shall mean Exhibit B-3 of this
Amendment.
B. Exhibits to the Agreement Applicable to the A319 Additional
Aircraft
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(i) Exhibit A1
(ii) Exhibit C
(iii) Exhibit E1
(iv) Exhibit F
(v) Exhibit H, as amended and restated hereby
C. Letter Agreements to the Agreement Applicable to the A319
Additional Aircraft
(i) Letter Agreement No. 1, provided however, that the
term "first Aircraft" as set forth in Subparagraph
5.2.5 [...***...] of this Letter Agreement No. 1 will
mean the first Aircraft delivered under the
Agreement.
(ii) [...***...].
(iii) Letter Agreement No. 4, as amended and restated
hereby.
(iv) Paragraph 5 of Letter Agreement No. 5 excluding
Subparagraph 5.1.2.
(v) Letter Agreement No. 6, [...***...].
(vi) Letter Agreement No. 8
(vii) Letter Agreement No. 10, [...***...].
4.2 The following specific additional provisions will apply to the A319
Additional Aircraft:
A.1 Sale and Purchase
Intentionally left blank
A.2 Base Price and Base Price Revision
A.2.1 Base Price of the A319 Additional Aircraft
The "Base Price" of each A319 Additional Aircraft is the sum
of:
(i) the Base Price of the A319 Airframe, and
(ii) the Base Price of the A319 Propulsion Systems.
A.2.2 Base Price of the A319 Airframe
A.2.2.1 The Base Price of the A319 Airframe is the sum of the Base
Prices set forth below in (i) and (ii):
(i) the Base Price of the A319 Airframe, as defined in
the A319 Standard Specification set forth in Exhibit
A1 to the Agreement (excluding A319 Propulsion
Systems but taking into account the
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<PAGE> 12
A319 marketing allowances given to the Seller by the A319
Propulsion Systems manufacturer), and SCNs set forth in
Exhibit B-3, Part 1, to the Amendment is:
US $ [...***...]
(Dollars -- [...***...]), and
(ii) the Base Price of the SCNs set forth in Exhibit B-3, Part 2,
to the Amendment is:
US $ [...***...]
(Dollars -- [...***...]).
A.2.3 The Base Price of the A319 Airframe is quoted at delivery
conditions prevailing in January 1998 and will be escalated up
to the actual date of delivery of such A319 Additional
Aircraft in accordance with the Revised Airframe Price
Revision Formula as set forth in Exhibit D-2 to this
Amendment.
A.2.4 Base Price of the A319 Propulsion Systems
The Base Price of a set of two (2) International Aero Engines
V2524-A5 Propulsion Systems including related equipment,
nacelles and thrust reversers at delivery conditions
prevailing in January 1998 is:
US $ [...***...]
(Dollars[...***...]).
The Base Price has been calculated with reference to the
V2524-A5 Reference Price indicated by International Aero
Engines of US $ [...***...] in accordance with economic
conditions prevailing in November 1990.
The V2524-A5 Reference Price is subject to adjustment to the
date of delivery of the A319 Aircraft in accordance with the
International Aero Engines Price Revision Formula set forth in
Exhibit E-1 to the Agreement.
A.2.5 Final Contract Price
The Final Contract Price of an A319 Additional Aircraft will
be the sum of:
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<PAGE> 13
(i) the Base Price of the Airframe constituting a part of
such A319 Additional Aircraft, as adjusted to the
date of delivery of such A319 Additional Aircraft in
accordance with Subparagraph 4.2 A.2.3 above to this
Amendment;
(ii) the price (as of delivery conditions prevailing in
January 1998) of any SCNs constituting a part of such
A319 Additional Aircraft that are entered into
pursuant to Clause 3 after the date of execution of
this Amendment, is quoted at delivery conditions
prevailing in January 1998 and will be escalated up
to the actual date of delivery of such A319
Additional Aircraft in accordance with the Revised
Airframe Price Revision Formula as set forth in
Exhibit D-2 to this Amendment.
(iii) the V2524-A5 Reference Price of the installed
Propulsion Systems constituting a part of such A319
Additional Aircraft, as adjusted to the date of
delivery of such A319 Additional Aircraft in
accordance with Subparagraph 4.2 A.2.4 above to this
Amendment;
(iv) any other amount resulting from any other provisions
of this Agreement as amended and/or any other written
agreement between the Buyer and the Seller relating
to the A319 Additional Aircraft and specifically
making reference to the Final Contract Price of an
A319 Additional Aircraft.
A.3 A319 Additional Aircraft Predelivery Payments
The predelivery payments for the A319 Additional Aircraft are as set
forth in amended and restated Letter Agreement No. 4 hereto.
A.4 A319 Additional Aircraft Delivery
Intentionally Left Blank
A.5 A319 Additional Aircraft Field Assistance and Spares Representative
Intentionally Left Blank
A.6 A319 Additional Aircraft Order Flexibility
Order flexibility related to the A319 Additional Aircraft is set forth
in Letter Agreement No. 2 to this Amendment.
A.7 A319 Additional Aircraft Purchase Incentives
Purchase incentives related to A319 Additional Aircraft are set forth
in Letter Agreement No. 3 to this Amendment.
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<PAGE> 14
A.8 A319 Additional Aircraft Training and Product Support Matters
Training and product support matters related to the A319 Additional
Aircraft are set forth in Letter Agreement No. 5 to this Amendment.
A.9 A319 Additional Aircraft Performance Guarantees
Intentionally Left Blank
A.10 [...***...]
5 - A320 ADDITIONAL AIRCRAFT
5.1 The A320 Additional Aircraft will be deemed an Aircraft or an A320
Aircraft (as the context requires) as defined under the Agreement for
all definitional purposes but only for the purpose of the following
provisions, exhibits and letter agreements:
A. Main Agreement Provisions Applicable to the A320 Additional
Aircraft
(i) Subclauses 2.1, 2.2.2 and 2.3
(ii) Clause 3
(iii) Subclauses 4.4 and 4.5
(iv) Clauses 5, 6, 7 and 8
(v) Subclauses 9.3, 9.4, 9.5 (except that (a) reference
to Subclause 9.1 shall be of no further force or
effect and (b) Subclause 9.2 shall be deemed to be
reference to the applicable A320 Additional Aircraft
delivery schedule under this Amendment) and 9.6
(vi) Clauses 10, 11, 12 and 13
(vii) Clause 14, except that the first sentence of
Subclause 14.5.1 is replaced by the following
sentence: "Unless otherwise specifically stated,
revision service will be offered [...***...]."
(viii) Clause 15, [...***...].
(ix) Clauses 16, 17, 18 (except that reference to Clause 9
shall refer to the applicable delivery schedule
herein provided and that reference to Exhibits B1 and
B2 shall mean Exhibits B-4 of the Amendment), 19, 20,
21 and 22.
B. Exhibits to the Agreement Applicable to the A320 Additional
Aircraft
(i) Exhibit A2
(ii) Exhibit C
(iii) Exhibit E2
(iv) Exhibit F
(v) Exhibit H, as amended and restated hereby
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C. Letter Agreements to the Agreement Applicable to the A320
Additional Aircraft
(i) Letter Agreement No. 1, provided however, that the
term "first Aircraft" as set forth in Subparagraph
5.2.5 [...***...] of this Letter Agreement No. 1 will
mean the first Aircraft delivered under the
Agreement.
(ii) [...***...].
(iii) Letter Agreement No. 4, as amended and restated
hereby.
(iv) Letter Agreement No. 6, [...***...].
(v) Letter Agreement No. 7.
(vi) Letter Agreement No. 9, [...***...].
5.2 The following specific additional provisions will apply to the A320
Additional Aircraft:
A.1 Sale and Purchase
Intentionally left blank
A.2 Base Price and Base Price Revision
A.2.1 Base Price of the A320 Additional Aircraft
The "Base Price" of each A320 Additional Aircraft is the sum
of:
(i) the Base Price of the A320 Airframe, and
(ii) the Base Price of the A320 Propulsion Systems.
A.2.2 Base Price of the A320 Airframe
The Base Price of the A320 Airframe is the sum of the Base
Prices set forth below in (i) and (ii):
(i) the Base Price of A320 Airframe, as defined in the
A320 Standard Specification set forth in Exhibit A2
of the Agreement (excluding A320 Propulsion Systems),
and SCNs set forth in Exhibit B-4, Part 1, of the
Amendment is:
US $ [...***...]
(Dollars -- [...***...]), and
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<PAGE> 16
(ii) the Base Price of SCNs set forth in Exhibit B-4, Part
2, of the Amendment is:
US $ [...***...]
(Dollars -- [...***...]).
A.2.3 The Base Price of the A320 Airframe is quoted at delivery
conditions prevailing in January 1998 and will be escalated up
to the actual date of delivery of such A320 Additional
Aircraft in accordance with the Revised Airframe Price
Revision Formula as set forth in Exhibit D-2 to this
Amendment.
A.2.4 Base Price of the A320 Propulsion Systems
The Base Price of a set of two (2) International Aero Engines
V2527-A5 Propulsion Systems including related equipment,
nacelles and thrust reversers at delivery conditions
prevailing in January 1998 is:
US $ [...***...]
(Dollars -- [...***...]).
The Base Price has been calculated with reference to the
V2527-A5 Reference Price indicated by International Aero
Engines of US $ [...***...] in accordance with economic
conditions prevailing in March 1988.
The V2527-A5 Reference Price is subject to adjustment to the
date of delivery of the A320 Aircraft in accordance with the
International Aero Engines Price Revision Formula set forth in
Exhibit E2 to the Agreement.
A.2.5 Final Contract Price
The Final Contract Price of an A320 Additional Aircraft will
be the sum of:
(i) the Base Price of the Airframe constituting a part of
such A320 Additional Aircraft, as adjusted to the
date of delivery of such Aircraft in accordance with
5.2 A.2.3 above to this Amendment;
(ii) the price (as of delivery conditions prevailing in
January 1998) of any SCNs constituting a part of such
A320 Additional Aircraft that are entered into
pursuant to Clause 3 after the date of execution of
this Amendment, is quoted at delivery conditions
prevailing in January 1998 and will be escalated up
to the actual date of delivery
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<PAGE> 17
of such A320 Additional Aircraft in accordance with
the Revised Airframe Price Revision Formula as set
forth in Exhibit D-2 to this Amendment;
(iii) the V2527-A5 Reference Price of the installed
Propulsion Systems constituting a part of such A320
Additional Aircraft, as adjusted to the date of
delivery of such Aircraft in accordance with
Subparagraph 5.2 A.2.4 above to this Amendment; and
(iv) any other amount resulting from any other provisions
of this Agreement as amended and/or any other written
agreement between the Buyer and the Seller relating
to the A320 Additional Aircraft and specifically
making reference to the Final Contract Price of an
Aircraft.
A.3 A320 Additional Aircraft Predelivery Payments
The predelivery payments for the A319 Additional Aircraft are
as set forth in amended and restated Letter Agreement No. 4
hereto.
A4. Delivery
A.4.1 A320 Additional Aircraft Delivery Schedule
Subject to the provisions of the Agreement and this Amendment,
the Seller will have the A320 Additional Aircraft firmly
purchased under the Agreement as amended hereby ready for
delivery at Aerospatiale's works near Toulouse, France, and
the Buyer will accept the same, during the months set forth
below:
<TABLE>
<CAPTION>
AIRCRAFT NO. MONTH/YEAR OF DELIVERY AIRCRAFT NO. MONTH/YEAR OF DELIVERY
------------ ---------------------- ------------ ----------------------
<S> <C> <C> <C>
1 [...***...] 7 [...***...]
2 [...***...] 8 [...***...]
3 [...***...] 9 [...***...]
4 [...***...] 10 [...***...]
5 [...***...] 11 [...***...]
6 [...***...] 12 [...***...]
</TABLE>
The Seller will, no earlier than [...***...] provide the Buyer
with the [...***...] such A320 Additional Aircraft will be
tendered for delivery to the Buyer in a condition which is
"ready for delivery" as set forth in Subparagraph 9.3 of the
Agreement in accordance with the Agreement as amended by this
Amendment. The Seller shall give the Buyer not less
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<PAGE> 18
than [...***...] notice of the date on which the A320
Additional Aircraft will be tendered for delivery to the Buyer
in a condition which is "ready for delivery" as set forth in
Subparagraph 9.3 of the Agreement in accordance with the
Agreement as amended by this Amendment.
A.5 A320 Additional Aircraft Field Assistance and Spares
Representative
Intentionally Left Blank
A.6 A320 Additional Aircraft Order Flexibility
Order flexibility related to the A320 Additional Aircraft is
set forth in Letter Agreement No. 2 to this Amendment.
A.7 A320 Additional Aircraft Purchase Incentives
Purchase incentives related to A320 Additional Aircraft are
set forth in Letter Agreement No. 3 to this Amendment.
A.8 A320 Product Support Matters
Product support matters related to the A320 Additional
Aircraft are set forth in Letter Agreement No. 5 to this
Amendment.
A.9 A320 Additional Aircraft Performance Guarantees
Intentionally Left Blank
A.10 [...***...]
6 - A321 ADDITIONAL AIRCRAFT
6.1 The A321 Additional Aircraft will be deemed an Aircraft as defined
under the Agreement for all definitional purposes but only for the
purpose of the following provisions, exhibits and letter agreements,
provided however, in cases where the Agreement specifically refers to
the A319 Aircraft in those provisions, such term will be deemed to also
include the A321 Additional Aircraft.
A. Main Agreement Provisions Applicable to the A321 Additional
Aircraft
(i) Subclauses 2.1 and 2.3
(ii) Clause 3 (except that the terms Standard
Specification and Specification shall refer to the
A321 Standard Specification and A321 Specification,
respectively)
(iii) Subclauses 4.4 and 4.5
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(iv) Clauses 5, 6, 7 and 8
(v) Subclauses 9.3, 9.4, 9.5 (except that (a) reference
to Subclause 9.1 therein shall refer to the
applicable A321 Additional Aircraft delivery schedule
under the Amendment, and (b) reference to Subclause
9.2 shall be of no further force or effect) and 9.6
(vi) Clauses 10, 11, 12 and 13
(vii) Clause 14, except that the first sentence of
Subclause 14.5.1 is replaced by the following
sentence: "Unless otherwise specifically stated,
revision service will be offered [...***...] ."
(viii) Clause 15, [...***...].
(ix) Clauses 16, 17, 18 (except that (a) reference to
Clause 9 shall refer to the applicable A321
Additional Aircraft delivery schedule provided herein
and (b) reference to Exhibits B1 and B2 shall mean
Exhibits B-2 of this Amendment), 19, 20, 21 and 22
B. Exhibits to the Agreement
(i) Exhibit C
(ii) Exhibit F
(iii) Exhibit H, as amended and restated hereby
C. Letter Agreements to the Agreement
(i) Letter Agreement No. 1, provided however, that the
term "first Aircraft" as set forth in Subparagraph
5.2.5 [...***...] of this Letter Agreement No. 1 will
mean the first Aircraft delivered under the
Agreement.
(ii) [...***...].
(iii) Letter Agreement No. 4 as amended and restated
hereby.
(iv) Paragraph 5 to Letter Agreement No. 5 excluding
Subparagraph 5.1.2.
(v) Letter Agreement No. 6, [...***...].
6.2 The following specific provisions will apply to the A321 Additional
Aircraft.
A.1 Sale and Purchase
Intentionally left blank.
A.2 Base Price and Base Price Revision
The A321-200 Aircraft will be manufactured in accordance with
the A321 Standard Specification, Document No. E.000.02000,
Issue 1, dated June 30, 1995, (the "A321 Standard
Specification" which is annexed hereto as Exhibit A-2 to this
Amendment) as modified by the SCNs listed in Exhibit B-2 to
this Amendment and as may be further modified from time to
time,
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pursuant to the provisions of Clause 3 of the Agreement, with
an MTOW of 89 tonnes, [...***...] (the "A321 Specification").
A.2.1 Base Price of the A321 Additional Aircraft
The "Base Price" of the A321-200 Additional Aircraft will be
the sum of:
(i) the Base Price of the A321-200 Airframe, and
(ii) the Base Price of the A321-200 Aircraft Propulsion
Systems.
A.2.2 Base Price of the A321-200 Airframe
The Base Price of the A321-200 Airframe is the sum of the Base
Prices set forth below in (i) and (ii):
(i) the Base Price of the A321-200 Airframe, as defined
in the A321 Standard Specification (excluding A321
Propulsion Systems but taking into account the
A321-200 marketing allowances given to the Seller by
the Propulsion Systems manufacturer), and all SCNs
set forth in Exhibit B-2 Part 1 of this Amendment:
US $ [...***...]
(Dollars -- [...***...]).
(ii) the Base Price of the SCNs set forth in Exhibit B-2
Part 2 of this Amendment is:
US $ [...***...]
(Dollars -- [...***...]).
A.2.3 The Base Price of the A321 Airframe is quoted at delivery
conditions prevailing in January 1998 and will be escalated up
to the actual date of delivery of such A321 Additional
Aircraft in accordance with the Revised Airframe Price
Revision Formula as set forth in Exhibit D-2 to this
Amendment.
A.2.4 Base Price of the A321-200 Additional Aircraft Propulsion
System
A.2.4.1 The Base Price of a set of two (2) IAE V2533-A5 Propulsion
Systems including related equipment, nacelles, and thrust
reversers at delivery conditions prevailing in January 1998
including the engine condition monitoring option is:
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US $ [...***...]
(Dollars -- [...***...]).
(hereinafter, the "V2533-A5 Base Price").
The V2533-A5 Base Price has been calculated with reference to
the V2533-A5 Reference Price indicated by International Aero
Engines of US $ [...***...] (Dollars -- [...***...]) in
accordance with economic conditions prevailing in March 1988.
The V2533-A5 Reference Price is subject to adjustment to the
date of delivery of each A321-200 Additional Aircraft in
accordance with the International Aero Engines Price Revision
Formula set forth in Exhibit E of this Amendment.
A.2.5 Final Contract Price
The Final Contract Price of an A321-200 Additional Aircraft
will be the sum of:
(i) the Base Price of the A321-200 Airframe constituting
a part of such A321-200 Additional Aircraft, as
adjusted to the date of delivery of such A321-200
Additional Aircraft in accordance with Subparagraph
6.2 A.2.3 above to this Amendment;
(ii) the price (as of delivery conditions prevailing in
January 1998) of any SCNs constituting a part of such
A321 Additional Aircraft that are entered into
pursuant to Clause 3 after the date of execution of
this Amendment, is quoted at delivery conditions
prevailing in January 1998 and will be escalated up
to the actual date of delivery of such A321
Additional Aircraft in accordance with the Revised
Airframe Price Revision Formula as set forth in
Exhibit D-2 to this Amendment.
(iii) the V2533-A5 Reference Price of the installed
Propulsion Systems constituting a part of such
A321-200 Additional Aircraft, as adjusted to the date
of delivery of such A321-200 Additional Aircraft in
accordance with Exhibit E to this Amendment; and
(iv) any other amount resulting from any other provisions
of the Agreement as amended and/or any other written
agreement between the Buyer and the Seller relating
to the A321-200 Additional Aircraft and specifically
making reference to the Final Contract Price of an
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A.3 A321 Additional Aircraft Predelivery Payments
The predelivery payments for the A321 Additional Aircraft are
as set forth in amended and restated Letter Agreement No. 4
hereto.
A.4 A321 Additional Aircraft Delivery
Intentionally Left Blank
A.5 A321 Additional Aircraft Field Assistance and Spares
Representative
Intentionally Left Blank
A.6 A321 Additional Aircraft Order Flexibility
Order flexibility related to the A321 Additional Aircraft is
set forth in Letter Agreement No. 2 to this Amendment.
A.7 A321 Additional Aircraft Purchase Incentives
Purchase incentives related to A321 Additional Aircraft are
set forth in Letter Agreement No. 3 to this Amendment.
A.8 A321 Additional Aircraft Training and Product Support Matters
Training and product support matters related to the A321
Additional Aircraft are set forth in Letter Agreement No. 5 to
this Amendment.
A.9 A321 Additional Aircraft Performance Guarantees
Intentionally Left Blank
A.10 [...***...]
7 - EFFECT OF THE AMENDMENT
7.1 This Amendment and the accompanying Letter Agreements contain the
entire agreement between the parties with respect to the subject matter
hereof and supersede any previous understanding, commitments or
representations whatsoever, whether oral or written (including, without
limitation, the Term Sheet dated July 6, 1999, (Reference AVSA 5234.8))
between the Buyer and the Seller.
7.2 The Agreement will be deemed amended to the extent provided in the
Amendment and the accompanying Letter Agreements, and, except as
specifically amended hereby, will continue in full force and effect in
accordance with its original terms. Both parties agree that this
Amendment and the accompanying Letter Agreements will constitute an
integral, nonseverable part of the Agreement
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and be governed by its provisions, except that if the Agreement and
this Amendment have specific provisions that are inconsistent, the
specific provisions contained in this Amendment will govern.
8 - CONFIDENTIALITY
The Seller and the Buyer (including their employees, agents and
advisors) agree to keep the terms and conditions of this Amendment
strictly confidential, except as required by applicable law or pursuant
to legal process. The Seller and the Buyer will consult prior to any
public disclosure regarding this Amendment.
9 - GOVERNING LAW
THIS AMENDMENT AND THE AGREEMENTS CONTEMPLATED HEREBY WILL BE GOVERNED
BY AND CONSTRUED AND THE PERFORMANCE THEREOF WILL BE DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF SUBPARAGRAPH 22.3 OF THE AGREEMENT.
23
<PAGE> 24
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
Very truly yours,
AVSA S.A.R.L.
By: /S/ Michele LASCAUX
------------------------
Its: Director Contracts
------------------------
Date:
------------------------
Accepted and Agreed,
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
------------------------
Its: Senior Vice President
------------------------
Date: October 14, 1999
------------------------
24
<PAGE> 25
EXHIBIT A-1
THE A318 STANDARD SPECIFICATION IS CONTAINED IN A
SEPARATE FOLDER
ExhA-1 - 1
<PAGE> 26
EXHIBIT A-2
THE A321 STANDARD SPECIFICATION IS CONTAINED IN A SEPARATE FOLDER
ExhA-2 - 1
<PAGE> 27
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UNDER 17 C.F.R. SECTIONS 200.80(b)(4)
200.83 AND 240.24b-2
EXHIBIT B-1
CHANGE ORDERS TO A318 AIRCRAFT
STANDARD SPECIFICATION (SCNs)
All change orders listed in this Exhibit B-1 Part 1 and Part 2 will be SCNs for
the purpose of Subparagraph 3.2.A.2.1 of the Amendment. All prices are expressed
in January 1999 delivery conditions and are subject to escalation in accordance
with the provisions of this Amendment. [...***...]
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EXHIBIT B-1
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EXHIBIT B-1
PART 3
AMERICA WEST AIRLINES, INC. [...***...]
In order for the Buyer to accelerate the entry into revenue service of the A318
Aircraft, the Buyer has asked the Seller to make a proposal that considers
including certain of Buyer's Engineering Orders ("E.O.s") in the A318 Aircraft
prior to delivery. No later than twelve (12) months prior to the first A318
Aircraft delivery and following an agreement between the Buyer and the Seller on
the list of E.O.s, the Seller will provide the Buyer with a commercial offer on
a per A318 Aircraft basis for the incorporation of certain Engineering Orders
into the A318 Aircraft, [...***...].
Such proposal will consider the Seller and the Manufacturer's industrial,
commercial and certification constraints. The Buyer will (i) within thirty (30)
days of the receipt of the Seller's offer, execute all relevant RFCs and SCNs
corresponding to the Engineering Orders selected to be incorporated in the A318
Aircraft prior to delivery and (ii) comply with all requirements of Clause 18 of
the Agreement in the event certain equipment is provided by the Buyer as BFE.
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***TEXT OMITTED AND FILED SEPARATELY
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EXHIBIT B-2
CHANGE ORDERS TO A321 AIRCRAFT
STANDARD SPECIFICATION (SCNs)
All change orders listed in this Exhibit B-2 Part 1 and Part 2 will be SCNs for
the purpose of Subparagraph 6.2.A.2.2 of the Amendment. All prices are expressed
in January 1998 delivery conditions and are subject to escalation in accordance
with the provisions of this Amendment.
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***TEXT OMITTED AND FILED SEPARATELY
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EXHIBIT B-3
CHANGE ORDERS TO A319 ADDITIONAL AIRCRAFT
STANDARD SPECIFICATION (SCNs)
All change orders listed in this Exhibit B-3 Part 1 and Part 2 will be SCNs for
the purpose of Subparagraph 4.2.A.2.2 of the Amendment. All prices are expressed
in January 1998 delivery conditions and are subject to escalation in accordance
with the provisions of this Amendment.
1
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PART 1
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EXHIBIT B-3
PART 2
This Exhibit B-3, Part 2 is for information only.
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EXHIBIT B-3
PART 3
AMERICA WEST AIRLINES [...***...]
In order for the Buyer to accelerate the entry into revenue service of the A319
Additional Aircraft, the Buyer has asked the Seller to make a proposal that
considers including certain of Buyer's Engineering Orders ("EO") in the Aircraft
prior to delivery. Within leadtimes compatible with the delivery of the first
A319 Additional Aircraft and following an agreement between the Buyer and the
Seller regarding the list of EO, the Seller will provide the Buyer with a
commercial offer on a per A319 Additional Aircraft basis for the incorporation
of EO into the A319 Additional Aircraft, [...***...]. Such proposal will
consider the Seller and the Manufacturer's industrial, commercial and
certification constraints. The Buyer shall (i) within 30 days of receipt of the
Seller's offer, execute all relevant RFCs and SCNs corresponding to the EO
selected to be incorporated in the A319 Additional Aircraft prior to delivery
and (ii) comply with all requirements of Clause 18 of the Agreement in the event
certain equipments are provided by the Buyer as BFE.
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<PAGE> 46
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4)
200.83 AND 240.24b-2
EXHIBIT B-4
CHANGE ORDERS TO A320 ADDITIONAL AIRCRAFT
STANDARD SPECIFICATION (SCNs)
All change orders listed in this Exhibit B-4 Part 1 and Part 2 will be SCNs for
the purpose of Subparagraph 5.2.A.2.2 of the Amendment. All prices are
expressed in January 1998 delivery conditions and are subject to escalation in
accordance with the provisions of this Amendment.
1
<PAGE> 47
EXHIBIT B-4
PART I
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PART I
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PART I
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PART I
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PART I
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EXHIBIT B-4
PART 2
This Exhibit B-4, Part 2 is for information only.
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EXHIBIT B-4
PART 3
America West Airlines -- [...***...]
In order for the Buyer to accelerate the entry into revenue service of the A320
Additional Aircraft, the Buyer has asked the Seller to make a proposal that
considers including certain of Buyer's Engineering Orders ("EO") in the Aircraft
prior to delivery. No later than 12 months prior to the delivery of the second
A320 Additional Aircraft and following an agreement between the Buyer and the
Seller regarding the list of EO applicable to the A320 Additional Aircraft, the
Seller will provide the Buyer with a commercial offer on a per 320 Additional
Aircraft basis for the incorporation of EO into the A320 Additional Aircraft,
[...***...]. Such proposal will consider the Seller and the Manufacturer's
industrial, commercial and certification constraints. The Buyer shall (i) within
30 days of receipt of the Seller's offer, execute all relevant RFCs and SCNs
corresponding to the EO selected to be incorporated in the A320 Additional
Aircraft prior to delivery and (ii) comply with all requirements of Clause 18 of
the Agreement in the event certain equipments are provided by the Buyer as BFE.
- ----------------------------------
* Confidential Treatment Requested
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EXHIBIT C
INTENTIONALLY LEFT BLANK
ExhC-1
<PAGE> 55
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4)
200.83 AND 240.24b-2
EXHIBIT D-1
AIRCRAFT PRICE REVISION FORMULA
l. BASE PRICE
The Base Price of the A318 Aircraft is as quoted in Subparagraph
3.2.A.2.1 of the Amendment (January 1999 delivery conditions) and will
be escalated as set forth in this Exhibit D-1.
2. BASE PERIOD
The above Base Price has been established in accordance with the
averaged economic conditions prevailing in December 1997/January
1998/February 1998 and corresponding to theoretical delivery conditions
prevailing in January 1999 as defined by [...***...] index values
indicated in Paragraph 4 of this Exhibit D-1.
The Base Price is subject to adjustment for changes in economic
conditions as measured by data obtained from the US Department of
Labor, Bureau of Labor Statistics, and in accordance with the
provisions of Paragraphs 4 and 5 of this Exhibit D-1.
[...***...] index values indicated in Paragraph 4 of this Exhibit D-1
will not be subject to any revision of these indexes.
3. REFERENCE INDEXES
Labor Index: [...***...].
Material Index: [...***...]
4 - REVISION FORMULA
[...***...]
In determining the Revised Base Price at delivery of the A318 Aircraft,
each quotient will be calculated to the nearest ten thousandth (4
decimals). If the next succeeding place is five (5) or more, the
preceding decimal place will be raised to the next higher figure. The
final factor will be rounded to the nearest ten thousandth (4
decimals). After final computation, Pn will be rounded to the next
whole number (0.5 or more rounded to l).
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<PAGE> 56
EXHIBIT D-1
5. GENERAL PROVISIONS
5.1 Substitution of Indexes
In the event that:
(i) the U.S. Department of Labor substantially revises the
methodology of calculation of any of the indexes referred to
hereabove, or
(ii) the U.S. Department of Labor discontinues, either temporarily
or permanently, any of the indexes referred to hereabove, or
(iii) the data samples used to calculate any of the indexes referred
to hereabove are substantially changed,
the Seller will select a substitute index.
Such substitute index will reflect as closely as possible the actual
variations of the wages or of the material costs, as the case may be,
used in the calculation of the original index.
As a result of this selection of a substitute index, the Seller will
make an appropriate adjustment to its price revision formula, allowing
to combine the successive utilization of the original index and of the
substitute index.
5.2 Final Index Values
The Revised Base Price at the date of A318 Aircraft delivery will be
final and will not be subject to further adjustments of any kind and
for any reason to the applicable indexes as published at the date of
A318 Aircraft delivery.
ExhD1 - 2
<PAGE> 57
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
EXHIBIT D-2
REVISED AIRFRAME PRICE REVISION FORMULA
l. BASE PRICE
The Base Price of the A320 Airframe for the Additional A320 Aircraft,
the Base Price of the A319 Airframe for the Additional A319 Aircraft
and the Base Price of the A321 Airframe for the Additional A321
Aircraft are as set forth in the Amendment in January 1998 delivery
conditions and will be escalated to the date of Additional Firm
Aircraft (excluding A318 Aircraft) delivery as set forth in this
Exhibit D-2.
2. BASE PERIOD
The above Base Price has been established in accordance with the
averaged economic conditions prevailing in December 1996/January
1997/February 1997 and corresponding to theoretical delivery conditions
prevailing in January 1998 as defined by [...***...] index values
indicated in Paragraph 4 of this Exhibit D-2.
The Base Price is subject to adjustment for changes in economic
conditions as measured by data obtained from the US Department of
Labor, Bureau of Labor Statistics, and in accordance with the
provisions of Paragraphs 4 and 5 of this Exhibit D-2.
[...***...] index values indicated in Paragraph 4 of this Exhibit D-2
will not be subject to any revision of these indexes.
3. REFERENCE INDEXES
Labor Index: [...***...].
Material Index: [...***...].
4 - REVISION FORMULA
[...***... ].
In determining the Revised Base Price at delivery of the Additional
Firm Aircraft (excluding A318 Aircraft), each quotient will be
calculated to the nearest ten
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<PAGE> 58
EXHIBIT D-2
thousandth (4 decimals). If the next succeeding place is five (5) or
more, the preceding decimal place will be raised to the next higher
figure. The final factor will be rounded to the nearest ten thousandth
(4 decimals). After final computation, Pn will be rounded to the next
whole number (0.5 or more rounded to l).
5. GENERAL PROVISIONS
5.1 Substitution of Indexes
In the event that:
(i) the U.S. Department of Labor substantially revises the
methodology of calculation of any of the indexes referred to
hereabove, or
(ii) the U.S. Department of Labor discontinues, either temporarily
or permanently, any of the indexes referred to hereabove, or
(iii) the data samples used to calculate any of the indexes referred
to hereabove are substantially changed,
the Seller will select a substitute index.
Such substitute index will reflect as closely as possible the actual
variations of the wages or of the material costs, as the case may be,
used in the calculation of the original index.
As a result of this selection of a substitute index, the Seller will
make an appropriate adjustment to its price revision formula, allowing
to combine the successive utilization of the original index and of the
substitute index.
5.2 Final Index Values
The Revised Base Price at the date of Additional Firm Aircraft
(excluding A318 Aircraft) delivery will be final and will not be
subject to further adjustments of any kind and for any reason to the
applicable indexes as published at the date of Additional Firm Aircraft
(excluding A318 Aircraft) delivery.
ExhD2 - 2
<PAGE> 59
EXHIBIT E
INTERNATIONAL AERO ENGINES PRICE REVISION FORMULA
l. REFERENCE PRICE
The V2533-A5 Reference Price of a set of two (2) International Aero
Engines V2533-A5 Propulsion Systems is as quoted in Subparagraph
6.2.A.2.4 of this Amendment.
This V2533-A5 Reference Price is subject to adjustment for changes in
economic conditions as measured by data obtained from the US Department
of Labor, Bureau of Labor Statistics, and in accordance with the
provisions of Paragraphs 4 and 5 of this Exhibit E.
2. REFERENCE PERIOD
The above V2533-A5 Reference Price has been established in accordance
with the economic conditions prevailing in March 1988 (or July 1988
theoretical delivery conditions) as defined, according to International
Aero Engines, by the HEb, MMPb and EPb index values indicated in
Paragraph 4 of this Exhibit E.
3. INDEXES
Labor Index: "Aircraft Engines and Engine Parts" Standard Industrial
Classification 3724--Average hourly earnings (hereinafter referred to
as "HE SIC 3724"), published by the US Department of Labor, Bureau of
Labor Statistics, in "Employment and Earnings," Establishment Data:
Hours and Earnings (Table B-15: Average hours and earnings of
production or nonsupervisory workers on private nonfarm payrolls by
detailed industry) or such other names which may be from time to time
used for the publication title and/or table.
Material Index: "Metals and Metal Products" Code l0 (hereinafter
referred to as "MMP-Index"), published by the US Department of Labor,
Bureau of Labor Statistics, in "PPI Detailed Report" (Table 6: Producer
price indexes and percent changes for commodity groupings and
individual items, not seasonally adjusted) (Base year 1982 = 100.) or
such other names which may be from time to time used for the
publication title and/or table.
Energy Index: "Fuels and Related Products and Power" Code 5
(hereinafter referred to as "EP-Index"), published by the US Department
of Labor, Bureau of Labor Statistics, in "PPI Detailed Report" (Table
6: Producer price indexes and percent changes for commodity groupings
and individual items, not seasonally adjusted) (Base year 1982 = 100)
or such other names which may be from time to time used for the
publication title and/or table.
ExhE - 1
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EXHIBIT E
4. REVISION FORMULA
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Pn = Pb [(0.60 HEn)/HEb + (0.30 MMPn)/MMPb + (0.l0 EPn)/EPb]
Where
Pn= Revised V2533-A5 Reference Price of a set of two (2)
Propulsion Systems at delivery of the A321 Additional
Aircraft.
Pb= V2533-A5 Reference Price at March 1988 economic conditions.
HEn= HE SIC 3724 for the fourth month prior to the month
of delivery of the A321 Additional Aircraft.
HEb= HE SIC 3724 for March 1988 (= 13.58)
MMPn= MMP-Index for the fourth month prior to the month
of delivery of the A321 Additional Aircraft.
MMPb = MMP-Index for March 1988 (= 115.4)
EPn= EP-Index for the fourth month prior to the month of
delivery of the A321 Additional Aircraft.
EPb= EP-Index for March 1988 (= 65.9)
</TABLE>
In determining the revised V2533-A5 Reference Price each quotient
((0.60 HEn)/HEb, (0.30 MMPn)/MMPb, (0.l0 EPn)/EPb) will be calculated
to the nearest ten thousandth (4 decimals). If the next succeeding
place is five (5) or more the preceding decimal place will be raised to
the next higher figure.
After final computation, Pn will be rounded to the next whole number
(0.5 or more rounded to l).
5. GENERAL PROVISIONS
5.1 The revised V2533-A5 Reference Price at delivery of the A321 Additional
Aircraft will be the final price and will not be subject to further
adjustments in the indexes.
5.2 If no final index value is available for any of the applicable months,
the published preliminary figures will be the basis on which the
revised V2533-A5 Reference Price will be computed.
ExhE - 2
<PAGE> 61
EXHIBIT E
5.3 If the US Department of Labor substantially revises the methodology of
calculation of the indexes referred to in this Exhibit E or
discontinues any of these indexes, the Seller will, in agreement with
International Aero Engines, apply a substitute for the revised or
discontinued index, such substitute index to lead in application to the
same adjustment result, insofar as possible, as would have been
achieved by continuing the use of the original index as it may have
fluctuated had it not been revised or discontinued. Appropriate
revision of the formula will be made to accomplish this result.
5.4 Should the above escalation provisions become null and void by action
of the US Government, the V2533-A5 Reference Price will be adjusted to
reflect increases in the cost of labor, material and fuel which have
occurred from the period represented by the applicable V2533-A5
Reference Price indexes to the fourth month prior to the scheduled
delivery of the A321 Additional Aircraft.
5.5 The revised V2533-A5 Reference Price at delivery of the A321 Additional
Aircraft in no event will be less than the V2533-A5 Reference Price
defined in Paragraph 1 of this Exhibit E.
ExhE - 3
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EXHIBIT F
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EXHIBIT G
CERTIFICATE OF ACCEPTANCE
In accordance with the terms of that certain Airbus A319/A320 Purchase Agreement
(the "Purchase Agreement") dated as of September 12, 1997, as amended over time,
between AVSA, S.A.R.L. ("AVSA") and America West Airlines, Inc. ("AWE"), the
acceptance inspection relating to the Airbus A318 Aircraft (or A319 Aircraft or
A320 Aircraft or A321 Aircraft, as applicable) (the "Aircraft"), manufacturer's
serial no. _____, FAA Registration No.: _____, with two (2) PW 6124 series
propulsion systems (or with two (2) IAE _____ series propulsion systems for
A319, A320 and A321 Aircraft) installed thereon, serial nos. _____ (position #1)
and _____ (position #2) has taken place at Hamburg, Germany (or Toulouse, France
as applicable) on the_____ day of _____ , _____ .
In view of said inspection having been carried out with satisfactory results,
and with any remaining discrepancies noted separately, AWE hereby accepts
delivery of the Aircraft as being in conformity with the provisions of the
Purchase Agreement, as amended.
This acceptance shall not impair the rights of AWE that derive from the
warranties relating to the Aircraft set forth in the Purchase Agreement, as
amended.
AWE specifically recognizes that it has waived any right it may have at law or
otherwise to revoke this acceptance of the Aircraft.
RECEIPT AND ACCEPTANCE OF THE ABOVE-DESCRIBED
AIRCRAFT ACKNOWLEDGED
---------------------------------------------
America West Airlines, Inc.
By:
---------------------------------------------
Title:
---------------------------------------------
ExhG-1
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***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
EXHIBIT H
AMENDED AND RESTATED TECHNICAL PUBLICATIONS
GENERAL
This Exhibit H lists the form, type, quantity and delivery dates for
the Technical Publications to be provided to the Buyer pursuant to
Clause 14 of the Agreement as amended by this Amendment. The term
Aircraft used herein shall refer to Aircraft or Additional Firm
Aircraft under the Agreement, as amended, as applicable.
It is hereby agreed and understood that Technical Publications listed
hereafter will be provided by the Seller to the Buyer under a revision
service format to include the Aircraft as defined under the Agreement
and the Additional Aircraft as defined under this Amendment. Technical
Publications marked (+) in this Exhibit H refer to combined
A318/A319/A320/A321 Technical Publications. Only the following
Technical Publications cannot be combined and shall be provided type
specifically for the A319, A320, A321 and the A318 Aircraft:
- Maintenance Facility Planning Manual
- Flight Manual
- Master Minimum Equipment List
- Weight and Balance Manual
- Component Documentation Status
- Airplane Characteristics
- Aircraft Recovery Manual
- Crash Crew Chart
The Technical Publications are published in accordance with ATA
Specification 200 revision 23, with the exception of certain Component
Maintenance Manuals, which may be written to an ATA Specification 200
revision other than revision 23.
When available, the Seller shall provide the Buyer with on line
connection to the applicable software program allowing the Buyer to
access on line the Installation and Assembly Drawings referred to in
Subparagraph 1.1 hereafter.
1. ENGINEERING DOCUMENTS
1.1 Installation and Assembly Drawings ( IAD)--C
The IAD will be delivered according to the Seller's standard for the
major Assembly and Installation drawings.
1.2 Drawing Number Index (DNI)--C
The DNI lists applicable drawings of the Aircraft delivered under the
Agreement.
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1.3 Process and Material Specification (PMS)
The PMS contains data related to manufacturing processes, material
identification and treatments used in the construction and assembly of
the Aircraft.
1.4 Standards Manual (SM)
The SM contains data about Seller approved standards and includes cross
reference lists.
2. MAINTENANCE AND ASSOCIATED MANUALS
2.1 APU Build-up Manual (ABM)
The ABM follows the format adopted for the Power Plant Build-up Manual.
2.2 Aircraft Maintenance Manual (AMM)--C
The component location section of the AMM will show those components
detailed in the AMM maintenance procedures. The trouble shooting part
is covered in Subparagraph 2.19 below.
*Aircraft Maintenance Manual Chapter 05 Time Limits (Service Life
Limits) and Maintenance Checks are only delivered in hard copies.
2.3 Aircraft Schematics Manual (ASM)--C
The ASM is part of the Wiring Manual. Supplied as a separate manual for
schematics.
2.4 Aircraft Wiring Manual (AWM)--C
The AWM is part of the Wiring Manual. Supplied as a separate manual for
wirings.
2.5 Aircraft Wiring Lists (AWL)--C
The AWL is part of the Wiring Manual. Supplied as a separate document
for lists.
2.6 Consumable Material List (CML)
The CML details the characteristics and gives procurement sources of
consumable materials such as grease, oil, etc.
2.7 Duct Repair Manual (DRM)
The DRM contains all the data necessary to locate, identify, repair
and/or replace sub-assemblies of metallic ducts. It also includes
details of tests necessary after repair.
ExhH-2
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2.8 Fuel Pipe Repair Manual (FPRM)
The FPRM provides workshop repair procedures and data for specific fuel
pipes, after removal from any aircraft of the Manufacturer of the type
of the Aircraft.
2.9 Illustrated Parts Catalog (IPC)--C
The IPC for the power plant is provided separately.
2.10 Illustrated Parts Catalog (power plant) (PPIPC)--C
The PPIPC covers line replaceable parts and units of the power plant,
provided by the Propulsion Systems manufacturer.
2.11 Illustrated Tool and Equipment Manual (TEM)
The TEM provides information on Ground Equipment and Tools listed in
the Seller's Aircraft Maintenance Manual.
2.12 Maintenance Facility Planning (MFP)
The MFP provides information that will assist airline personnel
concerned with long term planning of ramp or terminal operations,
Aircraft maintenance on the ramp and in the hangar, overhaul and
testing of structure and system components.
2.13 Maintenance Planning Document (MPD)
The MPD provides maintenance data necessary to plan and conduct
Aircraft maintenance checks and inspections.
2.14 Power Plant Build-up Manual (PPBM)
The PPBM provides instructions for the installation of a quick engine
change kit on a bare engine.
2.15 Support Equipment Summary (SES)
The SES lists support equipment recommended by the Seller, the
Propulsion Systems manufacturer and Vendors.
2.16 Tool Drawings (TD)
TD's will be supplied in the form of aperture cards for the Seller and,
when available, Vendor maintenance tools. A Tool Drawing Index (TDI)
will be supplied.
2.17 Tool Drawing Index (TDI)
The TDI is an alpha-numeric listing of the TD's.
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2.18 Tool and Equipment Bulletin (TEB)
The TEB provides advance information related to tools and test
equipment development.
2.19 Trouble Shooting Manual (TSM)--C
The TSM complements the CFDS and provides trouble-shooting data in the
following three levels:
Level 1 - Aimed at line use. Fault isolation guidance for
systems or parts of systems monitored mainly by CFDS.
Also guidance for systems not monitored by CFDS.
Level 2 - Aimed at hangar use. Fault isolation guidance for
non-CFDS monitored systems in the form of functional
block diagrams, charts and tables.
Level 3 - Aimed at engineering use. List of CFDS messages
and decoding of trouble shooting data (decoding of
coded messages provided by the CFDS). Level 3 is
supplied on floppy disk.
3. MISCELLANEOUS DOCUMENTATION
3.1 Airplane Characteristics for Airport Planning (AC)
The AC will be in general accordance with Specification NAS 3601.
3.2 Aircraft Recovery Manual (ARM)
The ARM provides the following planning information: preparing and
moving a disabled aircraft that may be obstructing airport traffic.
3.3 Cargo Loading System Manual (CLS)
The CLS details handling procedures for the Cargo Loading System.
3.4 Crash Crew Chart (CCC)
The CCC provides information concerning access to the Aircraft
interior, location of safety equipment, hazardous liquids, etc.
3.5 Guidelines for Customer Originated Changes (GCOC)
The GCOC provides production and presentation rules for the data
covering Buyer originated changes on the Aircraft to be incorporated by
the Seller in the Technical Publications as per Subclause 14.11 of the
Agreement.
3.6 List of Radioactive and Hazardous Elements (LRE)
The LRE provides information on components and materials for which
specific precautions have to be taken.
ExhH-4
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3.7 List of Applicable Publications (LAP)--C
The LAP will record the Seller's various Airframe Technical
Publications indicating the last valid revision number and issue date.
3.8 Livestock Transportation Manual (LTM)
The LTM details the facilities, equipment and procedures necessary for
live animal transportation in aircraft of the Manufacturer of the type
of the Aircraft.
3.9 Service Bulletins (SB)--C
The Buyer will receive all Service Bulletins applicable to the
Aircraft.
3.10 Service Bulletin Index (SBI)
The SBI is a listing of all Service Bulletins issued in ATA 100 chapter
sequence.
The SBI provides details of SB number, SB title, associated
modification number, issue status, Vendor SB number (if applicable) and
affected fleet.
3.11 Service Information Letters (SIL)
SILs give information of a general nature and also about minor changes
or inspections the Buyer may wish to apply under the Buyer's authority.
3.12 Transportability Manual (TM)
The TM gives cargo hold dimensions for currently available cargo
Aircraft, transportation information and requirements for large
Aircraft components. Component dimensions, weights and shelf life
limitations are also given.
3.13 Supplier Product Support Agreements (SPSA)
The SPSA is a collection of product support conditions negotiated by
the Manufacturer with the suppliers of Aircraft equipment.
3.14 Vendor Information Manual (VIM)
The VIM provides Vendor contact information.
3.15 Vendor Information Manual (GSE) (VIM/GSE)
The VIM/GSE gives contact names and addresses of Ground Support
Equipment (GSE) vendors and their product support organizations.
4. OPERATIONAL MANUALS
4.1 Abnormal/Emergency Check List (CL)--C
The CL is an extract from the FCOM presented as a booklet for quick
in-flight use.
ExhH-5
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4.2 Flight Crew Operating Manual (FCOM)--C
The FCOM provides Aircraft and systems descriptions, normal, abnormal
and emergency procedures as well as operational performance.
4.3 FAA Approved Flight Manual (AFM)--C
The AFM provides Aircraft performance operating limitations and other
flight data required by the relevant airworthiness authorities for
certification. It includes the Configuration Deviation List (CDL).
4.4 Master Minimum Equipment List (MMEL)
The MMEL defines the components and the related conditions under which,
when the components are defective, the Aircraft may be cleared for
flight. In addition, the MMEL provides the necessary information to
establish the Buyer's own Minimum Equipment List (MEL).
4.5 Performance Engineering Program (PEP)
The PEP consists of a Low Speed Performance data base and a High Speed
Performance data base together with their respective programs. The
Performance Engineering Program may be used by the Buyer under the
license conditions set forth in Appendix A to this Exhibit H.
The Low Speed Performance programs consist of the Take-off and Landing
Chart computation program (TLC) which permits the computation of:
- regulatory take-off and landing performance,
- noncertified take-off performance accounting for runway data and
weather, together with the Tabulation and Interpolation program (TAB),
issued with the AFM, which permits the reading, editing and
interpolation of the tables listed in the AFM.
The High Speed Performance programs are the In Flight Performance
computation program (IFP) which permits computation of Aircraft
performance for each flight phase and the Aircraft Performance
Monitoring program (APM) which permits analysis of Aircraft cruise
performance from data recorded during stabilized flight periods.
ExhH-6
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4.6 Performance Program Manual (PPM)
The PPM is the users' guide for the Performance Engineering Program
(PEP).
4.7 Noise Level Calculation Program (NLCP)
The NLCP is a software program which includes all the performance and
noise data for each A320 family aircraft/engine combination. When
combined with the OCTOPER software, it provides take-off and approach
noise computations.
4.8 OCTOPER
Operational Flight path computation to optimize gross flight path.
4.9 Weight and Balance Manual (WBM) and
Weight and Balance Manual Supplements--C
The corresponding supplements:
-Delivery Weighing Report,
-Equipment List,
will be delivered with each Aircraft or Additional Firm Aircraft, as
applicable.
5. OVERHAUL DATA
5.1 Component Documentation Status (CDS)--C
The CDS lists Component Maintenance Manuals in accordance with
Subparagraphs 5.4 and 5.5 below.
5.2 Component Evolution List (CEL)
The CEL is a noncustomized document listing all components on the
Aircraft and also gives the evolution of each component.
The information is provided in order of:
- part number
- FSCM
- ATA reference.
5.3 Cable Fabrication Manual (CFM)
The CFM contains all the data necessary to locate, identify,
manufacture and test control cables used on the Aircraft. An appendix
contains cable end fitting specification sheets, and detailed
manufacturing instructions.
ExhH-7
<PAGE> 71
5.4 Component Maintenance Manual Manufacturer (CMMM)
The CMMM contains all the data necessary to locate, identify and
maintain Aircraft components manufactured by the Seller.
5.5 Component Maintenance Manual Vendor (CMMV)
The Seller shall endeavor to ensure that each Vendor of repairable
components shall deliver to the Buyer a Component Maintenance Manual
Vendor with revision service.
6. STRUCTURAL MANUALS
6.1 Nondestructive Testing Manual (NTM)
The NTM supplies Airframe data necessary to carry out nondestructive
testing.
6.2 Structural Repair Manual (SRM)
The SRM contains descriptive information for identification and repair
of the Airframe primary and secondary structure.
FORMAT
AC APERTURE CARD. Refers to 35mm film contained on punched aperture cards.
CD CD-ROM.
D FLOPPY DISK
F MICROFILM. Refers to 16mm roll film in 3M type cartridges.
MP Refers to paper printed one side, unpunched quality shall be suitable
for further reproduction or microfilming.
MT MAGNETIC TAPE
P1 PRINTED ONE SIDE. Refers to manuals in paper with print on one side of
the sheets only.
P2 PRINTED BOTH SIDES. Refers to manuals with print on both sides of the
sheets.
SMF SILVER MASTER FILM. Refers to thick diazo film suitable for further
reproduction.
TYPE
C CUSTOMIZED. Refers to manuals which are customized to specific MSNs.
E ENVELOPE. Refers to manuals which are not customized.
ExhH-8
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P PRELIMINARY. Refers to preliminary data or manuals which may consist
of:
-either one time issue not maintained by revision service, or
-preliminary issues maintained by revision service until final manual
or data delivery, or
-supply of best available data under final format with progressive
completion through revision service.
DELIVERY
Manual delivery is expressed either as the number of days prior to delivery of
the first Aircraft or first A318 Aircraft (as applicable) or as nil (0), which
designates the date of delivery of the first Aircraft or first A318 Aircraft (as
applicable).
It is agreed that the number of days indicated will be rounded up to the next
regular revision release date.
Quantity reflects the number of revision or full manual whenever appropriate,
which shall be provided to the Buyer.
MANUALS AVAILABLE (headlines)
1 - ENGINEERING DOCUMENTS
2 - MAINTENANCE & ASSOCIATED MANUALS
3 - MISCELLANEOUS PUBLICATIONS
4 - OPERATIONAL MANUALS AND DATA
5 - OVERHAUL DATA
6 - STRUCTURAL MANUALS
ExhH-9
<PAGE> 73
1. ENGINEERING DOCUMENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Installation and Assembly IAD [...***...] [...***...] [...***...] (2) 0
(1) Drawings
+ Parts Usage (Effectivity) PU [...***...] [...***...] [...***...] (2) 0
+ Schedule (Drawing S [...***...] [...***...] [...***...] (2) 0
Nomenclature)
+ Drawing Number Index DNI [...***...] [...***...] [...***...] (2) 0
+ Process and Material PMS [...***...] [...***...] [...***...] AN 0
Specification [...***...] [...***...] [...***...] AN 0
+ Standards Manual SM [...***...] [...***...] [...***...] AN 0
+ Electrical Load Analysis ELA [...***...] [...***...] [...***...] AN 0
Stress Data and Analysis 3
</TABLE>
1 Plus (+) signs indicates a combined A318/A319/A320/A321 (if
applicable) Technical Publication.
2 Revision service for the manufacture drawings is restricted to cover
the Aircraft/Additional Firm Aircraft configuration at delivery.
3 The Seller will provide, after the date hereof, an index of available
stress data for the Additional Firm Aircraft. The Seller will provide the Buyer
stress data on a case-by-case basis upon the Buyer's request. Upon receipt of
the Buyer's request, the Seller will immediately make available the requested
stress data through its design office.
- ----------------------------------
* Confidential Treatment Requested
ExhH-10
<PAGE> 74
2. MAINTENANCE & ASSOCIATED MANUALS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ APU Build-up Manual ABM [...***...] [...***...] [...***...] AN 90
+ Aircraft Maintenance Manual AMM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
+ Aircraft Schematics Manual ASM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
+ Aircraft Wiring Manual AWM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
+ Aircraft Wiring Lists AWL [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
+ Consumable Material List CML [...***...] [...***...] [...***...] AN 90
+ Component Location Manual CLM [...***...] [...***...] [...***...] 4 90
+ Duct Repair Manual DRM [...***...] [...***...] [...***...] AN 90
+ Fuel Pipe Repair Manual FPRM [...***...] [...***...] [...***...] AN 90
</TABLE>
- ----------------------------------
* Confidential Treatment Requested
ExhH-11
<PAGE> 75
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Illustrated Parts Catalog IPC [...***...] [...***...] [...***...] 4 90
(Airframe) [...***...] [...***...] [...***...] 4 90
+ Illustrated Parts Catalog PIPC [...***...] 4 90
(Power Plant)(5) [...***...] 4 90
[...***...] 4 90
+ Illustrated Tool and Equipment TEM [...***...] [...***...] [...***...] AN 360
Manual
+ Maintenance Facility Planning MF [...***...] [...***...] [...***...] AN 90
+ Maintenance Planning Document MPD [...***...] [...***...] [...***...] AN 360
+ Power Plant Build-up Manual(5) PPBM [...***...] [...***...] [...***...] AN 90
+ Support Equipment Summary SES [...***...] [...***...] [...***...] AN 360
[...***...] [...***...] [...***...] AN 360
[...***...] [...***...] [...***...] AN 360
+ Tool and Equipment Drawings TD [...***...] [...***...] [...***...] AN 360
+ Tool and Equipment Index TEI [...***...] [...***...] [...***...] AN 360
</TABLE>
5 Supplied by the Propulsion Systems Manufacturer
----------------------------------
* Confidential Treatment Requested
ExhH-12
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Trouble Shooting Manual TSM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 90
[...***...] [...***...] [...***...] 90
[...***...] [...***...] [...***...] 90
+ Aircraft Documentation Retrieval ADRES [...***...] [...***...] [...***...] 4
System
+ Computer Assisted Aircraft CAATS [...***...] [...***...] [...***...] 4
Troubleshooting
</TABLE>
3. MISCELLANEOUS PUBLICATIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Airplane Characteristics for AC [...***...] [...***...] [...***...] AN 360
Airport Planning
Aircraft Recovery Manual ARM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
Crash Crew Chart CCC [...***...] [...***...] [...***...] AN 180
+ Guidelines for Customer GCOC [...***...] [...***...] [...***...] AN 0
Originated Changes
+ List of Radioactive and LRE [...***...] [...***...] [...***...] AN 90
Hazardous Elements
+ List of Applicable Publications LAP [...***...] [...***...] [...***...] AN 90
</TABLE>
----------------------------------
* Confidential Treatment Requested
ExhH-13
<PAGE> 77
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Livestock Transportation Manual LTM [...***...] [...***...] [...***...] AN 90
+ Service Bulletin SB [...***...] [...***...] [...***...] AN 0
[...***...] [...***...] [...***...] AN 0
[...***...] [...***...] [...***...] AN 0
+ Service Bulletin Index SBI [...***...] [...***...] [...***...] AN 90
+ Service Information Letters SIL [...***...] [...***...] [...***...] AN 0
+ Technical Publications Combined TPCI [...***...] [...***...] [...***...] AN
Index
+ Transportability Manual TM [...***...] [...***...] [...***...] AN 90
Supplier Product Support SPSA [...***...] [...***...] [...***...] AN 360
Agreements (SPSA)
+ Vendor Information Manual VIM [...***...] [...***...] [...***...] AN 360
+ Vendor Information Manual GSE GSE [...***...] [...***...] [...***...] AN 360
</TABLE>
4. OPERATIONAL MANUALS AND DATA
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Check List/Abnormal/Emergency/ CL/QRH [...***...] [...***...] [...***...] AN 90
Quick Reference Handbook
</TABLE>
----------------------------------
* Confidential Treatment Requested
ExhH-14
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Flight Crew Operating Manual(6) FCOM [...***...] [...***...] [...***...] AN 90
Flight Manual FM [...***...] [...***...] [...***...] AN 0
Master Minimum Equipment List MMEL [...***...] [...***...] [...***...] AN 90
[...***...] [...***...] [...***...] AN 90
Noise Level Calculation program LCP [...***...] [...***...] [...***...] AN 90
Performance Engineering Program PEP [...***...] [...***...] [...***...] AN 90
+ Performance Program Manual PPM [...***...] [...***...] [...***...] AN 90
Octoper OCTOPER [...***...] [...***...] [...***...] AN 90
Weight and Balance Manual WBM [...***...] [...***...] [...***...] AN 0
[...***...] [...***...] [...***...] AN 0
</TABLE>
[...***...]
5 OVERHAUL DATA
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Component Documentation Status CDS [...***...] [...***...] [...***...] AN 180
</TABLE>
6 [...***...]
----------------------------------
* Confidential Treatment Requested
ExhH-15
<PAGE> 79
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Component Evolution List(6) CEL [...***...] [...***...] [...***...] AN
+ Cable Fabrication Manual CFM [...***...] [...***...] [...***...] AN 90
+ Component Maintenance Manual CMMM [...***...] [...***...] [...***...] AN 180
Airframe Manufacturer(7)
+ Component Maintenance Manual CMMV [...***...] [...***...] [...***...] AN 180
Vendor
</TABLE>
6 STRUCTURAL MANUALS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
+ Nondestructive Testing Manual NTM [...***...] [...***...] [...***...] 4 90
+ Structural Repair Manual SRM [...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
[...***...] [...***...] [...***...] 4 90
</TABLE>
6 Optional - Delivered as follow-on for CDS.
7 The Buyer will receive one generic preliminary copy prior to delivery
of the first Aircraft.
- ----------------------------------
* Confidential Treatment Requested
ExhH-16
<PAGE> 80
APPENDIX A TO
EXHIBIT H
LICENSE FOR USE
OF THE PERFORMANCE ENGINEERING PROGRAMS (PEP)
1. GRANT
The Seller grants to the Buyer the right to use the Performance
Engineering Programs (PEP) in machine readable form on a single
computer network during the term of this license agreement (the
"License Agreement").
Use of the PEP in readable form shall be limited to one (1) copy.
However, the Buyer may make duplicate copies, provided that they are
either contained in the same network as the original copy, or produced
for checkpoint and restart purposes or made with the consent of the
Seller for a specific need.
2. MERGING
The PEP may be used and adapted in machine readable form for the
purpose of merging it into other program material of the Buyer, but, on
termination of this License Agreement, the Buyer shall remove the PEP
from the other program material with which it has been merged.
The Buyer agrees to reproduce the copyright and other notices as they
appear on or within the original media on any copies that the Buyer
makes of the PEP.
3. PERSONAL LICENSE
The above described license is personal to the Buyer and its computer
service contractors, nontransferable and nonexclusive.
4. INSTALLATION
It is the Buyer's responsibility to install the PEP and to perform any
mergings and checks. The Seller shall, however, assist the Buyer's
operations engineers in the initial phase following the delivery of the
PEP until such personnel reach the familiarization level required to
make inputs and correlate outputs.
5. PROPRIETARY RIGHTS AND NONDISCLOSURE
5.1 The PEP and the copyright and other proprietary rights of whatever
nature in the PEP are and shall remain with the Seller. The PEP and its
contents are designated as confidential.
ExhH-17
<PAGE> 81
5.2 The Buyer undertakes not to disclose the PEP, parts thereof or its
contents to any third party except the Buyer's computer service
provider, without the prior written consent of the Seller. Insofar as
it is necessary to disclose aspects of the PEP to employees, such
disclosure is permitted only for the purpose for which the PEP is
supplied and only to the employee who needs to know the same.
6. CONDITIONS OF USE
6.1 The Seller does not warrant that the PEP shall contain no errors.
However, should the PEP be found to contain any error at delivery of
the PEP, the Buyer shall notify the Seller promptly thereof and the
Seller shall take all proper steps to correct the same at its own
expense.
6.2 The Buyer shall ensure that the PEP is correctly used in appropriate
machines as indicated in the Performance Programs Manual (PPM) and that
staff are properly trained to use the same, to trace and correct
running faults, to restart and recover after fault and to operate
suitable checks for accuracy of input and output.
6.3 It is understood that the PPM is the user's guide of the PEP and that
the Buyer shall undertake to use the PEP in accordance with the PPM.
6.4 The PEP is supplied under the express condition that the Seller shall
have no liability in contract or in tort arising from or in connection
with the Buyer's use of or inability to use the PEP.
7. DURATION
Subject to the Buyer's compliance with the terms of this License
Agreement, the rights under this License Agreement shall be granted to
the Buyer for as long as the Buyer operates an Aircraft to which the
PEP refers.
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<PAGE> 82
APPENDIX B TO
EXHIBIT H
LICENSE FOR USE OF CD-ROM
1. GRANT
The Seller grants the Buyer the right to use the Aircraft Documentation
Retrieval System (ADRES) and/or the Computer Assisted Aircraft
Troubleshooting (CAATS) on CD-ROM for the term of this License. Use of
ADRES and/or CAATS shall be limited to the number of copies agreed
between the parties.
For clarification, it is hereby stated that the Power Plant IPC is not
part of the electronic IPC and is only available on other media (paper
of film).
2. TERM
The rights under the License shall be granted from the date of first
delivery of ADRES and/or CAATS to the end of the current year. The
grant shall be renewed automatically at the beginning of each calendar
year for another year, unless either the Buyer or the Seller gives
written notice to the other party three (3) months prior to the end of
the License of its intention to terminate the grant. Within thirty (30)
days of termination, the Buyer shall return ADRES and/or CAATS and all
copies thereof to the Seller.
3. REVISION SERVICE
The Seller shall provide revision service for ADRES and/or CAATS during
the term. The revision service shall be based on the revision service
which the Seller provides for the documentation in paper or film
format.
ADRES and/or CAATS CD-ROM shall be revised concurrently with the paper
and film deliveries. However, temporary revisions are not currently
provided in digital data format and are only available in paper format.
4. PERSONAL LICENSE
The License is personal to the Buyer, non-transferable and
non-exclusive. The Buyer shall not permit any third party to use ADRES
and/or CAATS, nor shall it transfer or sub-license ADRES and/or CAATS
to any third party, without prior written consent from the Seller.
ExhH-19
<PAGE> 83
5. INSTALLATION
The Seller shall provide the list of hardware on which ADRES and/or
CAATS shall be installed. The Buyer shall be responsible for procuring
such hardware and installing ADRES and/or CAATS.
6. PROPRIETARY RIGHTS
ADRES and/or CAATS are proprietary to the Seller and the copyright and
all other proprietary rights in ADRES and/or CAATS are and shall remain
the property of the Seller.
7. COPYRIGHT INDEMNITY
The Seller shall defend and indemnify the Buyer against any claim that
the normal use of ADRES and/or CAATS infringes the intellectual
property rights of any third party, provided that the Buyer:
7.1 immediately notifies the Seller of any such claim;
7.2 makes no admission or settlement of any claim;
7.3 allows the Seller to have sole control of all negotiations for its
settlement;
7.4 gives the Seller all reasonable assistance in connection therewith.
8. CONFIDENTIALITY
ADRES and/or CAATS and their contents are designated as confidential.
The Buyer undertakes not to disclose ADRES and/or CAATS or parts
thereof to any third party without the prior written consent of the
Seller. In so far as it is necessary to disclose aspects of ADRES
and/or CAATS to the employees, such disclosure is permitted solely for
the purpose for which ADRES and/or CAATS are supplied and only to those
employees who need to know the same.
9. CONDITIONS OF USE
The Buyer shall not make any copies of ADRES and/or CAATS, except for
installation purposes.
9.1 The Seller does not warrant that the operation of ADRES and/or CAATS
shall be error free. In the event of an error occurring within thirty
(30) days of delivery, the sole and exclusive liability of the Seller
shall be, at its expense, to correct ADRES and/or CAATS in the
following revision.
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<PAGE> 84
9.3 THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND REMEDIES
OF THE BUYER SET FORTH IN THIS LICENSE ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES
ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER AND
OTHER RIGHTS, CLAIMS OR REMEDIES OF THE BUYER AGAINST THE SELLER,
EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
NON-CONFORMITY OR DEFECT IN THE ADRES AND/OR CAATS DELIVERED UNDER THIS
LICENSE.
10. TRAINING
In addition to the user guide supplied with ADRES and/or CAATS,
training and other assistance may be provided upon the Buyer's request
on conditions to be mutually agreed.
11. REPLACEMENT OF PRODUCT
For clarification purposes it is hereby expressly stated that ADRES
and/or CAATS shall be offered for a limited time period, not exceeding
the term of this License. In the event that the Seller should offer a
replacement product, the conditions for using such product shall be
subject to a separate agreement.
ExhH-21
<PAGE> 85
LETTER AGREEMENT NO. 1
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: SPARE PARTS PROCUREMENT
Intentionally Left Blank
LA1-1
<PAGE> 86
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 2
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: AIRCRAFT ORDER FLEXIBILITY
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997, (the "Agreement")
between AVSA S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the
"Buyer"), the Buyer and the Seller have agreed to set forth in this Letter
Agreement No. 2 (the "Letter Agreement") certain additional terms and conditions
regarding the sale of the Additional Aircraft and the sale of Growth Aircraft
and Purchase Option Aircraft as defined under the Agreement. Capitalized terms
used herein and not otherwise defined in this Letter Agreement will have the
meanings assigned thereto in the Agreement as amended by this Amendment. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. TERMINATION OF LETTER AGREEMENT N0. 2 TO THE AGREEMENT
Any rights the parties may have had with respect to Growth Aircraft and
to the Purchase Option Aircraft under the Agreement are hereby
terminated and neither the Buyer nor the Seller will have any further
rights or obligations from the date hereof with respect to either the
Growth Aircraft or the Purchase Option Aircraft under the Agreement.
Letter Agreement No. 2 to the Agreement dated September 12, 1997 is
hereby terminated in its entirety and is of no further force and
effect.
<PAGE> 87
It is agreed and understood by the Buyer and the Seller that the
[...***...] Growth Aircraft confirmed as firm A320 Aircraft [...***...]
pursuant to Amendment No. 2 to the Agreement dated December 9, 1998
will not be affected by this provision.
2. OPTION AIRCRAFT
2.1 The Seller will provide the Buyer with the right to purchase up to
twenty-five (25) Option Aircraft to be delivered, if firmly exercised
by the Buyer as set forth herein, according to the following delivery
schedule expressed in Quarterly Batches (the "Option Schedule").
[...***...].
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
YEAR/QTR [...***...] [...***...] TOTAL
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
[...***...] [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
TOTAL [...***...] [...***...] [...***...]
--------------------------------------------------------------------------------------------------------------
</TABLE>
[...***...].
2.2 Option Fee
At Amendment execution, the Buyer will pay an option fee of US $
[...***...] (Dollars -- [...***...]) (the "Option Fee") for each Option
Aircraft. Each Option Fee is non-refundable only if the Buyer does not
later firmly exercise the corresponding Option Aircraft. In the event
the Buyer firmly exercises an Option Aircraft as set forth in
Subparagraph 2.3 hereafter, the corresponding Option Fee will be
applied (without interest) against the Option Aircraft Predelivery
Payment as set out in Subparagraph 2.3.4 of Letter Agreement No. 4 to
the Amendment at the time of Option Aircraft exercise.
2.3 Option Aircraft Exercise [...***...]
The Seller grants the Buyer the right for Option Aircraft scheduled for
delivery hereunder
[...***...].
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<PAGE> 88
2.3.1 [...***...]
2.3.2 [...***...]
2.3.3 Concurrently with each Option [...***...] Exercise the Buyer will make,
for each Option Aircraft so exercised [...***...], an Option Aircraft
Predelivery Payment as set forth in [...***...] of Amended and Restated
Letter Agreement No. 4 to the Agreement, as amended, upon which each
Option Aircraft exercised will become an Additional Firm Aircraft. In
the event that the Seller does not receive [...***...] the Option
[...***...] Exercise and the Predelivery Payment referred to in
Subparagraph 2.3.3 herein with respect to an [...***...] Aircraft (as
may have been converted pursuant to the Substitution Right exercise) on
or before the Exercise Date (or such later date as may be established
pursuant to the provisions of Subparagraph 2.3.2 (ii) above), then the
Buyer's rights with respect to the corresponding Option Aircraft will
expire and the parties will have no further obligations to one another
with respect to such Option Aircraft.
3. PURCHASE RIGHT AIRCRAFT
3.1 The Seller also hereby grants the Buyer the right to purchase up to
twenty-five (25) Purchase Right Aircraft for delivery dates [...***...]
subject to the terms set forth herein. [...***...].
3.2 The Purchase Right Aircraft will remain without reserved delivery
quarters by the Seller [...***...] until the Buyer requests a delivery
date by written notice to the Seller, such notice also specifying the
type of Purchase Right Aircraft the Buyer is considering to firmly
purchase. The Seller will then provide in writing within [...***...],
subject to its industrial and commercial constraints at the time, a
delivery month and year, [...***...] until written confirmation of
acceptance from the Buyer and concurrent payment of a Purchase Right
Predelivery Payment as set out in [...***...] of Letter Agreement No. 4
to the Amendment (upon which the Purchase Right Aircraft will be an
Additional Firm Aircraft under the Agreement).
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<PAGE> 89
4. RESTATED A319 AIRCRAFT AND A320 AIRCRAFT DELIVERY SCHEDULE
For convenience purposes only, the Buyer and the Seller agree to
restate in this Paragraph 4 the delivery schedule for the A319 Aircraft
and for the A320 Aircraft firmly established and agreed to between the
parties pursuant to the Agreement prior to the date hereof and also
taking into account (with respect to A320 Aircraft) the provisions of
Paragraph 1 of this Letter Agreement.
4.1 Restated delivery schedule for A319 Aircraft:
<TABLE>
<CAPTION>
A319 Aircraft No. Month/Year of Delivery A319 Aircraft No. Month/Year of Delivery
----------------- ---------------------- ----------------- ----------------------
<S> <C> <C> <C>
[...***...] [...***...]
1 12
[...***...] [...***...]
2 13
[...***...] [...***...]
3 14
[...***...] [...***...]
4 15
[...***...] [...***...]
5 16
[...***...] [...***...]
6 17
[...***...] [...***...]
7 18
[...***...] [...***...]
8 19
[...***...] [...***...]
9 20
[...***...] [...***...]
10 21
[...***...] [...***...]
11 22
</TABLE>
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<PAGE> 90
Restated delivery schedule for A320 Aircraft:
<TABLE>
<CAPTION>
A320 Aircraft No. Month/Year of Delivery A320 Aircraft No. Month/Year of Delivery
----------------- ---------------------- ----------------- ----------------------
<S> <C> <C> <C>
[...***...] [...***...]
1 13
[...***...] [...***...]
2 14
[...***...] [...***...]
3 15
[...***...] [...***...]
4 16
5 [...***...] [...***...]
17
6 [...***...] [...***...]
18
[...***...] [...***...]
7 19
[...***...] [...***...]
8 20
[...***...] [...***...]
9 21
[...***...] [...***...]
10 22
[...***...] [...***...]
11 23
[...***...] [...***...]
12 24
</TABLE>
5. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement, the
Amendment or of the Agreement, this Letter Agreement and the rights and
obligations of the Buyer hereunder will not be assigned or transferred
in any manner without the prior written consent of the Seller, and any
attempted assignment or transfer in contravention of the provisions of
this Paragraph 5 will be void and of no force or effect.
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<PAGE> 91
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
-----------------------
Its: Director Contracts
---------------------
Accepted and Agreed
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
-------------------------------
Its: Senior Vice President
-------------------------------
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<PAGE> 92
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 3
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: PURCHASE INCENTIVES
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997 (the "Agreement"),
between AVSA S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the
"Buyer"), the Buyer and the Seller have agreed to set forth in this Letter
Agreement No. 3 (the "Letter Agreement") certain additional terms and conditions
regarding the sale of the Additional Aircraft and the sale of Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter Agreement
will have the meanings assigned thereto in the Agreement as amended by this
Amendment. The terms "herein," "hereof" and "hereunder" and words of similar
import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. [...***...] CREDIT MEMORANDA AND PURCHASE INCENTIVES
1.1 In respect of the [...***...], the Seller offers the Buyer credits in
the amount of:
(i) US $ [...***...].
(US dollars -- [...***...]), and
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<PAGE> 93
(ii) US $ [...***...]
(US dollars---[...***...]), and
(iii) US $ [...***...]
(US dollars--[...***...]).
[...***...].
1.2 [...***...].
1.2.1 [...***...].
1.2.2 [...***...].
2. [...***...].
2.1 [...***...].
2.1.1 [...***...].
2.1.2 [...***...].
2.2 [...***...].
2.2.1 [...***...].
2.2.2 [...***...].
3. [...***...] CREDIT MEMORANDA
3.1 [...***...].
3.1.1 [...***...].
3.1.2 [...***...].
3.2 [...***...].
3.2.1 [...***...].
3.2.2 [...***...].
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4. [...***...] CREDIT MEMORANDUM AND PURCHASE INCENTIVES
4.1 [...***...].
4.1.1 The Seller will provide to the Buyer a credit memorandum in the
amount of US $[...***...].
4.1.2 [...***...].
4.2 [...***...].
5. [...***...] CREDITS FOR AIRCRAFT AND ADDITIONAL AIRCRAFT
Paragraph 5 of Letter Agreement No. 3 to the Agreement is hereby
deleted in its entirety and of no further force or effect as of the
date hereof. In lieu of the provision contained therein, [...***...].
6. [...***...] CREDIT MEMORANDA
6.1 [...***...].
6.1.1 The Seller will provide only for the [...***...] a total credit to the
Buyer in the amount of US $[...***...].
6.1.2 [...***...].
6.1.3 [...***...].
6.2 The Seller also agrees to provide for [...***...] a total credit to
the Buyer in the amount not to exceed US $[...***...].
7. [...***...] CREDIT MEMORANDUM
7.1 The Seller will provide, [...***...] credit memorandum in the amount of
$ [...***...].
7.2 The Seller will provide, [...***...] credit memorandum in the amount of
$ [...***...].
7.3 [...***...].
8. [...***...].
9. [...***...].
10. [...***...].
11. [...***...].
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<PAGE> 95
12. [...***...].
13. [...***...].
13.1 [...***...].
13.2 [...***...].
13.3 [...***...].
14. [...***...].
14.1 [...***...].
14.2 [...***...].
14.3 [...***...].
15. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement No. 2 to
the Amendment, this Letter Agreement and the rights and obligations of
the Buyer hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 15 will be void and of no force or effect.
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<PAGE> 96
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
----------------------
Its: Director Contracts
----------------------
Accepted and Agreed
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
-----------------------
Its:Senior Vice President
-----------------------
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<PAGE> 97
EXHIBIT A TO LETTER AGREEMENT NO. 3
-----------------------------------
[...***...]
LA3-6
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<PAGE> 98
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 4 TO AMENDMENT NO. 3
(AMENDED AND RESTATED LETTER
AGREEMENT NO. 4 TO THE AGREEMENT)
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: PREDELIVERY PAYMENTS
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997, between AVSA
S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the "Buyer"), the
Buyer and the Seller have agreed to amend and restate Letter Agreement No. 4 to
the Agreement with this Letter Agreement No. 4 (the "Letter Agreement") to the
Amendment. For the purposes of this Letter Agreement only, the term Aircraft as
defined under the Agreement will be deemed to include Additional Aircraft.
Capitalized terms used herein and not otherwise defined in this Letter Agreement
will have the meanings assigned thereto in the Agreement or the Amendment. The
terms "herein," "hereof" and "hereunder" and words of similar import refer to
this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
1. PRIOR AGREEMENTS, PAYMENTS AND [...***...].
1.1 Old Predelivery Payments
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The Seller acknowledges that, as of even date herewith, the Buyer has
paid to the Seller cash Predelivery Payments in accordance with the
1990 Purchase Agreement in the total amount of US $ [...***...].
1.2 Deposits
The Seller acknowledges that prior to the date hereof the Buyer has
paid the Seller cash deposits for the Aircraft as follows (the "Cash
Deposits"):
(i) US $ [...***...];
(ii) US $ [...***...];
(iii) US $ [...***...].
The Cash Deposits were credited into the Prepayment Fund pursuant to
the provisions of Subparagraph 1.3 hereof.
1.3 [...***...].
1.4 [...***...].
2. [...***...] PREDELIVERY PAYMENTS.
2.1 [...***...] predelivery payments [...***...] have been paid by the
Buyer to the Seller [...***...]: [...***...]; and [...***...].
2.2 [...***...].
2.2.1 [...***...].
2.2.2 [...***...].
2.3 Adjustment of Predelivery Payments
2.3.1 Predelivery Payment [...***...]
[...***...].
2.3.2 [...***...].
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<PAGE> 100
2.3.3 [...***...].
2.3.4 [...***...].
2.4 Buyer's Breach of the Agreement
Notwithstanding the other provisions of the Agreement or this
Amendment, in the event the Buyer materially breaches its obligations
under the Agreement as amended, [...***...].
2.5 [...***...].
3. [...***...].
3.1 [...***...].
3.2 [...***...].
3.3 [...***...].
3.4 [...***...].
3.4.1 [...***...].
3.4.2 [...***...].
3.4.3 [...***...].
3.4.4 [...***...].
3.4.4.1 (a) [...***...].
(b) [...***...].
3.4.4.2 (a) [...***...].
(b) [...***...].
3.4.5 [...***...].
3.5 [...***...].
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<PAGE> 101
3.6 [...***...]
3.7 [...***...]
4. OTHER MATTERS REGARDING PREDELIVERY PAYMENTS FOR PURCHASE RIGHT
AIRCRAFT
This Paragraph 4 will be for the sake of clarification only.
[...***...]
5. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of the
Buyer hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 5 will be void and of no force or effect.
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<PAGE> 102
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
-------------------------
Its: Director Contracts
-------------------------
Accepted and Agreed
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
- --------------------------
Its: Senior Vice President
- --------------------------
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<PAGE> 103
APPENDIX 1
[...***...]
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<PAGE> 104
IN WITNESS WHEREOF, AMERICA WEST AIRLINES, INC. has caused this [...***...] to
be signed in its corporate name by its officer thereunto duly authorized, and to
be dated as of the day and year first above written.
AMERICA WEST AIRLINES, INC.
By :--------------
Its:--------------
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<PAGE> 105
APPENDIX 2
[...***...]
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 5
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: TRAINING AND OTHER PRODUCT SUPPORT MATTERS
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997, between AVSA
S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the "Buyer"), the
Buyer and the Seller have agreed to set forth in this Letter Agreement No. 5
(the "Letter Agreement") certain additional terms and conditions regarding the
sale of the Additional Aircraft and the Aircraft and the support of Airbus
aircraft in the Buyer's fleet. Capitalized terms used herein and not otherwise
defined in this Letter Agreement will have the meanings assigned thereto in the
Agreement. The terms "herein," "hereof" and "hereunder" and words of similar
import refer to this Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
The Seller will provide the training services described in this Letter
Agreement on the terms and conditions described herein.
1. A318 TRAINING PACKAGE
The Seller will provide the Buyer with the following range of training
services described in this Paragraph 1 free-of-charge (the "A318
Training Package"). The terms of Paragraph 5 of Letter Agreement No. 5
to the Agreement excluding Subparagraph 5.1.2, apply to this A318
Training Package.
1.1 Operations/Performance Courses
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<PAGE> 107
The Seller will, upon the Buyer's written request, provide or cause to
be provided free-of-charge to the Buyer [...***...] to be used for the
training courses listed in Appendix A to this Letter Agreement. Courses
will be scheduled only for a minimum/maximum number of participants to
be agreed upon at the training conference, and may take place in at the
Airbus training center located in Miami, Florida, or at the Buyer's
base in accordance with the applicable provisions of the Agreement.
[...***...]
1.2 Maintenance Courses
1.2.1 Maintenance Training
The Seller will, upon the Buyer's written request, train or cause to be
trained free-of-charge the Buyer's ground personnel for a training
period equivalent to [...***...] of instruction for the whole range of
courses listed in Appendix B to the Agreement. The number of EM-07
(Engine Run-up) courses will be limited to [...***...].
The courses will only be scheduled for the minimum/maximum number of
participants as agreed upon at the training conference. The
trainee-days will be debited as follows:
(i) For instruction at the Seller's training centers, [...***...].
(ii) For instruction at locations other than the Seller's training
centers, [...***...]. The Buyer will reimburse the expenses
for the instructor(s) as set forth in Subparagraph 5.1.7 of
Letter Agreement No. 5 to the Agreement.
[...***...]
1.3 Maintenance Initial Operating Experience
In order to assist the Buyer with practical line training, such as A318
Aircraft handling and servicing, flight crew/maintenance coordination,
use of manuals and any other activities that the instructor might deem
necessary, the Seller will, upon the Buyer's written request, provide
or cause to be provided to the Buyer, [...***...] at the Buyer's base.
The Buyer will reimburse the expenses for the instructor as set forth
in Subparagraph 5.1.7 below. Additional maintenance instructors can be
provided at the Buyer's expense.
1.4 A318 Available Training Aids
The Seller will provide the Buyer with [...***...] available training
aids (VACBI or similar in scope) when developed by the manufacturer at
dates to be mutually agreed.
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<PAGE> 108
[...***...]. Such training aids will be the Seller's standard training
aids.
The A318 training aids, as revised, will be for the training of the
Buyer's personnel only.
1.5 A318 Training Conference
Training courses provided for the Buyer's personnel under this
Paragraph 1 will be scheduled at dates mutually agreed during a
training conference to be held at approximately twelve (12) months
prior to the first A318 Aircraft delivery. The courses will be
scheduled for a minimum number of participants, to be agreed upon at
the training conference.
1.6 Vendors and Propulsion Systems Manufacturer training
The Seller will ensure that the major A318 Aircraft Vendors and the
A318 Propulsion System manufacturer will provide maintenance and
overhaul training on their products at appropriate times.
A list of the Vendors concerned has been furnished to the Buyer, as of
the date hereof.
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<PAGE> 109
2. A319 AND A321 ADDITIONAL AIRCRAFT TRAINING
2.1 [...***...].
2.2 A319/A321 Training Conference
Training courses provided for the Buyer's personnel will be scheduled
at dates mutually agreed during a training conference to be held at
approximately twelve (12) months prior to the first A319 Additional
Firm Aircraft delivery. The courses will be scheduled for a minimum
number of participants, to be agreed upon at the training conference.
3. TECHNICAL PUBLICATIONS FOR ADDITIONAL AIRCRAFT
The total quantities of technical publications for the Aircraft and the
Additional Aircraft will be as set forth in the amended and restated
Exhibit H to this Amendment. It is hereby agreed and understood that
the content of this amended and restated Exhibit H will not subject the
Seller to any duplication of its obligations with respect to the
Technical Publications already provided as part of Exhibit H to the
Agreement as of the date hereof.
4. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of the
Buyer hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 4 will be void and of no force or effect.
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<PAGE> 110
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
-----------------------
Its: Director Contracts
-----------------------
Accepted and Agreed
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
-------------------------------
Its: Senior Vice President
-------------------------------
<PAGE> 111
APPENDIX A
LIST OF A318 OPERATIONS/PERFORMANCE COURSES
JM01 MANAGEMENT SURVEY COURSE
JM02 PERFORMANCE ENGINEER'S COURSE
JM03 DISPATCHER'S COURSE
JMC5 FLIGHT CREW GROUND INSTRUCTOR'S COURSE
JM06 WEIGHT AND BALANCE COURSE
JM07 LOAD MASTER TRANSITION
JM08 ETOPS DISPATCHER
JM38 DISPATCHER TRANSITION AND ETOPS QUALIFICATION
JM67 WEIGHT AND BALANCE, LOAD MASTER TRANSITION
Note: The above list of courses is provided for information only and is subject
to modifications.
<PAGE> 112
APPENDIX B
LIST OF STANDARD A318 MAINTENANCE COURSES
<TABLE>
<CAPTION>
<S> <C>
JM01 GENERAL FAMILIARIZATION
JM02 RAMP AND TRANSIT
JM31 LINE MECHANICS/AVIONICS (LEVEL 2)
JM42 BASE MECHANICS, ELECTRICS AND AVIONICS (LEVEL 3)
JM45 BASE MECHANICS AND ELECTRICS (LEVEL 3)
JM52 BASE ELECTRICS AND AVIONICS (LEVEL 3)
JM07 ENGINE RUN-UP
JM09 MECHANIC CONTROL RIGGING
JM10 CABIN INTERIOR AND EMERGENCY EQUIPMENT
JM11 STRUCTURE REPAIR
JM12 ON THE JOB PRACTICAL TRAINING
JM16 SPECIFIC NONDESTRUCTIVE TESTING
JM17 COMPOSITE STRUCTURE REPAIR
JM18 ETOPS MAINTENANCE
JM20 AIRCRAFT INTEGRATED DATA SYSTEM MAINTENANCE
JMG04 CARGO LOADING AND HANDLING
JM42E A318/A319/A320 DIFFERENCES
XM15 BASIC DIGITAL AND MICROPROCESSOR
JM21 STRUCTURE REPAIR FOR ENGINEERS/METALLIC STRUCTURES
JM23 MATERIALS AND PROCESSES FOR ENGINEERS
</TABLE>
Note : The above list of courses is provided for information only and is subject
to modifications.
<PAGE> 113
LETTER AGREEMENT NO. 6
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: MISCELLANEOUS PRODUCT SUPPORT AND AIRCRAFT DELIVERY MATTERS
Intentionally Left Blank
<PAGE> 114
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 7
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines, Inc.
Phoenix Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: A318-100 PERFORMANCE GUARANTEES
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997, between AVSA
S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the "Buyer"), the
Buyer and the Seller have agreed to set forth in this Letter Agreement No. 7
(the "Letter Agreement") certain additional terms and conditions regarding the
sale of the A318 Additional Aircraft. For the purposes of this Letter Agreement
only the term Aircraft will mean the A318 Aircraft. Capitalized terms used
herein and not otherwise defined in this Letter Agreement will have the meanings
assigned thereto in the Agreement and as amended by the Amendment. The terms
"herein," "hereof" and "hereunder" and words of similar import refer to this
Letter Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
The Seller, in its capacity as "the Buyer" under its arrangement with
the Manufacturer, has negotiated and obtained the following performance
guarantees from the Manufacturer, in its capacity as "the Seller" with respect
to the Aircraft, subject to the terms, conditions, limitations and restrictions
all as hereinafter set out. The Seller hereby assigns to the Buyer and the Buyer
hereby accepts, all of the rights and obligations of the Seller in its capacity
as "the Buyer" as aforesaid under the said performance guarantees and the Seller
subrogates the Buyer into all such rights and obligations in respect of the
Aircraft. The Seller hereby warrants to the Buyer that it has all the requisite
authority to make the foregoing assignment and effect the foregoing subrogation
to and in favor of the Buyer and that it will not enter into any amendment of
the provisions so assigned without the prior written consent of the Buyer.
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Capitalized terms utilized in the following quoted provisions and not
otherwise defined herein will have the meanings assigned thereto in the
Agreement except that the term "the Seller" refers to the Manufacturer and the
term "the Buyer" refers to the Seller.
QUOTE
PREAMBLE
The guarantees defined below (the "Guarantees") are applicable to the
Aircraft as described in the A318 Standard Specification Ref.
P.000.01000, Issue A, dated November 1998 and amended by Specification
Change Notices (SCN) for:
(i) the fitting of Pratt and Whitney PW6124 Propulsion Systems,
(ii) [...***...] Design Maximum Take Off Weight [...***...],
[...***...] Design Maximum Landing Weight [...***...], and
(iii) [...***...] Design Maximum Zero Fuel Weight [...***...]
and without taking into account any further changes thereto as provided
in the Agreement as amended by the Amendment. The Guarantees are
contingent upon the signature by the Buyer and the Seller of the SCNs
and will be appropriately adjusted pursuant to Paragraph 7 herein to
reflect the A318 Specification.
1 GUARANTEED PERFORMANCE
1.1 Speed
Level flight speed at an Aircraft gross weight of [...***...] lb. at a
pressure altitude of [...***...] ft in ISA conditions using a thrust
not exceeding maximum cruise thrust will not be less than a guaranteed
true Mach number of [...***...].
1.2 Specific Range
1.2.1 The nautical miles per pound of fuel at an Aircraft gross weight of
[...***...] lb. at a pressure altitude of [...***...] ft in
ISA+10(degrees) C conditions at a true Mach number of [...***...] will
be not less than a guaranteed value of [...***...] nm/lb.
1.2.2 The nautical miles per pound of fuel at an Aircraft gross weight of
[...***...] lb. at a pressure altitude of [...***...] ft in
ISA+10(degrees) C conditions at a true Mach number of [...***...] will
be not less than a guaranteed value of [...***...] nm/lb.
1.3 Take-off
1.3.1 FAR take-off field length at an Aircraft gross weight of [...***...]
lb. at the start of
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ground run at sea level pressure altitude in ISA+15(degrees) C
conditions will be not more than a guaranteed value of [...***...] ft.
1.3.2 FAR take-off field length at an Aircraft gross weight of [...***...]
lb. at the start of ground run at sea level pressure altitude at an
ambient temperature of 100 (degrees) F will be not more than a
guaranteed value of [...***...] ft.
1.3.3 When operated under the following conditions (representative of the
[...***...] airport):
Pressure altitude: [...***...]
Ambient temperature: [...***...]
Take-off run available ("TOR"): [...***...]
Take-off distance available: [...***...]
Accelerate-stop distance available: [...***...]
Slope: [...***...]
Wind: [...***...]
Obstacles(height and distance [...***...]
from end of TOR) [...***...]
[...***...]
The maximum permissible weight at the start of ground run will not be
less than a guaranteed value of [...***...] lb.
1.4 Second Segment Climb
The Aircraft will meet FAR 25 regulations for one engine inoperative
climb after take-off, undercarriage retracted, at a weight
corresponding to the stated weight at the start of ground run, at the
altitude and temperature, and in the configuration of flap angle and
safety speed required to comply with the performance guaranteed in
Subparagraph 1.3 above.
1.5 Altitude Capability
At an Aircraft gross weight of [...***...] lb. in ISA+15(degrees) C
conditions, the Aircraft will be capable of maintaining:
- a rate of climb of not less than [...***...] ft per minute at a
true Mach number of [...***...] using not more than maximum climb
thrust with air conditioning on,
- a rate of climb of not less than [...***...] ft per minute at a
true Mach number of [...***...] using not more than maximum cruise
thrust with air conditioning on,
- a maneuver of [...***...] g without buffet onset at a true Mach
number of [...***...]
at a guaranteed pressure altitude of not less than [...***...] ft.
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1.6 En-route One Engine Inoperative
The Aircraft will meet FAR 25 regulations minimum en-route climb with
one engine inoperative and the other operating at the maximum
continuous thrust with anti-icing off at an Aircraft gross weight of
[...***...] lb in the cruise configuration in ISA+15(degrees) C
conditions at a guaranteed geometric altitude of not less than
[...***...] ft (net ceiling).
1.7 Approach Climb
The Aircraft will meet FAR 25 regulations minimum approach climb
gradient with one engine inoperative and the other operating at maximum
go-around thrust and with the undercarriage retracted in
ISA+15(degrees) C conditions at an Aircraft gross weight of [...***...]
lb. at a guaranteed pressure altitude of not less than [...***...] ft.
1.8 Landing Climb
FAR minimum landing climb gradient requirements using the landing flap
configuration required to show compliance with Subparagraph 1.9.1 will
not be [...***...] than the approach climb requirements under the
conditions defined in Subparagraph 1.7.
1.9 Landing Field Length
1.9.1 FAR certified dry landing field length at an Aircraft gross weight of
[...***...] lb. at sea level pressure altitude will not be more than a
guaranteed value of [...***...] ft.
1.9.2 When operated according to FAR regulations and under the following
conditions (representative of the [...***...] airport):
Pressure altitude: [...***...]
Ambient temperature: [...***...]
Landing distance available: [...***...]
Wind: [...***...]
the maximum permissible landing weight will be not less than a
guaranteed value of [...***...] lb.
2 MISSION GUARANTEES
2.1 The Aircraft will be capable of carrying a guaranteed payload of not
less than [...***...] lb. over a still air stage distance of
[...***...] nautical miles (representative of [...***...] with a
[...***...] knot [...***...] wind) when operated under the conditions
defined below:
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2.1.1 The departure airport conditions are as defined in Subparagraph 1.3.3.
The destination airport conditions are such as to allow the required
landing weight to be used without restriction. Pressure altitude is
[...***...] ft.
2.1.2 An allowance of 460 lb. of fuel is included for take-off and climb to
1,500 ft above the departure airport with acceleration to climb speed
at an ambient temperature of 107(degrees) F.
2.1.3 Climb from 1,500 ft above the departure airport up to cruise altitude
using maximum climb thrust and cruise at a fixed Mach number of 0.79 at
a pressure altitude of 37,000 ft and descent to 1,500 ft above the
destination airport are conducted in ISA+10(degrees) C conditions.
Climb and descent profiles are respectively 250 knots CAS/280 knots
CAS/0.76 Mach number and 0.76 Mach number/250 knots CAS/250 knots CAS.
2.1.4 An allowance of 200 lb. of fuel is included for approach and land at
the destination airport.
2.1.5 Stage distance is defined as the distance covered during climb, cruise
and descent as described in Subparagraph 2.1.3 above.
Trip fuel is defined as the fuel burnt during take-off, climb, cruise,
descent and approach and landing as described in Subparagraphs 2.1.2,
2.1.3 and 2.1.4 above.
2.1.6 At the end of approach and land [...***...] lb. of fuel will remain in
the tanks.
2.2 In carrying a fixed payload of [...***...] lb. over a still air stage
distance of [...***...] nautical miles (representative of [...***...]
with a [...***...] knot [...***...] wind) the guaranteed trip fuel will
be not more than [...***...] lb. when operated under the conditions
defined in Subparagraph 2.1 above.
2.3 The Aircraft will be capable of carrying a guaranteed payload of not
less than [...***...] lb. over a still air stage distance of
[...***...] nautical miles (representative of [...***...] with a
[...***...] knot [...***...] wind) when operated under the conditions
defined below:
2.3.1 The departure airport conditions are as follows:
Pressure altitude: [...***...]
Ambient temperature: [...***...]
Take-off run available (TOR): [...***...]
Take-off distance available: [...***...]
Accelerate-stop distance available: [...***...]
Slope: [...***...]
Wind: [...***...]
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Obstacles (height and distance [...***...]
from end of TOR): [...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
The destination airport conditions are such as to allow the required
landing weight to be used without restriction. Pressure altitude is
[...***...] ft.
2.3.2 An allowance of 450 lb. of fuel is included for take-off and climb to
1,500 ft above the departure airport with acceleration to climb speed
at an ambient temperature of 108(degrees) F.
2.3.3 Climb from 1,500 ft above the departure airport up to cruise altitude
using maximum climb thrust and cruise at a fixed Mach number of 0.79 at
a pressure altitude of 37,000 ft and descent to 1,500 ft above the
destination airport are conducted in ISA+10(degrees) C conditions.
Climb and descent profiles are respectively 250 knots CAS/280 knots
CAS/0.76 Mach number and 0.76 Mach number/250 knots CAS/250 knots CAS.
2.3.4 An allowance of 200 lb. of fuel is included for approach and land at
the destination airport.
2.3.5 Stage distance is defined as the distance covered during climb, cruise
and descent as described in Subparagraph 2.3.3 above.
Trip fuel is defined as the fuel burnt during take-off, climb, cruise,
descent and approach and landing as described in Subparagraphs 2.3.2,
2.3.3 and 2.3.4 above.
2.3.6 At the end of approach and land [...***...] lb. of fuel will remain in
the tanks.
2.4 In carrying a fixed payload of [...***...] lb. over a still air stage
distance of [...***...] nautical miles (representative of [...***...]
with a [...***...] knot [...***...] wind) the guaranteed trip fuel will
be not more than [...***...] lb. when operated under the conditions
defined in Subparagraph 2.3 above.
2.5 The mission guarantees are based on a fixed Operating Weight Empty of
[...***...] lb. (For information only a Weight Breakdown is provided in
Appendix A hereto.)
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3 MANUFACTURER'S WEIGHT EMPTY
The Seller guarantees a Manufacturer's Weight Empty of [...***...] lb.
This is the Manufacturer's Weight Empty as defined in Section
13-10.00.00 of the A318 Standard Specification, [...***...] and is
subject to adjustment as defined in Subparagraph 7.2.
4 NOISE
The Aircraft will be certified in accordance with the Stage 3 noise
level requirements of FAR Part 36 through Amendment 36-20, effective
March 1993. The FAR Part 36 certification noise levels of the A318-122
Aircraft will not be more than [...***...] EPNdB for take-off with
cutback and [...***...] EPNdB for approach at maximum brake release
gross weight of [...***...] lb. and at maximum landing gross weight of
[...***...] lb.
5 GUARANTEE CONDITIONS
5.1 The performance certification requirements for the Aircraft, except
where otherwise noted, will be as stated in Section 02 of the A318
Standard Specification.
5.2 For the determination of FAR take-off performance a hard dry level
runway surface with no runway strength limitations, no obstacles, zero
wind, atmosphere according to ISA, except as otherwise noted, and the
use of speed brakes, flaps, landing gear and engines in the conditions
liable to provide the best results will be assumed and as followed by
FAR's.
5.2.1 When establishing take-off and second segment performance no air will
be bled from the engines for cabin air conditioning or anti-icing.
5.3 When establishing the approach and landing climb performance cabin air
conditioning will be operative on normal mode but no air will be bled
from the engines for anti-icing.
5.4 The en-route one engine inoperative climb performance will be
established with the amount of engine air bleed associated with the
maximum cabin altitude as specified in Section 21-30.32 of the A318
Standard Specification and an average ventilation rate not less than
the amount defined in the A318 Standard Specification, but no air will
be bled from the engines for anti-icing. All performance data are based
on normal air conditioning mode.
5.5 Climb, cruise and descent performance associated with the Guarantees
will include
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allowances for normal electrical load and for normal engine air bleed
and power extraction associated with maximum cabin differential
pressure as defined in Section 21-30.31 of the A318 Standard
Specification. Cabin air conditioning management during performance
demonstration as described in Subparagraph 6.3 below may be such as to
optimize the Aircraft performance while meeting the normal air
conditioning requirements defined above. Unless otherwise stated no air
will be bled from the engines for anti-icing.
5.6 The engines will be operated using not more than the engine
manufacturer's maximum recommended outputs for take-off, maximum
go-round, maximum continuous, maximum climb and cruise for normal
operation.
5.7 Where applicable the Guarantees assume the use of an approved fuel
having a density of 6.7 lb. per US gallon and a lower heating value of
18,590 BTU per lb.
6 GUARANTEE COMPLIANCE
6.1 Compliance with the Guarantees will be demonstrated using operating
procedures and limitations in accordance with those defined by the
certifying airworthiness authority and by the Seller unless otherwise
stated.
6.2 Compliance with the take-off, second segment, approach climb, en-route
one engine inoperative climb, landing and external noise elements of
the Guarantees will be demonstrated with reference to the approved
flight manual.
6.3 Compliance with those parts of the Guarantees defined in Paragraphs 1
and 2 above not covered by the requirements of the certifying
airworthiness authority will be demonstrated by calculation based on
data obtained during flight tests conducted on one (or more, at the
Seller's discretion) A318 aircraft of the same aerodynamic
configuration as the Aircraft and incorporated in the In-Flight
Performance Program and data bases ("the IFP") appropriate to the
Aircraft.
6.4 Compliance with the Manufacturer's Weight Empty guarantee defined in
Paragraph 3 will be demonstrated with reference to a weight compliance
report.
6.5 Data derived from tests will be adjusted as required using conventional
methods of correction, interpolation or extrapolation in accordance
with established aeronautical practices to show compliance with the
Guarantees.
6.6 Compliance with the Guarantees is not contingent on engine performance
defined in the engine manufacturer's specification.
6.7 The Seller undertakes to furnish the Buyer with a report or reports
demonstrating compliance with the Guarantees at the delivery of each of
the Aircraft.
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<PAGE> 122
6.8 Notwithstanding the provisions of the Agreement, the warranties
contained in this Letter Agreement will apply with respect to defects
resulting from non-compliance with the Guarantees, and be limited to
those defects [...***...].
7 ADJUSTMENT OF GUARANTEES
7.1 In the event of any change to any law, governmental regulation or
requirement or interpretation thereof ("Rule Change") by any
governmental agency made subsequent to the date of the Amendment and
such Rule Change affects the Aircraft configuration or performance or
both required to obtain certification the Guarantees will be
appropriately modified to reflect the effect of any such change on the
weight or performance of the Aircraft.
7.2 The Guarantees apply to the Aircraft as described in the Preamble to
this Letter Agreement and will be further adjusted in the event of:
i) Any further configuration change which is the subject of a
SCN;
ii) Variation in actual weights of items defined in Section 13-10
of the A318 Standard Specification;
The adjustment mechanism will be reviewed between the Buyer and the
Seller and (i) reflect the weight and payload repercussions (if any)
set forth in each individual SCN signed between the parties pursuant to
the adjustment contemplated in this Paragraph 7 and (ii) use the same
methodology and tolerances as used to compute the numbers set forth
herein.
8 EXCLUSIVE GUARANTEES
The Guarantees are exclusive and are provided in lieu of any and all
other performance and weight guarantees of any nature which may be
stated, referenced or incorporated in the A318 Standard Specification
or any other document.
9 UNDERTAKING REMEDIES
[...***...]
10 ADDITIONAL PERFORMANCE FLIGHTS
[...***...]
11 NEGOTIATED AGREEMENT
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The Buyer and the Seller agree that this Letter Agreement has been the
subject of discussion and negotiation by the parties and that other
mutual agreements of the parties set forth in the Agreement and this
Letter Agreement were arrived at in consideration of, inter alia, the
provisions of this Letter Agreement specifically including Paragraphs 8
and 9 of this Letter Agreement.
UNQUOTE
12 ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of the
Buyer hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 12 will be void and of no force or effect.
In consideration of the assignment and subrogation by the Seller of
this Letter Agreement in favor of the Buyer in respect of the Seller's
rights against and obligations to the Manufacturer under the provisions
quoted above, the Buyer hereby accepts such assignment and subrogation
and agrees to be bound by all of the terms, conditions and limitations
therein contained. The Buyer and Seller recognize and agree that all
the provisions of Subclauses 12.5, 12.6 and 12.7 of the Agreement will
apply to the foregoing Guarantees, except that if such Subclauses 12.5,
12.6 and 12.7 and this Letter Agreement have specific provisions that
are inconsistent, the specific provisions contained in this Letter
Agreement will govern.
The guarantees, terms and conditions contained herein are applicable
only as to Aircraft delivered with Pratt and Whitney PW6124 propulsion
systems and will be null, void and of no effect as to any other engines
and as to Pratt and Whitney PW6124 propulsion systems not delivered
with the Aircraft.
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<PAGE> 124
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space below and return a
copy to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
-------------------
Its: Director Contracts
-------------------
Agreed and Accepted
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
----------------------
Its: Senior Vice President
----------------------
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<PAGE> 125
APPENDIX A to LETTER AGREEMENT No. 7
For information only and at the time of this Agreement the Operating
Weight Empty for the purposes of the Mission Guarantees specified in
Paragraph 2.0 above is defined as follows:
<TABLE>
<S> <C>
MANUFACTURERS WEIGHT EMPTY (MWE) [...***...]
(SPEC. ISSUE A)
CUSTOMER CHANGES:
Cabin changes (12FC + 98YC) [...***...]
Allowance for Customer Specification Changes [...***...]
MWE CUSTOMIZED [...***...]
OPERATORS ITEMS
Unusable fuel [...***...]
Engine and APU oil [...***...]
Water for galleys and toilets [...***...]
Fluids for toilets [...***...]
Aircraft documents and tool kits [...***...]
Passenger seats and life jackets [...***...]
Galley structure and fixed equipment [...***...]
Catering [...***...]
Emergency Equipment [...***...]
Ancillary parts [...***...]
Crew [...***...]
-----------
Total Operators Items [...***...]
OPERATING WEIGHT EMPTY (OWE) [...***...]
</TABLE>
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
LETTER AGREEMENT NO. 8
TO AMENDMENT NO. 3
As of October 14, 1999
America West Airlines Inc.
Sky Harbor International Airport
4000 East Sky Harbor Boulevard
Phoenix, AZ 85034
Re: [...***...]
Dear Ladies and Gentlemen:
In connection with the execution of Amendment No. 3 to the Airbus
A319/A320 Purchase Agreement dated as of September 12, 1997, between AVSA
S.A.R.L., (the "Seller") and AMERICA WEST AIRLINES, INC., (the "Buyer"), the
Buyer and the Seller have agreed to set forth in this Letter Agreement No. 8
(the "Letter Agreement") certain additional terms and conditions regarding the
sale of the A318 Additional Aircraft. Capitalized terms used herein and not
otherwise defined in this Letter Agreement will have the meanings assigned
thereto in the Agreement and as amended by the Amendment. The terms "herein,"
"hereof" and "hereunder" and words of similar import refer to this Letter
Agreement.
Both parties agree that this Letter Agreement will constitute an
integral, nonseverable part of the Amendment, except that if the Agreement or
the Amendment and this Letter Agreement have specific provisions that are
inconsistent, the specific provisions contained in this Letter Agreement will
govern.
The Seller, in its capacity as "Buyer" under its arrangement with the
Manufacturer, has negotiated and obtained the following [...***...] guarantees
from the Manufacturer, in its capacity as "Seller" with respect to the Aircraft,
subject to the terms, conditions, limitations and restrictions all as
hereinafter set out. The Seller hereby assigns to the Buyer and the Buyer hereby
accepts all the rights and obligations of the Seller, in its capacity as "Buyer"
as aforesaid, under the [...***...] guarantees and the Seller subrogates the
Buyer into all such rights and obligations in respect of the Aircraft. The
Seller hereby warrants to the Buyer that it has all the requisite authority to
make the foregoing assignment and effect the foregoing subrogation to and in
favor of the Buyer and that it will not enter into any amendment of the
provisions so assigned without the prior written consent of the Buyer.
Capitalized terms utilized in the following quoted provisions and not
otherwise defined herein will have the meanings assigned thereto in the
Agreement except that the term "the Seller" refers to the Manufacturer and the
term "the Buyer" refers to the Seller.
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QUOTE
PREAMBLE
The guarantees defined below (the "Guarantees") are applicable to the Aircraft
as described in the A318 Standard Specification Ref. P.000.01000, Issue A, dated
November 1998 and amended by Specification Change Notices (SCN) for:
(i) the fitting of Pratt and Whitney PW6124 Propulsion Systems,
(ii) [...***...] Design Maximum Take Off Weight [...***...],
[...***...] Design Maximum Landing Weight [...***...] and
(iii) [...***...] Design Maximum Zero Fuel Weight [...***...].
and without taking into account any further changes thereto as provided in the
Agreement as amended by the Amendment. The Guarantees assume execution of the
SCNs relating to (i) and (ii) above, and will be adjusted, if required, to
reflect the A318 Specification as further described in Paragraph 7 of Letter
Agreement No. 7. Unless set forth to the contrary, the term Aircraft set forth
in this Guarantee will refer to the A318 Aircraft and the terms Airframe to the
A318 Airframe.
1. [...***...]
1.1 This Guarantee will apply to the Aircraft as defined in the preamble of
this Letter Agreement and will be subject to the conditions defined in
Paragraph 6 below.
The term Fleet ("Fleet") will mean the whole of the Buyer's fleet of
A318 Aircraft, [...***...], delivered under the Agreement.
1.2 [...***...]
1.3 The Seller guarantees to the Buyer that [...***...]
1.4 The Seller guarantees to the Buyer that [...***...]
2. CONDITIONS
2.1 The Guarantee is contingent upon the Buyer:
2.1.1 [...***...]
2.1.2 [...***...]
2.1.3 [...***...]
2.1.4 [...***...]
2.2 [...***...]
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2.3 [...***...]
2.4 [...***...]
2.5 [...***...]
3. [...***...] COMPLIANCE DEMONSTRATION PROCEDURE
The following and preceding procedures summarize the Buyer's and the
Seller's requirements with respect to this Letter Agreement. Such
procedures may be subject to refinement and further details by
agreement.
These agreed procedures and all relevant information will be
incorporated in an administration document to be jointly developed.
3.1 [...***...]
3.1.1 [...***...]
3.2 [...***...]
4. [...***...]
4.1 [...***...]
4.2 [...***...]
4.3 [...***...]
4.4 [...***...]
4.5 [...***...]
4.6 [...***...]
4.7 [...***...]
4.8 [...***...]
5. REMEDIES - RECONCILIATION
5.1 [...***...]
5.2 [...***...]
5.2.1 [...***...]
- ----------------------------------
* Confidential Treatment Requested
<PAGE> 129
5.2.2 [...***...]
5.3 [...***...]
5.3.1 [...***...]
5.3.2 [...***...]
6. TERMINATION/EXTENSION
6.1 Notwithstanding the provisions of Subparagraph 1.2 above the Guarantee
and all obligations thereunder will immediately terminate if:
[...***...]
6.2 Notwithstanding the foregoing, the Guarantee and all obligations
thereunder may be terminated [...***...].
6.3 [...***...]
7. LIMITATION OF DAMAGES AND EXCLUSION OF BENEFITS
7.1 [...***...]
7.2 The intent of this Letter Agreement is to provide specified benefits to
the Buyer as a result of the failure of the Aircraft to comply with the
[...***...] stipulated in the Guarantee. It is not the intent, however,
to duplicate benefits provided to the Buyer by the Seller under any
other applicable guarantee as a result of the same failure. Therefore,
notwithstanding the terms and conditions of this Guarantee, if the
terms of this Guarantee should make duplicate benefits available to the
Buyer, the Buyer may elect to receive benefits under this Guarantee or
any other guarantee but not both.
8. [...***...]
8.1 [...***...]
8.2 [...***...]
8.3 [...***...]
8.4 [...***...]
9. PROCEDURAL RESPONSIBILITIES
Notwithstanding the settlement of the Guarantee defined in this Letter
Agreement the Seller will not bear any responsibility or cost related
to activities associated with the execution of this Letter Agreement
unless otherwise specified in this Letter Agreement.
UNQUOTE
- ----------------------------------
* Confidential Treatment Requested
<PAGE> 130
10. NEGOTIATED AGREEMENT
In consideration of the assignment and subrogation by the Seller under
this Letter Agreement in favor of the Buyer in respect of the Seller's
rights against and obligations to the Manufacturer under the provisions
quoted above, the Buyer hereby accepts such assignment and subrogation
and agrees to be bound by all of the terms, conditions and limitations
therein contained. The Buyer and Seller recognize and agree that all
the provisions of Subclauses 12.5, 12.6, and 12.7 of the Agreement will
apply to the
<PAGE> 131
foregoing performance guarantees, except that if such Subclauses 12.5,
12.6, and 12.7 and this Letter Agreement have special provisions that
are inconsistent, the specific provisions contained in this Letter
Agreement will govern.
The guarantees, terms and conditions contained herein are applicable
only as to A318 Aircraft delivered with Pratt and Whitney PW6124
engines and will be null, void and of no effect as to any other engines
and as to Pratt and Whitney PW6124 engines not delivered with the A318
Aircraft.
11. ASSIGNMENT
Notwithstanding any other provision of this Letter Agreement or of the
Agreement, this Letter Agreement and the rights and obligations of the
Buyer hereunder will not be assigned or transferred in any manner
without the prior written consent of the Seller, and any attempted
assignment or transfer in contravention of the provisions of this
Paragraph 11 will be void and of no force or effect.
<PAGE> 132
If the foregoing sets forth our understanding, please execute two (2)
originals in the space provided below and return one (1) original of
this Letter Agreement to the Seller.
Very truly yours,
AVSA, S.A.R.L.
By: /S/ Michele LASCAUX
-----------------------
Its: Director Contracts
-----------------------
Accepted and Agreed
AMERICA WEST AIRLINES, INC.
By: /S/ Stephen L. Johnson
--------------------------
Its: Senior Vice President
-------------------------
<PAGE> 133
Appendix A
[...***...]
- ----------------------------------
* Confidential Treatment Requested
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
NAME OF ORGANIZATION PARENT LINE OF BUSINESS
- ---- --------------- ------ ----------------
<S> <C> <C> <C>
America West America West
Airlines, Inc. Delaware Holdings Corporation Airline
America West
The Leisure Company Delaware Holdings Corporation Travel
America West
AWHQ LLC Arizona Holdings Corporation Administrative
National Leisure
Group Inc. Delaware The Leisure Company Travel
TVS LLC Arizona The Leisure Company Travel
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICA WEST HOLDINGS CORPORATION:
The audits referred to in our report dated March 29, 2000, included the
related consolidated financial statement schedule as listed in Item 14(d) for
the years ended December 31, 1999, 1998 and 1997, included herein. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
We consent to incorporation by reference in the Registration Statements
(Form S-8 No. 33-60555), (Form S-8 No. 333-26935), (Form S-8 No. 333-94361),
(Form S-3 No. 333-51107) and (Form S-3 No. 333-02129) of America West Holdings
Corporation of our report dated March 29, 2000, relating to the consolidated
balance sheets of America West Holdings Corporation and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
cash flows and stockholders' equity for each of the years in the three-year
period ended December 31, 1999 and the related consolidated financial statement
schedule, which report appears in the December 31, 1999, annual report on Form
10-K of America West Holdings Corporation.
KPMG LLP
Phoenix, Arizona
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001029863
<NAME> AMERICA WEST HOLDINGS CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 112,174
<SECURITIES> 15,617
<RECEIVABLES> 120,529
<ALLOWANCES> 2,453
<INVENTORY> 49,327
<CURRENT-ASSETS> 338,003
<PP&E> 1,089,901
<DEPRECIATION> 382,187
<TOTAL-ASSETS> 1,507,154
<CURRENT-LIABILITIES> 498,839
<BONDS> 0
0
0
<COMMON> 497
<OTHER-SE> 713,672
<TOTAL-LIABILITY-AND-EQUITY> 1,507,154
<SALES> 0
<TOTAL-REVENUES> 2,210,884
<CGS> 0
<TOTAL-COSTS> 2,006,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,219
<INTEREST-EXPENSE> 22,253
<INCOME-PRETAX> 206,150
<INCOME-TAX> 86,761
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,389
<EPS-BASIC> 3.17<F1>
<EPS-DILUTED> 3.03
<FN>
<F1>EPS Basic represents basic net income per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000706270
<NAME> AMERICA WEST AIRLINES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 105,545
<SECURITIES> 15,617
<RECEIVABLES> 104,019
<ALLOWANCES> 2,005
<INVENTORY> 49,327
<CURRENT-ASSETS> 554,741
<PP&E> 1,078,334
<DEPRECIATION> 378,185
<TOTAL-ASSETS> 1,663,495
<CURRENT-LIABILITIES> 489,915
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 882,469
<TOTAL-LIABILITY-AND-EQUITY> 1,663,495
<SALES> 0
<TOTAL-REVENUES> 2,146,955
<CGS> 0
<TOTAL-COSTS> 1,949,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 29,352
<INCOME-PRETAX> 200,974
<INCOME-TAX> 84,352
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,622
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
