-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DL3xH+rfVP4YVlI8FSmhOiqA7DPVBrQo8alCdHjd83dzAQu7LPuuZ2vRm1TlXSVY aUyw7oHC5o0xEZCNi58Bsg== 0000950153-00-000447.txt : 20000331 0000950153-00-000447.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950153-00-000447 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA WEST HOLDINGS CORP CENTRAL INDEX KEY: 0001029863 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 860847214 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12649 FILM NUMBER: 588054 BUSINESS ADDRESS: STREET 1: 51 W THIRD STREET STREET 2: C/O AMERICA WEST AIRLINES CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6026930800 MAIL ADDRESS: STREET 1: 4000 E SKY HARBOR BLVD STREET 2: C/O AMERICA WEST AIRLINES CITY: PHOENIX STATE: AZ ZIP: 85034 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA WEST AIRLINES INC CENTRAL INDEX KEY: 0000706270 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 860418245 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12337 FILM NUMBER: 588055 BUSINESS ADDRESS: STREET 1: 4000 E SKY HARBOR BLVD STREET 2: STE 2100 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6026930800 MAIL ADDRESS: STREET 1: 4000 EAST SKY HARBOR BLVD STREET 2: STE 2100 CITY: PHOENIX STATE: AZ ZIP: 85034 10-K 1 10-K 1 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) 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED: CLASS B COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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) 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)
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 2 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). 3 TABLE OF CONTENTS
PAGE 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
4 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. 1 5 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 2 6 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. 3 7 - - 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 4 8 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. 5 9 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:
NUMBER 12/31 AVERAGE AGE (YRS.) 12/31 AIRCRAFT APPROX. ------------------- ------------------------ TYPES NO. SEATS 1999 2000 1999 2000 ----- --------- ---- ---- ---- ---- 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 === === ==== ====
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. 6 10 The following table illustrates the Airline's committed orders, purchase options and scheduled lease terminations over 2001-2004:
Firm Orders 2001 2002 2003 2004 ----------- ---- ---- ---- ---- 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
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." 7 11
EMPLOYEE APPROX. NO. OF CONTRACT CONTRACT GROUP EMPLOYEES UNION EFFECTIVE AMENDABLE ----- --------- ----- --------- --------- 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
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. 8 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. 9 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 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 11 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. 12 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. 13 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. 14 18 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 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 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 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.
CLASS B COMMON STOCK WARRANTS --------------------- ------------------------ HIGH LOW HIGH LOW ---- --- ---- --- 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
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 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.
Year ended December 31, ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- 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
- ------------ (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 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 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 25 AMERICA WEST AIRLINES, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
PRO FORMA UNAUDITED 1999 1998 1997 ---------- ---------- ---------- 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 ========== ========== ==========
The table below sets forth selected operating data for AWA.
YEAR ENDED DECEMBER 31, PERCENT PERCENT ------------------------------------ CHANGE CHANGE 1999 1998 1997 1999-1998 1998-1997 ---- ---- ---- --------- --------- 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
22 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.
YEAR ENDED DECEMBER 31, ----------------------- PERCENT PERCENT PRO FORMA CHANGE CHANGE 1999 1998 1997 1999-1998 1998-1997 ---- ---- ---- --------- --------- (IN CENTS) 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) ==== ==== ====
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 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 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 29 THE LEISURE COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
PRO FORMA (UNAUDITED) 1999 1998 1997 -------- -------- -------- 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 ======== ======== =========
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 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 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 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 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 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 35 AMERICA WEST HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS EXCEPT SHARE DATA)
1999 1998 ---- ---- 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 =========== ===========
See accompanying notes to consolidated financial statements. 32 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)
1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 33 37 AMERICA WEST HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
See accompanying notes to consolidated financial statements. 34 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)
CLASS A CLASS B ADDITIONAL CLASS B COMMON COMMON PAID-IN RETAINED TREASURY STOCK STOCK CAPITAL EARNINGS STOCK TOTAL 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 ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements 35 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 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 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 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:
1999 1998 ---- ---- (IN THOUSANDS) 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 -------- --------
(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:
SEPTEMBER 1, PERCENTAGE ---------- 2000......... 105.375% 2001......... 103.583% 2002......... 101.792% 2003 and thereafter... 100.000%
(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:
(in thousands) 2000................................ $ 45,171 2001................................ 9,847 2002................................ 9,674 2003................................ 9,674 2004................................ 8,989 Thereafter.......................... 116,984 --------- $ 200,339
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 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 44 AMERICA WEST HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Stock option activity during the years indicated is as follows:
WEIGHTED- NUMBER OF AVERAGE SHARES EXERCISE PRICE ------ -------------- 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 ========= =======
At December 31, 1999, options outstanding and exercisable by price range are as follows:
WEIGHTED WEIGHTED AVERAGE WEIGHTED OPTIONS AVERAGE RANGE OF OPTIONS REMAINING AVERAGE CURRENTLY EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE - --------------- ----------- ----------- -------------- ----------- ----- $ 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 ========= ==== ======= ========= =======
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:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS EXCEPT PER SHARE DATA) 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 ========= ======== ========
41 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 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:
YEAR ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 ---- ---- ---- (IN THOUSANDS) 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 ======= ======= =======
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:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ---- ---- ---- (IN THOUSANDS) 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 ======= ======= =======
43 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:
1999 1998 --------- --------- (IN THOUSANDS) 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 ========= =========
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 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:
YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) 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
9. INVESTMENTS IN DEBT SECURITIES Cash equivalents and short-term investments as of December 31 are classified as follows:
1999 1998 ---- ---- (IN THOUSANDS) 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 ======== ========
10. EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA) 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 =========== =========== ===========
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 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:
(IN THOUSANDS) 2000......... $ 343,709 2001......... 313,756 2002......... 282,360 2003......... 226,631 2004......... 181,563 Thereafter... 1,359,959 ---------- $2,707,978 ----------
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 50 AMERICA WEST HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS) 2000......... $356,467 2001......... 212,910 2002......... 193,006 -------- $762,383 --------
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 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):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 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
(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 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):
DECEMBER 31, 1999 AIRLINE TLC OTHER/ELIMINATIONS TOTAL ------- --- ------------------ ----- 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
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 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 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 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 56 AMERICA WEST AIRLINES, INC. BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS EXCEPT SHARE DATA)
1999 1998 ---------- ---------- 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 ========== ==========
See accompanying notes to financial statements. 53 57 AMERICA WEST AIRLINES, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to financial statements. 54 58 AMERICA WEST AIRLINES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
See accompanying notes to financial statements. 55 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)
CLASS A CLASS B ADDITIONAL CLASS B COMMON COMMON PAID-IN RETAINED TREASURY STOCK STOCK CAPITAL EARNINGS STOCK TOTAL ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements. 56 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 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 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:
1999 1998 -------- -------- (IN THOUSANDS) 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 ======================
(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:
SEPTEMBER 1, PERCENTAGE ---------- 2000 ................. 105.375% 2001 ................. 103.583% 2002 ................. 101.792% 2003 and thereafter .. 100.000%
(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 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:
(IN THOUSANDS) --------- 2000 ........ $ 45,171 2001 ........ 9,847 2002 ........ 9,674 2003 ........ 9,674 2004 ........ 8,989 Thereafter .. 116,984 -------- $200,339
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 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 65 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED 6. INCOME TAXES AWA recorded income tax expense as follows:
YEAR ENDED DECEMBER 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) 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 ------- ------- -------
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:
YEAR ENDED DECEMBER 31, 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) 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 ======= ======= =======
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 66 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED
1999 1998 --------- --------- (IN THOUSANDS) 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 ========= =========
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:
YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) 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
8. INVESTMENTS IN DEBT SECURITIES Cash equivalents and short-term investments as of December 31 are classified as follows:
1999 1998 -------- -------- (IN THOUSANDS) 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 ======== ========
63 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:
(IN THOUSANDS) -------------- 2000 ....... $ 343,035 2001 ....... 313,082 2002 ....... 281,830 2003 ....... 226,390 2004 ....... 181,322 Thereafter.. 1,357,708 ---------- $2,703,367 ----------
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 68 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS) -------------- 2000 $356,467 2001 212,910 2002 193,006 -------- $762,383 --------
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 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):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 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)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 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
(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 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 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
EXHIBIT NUMBER TITLE ------ ----- 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).
68 72 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).
69 73 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.
70 74 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.
* 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 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 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.
SIGNATURE TITLE --------- ----- /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
73 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.
SIGNATURE TITLE --------- ----- /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
74 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 79 AMERICA WEST HOLDINGS CORPORATION SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING AT END DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD - ----------------------------- --------- --------- ---------- --------- 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 ====== ====== ====== ======
76 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 81 AMERICA WEST AIRLINES, INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING AT END DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD ---------- --------- ---------- --------- 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 ====== ====== ====== ======
78 82 INDEX TO EXHIBITS
EXHIBIT NUMBER TITLE - ------ ----- 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.
79 83 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.
80 84 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.
* 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 EX-10.36 2 EX-10.36 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 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 [...***...] - ---------------------------------- * Confidential Treatment Requested 2 3 (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 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 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 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 - ---------------------------------- * Confidential Treatment Requested 6 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. - ---------------------------------- * Confidential Treatment Requested 7 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 9
AIRCRAFT NO. MONTH/YEAR OF DELIVERY AIRCRAFT NO. MONTH/YEAR OF DELIVERY ------------ ---------------------- ------------ ---------------------- 1 [...***...] 9 [...***...] 2 [...***...] 10 [...***...] 3 [...***...] 11 [...***...] 4 [...***...] 12 [...***...] 5 [...***...] 13 [...***...] 6 [...***...] 14 [...***...] 7 [...***...] 15 [...***...] 8 [...***...]
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 - ---------------------------------- * Confidential Treatment Requested 9 10 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 - ---------------------------------- * Confidential Treatment Requested 10 11 (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 - ---------------------------------- * Confidential Treatment Requested 11 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: - ---------------------------------- * Confidential Treatment Requested 12 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. 13 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 - ---------------------------------- * Confidential Treatment Requested 14 15 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 - ---------------------------------- * Confidential Treatment Requested 15 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 - ---------------------------------- * Confidential Treatment Requested 16 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:
AIRCRAFT NO. MONTH/YEAR OF DELIVERY AIRCRAFT NO. MONTH/YEAR OF DELIVERY ------------ ---------------------- ------------ ---------------------- 1 [...***...] 7 [...***...] 2 [...***...] 8 [...***...] 3 [...***...] 9 [...***...] 4 [...***...] 10 [...***...] 5 [...***...] 11 [...***...] 6 [...***...] 12 [...***...]
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 - ---------------------------------- * Confidential Treatment Requested 17 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 - ---------------------------------- * Confidential Treatment Requested 18 19 (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, - ---------------------------------- * Confidential Treatment Requested 19 20 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: - ---------------------------------- * Confidential Treatment Requested 20 21 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 A321-200 Additional Aircraft. - ---------------------------------- * Confidential Treatment Requested 21 22 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 - ---------------------------------- * Confidential Treatment Requested 22 23 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 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 25 EXHIBIT A-1 THE A318 STANDARD SPECIFICATION IS CONTAINED IN A SEPARATE FOLDER ExhA-1 - 1 26 EXHIBIT A-2 THE A321 STANDARD SPECIFICATION IS CONTAINED IN A SEPARATE FOLDER ExhA-2 - 1 27 ***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-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. [...***...] - ------------------------------------ *Confidential Treatment Requested 28 EXHIBIT B-1 Part I
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Exh B-1/Part I - --------------------------------- *Confidential Treatment Requested 29 EXHIBIT B-1 Part I
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Exh B-1/Part I - --------------------------------- *Confidential Treatment Requested 30 EXHIBIT B-1, PART 2 (FOR INFORMATION ONLY)
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- ---------------------------------- * Confidential Treatment Requested Exh B-1/Part 2 31 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. Exh B-1/Part 3 - ---------------------------------- * Confidential Treatment Requested 32 ***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-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. ExhB-2-1 33 EXHIBIT B-2 PART 1
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- ---------------------------------- * Confidential Treatment Requested ExhB-2-2 34 EXHIBIT B-2
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- ------------------------------- 1 [...***...] - ---------------------------------- * Confidential Treatment Requested ExhB-2-3 35
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- ---------------------------------- * Confidential Treatment Requested ExhB-2-4 36 EXHIBIT B-2
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- ---------------------------------- * Confidential Treatment Requested ExhB-2-5 37 EXHIBIT B-2
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- ---------------------------------- * Confidential Treatment Requested ExhB-2-6 38 EXHIBIT B-2 PART 2 This Exhibit B-2, Part 2 is for information only
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- ---------------------------------- * Confidential Treatment Requested ExhB-2-7 39 ***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-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 40 EXHIBIT B-3 PART 1
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- ----------------------------------- * Confidential Treatment Requested 2 41 EXHIBIT B-3 PART 1
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- ---------------------------------- * Confidential Treatment Requested 3 42 EXHIBIT B-3 PART 1
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- ---------------------------------- * Confidential Treatment Requested 4 43 EXHIBIT B-3 PART 1
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- ---------------------------------- * Confidential Treatment Requested 5 44 EXHIBIT B-3 PART 2 This Exhibit B-3, Part 2 is for information only.
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- ---------------------------------- * Confidential Treatment Requested 1 45 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. - ---------------------------------- * Confidential Treatment Requested 2 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 47 EXHIBIT B-4 PART I
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- ---------------------------------- * Confidential Treatment Requested 2 48 EXHIBIT B-4 PART I
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- ---------------------------------- * Confidential Treatment Requested 3 49 EXHIBIT B-4 PART I
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- ---------------------------------- * Confidential Treatment Requested 4 50 EXHIBIT B-4 PART I
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- ---------------------------------- * Confidential Treatment Requested 5 51 EXHIBIT B-4 PART I
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- ---------------------------------- * Confidential Treatment Requested 6 52 EXHIBIT B-4 PART 2 This Exhibit B-4, Part 2 is for information only.
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- ---------------------------------- * Confidential Treatment Requested 53 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 54 EXHIBIT C INTENTIONALLY LEFT BLANK ExhC-1 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). - ---------------------------------- * Confidential Treatment Requested ExhD1 - 1 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 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 - ---------------------------------- * Confidential Treatment Requested ExhD2 - 1 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 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 60 EXHIBIT E 4. REVISION FORMULA
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)
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 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 62 EXHIBIT F INTENTIONALLY LEFT BLANK ExhF-1 63 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 64 ***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. ExhH-1 65 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 66 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. ExhH-3 67 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 68 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 69 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 70 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 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 72 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 73 1. ENGINEERING DOCUMENTS + 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
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 74 2. MAINTENANCE & ASSOCIATED MANUALS + 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
- ---------------------------------- * Confidential Treatment Requested ExhH-11 75 + 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
5 Supplied by the Propulsion Systems Manufacturer ---------------------------------- * Confidential Treatment Requested ExhH-12 76 + Trouble Shooting Manual TSM [...***...] [...***...] [...***...] 4 90 [...***...] [...***...] [...***...] 90 [...***...] [...***...] [...***...] 90 [...***...] [...***...] [...***...] 90 + Aircraft Documentation Retrieval ADRES [...***...] [...***...] [...***...] 4 System + Computer Assisted Aircraft CAATS [...***...] [...***...] [...***...] 4 Troubleshooting
3. MISCELLANEOUS PUBLICATIONS 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
---------------------------------- * Confidential Treatment Requested ExhH-13 77 + 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
4. OPERATIONAL MANUALS AND DATA + Check List/Abnormal/Emergency/ CL/QRH [...***...] [...***...] [...***...] AN 90 Quick Reference Handbook
---------------------------------- * Confidential Treatment Requested ExhH-14 78 + 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
[...***...] 5 OVERHAUL DATA Component Documentation Status CDS [...***...] [...***...] [...***...] AN 180
6 [...***...] ---------------------------------- * Confidential Treatment Requested ExhH-15 79 + 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
6 STRUCTURAL MANUALS + Nondestructive Testing Manual NTM [...***...] [...***...] [...***...] 4 90 + Structural Repair Manual SRM [...***...] [...***...] [...***...] 4 90 [...***...] [...***...] [...***...] 4 90 [...***...] [...***...] [...***...] 4 90
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 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 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. ExhH-18 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 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. ExhH-20 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 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 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. 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"). [...***...].
-------------------------------------------------------------------------------------------------------------- YEAR/QTR [...***...] [...***...] TOTAL -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- [...***...] [...***...] [...***...] [...***...] -------------------------------------------------------------------------------------------------------------- TOTAL [...***...] [...***...] [...***...] --------------------------------------------------------------------------------------------------------------
[...***...]. 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 [...***...]. - --------------------------------- *Confidential Treatment Requested LA2 - 2 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). - --------------------------------- *Confidential Treatment Requested LA2 - 3 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:
A319 Aircraft No. Month/Year of Delivery A319 Aircraft No. Month/Year of Delivery ----------------- ---------------------- ----------------- ---------------------- [...***...] [...***...] 1 12 [...***...] [...***...] 2 13 [...***...] [...***...] 3 14 [...***...] [...***...] 4 15 [...***...] [...***...] 5 16 [...***...] [...***...] 6 17 [...***...] [...***...] 7 18 [...***...] [...***...] 8 19 [...***...] [...***...] 9 20 [...***...] [...***...] 10 21 [...***...] [...***...] 11 22
[Remainder of this page intentionally left blank] - ---------------------------------- * Confidential Treatment Requested LA2 - 4 90 Restated delivery schedule for A320 Aircraft:
A320 Aircraft No. Month/Year of Delivery A320 Aircraft No. Month/Year of Delivery ----------------- ---------------------- ----------------- ---------------------- [...***...] [...***...] 1 13 [...***...] [...***...] 2 14 [...***...] [...***...] 3 15 [...***...] [...***...] 4 16 5 [...***...] [...***...] 17 6 [...***...] [...***...] 18 [...***...] [...***...] 7 19 [...***...] [...***...] 8 20 [...***...] [...***...] 9 21 [...***...] [...***...] 10 22 [...***...] [...***...] 11 23 [...***...] [...***...] 12 24
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. - ---------------------------------- * Confidential Treatment Requested LA2 - 5 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 ------------------------------- LA2 - 6 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 LA3-1 - ---------------------------------- * Confidential Treatment Requested 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 [...***...]. LA3-2 - ---------------------------------- * Confidential Treatment Requested 94 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. [...***...]. LA3-3 - ---------------------------------- * Confidential Treatment Requested 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. LA3-4 - ---------------------------------- * Confidential Treatment Requested 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 ----------------------- LA3-5 - ---------------------------------- * Confidential Treatment Requested 97 EXHIBIT A TO LETTER AGREEMENT NO. 3 ----------------------------------- [...***...] LA3-6 - ---------------------------------- * Confidential Treatment Requested 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 LA4-1 - ---------------------------------- * Confidential Treatment Requested 99 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 [...***...]. - ---------------------------------- * Confidential Treatment Requested LA4-2 100 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 [...***...]. - ---------------------------------- * Confidential Treatment Requested LA4-3 101 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. - ---------------------------------- * Confidential Treatment Requested LA4-4 102 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 - -------------------------- - ---------------------------------- * Confidential Treatment Requested LA4-5 103 APPENDIX 1 [...***...] - ---------------------------------- * Confidential Treatment Requested LA4-6 104 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:-------------- - ---------------------------------- * Confidential Treatment Requested LA4-30 105 APPENDIX 2 [...***...] - ---------------------------------- * Confidential Treatment Requested LA4-31 106 *** 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 LA5 - 1 107 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. - ---------------------------------- * Confidential Treatment Requested LA5 - 2 108 [...***...]. 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. - ---------------------------------- * Confidential Treatment Requested LA5 - 3 109 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. - ---------------------------------- * Confidential Treatment Requested LA5 - 4 110 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 ------------------------------- 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. 112 APPENDIX B LIST OF STANDARD A318 MAINTENANCE COURSES
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
Note : The above list of courses is provided for information only and is subject to modifications. 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 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. LA7 - 1 115 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 - ---------------------------------- * Confidential Treatment Requested LA7 - 2 116 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. - ---------------------------------- * Confidential Treatment Requested LA7 - 3 117 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: - ---------------------------------- * Confidential Treatment Requested LA7 - 4 118 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: [...***...] - ---------------------------------- * Confidential Treatment Requested LA7 - 5 119 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.) - ---------------------------------- * Confidential Treatment Requested LA7 - 6 120 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 - ---------------------------------- * Confidential Treatment Requested LA7 - 7 121 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. LA7 - 8 122 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 - ---------------------------------- * Confidential Treatment Requested LA7 - 9 123 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. LA7 - 10 124 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 ---------------------- LA7 - 11 125 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: 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) [...***...]
- ---------------------------------- * Confidential Treatment Requested LA7 - 12 126 *** 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. - ---------------------------------- * Confidential Treatment Requested 127 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 [...***...] - ---------------------------------- * Confidential Treatment Requested 128 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 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 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 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. 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 ------------------------- 133 Appendix A [...***...] - ---------------------------------- * Confidential Treatment Requested EX-21.1 3 EX-21.1 1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
JURISDICTION NAME OF ORGANIZATION PARENT LINE OF BUSINESS - ---- --------------- ------ ---------------- 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
EX-23.1 4 EX-23.1 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 EX-27.1 5 EX-27.1
5 0001029863 AMERICA WEST HOLDINGS CORP 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 112,174 15,617 120,529 2,453 49,327 338,003 1,089,901 382,187 1,507,154 498,839 0 0 0 497 713,672 1,507,154 0 2,210,884 0 2,006,333 0 3,219 22,253 206,150 86,761 0 0 0 0 119,389 3.17 3.03 EPS Basic represents basic net income per share.
EX-27.2 6 EX-27.2
5 0000706270 AMERICA WEST AIRLINES INC. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 105,545 15,617 104,019 2,005 49,327 554,741 1,078,334 378,185 1,663,495 489,915 0 0 0 0 882,469 1,663,495 0 2,146,955 0 1,949,054 0 3,000 29,352 200,974 84,352 0 0 0 0 116,622 0 0
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