10-K 1 AMERICA WEST FORM 10-K 1 ================================================================================ 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, 1994 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-10140 AMERICA WEST AIRLINES, INC. (Exact name of registrant as specified in its charter) DELAWARE 86-0418245 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
4000 EAST SKY HARBOR BOULEVARD PHOENIX, ARIZONA 85034 (Address of principal executive offices) (Zip Code) (602) 693-0800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- Class B Common Stock, $.01 par value New York Stock Exchange Class B Common Stock Warrant, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Class A Common Stock, $.01 par value 11 1/4% Senior Unsecured Notes due 2001 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes /X /No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best 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 17, 1995, there were 43,966,645 shares of Class B Common Stock and 1,200,000 shares of Class A Common Stock issued and outstanding. On such date, 26,936,537 shares of Class B Common Stock, having an aggregate market value of $225,593,497 were held by non-affiliates of the Registrant. For purposes of the above statement only, all directors and executive officers of the Registrant are assumed to be affiliates. Indicate by check mark whether the Registrant has filed all documentation and reports required to be filed by Sections 12, 13 and 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 relating to the Registrant's 1995 Annual Shareholders Meeting are incorporated by reference into Part III of this report. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................................. 1 Item 2. Properties................................................................ 9 Item 3. Legal Proceedings......................................................... 9 Item 4. Submission of Matters to a Vote of Security Holders....................... 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 10 Item 6. Selected Financial Data................................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 13 Item 8. Financial Statements and Supplementary Data............................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................ 43 PART III Item 10. Directors and Executive Officers of the Registrant........................ 43 Item 11. Executive Compensation.................................................... 43 Item 12. Security Ownership of Certain Beneficial Owners and Management............ 43 Item 13. Certain Relationships and Related Transactions............................ 43 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 43
i 3 PART I ITEM 1. BUSINESS America West Airlines, Inc. ("America West" or the "Company") is a major United States air carrier providing passenger, cargo and mail service, with its primary markets in the western and southwestern regions of the United States. The Company operates its route system through two principal hubs, Phoenix, Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio, and serves 47 destinations with a fleet of 87 jet aircraft. The Company currently has connecting service to an additional 20 destinations through alliances with Mesa Airlines, Inc. ("Mesa") and to an additional 23 destinations through an alliance with Continental Airlines, Inc. ("Continental"). The Company emerged from bankruptcy under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") on August 25, 1994. In connection with its reorganization in bankruptcy and related operational restructuring, the Company took significant steps to improve its operations, including (i) reducing its fleet size from 123 aircraft in July 1991 to 87 as of December 31, 1994, facilitating a better matching of capacity to demand through elimination of nonproductive routes; (ii) reducing the aircraft types operated from five to three to reduce operating costs; (iii) implementing certain enhancements to its revenue management system to optimize the level of passenger revenues generated on each flight; (iv) eliminating Company operated commuter service and introducing code-sharing agreements to expand the scope of service and attract a broader passenger base; and (v) implementing numerous cost reduction programs, including a Company-wide pay reduction in August 1991 and the reduction of aircraft lease rentals to fair market rates in the fall of 1992. America West was one of only two major United States airlines to report a profit in each quarter of 1993 and 1994. BUSINESS STRATEGY The Company's business strategy is to offer competitive fares while providing an incrementally higher level of service relative to low cost carriers. The principal features of the Company's business strategy are as follows. Maintain Competitive Pricing While Providing Differentiated Service. America West currently operates with one of the lowest cost structures among the major U.S. airlines, based on reported 1994 results. The Company's operating cost per available seat mile ("ASM") for 1994 was 6.99 cents, which was approximately 22% less than the average operating cost per ASM of the nine largest other domestic airlines and was comparable to the cost structure of Southwest Airlines, Inc. ("Southwest Airlines") on a non-stage length adjusted basis, which operates in the Company's principal market areas. Management believes that the Company can continue to offer fares that are competitive with those offered by low cost carriers in the Company's markets, while providing a differentiated level of service. Passenger services provided by America West include assigned seating, participation in computerized reservation systems, interline ticketing, first class cabins on certain flights, baggage transfer and various other services. The Company believes that these features distinguish America West from certain low cost carriers in the Company's markets, including Southwest Airlines, and enable the Company to attract passengers without competing solely on the basis of fares. Achieve Growth in Revenue Passenger Miles. Management believes the Company's pricing and service strategies, together with a gradual improvement of general economic activity, will enable the Company to achieve growth in revenue passenger miles in its existing markets and to expand into certain other North American markets. Management believes that growth in existing markets will be achieved in part due to the location of the Company's principal hubs. Both Phoenix and Las Vegas are experiencing population growth in excess of national averages, and these hubs are well situated to benefit from an expanding market for leisure travel. Expand Service through Alliances. The Company entered into certain agreements (the "Alliance Agreements") with Continental and Mesa. Such agreements provide for code-sharing arrangements and 4 coordination of flight schedules and include sharing ticket counter space, linking in part their frequent flyer programs, and coordinating ground handling operations. Management believes the Alliance Agreements will contribute significantly to the Company's growth in revenue passenger miles and operating results. Maintain a Cost Effective Fleet. In connection with its Reorganization, the Company substantially reduced its aircraft fleet, reduced the aircraft types from five to three and renegotiated lease rates for certain aircraft to fair market rates. As of December 31, 1994, the Company's fleet consisted of 57 Boeing 737s, 17 Airbus 320s and 13 Boeing 757s, with an average age of approximately 9.1 years. The fleet enables the Company to achieve low fuel costs compared to industry averages and to enjoy operational efficiencies due to the limited number of aircraft types. Current plans provide for increasing the Company's fleet through the acquisition of additional aircraft of the types currently operated by the Company. OPERATIONS Hub Operations. The Company operates primarily through hub airports in Phoenix and Las Vegas and, to a lesser extent, through its mini-hub in Columbus, Ohio. The Company schedules banks of flights timed to arrive at the hub from one direction at approximately the same time and to depart toward the opposite direction a short time later. The hub system allows the Company to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. The Company is the leading airline serving Phoenix Sky Harbor International Airport with approximately 38% of all enplanements during 1994. In Las Vegas, the Company is the second largest carrier with approximately 26% of all enplanements during 1994. In both markets the Company's principal competitor is Southwest Airlines, which handled approximately 31% and 30% of enplanements in Phoenix and Las Vegas, respectively, in 1994. America West offers fares comparable to or below those of its competitors on most routes. America West is able to use pricing as a part of its strategy because of its ability to provide service generally comparable to the full service airlines while maintaining a lower cost structure than these competitors. In selected markets, America West has chosen not to match Southwest Airlines' fares, but differentiates itself from Southwest Airlines in these and other markets by providing assigned seating, interline ticketing, baggage transfer and various other services not offered by Southwest Airlines. The Company established a mini-hub at Columbus, Ohio in December 1991. As of December 31, 1994, the Company provided non-stop jet service to 11 destinations from Columbus. During 1994, the Company enplaned approximately 24% of the Columbus traffic compared to approximately 23% for USAir, the Company's principal competitor at Columbus. The success of the Company's hub system depends on its ability to attract passengers traveling to and from its hubs, as well as passengers traveling through the hubs to the Company's other destinations. The Company believes that several factors have contributed to the success of its operations in Phoenix and Las Vegas. First, the rate of population growth in these two cities has exceeded the national average in recent periods. Second, Phoenix and Las Vegas are popular vacation destinations and, therefore, benefit from the fact that a growing percentage of airline travelers are leisure or non-business travelers. Third, the Company believes that certain costs of operating in Phoenix and Las Vegas are less than in certain other geographic regions. Finally, these hub operations allow the Company to serve a number of relatively high density routes that involve short- and medium-haul service without competing directly in the more intensely competitive long-haul markets against larger carriers. Hub operations involve certain inefficiencies that are primarily associated with the need to maintain terminal resources adequate to deal with periods of peak demand when numerous aircraft converge at the hub, even though this demand occurs only a few times per day. As a result, certain carriers have emphasized or announced intentions to initiate "point-to-point" flights not integrated with hub operations that can potentially serve specific routes at lower cost than comparable hub operations. Although the Company continually evaluates its operating strategy in light of changing market conditions, the Company's current strategy is to increase utilization of its existing hub facilities by increasing frequency of service on existing routes served by its hub operations and identifying selected markets into which the Company can expand utilizing its existing hub operations. An important part of the Company's strategy involves code-sharing arrangements with 2 5 regional carriers that serve its hub airports and alliances with major or foreign carriers that complement the Company's operations. Regional/Commuter Service. A number of passengers served by the Company arrive at its hub airports via regional or commuter service airlines that serve the surrounding areas. These airlines typically utilize turboprop rather than jet aircraft and focus on flights less than 200 miles in length and 90 minutes in duration. In order to maximize the number of enplanements of passengers from these commuter airlines, America West has entered into two code-sharing agreements with Mesa designed to establish Mesa as a feeder carrier for the Company at its hubs in Phoenix and Columbus. Alliance Agreements. The Company entered into certain Alliance Agreements with Continental and Mesa. The Company and Continental agreed to implement certain code-sharing arrangements, coordinate certain flight schedules, share ticket counter space, link in part their frequent flyer programs, and coordinate ground handling operations for mutual benefit. These arrangements are being implemented in phases, which commenced in the fourth quarter of 1994. The Company believes that it will realize substantial benefits from such agreements, which are intended to increase the number of America West enplanements of Continental passengers and vice versa. In addition, the Company will be able to offer its existing customers connections to a greater number of destinations served by Continental, which may permit the Company to further increase its market share in its hub markets. With Mesa, America West has entered into two code-sharing agreements that establish Mesa as a feeder carrier for the Company at its hubs in Phoenix and Columbus. The code-sharing agreements provide for coordinated flight schedules, passenger handling and computer reservations under the America West flight designator code, thereby allowing passengers to purchase one air fare for their entire trip. Mesa connects 12 cities to the Company's Phoenix hub, operates under the name "America West Express" and has begun to incorporate the color scheme and commercial logo of America West on certain aircraft utilized on these routes. Mesa serves eight destinations from the Company's Columbus mini-hub operation. In August 1994, the Company and Mesa agreed to extend the terms of these code-sharing agreements until 2004. Commencing in 1995, Mesa will also offer jet service, on a limited basis, under its code share agreement with the Company, employing Fokker F70 aircraft. Mexico and Canada. The Company began service from its Phoenix hub to Mazatlan and Los Cabos, Mexico in December 1994. In addition, in February 1995, the Company announced that it has received temporary authority from the Department of Transportation to commence service in May or June 1995 to Vancouver, British Columbia with two daily non-stop flights from Phoenix. COMPETITION AND MARKETING The airline industry is highly competitive and susceptible to price discounting, and America West must compete on certain routes with carriers that may be larger and may have substantially greater resources. The entry of additional carriers on many of the Company's routes (as well as increased competition from or the introduction of new services by established carriers) could negatively impact America West's results of operations. Generally, the passenger carrier industry is segmented into markets based on the length of trip and level of service, including long-haul domestic and international routes, medium-haul (two to three hours) and short-haul (less than two hours) routes serviced by jet aircraft, and commuter routes served by turboprop aircraft. America West services primarily short-haul and medium-haul routes connected to its hub operations, engages only to a limited extent in long-haul flights, which are dominated by larger carriers, and does not engage in regional commuter flights, which are primarily served by smaller non-jet carriers. America West competes primarily with Southwest Airlines at its Phoenix and Las Vegas hub operations and with USAir and Delta Airlines at its Columbus mini-hub. As is the case with other carriers, most tickets for travel on America West are sold by travel agents through computer reservation systems that have been developed and are controlled by other airlines. Travel agents generally receive commissions based on the price of tickets sold. Accordingly, airlines compete not only with respect to the price of tickets sold but also with respect to the amount of commissions paid. In early 1995, certain of the major domestic airlines initiated a program to cap the amount of commissions paid to travel agents at $50 for domestic round-trip tickets with fares of $500 or more. The Company is in the process of 3 6 evaluating this commission structure but has not yet adopted such a program. Airlines often pay additional commissions in connection with special revenue programs. Federal regulations have been promulgated that are intended to diminish preferential schedule displays and other practices with respect to the reservation systems that place the Company and other similarly situated users at a competitive disadvantage to the airlines controlling the systems. The Company is also preparing to test electronic or paperless ticketing, which the Company believes would reduce distribution costs. The Company anticipates implementing a ticketless test program sometime during the second quarter of 1995. The Company has implemented certain measures to increase leisure travel utilizing America West flights. In 1987, the Company developed America West Vacations, which is a tour packaging division that arranges vacation packages that include hotel accommodations, air fare and ground transportation in certain markets. During 1994, this division sold approximately 749,000 room nights, had approximately 53,250 rental car days, handled approximately 501,400 passengers and generated approximately $161 million in gross package sales. In 1993, the Company became the preferred commercial air carrier of the MGM Grand Hotel Casino and Theme Park ("MGM") in Las Vegas. Pursuant to an agreement with MGM, America West will develop joint marketing programs that target travel agents and consumers, which management believes will enhance America West's presence in the Las Vegas market. America West also is an official airline of Knott's Berry Farm in Buena Park, California, one of the country's best-known and best-attended family entertainment parks. The Company sponsors the theme park's America West Airlines Mystery Lodge, a popular attraction with guests who visit the park. The Company also has an exclusive arrangement with the Phoenix Suns professional basketball team pursuant to which the arena in which the team plays is named "America West Arena," and the Company's name and logo appear throughout the facility, including on the basketball court. As a result of this association, the Company receives media exposure during national and local telecasts of Phoenix Suns basketball games, as well as during other events at the arena. America West is also the exclusive carrier of the Arizona Cardinals, the Kansas City Chiefs and the football teams of the University of Southern California, Arizona State University and The Ohio State University. FLIGHTFUND All major airlines have established frequent flyer programs to encourage travel on that particular carrier. America West offers the FlightFund program that allows members to earn mileage credits by flying America West and by using the services of other program participants such as hotels, car rental firms and other specialty services. FlightFund members are also allowed to earn mileage credit by flying partner carriers. For example, in 1994, the Company entered into an Alliance Agreement with Continental that allows FlightFund members to earn mileage credit on code-share flights. In addition, the Company periodically offers special short-term promotions that allow members to earn additional free travel awards or mileage credits. When a FlightFund member accumulates mileage credits of 20,000 miles, the Company issues mileage award certificates that can be redeemed for various travel awards, including first class upgrades and tickets on America West or other airlines participating in America West's frequent flyer program. Most travel awards are subject to blackout dates and capacity controlled seating. Mileage award certificates automatically expire after two years if issued prior to April 1, 1993 and after three years for certificates issued after that date. Travel is valid up to one year from the date of ticketing. FlightFund awards may also be redeemed for flights to certain international destinations and Hawaii. America West is required to purchase space on other airlines to accommodate such award redemption. The Company accounts for the FlightFund program under the incremental cost method whereby travel awards are valued at the incremental cost of carrying one additional passenger. Costs including passenger food, beverages, supplies, fuel, liability insurance, purchased space on other airlines and denied boarding compensation are accrued as frequent flyer program participants accumulate mileage to their accounts. Such unit costs are based upon expenses expected to be incurred on a per passenger basis. No profit or overhead margin is included in the accrual for these incremental costs. 4 7 FlightFund's current membership is approximately 2.0 million participants. At December 31, 1994, 1993 and 1992, the Company estimated that approximately 369,000, 238,000 and 238,000 travel awards were expected to be redeemed. Correspondingly, the Company had an accrued liability of $9.8 million, $7.4 million and $7.3 million for 1994, 1993 and 1992, respectively. The accrual is based upon the Company's estimates of mileage earned that will eventually be redeemed for a travel award. The number of FlightFund travel awards redeemed for round-trip travel for the years ended December 31, 1994, 1993 and 1992, was approximately 109,000, 99,000 and 106,000, respectively, representing 2.6%, 2.8% and 3.0% of total revenue passenger miles for each respective period. The Company does not believe that the usage of free travel awards results in any significant displacement of revenue passengers due to the Company's ability to manage frequent flyer travel by use of blackout dates and limited seat availability. AIRCRAFT At December 31, 1994, the Company operated a fleet of 57 Boeing 737s, 17 Airbus A320s and 13 Boeing 757s as follows:
AVERAGE REMAINING NUMBER AVERAGE LEASE AIRCRAFT TYPE STATUS(1) AIRCRAFT AGE (YRS.) TERM (YRS.) ------------------------------------------ ------ -------- ---------- ----------- B737-100.................................. Owned 1 25.3 -- B737-200.................................. Owned 5 15.8 -- B737-200.................................. Leased 17 15.0 5.7 B737-300.................................. Leased 23 7.6 5.5 B737-300.................................. Owned 11 6.2 -- B757-200.................................. Leased 11 8.7 11.0 B757-200.................................. Owned 2 5.3 -- A320...................................... Leased 17 5.0 16.6 -- 87 9.1 9.2 ======
--------------- (1) Each of the aircraft that is designated as owned serves as collateral for a loan pursuant to which the aircraft was acquired by the Company or serves as collateral for a non-purchase money loan. Beginning in April 1995 through September 1998, leases for 20 of the Company's aircraft are scheduled to terminate (such aircraft are 12 Boeing B737-300s, six Boeing B737-200s, one Boeing B757-200 and one Airbus A320-200). At the option of the lessor, the lease for one of the B737-300 aircraft may be extended for up to 48 months, and the leases for 10 of the B737-300 aircraft may each be extended for up to 60 months. There are no contractual options to extend any other of such leases. In February 1995, the Company leased a B737-300 aircraft for a term of five years. Additionally, the Company and the lessor have agreed, subject to final documentation, to enter into lease agreements for two A320-200 aircraft beginning in the spring of 1995. All of these aircraft will be leased to the Company under the 1994 Put Agreement discussed below. Certain of the Company's aircraft lessors have the option to call their respective aircraft upon adequate notice to the Company (such notice periods range from 60 to 180 days). Usually, if such call options are exercised, the Company has the right of first refusal to retain the aircraft by matching the terms of bona fide third party offers received by the lessors to lease or purchase such aircraft. None of these options have been exercised. The last of these call options expires in July 1997. In addition, certain other of the Company's aircraft lessors have an option 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 first round of these resets, involving 11 aircraft, occurred in August 1994. The rentals for seven of these aircraft may be reset two more times over the remaining lease terms, with the next possible reset not occurring before August 1996. The call and reset options were granted to these lessors in exchange for rental reductions and payment deferrals in 1992 and 5 8 1991, respectively. The Company does not believe that the possible exercise of any or all of these options will have a material effect on its operations. As a part of the Reorganization, the Company amended a purchase agreement with AVSA S.A.R.L. ("AVSA") for the acquisition of 24 Airbus A320-200 aircraft with an aggregate net cost estimated at $1.1 billion. These amendments provide to the Company reduced prices for and certain options regarding the number and delivery dates of the aircraft to be acquired under the agreement. The aircraft are scheduled to be delivered to the Company at the rate of eight per year in 1998, 1999 and 2000. Upon adequate notice to AVSA, the Company may: defer all or some of the 1998 deliveries to either 2001 or 2002; for every new A320 aircraft leased to the Company under the 1994 Put Agreement (described below), cancel up to the number of such leased aircraft (subject to certain conditions); cancel without cause up to an additional four aircraft; and, with mutual consent, assign all or some of its delivery positions to Continental. Additionally, AVSA and the manufacturer of the engines that will power the subject aircraft have agreed to, if requested by the Company and on its behalf, finance jointly up to one-half of the aircraft delivered under this agreement, subject to certain conditions. In June 1994, the Company entered into a put agreement with a certain lessor providing the lessor with a right to lease up to eight aircraft to the Company (the "1994 Put Agreement"). This agreement replaced a similar agreement with this lessor involving 10 aircraft (none of which were ever leased to the Company). These aircraft may be new or used B737-300 and B757-200 aircraft (of which no more than five may be used aircraft) and new or "like new" A320 aircraft. Unless otherwise consented to by the Company, beginning in June 1995 and ending by June 1999, the lessor may, with adequate notice to the Company, put to the Company up to two aircraft in 1995 and no more than three aircraft per year thereafter. The rentals for such aircraft will be at the then current market rates with lease terms ranging from three to 18 years depending on the type and condition of the aircraft, which will be predetermined by the Company and the lessor. In connection with the 1994 Put Agreement and for other consideration, this lessor was paid approximately $30.5 million and issued certain equity securities by the Company on the Effective Date. In June 1994, the Company and another lessor cancelled a similar agreement involving four aircraft. In consideration for such cancellation, the Company paid the lessor $2.5 million in June 1994 and $2.0 million in August 1994. In connection with the Plan of Reorganization (the "Plan"), the Company rejected certain aircraft purchase agreements with The Boeing Company ("Boeing"). As part of this settlement, Boeing retained certain of the Company's cash purchase deposits that it held under these agreements. In December 1994, the Company entered into a support contract with International Aero Engines ("IAE") which provides for the purchase by the Company of six new V2500-A5 spare engines scheduled for delivery beginning in 1998 through 2000 for use on the A320 fleet. Such engines have an estimated aggregate cost of $42.3 million for which the Company has provided a $1.5 million security deposit in the form of a letter of credit. Pursuant to a side letter to an earlier contract with IAE, the Company agreed to purchase from IAE prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company expects to, with IAE's consent, acquire an additional "A5" engine in lieu of this "A1" engine. FACILITIES America West's principal facilities are associated with its hub operations in Phoenix, Las Vegas and Columbus. The Company operates from Terminal 4 of Phoenix Sky Harbor International Airport pursuant to a lease agreement that includes 28 gates and approximately 258,200 square feet at December 31, 1994. The Company also leases approximately 25,000 square feet of additional space at the airport for administrative offices and pilot training. Since 1988, the Company has owned a 660,000 square foot maintenance and technical support facility that includes four hangar bays, hangar shops, two flight simulator bays, and warehouse and commissary facilities. In Las Vegas, the Company leases approximately 80,000 square feet of space at McCarran International Airport, which includes seven gates and adjoining holding room areas. At the Company's Columbus, Ohio 6 9 mini-hub, the Company leases 30,000 square feet and two gates and has the ability to sublease additional gates from other airlines as the need arises. Pursuant to the Company's Alliance Agreement with Continental, certain of the station operations for both carriers have been consolidated in an effort to reduce operating expenses. Space for ticket counters, gates and back offices has also been obtained at each of the other airports served by the Company, either by lease from the airport operator or by sublease from another airline. Some of the Company's airport sublease agreements include requirements that the Company purchase various ground services at the airport from the lessor airline at rates in excess of what it would cost the Company to provide those services itself. The Company owns the 68,000 square foot America West Corporate Center at 222 South Mill Avenue in Tempe, Arizona. The Company currently leases approximately 500,000 square feet of general office and other space in Phoenix and Tempe, Arizona. EMPLOYEES Management believes that the Company's labor force has contributed significantly to its successful Reorganization. At December 31, 1994, the Company employed 8,421 full-time and 3,174 part-time employees, the equivalent of 10,715 full-time employees. During 1994, the Company had 1,685,500 available seat miles per full-time equivalent employee and 1,141,700 revenue passenger miles per full-time equivalent employee, based on the number of full-time equivalent employees at year end. In January 1995, the Company announced its new compensation program, the Total Pay Program. This program is designed to provide employees with a pay and benefits package which is competitive with other low-cost airlines and local employers. In addition, performance awards of up to 25% of base pay will be made to employees provided certain annually established operating income targets are attained. The Total Pay Program is expected to increase non-executive pay by approximately $25 million annually. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Concurrent with this new compensation program, the Company announced that it is in the process of strategically overhauling its work processes which is anticipated to reduce its workforce by approximately 1,300 employees. The Company anticipates that the cost savings, including the reduction in workforce, will be about $40 million in 1995 and $48 million annually thereafter. In addition, in December 1994, the Board of Directors approved the America West 1994 Incentive Equity Plan which authorizes the grant of various stock, stock-related and cash awards to employees and non-employee directors of the Company. Such plan is being submitted for approval by the Company stockholders at the 1995 Annual Meeting of Stockholders. In October 1993, the Air Line Pilots Association ("ALPA") was certified by the National Mediation Board as the bargaining representative of the Company's flight deck crew members. Formal negotiations commenced in April 1994 and are continuing. In June 1994, the National Mediation Board accepted the Association of Flight Attendants' ("AFA") petition to represent the Company's CSRs and in September 1994, the Company's inflight CSRs voted in favor of AFA representation and contract negotiations have commenced. In April 1994, the Transportation Workers Union ("TWU") filed a petition to represent the Company's fleet service personnel which petition was rejected in December 1994. The International Brotherhood of Teamsters ("IBT") filed applications to represent the Company's mechanics including related personnel and the Company's flight simulator technicians in August and September 1994, respectively. Both of these applications were rejected in December 1994, and the IBT thereafter withdrew the pending application with respect to stock clerks. The Company cannot predict the effect, if any, that a future collective bargaining agreement with ALPA and the AFA would have on the Company's operations or financial performance. GOVERNMENT REGULATIONS Noise Abatement and Other Restrictions. The Airport Noise and Capacity Act of 1990 provides, with certain exceptions, that after December 31, 1999, no person may operate certain large civilian turbo-jet 7 10 aircraft in the United States that do not comply with Stage 3 noise levels, which is the FAA designation for the quietest commercial jets. These regulations will require carriers to gradually phase out their noisier jets, either replacing them with quieter Stage 3 jets or equipping them with hush kits to comply with noise abatement regulations, over a five-year period commencing December 31, 1994. As of December 31, 1994, approximately 74 percent of America West's fleet was in compliance with the FAA noise abatement regulations, and the Company expects that it will meet the thresholds imposed by such regulations through scheduled retirement of its older aircraft. Numerous airports, including those serving Boston, Denver, Los Angeles, Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange County, Washington, D.C., Burbank and Long Beach have imposed restrictions such as curfews, limits on aircraft noise levels, mandatory flight paths, runway restrictions and limits on number of average daily departures, which limit the ability of air carriers to provide service to or increase service at such airports. In February 1995, the Company obtained approval to increase service at Orange County's John Wayne Airport, which is a capacity controlled airport, by five daily flights. The Port Authority of New York and New Jersey is considering a phaseout of Stage 2 aircraft on a more accelerated basis than that of the FAA requirement. The Company's Boeing 757-200s, 737-300s and Airbus A320s all comply with the noise abatement requirements of the airports listed above. Fuel Tax Increases. In August 1993, the federal government increased taxes on fuel, including aircraft fuel, by 4.3 cents per gallon. Airlines are exempt from this tax until October 1, 1995. When implemented, this tax will increase the Company's annual operating expenses by approximately $13 million based upon its 1994 fuel consumption levels. PFC Charges. During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the Department of Transportation (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. As a result of competitive pressure, the Company and other airlines have been limited in their abilities to pass on the cost of the PFCs to passengers through fare increases. Environmental Matters. The Company is subject to regulation under major environmental laws administered by state and federal agencies, including the Clean Air Act, Clean Water Act and Comprehensive Environmental Response Compensation and Liability Act of 1980. In some locations there are also county and sanitary sewer district agencies which regulate the Company. The Company believes that it is in substantial compliance with applicable environmental regulations. Aging Aircraft Maintenance. The Federal Aviation Administration (the "FAA") issued several Airworthiness Directives ("AD") in 1990 mandating changes to the older aircraft maintenance programs. These ADs were issued to ensure that the oldest portion of the nation's fleet remains airworthy. The FAA is requiring that these aircraft undergo extensive structural modifications. These modifications are required upon the accumulation of 20 years time in service, prior to the accumulation of a designated number of flight cycles or prior to 1994 deadlines established by the various ADs, whichever occurs later. Six of the Company's 87 aircraft are currently affected by these aging aircraft ADs and are in compliance with such ADs. The Company constantly monitors its fleet of aircraft to ensure safety levels which meet or exceed those mandated by the FAA or the DOT. Safety. America West is subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA requires the Company to obtain operating, airworthiness and other certificates which are subject to suspension or revocation for cause. In addition, a combination of FAA and Occupational Safety and Health Administration regulations on both federal and state levels apply to all of America West's ground-based operations. Slot Restrictions. At New York City's JFK and LaGuardia Airports, Chicago's O'Hare International Airport and Washington's National Airport, which have been designated "High Density Airports" by the 8 11 FAA, there are restrictions on the number of aircraft that may land and take-off during peak hours. In the future, these take-off and landing time slot restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including America West, particularly in light of the increase in the number of airlines operating at such airports. In general, the FAA rules relating to allocated slots at the High Density Airports contain provisions requiring the relinquishment of slots for nonuse and permits carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. All slots must be used on 80% of the dates during each two-month reporting period. Failure to satisfy the 80% use rate will result in loss of the slot. The slot would revert to the FAA and be reassigned through a lottery arrangement. The Company currently utilizes two slots at New York City's JFK airport, four slots at New York City's LaGuardia airport, four slots at Chicago's O'Hare airport and six slots at Washington's National airport. Four of the slots at Washington's National airport are temporary and the Company's right to utilize such slots expires in December 1995. The average utilization rates by the Company of all the foregoing slots range from 86% to 100%. CRAF Program. In time of war or during a national emergency, United States air carriers may be required to provide airlift services to the Military Airlift Command under the Civil Reserve Air Fleet Program (the "CRAF Program"). INSURANCE The Company has arranged a program of insurance of the types and in the amounts it believes customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, cargo liability and workers' compensation. The Company believes such insurance is adequate as to both risks covered and coverage amounts. ITEM 2. PROPERTIES For a description of the Company's properties, see Item 1 of Part I of this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company emerged from bankruptcy on August 25, 1994 (the "Effective Date") after operating as a debtor-in-possession since June 27, 1991, when the Company filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code. The U.S. Bankruptcy Court for the District of Arizona (the "Bankruptcy Court") confirmed the Company's Plan on August 10, 1994. Pursuant to the Plan, the previously outstanding equity interests in the Company were canceled as of the Effective Date and new stock was issued. In addition, the Company's obligations to certain prepetition creditors were restructured and general unsecured nonpriority prepetition creditors received, in full satisfaction of their claims, shares of Class B Common Stock and cash. The Plan also provided for the disposition of numerous other matters, including the satisfaction of certain other prepetition claims in accordance with negotiated settlement agreements, the disposition of various types of claims asserted against the Company, the adherence to the Company's aircraft lease agreements, the amendment of the Company's aircraft purchase agreements and the release of the Company's employees from all obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of the stock securing such obligations. As contemplated by the Plan, certain administrative and priority tax claims remain pending against the Company, which, if ultimately allowed by the Bankruptcy Court, would represent general obligations of the Company. Such claims include claims of various state and local tax authorities, most of which represent ordinary course pre-bankruptcy tax obligations not paid during the pendency of the bankruptcy proceedings, certain indemnification obligations under contractual obligations assumed by the Company pursuant to the Plan, and various other matters. In connection with the state and local tax claims, the Company has reserved certain amounts believed by management to be adequate. With respect to ongoing indemnity obligations, the Company has been informed 9 12 by one of its aircraft sublessors that it may assert an administrative claim, in an unspecified amount, as a result of the Internal Revenue Service potentially disallowing certain tax benefits claimed by the head lessor of certain aircraft which are subleased to the Company. The Company is unable to predict whether the Internal Revenue Service will prevail in matters asserted against the head lessor and whether the Company will incur any liability in connection with such claims, or the amount of any such liability, if incurred. The Company also assumed, pursuant to the Plan, indemnification agreements with its former directors, certain of whom are named as defendants in an Arizona state court action brought by Stephen D. Clark, on behalf of himself and others similarly situated (the "Clark Action"). The Plan provided that the Clark Action be permanently enjoined and dismissed in consideration of the forgiveness by the Company of debt owed by employees arising under the Company's stock purchase plan, and on March 8, 1995, the Bankruptcy Court denied a motion filed by Clark to dissolve a preliminary injunction entered by the Bankruptcy Court in May 1992. The Company is unable to predict whether the Bankruptcy Court's ruling will be appealed, whether such ruling will be upheld if appealed, or whether the Company may incur any liability under its indemnification obligations as a result of the Clark Action. Management cannot predict whether or to what extent any of the pending administrative and priority tax claims will result in liabilities to the Company. Should such liabilities be incurred, future operating results could be adversely affected. Based on information currently available, however, management believes that the disposition of these matters will not have a material adverse effect on the Company's financial condition. In August 1991, the Securities and Exchange Commission (the "Commission") informally requested that the Company provide the Commission with certain information and documentation underlying disclosures made by the Company in annual and quarterly reports filed with the Commission by the Company in 1991. The Company has cooperated with the Commission's informal inquiry. On March 29, 1994, the Company's Board of Directors approved the submission of an offer of settlement for the purpose of resolving the inquiry through the entry of a consent decree pursuant to which the Company would, while neither admitting nor denying any violation of the securities laws, agree to comply with its future reporting obligations under Section 13 of the Exchange Act. The Company was advised on May 6, 1994 that the Commission agreed to accept the Company's offer of settlement. In order to implement the settlement, on May 12, 1994 the Commission issued an "Order Instituting Proceedings Pursuant to Section 21C of the Exchange Act and Opinion and Order of the Commission" (the "Order") finding the Company's Form 10-K for the year ending December 31, 1990, violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, and that the Company's Form 10-Q for the first quarter of 1991 violated Section 13(a) of the Exchange Act and Rule 13a-13 thereunder, and ordered that the Company cease and desist from violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 promulgated under the Exchange Act. The Order provides that the Company neither admits nor denies any violation of the securities laws. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY Set forth below is information respecting the names, ages, positions and offices with the Company of the executive officers of the Company who are not continuing directors or nominees. Information with respect to the executive officers of the Company who are continuing directors or nominees is set forth in Item 10 of this Report. THOMAS F. DERIEG -- Age 54. Senior Vice President -- Operations. Mr. Derieg joined the Company in July 1994. For the preceding seven years, Mr. Derieg served as Senior Vice President -- Operations at Aloha Airgroup, Inc. in Honolulu. Mr. Derieg served in the U.S. Air Force from 1963 to 1969, and from 1970 to 1987 held a variety of positions in areas of operations and maintenance in the air transportation industry. 10 13 JOHN R. GAREL -- Age 35. Senior Vice President -- Marketing and Sales. Mr. Garel agreed to join the Company in March 1995 and begins work in April 1995. From 1993 until early 1995, Mr. Garel was the Chief Executive Officer of Cadmus Journal Services, a division of Cadmus Communications located in Baltimore. Prior to that, Mr. Garel was with Northwest Airlines, serving from 1990 to 1992 as Vice President, Financial Planning and Analysis and, thereafter, as Vice President, Market Development and Area Marketing. From 1982 to 1990, Mr. Garel worked for American Airlines in several management and senior capacities. ROBERT S. NICHOLS, JR. -- Age 50. Senior Vice President -- Customer Service. Mr. Nichols agreed to join the Company in February 1995 and begins work in April 1995. Before joining the Company, Mr. Nichols spent 27 years with Marriott Hotels, Resorts & Suites. From 1991 until 1994 Mr. Nichols held the position of Senior Vice President, Total Quality Management. From 1984 to 1991 Mr. Nichols served as Regional Vice President from 1982 to 1984 as Vice President, Human Resources Development and before that in a number of other positions with Marriott. MICHAEL A. VESCUSO -- Age 49. Senior Vice President -- Human Resources. Mr. Vescuso joined the Company in September 1994. Prior to such time, Mr. Vescuso worked as an organizational and management development consultant. From 1990 to 1992 he was the Director, Organization and Development of Frito-Lay, Inc. From 1978 to 1990, he held several senior management positions at HBJ, Inc., including the position of human resources officer. MARTIN J. WHALEN -- Age 54. Senior Vice President -- Corporate Affairs. Mr. Whalen joined the Company in July 1986 and served as Senior Vice President -- Administration and General Counsel until February 1995. From 1980 until July 1986, Mr. Whalen was employed by McDonnell Douglas Helicopter Company and its predecessors, most recently as Vice President of Administration. He also held positions in labor relations, personnel and legal affairs at Hughes Airwest and Eastern Airlines. C.A. HOWLETT -- Age 51. Vice President -- Public Affairs. Mr. Howlett joined the Company in January 1995. Prior to such time, Mr. Howlett maintained a government relations practice as a principal at the law firm of Lewis & Roca in Phoenix. Mr. Howlett's prior work experience has included senior positions with Salt River Project, the City of Phoenix and the White House where he served as special assistant to President Ronald Reagan for intergovernmental affairs. STEPHEN L. JOHNSON -- Age 38. Vice President -- Legal Affairs. Mr. Johnson joined the Company in February 1995. From 1993 to 1994, Mr. Johnson served as Senior Vice President and General Counsel to GE Capital Aviation Services Limited, in Shannon, Ireland. From 1989 to 1993 Mr. Johnson was employed by GPA Group plc, also in Shannon, from 1989 to 1991 as Vice President and Senior Counsel and from 1991 to 1993 as Senior Vice President and General Counsel to GPA's Leasing Division. From 1982 until 1989, Mr. Johnson was engaged in the private practice of law. RAYMOND T. NAKANO -- Age 49. Vice President and Controller. Mr. Nakano joined the Company in June 1983 and has served as Vice President and Controller since April 1985. Prior to such time, Mr. Nakano was employed by Continental Airlines for eight years in various accounting positions, most recently as Senior Director, General Accounting. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock") is not publicly traded. The Class B Common Stock, par value $.01 per share (the "Class B Common Stock") has been traded on the New York Stock Exchange ("NYSE") under the symbol "AWA" since August 26, 1994, the day following America West's emergence from bankruptcy. The following table sets forth the high and low 11 14 closing sales prices of the Class B Common Stock for the third and fourth quarters of 1994 as reported on the NYSE Composite Tape:
HIGH LOW ---- --- Third Quarter 1994......................................... 15 1/8 12 3/8 Fourth Quarter 1994........................................ 13 6 3/4
As of March 17, 1995, there were 5 record holders of Class A Common Stock and 32,843 record holders of Class B Common Stock. Cash dividends have not been paid on the Class A or the Class B Common Stock. Various agreements between the Company and certain of its lenders restrict the ability of the Company to pay cash dividends. The Company does not expect to pay dividends in the foreseeable future. Pursuant to the Reorganization, pre-existing equity interests of the Company were cancelled, the Company's obligations to certain prepetition creditors were restructured and general unsecured nonpriority prepetition creditors have received or will receive, in full satisfaction of their claims, their pro rata share of approximately 26,053,185 shares of Class B Common Stock and $6,416,214 in cash. As of March 17, 1995, approximately 22.5 million of these shares have been distributed to creditors and approximately 3.5 million remain held in reserve for distribution in the settlement of remaining claims. Holders of the Company's pre-existing common equity interests received, on a pro rata basis, 2,250,000 shares of Class B Common Stock and warrants to purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant to the exercise of subscription rights, holders of pre-existing equity interests received 1,615,179 shares of Class B Common Stock for an aggregate purchase price of $14,357,326 ($8.889 per share), including holders of pre-existing preferred equity interests who received 125,000 shares of Class B Common Stock for an aggregate purchase price of $1,111,125. 12 15 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA The selected data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and each of the years in the four-year period ended December 31, 1993, are derived from the financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected data should be read in conjunction with the financial statements, the related notes and the independent auditors' report. The independent auditors' report for the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and as of December 31, 1994 contains an explanatory paragraph that states the financial statements of the Reorganized Company reflect the impact of adjustments to reflect the fair value of assets and liabilities under fresh start reporting. As a result, the financial statements of the Reorganized Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable in all respects. As a result of the Company filing a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code on June 27, 1991 and operating as a debtor-in-possession until August 25, 1994, the selected financial data for periods prior to June 27, 1991 are not comparable to periods subsequent to such date.
PREDECESSOR COMPANY REORGANIZED -------------------------------------------------------------- COMPANY PERIOD ------------ FROM PERIOD FROM JANUARY 1 AUGUST 26 TO TO YEARS ENDED DECEMBER 31, DECEMBER 31, AUGUST 25, ------------------------------------------------- 1994 1994 1993 1992 1991 1990 ------------ ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA: Operating revenues.......................... $ 469,766 $ 939,028 $1,325,364 $1,294,140 $1,413,925 $1,315,804 Operating expenses.......................... 430,895 831,522 1,204,310 1,368,952 1,518,582 1,347,435 Operating income (loss)..................... 38,871 107,506 121,054 (74,812) (104,657) (31,631) Income (loss) before income taxes and extraordinary items....................... 19,736 (201,209 ) 37,924 (131,761) (222,016) (76,695) Income taxes................................ 11,890 2,059 759 -- -- -- Income (loss) before extraordinary items.... 7,846 (203,268 ) 37,165 (131,761) (222,016) (76,695) Extraordinary items (a)..................... -- 257,660 -- -- -- 2,024 Net Income (loss)........................... 7,846 54,392 37,165 (131,761) (222,016) (74,671) Earnings (loss) per share: (b) Primary: Before extraordinary items.............. .17 (7.03 ) 1.50 (5.58) (10.39) (4.26) Extraordinary items (a)................. -- 9.02 -- -- -- 0.11 Net income (loss)....................... .17 1.99 1.50 (5.58) (10.39) (4.15) Fully diluted: Before extraordinary items.............. .17 (4.96 ) 1.04 (5.58) (10.39) (4.26) Extraordinary items (a)................. -- 6.37 -- -- -- 0.11 Net income (loss)....................... .17 1.41 1.04 (5.58) (10.39) (4.15) Shares used for computation Primary................................... 45,127 28,550 27,525 23,914 21,534 18,396 Fully diluted............................. 45,127 40,452 41,509 23,914 21,534 18,396 BALANCE SHEET DATA: Working capital deficiency.................. $ (47,927) $ (124,375) $ (201,567) $ (51,158) $ (94,671) Total assets................................ 1,545,092 1,016,743 1,036,441 1,111,144 1,165,256 Long-term debt, less current maturities (c)....................................... 465,598 620,992 647,015 726,514 620,701 Total stockholders' equity (deficiency)..... 595,446 (254,262) (294,613) (166,510) 21,141
--------------- (a) Includes extraordinary items of $257.7 million in 1994 resulting from the discharge of indebtedness pursuant to the consummation of the Plan of Reorganization and, $2.0 million in 1990, resulting from the purchase and retirement of convertible subordinated debentures. (b) Historical per share data for the Predecessor Company is not meaningful since the Company has been recapitalized and has adopted fresh start reporting as of August 25, 1994. (c) Includes certain balances reported as "Estimated Liabilities Subject to Chapter 11 Proceedings" for the Predecessor Company. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW America West Airlines, Inc. (the "Predecessor Company") filed a voluntary petition to reorganize under Chapter 11 of the Federal Bankruptcy Code on June 27, 1991. On August 10, 1994, the Plan of Reorganization filed by the Predecessor Company was confirmed by the Bankruptcy Court and became effective August 25, 1994 (the "Effective Date"). On August 26, 1994, America West Airlines, Inc. (the "Reorganized Company" or the "Company") emerged from bankruptcy and adopted fresh start reporting. For further information regarding the Plan of Reorganization, see Item 8. Financial Statements and Supplementary Data -- Note 1 of Notes to Financial Statements. IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS In connection with its emergence from bankruptcy, the Company adopted fresh start reporting in accordance with Statement of Position 90-7 of the American Institute of Certified Public Accountants ("Statement 90-7"). Under fresh start reporting, the reorganization value of the Company has been allocated to its assets and liabilities on a basis substantially consistent with purchase accounting. The portion of reorganization value not attributable to specific tangible assets has been recorded as "Reorganization Value in Excess of Amounts Allocable to Identifiable Assets". Certain fresh start reporting adjustments, primarily related to the adjustment of the Company's assets and liabilities to fair market values, will have a significant effect on the Company's future statements of operations. The more significant adjustments relate to reduced depreciation expense on property and equipment, increased amortization expense relating to reorganization value in excess of amounts allocable to identifiable assets, increased interest expense and reduced aircraft rent expense. INDUSTRY CONDITIONS AND COMPETITION The airline industry is highly competitive and susceptible to price discounting, and the Company must compete with carriers that are much larger and have substantially greater resources. The entry of additional carriers on the Company's routes (as well as increased competition from or the introduction of new services by established carriers) could negatively impact the Company's results of operations. In 1994, United Airlines introduced its "Shuttle by United" service in certain markets served by the Company in the Western U.S. Currently, approximately 4% of the available seat miles flown by the Company are subject to this new competition from United, which although not significant in the context of the Company's entire route system, has exerted some pressure on the load factor and yield realized by the Company. With respect to 1995, certain competitors have announced changes to their route schedules which have sharply limited or entirely eliminated service which had competed with that provided by the Company. Most significantly affected were certain Midwestern cities connecting to Phoenix and Las Vegas and the Los Angeles area airports connecting to Phoenix. As is the case with other carriers, most tickets for travel on America West are sold by travel agents through computer reservation systems that have been developed and are controlled by other airlines. Travel agents generally receive commissions based on the price of tickets sold. Accordingly, airlines compete not only with respect to the price of tickets sold but also with respect to the amount of commissions paid. In early 1995, certain of the major domestic airlines initiated a program to cap the amount of commissions paid to travel agents at $50 for domestic round-trip tickets with fares of $500 or more. The Company is in the process of evaluating this commission structure but has not yet adopted such a program. Airlines often pay additional commissions in connection with special revenue programs. Federal regulations have been promulgated that are intended to diminish preferential schedule displays and other practices with respect to the reservation systems that place the Company and other similarly situated users at a competitive disadvantage to the airlines controlling the systems. The Company is also preparing to test electronic or paperless ticketing, which the Company believes would reduce distribution costs. The Company anticipates implementing a ticketless test program sometime during the second quarter of 1995. 14 17 RESULTS OF OPERATIONS The following discussion provides an analysis of the Company's results of operations and reasons for material changes therein for the periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994 and the two-years ended December 31, 1993. The Company's results of operations for the periods subsequent to August 25, 1994 have not been prepared on a basis of accounting consistent with its results of operations for periods prior to August 26, 1994 due to the implementation of fresh start reporting upon the Company's emergence from bankruptcy. The Company realized net income of $62.2 million on a combined basis for 1994 compared to net income of $37.2 million for 1993 and a net loss of $131.8 million for 1992. The 1994 results include an extraordinary gain of $257.7 million from the discharge of certain prepetition indebtedness and $273.7 million of reorganization expenses. The results for 1993 include reorganization expenses of $25 million and losses aggregating $4.6 million primarily resulting from the disposition of surplus spare aircraft parts and equipment. During 1992, the Company recorded restructuring charges of $31.3 million, reorganization expenses of $16.2 million and a gain of $15 million from the sale of its Honolulu to Nagoya, Japan route. Total operating revenues were $1.409 billion on a combined basis for 1994, an increase of 6.3 percent compared to the prior year and 8.9 percent greater than 1992. Passenger revenues for 1994, 1993 and 1992 were $1.320 billion on a combined basis, $1.247 billion and $1.215 billion, respectively. Summarized below are certain capacity and traffic statistics for the years ended December 31, 1994, 1993 and 1992.
1994 PERCENT CHANGE TO ----------- 1994 1993 1992 1993 1992 ------ ------ ------ ---- ---- Aircraft (end of period).................................. 87 85 87 2.4 -- Available seat miles (in millions)........................ 18,060 17,190 19,271 5.1 (6.3) Revenue passenger miles (in millions)..................... 12,233 11,221 11,781 9.0 3.8 Load factor (percent)..................................... 67.7 65.3 61.1 3.7 10.8 Passenger enplanements (in thousands)..................... 15,669 14,740 15,173 6.3 3.3 Average passenger journey miles........................... 979 970 990 .9 (1.1) Average stage length...................................... 676 645 631 4.8 7.1 Yield per revenue passenger mile (cents).................. 10.79 11.11 10.31 (2.9) 4.7 Revenue per available seat mile: Passenger (cents)....................................... 7.31 7.25 6.30 .8 16.0 Total (cents)........................................... 7.80 7.71 6.72 1.2 16.1 Average daily aircraft utilization (hours)................ 11.19 10.69 10.47 4.7 6.9
Passenger revenue per available seat mile increased slightly in 1994 compared to 1993 as the increase in load factor period over period was largely offset by a decline in average passenger yields. The increase in passenger revenue per available seat mile in 1994 compared to 1992, was due to improvements in both load factor and yield. The passenger revenue increases realized in 1994 reflect a continuation of trends which commenced in 1993 relative to: - An improved economic climate; - Elimination of "fare simplification" and a non-recurrence of industry-wide 50 percent-off sales which occurred in the second and third quarters of 1992; and - A stable fleet size for virtually all of 1994. The Company added two aircraft in mid-December 1994 which increased the fleet size to 87 aircraft. With the exception of the two aircraft deliveries late in 1994, the Company operated an 85 aircraft fleet and realized increases in capacity over 1993 as measured by available seat miles by increasing the average stage length flown by 4.8 percent and by increasing the average daily utilization of the aircraft by 4.7 percent. 15 18 In the fourth quarter of 1994, certain competitive pricing initiatives were commenced by other carriers which exerted pressure on both the Company's yield and the load factor. The result of these initiatives, which have carried over to the first quarter of 1995, has been softer traffic than was experienced in the prior year and generally lower yield levels. To address these conditions, the Company has announced certain fare initiatives of its own, and has selectively matched fare increases initiated by other carriers, where appropriate. Revenues from sources other than passenger fares increased to $88.9 million on a combined basis for 1994 compared to $78.8 million and $79.3 million for 1993 and 1992, respectively. Cargo revenues comprised 49.8 percent, or $44.3 million of other revenues on a combined basis for 1994. For the years 1994, 1993 and 1992, the Company carried 129.6 million, 110.7 million and 116.4 million pounds of freight and mail, respectively. The balance of other revenues includes revenues generated from: pilot training; contract services provided to other airlines for maintenance and ground handling; reduced rate fares; alcoholic beverage sales and headset rentals and service charges assessed for refunds, reissues and prepaid ticket advices. In spite of significant reductions in capacity which have occurred since 1991, operating expense per available seat mile declined to 6.99 cents for 1994 from 7.01 cents for 1993 and 7.10 cents for 1992. The table below sets forth the major categories of operating expense per available seat mile for 1994, 1993 and 1992.
1994 PERCENT (IN CENTS) CHANGE TO ----------------------- -------------- 1994 1993 1992 1993 1992 ----- ----- ----- ---- ----- Salaries and related costs........................... 1.83 1.78 1.68 2.8 8.9 Rentals and landing fees............................. 1.47 1.60 1.76 (8.1) (16.5) Aircraft fuel........................................ .88 .97 .97 (9.3) (9.3) Agency commissions................................... .64 .62 .55 3.2 16.4 Aircraft maintenance materials and repairs........... .25 .18 .20 38.9 25.0 Depreciation and amortization........................ .47 .48 .45 (2.1) 4.4 Restructuring charges................................ -- -- .16 -- -- Other................................................ 1.45 1.38 1.33 5.1 9.0 ----- ----- ----- ---- ----- 6.99 7.01 7.10 (.3) (1.5) ==== ==== ==== ==== =====
The changes in the components of operating expense per available seat mile are explained as follows: - The increase in 1994 salaries and related costs compared to 1993 is a result of an increase in capacity as well as the implementation of the Moving Forward Pay Program in the second quarter of 1994. Effective April 1, 1994, employee base wages were increased between two percent to eight percent, depending on the employee's length of service with the Company. Each employee whose anniversary date occurred between April and December also received an additional increase of four percent on such anniversary date, with certain exceptions. Also effective April 1, 1994, the Company increased its matching contribution to 50 percent of the first six percent contributed by employees under the Company's 401(k) plan. The effect of these changes was to increase Salaries and Related Costs in 1994 by approximately $18 million. The Moving Forward Pay Program replaced the Transition Pay Program which commenced in the second quarter of 1993 and terminated at the end of the first quarter of 1994. Under the Transition Pay Program, performance award distributions totaling $6.5 million, including applicable payroll taxes, were made in 1993 upon the Company meeting or exceeding certain operating income targets. In addition, commencing in the third quarter of 1993, employee award distributions based on the greater of .5 percent of an employee's annual base wage or $125 were made on a quarterly basis. Such payments totaled $2.6 million, including applicable payroll taxes. In the first quarter of 1994, approximately $3.3 million in distributions were made prior to the termination of the Transition Pay Program. - Rentals and landing fees decreased in 1994 compared to 1993 and 1992 for the following reasons: - The Company generated more ASMs in 1994 with essentially the same sized aircraft fleet as in 1993 which, in turn, caused the rate per ASM to decrease; 16 19 - Rent reductions were obtained at New York's JFK and Phoenix's Sky Harbor International Airports; - Rent expense for aircraft leases were reduced to reflect fair market rates in August 1994 under fresh start reporting; and - Certain administrative office space was vacated as part of the Company's facilities consolidation program. - Aircraft fuel expense decreased year over year due to the decline in the average price per gallon to 54.89 cents from 61.05 cents for 1993 and 62.70 cents for 1992. - Agency commission expense increased in 1994 in comparison to 1993 and 1992 as a result of the increase in passenger revenue per available seat mile. In addition, the 1994 commission expense increased because a higher percentage of passenger revenues was generated by America West Vacations which pays a higher average commission rate on its sales. - Aircraft maintenance materials and repair expense increased in 1994 as the result of an increase in average daily utilization of the fleet to 11.19 hours per day in 1994 from 10.69 hours and 10.47 hours for 1993 and 1992, respectively. This higher level of utilization resulted in increases in line maintenance materials usage, engine repairs and component repairs. - Depreciation and amortization expense decreased slightly in 1994 compared to 1993 as the result of a decrease in depreciation expense arising from the re-valuation of property and equipment under fresh start reporting which was partially offset by an increase in amortization expense arising from the amortization of the reorganization value in excess of amounts allocable to identifiable assets under fresh start reporting. Depreciation and amortization expense was higher in 1993 than in 1992 largely as the result of increased heavy engine overhauls. - Restructuring charges incurred in 1992 consisted of the following:
(IN MILLIONS) ------------- Write-off for certain assets related to station closures or route restructuring........................................ $ 9.5 Provision for spare parts for aircraft types no longer in service.................................................... 12.7 Provision for employee severance............................. 2.3 Loss on return of aircraft................................... 6.8 ------ $31.3 =========
The restructuring charges were necessitated by aircraft fleet reductions and other operational changes. The Company reduced its fleet to 87 aircraft at the end of 1992 as well as eliminated two of five aircraft types it operated. Additionally, the number of employees was reduced by approximately 1,500 employees and service was terminated to ten cities through the end of 1992. - The increase in other operating expense for 1994 compared to 1993 and 1992 is due to increased advertising costs and other expenses related to increased passenger traffic such as credit card discount fees, booking fees, catering expenses and supplies. Nonoperating expenses (net of nonoperating income) for 1994, 1993 and 1992 were $327.9 million on a combined basis, $83.1 million and $56.9 million, respectively. Interest expense increased to $56.6 million in 1994 compared to $54.2 million in 1993 and $55.8 million in 1992. The increase in interest expense is primarily the result of the issuance of $123 million of 11 1/4% Senior Unsecured Notes in connection with the Company's emergence from bankruptcy protection. In conformity with Statement 90-7, the Company ceased accruing and paying interest on certain prepetition long-term debt so long as the Company remained a debtor-in-possession. Had the Company continued to accrue interest on such debt, interest expense for 1994, 1993 and 1992 would have been $67.3 million, $73.0 million and $73.9 million, respectively. The Company incurred expenses of $273.7 million in 1994, $25 million in 1993 and $16.2 million in connection with its 17 20 efforts to reorganize under Chapter 11. See Item 8. Financial Statements and Supplementary Data -- Note 1 of Notes to Financial Statements for further discussion with respect to reorganization. In connection with its emergence from bankruptcy, the Company entered into an Alliance Agreement with Continental Airlines which became effective October 1, 1994. On that date, the two airlines began joint marketing of certain flights, known as code-sharing, which increased the number of destinations that each carrier serves. Supporting the code-share agreement are programs to coordinate scheduling and to facilitate customer service through expedited interline baggage transfers. The agreement offers members of the airlines' frequent flyer plans new opportunities for mileage accrual as well as shared use of select membership airport lounges. In addition, the airlines are exploring opportunities to provide ground support to one another on a select basis in different cities in which operating efficiencies may be realized. In September 1994, the Company announced that its flight attendants voted in favor of collective bargaining representation by the Association of Flight Attendants (AFA). Negotiations are underway with both the AFA and the Airline Pilots Association (ALPA), the collective bargaining agent elected to represent the Company's pilots. The Company is unable to estimate at this time the impact, if any, that such initial collective bargaining agreements may have on its operating expenses. During 1994, efforts to unionize the Company's technicians and fleet services and commissary employees were rejected by those employee groups. At December 31, 1994, no other employee work group had scheduled or requested elections seeking to unionize. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1994, the Company had a working capital deficiency of $47.9 million. The 1994 working capital deficiency decreased from the 1993 deficiency of $124.4 million as the result of improved profitability, year over year, as well as the investments made and the financial reorganization which accompanied the Company's emergence from Chapter 11 protection. On the Effective Date, the Company received $205.3 million in consideration for the issuance of securities by the Company consisting of common stock and $100 million principal amount of 11 1/4% Senior Unsecured Notes, due September 1, 2001. In addition, the Company fully repaid in cash $77.6 million of D.I.P. financing and a $62.7 million priority term loan. As of December 31, 1994, unrestricted cash and cash equivalents have increased to $182.6 million from $99.6 million at December 31, 1993 and current maturities of long-term debt have been reduced to $65.2 million as of December 31, 1994 compared to $125.3 million at December 31, 1993. Long-term debt, less current maturities has increased to $465.6 million as of December 31, 1994 compared to $396.4 million at December 31, 1993 as a result of the issuance of $123 million of 11 1/4% Senior Unsecured Notes of which $23 million were issued to settle certain prepetition claims pursuant to letter agreements in conjunction with the Company's emergence from bankruptcy. Stockholders' equity has increased to $595.4 million as of December 31, 1994 compared to a deficit of $254.3 million at December 31, 1993. Net cash provided by operating activities decreased to $140.1 million on a combined basis for 1994 compared to $153.4 million for 1993 and $76.7 million for 1992. During 1994, the Company incurred capital expenditures of $75.9 million, which largely consisted of aircraft modifications and heavy airframe and engine overhauls, compared to capital expenditures of $54.3 million for 1993. Effective April 1, 1994, employee base wages were increased between two percent to eight percent depending on the employee's length of service with the Company. Generally, each employee whose anniversary date occurs between April and December 1994 also received an additional increase in base salary on such date approximating four percent with certain exceptions. The Chairman of the Board and the President did not participate in the salary increase program. Due to the current collective bargaining process with the representatives of the pilots, increase in pilots' salaries were not fully paid but were accrued. The final distribution, if any, of such potential increase in pilots' salaries will be determined through the collective bargaining discussions. Effective April 1, 1994 matching contributions by the Company under the America West 401(k) Plan were increased from 25 percent to 50 percent of the first six percent contributed by the employees, subject to 18 21 certain limitations. This increase restores the Company's matching contribution to the level that existed prior to the Chapter 11 filing. On January 1, 1995, the Total Pay Program became effective. The program is designed to provide employees with a pay and benefits package which is competitive with other low-cost airlines and local employers. In addition, performance awards of up to 25% of base pay will be made to employees if annually established operating income targets are attained. The Total Pay Program is anticipated to increase non-executive pay by approximately $25 million annually. Concurrent with the announcement of the Total Pay Program, the Company announced a strategic restructuring program. In an overhaul of its work processes, the Company anticipates a reduction in 1995 operating expenses of approximately $40 million by focusing on core operations while streamlining, outsourcing or eliminating less essential support work. This process is expected to reduce the Company's workforce by approximately 1,300 employees. In connection with this process, the Company announced plans in January 1995 to close its reservations center in Colorado Springs, Colorado and to consolidate those activities into the Company's three remaining reservations centers. At December 31, 1994, the Company has provided for $2 million of severance and other costs in connection with these strategic restructuring efforts. At December 31, 1994, the Company had net operating loss ("NOL") and general business tax credit carryforwards of approximately $557.9 million and $12.7 million, respectively. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a loss corporation has an "ownership change" within a designated testing period, its ability to use its NOL and credit carryforwards is subject to certain limitations. The Company is a loss corporation within the meaning of Section 382. The issuance of certain common stock by the Company pursuant to the Plan of Reorganization resulted in an ownership change within the meaning of Section 382. This ownership change entails an annual limitation (the "Section 382 Limitation") upon the Company's ability to offset any post-change taxable income with pre-change NOL. Should the Company generate insufficient taxable income in any post-change taxable year to fully utilize the Section 382 Limitation of that year, any excess limitation will be carried forward to use in subsequent tax years, provided the pre-change NOL has not been exhausted nor has the carryforward period expired. The Company's reorganization and the associated implementation of fresh start reporting gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes. In large measure, it is these nondeductible expenses that result in an effective tax rate (for financial reporting purposes) significantly greater than the current U.S. corporate statutory rate of 35 percent. Nevertheless, the Company's actual income tax liability (i.e., income taxes payable) is considerably lower than income tax expense shown for financial reporting purposes. This difference in financial expense compared to actual income tax liability is in part attributable to tax attributes (including NOL carryforwards, subject to certain limitations) of the Predecessor Company that serve to reduce the Company's actual income tax liability. To the extent the tax attributes of the Predecessor Company reduce the Company's actual income tax liability below the amount of expense reflected in the financial statements, that difference is applied to reduce the carrying balance of the Company's Reorganization Value in Excess of Amounts Allocable to Identifiable Assets. At December 31, 1994, the Company had on order a total of 24 Airbus A320-200 aircraft, with an aggregate net cost estimated at $1.1 billion. Delivery dates of the aircraft will fall in the years 1998 through 2000 with an option to defer the 1998 deliveries. If new A320 aircraft are delivered as a result of a renegotiated put agreement (described below), the Company will have the right to cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft deliveries hereunder, subject to certain conditions. Additionally, the Company has the option to cancel, without cause, up to an additional four aircraft, and the Company has the right to assign all or some of these delivery positions to Continental. In December 1994, the Company entered into a support contract with International Aero Engines ("IAE") which provides for the purchase by the Company of six new V2500-A5 spare engines scheduled for delivery beginning in 1998 through 2000 for use on the A320 fleet. Such engines have an estimated aggregate cost of $42.3 million for which the Company has provided a $1.5 million security deposit in the form of a letter of credit. Pursuant to a side letter to an earlier contract with IAE, the Company agreed to purchase from IAE 19 22 prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company expects to, with IAE's consent, acquire an additional "A5" engine in lieu of this "A1" engine. The following table reflects estimated cash payments under the aircraft and engine purchase contracts. Actual payments may vary due to inflation factor adjustments and changes in the delivery schedule of the equipment. The estimated cash payments include the progress payments that will be made in cash, as opposed to being financed under an existing progress payment financing facility.
(IN THOUSANDS) 1995........................................................... $ 3,223 1996........................................................... 32,608 1997........................................................... 58,230 1998........................................................... 379,309 1999........................................................... 355,540 2000........................................................... 350,863 -------------- $1,179,773 ===========
At December 31, 1994, the Company has significant capital commitments for a number of new aircraft, as discussed above. Although the Company has arranged for financing for up to one-half of the commitment to AVSA, the Company will require substantial capital from external sources to meet its remaining financial commitments. The Company intends to seek additional financing (which may include public debt financing or private financing) in the future when and as appropriate. There can be no assurance that sufficient financing will be obtained for all aircraft and other capital requirements. A default by the Company under any such commitment could have a material adverse effect on the Company. At December 31, 1994, the Company had a put agreement for eight aircraft with deliveries to start no earlier than June 30, 1995 and end on June 30, 1999. Under the agreement, new or used B737-300, B757-200, or new or "like new" A320-200 aircraft may be put to the Company at a rate of no more than two aircraft in 1995, and with respect to each ensuing year during the put period, of no more than three aircraft. In addition, no more than five used aircraft may be put to the Company, and for every new A320 aircraft put to the Company, the Company has the right to reduce deliveries under the AVSA A320 purchase contract on a one-for-one basis. During each January of the put period, the Company will negotiate the type and delivery dates of the put aircraft for that year. The puts will require a 150-day notice and will be leased at fair market rates for terms ranging from three to eighteen years, depending on the type and condition of the aircraft. In 1995, three aircraft (one used B737-300 in February and two new A320-200s in April) will be delivered to the Company under this agreement. As part of the agreement, certain cash payments and securities were issued to the put holder pursuant to the Plan. See Item 8. Financial Statements and Supplementary Data -- Note 13 of Notes to Financial Statements. Within the period of January 1, 1995 to December 31, 2000, the Company has 23 aircraft whose lease arrangements are due to expire, 11 of which may be extended at the option of the lessor. Given this situation and the other aircraft commitments discussed above, the Company has the flexibility to expand or contract its fleet as business conditions warrant. In June 1994, the Company reached a settlement for the cancellation of the right of a former D.I.P. lender to put four aircraft to the Company. The settlement called for cash payments of $4.5 million, of which $2.5 million was paid in June 1994 and $2.0 million was paid on the Effective Date. The Company had certain aircraft purchase contracts with Boeing. In connection with the Plan, the Company reached a settlement in which the purchase contracts were rejected and equipment purchase deposits were kept by Boeing in full settlement of the rejection damages. During 1995, leases relating to two Boeing 737-200 aircraft, one Airbus A320 aircraft and two Boeing 737-300 aircraft are scheduled to expire. The Company anticipates extending the leases for all of these aircraft with the exception of the Airbus A320. 20 23 Certain of the Company's long-term debt agreements contain minimum cash balance requirements, leverage ratios, coverage ratios and other financial covenants with which the Company was in compliance at December 31, 1994. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Balance sheets of the Company as of December 31, 1994 and 1993, and the related statements of operations, cash flows and stockholder's equity (deficiency) for the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994 and for each of the years in the two-year period ended December 31, 1993, together with the related notes and the report of KPMG Peat Marwick LLP, independent certified public accountants, are set forth on the following pages. Other required financial information and schedules are set forth herein, as more fully described in Item 14 hereof. 21 24 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders America West Airlines, Inc. We have audited the accompanying balance sheets of America West Airlines, Inc. as of December 31, 1994 and 1993, and the related statements of operations, cash flows and stockholders' equity (deficiency) for the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and for each of the years in the two-year period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of America West Airlines, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and for each of the years in the two-year period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2 to the financial statements, on August 25, 1994, America West Airlines, Inc. emerged from bankruptcy. The financial statements of the Reorganized Company reflect the impact of adjustments to reflect the fair value of assets and liabilities under fresh start reporting. As a result, the financial statements of the Reorganized Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable in all respects. KPMG Peat Marwick LLP Phoenix, Arizona February 24, 1995 22 25 AMERICA WEST AIRLINES, INC. BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (IN THOUSANDS EXCEPT SHARE DATA)
REORGANIZED PREDECESSOR COMPANY COMPANY ----------- ----------- 1994 1993 ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................................................. $ 182,581 $ 99,631 Accounts receivable, less allowance for doubtful accounts of $3,531 in 1994 and $3,030 in 1993............................................................................. 57,474 65,744 Expendable spare parts and supplies, less allowance for obsolescence of $483 in 1994 and $7,231 in 1993............................................................................. 24,179 28,111 Prepaid expenses...................................................................... 29,284 34,939 ----------- ----------- Total current assets............................................................ 293,518 228,425 ----------- ----------- Property and equipment: Flight equipment...................................................................... 452,177 872,104 Other property and equipment.......................................................... 92,169 180,607 ----------- ----------- 544,346 1,052,711 Less accumulated depreciation and amortization........................................ 15,882 385,776 ----------- ----------- 528,464 666,935 Equipment purchase deposits........................................................... 26,074 51,836 ----------- ----------- 554,538 718,771 ----------- ----------- Restricted cash......................................................................... 28,578 46,296 Reorganization value in excess of amounts allocable to identifiable assets, net......... 645,703 -- Other assets, net....................................................................... 22,755 23,251 ----------- ----------- $1,545,092 $1,016,743 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of long-term debt.................................................. $ 65,198 $ 125,271 Accounts payable...................................................................... 77,569 62,957 Air traffic liability................................................................. 127,356 118,479 Accrued compensation and vacation benefits............................................ 15,776 11,704 Accrued interest...................................................................... 13,109 8,295 Accrued taxes......................................................................... 27,061 14,114 Other accrued liabilities............................................................. 15,376 11,980 ----------- ----------- Total current liabilities....................................................... 341,445 352,800 ----------- ----------- Estimated liabilities subject to Chapter 11 proceedings................................. -- 381,114 Long-term debt, less current maturities................................................. 465,598 396,350 Manufacturers' and deferred credits..................................................... 116,882 73,592 Other liabilities....................................................................... 25,721 67,149 Commitments and contingencies Stockholders' equity (deficiency): Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued at December 31, 1994................................................................... -- -- Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and outstanding 1,200,000 shares at December 31, 1994................................... 12 -- Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and outstanding 43,936,272 shares at December 31, 1994.............................................. 439 -- Preferred stock, $.25 par value. Authorized 50,000,000 shares; Series C 9.75% convertible preferred stock, issued and outstanding 73,099 shares at December 31, 1993; $1.33 per share cumulative dividend........................................... -- 18 Common stock, $.25 par value. Authorized 90,000,000 shares; issued and outstanding 25,291,102 at December 31, 1993..................................................... -- 6,323 Additional paid-in capital............................................................ 587,149 197,010 Retained earnings (deficit)........................................................... 7,846 (438,626 ) ----------- ----------- 595,446 (235,275 ) Less deferred compensation and notes receivable -- employee stock purchase plans...... -- 18,987 ----------- ----------- Total stockholders' equity (deficiency)......................................... 595,446 (254,262 ) ----------- ----------- $1,545,092 $1,016,743 =========== ==========
See accompanying notes to financial statements. 23 26 AMERICA WEST AIRLINES, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
REORGANIZED PREDECESSOR COMPANY COMPANY ----------------------------------------- ------------- PERIOD FROM PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER 31, AUGUST 26 TO TO DECEMBER 31, AUGUST 25, ------------------------- 1994 1994 1993 1992 ------------- ----------- ---------- ---------- Operating revenues: Passenger................................................ $ 437,775 $ 882,140 $1,246,564 $1,214,816 Cargo.................................................... 16,648 27,645 40,161 42,077 Other.................................................... 15,343 29,243 38,639 37,247 ------------- ----------- ---------- ---------- Total operating revenues............................. 469,766 939,028 1,325,364 1,294,140 ------------- ----------- ---------- ---------- Operating expenses: Salaries and related costs............................... 117,562 213,722 305,429 324,255 Rentals and landing fees................................. 90,822 173,710 274,708 338,391 Aircraft fuel............................................ 58,165 100,646 166,313 186,042 Agency commissions....................................... 37,265 78,988 106,368 106,661 Aircraft maintenance materials and repairs............... 17,590 28,109 31,000 38,366 Depreciation and amortization............................ 26,684 56,694 81,894 86,981 Restructuring charges.................................... -- -- -- 31,316 Other.................................................... 82,807 179,653 238,598 256,940 ------------- ----------- ---------- ---------- Total operating expenses............................. 430,895 831,522 1,204,310 1,368,952 ------------- ----------- ---------- ---------- Operating income (loss).............................. 38,871 107,506 121,054 (74,812) ------------- ----------- ---------- ---------- Nonoperating income (expenses): Interest income.......................................... 3,834 470 728 1,418 Interest expense (contractual interest of $44,747, $72,961 and $73,931 for the periods ended August 25, 1994, and December 31, 1993 and 1992, respectively).... (22,636) (33,998) (54,192) (55,826) Loss on disposition of property and equipment............ (398) (1,659) (4,562) (1,283) Reorganization expense, net.............................. -- (273,659) (25,015) (16,216) Other, net............................................... 65 131 (89) 14,958 ------------- ----------- ---------- ---------- Total nonoperating expenses, net..................... (19,135) (308,715) (83,130) (56,949) ------------- ----------- ---------- ---------- Income (loss) before income taxes and extraordinary item............................................... 19,736 (201,209) 37,924 (131,761) ------------- ----------- ---------- ---------- Income taxes............................................... 11,890 2,059 759 -- ------------- ----------- ---------- ---------- Income (loss) before extraordinary item.............. 7,846 (203,268) 37,165 (131,761) ------------- ----------- ---------- ---------- Extraordinary gain on elimination of debt.................. -- 257,660 -- -- ------------- ----------- ---------- ---------- Net income (loss).................................... $ 7,846 $ 54,392 $ 37,165 $ (131,761) ============= =========== ========= ========= Earnings (loss) per share: Primary: Income (loss) before extraordinary item................ $ .17 $ (7.03) $ 1.50 $ (5.58) Extraordinary item..................................... -- 9.02 -- -- ------------- ----------- ---------- ---------- Net income (loss).................................... $ .17 $ 1.99 $ 1.50 $ (5.58) ============= =========== ========= ========= Fully Diluted: Income (loss) before extraordinary item................ $ .17 $ (4.96) $ 1.04 $ (5.58) Extraordinary item..................................... -- 6.37 -- -- ------------- ----------- ---------- ---------- Net income (loss).................................... $ .17 $ 1.41 $ 1.04 $ (5.58) ============= =========== ========= ========= Shares used for computation: Primary.................................................. 45,127 28,550 27,525 23,914 ============= =========== ========= ========= Fully diluted............................................ 45,127 40,452 41,509 23,914 ============= =========== ========= =========
See accompanying notes to financial statements. 24 27 AMERICA WEST AIRLINES, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
REORGANIZED PREDECESSOR COMPANY COMPANY -------------------------------------- ------------- PERIOD FROM PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER AUGUST 26 TO TO 31, DECEMBER 31, AUGUST 25, ---------------------- 1994 1994 1993 1992 ------------- ----------- -------- --------- Cash flows from operating activities: Net income (loss)........................................... $ 7,846 $ 54,392 $ 37,165 $(131,761) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization............................. 15,538 56,694 81,894 86,981 Amortization of deferred overhauls........................ 356 -- -- -- Amortization of reorganization value in excess of amounts allocable to identifiable assets........................ 11,145 -- -- -- Amortization of manufacturers' and deferred credits....... (3,961) (2,966) (5,186) (5,869) Loss on disposition of property and equipment............. 398 1,659 4,562 1,283 Restructuring charges..................................... -- -- -- 31,316 Reorganization items...................................... -- 185,226 18,167 3,188 Extraordinary gain on extinguishment of debt.............. -- (257,660) -- -- Other..................................................... 1,178 (383) (554) 866 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable, net........... 27,439 (18,769) (927) 19,418 Decrease (increase) in spare parts and supplies, net...... 1,165 397 6,320 (2,384) Decrease in prepaid expenses.............................. 4,371 1,284 2,627 812 Decrease (increase) in other assets and restricted cash... 1,219 12,971 (5,295) (1,141) Increase (decrease) in accounts payable................... (17,289) (15,557) 9,014 (8,473) Increase (decrease) in air traffic liability.............. (26,452) 30,510 8,749 30,723 Increase (decrease) in accrued compensation and vacation benefits................................... (11,667) 15,739 (1,300) (1,491) Increase in accrued interest.............................. 7,517 4,694 10,368 25,640 Increase (decrease) in accrued taxes...................... (2,104) 25,999 (1,764) 2,968 Increase (decrease) in other accrued liabilities.......... (13,785) 67,429 644 18,204 Increase (decrease) in other liabilities.................. (4,996) (19,443) (11,126) 6,465 ------------- ----------- -------- --------- Net cash provided by (used in) operating activities..... (2,082) 142,216 153,358 76,745 Cash flows from investing activities: Purchases of property and equipment......................... (14,658) (61,271) (54,324) (69,208) Decrease in equipment purchase deposits..................... -- -- -- 14,425 Proceeds from disposition of property....................... 600 334 3,715 383 ------------- ----------- -------- --------- Net cash used in investing activities................... (14,058) (60,937) (50,609) (54,400) Cash flows from financing activities: Proceeds from issuance of DIP financing..................... -- -- -- 53,000 Proceeds from issuance of debt.............................. -- 100,000 -- 22,804 Repayment of debt including DIP financing................... (23,355) (173,699) (77,501) (75,871) Issuance of common stock.................................... 3 114,862 -- -- ------------- ----------- -------- --------- Net cash provided by (used in) financing activities..... (23,352) 41,163 (77,501) (67) ------------- ----------- -------- --------- Net increase (decrease) in cash and cash equivalents.... (39,492) 122,442 25,248 22,278 ------------- ----------- -------- --------- Cash and cash equivalents at beginning of period.............. 222,073 99,631 74,383 52,105 ------------- ----------- -------- --------- Cash and cash equivalents at end of period.................... $ 182,581 $ 222,073 $ 99,631 $ 74,383 ============ =========== ======== =========
See accompanying notes to financial statements. 25 28 AMERICA WEST AIRLINES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994 AND THE YEARS ENDED DECEMBER 31, 1993, AND 1992 (IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
DEFERRED COMPENSATION AND NOTES CONVERTIBLE CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE -- PREFERRED COMMON COMMON COMMON PAID-IN EARNINGS/ EMPLOYEE STOCK STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) PURCHASE PLANS TOTAL ----------- ------- ------- ------- ---------- ----------- ----------------- --------- Balance at January 1, 1992...................... $ 91 $-- $ -- $5,904 $ 191,825 $(342,358) $ (21,972) $(166,510) ----- ------- ------- ------- ---------- ----------- ----------------- --------- Issuance of 346,661 shares of common stock pursuant to convertible subordinated debentures............... -- -- -- 86 3,599 -- -- 3,685 Employee restricted stock deferred compensation.... -- -- -- -- -- -- 101 101 Employee stock purchase plan: Issuance of 7,305 shares of common stock at: $.19-$2.63 per share..... -- -- -- 2 (13) -- 81 70 Deferred compensation.... -- -- -- -- (4) -- 1,478 1,474 Preferred stock dividends Series B: $5.41 per share.................. -- -- -- -- -- (1,575) -- (1,575) Series C: $1.33 per share.................. -- -- -- -- -- (97) -- (97) Net loss................... -- -- -- -- -- (131,761) -- (131,761) ----- ------- ------- ------- ---------- ----------- ----------------- --------- Balance at December 31, 1992..................... 91 -- -- 5,992 195,407 (475,791) (20,312) (294,613) ----- ------- ------- ------- ---------- ----------- ----------------- --------- Issuance of 170,173 shares of common stock pursuant to Series B convertible subordinated debentures............... -- -- -- 43 1,896 -- -- 1,939 Issuance of 1,164,596 shares of common stock pursuant to convertible preferred stock.......... (73) -- -- 291 (218) -- -- -- Employee restricted stock deferred compensation.... -- -- -- -- -- -- 21 21 Employee stock purchase plan: Cancellation of 11,330 shares of common stock at: $.22-$1.59 per share.................... -- -- -- (3 ) (38) -- 49 8 Deferred compensation.... -- -- -- -- (37) -- 1,255 1,218 Net income................. -- -- -- -- -- 37,165 -- 37,165 ----- ------- ------- ------- ---------- ----------- ----------------- --------- Balance at December 31, 1993..................... 18 -- -- 6,323 197,010 (438,626) (18,987) (254,262) ----- ------- ------- ------- ---------- ----------- ----------------- --------- Issuance of 336,277 shares of common stock pursuant to convertible preferred stock dividends.......... -- -- -- 84 2,932 -- -- 3,016 Employee stock purchase plan: Cancellation of 7,678 shares of common stock at: $1.19-$4.03 per share.... -- -- -- (2 ) (49) -- 43 (8) Deferred compensation.... -- -- -- -- (1) -- 606 605 Issuance of 108,825 shares of common stock pursuant to exercise of stock options.................. -- -- -- 27 166 -- -- 193 Net income................. -- -- -- -- -- 54,392 -- 54,392 Eliminate predecessor equity accounts in connection with fresh start.................... (18)..... -- -- (6,432 ) (200,058) 206,508 -- -- Eliminate employee stock receivable............... -- -- -- -- -- (18,338) 18,338 -- Record excess of reorganization value over identifiable assets...... -- -- -- -- -- 668,702 -- 668,702 Sale of 1,200,000 shares of Class A common stock and 14,000,000 shares of Class B common stock.................... -- 12 140 -- 114,710 -- -- 114,862 Issuance of 29,925,000 shares of new Class B common stock............. -- -- 299 -- 472,339 (472,638) -- -- ----- ------- ------- ------- ---------- ----------- ----------------- --------- Balance at August 25, 1994..................... -- 12 439 -- 587,049 -- -- 587,500 ----- ------- ------- ------- ---------- ----------- ----------------- --------- Issuance of 272 shares of common stock pursuant to exercise of stock warrants................. -- -- -- -- 3 -- -- 3 Issuance of 11,000 shares of restricted stock...... -- -- -- -- 97 -- -- 97 Net income................. -- -- -- -- -- 7,846 -- 7,846 ----- ------- ------- ------- ---------- ----------- ----------------- --------- Balance at December 31, 1994..................... --.$..... $12 $ 439 $ -- $ 587,149 $ 7,846 $ -- $ 595,446 ========= ====== ====== ======= ========= ========== =============== =========
See accompanying notes to financial statements. 26 29 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 America West Airlines, Inc., (the "Predecessor Company") filed a voluntary petition on June 27, 1991, to reorganize under Chapter 11 of the U.S. Bankruptcy Code. On August 10, 1994, the Plan of Reorganization ("Plan"), filed by the Predecessor Company, was confirmed and became effective on August 25, 1994 (the "Effective Date"). On August 25, 1994, America West Airlines, Inc., (the "Reorganized Company" or the "Company") adopted fresh start reporting in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified Public Accountants. Accordingly, the Company's post-reorganization balance sheet and statement of operations have not been prepared on a consistent basis with such pre-reorganization financial statements and are not comparable in all respects to financial statements prior to reorganization. For accounting purposes, the inception date of the Reorganized Company is deemed to be August 26, 1994. A vertical black line is shown in the financial statements to separate the Reorganized Company from the Predecessor Company since they have not been prepared on a consistent basis of accounting. 1. CHAPTER 11 REORGANIZATION The following occurred upon the Effective Date: - The partners of AmWest Partners, L.P. ("AmWest"), a limited partnership which includes TPG Partners, L.P. ("TPG"); Continental Airlines, Inc. ("Continental"); and Mesa Airlines, Inc. ("Mesa"); together with Lehman Brothers, Inc. ("Lehman") and Fidelity Investments ("Fidelity"), as assignees of AmWest, invested $205.3 million in consideration for the issuance of securities by the Reorganized Company, consisting of (i) 1,200,000 shares of Class A Common Stock at a price of $7.467 per share; (ii) 12,981,636 shares of Class B Common Stock, consisting of 12,259,821 shares at a price of $7.467 per share and 721,815 shares at $8.889 per share (representing shares acquired as a result of cash elections made by unsecured creditors); (iii) 2,769,231 Warrants to purchase shares of Class B Common Stock at an exercise price of $12.74 per share and (iv) $100 million principal amount of 11 1/4% Senior Unsecured Notes, due September 1, 2001. AmWest was dissolved immediately after the Effective Date with all rights being delegated to the partners and assignees of AmWest. - Pre-existing equity interests of the Company were cancelled, the Company's obligations to certain prepetition creditors were restructured and general unsecured nonpriority prepetition creditors received, in full satisfaction of their claims, their pro rata share of approximately 26,053,185 shares of Class B Common Stock and $6,416,214 in cash. Holders of the Company's pre-existing common equity interests received, on a pro rata basis, 2,250,000 shares of Class B Common Stock and Warrants to purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant to the exercise of subscription rights, holders of pre-existing equity interests received 1,615,179 shares of Class B Common Stock for an aggregate purchase price of $14,357,326 ($8.889 per share), including holders of pre-existing preferred equity interests. TPG and Fidelity, the holders of preferred equity interests of the Predecessor Company received their pro rata share of (i) $500,000 in cash and (ii) 125,000 shares of Class B Common Stock for an aggregate purchase price of $1,111,125. - In exchange for certain concessions principally arising from cancellation of the right of GPA Group plc and/or its affiliates ("GPA") to lease to America West 10 Airbus A320 aircraft, GPA received Class B Common Stock, a cash payment and certain rights (note 13). - The Company entered into certain Alliance Agreements with Continental and Mesa relating to code-sharing, schedule coordination and certain other relationships and agreements. With respect to Mesa, a pre-existing code share agreement was extended to August 2004. 27 30 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) - The Company executed letter agreements with Fidelity and Lehman relating to the settlement of certain prepetition claims. On October 14, 1994, the Company issued an additional $23 million of 11 1/4% Senior Unsecured Notes, due September 2001, and made a prepayment of a $1.3 million lease obligation. Additionally, cash payments of $2.1 million and $1.2 million were made to Fidelity and Lehman, respectively. - The Plan also provided for many other matters, including the satisfaction of certain other prepetition claims in accordance with negotiated settlement agreements, the disposition of the various types of claims asserted against the Company, the adherence to the Company's aircraft lease agreements, the amendment of the Company's aircraft purchase agreements and the release of the Company's employees from all obligations arising under the Company's stock purchase plan in consideration for the cancellation of the shares of Predecessor Company stock securing such obligations. As of December 31, 1994, distributions on $295 million of allowed general unsecured claims had been made. Approximately 21.6 million shares of the Company's Class B Common Stock and cash proceeds equivalent to an additional 524,000 shares have been distributed in settlement. The remaining shares will be distributed as the remaining general unsecured claims are allowed. To the extent that the total allowed amount of claims is less than the $345 million reserve set by the Bankruptcy Court, the holders of such claims will receive a supplemental distribution. Reorganization expense recorded by the Predecessor Company consisted of the following:
YEARS ENDED PERIOD FROM DECEMBER 31, JANUARY 1 TO ------------------- AUGUST 25, 1994 1993 1992 --------------- ------- ------- (IN THOUSANDS) Professional fees and other expenses related to the Chapter 11 proceedings...................... $ 31,959 $ 9,419 $16,498 Adjustments of assets and liabilities to fair value........................................... 166,829 -- -- Provisions for settlement of claims............... 66,626 18,231 1,748 Reorganization success bonuses.................... 11,956 -- -- Interest income................................... (3,711) (2,635) (2,030) --------------- ------- ------- $ 273,659 $25,015 $16,216 =========== ======= =======
2. FRESH START REPORTING In connection with its emergence from bankruptcy, the Company adopted fresh start reporting in accordance with SOP 90-7. The fresh start reporting common equity value of $587.5 million was determined by the Company with the assistance of its financial advisors. The significant factors used in the determination of this value were analyses of industry, economic and overall market conditions and the historical and estimated performance of the Company as well as of the airline industry, discussions with various potential investors and certain other financial analyses. Under fresh start reporting, the reorganization value of the entity has been allocated to the Company's assets and liabilities on a basis substantially consistent with purchase accounting. The portion of reorganization value not attributable to specific tangible assets has been recorded as "Reorganization Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying balance sheet as of December 31, 1994. The fresh start reporting adjustments, primarily related to the adjustment of the Company's assets and liabilities to fair market values, will have a significant effect on the Company's future statements of operations. The more significant of these adjustments relate to reduced depreciation expense on property and equipment, increased amortization expense relating to reorganization value in excess of amounts allocable to identifiable assets, and increased interest expense and reduced aircraft rent expense for leases adjusted to fair market rental rates. 28 31 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The effects of the Plan and fresh start reporting on the balance sheet at the Effective Date are as follows (in thousands):
(A) (B) (C) PREDECESSOR ISSUE OF REORGANIZED COMPANY DEBT DEBT & FRESH START COMPANY AUG. 25, 1994 DISCHARGE STOCK ADJUSTMENTS AUG. 25, 1994 ------------- --------- -------- ----------- ------------- ASSETS Current assets: Cash and cash equivalents.................... $ 156,401 $(140,284) $205,956 $ -- $ 222,073 Accounts receivable, net..................... 77,682 -- 6,831 -- 84,513 Expendable spare parts and supplies.......... 27,715 -- -- (2,371) 25,344 Prepaid expenses............................. 34,540 -- -- (885) 33,655 ------------- --------- -------- ----------- ------------- Total current assets........................... 296,338 (140,284 ) 212,787 (3,256) 365,585 Property and equipment, net.................... 702,442 -- -- (138,830) 563,612 Restricted cash................................ 30,503 -- -- -- 30,503 Reorganization value in excess of amounts allocable to identifiable assets....................... -- -- -- 668,702 668,702 Other assets, net.............................. 24,497 -- 1,575 (2,449) 23,623 ------------- --------- -------- ----------- ------------- Total assets................................... $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025 ============ ========= ======== ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of long-term debt......... $ 119,185 $(65,014 ) $ -- $ -- $ 54,171 Accounts payable............................. 98,080 6,500 -- 969 105,549 Air traffic liability........................ 153,808 -- -- -- 153,808 Accrued compensation and vacation benefits... 27,443 -- -- -- 27,443 Accrued interest............................. 5,620 -- -- -- 5,620 Accrued taxes................................ 26,613 14,405 -- -- 41,018 Other accrued liabilities.................... 29,161 -- -- -- 29,161 ------------- --------- -------- ----------- ------------- Total current liabilities...................... 459,910 (44,109 ) -- 969 416,770 Estimated liabilities subject to Chapter 11 proceedings.................................. 382,769 (382,769 ) -- -- -- Long-term debt, less current maturities........ 368,939 28,934 100,000 -- 497,873 Manufacturers' and deferred credits............ 70,625 -- -- 51,530 122,155 Other liabilities.............................. 57,932 -- -- (30,205) 27,727 Stockholders' equity (deficiency): Preferred stock.............................. 18 -- -- (18) -- Common stock, Predecessor Company............ 6,432 -- -- (6,432) -- Common stock, Reorganized Company............ -- -- 152 299 451 Additional paid in capital................... 200,058 -- 114,710 272,281 587,049 Accumulated deficit.......................... (474,565) 257,660 (500) 217,405 -- ------------- --------- -------- ----------- ------------- (268,057) 257,660 114,362 483,535 587,500 Deferred compensation and notes receivable -- employee stock purchase plans.............. 18,338 -- -- (18,338) -- ------------- --------- -------- ----------- ------------- Total stockholders' equity (deficiency)........ (286,395) 257,660 114,362 501,873 587,500 ------------- --------- -------- ----------- ------------- Total liabilities & stockholders' equity (deficiency)................................. $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025 ============ ========= ======== ========== ============
--------------- (a) To record the discharge or reclassification of prepetition obligations as well as the repayment in cash of $77.6 million of D.I.P. financing and a $62.7 million priority term loan. (b) To record proceeds received from the issuance of new debt and equity securities and to record the preferred stock settlement payment of $500,000 and the receipt of approximately $1.1 million for the purchase of Class B Common Stock. (c) To record adjustments to reflect assets and liabilities at fair market values and to record reorganization value in excess of amounts allocable to identifiable assets. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Financial Reporting for Bankruptcy Proceedings The Company implemented the guidance as to financial reporting by entities that have filed petitions with the Bankruptcy Court, provided by SOP 90-7 in the accompanying financial statements. 29 32 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to SOP 90-7, prepetition liabilities are reported on the basis of the expected amounts of such allowed claims, as opposed to the amounts for which those allowed claims may be settled and are classified as "Liabilities Subject to Chapter 11 Proceedings". The accrual for interest on such unsecured or undersecured liabilities was discontinued from the period June 27, 1991 to August 25, 1994, the Effective Date of the Plan. (b) Cash Equivalents Cash equivalents consist of all highly liquid debt instruments purchased with original maturities of three months or less and are carried at cost which approximates market. (c) Restricted Cash Restricted cash includes cash deposits securing certain letters of credit and cash held in Company accounts, but pledged to an institution which processes credit card sales transactions. (d) Expendable Spare Parts and Supplies Flight equipment expendable spare parts and supplies are valued at average cost. Allowances for obsolescence are provided, over the estimated useful life of the related aircraft and engines, for spare parts expected to be on hand at the date the aircraft are retired from service. (e) Property and Equipment Property and equipment were recorded at cost as of December 31, 1993 and at fair market value as of August 25, 1994; subsequent acquisitions are recorded at cost. Interest capitalized on advance payments for aircraft acquisitions and on expenditures for aircraft improvements are part of these costs. Interest capitalized was $621,000 for the period August 26, 1994 through December 31, 1994. No interest was capitalized while the Company was in bankruptcy. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. The estimated useful lives for the Company's property and equipment range from three to twelve years for owned property and equipment and to thirty years for the reservation and training center and technical support facilities. The estimated useful lives of the Company's owned aircraft, jet engines, flight equipment and rotable parts range from eleven to twenty-two years. Leasehold improvements relating to flight equipment and other property on operating leases are amortized over the life of the lease or the life of the asset, whichever is shorter. Routine maintenance and repairs are charged to expense as incurred. The cost of major scheduled airframe, engine and certain component overhauls are capitalized and amortized over the periods benefited and included in aircraft maintenance materials and repairs for the Reorganized Company, as part of fresh start reporting, and in depreciation and amortization expense for the Predecessor Company. Additionally, a provision for the estimated cost of scheduled airframe and engine overhauls required to be performed on leased aircraft prior to their return to the lessors has been provided. (f) Reorganization Value in Excess of Amounts Allocable to Identifiable Assets Reorganization value in excess of amounts allocable to identifiable assets is amortized on a straight line basis over 20 years. Accumulated amortization at December 31, 1994 is approximately $11.1 million. As more fully discussed at Note 9, with respect to the period ended December 31, 1994, a reduction in reorganization value in excess of amounts allocable to identifiable assets of $11.9 million was recorded as a result of the utilization of Predecessor Company tax attributes. The Company assesses the recoverability of this asset based upon expected future undiscounted cash flows and other relevant information. 30 33 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (g) Frequent Flyer Awards The Company maintains a frequent travel award program known as "FlightFund" that provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing the free travel, using the incremental cost method as adjusted for estimated redemption rates, is recognized as a liability and charged to operations as program members accumulate mileage. (h) Manufacturers' and Deferred Credits In connection with the acquisition of certain aircraft and engines, the Company receives various credits. Such manufacturers' credits are deferred until the aircraft and engines are delivered, at which time they are either applied as a reduction of the cost of acquiring owned aircraft and engines, resulting in a reduction of future depreciation expense, or amortized as a reduction of rent expense for leased aircraft and engines. Unamortized amounts were written off at the Effective Date. (i) Deferred Credit -- Operating Leases Operating leases were adjusted to fair market value at the Effective Date. The net present value of the difference between the contractual lease rates and the fair market rates has been recorded as a deferred credit in the accompanying balance sheets. The deferred credit will be increased through charges to interest expense and decreased on a straight-line basis as a reduction in rent expense over the applicable lease periods. At December 31, 1994, the unamortized balance of the deferred credit was $116.9 million. (j) Revenue Recognition Passenger revenue is recognized when the transportation is provided. Ticket sales for transportation which has not yet been provided are reflected in the financial statements as air traffic liability. (k) Passenger Traffic Commissions and Related Fees Passenger traffic commissions and related fees are expensed when the transportation is provided and the related revenue is recognized. Passenger traffic commissions and related fees not yet recognized are included as a prepaid expense. (l) Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. As more fully discussed at Note 9, adoption of the new standard changed the Company's method of accounting for income taxes from the deferred approach to an asset and liability approach. As with the prior standard, the Company continues to account for its general business credits by use of the flow-through method. (m) Per Share Data Primary earnings per share is based upon the weighted average number of shares of common stock outstanding and dilutive common stock equivalents (stock options and warrants). Primary earnings per share reflect net income adjusted for interest on borrowings effectively reduced by the proceeds from the assumed exercise of common stock equivalents but only if the effect of such adjustments are dilutive. Fully diluted earnings per share is based on the weighted average number of shares of common stock outstanding, dilutive common stock equivalents (stock options and warrants), and the conversion of outstanding convertible preferred stock as well as for the Predecessor Company the conversion of convertible 31 34 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) subordinate debentures. Fully diluted earnings per share reflect net income adjusted for interest on borrowings effectively reduced by the proceeds from the assumed exercise of common stock equivalents but only if the effect of such adjustments are dilutive. (n) Reclassification Certain prior period reclassifications have been made in the Predecessor Company's financial statements to conform to the Reorganized Company's presentation. 4. LONG-TERM DEBT Long-term debt at December 31 consists of the following:
REORGANIZED PREDECESSOR COMPANY COMPANY -------------- -------------- 1994 1993 -------------- -------------- (IN THOUSANDS) (IN THOUSANDS) SECURED Notes payable, fixed interest rates of 6.00% to 10.79% and floating interest rates of various LIBOR + 1.5% to 3.5%, installments due through 2008.............................................. $307,077 $402,448 Borrowings under lines of credit, floating interest rates of Prime + 1% to three month LIBOR + 4%, installments due through 1999. No available borrowings remain. ............ 24,225 18,589 Notes payable, floating interest rate of Prime + 1%, installments due through 1999. (a)..................................... 34,097 -- DIP financing............................................... -- 83,577 -------------- -------------- 365,399 504,614 UNSECURED 11 1/4% senior notes, face amount of $123 million, interest only payments until due in 2001. (b)...................... 120,843 -- Notes payable, fixed interest rates of 6% to 8% and floating interest rates of three month LIBOR + 3%, installments due through 2000. ............................................ 41,752 10,734 Other....................................................... 2,802 6,273 -------------- -------------- 165,397 17,007 Total long-term debt.............................. 530,796 521,621 Less: current maturities.......................... (65,198) (125,271) -------------- -------------- $465,598 $396,350 ============= =============
--------------- (a) Approximately $29.5 million was drawn on a letter of credit facility that secured certain industrial development bonds (the "Bonds") used by the Company to build its aircraft maintenance facility in Phoenix, Arizona (the "Hangar"). The issuer of the letter of credit facility was in turn reimbursed for such draws under a reimbursement agreement among the Company, that issuer and a certain bank group (the "Banks"). The reimbursement agreement was secured by the Hangar. At the Effective Date, the Company and the Banks agreed to facilitate repayment of the obligation created under the reimbursement agreement with two loans, the principal loan for $29.5 million and the interest loan for $6.5 million. These two loans are secured by the Hangar. The interest loan is repaid with monthly level principal payments and interest at the prime rate plus 1% and matures in August 1996. Amortization of the principal loan is calculated over 12 years with a five year maturity in August 1999; and payments are made monthly of level principal and interest at the prime rate plus 1%, with the balance of the loan, or $12.5 million, being due at its maturity. Additionally, if the Company does not re-market the Bonds prior to August 25, 1995 (the proceeds from which will be used to retire the then outstanding balance of the 32 35 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) principal loan), the Company is required to make an additional $5.0 million principal repayment under the principal loan in October 1995. (b) On the Effective Date, the Company issued $100 million of 11 1/4% Senior Unsecured Notes (the "Senior Notes") at a discount of 1.575% as part of the investment by AmWest, and on October 14, 1994, the Company issued an additional $23 million of the Senior Notes. The notes mature in September, 2001 and interest is payable in arrears semi-annually commencing on March 1, 1995. The Senior Notes may be redeemed at the option of the Company; (i) prior to September 1, 1997; (a) at any time, in whole but not in part, at a redemption price of 105% of the principal amount of the Senior Notes plus accrued and unpaid interest, if any, to the redemption date or; (b) from time to time in part from the net proceeds of a public offering of its capital stock at a redemption price equal to 105% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date except for amounts mandatorily redeemed; (ii) on or after September 1, 1997 at any time in whole or from time to time in part, at a redemption price equal to the following percentage of principal redeemed, plus accrued and unpaid interest to the date of redemption, if redeemed during the 12-month period beginning:
SEPTEMBER 1, PERCENTAGE ------------ ---------- 1997 105.0% 1998 103.3% 1999 101.7% 2000 100.0%
The Senior Notes are also subject to mandatory redemption if the Company consummates a Public Offering Sale, as defined in the Indenture, prior to September 1, 1997, and immediately prior to such consummation, the Company has cash and cash equivalents, not subject to any restriction on disposition of at least $100 million. Then the Company shall redeem the Senior Notes at a redemption price equal to 104% of the aggregate principal amount of the Senior Notes so redeemed plus accrued and unpaid interest to the redemption date. The aggregate redemption price and accrued unpaid interest of the Senior Notes to be redeemed shall equal the lesser of: (a) 50% of the net proceeds of such Public Offering Sale and; (b) the excess if any of; (i) $20 million and; (ii) the amount of any net offering proceeds of any Public Offering Sale received prior to September 1, 1997. The Indenture contains a limitation on investment covenant with which the Company was in compliance at December 31, 1994. At December 31, 1994, the estimated maturities of long-term debt are as follows:
(IN THOUSANDS) 1995............................................... $ 65,198 1996............................................... 55,566 1997............................................... 48,316 1998............................................... 44,653 1999............................................... 57,203 Thereafter......................................... 259,860 -------------- $530,796 ===========
Secured financings totaling $361 million are collateralized by assets, primarily aircraft and engines, with a net book value of $422.6 million at December 31, 1994. Prepetition long-term debt totaling approximately $224 million was included in Estimated Liabilities Subject to Chapter 11 Proceedings at December 31, 1993. As part of the reorganization, approximately $85.6 million of long-term debt was restructured and included as long-term debt secured at December 31, 1994. 33 36 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Certain of the Company's long-term debt agreements contain minimum cash balance requirements, leverage ratios, coverage ratios and other financial covenants for which the Company was in compliance at December 31, 1994. 5. CAPITAL STOCK Preferred Stock The Company's Board of Directors by resolution may authorize the issuance of the Preferred Stock as a class, in one or more series, having the number of shares, designations, relative voting rights, dividend rights, liquidation and other preferences, and limitation that the Board of Directors fixes without any stockholder approval. No shares of Preferred Stock have been issued. Common Stock The holders of Class A Common Stock are entitled to fifty votes per share, and the holders of Class B Common Stock are entitled to one vote per share, on all matters submitted to a vote of common stockholders except that voting rights of non-U.S. citizens are limited. The Class A Common Stock is convertible into an equal number of Class B shares at any time at the election of the holders of the Class A Common Stock. Holders of Common Stock of all classes participate equally as to any dividends or distributions on the Common Stock, except that dividends payable in shares of Common Stock, or securities to acquire Common Stock, will be made in the same class of common stock as that held by the recipient of the dividend. Holders of Common Stock have no right to cumulate their votes in the election of directors. The Common Stock votes together as a single class, subject to the right to a separate class vote in certain instances required by law. Pursuant to the Stockholders' Agreement, the partners and assignees of AmWest and GPA will vote all shares of Common Stock owned by them in favor of the reelection of the initially designated independent directors for as long as such independent directors continue to serve until the third annual meeting. In addition to the voting and other provisions of the Stockholders' Agreement, AmWest and GPA agreed that (i) the partners and assignees of AmWest will vote in favor of GPA's nominee to the Company's Board of Directors, and (ii) GPA will vote in favor of the partners and assignees of AmWest's nine nominees to the Company's Board of Directors for so long as (a) the partners and assignees of AmWest own at least 5% of the voting equity securities of the Company, and (b) GPA owns at least 2% of the voting equity securities of the Company. Warrants The Company issued approximately 10.4 million Warrants to purchase Class B Common Stock with an exercise price of $12.74 per share as part of the reorganization. The Warrants are exercisable by the holders anytime before August 25, 1999 and 10.4 million shares of Class B Common Stock have been reserved for the exercise of these warrants. 6. RESTRICTED STOCK AND STOCK OPTIONS In December 1994, the Company's Board of Directors approved the America West Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan") subject to approval of the stockholders. Under the Incentive Plan, up to 3.5 million shares of Class B Common Stock may be issued to cover all outstanding awards under this plan, of which, no more than 1.5 million will be issued as Restricted Stock or Bonus Stock. The Company's Board of Directors granted 11,000 shares of restricted stock and 1,267,000 options to purchase common stock at $8.75 per share, the fair value at date of grant, under the Incentive Plan. Also, 39,000 options to purchase common stock were granted at $8.75 per share, the fair value at date of grant, to members of the 34 37 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Board of Directors who are not employees of the Company. As of December 31, 1994, 11,000 shares of restricted stock were vested and 255,000 options to purchase common stock were exercisable, both contingent upon stockholder approval of the Incentive Plan. 7. EMPLOYEE BENEFIT PLAN The Company has a 401(k) defined contribution plan, covering essentially all employees of the Company. Participants may contribute from 1 to 15% of their pre-tax earnings to a maximum of $9,240 in 1995. In April 1994, the Company increased the Company matched portion from 25% to 50% of a participant's contributions up to 6% of the participant's annual pre-tax earnings. The Company's contribution expense to the plan totaled $3.8 million, $2.1 million and $2 million in 1994, 1993 and 1992, respectively. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and Cash Equivalents The carrying amount approximates fair value because of the short maturity of those instruments. Accounts Receivable and Accounts Payable The carrying amount of accounts receivable and accounts payable approximates fair value as they are expected to be collected or paid within 90 days of year-end. Long-term Debt, Including Current Maturities At December 31, 1994, the fair value of long-term debt, including current maturities, was approximately $515 million based on quoted market prices for the same or similar debt including debt of comparable remaining maturities. 9. INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The Predecessor Company had adopted SFAS 109 as of January 1, 1993. Under SFAS 109, deferred tax assets (subject to a possible valuation allowance) and liabilities are recognized for the expected future tax consequences of events that are reflected in the Company's financial statements or tax returns. Income tax expense: For the periods shown below, the Company recorded income tax expense as follows:
REORGANIZED PREDECESSOR COMPANY COMPANY -------------------------------------- ------------------ YEARS ENDED PERIOD FROM PERIOD FROM DECEMBER 31, AUGUST 26 TO JANUARY 1 TO ------------- DECEMBER 31, 1994 AUGUST 25, 1994 1993 1992 ------------------ ------------------ ---- ------ (IN THOUSANDS) (IN THOUSANDS) Current taxes: Federal............................... $ -- $1,869 $675 $ -- State................................. 36 190 84 -- ---------- ------- ---- ------ 36 2,059 759 -- Deferred taxes:......................... -- -- -- -- Income tax expense attributable to reorganization items.................. 11,854 -- -- -- ---------- ------- ---- ------ Income tax expense...................... $ 11,890 $2,059 $759 $ ============== ============= ==== ======
35 38 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) With respect to the period August 26, 1994 to December 31, 1994, income tax expense pertains both to income before extraordinary item as well as certain adjustments necessitated by the effectiveness of the Plan and the resultant fresh start adjustments to the Company's financial statements. The Company's reorganization and the associated implementation of fresh start reporting gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes. In large measure, it is these nondeductible (for income tax purposes) expenses that result in an effective tax rate (for financial reporting purposes) significantly greater than the current U.S. corporate statutory rate of 35 percent. Nevertheless, the Company's actual income tax liability (i.e., income taxes payable) is considerably lower than income tax expense shown for financial reporting purposes. This difference in financial expense compared to actual income tax liability is in part attributable to the utilization of certain tax attributes of the Predecessor Company that serve to reduce the Company's actual income tax liability. The excess of financial expense over the Company's actual income tax liability (approximately $11.8 million) is applied to reduce the carrying balance of the Company's reorganization value in excess of amounts allocable to identifiable assets. For the periods January 1, 1994 to August 25, 1994, and years ended December 31, 1993 and 1992, income tax expense pertains solely to income before extraordinary item. No income tax expense was recognized with respect to the extraordinary gain resulting from the cancellation of indebtedness that occurred in connection with the effectiveness of the Plan as such gain is not subject to income taxation. A reconciliation of taxes at the federal statutory rate ("expected taxes") of 35% to those reflected in the financial statements (the "effective rate") is as follows:
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------ --------------------------------- PERIOD FROM PERIOD FROM YEAR ENDED AUGUST 26 TO JANUARY 1 TO DECEMBER 31, DECEMBER 31, 1994 AUGUST 25, 1994 1993 ------------------ ------------------ ------------ (IN THOUSANDS) (IN THOUSANDS) Taxes at U.S. statutory rate...................... $ 6,908 $ 19,758 $ 13,273 Benefit of loss carryforwards..................... -- (17,889) (12,598) State taxes....................................... 1,663 190 84 Amortization of reorganization value in excess of amounts allocable to identifiable assets..... 3,901 -- -- Other............................................. (582) -- -- ---------- ------------------ ------------ Total................................... $ 11,890 $ 2,059 $ 759 ============== ============= ==========
As of December 31, 1994, the Company has available net operating loss, business tax credit and alternative minimum tax credit carryforwards for Federal income tax purposes of approximately $557.9 million, $12.7 million and $.57 million, respectively. The net operating loss carryforwards expire during the years 1999 through 2009 while the business credit carryforwards expire during the years 1997 through 2006. However, such carryforwards are not fully available to offset federal (and in certain circumstances, state) alternative minimum taxable income. Further, as a result of a statutory "ownership change" (as defined for purposes of sec.382 of the Internal Revenue Code) that occurred as a result of the effectiveness of the Company's Plan of Reorganization, the Company's ability to utilize its net operating loss and business tax credit carryforwards may be restricted. The alternative minimum tax credit may be carried forward without expiration and is available to offset future income tax payable. 36 39 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Composition of Deferred Tax Items: The Company has not recognized any net deferred tax items as of December 31, 1994. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are a result of the temporary differences related to the items described as follows:
REORGANIZED COMPANY PREDECESSOR COMPANY ----------------- ---------------------------------------- DECEMBER 31, 1994 AUGUST 25, 1994 DECEMBER 31, 1993 ----------------- ------------------ ----------------- (IN THOUSANDS) (IN THOUSANDS) Deferred income tax liabilities: Property and equipment, principally depreciation and fresh start differences.......................... $ (71,425) $ (70,367) $(105,242) ----------------- ------------------ ----------------- Deferred tax assets: Aircraft leases........................... 63,354 65,787 20,594 Reorganization expenses................... 32,654 32,654 16,527 Net operating loss carryforwards.......... 215,119 210,939 212,124 Tax credit carryforwards.................. 13,272 13,272 12,706 Other..................................... 10,892 13,809 9,707 ----------------- ------------------ ----------------- Total deferred tax assets....... 335,291 336,461 271,658 ----------------- ------------------ ----------------- Valuation allowance....................... (263,866) (266,094) (166,416) ----------------- ------------------ ----------------- Net deferred items.............. $ -- $ -- $ -- ============= ============== =============
SFAS 109 requires a "more likely than not" criterion be applied when evaluating the realizability of a deferred tax asset. Given the Company's history of losses for income tax purposes, the volatility of the industry within which the Company operates and certain other factors, the Company has established a valuation allowance principally for the portion of its deductible temporary differences, including net operating loss and other carryforwards that may not be available due to expirations or other limitations after consideration of net reversals of future taxable and deductible amounts. In this context, the Company has taken into account prudent and feasible tax planning strategies. After application of the valuation allowance, the Company's net deferred tax assets and liabilities are zero. If the Company, in future tax periods, were to recognize tax benefits attributable to tax attributes of the Predecessor Company (such as net operating loss and other carryforwards), any such benefit would be applied to reduce the balance of reorganization value in excess of amounts allocable to identifiable assets. 10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS Cash paid for interest, net of amounts capitalized, during the period August 26, 1994 through December 31, 1994, January 1, 1994 through August 25, 1994 and the years ended December 31, 1993 and 1992 was approximately $11 million, $29 million, $44 million and $46 million, respectively. Cash paid for income taxes during the period August 26, 1994 through December 31, 1994, January 1, 1994 through August 25, 1994 and the year ended December 31, 1993 was $425,000, $1,253,000 and $537,000, respectively. 37 40 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash flows from reorganization items in connection with the Chapter 11 proceedings were as follows:
YEARS ENDED DECEMBER 31, JANUARY 1 TO AUGUST 25, ---------------------------- 1994 1993 1992 ------------ ----------- ------------ (IN THOUSANDS) Interest received on cash accumulations................ $ 3,711 $ 2,635 $ 2,030 Professional fees paid for services rendered........... 23,563 (7,372) (11,346) D.I.P. financing issuance costs paid................... -- (1,378) (1,760)
In addition, during the period August 26 through December 31, 1994, January 1, 1994 through August 25, 1994 and the years ended December 31, 1993 and 1992, the Company had the following non-cash financing and investing activities:
REORGANIZED COMPANY PREDECESSOR COMPANY -------------- ----------------------------------------- PERIOD FROM PERIOD FROM AUGUST 26 TO JANUARY 1 TO YEARS ENDED DECEMBER 31, DECEMBER 31, AUGUST 25, ------------------------- 1994 1994 1993 1992 -------------- ------------- ------- ------- (IN THOUSANDS) (IN THOUSANDS) Equipment acquired through capital leases.................................. $ -- $ 138 $ 709 $ 437 Conversion of long-term debt to common stock................................... -- -- 1,938 3,685 Notes payable issued to seller............ -- -- 818 22,804 Notes payable issued for administrative claims.................................. -- -- 11,597 -- Accrued interest reclassified to long-term debt.................................... -- 5,563 15,137 16,443 Draws taken by third parties letter of credit.................................. -- -- -- 11,201 Preferred dividend declared but unpaid.... -- -- -- 1,672
11. EXTRAORDINARY ITEM The extraordinary gain recorded in the period January 1 through August 25, 1994 includes $257.7 million from the discharge of indebtedness pursuant to the consummation of the Plan of Reorganization. 12. COMMITMENTS AND CONTINGENCIES (a) Leases As of December 31, 1994, the Company had 68 aircraft under operating leases with remaining terms ranging from five months to approximately 23 years. The Company has options to purchase certain of the aircraft at fair market values at the end of the lease terms. Certain of the agreements require security deposits and maintenance reserve payments. The Company also leases certain terminal space, ground facilities and computer and other equipment under noncancelable operating leases. 38 41 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1994, the scheduled future minimum cash rental payments under noncancelable operating leases with initial terms of more than one year including those leases entered into through February 1995 are as follows:
(IN THOUSANDS) 1995................................................... $ 212,340 1996................................................... 205,236 1997................................................... 185,753 1998................................................... 163,520 1999................................................... 159,989 Thereafter............................................. 1,172,241 -------------- $2,099,079 ===========
Rent expense (excluding landing fees) was approximately $245 million, $245 million and $307 million for the combined twelve months ended December 31, 1994 and the years ended December 31, 1993 and 1992, respectively. Collectively, the operating lease agreements require security deposits with lessors of $11.5 million and bank letters of credit of $17.6 million. The letters of credit are collateralized by $17.6 million of restricted cash as of December 31, 1994. (b) Revenue Bonds Special facility revenue bonds issued by a municipality have been used to fund the acquisition of leasehold improvements at the Phoenix Sky Harbor International Airport which have been leased by the Company. Under the operating lease agreements, which commenced in 1990, the Company is required to make rental payments sufficient to pay principal and interest when due on the bonds. On August 25, 1994, the Company entered into a Restated and Amended Trust Indenture in which the Series 1989 and Series 1990 Bonds were retired contemporaneously with the issuance of the Series 1994A and Series 1994B Bonds. Pursuant to the agreement, payment of principal and interest at 8.3% on the Series 1994A Bonds commenced on the Effective Date and ends on January 1, 2006 while payment of principal and interest at 8.2% on the Series 1994B Bonds commenced on the Effective Date and ends on January 1, 1999. At December 31, 1994, the outstanding balance was $21.2 million. (c) Aircraft and Related Equipment Acquisitions At December 31, 1994, the Company had on order a total of 24 Airbus A320-200 aircraft with an aggregate net cost estimated at $1.1 billion. Delivery dates of the aircraft will fall in the years 1998 through 2000 with an option to defer the 1998 deliveries. If new A320 aircraft are delivered as a result of the renegotiated put agreement (described below), the Company will have the right to cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft deliveries hereunder, subject to certain conditions. The Company also has the option to cancel without cause up to an additional four aircraft, and the Company has the right to assign all or some of these delivery positions to Continental. At December 31, 1994, the Company had a put agreement for eight aircraft with deliveries to start not earlier than June 30, 1995 and end on June 30, 1999. Under the agreement, new or "like new" A320-200, or new or used B737-300 or B757-200 aircraft may be put to the Company at a rate of no more than two aircraft in 1995, and, with respect to each ensuing year during the put period, of no more than three aircraft. In addition, no more than five used aircraft may be put to the Company, and for every new A320 aircraft put to the Company, the Company has the right to reduce the deliveries under the AVSA A320 purchase contract on a one-for-one basis. During each January of the put period, the Company will negotiate the type and delivery 39 42 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) dates of the put aircraft for that year. The puts will require 150-day notice and will be leased at fair market rates for terms ranging from three to eighteen years, depending on the type and condition of the aircraft. In 1995, three aircraft (one used B737-300 in February and two new A320-200s in April) will be delivered to the Company under this agreement. As part of the agreement, certain cash payments and securities were issued to the put holder pursuant to the Plan (see Note 13). The Company had certain aircraft purchase contracts with Boeing. In connection with the Plan, the Company reached a settlement in which the purchase contracts were rejected and equipment purchase deposits were kept by Boeing in full settlement of the rejection damages. In December 1994, the Company entered into a support contract with International Aero Engines ("IAE") which provides for the purchase by the Company of six new V2500-A5 spare engines scheduled for delivery beginning in 1998 through 2000 for use on the A320 fleet. Such engines have an estimated aggregate cost of $42.3 million for which the Company has provided a $1.5 million security deposit in the form of a letter of credit. Pursuant to a side letter to an earlier contract with IAE, the Company agreed to purchase from IAE prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company expects to, with IAE's consent, acquire an additional "A5" engine in lieu of this "A1" engine. The following table reflects estimated cash payments under the aircraft and engine purchase contracts. Actual payments may vary due to inflation factor adjustments and changes in the delivery schedule of the equipment. The estimated cash payments include the progress payments that will be made in cash, as opposed to being financed under an existing progress payment financing facility.
(IN THOUSANDS) 1995........................................................... $ 3,223 1996........................................................... 32,608 1997........................................................... 58,230 1998........................................................... 379,309 1999........................................................... 355,540 2000........................................................... 350,863 -------------- $1,179,773 ===========
At December 31, 1994, the Company has significant capital commitments for a number of new aircraft, as discussed above. Although the Company has arranged for financing for up to one-half of such commitment, the Company will require substantial capital from external sources to meet the remaining financial commitments. The Company intends to seek additional financing (which may include public debt financing or private financing) in the future when and as appropriate. There can be no assurance that sufficient financing will be obtained for all aircraft and other capital requirements. A default by the Company under any such commitment could have a material adverse effect on the Company. (d) Concentration of Credit Risk The Company does not believe it is subject to any significant concentration of credit risk. At December 31, 1994, approximately 82 percent of the Company's receivables related to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on America West. These receivables are short-term, generally being settled shortly after the sale or in the month following usage. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. (e) Contingent Legal Obligations Certain administrative and priority tax claims are pending against the Company, which, if ultimately allowed by the Bankruptcy Court, would represent general obligations of the Company. Such claims include 40 43 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) claims of various state and local tax authorities and certain contractual indemnification obligations. Management cannot predict whether or to what extent any of the pending administrative and priority tax claims will result in liabilities to the Company. Should such liabilities be incurred, future operating results could be adversely affected. However, based on information currently available, management believes that the disposition will not have a material adverse effect on the Company's financial condition. 13. RELATED PARTY TRANSACTIONS In exchange for certain concessions principally arising from cancellation of the right of GPA to lease to America West 10 Airbus A320 aircraft at specified rates, GPA received (i) 900,000 shares of Class B Common Stock; (ii) 1,384,615 Warrants to purchase shares of Class B Common Stock at an exercise price of $12.74 per share; (iii) a cash payment of approximately $30.5 million; (iv) the rights to require the Company to lease up to eight aircraft of types operated by the Company, which rights must be exercised by June 30, 1999. The Company has entered into various aircraft and leasing arrangements with GPA at terms comparable to those obtained from third parties for similar transactions. The Company leases 16 aircraft from GPA and the rental payments for such leases amount to $63.1 million, $63.1 million, and $63.8 million for the combined twelve months ended December 31, 1994, 1993 and 1992, respectively. As of December 31, 1994, the Company was obligated to pay approximately $1.1 billion under these leases which expire at various times through the year 2013. The Company has entered into Alliance Agreements with Continental and Mesa, both of whom invested in the Company. Pursuant to a code-sharing agreement with Mesa entered into in December 1992, the Company collects a per-passenger charge for facilities, reservations and other services from Mesa for enplanements on the Mesa system. Such payments by Mesa to the Company totaled $2.5 million and $1.9 million for the twelve months ended December 31, 1994 and 1993, respectively. In October 1994, the Company issued an additional $23.0 million of 11 1/4% Senior Unsecured Notes to Fidelity and Lehman in exchange for full settlement of certain prepetition unsecured claims. Additionally, cash payments of $2.1 million and $1.3 million were made to Fidelity and Lehman, respectively. 14. ESTIMATED LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS AND REORGANIZATION EXPENSE Under Chapter 11, certain claims against the Company in existence prior to the filing of the petitions for relief under the Code are stayed while the Company continued business operations as debtor-in-possession. These prepetition liabilities were settled as part of the Plan and were classified as "Estimated liabilities subject to Chapter 11 proceedings" prior to the Effective Date. Estimated liabilities subject to Chapter 11 proceedings as of December 31, 1993 consisted of the following: Long-term debt (including convertible subordinated debentures of $138.9 million)................................................. $224,642 Accounts payable and accrued liabilities.......................... 113,945 Accrued interest.................................................. 16,808 Accrued taxes..................................................... 25,719 -------- $381,114 ========
41 44 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 15. RESTRUCTURING CHARGES Restructuring charges consist of the following:
1992 -------------- (IN THOUSANDS) Write-off for certain assets related to station closures or route restructuring.......................................... $ 9,529 Provision for spare parts for aircraft types no longer in service...................................................... 12,651 Provision for employee severance............................... 2,284 Loss on return of aircraft..................................... 6,852 -------------- $ 31,316 ===========
The restructuring charges were necessitated primarily by aircraft fleet reductions and other operational changes. The Company has reduced its fleet to 87 aircraft and has reduced the number of aircraft types in the fleet from five to three. 42 45 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1994 and 1993 are as follows:
1ST 2ND 3RD 4TH 1994 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER ----------------------------------------------- -------- -------- --------- -------- (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS) Total operating revenues....................... $ 127,315 $342,451 Operating income............................... 8,336 30,535 Nonoperating expense, net...................... (5,293) (13,842) Income tax expense............................. (1,825) (10,065) Net income..................................... 1,218 6,628 Earnings per share: Primary...................................... .03 .15 Fully diluted................................ .03 .15 1994 -- PREDECESSOR COMPANY ----------------------------------------------- Total operating revenues....................... $345,264 $363,351 230,413 Operating income............................... 37,750 44,146 25,610 Nonoperating expense, net (a).................. (21,943) (23,171) (263,601) Income tax expense............................. (632) (839) (588) Net income (a)................................. 15,175 20,136 19,081 Earnings per share: Primary...................................... .56 .74 .69 Fully diluted................................ .40 .52 .49 1993 -- PREDECESSOR COMPANY ----------------------------------------------- Total operating revenues....................... 316,605 324,910 335,113 348,736 Operating income............................... 17,168 25,179 32,981 45,726 Nonoperating expense, net...................... (14,990) (14,710) (18,285) (35,145) Income tax expense............................. (44) (209) (293) (213) Net income..................................... 2,134 10,260 14,403 10,368 Earnings per share: Primary...................................... .09 .41 .56 .40 Fully diluted................................ .09 .28 .38 .28
--------------- (a) During the third quarter of 1994, the Company recorded reorganization expenses of $255.4 million as well as an extraordinary gain of $257.7 million from the discharge of debt pursuant to the Plan of Reorganization. 43 46 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 "Information Concerning Directors and Nominees" in the Company's Proxy Statement relating to its 1995 Annual Meeting of Stockholders incorporated by reference into this Form 10-K Report, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6(c) promulgated under the Securities Exchange Act of 1934 (the "1995 Proxy Statement"). With the exception of the foregoing information and other information specifically incorporated by reference into this Form 10-K Report, the 1995 Proxy Statement is not being filed as a part hereof. Information respecting executive officers of the Company who are not continuing directors or nominees is set forth at Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the information called for by Items 10, 11, 12 and 13, reference is made to the Company's 1995 Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1994, and portions of which are incorporated herein by reference. 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' Report are filed as part of this report on the pages indicated: Independent Auditors' Report page 22. Balance Sheets -- December 31, 1994 and 1993 -- page 23. Statement of Operations -- For the periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994, and the years ended December 31, 1993 and 1992 -- page 24. Statement of Cash Flows -- For the periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994, and the years ended December 31, 1993 and 1992 -- page 25. Statement of Stockholders' Equity (Deficiency) -- For the periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994, and the years ended December 31, 1993 and 1992 -- page 26. Notes to Financial Statements -- page 27. 44 47 (b) Financial Statement Schedule. The following financial statement schedule is included in this report on the page indicated: Independent Auditors' Report on Schedule -- page S-1 Schedule VIII: Valuation and Qualifying Accounts -- page S-2 (c) Exhibits
EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------------------------------------ 2.1 The Company's Plan of Reorganization, as amended under Chapter 11 of the Bankruptcy Code -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 3.1 Restated Certificate of Incorporation of America West Airlines, Inc. -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. *3.2 Restated By-laws of America West Airlines, Inc. -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994, as amended. 4.1 Indenture for $130,000,000 11 1/4% Senior Notes due 2001 dated August 25, 1994, of America West Airlines, Inc. and American Bank National Association, as trustee -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 4.2 Form of Senior Note (included as Exhibit A to Exhibit 4.1 above). 4.3 Warrant Agreement dated August 25, 1994 between America West Airlines, Inc. and First Interstate, N.A., as Warrant Agent -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 4.4 Form of Warrant (included as Exhibit A to Exhibit 4.3 above). 4.5 Stockholders' Agreement for America West Airlines, Inc. dated August 25, 1994 among America West Airlines, Inc., AmWest Partners, L.P., GPA Group plc and certain other Stockholder Representatives -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 4.6 First Amendment to Stockholders' Agreement for America West Airlines, Inc. dated September 6, 1994 among Air Partners II, L.P., TPG Partners, L.P., TPG Parallel I, L.P., Continental Airlines, Inc., Mesa Airlines, Inc., GPA Group plc and certain other stockholder representatives -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 4.6 Registration Rights Agreement dated August 25, 1994 among America West Airlines, Inc., AmWest Partners, L.P. and other holders -- Incorporated by reference to the Company's Report on Form 8-K dated September 9, 1994. 4.7 Article 4.0 of the Company's Restated Certificate of Incorporation (included in Exhibit 3.1 above). 10.1 Third Revised Investment Agreement dated April 21, 1994 between America West Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference to Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994. 10.11 Third Revised Interim Procedures Agreement dated April 21, 1994 between America West Airlines and AmWest Partners, L.P. -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.14 The GPA Term Sheet between America West Airlines, Inc. and GPA Group plc, dated June 13, 1994 -- Incorporated by Reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended. 10.15 America West Airlines Management Resignation Allowance Guidelines, as amended, dated November 18, 1993 -- Incorporated by Reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended. 10.16 Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between AVSA, S.A.R.L. ("AVSA") and the Company, together with Letter Agreement Nos. 1-10, inclusive -- Incorporated by reference to Exhibit 10-(D)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. 10.17 Loan Agreement, dated as of September 28, 1990, among the Company, AVSA and AVSA, as agent -- Incorporated by reference to Exhibit 10-(D)(2) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990.
45 48
EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------------------------------------ 10.19 V2500 Support Contract Between the Company and IAE International Aero Engines AG ("IAE"), dated September 28, 1990, together with Side Letters Nos. 1-4, inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. 10.20 Restructuring Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(24) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.21 A320 Put Agreement, dated December 1, 1991 between the Company and Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.22 First Amendment to A320 Put Agreement, dated September 1, 1992 -- Incorporated by reference to Exhibit 10-R(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 A320 Put Agreement, dated as of June 25, 1991 between the Company and GPA Group plc -- Incorporated by reference to Exhibit 10-D(26) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.24 First Amendment to A320 Put Agreement, dated as of September 1, 1992 -- Incorporated by reference to Exhibit 10-S(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.25 Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc, GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and the Company -- Incorporated by reference to Exhibit 10-D(27) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.26 Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate Airport Facility Revenue Bonds -- Incorporated by reference to Exhibit 10.e to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1986. 10.27 Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement") among the City of Phoenix, The Industrial Development Authority of the City of Phoenix, Arizona and the Company -- Incorporated by reference to Exhibit 10-D(9) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10.28 First Amendment dated August 1, 1990 to Airport Use Agreement -- Incorporated by reference to Exhibit 10-(D)(9) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.29 Revolving Loan Agreement dated April 17, 1990, by and among the Company, the Bank signatories thereto, and Bank of America National Trust and Savings Association, as Agent for the Banks (the "Revolving Loan Agreement") -- Incorporated by reference to Exhibit 10-1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1990. 10.30 First Amendment dated April 17, 1990 to Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.31 Second Amendment dated September 28, 1990 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.32 Third Amendment dated as of January 14, 1991 to the Revolving Loan Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.33 Spares Credit Agreement, dated as of September 28, 1990, between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. 10.34 Master Credit Modification Agreement dated as of October 1, 1992, among the Company, IAE International Aero Engines AG, Intlaero (Phoenix A320) Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd., and Hughes Rediffusion Simulation Limited -- Incorporated by reference to Exhibit 10-L to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.35 Credit Agreement, dated as of September 28, 1990 between the Company and IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990.
46 49
EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------------------------------------ 10.36 Amendment No. 1 to the Credit Agreement, dated March 1, 1991 -- Incorporated by reference to Exhibit 10-(M)(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.37 Amendment No. 2 to the Credit Agreement, dated May 15, 1991 -- Incorporated by reference to Exhibit 10-(M)(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.38 Amendment No. 3 to the Credit Agreement, dated October 1, 1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. *10.39 V2500 Support Contract dated December 23, 1994 between America West Airlines, Inc. and International Aero Engineers, as amended. 10.40 Key Employee Protection Agreement dated as of June 27, 1994 between America West Airlines, Inc. and William A. Franke -- Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended. 10.41 Management Rights Agreement dated August 25, 1994 between TPG Partners L.P., TPG Genpar, L.P. and America West Airlines, Inc. -- Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended. *10.42 Form of America West Airlines, Inc. 1994 Incentive Equity Plan. *10.43 Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and William A. Franke. *10.44 Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and A. Maurice Myers, as amended. *11.1 Computation of Net Income (Loss) per Share. *24.1 Power of Attorney (included on the signature page of this Report.) *27 Financial Data Schedules.
--------------- * Filed herewith 47 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICA WEST AIRLINES, INC. Date: March 29, 1995 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. (the "Company"), do hereby severally constitute and appoint William A. Franke, A. Maurice Myers and Martin J. Whalen 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 Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, 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 in the capacities indicated on March 29, 1995.
SIGNATURE TITLE ------------------------------------------ ----------------------------------------------- /s/ William A. Franke Chairman of the Board and Chief Executive ------------------------------------------ Officer (Principal Executive Officer) William A. Franke /s/ A. Maurice Myers President, Chief Operating Officer and Director ------------------------------------------ A. Maurice Myers /s/ Raymond T. Nakano Vice President and Controller (Principal ------------------------------------------ Financial and Accounting Officer) Raymond T. Nakano /s/ Julia Chang Bloch Director ------------------------------------------ Julia Chang Bloch /s/ Stephen Bollenbach Director ------------------------------------------ Stephen Bollenbach
48 51
SIGNATURE TITLE ------------------------------------------ ----------------------------------------------- /s/ Frederick W. Bradley Director ------------------------------------------ Frederick W. Bradley /s/ James G. Coulter Director ------------------------------------------ James G. Coulter /s/ John F. Fraser Director ------------------------------------------ John F. Fraser /s/ Frank B. Ryan Director ------------------------------------------ Frank B. Ryan /s/ John L. Goolsby Director ------------------------------------------ John L. Goolsby /s/ Richard C. Kraemer Director ------------------------------------------ Richard C. Kraemer /s/ John R. Power, Jr. Director ------------------------------------------ John R. Power, Jr. /s/ Larry L. Risley Director ------------------------------------------ Larry L. Risley /s/ Richard P. Schifter Director ------------------------------------------ Richard P. Schifter /s/ John F. Tierney Director ------------------------------------------ John F. Tierney /s/ Raymond S. Troubh Director ------------------------------------------ Raymond S. Troubh
49 52 INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors and Stockholders America West Airlines, Inc. Under date of February 24, 1995, we reported on the balance sheets of America West Airlines, Inc. as of December 31, 1994 and 1993, and the related statements of operations, cash flows and stockholders' equity (deficiency) for the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994 and for each of the years in the two-year period ended December 31, 1993, which are included herein. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule as listed in Item 14(b). 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, the 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. The audit report on the financial statements of America West Airlines, Inc. referred to above contains an explanatory paragraph that states that as discussed in Notes 1 and 2 to the financial statements, on August 25, 1994, America West Airlines, Inc. emerged from bankruptcy. The financial statements of the Reorganized Company reflect the impact of adjustments to reflect the fair value of assets and liabilities under fresh start reporting. As a result, the financial statements of the Reorganized Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable in all respects. KPMG Peat Marwick LLP Phoenix, Arizona February 24, 1995 50 53 AMERICA WEST AIRLINES, INC. SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994 AND THE YEARS ENDED DECEMBER 31, 1993 AND 1992 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ---------------------------------------------- ---------- ---------- ---------- ---------- --------- Allowance for doubtful receivables: Period ended: August 26, 1994 to December 31, 1994........ $2,833 $1,074 $ -- $ 376 $ 3,531 ======== ======== ======== ======== ======= Allowance for doubtful receivables: Period ended: January 1, 1994 through August 25, 1994..... $3,030 $4,742 $ -- $4,939 $ 2,833 ======== ======== ======== ======== ======= Years ended: December 31, 1993........................... $2,542 $5,474 $ -- $4,986 $ 3,030 ======== ======== ======== ======== ======= December 31, 1992........................... $3,603 $3,800 $ -- $4,861 $ 2,542 ======== ======== ======== ======== ======= Reserve for obsolescence: Period ended: August 26, 1994 to December 31, 1994........ $ -- $ 483 $ -- $ -- $ 483 ======== ======== ======== ======== ======= Reserve for obsolescence: Period ended: January 1, 1994 through August 25, 1994..... $7,231 $ 794 $ -- $8,025(a) $ -- ======== ======== ======== ======== ======= Years ended: December 31, 1993........................... $6,921 $ 902 $ -- $ 592 $ 7,231 ======== ======== ======== ======== ======= December 31, 1992........................... $3,638 $3,283 $ -- $ -- $ 6,921 ======== ======== ======== ======== =======
--------------- (a) Includes fresh start adjustment of approximately $7,885. 51 EX-3.2 2 EXHIBIT 3.2 1 Exhibit 3.2 RESTATED BYLAWS OF AMERICA WEST AIRLINES, INC. 2 TABLE OF CONTENTS 1. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Offices. . . . . . . . . . . . . . . . . . . . . . . 1 2. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.01 Seal . . . . . . . . . . . . . . . . . . . . . . . . 1 3. MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 1 3.01 Place of Meetings. . . . . . . . . . . . . . . . . . 1 3.02 Annual Meetings. . . . . . . . . . . . . . . . . . . 1 3.03 Special Meetings . . . . . . . . . . . . . . . . . . 1 3.04 Action by Consent in Lieu of a Meeting . . . . . . . 1 3.05 Notice of Meetings . . . . . . . . . . . . . . . . . 1 3.06 Stockholder Notices. . . . . . . . . . . . . . . . . 2 3.07 Adjourned Meetings . . . . . . . . . . . . . . . . . 2 3.08 Quorum and Adjournment . . . . . . . . . . . . . . . 2 3.09 Majority Vote Required . . . . . . . . . . . . . . . 2 3.10 Manner of Voting . . . . . . . . . . . . . . . . . . 2 3.11 Proxies. . . . . . . . . . . . . . . . . . . . . . . 2 3.12 Presiding Officer and Secretary. . . . . . . . . . . 2 3.13 Disregard of Nomination or Proposal. . . . . . . . . 2 3.14 Inspections of Elections . . . . . . . . . . . . . . 3 4. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.01 Powers . . . . . . . . . . . . . . . . . . . . . . . 3 4.02 Number and Classification. . . . . . . . . . . . . . 3 4.03 Nominations. . . . . . . . . . . . . . . . . . . . . 3 4.04 Resignations . . . . . . . . . . . . . . . . . . . . 3 4.05 Removal. . . . . . . . . . . . . . . . . . . . . . . 3 4.06 Vacancies. . . . . . . . . . . . . . . . . . . . . . 3 4.07 Presiding Officers and Secretary . . . . . . . . . . 4 4.08 Annual Meetings. . . . . . . . . . . . . . . . . . . 4 4.09 Regular Meetings . . . . . . . . . . . . . . . . . . 4 4.10 Special Meetings . . . . . . . . . . . . . . . . . . 4 4.11 Quorum and Powers of a Majority. . . . . . . . . . . 4 4.12 Waiver of Notice . . . . . . . . . . . . . . . . . . 4 4.13 Manner of Acting . . . . . . . . . . . . . . . . . . 4 4.14 Compensation . . . . . . . . . . . . . . . . . . . . 4 4.15 Committees . . . . . . . . . . . . . . . . . . . . . . 4 4.16 Committee Procedure. . . . . . . . . . . . . . . . . . 5 4.17 Executive Committee. . . . . . . . . . . . . . . . . . 5 5. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.01 Number . . . . . . . . . . . . . . . . . . . . . . . . 5 5.02 Election of Officers, Qualification and Term . . . . . 6 5.03 Removal. . . . . . . . . . . . . . . . . . . . . . . . 6 5.04 Resignations . . . . . . . . . . . . . . . . . . . . . 6 5.05 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 6 5.06 Salaries . . . . . . . . . . . . . . . . . . . . . . . 6 5.07 The Chairman of the Board. . . . . . . . . . . . . . . 6 5.08 The President. . . . . . . . . . . . . . . . . . . . . 6 5.09 The Vice Presidents. . . . . . . . . . . . . . . . . . 6 5.10 The Secretary and the Assistant Secretary. . . . . . . 6 5.11 The Treasurer and the Assistant Treasurer. . . . . . . 6 5.12 Treasurer's Bond . . . . . . . . . . . . . . . . . . . 7 5.13 Chief Executive Officer. . . . . . . . . . . . . . . . 7 5.14 Chief Operating Officer. . . . . . . . . . . . . . . . 7 6. STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6.01 Certificates . . . . . . . . . . . . . . . . . . . . . 7 6.02 Transfers. . . . . . . . . . . . . . . . . . . . . . . 8 6.03 Lost, Stolen or Destroyed Certificates . . . . . . . . 8 6.04 Record Date. . . . . . . . . . . . . . . . . . . . . . 8 6.05 Registered Stockholders. . . . . . . . . . . . . . . . 8 6.06 Additional Powers of the Board . . . . . . . . . . . . 8 7. LIMITATIONS OF OWNERSHIP BY NON-CITIZENS. . . . . . . . . . . . 8 7.01 Definitions. . . . . . . . . . . . . . . . . . . . . . 8 7.02 Policy . . . . . . . . . . . . . . . . . . . . . . . . 9 7.03 Foreign Stock Record . . . . . . . . . . . . . . . . . 9 7.04 Suspension of Voting Rights. . . . . . . . . . . . . . 9 7.05 Beneficial Ownership Inquiry . . . . . . . . . . . . . 9 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 9 8.01 Place and Inspection of Books. . . . . . . . . . . . . 9 8.02 Indemnification of Directors, Officers Employees and Agents . . . . . . . . . . . . . . . . . 9 8.03 Dividends. . . . . . . . . . . . . . . . . . . . . . . 11 8.04 Execution of Deeds, Contracts, and Other Agreements and Instruments . . . . . . . . . . . . . . 11 8.05 Checks . . . . . . . . . . . . . . . . . . . . . . . . 11 8.06 Voting Shares in Other Corporations. . . . . . . . . . 11 8.07 Fiscal Year . . . . . . . . . . . . . . . . . . . . . 11 8.08 Gender/Number . . . . . . . . . . . . . . . . . . . . 11 8.09 Paragraph Titles . . . . . . . . . . . . . . . . . . 11 8.10 Amendment . . . . . . . . . . . . . . . . . . . . . . 11 8.11 Restated Certificate of Incorporation . . . . . . . . 11 i 3 RESTATED BYLAWS OF AMERICA WEST AIRLINES, INC. (as amended through, and effective on, August 25, 1994) 1. OFFICES. 1.01 Offices. In addition to its registered office in the state of Del aware, the Corporation shall have a general office at Maricopa County, Arizona, and such other offices, either within or without the State of Delaware, at such locations as the Board of Directors ma)' from time to time determine or the business of the Corporation may require. 2. SEAL. 2.01 Seal. (a) The Corporation shall have a seal, which shall have inscribed thereon its name and year of incorporation and the words, "Corporate Seal Delaware." (b) The seal shall be kept in safe custody by the Secretary of the Corporation. It shall be affixed by the Chairman of the Board, the President or any Vice President, the Secretary or any Assistant Secretary, or the Treasurer to any corporate instrument or document requiring it, by practice or by law, and when so affixed, it may be attested by the signature of the officer so affixing it. 3. MEETINGS OF STOCKHOLDERS. 3.01 Place of Meetings. All meetings of stockholders of the Corporation shall be held at the general office of the Corporation in Maricopa County, State of Arizona, unless otherwise specified in the notice calling any such meeting. 3.02 Annual Meetings. (a) The annual meeting of stockholders for 1995 shall be held at the Corporate offices on Tuesday, May 2,1995, at 10:00 am. or at such other time, date and place as shall be determined by the Board of Directors, complying with Section 3.05(b) of these Restated Bylaws of the Corporation. All subsequent annual meetings of stockholders, beginning with the annual meeting to be held in 1996, shall be held on the first Tuesday of May, if not a legal holiday, and if a legal holiday, then on the next business day following, or at such other time, date and place as shall be determined by the Board of Directors from time to time. (b) At each annual meeting the stockholders shall, by plurality of the votes cast, elect Directors and transact such other business as may properly be brought before them. (c) The Board of Directors may, in advance of any annual or special meeting of the stockholders, adopt an agenda for such meeting, adherence to which the Chairman of the Board may enforce. 3.03 Special Meetings. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed herein or by statute, may be called by the Chairman of the Board and shall be called by the -Secretary at the written request, or by resolution adopted by the affirmative vote, o! a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Stockholders of the Corporation shall not be entitled to request a special meeting of the stockholders. 3.04 Action by Consent in Lieu of a Meeting. Stockholders may act by consent in lieu of a meeting in accordance with Delaware Law only in the removal of directors in accordance with the Restated Certificate of Incorporation of the Corporation. 3.05 Notice of Meetings. (a) Notices of meetings of stockholders shall be in writing and shall state the place (which may be within or without the state of Delaware), date and hour of the meeting and in the case of a special meeting, the purpose or purposes for which a meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. (b) Such notice shall either be delivered personally or mailed, postage prepaid, to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. If mailed, the notice shall be directed to the stockholder at his or her address as it appears on the records of the Corporation. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. (c) Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder in writing, whether before or after such meeting is held, or if such stockholder shall sign the minutes or attend the meeting. 1 4 3.06 Stockholder Notices. At any meeting of the stockholders, only such business shall be conducted, and only such proposals shall be acted upon as shall have been brought before the meeting (i) by, or at the direction of the Board of Directors or (ii) by any stockholder who complies with the notice procedures set forth in this Section 3.06 (or for election of directors, with the notice provisions set forth in Section 4.03). (a) For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder to be timely must be so delivered or received no later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. (b) A stockholder's notice to the Secretary shall in addition set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the proposal desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares which are beneficially owned by the stockholder on the date of such stockholder notice and (iv) any material interest of the stockholder in such proposal. 3.07 Adjourned Meetings. When a meeting is adjourned to another time or place, unless otherwise provided by these Restated Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders may transact any business which might have been transacted at the original meeting. If an adjournment is for more than thirty (30) days or if after an adjournment a new record date is fixed for the adjourned meeting#a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. 3.08 Quorum and Adjournment. Except as otherwise provided by law, by the Restated Certificate of Incorporation of the Corporation or by these Restated Bylaws, the presence, in person or by proxy, of the holders of a majority of the aggregate voting power of the stock issued and outstanding, entitled to vote thereat, and the voting rights of which are not suspended, shall be requisite and shall constitute a quorum for the transaction of business at all meetings of stockholders. If, however, such majority shall not be present or represented at any meeting of stockholders, the stockholders present, although less than a quorum, shall have the power to adjourn the meeting. 3.09 Majority Vote Required. When a quorum is present at any meeting of stockholders, the affirmative vote of the majority of the aggregate voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall constitute the act of the stockholders, unless by express provision of law, the Restated Certificate of Incorporation or these Restated Bylaws a different vote is required, in which case such express provision shall govern and control. 3.10 Manner of Voting. At each meeting of stockholders, each stockholder having the right to vote, and whose voting rights have not been suspended shall be entitled to vote in person or by proxy. Proxies need not be filed with the Secretary of the Corporation until the meeting is called to order, but shall be filed before being voted. Each stockholder shall I be entitled to vote each share of stock having voting power registered in his name on the books of the Corporation on the record date fixed, as provided in Section 6.04 of these Restated Bylaws, for the determination of stockholders entitled to vote at such meeting. All elections of directors shall be by written ballot. 3.11 Proxies. (a) At any meeting of stockholders, any stockholder may be represented and vote by proxy or proxies appointed by a written form of proxy. In the event that any form of proxy shall designate two or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by the form of proxy upon all of the persons so designated unless the form of proxy shall otherwise provide. (b) The Board of Directors may, in advance of any annual or special meeting of the stockholders, prescribe additional regulations concerning the manner of execution and filing of proxies and the validation of the same, which are intended to be voted at any such meeting. 3.12 Presiding Officer and Secretary. At each meeting of stockholders, the Chairman of the Board shall preside and the Secretary shall act as Secretary of the meeting. 3.13 Disregard of Nomination or Proposal. Except as otherwise provided by law, the Restated Certificate of Incorporation or these Restated Bylaws, the person presiding over any meeting of the stockholders shall have the power and duty to determine whether a nomination or any other business proposed to be brought before 2 5 the meeting was made in accordance with the procedures set forth in this Article 3 or Section 4.03 and, if any proposed nomination or business is not in compliance with such provisions, to declare that such defective proposal or nomination shall be disregarded. 3.14 Inspections of Elections. The Board of Directors by resolution shall appoint one or more inspectors of election (which may include individuals who serve the Corporation in other capacities including, without limitation, as officers, employees, agents or representatives of the Corporation) to act at any meeting of the stockholders and make a written report thereof. Such appointments shall be made in accordance with, and each inspector shall have the duties prescribed by, Section 231 of the General Corporation Law of the State of Delaware (the "DGCL"). 4. DIRECTORS. 4.01 Powers. The Board of Directors shall exercise all of the power of the Corporation except such as are by law, or by the Restated Certificate of Incorporation of this Corporation or by these Restated Bylaws conferred upon or reserved to the stockholders of any class or classes. 4.02 Number and Classification. (a) The Board of Directors of the Corporation shall consist of up to fifteen (15) members, which number may be increased or decreased from time to time by resolution duly adopted by such Board, provided that at no time shall there be fewer than nine (9) or more than fifteen (15) members (except for increases above fifteen (15) caused by a provision allowing holders of preferred stock to elect additional directors in the event of nonpayment of dividends) and provided her that, the Stockholders' Agreement dated as of August 25, 1994 among the Corporation and others, for so long as it remains in force and effect (as supplemented and amended from time to time, herein "Stockholders' Agreement"), shall prescribe the exact number of directors and their method of election, removal and replacement. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. (b) Subject to and at such time as provided in the Restated Certificate of Incorporation, the number of Directors shall be divided into three (3) classes, as nearly equal in number as may be, to serve staggered three-year terms on the Board of Directors. In the case of any increase in the number of Directors of the Corporation, the additional Directors shall be so classified that all classes of Directors shall be increased equally as nearly as may be, and the additional Directors shall be elected as provided herein by the Directors or by the stockholders at an annual meeting. In case of any decrease in the number of Directors of the Corporation, all classes of Directors shall be decreased equally, as nearly as may be. Election of Directors shall be conducted as provided in the Restated Certificate of Incorporation, in these Bylaws, or by applicable law. (c) At all times the composition of the Board of Directors shall comply in all respects with the U.S. citizenship requirements of the Federal Aviation Act of 1958, as amended. 4.03 Nominations. Except as otherwise provided in the Stockholders' Agreement, no person shall be elected to the Board of Directors of this Corporation at an annual meeting of the stockholders, or at a special meeting called for that purpose, unless a written nomination of such person to the Board of Directors (i) by a stockholder of the Corporation who is entitled to vote at such meeting shall be received by the Secretary of the corporation at least ninety (90) days prior to such meeting or (ii) is made by or at the direction of the Board of Directors. 4.04 Resignations. Any Director may resign at any time by giving written notice to the Board of Directors or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective. 4.05 Removal. Except as otherwise provided in the Stockholders' Agreement, at any special meeting of the stockholders duly called as provided herein, any Director may, by a vote of the holders of stock representing a majority of the voting power of all the shares of stock issued and outstanding and entitled to vote thereat, be removed from office with or without cause, and the successor of the Director so removed may be elected at such meeting. Stockholders shall have the right to act by written consent only in the removal of directors in accordance with the Stockholders' Agreement or any other voting agreement of even date with the Restated Certificate of Incorporation by and between GPA Group plc and AmWest Partners, L.P., for so long as any such agreement remains in force and effect. In the absence of such an election, any vacancy may be filled as provided in Section 4.06. 4.06 Vacancies. (a) Except as otherwise provided in the Stockholders' Agreement, in case any vacancy shall occur on the Board of Directors because of death, resignation, retirement, disqualification, removal, an increase in the authorized number of Directors or any other cause, the Board of Directors may, at any meeting, by resolution adopted by the affirmative vote of a majority of the Directors then in office, though less than a quorum, elect a Director to fill such vacancy. (b) If, as a result of a disaster or emergency (as determined in good faith by the then remaining Directors), it becomes impossible to ascertain whether or not vacancies exist on the Board of Directors, and a person is or persons are elected by Directors, in good faith believe themselves to be a majority of the remaining 3 6 Directors, to fill a vacancy or vacancies that said remaining Directors in good faith believe exists, then the acts of such person or persons who are so elected as Directors shall be valid and binding upon the corporation and the stockholders, although it may subsequently develop that at the time of the election (i) there was in fact no vacancy or vacancies existing on the Board of Directors, or (ii) the Directors who so elected such person or persons did not in fact constitute a majority of the remaining Directors. 4.07 Presiding Officer and Secretary. At each meeting of the Board of Directors, the Chairman of the Board shall preside, and the Secretary shall act as secretary of the meeting. 4.08 Annual Meetings. The Board of Directors shall meet each year immediately following the annual meeting of stockholders, at the place where such meeting of stockholders has been held, or at such other place as shall be fixed by the person presiding over the meeting of the stockholders at which such Directors are elected, for the purpose of organization, election of officers, and consideration of such other business as the Board considers relevant to the management of the Corporation. 4.09 Regular Meetings. Regular meetings of the Board of Directors shall be held on such dates and at such times and places, within or without the state of Delaware, as shall from time to time be determined by the Board of Directors, provided that the Board of Directors shall hold at least four (4) regular meetings in each year. In the absence of any such determination, such meetings shall be held at such times and places, within or without the State of Delaware, as shall be designated by the Chairman of the Board on not less than three (3) calendar days' notice (specifying the time and place of the meeting and the agenda therefor) to each Director, given verbally or in writing either personally, by telephone, by facsimile transmission, by mail, by telegram or by telex. 4.10 Special Meetings. Special meetings of the Board of Directors shall be held at the call of the Chairman of the Board at such times and places, within or without the State of Delaware, as he or she shall designate, on not less than three (3) calendar days' notice (specifying the time and place of the meeting and the agenda therefor) to each Director, given verbally or in writing either personally, by telephone, by facsimile transmission, by mail, by telegram or by telex. Special meetings shall be called by the Secretary on like notice at the written request of a majority of the Directors. 4.11 Quorum and Powers of a Majority. At all meetings of the Board of Directors and of each committee thereof, a majority of the members shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the Board of Directors or such committee, unless by express provision of law, of the Restated Certificate of Incorporation or these Restated Bylaws, a different vote is required, in which case such express provision shall govern and control. In the absence of a quorum, a majority of the members present at any meeting may, without notice other than announcement at the meeting, adjourn such meeting from time to time until a quorum is present. 4.12 Waiver of Notice. Notice of any meeting of the Board of Directors, or any committee thereof, need not be given to any member if waived by him or her in writing, whether before or after such meeting is held, or if he or she shall sign the minutes or attend the meeting. 4.13 Manner of Acting. (a) Members of the Board of Directors, or any committee thereof, may participate in any meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating therein can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (b) Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. 4.14 Compensation. (a) The Board of Directors, by a resolution or resolutions may fix, and from time to time change, the compensation of Directors. (b) Each Director shall be entitled to reimbursement from the Corporation for his or her reasonable expenses incurred in attending meetings of the Board of Directors or any committee thereof. (c) Nothing contained in these Restated Bylaws shall be construed to preclude any Director from sending the Corporation in any other capacity and from receiving compensation from the Corporation for services rendered to it in such other capacity. 4.15 Committees. The Board of Directors may, by resolution or resolutions adopted by the affirmative vote of a majority of the Board of Directors, designate one or more committees, each committee to consist of two or more Directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation; that no such committee shall have the power to (i) elect Directors, (ii) alter, amend, or repeal these Bylaws or any resolution of the Board relating to such committee, (iii) appoint any member of such committee, (iv) declare 4 7 any dividend or make any other distribution to the stockholders of the Corporation or (v) take any other actions which may lawfully be taken only by the full Board of Directors. Such committee or committees shall have such name or names as may be determined from time to time by resolutions adopted by the Board of Directors. 4.16 Committee Procedure. (a) Except as otherwise provided by these Restated Bylaws, each committee shall adopt its own rules governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these Restated Bylaws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 4.10 of these Restated Bylaws with respect to notices of special meetings of the Board of Directors. (b) Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. (c) Any member of any committee, other than a member thereof serving ex-officio, may be removed from such committee either with or without cause, at any time, by resolution adopted by the affirmative vote of a majority of the Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by these Restated Bylaws for the original appointment of the members of such committee. 4.17 Executive Committee. There shall be established an Executive Committee consisting of three (4) members. The Chairman of the Board shall be a member and shall act as Chairman of the Executive Committee. In addition, the Board of Directors shall elect from its members the remaining members of the Executive Committee. The Executive Committee shall, to the full extent of the DGCL, have and may exercise in the internals between meetings of the Board of Directors, all the powers of the whole Board of Directors in its management of the affairs and business of the Corporation, except the power or authority to: (a) amend the Restated Certificate of Incorporation; (b) adopt any agreement of merger or consolidation; (c) recommend to stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets; (d) recommend to stockholders a dissolution of the Corporation or a revocation of a dissolution; (e) amend these Bylaws; (f) appoint or remove a member of any committee established by the Board of Directors, fill vacancies on the Board of Directors, remove an officer elected by the Board of Directors, or raise or lower any officer's salary; or (g) declare dividends or authorize the issuance of stock. Meetings of the Executive Committee may be called at any time by the Chairman of the Board and shall be held at the general office of the Corporation or at such other place, within or without the State of Delaware, as the Chairman of the Board may designate, on not less than one (1) day's notice to each member of the Executive Committee, given verbally or in writing either personally, by telephone, by facsimile transmission, by mail, by telegram or telex. 5. OFFICERS. 5.01 Number. (a) The officers of the corporation shall include a Chief Executive Officer, a President, one or more Vice Presidents (including one or more Executive Vice Presidents and one or more Senior Vice Presidents if deemed appropriate by the Board of Directors), a Secretary and a Treasurer. The Board of Directors shall also elect a Chairman of the Board pursuant to Section 5.02. The Board of Directors may also elect such other officers as the Board of Directors may from time to time deem appropriate or necessary. Except for the Chairman of the Board, none of the officers of the Corporation need be a Director of the Corporation. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity. (b) The Chairman of the Board shall be the Chief Executive Officer unless the Board of Directors, by resolution adopted by the affirmative vote of not less than a majority of the Directors then in office, designates the President or some other person as Chief Executive Officer. The President shall be the Chief Operating Officer. If at any time the offices of the Chairman of the Board and Chief Executive Officer shall not be filled, the President shall also be the Chief Executive Officer. (c) The Board of Directors may delegate to the Chief Executive Officer the power to appoint one or more employees of the corporation as divisional or 5 8 departmental vice presidents and fix the duties of such appointees. However, no such divisional or departmental vice president shall be considered as an officer of the Corporation, the officers of the Corporation being limited to those officers elected by the Board of Directors. 5.02 Election of Officers. Qualification and Term. The officers of the Corporation to be elected by the Board of Directors shall be elected annually at the first meeting of the Board of Directors held after each annual meeting of the stockholders. Each such officer shall hold office for one (I) year and until a successor shall have been duly elected and shall qualify in his or her stead unless the Board of Directors shall have provided by contract or otherwise in any particular case, or until such officer shall have resigned and his or her resignation shall have become effective, or until such officer shall have been removed in the manner hereinafter provided. Notwithstanding anything in this Section 5.02 to the contrary, the Chairman of the Board may be elected only by the vote of a majority of the Directors then in office (who may include the Director who is or is to be the Chairman of the Board). 5.03 Removal. Except as otherwise expressly provided in a contract duly authorized by the Board of Directors, any officer elected by the Board of Directors may be removed, either with or without cause, at any time by resolution adopted by the affirmative vote of a majority of the Board of Directors at any meeting thereof; provided that the Chairman of the Board may be removed by the vote of a majority of the Directors then in office (excluding the Director who is the Chairman of the Board). 5.04 Resignations. Any officer of the Corporation may resign at any time by giving written notice to the Board of Directors or the Chairman of the Board. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.05 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause may be filled for the unexpired portion of the term by election by the Board of Directors at any meeting thereof. 5.06 Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors from time to time, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation. 5.07 The Chairman of the Board. (a) The Chairman of the Board shall have the powers and duties customarily and usually associated with the office of the Chairman of the Board. The Chairman of the Board shall preside at meetings of the stockholders and of the Board of Directors. In the event the Chairman of Board's temporary absence or disability and the absence or disability of the President, the Chairman of the Board shall have the power to designate any Director to preside at any or all meetings of the stockholders and of the Board of Directors. (b) If at any time the office of President shall not be filled, or in the event of the disability of the President, the Chairman of the Board (if one shall be elected) shall have the duties and powers of the President. The Chairman of the Board shall have such other powers and perform such greater or lesser duties as may be delegated to him from time to time by the Board of Directors. 5.08 The President. In the event of the disability of the Chairman of the Board, the President shall have the powers and duties of the Chairman of the Board. The President shall serve as chief operating officer and shall have such other powers and perform such other duties as may be delegated to him or her from time to time by the Board of Directors or the Chairman of the Board. 5.09 The Vice Presidents. Each Vice President shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chairman of the Board or the President. 5.10 The Secretary and the Assistant Secretary. (a) The Secretary shall attend meetings of the Board of Directors and meetings of the stockholders and record all votes and minutes of all such proceedings in a book kept for such purpose and shall perform like duties for the committees of Directors as provided for in these Restated Bylaws when required. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and of the Board of Directors (except in case of meetings called by the Chairman of the Board in accordance with Sections 4.09 or 4.10). He or she shall have charge of the stock ledger (unless responsibility for maintaining the stock ledger is delegated to a transfer agent by the Board of Directors pursuant to Section 6.06) and such other books and papers as the Board of Directors may direct. He or she shall hue all such further powers and duties as generally are incident to the position of Secretary or as may from time to time be assigned to him or her by the Board of Directors or the Chairman of the Board. (b) Each Assistant Secretary shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chairman of the Board or the Secretary. In case of the absence or disability of the Secretary, the Assistant Secretary designated by the Secretary (or, in the absence of such designation, the senior Assistant Secretary) shall perform the duties and exercise the powers of the Secretary. 5.11 (a) The Treasurer and the Assistant Treasurer. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate 6 9 accounts of receipts and disbursements in books belonging to the Corporation and shall deposit moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He or she may endorse all commercial documents requiring endorsements for or on behalf of the Corporation and may sign all receipts and vouchers for payments made to the Corporation. (b) The Treasurer shall disburse funds of the Corporation as may from time to time be ordered by the Board of Directors, taking proper vouchers for such disbursements, and render to the Board of Directors, the Chairman of the Board and President, whenever they may require it, an account of all transactions undertaken by him or her as Treasurer and of the financial condition of the Corporation. (c) The Treasurer shall also maintain adequate records of all assets, liabilities and transactions of the corporation and shall see that adequate audits thereof are currently and regularly made. The Treasurer shall have such other powers and perform such other duties that generally are incident to the position of Treasurer or as may from time to time be assigned to him or her by the Board of Directors, the Chairman of the Board or the President. (d) Each Assistant Treasurer shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chairman of the Board, the President or the Treasurer. In case of the absence or disability of the Treasurer, the Assistant Treasurer designated by the Treasurer (or, in the absence of such designation, the senior Assistant Treasurer) shall perform the duties and exercise the powers of the Treasurer. 5.12 Treasurer's Bond. If required by the Board of Directors, the Treasurer or any Assistant Treasurer shall give the Corporation a bond in such form and with such surety or sureties as arc satisfactory to the Board of Directors for the faithful performance of the duties of office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. 5.13 Chief Executive Officer. The Chief Executive Officer shall have, subject to the supervision, direction and control of the Board of Directors, the general powers and duties of supervision, direction and management of the affairs and business of the Corporation usually vested in the chief executive officer of a Corporation, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the Corporation. If at any time the office of Chairman of the Board shall not be filled, the Chief Executive Officer shall have the powers and duties of the Chairman of the Board. 5.14 Chief Operating Officer. The Chief Operating Officer shall, subject to the supervision, direction and control of the Chief Executive Officer and the Board of Directors, manage the day-to-day operations of the Corporation and, in general, shall assist the Chief Executive Officer. 6. STOCK 6.01 Certificates. Certificates or shares of the stock of the Corporation shall be issued under the seal of the Corporation, or facsimile thereof, and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall bear a serial number, shall exhibit the holder's name and the number of shares evidenced thereby and shall be signed by the Chairman of the Board or a Vice Chairman, if any, or the Chief Executive Officer or the President or any Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue. 6.02 Transfers. Transfers of stock of the Corporation shall be made on the books of the Corporation only upon surrender to the Corporation of a certificate for the shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, provided such succession, assignment, or transfer is not prohibited by the Restated Certificate of Incorporation, the Bylaws, applicable law, or contract. Thereupon, the Corporation shall issue a net certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 6.03 Lost. Stolen or Destroyed Certificates. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or an affirmation of that fact, and shall give the Corporation a bond of indemnity in satisfactory form and with one or more satisfactory sureties, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. 6.04 Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at all the meeting of the stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the 7 10 Board of Directors shall fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (l) days before the date of such meeting, nor more than sixty (60) days prior to any other action. (b) If no record date is fixed by the Board of Directors, (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the date on which notice is given, or, if notice is waived by all stockholders entitled to vote at the meeting, at the close of business on the day next preceding the day on which the meeting was held and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided that the Board of Directors may fix a new record date for the adjourned meeting. 6.05 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares as the person entitled to exercise the rights referred to ill Section 6.04 and shall not be bound to recognize any equitable or other claim to or interest in any such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Delaware. 6.06 Additional Powers of the Board. (a) In addition to those powers set forth in Section 4.01, the Board of Directors shall have power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. (b) The Board of Directors may appoint and remove transfer agents and registrars of transfers, and may require all stock certificates to bear the signature of and such transfer agent and/or any such registrar of transfers. (c) The Board of Directors shall have power and authority to create and issue (whether or not in connection with the issue and sale of any stock or other securities of the Corporation) warrants, rights or options entitling the holders thereof to purchase from the Corporation any shares of any class or classes or any other securities of the Corporation for such consideration and to such persons, firms or corporations as the Board of Directors, in its sole discretion, may determine, setting aside from the authorized but unissued stock of the Corporation the requisite number of shares for issuance upon the exercise of such warrants. rights or options. Such warrants. rights or options shall be evidenced by such instrument or instruments as shall be approved by the Board of Directors. The terms upon which, the time or times (which may be limited or unlimited in duration) at or within which, and the price or prices at which any such shares or other securities may be purchased from the Corporation upon the exercise of any such warrant, right or option shall be such as shall be fixed and stated in a resolution or resolutions of the Board of Directors providing for the creation and issue of such warrants, rights or options. 7. LIMITATIONS OF OWNERSHIP BY NON-CITIZENS. 7.01 Definitions. (a) "Act" shall mean the Federal Aviation Act of 1958, as amended (Title 49 United States Code) or as the same may be from time to time amended. (b) "Beneficial Ownership," "Beneficially Owned" or "Owned Beneficially' refers to beneficial ownership as defined in Rule 13d-3 (without regard to the 60-day provision in paragraph (d)(l)(i) thereof under the Securities Exchange Act of 1934, as amended. (c) "Foreign Stock Record" shall have the meaning set forth Section 7.03. (d) "Non-Citizen" shall mean any person or entity who is not a "Citizen of the United States" as defined in Section 101 of the Act, including any agent, trustee or representative of a Non-Citizen. (e) "Own or Control" or "Owned or Controlled" shall mean (i) ownership of record, (ii) beneficial ownership or (iii) the power to direct, by agreement, agency or in any other manner, the voting of Stock. Any determination by the Board of Directors as to whether Stock is Owned or Controlled by a Non-Citizen shall be final. (f) "Permitted Percentage" shall mean twenty five percent (25%) of the voting power of the Stock. (g) "Stock" shall mean the outstanding capital stock of the corporation entitled to vote; provided, however, that for the purpose of determining the voting power of Stock that shall at any time constitute the Permitted Percentage, the voting Power of Stock outstanding shall not be adjusted downward solely because shares of Stock may not be entitled to vote by reason of any provision of this Article 7. 8 11 7.02. It is the policy of the Corporation that, consistent with the requirements of Section 101 of the Act, Non-Citizens shall not Own or Control more than the Permitted Percentage and, if Non-Citizens nonetheless at any time Own or Control more than the Permitted Percentage, the voting rights of the Stock in excess of the Permitted Percentage shall be automatically suspended in accordance with Sections 7.03 and 7.04 below. 7.03 Foreign Stock Record. The Corporation or any transfer agent designated by it shall maintain a separate stock record (the "Foreign Stock Record") in which shall be registered Stock known to the corporation to be Owned or Controlled by Non-Citizens. The Foreign Stock Record shall include (i) the name and nationality of each such Non-Citizen, (ii) the number of shares of Stock Owned or controlled by such Non-Citizen and (iii) the date of registration of such shares in the Foreign Stock Record. In no event shall shares in excess of the Permitted Percentage be entered on the Foreign Stock Record. In the event that the Corporation shall determine that stock registered on the Foreign Stock Record exceeds the Permitted Percentage, sufficient shares shall be removed from the Foreign Stock Record so that the number of shares entered therein does not exceed the Permitted Percentage. Stock shall be removed from the Foreign Stock Record in reverse chronological order based upon the date of registration therein. 7.04 Suspension of Voting Rights. If at any time the number of shares of Stock known to the Corporation to be Owned or Controlled by Non-Citizens exceeds the Permitted Percentage, the voting rights of Stock Owned or Controlled by Non-Citizens and not registered on the Foreign Stock Record at the time of any vote or action of the stockholders of the Corporation shall, without further action by the Corporation, be suspended. Such suspension of voting rights shall automatically terminate upon the earlier of the (i) transfer of such shares to a person or entity who is not a Non-Citizen, or (ii) registration of such shares on the Foreign Stock Record, subject to the final sentence of Section 7.03. 7.05 Beneficial Ownership Inquiry. (a) The Corporation may by notice in writing (which may be included in the form of proxy or ballot distributed to stockholders in connection with the annual meeting or any special meeting of the stockholders of the Corporation, or otherwise) require a person that is a holder of record of Stock or that the Corporation knows to have, or has reasonable cause to believe has; Beneficial Ownership of Stock to certify in such manner as the Corporation shall deem appropriate (including by way of execution of any form of proxy or ballot of such person) that, to the knowledge of such person: (i) all Stock as to which such person has record ownership or Beneficial Ownership is owned and controlled only by Citizens of the United States; or (ii) the number and class or series of Stock owned of record or Beneficially Owned by such person that is owned or controlled by Non-Citizens is as set forth in such certificate. (b) With respect to any Stock identified in response to clause (a)(ii) above, the Corporation may require such person to provide such further information as the Corporation may reasonably require in order to implement the provisions of this Article 7. (c) For purposes of applying the provisions of this Article 7 with respect to any Stock, in the event of the failure of any person to provide the certificate or other information to which the Corporation is entitled pursuant to this Section 7.05, the Corporation shall presume that the Stock in question in owned or controlled by Non-Citizens. 8.0 MISCELLANEOUS. 8.01 Place and Inspection of Books. (a) The books of the Corporation other than such books as are required by law to be kept within the State of Delaware shall be kept in the State of Arizona or at such place or places either within or without the State of Delaware as the Board of Directors may from time to time determine. (b) At least ten (10) days before each meeting of stockholders, the officer in charge of the stock ledger of the Corporation shall prepare a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or. if not specified, at the place ',~#ere the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (c) The Board of Directors shall determine from time to time whether and, allocated, when and under what conditions and regulations the accounts and books of the Corporation (except such as ma>' be by law specifically open to inspection or as otherwise provided b>' these Restated Bylaws) or any of them shall be open to the inspection of the stockholders and the stockholders' rights in respect thereof. 8.02 Indemnification of Directors. Officer, Employees and Agents. (a) The Corporation shall indemnify any person who was or is a company or is threatened to be 9 12 made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid or owed in settlement actually and reasonably paid or incurred by him or her or rendered or levied against him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner lie or she reasonably believed to be in or not opposed to the best interests of the Corporation; and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, in itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership; joint venture, trust, employee benefit plan or other enterprise, against expenses, including attorneys' fees, actually and reasonably paid or incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; provided however, that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. (c) The Corporation shall, at the discretion of the Board of Directors, indemnify all employees and agents of the Corporation (other than Directors and officers) to the extent that Directors and officers shall be indemnified pursuant to subsections (a) and (b). (d) To the extent that a person who may be entitled to indemnification by the Corporation under this section is or has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses, including attorney's fees, actually and reasonably paid or incurred by him or her in connection therewith. (e) Any indemnification under subsections (a), (b), or (c) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsection (a) or (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, (ii) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, (iii) by [the stockholders, or (iv) in any case in which applicable law makes court approval a prerequisite to indemnification, by the court in which such action, suit or proceeding was brought or another court of competent jurisdiction. (f) Expenses, including attorneys' fees, incurred by an officer or Director in defending a civil, criminal, administrative, or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this section. Such expenses, including attorneys' fees, incurred by other employees and agents shall be so paid upon terms and conditions, if an', as the Board of Directors deems appropriate. (g) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of the stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (h) The provisions of this section shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the estate, executors, administrators, spouse: heirs, legatees or devisees of a person entitled to indemnification hereunder and the term "person'," there used in the section shall include the estate, executors, administrators, spouse. heirs, legatees or devisees of such person. 10 13 (i) For the purposes of this Section 8.02, (i) "employee benefit plan" and "fiduciary" shall be deemed to include, but not be limited to, the meanings set forth, respectively, in Sections 3(3) and 21(A) of the Employee Retirement Income Security Act of 1974, as amended, and references to the judgments, fines and amounts paid or owed in settlement or rendered or levied shall be deemed to encompass and include excise taxes required to be paid pursuant to a applicable law in respect of any transaction involving an employee benefit plan, (ii) references to the Corporation shall be deemed to include any predecessor corporation and any constituent corporation absorbed in a merger, consolidation or other reorganization of or by the Corporation which, if its separate existence had continued, would have had power and authority to Indemnify its directors, officers, employees, agents or fiduciaries so that any person who was a director, officer, employee, agent or fiduciary of such predecessor or constituent corporation, or served at the request of such predecessor or constituent corporation as a director, officer", employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Section 8.02 with respect to the Corporation as such person would have with respect to such predecessor or constituent corporation if its separate existence had continued, and (iii) all other terms shall be deemed to have the meanings for such terms as set forth in Section 145 of the DGCL. 8.03 Dividends. (a) Dividends may be declared at the discretion of the Board of Directors at any meeting thereof. (b) Dividends may be paid to stockholders in cash or, when the Directors shall so determine, in stock. A Director shall be fully protected in relying in good faith upon the books of account of the Corporation or statements prepared by any of its officers as to the value and amount of the assets: liabilities or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared. (c) Before payment of any dividend or any distribution of profits, there may be set aside out of the said surplus of the Corporation such sum or sums as the Board of Directors from time to time, in its discretion think's proper as a reserve fund to meet contingencies, or for equalizing dividends, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation and the Board of Directors may abolish any such reserve in the manner in which it was created. 8.04 Execution of Deeds, Contracts and Other Agreements and Instruments. Subject to the specific directions of the Board of Directors, all deeds, mortgages and bonds entered into by the Corporation all other written contracts and agreements to which the Corporation shall be a party shall be executed in its name by the Chairman of the Board, the President, or a Vice President, or such other person or persons as may be authorized by any such officer. 8.05 Checks. All checks, drafts, acceptances, notes and other orders, demands or instruments in respect to the payment of money may be signed or endorsed on behalf of the Corporation by such officer or officers or by such agent or agents as the Board of Directors may from time to time designate. 8.06 Voting Shares in Other Corporations. The Chairman of the Board of the Corporation (or any other Director designated by a majority of the Board of Directors) may vote any and all shares held by the Corporation in any other corporation. 8.07 Fiscal Year. The fiscal year of tie Corporation shall correspond with the calendar year. 8.08 Gender/Number. As used in these Restated Bylaws, the masculine, feminine or neuter gender, and the singular or plural number, shall each include the others whenever the context so indicates. 8.09 Paragraph Titles. The titles of the paragraphs have been inserted as a matter of reference only and shall not control or affect the meaning or construction of any of the terms and provisions hereof. 8.10 Amendment. These Restated Bylaws may be altered, amended or repealed by the affirmative vote of the holders of a majority of the voting power of the stock issued and outstanding and entitled to vote at any meeting of stockholders or by resolution adopted by the affirmative vote of not less than a majority of the Directors in office at any annual or regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice if the proposed alteration, amendment or repeal be contained in the notice of such special meeting. 8.11 Restated Certificate of Incorporation. Notwithstanding anything to the contrary contained herein, if any provision contained in these Restated Bylaws is inconsistent with or conflicts with a provision of the Restated Certificate of the Corporation, such provision of these Restated Bylaws shall be superseded by the inconsistent provision in the Restated Certificate of Incorporation to the extent necessary to give effect to such provision in the Restated Certificate of Incorporation. 11 14 AMERICA WEST AIRLINES, INC. Certificate as to Bylaws I, Martin J. Whalen, do hereby certify that (i) I am the duly elected and qualified Secretary of America West Airlines, Inc., a Delaware corporation (the "Company"), (ii) I have access to the Company's corporate books and records and am familiar with the matters therein contained and herein certified, (iii) I am authorized to execute and deliver this certificate in the name and on behalf of the Company and (iv) attached hereto as Exhibit "A" is a true, correct and complete copy of the Bylaws of the Company as in effect on the date hereof. WITNESS my signature this 25th day of August, 1994. /s/ ------------------------------ Martin J. Whalen, Secretary State of Delaware Office of the Secretary of State I. EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "AMERICA WEST AIRLINES, INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF AUGUST, A.D. 1993, AT 3:30 O'CLOCK P.M. /s/ ---------------------------------- Edward J. Freel, Secretary of State EX-10.39 3 EXHIBIT 10.39 1 EXHIBIT 10.39 V2500(R) SUPPORT CONTRACT BETWEEN IAE INTERNATIONAL AERO ENGINES AG AND AMERICA WEST AIRLINES, INC. 2 INDEX Commencement Recitals CLAUSE 1 DEFINITIONS CLAUSE 2 SALE OF PURCHASED ITEMS 2.1 Intent 2.2 Agreement to Place Orders 2.3 Type Approval and Changes in Specification 2.4 Inspection and Acceptance 2.5 Delivery, Shipping, Title and Risk of Loss or Damage 2.6 Price 2.7 Payment CLAUSE 3 SPARE PARTS PROVISIONS 3.1 Intent and Term 3.2 ATA Standards 3.3 Initial Provisioning 3.4 Change in Initial Provisioning Data 3.5 Discontinuance of Initial Provisioning Data - Use of Procurement Data 3.6 Stocking of Spare Parts 3.7 Lead Times 3.8 Ordering Procedure 3.9 Modifications to Spare Parts 3.10 Inspection 3.11 Delivery and Packing 3.12 Prices 3.13 Payment 3.14 Resale of Surplus Spare Parts 3.15 Purchase by AWA from Others 3.16 Special Tools, Ground Equipment and Consumable Stores 3.17 Conflict CLAUSE 4 WARRANTIES, GUARANTEES AND LIABILITIES CLAUSE 5 PRODUCT SUPPORT CLAUSE 6 MISCELLANEOUS 6.1 Delay in Delivery 6.2 Patents 6.3 Credit Reimbursement 6.4 Non-Disclosure and Non-Use 6.5 Taxes 6.6 Amendment 6.7 Assignment 6.8 Exhibits 6.9 Headings 6.10 Law 6.11 Notices 6.12 Exclusion of Other Provisions and Previous Understandings 6.13 Term of Contract 6.14 Costs and Fees EXHIBIT A CONTRACT SPECIFICATION EXHIBIT B PURCHASED ITEMS, PRICE, ESCALATION FORMULA, AND DELIVERY SCHEDULE EXHIBIT C PRODUCT SUPPORT EXHIBIT D WARRANTIES, GUARANTEES AND PLANS D-1 ENGINE AND PARTS SERVICE POLICY D-2 NACELLE SERVICE POLICY D-3 NON-INSTALLATION ITEMS WARRANTY D-4 PARTS COSTS GUARANTEE D-5 RELIABILITY GUARANTEE D-6 INFLIGHT SHUTDOWN GUARANTEE D-7 FUEL CONSUMPTION RETENTION GUARANTEE D-8 EXHAUST GAS TEMPERATURE GUARANTEE
3 THIS CONTRACT is made this 23d day of December, 1994 BETWEEN IAE INTERNATIONAL AERO a joint stock company organized and ENGINES AG existing under the laws of Switzerland, whose registered office is at Stampfenbachstrasse 73, 8035 Zurich, Switzerland (hereinafter called "IAE") and AMERICA WEST AIRLINES, INC. a corporation organized and existing under the laws of United States of America whose registered office is at 4000 East Sky Harbour Boulevard, Sky Harbour International Airport, Phoenix, Arizona 85034, U.S.A. (hereinafter called "AWA") WHEREAS: A. AWA has firmly committed to purchase from AVSA S.A.R.L. twenty-four (24) new A320-200 aircraft to be powered by IAE V2527-A5 engines; and B. IAE is prepared to supply to AWA V2527-A5 spare engines, modules, spare parts, special tools, ground equipment, product support services and consumable stores for the support and operation of the V2500 Propulsion Systems; NOW THEREFORE IT IS AGREED AS FOLLOWS: CLAUSE 1 DEFINITIONS In this Contract, unless the context otherwise requires: 1.1 "Aircraft" means the new A320-200 aircraft powered by new Engines and being acquired by AWA from AVSA for delivery as follows:
1998 1999 2000 January 1 1 1 February 1 1 1 March 1 1 1 May 1 1 1 July 1 1 1 September 1 1 1 October 1 1 1 November 1 1 1 ---------------------------------------------------------- TOTALS FOR YEAR 8 8 8
1.2 "AVSA" means AVSA S.A.R.L., a societe a responsibilite 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. 1.3 "Basic Contract Price" means the basic price of each item of the Purchased Items as specified in Exhibit B to this Contract. 1.4 "Engine(s)" means the IAE V2527-A5 aero engine described in the Specification. 1.5 "Initial Provisioning" means the establishment by AWA of an initial stock of Spare Parts. 1.6 "Initial Provisioning Data" means information supplied by IAE to AWA for Initial Provisioning purposes. 1.7 "Initial Provisioning Orders" means orders for Spare Parts for Initial Provisioning purposes. 1.8 "Installation Items" means Engines, modules, accessories, exhaust systems, nacelles and all ancillary equipment therefor described in the Specification which are being supplied pursuant to this Contract for installation in the Aircraft. 1.9 "Lead Time" means the period between acceptance by IAE of an order of AWA and commencement of delivery. 1.10 "Non-Installation Items" means jigs, tools, handling and transportation equipment and all equipment whatsoever to be supplied pursuant to this Contract for use with the Installation Items and not for installation in the Aircraft. 1.11 "Other Supplies" means special tools, ground equipment and consumable stores (e.g. oils, greases, dyes and penetrants). 1.12 "Procurement Data" means information supplied by IAE to AWA about Spare Parts required to replenish the said initial stock. 1.13 "Purchased Items" means those Installation Items and Non-Installation Items specified in Exhibit B to this Contract. 1.14 "Service Bulletins" means those service bulletins containing advice and instructions issued by IAE to AWA from time to time in respect of Engines. 1.15 "Spare Parts" means spare parts for Engines excluding the items listed in the Specification as being items of supply by AWA. 1.16 "Specification" means the IAE Contract Specification No. IAE S27A5 which forms Exhibit A to this Contract. 1.17 "Supplies" means Installation Items, Non-Installation Items, Spare Parts and any other goods or services supplied pursuant to this Contract. 1.18 "Vendor Parts" means Spare Parts described in Initial Provisioning Data or Procurement Data which are not manufactured pursuant to the detailed design and order of IAE. 4 CLAUSE 2 SALE OF PURCHASED ITEMS 2.1 Intent Subject to the provisions of this Contract, IAE agrees to sell to AWA and AWA agrees to buy from IAE, the Purchased Items. 2.2 Agreement to Place Orders 2.2.1 AWA confirms that it has entered into a firm and binding agreement with the AVSA for the purchase of at least twenty-four (24) firm, new Aircraft powered by new V2527-A5 Engines for delivery as set forth in Clause 1.1 above. 2.2.2 AWA hereby enters into a firm and binding agreement with IAE for the purchase of six (6) new V2527-A5 Spare Engines for delivery as set forth in Exhibit B to the Contract. 2.3 Type Approval and Changes in Specification 2.3.1 IAE will manufacture the Purchased Items to the Specification. After the date of this Contract the Purchased Items may be varied from time to time by Change Orders in writing which shall set forth in detail: 2.3.1.1 The changes to be made in the Purchased Items and 2.3.1.2 The effect (if any) of such changes on the Specification (including but not limited to performance and weight), on interchangeability of the Purchased Items in the airframe, on prices and on dates of delivery of the Purchased Items. Change Orders shall not be binding on either party until signed by IAE and AWA but upon being so signed shall constitute amendments to this Contract. 2.3.2 IAE may make any changes in the Purchased Items which do not adversely affect the Specification (including but not limited to performance and weight), interchangeability of the Purchased Items in the airframe, prices or dates of delivery of the Purchased Items. In the case of such permitted changes, a Change Order shall not be required. Provided it will not create any undue burden, IAE will provide reasonable notification of all such changes to AWA prior to delivery. 2.3.3 At the time of delivery of the Purchased Items there is to be in existence a Type Approval Certificate in accordance with the provisions of the Specification. 2.3.4 The Specification has, however, been drawn with a view to the requirements of the Certification Authority referred to in the Specification and the official interpretations of such requirements in existence at the date of this Contract (such requirements and interpretations being hereinafter referred to as "Current Rules"). Subject to Clause 2.3.2 above IAE and AWA agree that they will execute an approparite Change Order in respect of any change required to the Purchased Items to enable such Purchased Items to conform to the requirements of the Certification Authority and the official interpretations of such requirements in force at the date of delivery of such Purchased Items. 2.3.5 The price of any Change Order is to be borne: 2.3.5.1 in the case of changes required to conform to the Current Rules - by IAE; and 2.3.5.2 in any other case - by AWA. 2.4 Inspection and Acceptance 2.4.1 Conformance to the Specification of Purchased Items which are Installation Items will be assured by IAE through the maintenance of procedures, systems and records approved by the Engine Certification Authority. Conformance documentation will be issued and signed by personnel authorized for such purposes. 2.4.2 Conformance to the Specification of Purchased Items which are Non-Installation Items will be assured by IAE conformance documentation. 2.4.3 Upon issue of conformance documentation pursuant to Clause 2.4.1 or Clause 2.4.2 above, AWA shall be deemed to have accepted the Purchased Items and that the Purchased Items conform to the Specification. IAE shall, subject to the permission of the appropriate governmental authorities, arrange for AWA to have reasonable access to the appropriate premises in order to examine the Purchased Items prior to the issue of conformance documentation and to witness Engine acceptance tests. 2.4.4 If AWA refuses or hinders delivery, or if IAE at AWA's written request agrees to delay delivery, of any of the Purchased Items, AWA shall nevertheless pay or cause IAE to be paid therefor as if, for the purposes of payment only, the Purchased Items had been delivered. Upon receipt of full payment by IAE, and at the request of AWA, IAE shall provide to AWA evidence of good title for such Purchased Items at which time risk of loss shall pass to AWA. 2.4.5 In any of the cases specified in Clause 2.4.4 above, AWA shall also pay to IAE such reasonable sum as IAE shall require in respect of storage, maintenance and insurance of those Purchased Items. 2.5 Delivery, Shipping, Title and Risk of Loss or Damage 2.5.1 IAE will deliver the Purchased Items, at its option, either ex-works Connecticut, U.S.A., or to such other state within the U.S.A. as the parties will determine by agreement, in accordance with the delivery schedule set out in Exhibit B to this Contract. 5 2.5.2 Upon such delivery, title to and risk of loss of or damage to the Purchased Items shall pass to AWA. 2.5.3 AWA will notify IAE at least four (4) weeks before the time for delivery of the Purchased Items of its instructions as to the marking and shipping of the Purchased Items. 2.6 Price The Purchase Price for each of the Purchased Items shall be the Basic Contract Price, amended pursuant to Clause 2.3 above, and escalated in accordance with the escalation formula contained in Exhibit B to this Contract. 2.7 Payment 2.7.1 AWA will make payment in United States Dollars as follows: 2.7.1.1 Upon signature of this Contract, AWA shall pay to IAE a deposit of ten percent (10%) of the Estimated Purchase Price of the Purchased Items. 2.7.1.2 Eighteen (18) months before the scheduled delivery of each of the Purchased Items, AWA shall pay to IAE a further deposit of ten percent (10%) of the Estimated Purchase Price of such item. 2.7.1.3 Twelve (12) months before the scheduled delivery of each of the Purchased Items, AWA shall pay to IAE a further deposit of ten percent (10%) of the Estimated Purchase Price of such item. 2.7.1.4 On delivery of each of the Purchased Items, AWA shall pay to IAE the balance of the Purchase Price of such item. 2.7.2 IAE shall have the right to require AWA to make additional deposits in respect of price changes arising from the provisions of Clause 2.3 above on a similar basis to that specified in Clause 2.7.1 above. 2.7.3 AWA undertakes that IAE shall receive the full amount of payments falling due under this Clause 2.7, without any withholding or deduction whatsoever. 2.7.4 All payments under this Clause 2.7 shall be made by cable or telegraphic transfer and shall be deposited not later than the due date of payment with the following bank for the account of IAE: National Westminster Bank plc New York Branch 175 Water Street New York, NY 10038 Account No. 00078700 ABA No. 026002749 2.7.5 For the purpose of this Clause 2.7 "payment" shall only be deemed to have been made to the extent cleared or good value funds are received in the numbered IAE bank account specified in sub-clause 2.7.4 above. 2.7.6 For the purpose of this Clause 2.7, the "Estimated Purchase Price" of any of the Purchased Items shall be calculated in accordance with the following formula: P = Bx(1.06) (N) where: P is the Estimated Purchase Price B is the applicable Basic Contract Price N is the year of scheduled delivery minus the year for which the Basic Contract Price is defined. CLAUSE 3 SPARE PARTS PROVISIONS 3.1 Intent and Term 3.1.1 For as long as AWA owns and operates one or more Aircraft in regular commercial service, IAE shall provide that adequate supplies of Spare Parts are available for sale to AWA under this Contract. In consideration thereof, IAE shall sell to AWA and, except as hereinafater provided, AWA shall buy from IAE AWA requirements of the following Spare Parts. 3.1.1.1 All Spare Parts manufactured pursuant to the detailed design and order of IAE where IAE is the only source from which AWA can purchase such Spare Parts in an unused condition and in quantities sufficient to meet AWA's requirements; and 3.1.1.2 Vendor Parts for which direct supply arrangements between the manufacturers of such Vendor Parts and AWA cannot be established. Except for the purposes of Initial Provisioning pursuant to Clause 3.3 below, AWA shall notify IAE in writing not less than twelve (12) months before scheduled delivery that AWA intends to purchase such Vendor Parts from IAE. 3.1.2 In an emergency, IAE shall sell to AWA Vendor Parts which it is not obliged to sell under this Contract, but which it has in stock or otherwise has reasonably available to it. 3.2 ATA Standards 6 The parties to this Contract shall comply with the requirements of ATA Specifications 200 and 300, provided that any of the parties shall be entitled to negotiate reasonable changes in those procedures or requirements of the said specifications which, if complied with exactly, would result in an undue operating burden or unnecessary economic penalty. 3.3 Initial Provisioning 3.3.1 To assist AWA's Initial Provisioning, IAE shall supply AWA with Initial Provisioning Data in accordance with ATA Specification 200, subject to Clause 3.2 above. 3.3.2 Details of the format and precise nature of the said Initial Provisioning Data, including the applicable revision numbers of ATA Specification 200, definition of Spare Parts Categories, and Lead Times, and agreement on technical publications shall be agreed between IAE and AWA at a preliminary meeting held for this purpose at a time and place to be agreed. 3.3.3 The said Initial Provisioning Data shall cover all Spare Parts, including agreed Vendor Parts, which may be reasonably required for AWA's operation of the Installation Items. 3.3.4 Before AWA places Initial Provisioning Orders, a conference shall be held for the review of Initial Provisioning Data supplied by IAE under Clause 3.3.1 above. The said conference shall be held approximately eighteen (18) months before Aircraft delivery and shall be attended by the personnel of each party directly responsible for Initial Provisioning; provided, however, that with respect to the GPA Aircraft said conference will be held at a time which will allow the parties reasonable lead time prior to delivery. 3.4 Change In Initial Provisioning Data IAE shall, free of charge, progressively and promptly revise Initial Provisioning Data in accordance with ATA Specification 200 to take into account any changes which may materially affect provisioning decisions. 3.5 Discontinuance of Initial Provisioning Data - Use of Procurement Data 3.5.1 Use of Initial Provisioning Data shall be discontinued on a date to be agreed by the parties hereto, but in any event no later than the date of delivery of the last Aircraft firmly ordered by AWA at the date of this Contract. On or before the said date IAE shall furnish AWA with Procurement Data complying with ATA Specification 200 and shall revise the said Procurement Data as a matter of routine thereafter. 3.5.2 Procurement Data shall be used to enable AWA to continue to order Spare Parts to support the Installation Items. 3.6 Stocking of Spare Parts Upon request, AWA shall provide IAE with information reasonably required to enable IAE to organize the manufacture and stocking of Spare Parts efficiently. 3.7 Lead Times 3.7.1 Spare Parts for Initial Provisioning shall be delivered on or before the dates specified in AWA's orders, provided that the said dates comply with the terms of this Contract and do not call for delivery more than three (3) months before the scheduled date of delivery of the first Aircraft to AWA and provided further that delivery of the total Initial Provisioning quantity shall be effected against a schedule commensurate with AWA fleet build up and Aircraft utilization. 3.7.2 Save as herein provided, replenishment Spare Parts shall be delivered within the Lead Time specified in the IAE Spare Parts Catalog, except for certain major Spare Parts which shall be designated in Initial Provisioning Data and Procurement Data as being available at prices and lead times to be quoted upon request. 3.7.3 If any order for replenishment Spare Parts shall call for a quantity materially in excess of AWA's normal requirements, IAE shall use its best efforts to complete such order in accordance with Clause 3.7.1 above, provided however, that IAE shall have the right to notify AWA and IAE may request a special delivery schedule. If AWA confirms that the full quantity ordered is required, delivery of the order shall be effected at delivery dates specified by IAE and the Lead Times provided by this Clause shall not apply. 3.7.4 In an emergency, IAE shall endeavor to deliver Spare Parts, including certain major Spare Parts referred to in Clause 3.7.2 above, within the time limits specified by AWA. The action to be taken on such orders shall be advised as follows within the following time periods from IAE's receipt of such notice: 3.7.4.1 AOG orders - within 4 hours; 3.7.4.2 other emergency orders - within 24 hours; 3.7.4.3 orders for items of which AWA is out-of-stock - within 7 days. 3.8 Ordering Procedure 3.8.1 After receipt of Initial Provisioning Data, AWA shall place its Initial Provisioning Orders in sufficient time to allow IAE to commence delivery prior to delivery of the first Aircraft. AWA shall use its best efforts to give priority to ordering major items designated in the Initial Provisioning Data. 3.8.2 Subsequent orders for Spare Parts shall be placed by AWA from time to time as may be appropriate. AWA shall give IAE as much notice as possible of any change in its operation, including, but not limited to, changes in maintenance or overhaul arrangements affecting its requirements of Spare Parts, including Vendor Parts. 7 3.8.3 IAE shall promptly acknowledge receipt of each order for Spare Parts in accordance with ATA Specification 200 procedure. Unless qualified, such acknowledgement, subject to variation in accordance with Clause 3.7.3 above, shall constitute an acceptance of the order under the terms of this Contract. 3.8.4 Subject to Clause 3.72.2 below, IAE shall accept "control shipdates" as defined in ATA Specification 200 in orders for Spare Parts provided that such dates allow IAE its applicable Lead Times in making shipment and are not subject to cancellation by AWA at less than twelve (12) calendar months' notice. 3.8.5 If IAE notifies AWA that certain Spare Parts are packed in standard package quantities (hereinafter called "SPQ's") or that a minimum sales quantity (hereinafter called "MSQ") applies, AWA's subsequent orders for such Spare Parts shall be for SPQ's or multiples thereof with a minimum of one MSQ. 3.8.6 Unless AWA shall have specified "Total Quantity Required" on its orders, IAE shall be entitled to consider an order for inexpensive Spare Parts complete if at least ninety percent (90%) of the quantity ordered is delivered. For the purpose of this Clause the term "inexpensive" shall mean a price listed in the IAE Spare Parts Catalog at less than Ten U.S. Dollars ($10) per unit, but shall be subject to review by IAE from time to time. 3.8.7 Not later than the time of placing Initial Provisioning Orders, AWA shall provide IAE with full shipping instructions applicable to both Initial Provisioning Orders and to subsequent standard replenishment orders for Spare Parts to be placed by AWA. 3.9 Modifications to Spare Parts 3.9.1 IAE shall be entitled to make modifications or changes to the Spare Parts ordered by AWA hereunder. IAE shall promptly inform AWA by means of Initial Provisioning Data, Procurement Data and Service Bulletins when such modified Spare Parts (or Spare Parts introduced by a repair scheme) become available for supply hereunder. Notification of such availability shall be given to AWA before delivery. 3.9.2 Modified Spare Parts may be supplied unless the modifications stated in Service Bulletins, in the recommended or optional category, are considered by AWA to be unacceptable and AWA so states in writing to IAE within ninety (90) days of the transmittal date of a Service Bulletin, in which case AWA shall be entitled to place a single order for AWA's anticipated total requirement of pre-modified Spare Parts, at a price and delivery schedule to be agreed. 3.9.3 Unless AWA notifies IAE in writing under the provisions of Clause 3.9.2 hereof, IAE may supply at the expense of AWA a modification of any Spare Part ordered (including any additional Spare Part needed to ensure interchangeability), provided that the said modification has received the approval of the Certification Authority. The delivery of such Spare Parts shall begin on dates indicated by Service Bulletin. The delivery schedule shall be agreed at the time when orders for modifications are accepted by IAE. 3.9.4 If Spare Parts required for incorporation of a modification are not ordered as a kit, AWA's orders must distinguish them from normal replacement Spare Parts in accordance with ATA Specification 200. 3.10 Inspection 3.10.1 Conformance to the Specification of Installation Items will be assured by IAE through the maintenance of procedures, systems and records approved by the Certification Authority. Conformance documentation will be issued and signed by personnel authorized for such purpose. 3.10.2 Conformance of Non-Installation Items will be assured by IAE conformance documentation. 3.10.3 Upon the issue of conformance documentation in accordance with Clauses 3.10.1 or 3.10.2 above, AWA shall be deemed to have accepted the Installation Items and Non-Installation Items and that such Items conform to specification. 3.11 Delivery and Packing 3.11.1 IAE shall deliver Spare Parts and Other Supplies ex-works, the IAE point of manufacture. Shipping documents and invoices shall be in accordance with ATA Specification 200. 3.11.2 Upon such delivery, title to and risk of loss of or damage to the said Spare Parts and Other Supplies shall pass to AWA. 3.11.3 In accordance with ATA Specification 200 requirements, AWA shall advise IAE at time of order of its instructions as to the marking and shipping of the Spare Parts and Other Supplies. 3.11.4 The packaging of Spare Parts shall normally be in accordance with ATA Specification 300 Category 2 standard and shall be free of charge to AWA. Category 1 standard packaging if required by AWA shall be paid for by AWA. 3.12 Prices 3.12.1 Subject to Clause 3.7.2 above, prices of all Spare Parts shall be quoted in U.S. Dollars, in the IAE Spare Parts Price Catalog, Initial Provisioning Data and Procurement Data. Such prices shall represent net unit prices, ex-works the IAE point of manufacture. 3.12.2 Prices applicable to each order placed by AWA hereunder shall be the prices in effect on the date IAE receives such order, except when delivery of Spare Parts against any 8 order is scheduled to take place after the Lead Time stated in the IAE Spare Parts Price Catalog, in which event the prices for such items shall be those prices in effect ninety (90) days prior to the scheduled time for delivery in accordance with Clause 3.12.3 below. 3.12.3 IAE may from time to time adjust its prices for Spare Parts upon not less than ninety (90) days notice to AWA, except that prices for Spare Parts quoted in Initial Provisioning Data shall be firm, provided that: 3.12.3.1 Orders are placed within three (3) months of receipt by AWA of Initial Provisioning Data, and 3.12.3.2 Ordered quantities are agreed by IAE, and 3.12.3.3 Deliveries are scheduled to be made prior to the scheduled date for delivery of the first Aircraft as at the date of supply by IAE of Initial Provisioning Data. If for any reason orders are placed or subsequently rescheduled to specify delivery more than six (6) months after the date of first Aircraft delivery as scheduled at the date of supply by IAE of Initial Provisioning Data, then the prices for such items shall be those prices in effect ninety (90) days prior to the scheduled time for delivery of such items against a schedule commensurate with AWA fleet build up and Aircraft utilization. Notwithstanding the above, individual price errors in the calculation of prices may be adjusted without advance notice to AWA. 3.12.4 On request by AWA, prices of Spare Parts or other materials not included in the Spare Parts Price Catalog shall be quoted within a reasonable time by IAE. 3.13 Payment 3.13.1 Payment for all purchases under this Clause 3 shall be made by AWA to IAE within thirty (30) days after the date of delivery. 3.13.2 AWA undertakes that IAE shall receive payment in U.S. Dollars of the full amount of payments falling due under this Clause 3.13, without any withholding or deduction whatsoever. 3.13.3 All payments under this Clause 3.13 shall be made by cable or telegraphic transfer to, and shall be deposited not later than the due date of payment with: National Westminster Bank plc New York Branch 175 Water Street New York, NY 10038 Account No. 00078700 ABA No. 026002749 3.13.4 For the purpose of this Clause 3.13, payment shall only be deemed to have been made to the extent cleared or good value funds are received in the numbered IAE bank account specified in sub-clause 3.13.2 above. 3.14 Resale of Surplus Spare Parts 3.14.1 At any one time during the fifth year after delivery of AWA's first Aircraft, AWA shall have the right to sell to IAE any unused, serviceable and currently usable Spare Parts which were purchased hereunder in accordance with the recommendations of IAE contained in Initial Provisioning Data and which are surplus to AWA's reasonable future needs, provided that such surplus has not been created due to a change in or cessation of AWA's operation of the Aircraft on which IAE based its Initial Provisioning recommendations. 3.14.2 Spare Parts to be resold shall be identified on lists submitted by AWA to IAE at the time of resale and shall be delivered at AWA's cost to IAE, at the factory of the Manufacturer or other mutually agreed location. 3.14.3 Prices for Spare Parts resold to IAE under Clause 3.14.1 above shall be the unit net prices paid therefor by AWA. All payments made by IAE under this Clause 3.14 shall be by way of credit note to AWA's account at IAE. 3.14.4 IAE is prepared at any time to consider the repurchase of Spare Parts from AWA, if they are surplus to AWA's requirements. 3.15 Purchase by AWA from Others 3.15.1 AWA may purchase from another A320-200 operator Spare Parts, which by virtue of Clause 3.1 above are required to be purchased from IAE: 3.15.1.1 on an occasional basis; or 3.15.1.2 where the said operator has published details of excessive stock holdings of the Spare Parts concerned; or 3.15.1.3 pursuant to a pooling arrangement or joint use agreement between AWA and the said operator. 3.15.2 Subject to the conditions specified below, in the following circumstances AWA may obtain from established and approved sources, other than IAE or other A320-200 operators, Spare Parts which by virtue of Clause 3.1 above are required to be purchased from IAE: 3.15.2.1 as a temporary expedient in the event of a temporary but material failure by IAE to supply Spare Parts as required herein; or 9 3.15.2.2 during any period when IAE is hindered or prevented from delivering Spare Parts due to circumstances beyond its control provided AWA is thereby able to obtain the Spare Parts it requires sooner than IAE is able to supply them, and provided further that AWA will not unreasonably thereby increase its stock of the Spare Parts; or 3.15.2.3 where IAE identifies a Spare Part as a standard part. AWA's rights under sub-clause 3.15.2 above are subject to AWA being unable to satisfy its requirements for Spare Parts under the provisions of sub-clause 3.15.1 above. 3.15.3 Nothing in this Clause 3.15 shall be deemed to extend the obligations of IAE or to diminish the limitations upon such obligations under the Warranties referred to in sub-clauses 4.1 and 4.2 below. 3.15.4 Notwithstanding any extension of the time of delivery in accordance with the provisions of Clause 6.1.1 below, AWA shall be entitled to cancel all or part of any order on IAE for Spare Parts which, pursuant to the terms of Clauses 3.15.2.1 and 3.15.2.2 are purchased from another source by giving reasonable notice of cancellation of the said order. 3.15.5 In the event that AWA purchases Spare Parts under this Clause 3.15, AWA shall give written notice to IAE of the extent of such purchase supported by any other technical information which IAE may reasonably require. 3.16 Special Tools, Ground Equipment and Consumable Stores IAE shall sell Other Supplies to AWA subject to the terms and conditions of this Contract, but the detailed procedures of this Contract with regard to Initial Provisioning, Procurement Data, prices, stocking and Lead Time shall not apply. Technical data for special tools and ground equipment shall be in accordance with ATA Specification 101. 3.17 Conflict In the event of any conflict between the provisions of this Contract and the provisions of ATA Specifications 101, 200 and 300, the provisions of this Contract shall prevail. CLAUSE 4 WARRANTIES, GUARANTEES AND LIABILITIES 4.1 IAE warrants to AWA that at the time of delivery of the Supplies sold hereunder such Supplies will be free of defects in material and manufacture and will conform substantially to IAE's applicable specifications as stipulated in this Contract. IAE's liability and AWA's remedies under this warranty are limited to the repair or replacement, at IAE's election, of Supplies or parts thereof returned to IAE at the factory of the manufacturer which are shown to IAE's reasonable satisfaction to have been defective; provided, that written notice of the defect shall have been given by AWA to IAE within ninety (90) days after the first operation or use of the Supplies (or if the Supplies are installed in new Aircraft, within ninety (90) days after acceptance of such Aircraft by its first operator) but in no event later than one (1) year after the date of delivery of such Supplies by IAE. Transportation charges for the return of defective Supplies to IAE pursuant to this Clause 4.1 and their reshipment to AWA and the risk of loss thereof will be borne by IAE only if the Supplies are returned in accordance with written shipping instructions from IAE. 4.2 In addition, IAE grants and AWA accepts the following: 4.2.1 V2500 Engine and Parts Service Policy 4.2.2 V2500 Nacelle and Parts Service Policy 4.2.3 V2500 Non-Installation Items Warranty 4.2.4 Parts Cost Guarantee 4.2.5 Reliability Guarantee 4.2.6 Inflight Shutdown Guarantee 4.2.7 Fuel Consumption Rentention Guarantee 4.2.8 Exhaust Gas Temperature Guarantee The Service Policies, Warranties and Guarantees referred to in this Clause 4.2 are hereinafter called the "Warranties." The above Service Policies, Warranties and Guarantees together form Exhibit D to this Contract. 4.3 The parties agree that those of the Warranties set out in Clauses 4.2.1 and 4.2.2 above wherein AWA may be referred to as the "Operator" shall also apply to any equipment which falls within the categories of equipment referred to in the Warranties manufactured, supplied or inspected by IAE howsoever and whenever (whether before, on or after the date first above written) acquired by AWA from whatsoever source including but not limited to any V2500 aero engines and any associated equipment therefor, and any parts for such engines and associated equipment which form part of any aircraft acquired from the manufacturer. 4.4 The Warranties are personal to AWA and the obligations of IAE thereunder shall only apply insofar as AWA has ownership and possession of the Supplies covered thereunder. 4.5 AWA shall inform any person to whom it intends to sell, lease, loan or otherwise dispose of any of the Supplies or equipment referred to in Clause 4.3 above that such person may obtain from IAE a direct warranty agreement incorporating those of the Warranties set out in Clauses 4.2.1 and 4.2.2. AWA shall also use its reasonable endeavors to ensure that such person shall enter into a direct warranty agreement with IAE prior to delivery of any of the Supplies or such equipment to such person. 4.6 IAE and AWA agree that the intent of the Warranties provided in Clause 4.2 is to provide specified benefits or remedies to AWA as a result of specified events. It is not the intent 10 however to duplicate benefits or remedies provided to AWA by IAE or another source, e.g., another equipment manufacturer or lessor, as a result of the same event. Therefore, the terms of the Warranties notwithstanding, AWA agrees that it shall not be eligible to receive benefits or remedies from IAE if it stands to receive or has received benefits or remedies from IAE or another source as a result of the same event. 4.7 AWA accepts that the Warranties granted to AWA under Clauses 4.1, 4.2 and 4.3 above together with the express remedies provided to AWA in respect of the Supplies in accordance with this Contract are expressly in lieu of, and AWA hereby waives, all other remedies, conditions and warranties, expressed or implied including without limitation, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, and all other obligations and liabilities whatsoever of IAE and of its shareholders whether in contract or in tort or otherwise for any defect, deficiency, failure, malfunctioning or failure to function of any item of the Supplies or of the equipment referred to in Clause 4.3 above, howsoever and whenever acquired by AWA from whatever sources and AWA agrees that neither IAE nor any of its shareholders shall be liable to AWA upon any claim therefor or upon any claim howsoever arising out of the manufacture or supply or inspection by IAE of any item of the Supplies or of such equipment or any other item of whatever nature, whether in contract or in tort or otherwise, except as expressly provided in the said Warranties, and AWA assumes all risk and liability whatsoever not expressly assumed by IAE in the said Warranties. 4.8 IAE and AWA agree that this Clause 4 has been the subject of discussion and negotiation, is fully understood by the parties and the price of the Supplies and other mutual agreements of the parties set forth in this Contract are arrived at in consideration of: 4.8.1 the express Warranties of IAE and AWA's rights thereunder; and 4.8.2 the exclusions, waivers and limitations set forth in Clause 4.7 above. CLAUSE 5 PRODUCT SUPPORT SERVICES 5.1 IAE will make available to AWA the Product Support Services described in Exhibit C to this Contract. Except when identified in such Exhibit as requiring separate contractual arrangements, such Product Support Services shall be supplied at no additional charge to AWA and subject to the provisions of this Contract. IAE may delegate the performance of product support services to an affiliated company. CLAUSE 6 MISCELLANEOUS 6.1 Delay in Delivery 6.1.1 If IAE is hindered or prevented from delivering any of the Supplies within the time for delivery specified in this Contract (as such time may be extended pursuant to the provisions of this Contract) by reason of: 6.1.1.1 any cause beyond the reasonable control of IAE, or 6.1.1.2 fires, industrial disputes or introduction of essential modifications the time for delivery shall be extended by a period equal to the period for which delivery shall have been so hindered or prevented, and IAE shall not be under any liability whatsoever in respect of such delay. 6.1.2 If, by reason of any of the causes embraced by Clause 6.1.1 above, IAE is hindered or prevented from delivering any goods (which are the same as and include the Supplies) to purchasers (including AWA) then IAE shall have the right to allocate such goods, as they become available, at its own discretion among all such purchasers and IAE shall not be under any liability whatsoever to AWA for delay in delivery to AWA resulting from such allocation by IAE and the time for delivery shall be extended by a period equal to the delay resulting from such allocation by IAE. 6.1.3 Should IAE inexcusably delay delivery of any item of the Supplies beyond the time for delivery specified in this Contract (as such time may be extended pursuant to the provisions of this Contract), then in respect of the first two (2) months of such delay, IAE shall not be under any liability whatsoever and thereafter in respect of any further delay in delivery the damages recoverable by AWA from IAE as AWA's sole remedy shall not exceed 1/2% (one half percent) of the purchase price of the item of Supplies so delayed in respect of each month of such further delay (and prorata for any period of less than one (1) month) subject to an overall maximum of 3 1/2% (three and one half percent) of the purchase price of the item of the Supplies so delayed. 6.1.4 The right of AWA to claim damages shall be conditional upon the submission of a written claim therefor, within thirty (30) days from the date on which IAE notifies AWA that the item of the Supplies so delayed is ready for delivery, or from the date on which AWA exercises the right of cancellation in respect of such item conferred in accordance with Clause 6.1.5 below, whichever date shall first occur. 6.1.5 Should IAE delay delivery of any item of the Supplies beyond the time for delivery specified in this Contract (as such time may be extended pursuant to the provisions of this Contract) for a period of twelve (12) months then, in addition to the right of AWA under Clause 6.1.3, AWA shall be entitled to refuse to take delivery of such item on giving IAE notice in writing within one (1) month after the expiration of such period of twelve (12) months. Upon receipt of such notice IAE shall be free from any obligation in respect of such item except that IAE shall refund to AWA any deposits made in respect of the purchase price of such item of the Supplies. 11 6.2 Patents 6.2.1 IAE shall, subject to the conditions set out in this Clause and as the sole liability of IAE in respect of any claims for infringement of industrial property rights, indemnify AWA against any claim that the use of any of the Supplies by AWA within any country to which at the date of such claim the benefits of Article 27 of the Convention on International Civil Aviation of 7th December l944 (The Chicago Convention) apply, infringes any patent, design, or model duly granted or registered provided, however, that IAE shall not be liable to AWA for any consequential damage or any loss of use of the Supplies or of the Aircraft in which the Supplies may be incorporated arising as a result directly or indirectly of any such claim. 6.2.2 AWA will give immediate notice in writing to IAE of any such claim whereupon IAE shall have the right at its own expense to assume the defense of or to dispose of or to settle such claim in its sole discretion and AWA will give IAE all reasonable assistance and will not by any act or omission do anything which may directly or indirectly prejudice IAE in this connection. 6.2.3 IAE shall have the right to substitute for any allegedly infringing Supplies substantially equivalent non-infringing supplies. 6.2.4 The indemnity contained in Clause 6.2.1 above shall not apply to claims for infringement in respect of (i) Supplies manufactured to the specific design instructions of AWA; (ii) Supplies not of IAE design (but IAE shall in the event of any claim for infringement pass on to AWA so far as it has the right to do so the benefits of any indemnity given to IAE by the designer, manufacturer or supplier of such Supplies); (iii) the manner or method in which any of the Supplies is installed in the Aircraft; or (iv) any combination of any of the Supplies with any item or items other than Supplies. 6.3 Credit Reimbursement If AWA should not accept delivery of a total of at least twenty (20) Aircraft on order from AVSA (eight (8) of which Aircraft may be existing "puts" from GPA) the date of this Contract and the Purchased Items ordered in accordance with this Contract, including the firmly ordered new V2500 Spare Engines, then, without prejudice to IAE's other rights under this Contract, the value of any credits, hardware or other concessions received by AWA pursuant to this Contract (including any Side Letters and Amendments) will be adjusted to amounts to be determined in good faith by IAE. If at the time of such adjustment, the credits, hardware values or value of other concessions which have been received by AWA exceed the final adjusted amounts AWA will promptly reimburse IAE in an amount equal to such excess plus interest on the excess amounts calculated from the time each respective amount was applied or value received until reimbursement. Interest will be calculated at a rate equal to the New York Citibank prime rate in effect at the time each respective amount was applied or value was received plus two percent (2%) per annum. 6.4 Non-Disclosure and Non-Use 6.4.1 Subject to Clause 6.4.3 below, AWA agrees to hold in confidence any Information which it acquires directly or indirectly from IAE and agrees not to use the same other than for the purpose for which it was disclosed without the written approval of IAE. The expression "Information" in this Clause 6.4.1 includes but is not limited to all oral or written information, know-how, data, reports, drawings and specifications, and all provisions of this Contract. 6.4.2 AWA shall be responsible for the observance of the provisions of Clause 6.4.1 above by its employees. 6.4.3 The provisions of Clause 6.4.1 above shall not apply to information which is or becomes generally known in the aero engine industry nor shall the provisions of Clause 6.4.1 above prevent any necessary disclosure of information to enable AWA itself to operate, maintain or overhaul Supplies. 6.4.4 With respect to Supplies ordered by AWA for delivery to a destination outside the U.S.A., AWA shall be responsible for obtaining any required authorization including an Export License, Import License, Exchange Permit or any other governmental authorization required in connection with the transactions contemplated under this Contract. AWA shall restrict disclosure of all information and data furnished thereto under this Agreement and shall ship the direct product of such information and data to only those destinations permitted under such governmental authorization. 6.4.5 In the event that any of the "Information" as described in Clause 6.4.1 is required to be disclosed by AWA through a valid governmental, judicial or regulatory agency order, or as a result of compliance with any valid and enforceable law, AWA agrees to limit the disclosure to only those portions of the Information specifically required to be disclosed by such order, and to maintain the confidentiality of as much of the Information as legally possible. 6.5 Taxes 6.5.1 Subject to Clause 6.5.2 below, IAE shall pay all imposts, duties, fees, taxes and other like charges levied by the governments of the United Kingdom, the United States of America, the Federal Republic of Germany, Japan and Italy or any agency thereof in connection with the Supplies prior to their delivery. 12 6.5.2 All amounts stated to be payable by AWA pursuant to this Contract exclude any value added tax, sales tax or taxes on turnover. In the event that the supply of goods or services under this Contract is chargeable to any value added tax, sales tax or taxes on turnover, such tax will be borne by AWA. 6.5.3 AWA shall pay all other imposts, duties, fees, taxes and other like charges by whomsoever levied. 6.6 Amendment This Contract shall not be amended in any way other than by agreement in writing, entered into by the parties hereto after the date of this Contract, which is expressly stated to amend this Contract. 6.7 Assignment Neither party may assign any of its rights or obligations hereunder without the written consent of the other party (except that IAE may assign its rights to receive money hereunder). Any assignment made in violation of this Clause 6.7 shall be null and void. 6.8 Exhibits In the event of any conflict or discrepancy between the Exhibits (which are hereby expressly made a part of this Contract) and Clauses of this Contract then the Clauses shall prevail. 6.9 Headings The Clause headings and the Index do not form a part of this Contract and shall not govern or affect the interpretation of this Contract. 6.10 Law This Contract shall be subject to and interpreted and construed in accordance with the Laws of the State of New York, United States of America. 6.11 Notices Any notice to be served pursuant to this Contract is to be sent by fax, or certified mail, return receipt requested, or by telex to: In the case of IAE: IAE International Aero Engines AG 628 Hebron Avenue Glastonbury, Connecticut 06033-2595 U.S.A. Telex No. 443603l INTLAERO Fax No. (203) 659-1410 Attention: Business Director & Chief Legal Officer In the case of AWA: America West Airlines, Inc. 4000 East Sky Harbour Boulevard Sky Harbour International Airport Phoenix, Arizona 85034 U.S.A. Attention: Sr. V.P. Operations Telex No. 755089 Fax No. (602) 693-5811 or in each case to such other place of business as may be notified from time to time by the receiving party. 6.12 Exclusion of Other Provisions and Previous Understandings 6.12.1 This Contract contains the only provisions governing the sale and purchase of the Supplies and shall apply to the exclusion of any other provisions on or attached to or otherwise forming part of any order form of AWA, or any acknowledgement or acceptance by IAE, or of any other document which may be issued by either party relating to the sale and purchase of the Supplies. 6.12.2 The parties agree that neither of them have placed any reliance whatsoever on any representations, agreements, statements or understandings made prior to the signature of this Contract, whether orally or in writing, relating to the Supplies, other than those expressly incorporated in this Contract, which has been negotiated on the basis that its provisions represent their entire agreement relating to the Supplies and shall supersede all such representations, agreements, statements and understandings. 6.13 Term of Contract 6.13.1 This Contract shall be in force and effect from the date of execution hereof by both parties and remain in force and effect until the earlier of twenty (20) years from the date of execution hereof by both parties, or the date on which AWA no longer owns or operates any of the Aircraft, whichever occurs first. 13 6.13.2 So long as AWA operates V2500 powered Aircraft in regular commercial service, this Contract will be automatically renewed from year to year thereafter unless at least thirty (30) days prior to the end of the original period or of any subsequent yearly period, as the case may be, written notice is given to the contrary by either party to the other, except that (i) any orders placed hereunder prior to said notice of non-renewal shall continue to be subject to all terms and conditions hereof, and (ii) where the terms and conditions of this Contract have been incorporated by reference into another agreement, such terms and conditions shall remain in effect for, and for the full term of, such other agreement. IN WITNESS WHEREOF the parties hereto have caused this Contract to be signed on their behalf by the hands of their authorized officers the day and year first before written: For IAE International Aero Engines AG ____________________ In the presence of ____________________ For America West Airlines, Inc. ____________________ In the presence of ____________________ 14 EXHIBIT A CONTRACT SPECIFICATION V2500 TURBOFAN ENGINE MODEL SPECIFICATION FAA Commercial Type Certificate E40NE Model V2527 - A5 Spec. No. IAE S27A5 SEA LEVEL RATINGS (With Ideal Inlet and Exhaust Systems - See GENERAL NOTES) Net Thrust lb ------------- Takeoff Rating (Static) 24,800 Takeoff Rating (at 0.2 Mn) 22,020 Maximum Continuous Rating 22,240 DESCRIPTION Type - An axial flow, two spool, turbofan engine with fan and multistage compressors driven by multistage reaction turbines and designed for operation with fixed area mixed exhaust system. Installation Drawing No. 4W6199. The Engine Installation Drawing shows the Engine envelope and provides dimensions and data for the engine installation interfaces. FUEL AND OIL Fuel - Specification MIL-T-5624, MIL-T-83133 or ASTM-D-1655 Oil - Specification MIL-L-23699 Type II Oil Consumption, Maximum (As measured over a 10-Hour Period) 0.15 U.S. gal/hr STANDARD EQUIPMENT Included in Engine Price (Partial List Comprised of Major Items) FUEL SYSTEM AND CONTROL SYSTEM: LP/HP Fuel Pump, Fuel Filter Element, Fuel Temperature Sensor, Fuel Diverter/Back to Tank Valve, Fuel Distribution Valve, P2T2 Relay Box, Electronic Engine Control (EEC), Dedicated Generator, P4.9 Sensors and Manifold, Fuel Metering Unit, Fuel Supply Pipe, Fuel Nozzles. IGNITION SYSTEM: Ignition Exciter, Igniter Plug, Ignition Lead (2 each) (without power source). AIR SYSTEM: No. 4 Bearing Compartment Heat Exchanger, HP/LP Active Clearance Control Valve, Active Clearance Control Valve Actuator,LP Compressor Bleed Valve Master Actuator, LP Compressor Bleed Valve Slave Actuator, Variable Stator Vane Actuator, HP Compressor Bleed Valves, HP Compressor Bleed Valve Solenoids, HPT Cooling Valve and Solenoid. ENGINE INDICATING SYSTEM: Exhaust Gas Temperature (EGT) Thermocouples, EGT Harness and Junction Box, No. 4 Bearing Scavenge Pressure Transducer, Fuel Filter and Scavenge Differential Pressure Switches, Scavenge Oil Temperature Sensor, Oil Pressure Transmitter, Low Oil Pressure Switch, Vibration Transducers and Harness, Oil Quantity Transmitter, Magnetic Chip Detectors, Fuel Flowmeter. OIL SYSTEM: Oil Tank, Air Cooled Oil Cooler, Fuel Cooled Oil Cooler, Pressure Oil Filter Element, Air Cooled Oil Cooler Modulating Valve, Scavenge Oil Filter Housing Assembly and Element, No. 4 Bearing Compartment Scavenge Valve, Electrical Power Generator Fuel Cooled Oil Cooler. MISCELLANEOUS: EEC Harnesses - Fan and Core, Ignition Supply Harness, General Service Harness, Nose Spinner, Core Fuel Drains, Airframe Accessory Mounting Pads and Drives, Various Brackets on working flanges for attachment of Nacelle and Aircraft Equipment Electrical Power Generator Piping to Cooler, P2T2 Probe. ADDITIONAL EQUIPMENT Available at Increased Price Shipping Stand Engine Condition Monitoring Instrumentation Items of ADDITIONAL EQUIPMENT should be ordered at the time of Engine procurement in order to assure availability of this equipment at the time of Engine shipment. GENERAL NOTES The specified Sea Level Static Ratings are ideal and are based on U.S. Standard Atmosphere 1962 conditions, the specified fuel and oil, an ideal inlet pressure recovery, no fan or compressor air bleed or load on accessory drives, a mixed exhaust system having no internal pressure losses and with a mixed primary nozzle velocity coefficient equal to 1.0. Takeoff rating is the maximum thrust certified for takeoff operation. The specified takeoff thrust is available at and below ISA + 56oF (31oC) ambient temperature. Maximum Continuous Rating is the maximum thrust certified for continuous operation. The specified thrust is available at and below ISA + 18oF (10oC) ambient temperature. 15 Maximum Climb Rating is the maximum thrust approved for normal climb operation. Maximum Cruise Rating is the maximum thrust approved for normal cruise operation. Guaranteed Calibration Stand Performance values for specific engine applications are provided in Appendix A to this specification. Unless otherwise specified, engines will be supplied with the STANDARD EQUIPMENT listed. The Electrical Power Generator Fuel Cooled Oil Cooler and any drains, brackets and Electrical Power Generator piping, and other external hardware supplied with the Engine are certified by the FAA-NER to FAR Part 33 requirements. V2500 TURBOFAN ENGINE MODEL SPECIFICATION Appendix A FOR A COMPLETE PROPULSION SYSTEM INCLUDING ENGINE AND NACELLE TO BE INSTALLED IN THE AIRBUS INDUSTRIE A320 AIRPLANE GUARANTEED CALIBRATION STAND PERFORMANCE
Sea Level Static ---------------- Net Max. Specific. Thrust Fuel Consumption lb. lb/hr/lb Thrust ------ ----------------- Takeoff Rating 24,200 TBD Maximum Continuous Rating 21,750 TBD 90% of Maximum Continuous Rating 19,570 TBD
See GENERAL NOTES of the basic specification for rating definitions. The ratings specified in this Appendix are attainable on the test stand at U.S. Standard Atmosphere 1962 conditions, with the specified fuel and oil, the air inlet and exhaust system described below, and without fan or compressor air bleed for aircraft systems, or load on accessory drives. The air inlet and exhaust system are shown on Propulsion System Drawing No. 745-7000 and consist of the air inlet duct assembly, fan duct assembly, mixed nozzle assembly and other associated V2500 Nacelle System hardware as would be installed in the Airbus Industrie A320 airplane. The specified calibration stand performance represents installed performance and is based on fuel having a LHV of 18,400 Btu/lb. The maximum thrust specific fuel consumption values will be determined based on the production acceptance to inflight correlation established after the completion of airplane certification. The following items are included in establishing the specified performance guarantees: (a) Air inlet duct contours (b) Air inlet duct acoustic treatment (c) Fan duct and mixed nozzle contours (d) Fan reverser blocker doors and drag links (e) Fan duct and mixed nozzle acoustictreatment (f) Fan duct bleed openings except that the precooler bleed duct is shut off (g) Fan air leakage with the exhaust system conforming to that shown on the Engine Installation Drawing (h) Fan air bleed for component cooling and nacelle ventilation 16 EXHIBIT B PURCHASED ITEMS, PRICE, ESCALATION FORMULA, AND DELIVERY SCHEDULE 17 EXHIBIT B PURCHASED ITEMS, PRICE, ESCALATION FORMULA AND DELIVERY SCHEDULE Exhibit B
Purchased Basic Contract Price Delivery Item No.: U.S. Dollars (July 1988) Qty. Date --------------- ------------------------ ---- ------------ 1. V2500-A5 Spare Engine 4,210,000 1 January 1998 2. V2500-A5 Spare Engine 4.210,000 1 May 1998 3. V2500-A5 Spare Engine 4,210,000 1 October 1998 4. V2500-A5 Spare Engine 4.210,000 1 March 1999 5. V2500-A5 Spare Engine 4,210,000 1 January 2000 6. V2500-A5 Spare Engine 4,210,000 1 October 2000
ESCALATION FORMULA 1. Any Basic Contract Price or other Sum expressed to be subject to escalation from a Base Month to a month of delivery or other date of determination will be subject to adjustment in accordance with the following formula: P = Pb ( 0.60 L + 0.30 M + 0.10 E ) Lo Mo Eo Where: P = The Invoiced Purchase Price or Escalated Sum rounded to the nearest dollar. Pb = The Basic Contract Price or other Sum. Lo = The "Average Hourly Earnings of Aircraft Engine and Engine Parts Production Workers" SIC Code 3724 published by the Bureau of Labor Statistics in the U.S. Department of Labor for the month preceding the Base Month by four months. L = The "Average Hourly Earnings of Aircraft Engine and Engine Parts Production Workers" SIC Code 3724 for the month preceding the month of delivery or other date of determination by four months. Mo = The "Producer Price Index, Code 10, For Metals and Metal Products" published by the Bureau of Labor Statistics in the U.S. Department of Labor for the month preceding the Base Month by four months. M = The "Producer Price Index, Code 10, For Metals and Metal Products" for the month preceding the month of delivery or other date of determination by four months. Eo = The "Producer Price Index, Code 5, For Fuel and Related Products and Power" published by the Bureau of Labor Statistics in the U.S. Department of Labor for the month preceding the Base Month by four months. E = The "Producer Price Index, Code 5, For Fuel and Related Products and Power" for the month preceding the month of delivery or other date of determination by four months. 2. The values of the factors 0.60 L and 0.30 M and 0.10 E - - - L M E respectively, shall be determined to the nearest fourth decimal place. If the fifth decimal is five or more, the fourth decimal place shall be raised to the next higher number. 3. If the U.S. Department of Labor ceases to publish the above codes or modifies the basis of their calculation, then IAE may substitute any officially recognized and substantially equivalent statistics. 4. The Basic Contract prices contained in this Exhibit B are subject to escalation from a Base Month of July 1988 to the month of delivery using Lo, Mo and Eo values for March 1988. 5. If the application of the formula contained in this Exhibit B results in a Purchase Price which is lower than the Basic Contract Price, the Basic Contract Price will be deemed to be the Purchase Price for such Supplies. 18 EXHIBIT C PRODUCT SUPPORT 19 PRODUCT SUPPORT FOR THE V2500 ENGINE IAE INTERNATIONAL AERO ENGINES AG Issue No. 3 20 INDEX I. INTRODUCTION II. CUSTOMER SUPPORT - Customer Support Engineer - Field Services Representatives - Customer Training III. CUSTOMER SERVICES - Engine Warranty Services - Maintenance Center Support - Maintenance Facilities Planning Service - Tooling and Support Equipment Services - Product Support Technical Publications - Lease Engine Program Support IV. TECHNICAL SERVICES GROUP - Product Support Engineering - Powerplant Maintenance Engineering - Customer Performance Engineering - Diagnostic Systems Engineering - Human Engineering - Flight operations Engineering - Repair Services - Field Operations Data Analysis V. SPARE PARTS SUPPORT - Spare Parts Support VI. BUSINESS SUPPORT GROUP - Customer Maintenance Support - Engine Reliability and Economic Forecasts - Logistics Support Studies 21 I. INTRODUCTION International Aero Engines AG (IAE) will make the following support personnel and services available to the V2500 engine customer: Flight Operations Engineering, Customer Performance Engineering, Field Representatives, Customer Maintenance Support, Product Support Engineering, Powerplant Maintenance Engineering, Field Operations Data Analysis, Human Engineering, Repair Services, Warranty Administration, Maintenance Facilities Planning, Tooling and Support Equipment Services, Product Support Technical Publications, Customer Training, Spare Parts Support and Engine Overhaul and Repair Service Centers. To make these support services readily available to you, our customer, in the most efficient manner the Customer Support Group has been established and assigned primary responsibility within IAE for customer contact and communications. A Manager, Customer Support Engineer is assigned to maintain direct liaison with each individual Customer. A description of the various product support services available to each customer follows. IAE reserves the right to withdraw or modify the services described herein at any time at its sole discretion. No such withdrawal or modification shall diminish the level of services and support which the Customer may be entitled to receive with respect to V2500 engines for which an acceptable order has been placed with IAE or with respect to aircraft with installed V2500 engines for which a firm and unconditional order has been placed with the aircraft manufacturer, prior to the announcement of any such withdrawal or modification. II. CUSTOMER SUPPORT GROUP CUSTOMER SUPPORT MANAGER The Customer Support Manager provides a direct liaison between the airline customer's Engineering, Maintenance, Logistics and Financial organizations and the corresponding functions within IAE. The Customer Support Manager assigned to each airline is responsible for coordinating and monitoring the effort of the Product Support Department functional organization to achieve timely and responsive support for the airline. The Customer Support Manager provides the following specific services to the airline customer: - Technical recommendations and information. - Refurbishment, Modification and Conversion program planning assistance. - Coordination of customer repair, maintenance and logistics requirements with the appropriate Product Support functional groups. - Assist with preparation of all engine warranty/service policy claims as may be requested by AWA. The Customer Support Manager will represent the airline customer in IAE internal discussions to ensure that the best interests of the customer and IAE are considered when making recommendations to initiate a program, change or improvement in the V2500 engine. FIELD REPRESENTATIVES IAE Field Representatives provide the following services to the airline customer: - 24 Hour Support - Maintenance Action Recommendations - Daily Reporting on Engine Technical Problems - On-The-Job Training to include hands-on maintenance task as requested by AWA - Service Policy Preparation Assistance - Prompt Communication with IAE In addition to the two full time dedicated IAE Field Representatives already identified, IAE will work with AWA, once AWA outstation requirements are identified, to establish a Customer Support Plan to provide adequate introductory coverage for the V2500. ENGINE MAINTENANCE SUPPORT SERVICE Field Representatives assist airline customer personnel in the necessary preparation for engine operation and maintenance. The Representative, teamed with Customer Support Manager will work closely with the airplane manufacturer's field support team particularly during the initial period of aircraft operation. Field Representatives are in frequent contact with the IAE offices on technical matters. Information and guidance received from the home office is transmitted promptly to the airline which allows the airline to share in all related industry experience. The practice permits immediate use of the most effective procedures and avoidance of unsuccessful techniques. The IAE office contact ensures that IAE Field Representatives know, in detail, the latest and most effective engine maintenance procedures and equipment being used for maintenance and overhaul of V2500 engines. They offer technical information and recommendations to airlines personnel on all aspects of maintenance, repair, assembly, balancing, testing, and spare parts support of IAE. ON-THE-JOB TRAINING Field Representatives will conduct on-the-job training for the airline's maintenance personnel. This training continues until the maintenance personnel have achieved the necessary level of proficiency. Training of new maintenance personnel will be conducted on a continuing basis. SERVICE POLICY ADMINISTRATION Field Representatives will provide administrative and technical assistance in the application of the IAE Engine and Parts Service Policy to ensure expeditious and accurate processing of airline customer claims. CUSTOMER TRAINING IAE Customer Training offers airline customers the following support: - Technical Training at Purpose Built Facilities 22 - On-site Technical Training - Technical Training Consulting Service - Training Aids and Materials TRAINING PROGRAM The IAE Customer Training Center will have an experienced full-time training staff which conducts formal training programs for airline customers' maintenance, training and engineering personnel. The standard training programs are designed to prepare customer personnel, prior to the delivery of the first aircraft, to operate and maintain the installed engines. Standard courses in engine operation, line maintenance, heavy maintenance, performance and trouble-shooting are also available throughout the production life of the engine. The courses utilize the latest teaching technology, training aids and student handouts. Customer Training will coordinate the scheduling of specific courses as required. The following is the curriculum of standard courses for IAE. On-site technical training, technical training consulting services and customized courses may be provided upon customer request and subject to separate contractual arrangements. Maintenance and Provisioning Planner's Course This two day course is designed specifically for experienced gas turbine personnel who will be responsible for planning and provisioning for maintenance on the V2500 engine. Discussions are concentrated in the following subject areas: - Engine construction features internal and external hardware. - Engine systems operation, major components accessibility for removal/replacement. - Maintenance concepts, repair and replacement requirements and special tooling. The course is normally conducted in conjunction with two to three days of consultations with IAE Spare Parts personnel or Support Equipment Personnel to acquaint the customer with that Group's procedures and services including computerized services. Staff Orientation This course is designed to familiarize key staff, supervisory and operations planning personnel with engine construction features, fundamental systems operation, performance characteristics, operational procedures and general maintenance practices. Flight Crew Familiarization This course is designed to provide flight crew personnel with classroom familiarization training in the following subject areas: - Basic Engine Design Features - Engine Systems and Airframe Interface - Ground Operational Procedures - Malperformance Analysis Concepts V2500 General Familiarization This course is designed to provide training for customer maintenance planning, engineering and instructor personnel in the following subject areas: - Construction Features - Applied Performance - Engine Systems - Installed/Uninstalled Operation - Maintenance Concepts Note: This course contains no "hands-on" training. Engine Troubleshooting This course designed to develop the skills of V2500 experienced personnel in detecting, analyzing and correcting malfunctions in the V2500 engine systems and the engine/airframe interfaces. Classroom and shop training are provided in the following subject areas: - Troubleshooting Philosophy - Systems Review - Systems Troubleshooting - Systems/Component Isolation Procedures - Performance Parameter Analysis - Practical Application of Troubleshooting Procedures V2500 Familiarization and Non-flight Performance This course is designed specifically for power plant engineering, condition monitoring and instructor personnel. Performance characteristics are studied in-depth with consideration given to basic performance losses attributable to module deterioration. It does not include specific, in-depth, module performance analysis. Line Maintenance and Troubleshooting This course is designed for key line maintenance and troubleshooting personnel who have not received previous formal training on the V2500 engine. The classroom phases provide the student with the information essential for timely completion of line maintenance activities. The training focuses on the following subject areas: - Engine Description - Systems operation - Applied Performance - Ground Operations - Troubleshooting Procedures - Practical Phase Line Maintenance Tasks 23 V2500 Familiarization and Modular Maintenance Provides experienced heavy maintenance personnel with engine modular disassembly and assembly training. The training is concentrated in the following subject areas: - Engine Description Overview - Engine Systems Overview - Heavy Maintenance Tasks * * Course duration and "hands-on" coverage are contingent on the availability of an engine and required tooling. III. CUSTOMER SERVICES The Customer Services Group is dedicated to providing prompt and accurate assistance to you, our V2500 airline customer. The Customer Services Group provides the following categories of Assistance and Support to the V2500 airline customer: - Engine Warranty Services - Maintenance Center Support - Maintenance Facilities Planning Service - Tooling and Support Equipment Services - Product Support Technical Publications - Lease Engine Program Support ENGINE WARRANTY SERVICES Engine Warranty Services will provide the following support for the V2500 engine airline customer: - Prompt administration of claims concerning Engine Warranty, Service Policy, other support programs and Guarantee Plans. - Investigation of part condition and part failure. - Material provisioning administration for Controlled Service Use programs and other material support. PROMPT ADMINISTRATION Each airline customer is assigned a Warranty Analyst whose job is to provide individual attention and obtain prompt and effective settlements of Warranty and Service Policy claims. A typical claim properly submitted is generally settled, including issuance of applicable credit memo, within thirty days. Experience generated by much of the data derived from such claims often enables IAE to monitor trends in operating experience and to address and often eliminate potential problems. INVESTIGATION AND REPORTS Parts returned to IAE pursuant to the terms of the Service Policy are investigated in appropriate detail to analyze and evaluate part condition and cause of part failure. A report of findings is prepared and forwarded to the airline customer and to all IAE departments involved. In the case of vendor parts, the vendor is promptly informed. Reports often include recommendations to preclude repetition of the problem. CONTROLLED SERVICE USE PROGRAMS AND MATERIAL SUPPORT IAE shall assume responsibility for the planning, sourcing, scheduling and delivery of Controlled Service Use material, warranty replacement material, service campaign, material and program support material subject to the terms of special contracts with customers. Urgent customer shipments, both inbound and outbound, are monitored, traced, routed and expedited as required. The receipt and movement of customer owned material returned to IAE is carefully controlled, thus assuring an accurate accounting at all times. MAINTENANCE CENTER SUPPORT IAE will arrange for the establishment of Maintenance Centers which will be available to accomplish repairs, modifications and conversions, as well as the complete overhaul of the V2500 engine subject to IAE's standard terms and conditions for such work. Through the use of the IAE established Maintenance Centers and its capabilities, an operator can minimize or eliminate the need for investment in engine support areas depending on the level of maintenance he elects the Maintenance Center to perform. Savings in specific engine support areas, such as spare parts inventory, maintenance and test tooling, support equipment and test facilities, can be demonstrated. Use of the Maintenance Center can also minimize the need for off-wing maintenance and test personnel with their associated overhead. MAINTENANCE FACILITIES PLANNING SERVICE Maintenance Facilities Planning Service offers the following support to IAE customer: - General Maintenance Facility Planning Publications - Customized Facility Plans - Maintenance Facility and Test Cell Planning Consultation Services Maintenance Facilities Planning Service provides general and customized facility planning data and consultation services. Facility Planning Manuals for the V2500 engine will present the maintenance tasks, facility equipment and typical departments floor plans showing arrangement of equipment required to accomplish the tasks for all levels of maintenance. The Facility Equipment Manual is a catalogue of standard facility equipment such as lathes, process tanks, hoists, cranes, etc., which is suitable for use in the maintenance and testing of IAE engines. Customized facility planning services and consulting services are offered subject to separate contractual arrangements. Customized facility plans are developed to meet the requirements of customers' specific fleet sizes, activities and growth plans. The plans identify floor space, 24 facility equipment, utilities and manpower requirements. on-site surveys are conducted as a part of customized plan development to determine the adaptability of existing facilities and equipment for the desired maintenance program. These plans provide floor plan layouts to show recommended locations for work stations, major equipment, marshalling and storage areas, workflow patterns, and structural and utility requirements to accommodate all the engine models that are maintained in the customer's shop. The Maintenance Facilities Planning Service also provides consultant services which are specifically related to the development of engine test cells, and the adaptation of existing maintenance facilities to accommodate expanding production requirements and/or new or additional IAE models. TOOLING AND SUPPORT EQUIPMENT SERVICES The Tooling and Support Equipment Services Group assists the customer by providing the following services: - Support Equipment Manufacturing/Procurement Documentation - Engine Accessory Test Equipment and Engine Transportation Equipment Specifications - Support Equipment Logistics Planning Assistance SUPPORT EQUIPMENT DOCUMENTATION The tooling and Support Equipment Services Group designs the special support equipment required to disassemble, assemble, inspect, repair and test IAE engines. Special support equipment design drawings and Support Equipment Master Data Sheets, which describe how to use the support equipment, are supplied to customers in the form of 35mm aperture cards. Support equipment designs are kept current with engine growth, and tool Bulletins are issued to customers as part of continuing configuration management service. Updated Design and Master Data Sheets Aperture Cards and Tool Bulletins are periodically distributed to all IAE customers. ENGINE ACCESSORY TEST EQUIPMENT AND ENGINE TRANSPORTATION EQUIPMENT REQUIREMENTS Engine accessory test equipment and engine transportation equipment general requirements and specifications are defined and made available to IAE customers. If requested, the Tooling and Support Equipment Group will assist customers in the definition of engine accessory test and engine transportation equipment required for specific IAE needs. SUPPORT EQUIPMENT LOGISTICS PLANNING ASSISTANCE The Tooling and Support Equipment Group will provide, at the customer's request, special support equipment lists which reflect the customer's unique requirements such as mix of engine models and desired level of maintenance to aid in support equipment requirements planning. PRODUCT SUPPORT TECHNICAL PUBLICATIONS IAE and its subcontractors provide the required publications and maintenance information as described below to support the maintenance and modification requirements of the airline customer. The publications are prepared in general accordance with Air Transport Association of America (ATA) Specification No. 100 and will be available to the airline customer prior to the delivery of the first aircraft. Customization services and media options will be available for procurement at established prices. ON-WING MAINTENANCE DATA IAE supplies the airplane manufacturer with all the necessary information required to perform "On-Aircraft" engine maintenance, troubleshooting, and servicing. This information is developed through close coordination between the airplane manufacturer and IAE and is integrated by the airplane manufacturer into his maintenance publications. TECHNICAL PUBLICATIONS Listed and described below are the publications that will be provided to support the airline customer's maintenance program: Engine Manual The Engine Manual is a document which will be structured in accordance with ATA 100 section 2-13-0 with JEMTOSS applied in accordance with section 2-13-14. Potential customer applications will be applied. The manual will provide in one place the technical data requirements for information needed to maintain the engine and the maximum potential number of parts that could, regardless of design responsibility, remain with the engine when it is removed from the airplane. Additionally the manual shall include coverage of interrelated parts (e.g. thrust reverser, cowlings, mounts, etc.) that whilst they can stay with the airplane when the engine is removed can be removed for maintenance purpose in lieu of individual component maintenance manuals. Customized Engine Manuals can be prepared to incorporate customer originated material related to data or procedures originated by or peculiar to a specific IAE customer. Such customized Manuals are provided by separate contractual arrangements. Customer material authorized by the appropriate Airworthiness Authorities can be incorporated into customized Manuals and will be identified in the margin by the customer's initials. Standard Practices Manual The Standard Practices Manual supplements the Engine Manual by providing, in a single document, all IAE recommended or approved general procedures covering general torques, riveting, lockwiring, cleaning policy, inspection policy standard repairs, etc., and marking of parts. 25 Illustrated Parts Catalog The Illustrated Parts Catalog will be structured in accordance with ATA 2-14-0 and is a document which is used in conjunction with the Engine Manual for the identification and requisitioning of parts and assemblies. Its ATA structure is to be compatible with the Engine Manual Structure. Additionally the manual shall include coverage of interrelated parts (e.g. thrust reverser, cowlings, mounts, etc.) that whilst they can stay with the airplane when the engine is removed can be removed for maintenance purpose in lieu of individual component maintenance manuals. IAE Proprietary Component Maintenance Manuals These manuals will be structured in accordance with ATA 2-5-0 and will cover data for chapters other than 71, 72, and 78. Subcontractor Component Maintenance Manuals These manuals will be structured in accordance with ATA 2-5-0 and are prepared directly by the accessory manufacturers. All accessory data is subject to IAE prepublication review and approval. Engine and Accessory Component service Bulletins Each Engine and Accessory Component Service Bulletin will be produced in accordance with ATA 2-7-0. They will cover planning information, engine or component effectivity, reason for Bulletin, recommended compliance, manpower requirements, and tooling information relating to parts repair or modification. Subcontractor prepared Accessory Component Service Bulletins are reviewed by IAE prior to issuance. Alert Service Bulletins will be issued on all matters requiring the urgent attention of the airline customer and will generally be limited to items affecting safety. The Bulletin will contain all the necessary information to accomplish the required action. Operating Instructions Engine operating instructions are presented in the form of General Operating Instructions supplemented by V2500 Specific Engine Operating Instructions which provide operating information, procedures, operating curves and engine limits. Facilities Planning and Facility Equipment Manuals The Facilities Planning Manual outlines the requirements for engine/component overhaul, maintenance, and test facilities in terms of basic operations, processes, time studies and equipment. The Facility Equipment Manual lists and describes the facility equipment used for engine maintenance, overhaul and repair. Support Equipment Numerical Index The Indexes, prepared for each major engine model, provide a listing, in numeric sequence, by maintenance level, of all IAE ground support equipment required to maintain and overhaul the engine. The Listings are cross-indexed to the applicable engine dash model and to the chapter and section of the Engine Manual. Publications Index This index contains a listing of available technical manuals covering components of the V2500 Nacelle. Service Bulletin Index This index will be in a format and on a revision schedule as determined by IAE. Computer Software Manual Data, will be supplied in accordance with ATA 102 revision 2 except where such data are prohibited due to proprietary or Government restrictions. REVISION SERVICES Regular, temporary, and "as required" revisions to technical publications will be made during the service life of IAE equipment. The utilization of advanced techniques and equipment provides the airline customer with expedited revision service. DISTRIBUTION MEDIA OPTIONS IAE will provide IAE technical publications to the airline customer on roll microfilm at 24:1 reduction or magnetic tape. Media options such as microfilm at 36:1 reduction, microfiche, and two side or one-sided paper copy of reproducible quality will be available for procurement at established prices. LEASE ENGINE PROGRAM SUPPORT An engine lease program will be made available to V2500 Airline Customers subject to IAE's standard terms and conditions of lease. Pool spares will be stationed at selected locations to assure emergency protection against aircraft-on-ground (AOG) situations or to provide supplemental support during "zero spares" conditions. The lease engines will be incorporate the highest maintenance standards and configuration levels. Availability will be subject to prior demand, however, the program logistics will be continually reviewed to assure the most effective deployment of available pool engines. 26 IV. TECHNICAL SUPPORT GROUP The Technical Support Group provides the following categories of Technical Support to the airline customer: - Product Support Engineering - Powerplant Maintenance Engineering - Customer Performance Engineering - Diagnostic System Engineering - Human Engineering - Flight Operations Engineering - Repair Services - Field Operations Data Analysis PRODUCT SUPPORT ENGINEERING Product Support Engineering is responsible for the overall technical support to the customers. The following services are provided: - Technical Problem Identification/Corrective Action Implementation - Technical Communication - Engine conversion Program Definition and Management - Engine Upgrade and Commonality Studies - Engine Hardware Retrofit Programs - Controlled Service Use Programs and Material Support - Engine Maintenance Management Plans - Engine Incident Investigation Assistance TECHNICAL SUPPORT Technical information supplied through IAE Field Representatives, Customer Support Managers, customer correspondence and direct meetings with airlines' representatives permits assessment of the factors involved in technical problems and their impact on engine reliability and operating costs. Resolution of these problems is coordinated with responsible groups within IAE and the necessary corrective action is defined. In certain situations the corrective action involves the establishment of Service Evaluation programs for proposed modifications, and the establishment of warranty assistance programs in conjunction with the IAE Warranty Administration Department. Product Support Engineering will assist customers in the implementation of recommended corrective action and improvements principally through official IAE technical communications, and direct customer contact. TECHNICAL COMMUNICATIONS Product Support Engineering is responsible for the release of technical communications. Primary communication modes involves release of limits and procedures through engine and maintenance manual revisions and the requirements associated with engine upgrade and/or conversion, durability and performance improvements, and problem resolution through Service Bulletins is provided by All Operator Letters and/or wires or direct technical written response to individual customer inquiries. ENGINE CONVERSION PROGRAMS Product Support Engineering defines minimum configuration levels for conversion of service engine models. They serve to assist the customer with the implementation of conversion programs into existing fleets by providing preliminary planning cost estimates and technical planning information regarding tooling, material and instructional requirements. Conversion programs are monitored for problem areas and Product support Engineering initiates and implements corrective action as may be necessary. ENGINE HARDWARE RETROFIT PROGRAMS Engine campaigns are carried out to provide retrofit of engine hardware configuration when required on delivered engines. This involves assisting in the marshalling of hardware, special tools, manpower and the scheduling of engine and material to campaign sites. ENGINE MAINTENANCE MANAGEMENT PLANS Planning documents, tailored for individual operators, are developed to serve as Engine Maintenance Management Program criteria. These are directed toward the objective of ensuring cost-effective operation with acceptable post-repair test performance, providing engine reliability to achieve maximum time between shop visits, and minimizing the adverse effects to operation of inflight shutdowns and delays/cancellations. Through the institution of specific maintenance recommendations, proper engine performance, durability, and hot section parts lives can be achieved. ENGINE INCIDENT INVESTIGATION ASSISTANCE Assistance is provided to an airline in conducting engine incident investigations in responding to the requirements of the appropriate Air Worthiness authority. LINE MAINTENANCE AND TROUBLESHOOTING Line Maintenance and Troubleshooting Seminars can be conducted at the IAE Training Center with the objective of improving line maintenance effectiveness fleetwide. Specialized training on V2500 line maintenance and troubleshooting can be provided through on-site workshops by special contractual arrangement. Troubleshooting support is provided primarily through powerplant troubleshooting procedures which are published in IAE and airframe manufacturers manuals. When an airline encounters an engine problem and corrective action taken has not been effective, more direct support in troublehshooting and maintenance can also be provided to the 27 customers line maintenance personnel. Instructions on V2500 powerplant troubleshooting and maintenance can also be provided to customers line maintenance personnel. AIRLINE SHOP MAINTENANCE Reviews of shop practices and procedures of individual airlines can be conducted to determine the most efficient and cost-effective methods for maintenance and repair of the V2500 in the environment in which the airline must maintain that engine. POWERPLANT MAINTENANCE ENGINEERING Powerplant Maintenance Engineering covers responsibility for maximizing engine maintainability, establishing maintenance concepts and requirements and providing maintenance support plant for IAE. This group provided the following services: - Definition of Maintenance Tasks and Resource Requirements - Planning Guides MAINTENANCE ENGINEERING Powerplant Maintenance Engineering conducts design reviews and comprehensive maintenance analysis of new engine designs and engine design changes to maximize engine maintainability consistent with performance, reliability, durability and life cycle cost considerations. Maintenance concepts, requirements and tasks are established to minimize maintenance costs. This group represents the customer's maintainability interests in internal IAE operations and upon request will assist the customer in resolving specific maintenance task problems. PROGRESSIVE MAINTENANCE PLANNING Powerplant Maintenance Engineering also provides Planning Guides based upon Maintenance Task Analysis. The guides present engine maintenance requirements, their subordinate tasks and the required resources to accomplish on-aircraft engine maintenance and the off-aircraft repair of engines by modular section/build group replacement. Maintenance requirements are also presented for the refurbishment of modular section/build group by parts replacement, the complete repair of parts, the refurbishment of accessory components and for engine testing. The data in the Planning Guides is presented in a manner that is primarily intended to assist new operators by providing a phased introduction of new engines into their shops and to capitalize on the design maintainability features for the engine when they are developing their maintenance plans. Powerplant Maintenance Engineering will assist new operators in planning a gradual, technically feasible, and economically acceptable expansion from line maintenance of installed engines through the complete repair of parts and accessory components. CUSTOMER PERFORMANCE ENGINEERING Customer Performance Engineering provides for the following types of technical assistance to the airline customer: - Engine Performance Analysis Computer Programs for Test Cell Use - Test Cell Correlation Analysis and Correction Factors - Engine Stability Procedures and Problem Analysis Although much of the above support is provided in the form of procedures, data and recommendations in various publications, the group also answers inquiries of a performance nature which are forwarded to IAE by individual customers. ENGINE PERFORMANCE ANALYSIS Technical support is provided in a number of areas related to operational suitability including the development of the test requirements and performance limits for the Adjustment and Test Section of the Engine Manual. Computer programs that will assist the operator in analyzing engine performance using test cell data can be provided subject to IAE then current standard license fees and Terms and Conditions. TEST CELL CORRELATION Technical assistance is provided to the customer for developing appropriate corrections to be used for specific test configurations at customer owned test cell facilities. Reports are provided presenting correlation analyses and IAE recommended test cell corrections which permit comparison of the performance of customer tested engines with the respective Engine Manual limits and guarantee plan requirements. ENGINE STABILITY Technical support is provided to ensure that engine stability and starting reliability are maintained. Service evaluation programs for proposed improvements are initiated and monitored to determine their effectiveness. In addition, problems relating to engine control systems which impact engine stability and performance are analyzed. DIAGNOSTIC SYSTEMS ENGINEERING Diagnostic Systems Engineering is responsible for the technical support of customer acquisition of inflight engine data and the assessment of engine performance through the use of that data. Diagnostic Systems Engineering personnel provide the following services: - Guidance to help customers define their engine monitoring system requirements. - Development of hardware specifications and computer programs (by separate contractual arrangement) to satisfy engine diagnostic requirements. - Coordination of all IAE airborne diagnostic support activity. 28 GUIDANCE IN DEFINING ENGINE MONITORING SYSTEMS REQUIREMENTS Diagnostic Systems Engineering can provide consultation services to assist the customer in defining his engine condition and performance monitoring requirements and in selection of appropriate hardware and software systems to meet those requirements and options between the customer, airframe manufacturer, and Airborne Integrated Data System (AIDS) manufacturer. DEVELOPMENT AND COORDINATION Diagnostic Systems Engineering personnel can develop hardware specification and make computer software available to accomplish Engine Condition Monitoring (ECM) and performance analysis of engine modules using AIDS data. Engine condition monitoring procedures, of both the manual and computerized variety can also be developed and provided in support of the customer's selected method of engine condition monitoring. Computer software will be provided to the customer subject to IAE's then current standard license fees and Terms and Conditions. Diagnostic Systems Engineering personnel also coordinate activities of cognizant functional groups at IAE to provide engine related information to the customer, airframe manufacturer, and AIDS equipment vendor during the planning, installation, and operation of AIDS. HUMAN ENGINEERING Human Engineering supplies data on task time and skill requirements necessary for accomplishing maintenance procedures. Task data provided includes estimates of the man-hours, elapsed time and job skills necessary to accomplish maintenance tasks as described in IAE's Manual and Service Bulletins. Data is supplied for "on" and "off" aircraft maintenance tasks up to modular disassembly/assembly. Additional selected task data can be supplied on disassembly/assembly to the piece part level and on parts repair. In addition, the group can help solve problems related to skill requirements, body dimensions, or excessive man-hours encountered in accomplishing maintenance tasks. FLIGHT OPERATIONS ENGINEERING Flight Operations Engineering provides the airline customer with the following technical assistance concerning installed engine operations: - Introduction of new equipment - Problem resolution and assistance with in-service equipment - Contractual commitment and development program support - Publication of engine operations literature and performance aids NEW EQUIPMENT In accordance with customer needs, a Flight Operations Engineer can provide on-site assistance in the training of operations personnel and help in solving engine operational problems that might arise during the initial commercial service period. Such assistance can include participation in initial delivery flights, engine operational reviews, and flight crew training activity. PROBLEM RESOLUTION - IN-SERVICE EQUIPMENT In accordance with a mutually agreed upon plan, a Flight Operations Engineer can perform cockpit observations to identify or resolve engine operating problems and to assess installed engine performance. CONTRACTUAL SUPPORT AND DEVELOPMENT PROGRAMS As required, a Flight Operations Engineer can assist in evaluating installed engine performance relative to contractual commitments and engine improvements which have an impact on engine operations. PUBLICATION SUPPORT Flight Operations Engineering is responsible for the issuance of Propulsion System Operating Instructions and correspondence pertaining to inflight engine operations. Such material is coordinated with the airframe manufacturers as required. Special Presentations and Reports are also issued, as required, to support the activity described above. REPAIR SERVICES Repair Service provides the following services to the airline customers: - Coordinated Repair Development Activity - Customer Assistance on Repair Procedures and Techniques - Qualification of Repair Sources - Repair Workshops - Repair Development List COORDINATION OF REPAIR DEVELOPMENT The Repair Services Engineer provided direct contact with all sources that initiate repair schemes. The Engineer coordinates with representatives of Engineering and Support Services disciplines in identifying repair needs, evaluating various repair options and establishing repair development procedures and schedules. The Engineer participates in setting repair evaluation and approval requirements. When the repair is approved and substantiating data is documented, the Repair Services Engineer releases the repair to the Engine Manual. 29 TECHNICAL ASSISTANCE The Repair Services Engineer provides daily communications with airline customers via technical responses to inquiries direct from the airline or through our Field Service Representative office at the airline facility. In addition, repair engineer make periodic visits to airline repair facilities to discuss new repairs under development, answer specific questions posed by the particular facility and review actual parts awaiting a repair/scrap decision. Occasionally repair engineers make special visits to customer facilities to assist in training customer personnel in accomplishing particularly complex repairs. QUALIFICATION OF REPAIR SOURCES The Repair Services Engineer coordinates the qualification of repair sources for repairs proprietary to IAE or to an outside repair agency. They also perform a review of the qualifications of repair sources for critical, nonproprietary repairs for which a source demonstration is deemed necessary. The group participates in negotiation of the legal and business agreements associated with these qualification programs. FIELD OPERATIONS DATA ANALYSIS The following information is available to the airline customer from the Field Operations Data Analysis organization: - Composite Engine Parts List - Industry Item Lists - Service Bulletin Incorporation Lists - Operating Experience Reports COMPOSITE ENGINE PARTS LIST The Composite Engine Parts List, a compilation of all saleable and nonsaleable engine parts incorporated in production engines, describes the configuration of each engine and identifies those engine parts for which engineering changes, service bulletins and service instructions have been issued. INDUSTRY ITEM LISTS An Industry Item List, consisting of a computer retrievable magnetic tape and a hard copy printout, is provided after delivery of each new engine to identify specific parts by part number and serial number which the airline customer may choose to monitor during the engine operational life. Listed parts represent approximately 80 percent of engine total value. SERVICE BULLETIN INCORPORATION LISTS Lists are provided that identify all Service Bulletins which were not incorporated and, separately, those which were incorporated during initial build of each new engine. OPERATION EXPERIENCE REPORTS IAE will maintain a V2500 Operational Data base from which selected engine operations and reliability summary reports will be developed and made available on a scheduled basis to each airline customer. Data reported by IAE Field Representatives serve as input to this data base. This computerized data maintenance and retrieval system will permit: - A pooling and exchange of service experience for the benefit of the entire airline industry. - A common statistical base. - The selective querying of computer data files for answers to customer inquiries. In addition to providing operations and reliability reports, the Operating Experience Data Base serves in-house programs directed at improving engine design and enhancing overall customer support, including spare parts provisioning and warranty administration. V. SPARE PARTS GROUP SPARE PARTS SUPPORT The Spare Parts Group provides the following categories of spare parts support to airline customers: - Individual Customer Account Representatives - Provisioning - Planning - Order Administration - Spare Parts Inventory - Effective Expedite Service - Worldwide Distribution ACCOUNT REPRESENTATIVE An Account Representative is assigned to each customer using IAE equipment. This representative provides individualized attention for effective spare parts order administration, and is the customer's interface on all matters pertaining to new part planning and procurement. Each representative is responsible for monitoring each assigned customer's requirements and providing effective administrative support. The Account Representatives are thoroughly familiar with each customer's spare parts ordering policies and procedures and are responsible for ensuring that all customer new parts orders are processed in an effective manner. SPARE PARTS PROVISIONING PLANNING Prior to delivery of the first new aircraft to an airline customer, preplanning discussions will be held to determine the aircraft/engine program, and engine spare parts provisioning and order plans. Mutually agreed upon provisioning target dates are then established and on-time completion tracked by the Customer Account Representative with the assistance of 30 logistics specialists in Spare Parts Provisioning and Inventory Management. Meetings are held with airline customers at a mutually agreeable time to review suggested spare parts provisioning lists prepared by spare parts Provisioning. These lists are designed to support each customer's particular fleet size, route structure and maintenance and overhaul program. ORDER ADMINISTRATION IAE subscribes to the general principles of Air Transport Association of America (ATA) Specification No. 200, Integrated Data Processing - Supply. The procedures of Air Transport Association of America (ATA) Specification No. 200 may be used for Initial Provisioning, (Chapter II) Order Administration (either Chapter III or Chapter VI) Invoicing (Chapter IV). A spare parts supply objective is to maintain a 90 percent on-time shipment performance record to our published lead times. The lead time for replenishment spare parts is identified in the IAE spare Parts Price Catalog. Initial provisioning spare parts orders should be placed at least six months prior to required delivery, while conversions and major modifications require full manufacturing lead times. The action to be taken on emergency requests will be answered as follows: - Aircraft-On-Ground (AOG) within four hours (in these instances every effort is made to ship immediately). - Critical (Imminent Aircraft-On-Ground (AOG) or Work Stoppage) -- Within 24 hours. - Stock Outage -- Within seven working days (these items are shipped as per customer request). SPARE PARTS INVENTORY To ensure availability of spare parts in accordance with published lead time, spare parts provisioning maintains a modern, comprehensive requirements planning and inventory management system which is responsive to changes in customer demand, special support programs and engineering design. Organized on an engine model basis, this system is intended to maintain part availability for delivery to customers consistent with published lead times. A majority of parts in the spare parts inventory are continually controlled by an Automatic Forecasting and Ordering System. Those parts which do not lend themselves to automatic control due to supercedure, unusual usage or conversion requirements are under the direct manual control of Spares Planning personnel. As additional protection against changes in production lead time or unpredicted demand, certain raw materials are also inventoried. Successful inventory management is keyed to accurate requirements planning. In support of the requirements planning effort, a wide ranging data retrieval and analysis program is offered. This program concerns itself both with the customer logistics and technical considerations as follows: - Forecasts of life limited parts requirements are requested and received semi-annually from major customers. - Engine technical conferences are held frequently within IAE to assess the impact of technical problems on parts. - For a selected group of parts a provisioning conference system is offered which considers actual part inventory change, including usage and receipts, as reported monthly by participating customers. INITIAL PROVISIONING PARTS BUY-BACK IAE offers an initial provisioning parts buy-back service, the details of which are contained in individual customer spare parts contracts. PACKAGING All material is packaged in general compliance with Air Transport Association of America (ATA) Specification No. 300. WORLD AIRLINE SUPPLIERS' GUIDE IAE subscribes to the supply objectives set forth in the World Airlines Supplier's Guide published by the Air Transport Association of America (ATA). IAE requires that its proprietary component vendors also perform in compliance with the precepts of the World Airline Suppliers' Guide. VI. BUSINESS SUPPORT GROUP CUSTOMER MAINTENANCE SUPPORT This Service provides the following services to airline and engine maintenance shop customers: - Engine Reliability and Logistics Cost Forecasts - Logistics Support Studies ENGINE RELIABILITY AND ECONOMIC FORECASTS Engine reliability and economic forecasts in the forms of predicted shop visit rates and maintenance costs can be provided to reflect the airline customers' operating characteristics. Additionally, various analyses can be conducted to establish life probability profiles of critical engine parts, and to determine optimum part configuration and engine operating procedures. LOGISTICS SUPPORT STUDIES As required, logistics studies are conducted to assist in the planning of engine operational support. Such studies may include spare engine and spare module requirements forecasts, level of maintenance analyses, engine type economics evaluations and life cycle cost estimates. 31 EXHIBIT D-1 IAE INTERNATIONAL AERO ENGINES AG V2500 ENGINE AND PARTS SERVICE POLICY AWA AND IAE ACKNOWLEDGE THAT THIS EXHIBIT D-1 (SECTIONS I THROUGH VII) HAS NOT BEEN AGREED UPON AS OF DECEMBER 23, 1994. CONTINGENT UPON AWA AND IAE REACHING A MUTUAL AGREEMENT UPON THIS EXHIBIT D-1 ON OR BEFORE FEBRUARY 15, 1995, AWA AND IAE HEREBY AGREE THAT IN ALL OTHER RESPECTS, HOWEVER, IAE AND AWA AGREE UPON THE TERMS AND CONDITIONS OF THE V2500 SUPPORT CONTRACT, DATED DECEMBER 23, 1994. IAE INTERNATIONAL AERO ENGINES AG AMERICA WEST AIRLINES, INC. By:________________________________ By:________________________________ Title:_______________________________ Title:_______________________________ Date:_______________________________ Date:_______________________________ 32 IAE INTERNATIONAL AERO ENGINES AG V2500 ENGINE AND PARTS SERVICE POLICY This Engine and Parts Service Policy ("Service Policy") is a statement of the terms and conditions under which IAE International Aero Engines AG ("IAE") will grant the Operators of new V2500 Engines certain Allowances and adjustments in the event that Parts of such Engines suffer Failure in Commercial Aviation Use, or in the event that a Parts Life Limit is established or reduced. This Service Policy becomes effective for the Operator's first new V2500 Engine. This Service Policy is divided into seven sections: Section I describes the Credit Allowances which will be granted should the Engine suffer a Failure. Section II describes the Credit Allowances which will be granted should a Primary Part Suffer a Failure. Section III lists the Class Life for those Primary Parts for which Credit Allowances will be granted. Section IV describes the Credit Allowances which will be granted when the establishment or reduction of a Parts Life Limit is mandated. Section V describes the Credit Allowances and adjustments which will be granted when IAE declares a Campaign Change. Section VI contains the definitions of certain words and terms used throughout this Service Policy. These words and terms are identified in the text of this Service Policy by the use of initial capital letters for such words and terms. Section VII contains the general conditions governing the application of this Service Policy. 33 I. ENGINE FAILURE CREDIT ALLOWANCES A. First Run Engine, Module and Part 1. A First Run Engine is an Engine with 3,000 hours or less Engine Time, a First Run Module is a Module with 3,000 hours or less Module Time, and a First Run Part is a Part with 3,000 hours or less Parts Time operating in a First Run Engine or a First Run Module. 2. If a First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also a First Run Part, IAE will grant to the Operator: a. A 100 percent Parts Credit Allowance for any First Run Part Scrapped, or b. A 100 percent Labor Credit Allowance for any First Run Part Repaired. 3. If such Damage of a First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will, in addition to Subparagraph A.2. above, grant to the Operator: a. A 100 percent Labor Credit Allowance for disassembly, reassembly and necessary testing of the Engine or Module requiring Reconditioning as a result of such Damage of the First Run Part, and b. A 100 percent Parts Credit Allowance for those Expendable Parts required in the Reconditioning of the Engine or Module. 4. If such Damage of a First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will arrange, upon request by the Operator, to Recondition the Engine or Module or accomplish the Parts Repair at no charge to the Operator rather than providing the above Credit Allowances. Such work will be accomplished at a V2500 Maintenance Center designated by IAE. Transportation charges to and from the Maintenance Center shall be paid by the Operator. B. Extended First Run Engine, Module and Part 1. An Extended First Run Engine is an Engine with more than 3,000 hours Engine Time but not more than 3,500 hours Engine Time, an Extended Run Module is a Module with more than 3,000 hours Module Time, but not more than 3,500 hours Module Time, and an Extended First Run Part is a Part with 3,500 hours or less Parts Time operating in an Extended First Run Engine or an extended First Run Module. 2. If an Extended First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also an Extended First Run Part, IAE will grant to the Operator: a. A pro rata Parts Credit Allowance for any Extended First Run Part Scrapped, or b. A pro rata Labor Credit Allowance for any Extended First Run Part Repaired. If the Extended First Run Part is a Primary Part (Section III), the pro rata Credit Allowances will be based on l00 percent at 3,000 hours Engine Time which then decreases, pro rata, to zero percent at 3,500 hours Engine Time, or, l00 percent to 2,000 hours Parts Time which then decreases, pro rata, to zero percent at the end of its Class Life (Section III), whichever is greater. If the Extended First Run Part is not a Primary Part, the pro rata Credit Allowances will be based on l00 percent at 3,000 hours Engine Time which then decrease, pro rata, to zero percent at 3,500 hours Engine Time. 3. If such Damage of an Extended First Run Part requires the removal of the Engine or a Module from the Aircraft, IAE will, in addition to Subparagraph B.2. above, grant to the Operator: a. A pro rata Labor Credit Allowance for disassembly, reassembly and necessary testing of the Engine or Module requiring Reconditioning as a result of such Damage of the Extended First Run Part, and b. A pro rata Parts Credit Allowance for those Expendable Parts required in the Reconditioning of the Engine or Module. The pro rata Credit Allowances will be based on l00 percent at 3,000 hours Engine Time, which then decreases, pro rata, to zero percent at 3,500 hours Engine Time. Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above. 34 C. Engine or Module Failure Credit Allowances Illustration [A GRAPHICAL REPRESENTATION OF SECTION I, PARAGRAPHS A AND B APPEARS HERE] Note: The Primary Parts Credit Allowances Illustration (Section II, Paragraph B) is also applicable to the Credit Allowances which are based on Parts Time as described in Section I, Subparagraph B.2. II. PRIMARY PARTS CREDIT ALLOWANCE A. Primary Parts Other Than First Run Parts or Extended First Run Parts 1. Primary Parts are limited to those Parts listed in Section III while such Parts are within the Class Life indicated in Section III. 2. The Primary Parts Credit Allowances described in Subparagraph A.3 below will be based on l00 percent to 2,000 hours total Parts Time which then decreases, pro rata, to zero percent at the end of the applicable hourly Class Life. 3. If a Primary Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also a Primary Part, IAE will grant to the Operator: a. A Parts Credit Allowance for any Primary Part Scrapped, or b. A Labor Credit Allowance for any Primary Part Repaired in accordance with a Parts Repair designated in writing by IAE as being eligible for a Credit Allowance under this Section II, Paragraph A. Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above. B. Primary Parts Credit Allowances Illustration [A GRAPHICAL REPRESENTION OF SECTION II, PARAGRAPH A, APPEARS HERE] A = CLASS A PRIMARY PARTS (Page 5) B = CLASS B PRIMARY PARTS (Page 6) C = CLASS C PRIMARY PARTS (Page 6) III IDENTIFICATION OF PRIMARY PARTS The following Parts are defined as Primary Parts while such Parts are within the Class Life indicated. Class Life is the period, expressed in either hours or Parts Time or number of Parts Cycles during which IAE will grant Credit Allowances for Primary Parts which suffer Direct Damage or Resultant Damage, or for which a Parts Life Limit is established or reduced. CLASS A (4,000 HOURS PARTS TIME) Cold Section Rotating Parts LP Compressor Inlet Cone - Spinner LP Compressor 1st Stage Blade - Fan LP Compressor 1st Stage Blade Annulus Fillers LP Compressor 2nd Stage Blade Radial Drive Bevel Gear Tower Shaft HP Compressor 3 through 12th Stage Blades HP Compressor Front and Rear Rotating Airseals LP Turbine Shaft Coupling Nut Cold Section Static Parts Fan Splitter Fairing LP Compressor Stage 2 Inlet and Exhaust Stator Assembly HP Compressor Stage 3 to Stage 6 Variable Stator Assembly Fan Aerodynamic OGV's HP Compressor Stage 6 to ll Stator Assembly HP Compressor Exit Stator Hot Section Rotating Parts HP Turbine Stage 1 and 2 Blade HP Turbine Gage Spacer HP Turbine Lock Nut LP Turbine Stage 3 to 7 Blades LP Turbine Lock Nut Hot Section Static Parts Fuel Injector Combustion Chamber Assembly HPT First Stage Cooling Duct Assembly (TOBI Duct) HPT lst and 2nd Stage Nozzle Guide Vane Assembly HPT lst and 2nd Stage Outer Airseal Assembly HP to LP Turbine Transition Duct (Inner & Outer) LPT Stage 3 to 7 Nozzle Guide Vane Assembly LPT Stage 3 to 7 Outer Airseal Assembly Main and Angle Gearbox Gearshafts and Bearings Lay Shaft All Accessory Drive Shafts Gearbox Oil Pumps (Pressure and Scavenge) CLASS B (8,000 HOURS PARTS TIME) Fan Case Assembly (Includes Intermediate Case) HP Compressor Front Casings (Split Casings) HP Compressor Rear Casings Diffuser Case HP Turbine Case LP Turbine Case Turbine Exhaust Case Main Gearbox Casing Oil Tank CLASS C (20,000 HOURS PARTS TIME FOR DAMAGE 15,000 PARTS CYCLES FOR LIFE LIMIT REDUCTION) Fan Disk LPC Drum HPC 1 to 6 Drum HPC 7 to 10 Drum HP Turbine Stage 1 and 2 Disks HP Turbine Spacer Disk HP Turbine Stage 1 Front Rotating Airseal HP Turbine 2nd Stage Disk Rear Seal LP Turbine Stage 3-7 Disks LP Turbine Stage 3-7 Rotating Airseals Shafts 35 IV PARTS LIFE LIMIT ALLOWANCES A. A Parts Life Limit is the maximum allowable Parts Time or Parts Cycles for specific Parts as established by IAE and the United States Federal Aviation Administration. B. Credit Allowances 1. Class A and Class B Primary Parts If a Parts Life Limit is established which results in Part Scrappage at less than 4,000 hours Parts Time for a Class A Primary Part or less than 8,000 hours Parts Time for a Class B Primary Part, IAE will grant for each such Primary Part Scrapped as a result thereof, a Parts Credit Allowance based on 100 percent to 2,000 hours total Parts Time which then decreases, pro rata, to zero percent at the end of 4,000 hours total Parts Time for a Class A Primary Part or 8,000 hours total Parts Time for a Class B Primary Part. 2. Class C Primary Parts If a Parts Life Limit is established for a Class C Primary Part which results in Part Scrappage in less than l5,000 total Parts Cycles, IAE will grant for each such Primary Part Scrapped as a result thereof, a Parts Credit Allowance based on 100 percent to 10,000 total Parts Cycles which then decreases, pro rata, to zero percent at 15,000 total Parts Cycles. In addition, IAE will grant a similarly calculated Labor Credit Allowance and Parts Credit Allowance for that labor and those Expendable Parts which are solely related to the removal and replacement of such Class C Primary Parts and is additional to other maintenance being performed on the Engine or Module. Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above. C. Parts Life Limit Credit Allowances Illustrations [A GRAPHICAL REPRESENTATION OF SECTION IV, PARAGRAPH B-1 APPEARS HERE] A = CLASS A PRIMARY PARTS (Page 5) B = CLASS B PRIMARY PARTS (Page 6) [A GRAPHICAL REPRESENTATION OF SECTION IV, PARAGRAPH B-2 APPEARS HERE] C = CLASS C PRIMARY PARTS (Page 6) 36 V CAMPAIGN CHANGE CREDIT ALLOWANCES AND ADJUSTMENTS A. A Campaign Change is an IAE program, so designated in writing, for the Reoperation, replacement, addition, or deletion of a Part(s). IAE will grant the Credit Allowances and Adjustments specified in this Section V to the Operator when Campaign Change recommendations are complied with by the Operator. B. Standard Allowances 1. A 100 percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with 3,000 hours or less total Parts Time. 2. A pro rata Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with more than 3,000 hours total Parts Time but less than 3,500 hours total Parts Time. The pro rata Parts Credit Allowance will be based on 100 percent at 3,000 hours total Parts Time which then decreases, pro rata, to 50 percent at 3,500 hours total Parts Time. 3. A 50 percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed Parts or serviceable shelf stock Parts which are Scrapped with more than 3,500 hours total Parts Time. 4. A 100 percent Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with 3,000 hours or less total Parts Time which are Reoperated in accordance with the Campaign Change. 5. A pro rata Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with more than 3,000 hours total Parts Time but less than 3,500 hours total Parts Time which are Reoperated in accordance with the Campaign Change. The pro rata Labor Credit Allowance will be based on 100 percent at 3,000 hours total Parts Time which then decreases, pro rata, to 50 percent at 3,500 hours total Parts Time. 6. A 50 percent Labor Credit Allowance for Reoperation of installed Parts or serviceable shelf stock Parts with more than 3,500 hours total Parts Time which are Reoperated in accordance with the Campaign Change. 7. A 100 percent Labor Credit Allowance for disassembly and reassembly of the Engine or Module, if the disassembly of the Engine or Module is recommended by IAE for accomplishment of the Campaign Change and such disassembly is performed solely for the purpose of accomplishing the Campaign Change. Note: Section VI, Paragraph D. contains the formulas to be used for computing the Credit Allowances described above. C. Campaign Change Credit Allowances Illustration [A GRAPHICAL REPRESENTATION OF SECTION V, PARAGRAPH B, APPEARS HERE] Note: The Labor Credit Allowance for Engine or Module disassembly and reassembly remains at a constant 100%. D. Optional Credit Allowances and Adjustments 1. When IAE declares a Campaign Change, IAE, at its sole option, may grant to the Operator Credit Allowances and adjustments, such as, but not necessarily limited to: a. No Charge material. b. Specifically priced material. c. Single credit settlements for the Operators' fleet. d. Fixed Credit Allowance support for each Engine. 2. These optional Credit Allowances and Adjustments may be provided: a. Instead of the standard Credit Allowances of Section V, Paragraph B., b. In addition to the standard Credit Allowances of Section V, Paragraph B or c. As a portion of the standard Credit Allowances of Section V, Paragraph B. 3. In no event shall the worth to the Operator, as reasonably determined by IAE, be less than the amount that would have been granted to the Operator as a standard Campaign Change Credit Allowance, per Section V, Paragraph B. In considering the use of these optional Credit Allowances and adjustments, IAE will attempt to minimize the financial and administrative impact on the Operator. 37 VI DEFINITIONS A. CAMPAIGN CHANGE is an IAE program, so designated in writing, for the Reoperation, replacement, addition or deletion of Part(s) and is characterized by the granting of certain Credit Allowances to the Operator when such program recommendations are complied with by the Operator. B. CLASS LIFE is the period, expressed in either hours of Part Time or number of Parts Cycles, during which IAE will grant Credit Allowances for Primary Parts which suffer Direct Damage or Resultant Damage, or for which a Parts Life Limit is established or reduced. C. COMMERCIAL AVIATION USE is the operation of Engines in Aircraft used for commercial, corporate or private transport purposes. The operation of Engines by government agencies or services is normally excluded except that IAE will consider written requests for the inclusion of such Engines under the provisions of this Service Policy. D. CREDIT ALLOWANCES 1. PARTS CREDIT ALLOWANCE is an amount determined in accordance with the following formulas: a. 100 percent Parts Credit Allowance = P b. 50 percent Parts Credit Allowance = P/2 c. Pro rata Parts Credit Allowance = (1) For a Primary Part which suffers Direct or Resultant Damage, or a Class A or Class B Primary Part for which a Parts Life Limit is established: Lt - T ________ x P Lt (2) For a Class C Primary Part for which a Parts Life Limit is established, which is greater than 10,000 total Parts Cycles but is less than 15,000 total Parts Cycles: Lc - C ________ x P Lc (3) For replacement of a Part because of a Campaign Change, when such a Part has more than 3,000 hours Parts Time but less than 3,500 hours Parts Time: 4,000 - T ___________ x P l,000 d. Extended First Run Parts Credit Allowance = 3,500 - E Lt - T _________ x P or ________ x P 500 Lt 2. LABOR CREDIT ALLOWANCE is an amount determined in accordance with the following formulas, except that in no event shall the amount to be granted for repair of Parts exceed the amount of the Parts Credit Allowance which would have been granted if the Part had been Scrapped: a. 100 percent Labor Credit Allowance = H x R b. 50 percent Labor Credit Allowance = H x R c. Pro rata Labor Credit Allowance = (1) For a Primary Part which suffers Direct or Resultant Damage, or a Class A or Class B Primary Part for which a Parts Life Limit is established: Lt - T ________ x H x R Lt (2) For a Class C Primary Part for which a Parts Life Limit is established which is greater than l0,000 total Parts Cycles but is less than l5,000 total Parts Cycles: Lc - C ________ x H x R Lc (3) For replacement of a Part because of a Campaign Change, which such a Part has more than 3,000 hours Parts Time but less than 3,500 hours Parts Time: 4,000 - T _________ x H x R 1,000 d. Extended First Run Labor Credit Allowance = 3,500 - E Lt - T _________ x H x R or ______ x H x R 500 Lt 38 3. The variables used in calculating the above allowances are defined as: P = a. For a Part Scrapped because of Direct Damage, Resultant Damage or a Parts Life Limit being established, the IAE commercial price of the Part Scrapped current at the time of either the Engine removal or Part removal, whichever occurs sooner, or b. For replacement of a Part because of a Campaign Change, the IAE commercial price of the replacing Part specified in the Campaign Change current at the time of notification to the Operator of the Campaign Change. T = a. For a Primary Part which has suffered Direct Damage or Resultant Damage, the actual Parts Time on the Part minus 2,000 hours, or b. For a Class A or Class B Primary Part for which a Parts Life Limit is established, the actual Parts Time on the Part minus 2,000 hours, or the Parts Life Limit minus 2,000 hours, whichever is greater, or c. For replacement of a Part because of a Campaign Change, when such a Part has more than 3,000 hours Parts Time but less than 3,500 hours Parts Time, the actual Parts Time on the Part. C = For a Class C Primary Part for which a Parts Life Limit is established which is greater than l0,000 Total Parts Cycles but less than 15,000 Total Parts Cycles, the greater of either: a. The actual Parts Cycles on the Part minus 10,000 cycles, or b. The new Parts Life Limit minus 10,000 Cycles. Lt = Either: a. For a Primary Part which has suffered Direct Damage or Resultant Damage, the hours indicated in Section III minus 2,000 hours, or b. For a Class A or Class B Primary Part for which a Parts Life Limit is established, the hours indicated in Section III minus 2,000 hours. Lc = For a Class C Primary Part for which a Parts Life Limit is established which is greater than 10,000 total Parts Cycle, 5,000 Cycles. H = The man-hours required to accomplish the work as established in writing by IAE. R = The labor rate, expressed in U.S. Dollars per hour, which will be determined as follows: a. If the labor is performed at the Operator's facility, or its subcontractor's facility, the labor rate will be the greater of the Operator's labor rate or the subcontractor's labor rate, where the labor rates were determined in accordance with IAE Form _____ and provided to the Operator in writing, or b. If the labor is performed by IAE, the labor rate will be the then-current labor rate of IAE. E = Actual Engine Time on an Extended First Run Engine. E. DIRECT DAMAGE is the damage suffered by a Part itself upon its Failure. F. ECONOMICALLY REPAIRABLE shall generally mean that the cost of the repair as determined by IAE, exclusive of modification and transportation costs, will be equal to or less than 65 percent of the IAE commercial price of the Part at the time the repair is considered, or, shall be as otherwise reasonably determined by IAE. G. ENGINE(S) means those V2500 Engine(s), as described by IAE Specifications sold by IAE for Commercial Aviation Use, whether installed as new equipment in aircraft by the manufacturer thereof and delivered to the Operator or delivered directly to the Operator from IAE for use as a spare Engine. An Engine which has been converted or upgraded in accordance with IAE instructions shall continue to qualify for Credit Allowances and Adjustments under the provisions of this Service Policy. H. ENGINE OR MODULE TIME is the total number of flight hours of operation of an Engine or a Module. I. EXPENDABLE PARTS means those nonreusable Parts, as determined by IAE, which are required to be replaced during inspection or Reconditioning, regardless of the condition of the Part. J. EXTENDED FIRST RUN ENGINE OR MODULE is an Engine or Module with more than 3,000 hours Engine or Module Time but not more than 3,500 hours Engine or Module Time. K. EXTENDED FIRST RUN PART means a Part with 3,500 hours or less Parts Time operating in an Extended First Run Engine. L. FAILURE (FAILED) is the breakage, injury, or malfunction of a Part rendering it unserviceable and incapable of continued operation without corrective action. M. FIRST RUN ENGINE OR FIRST RUN MODULE is an Engine or Module with 3,000 hours or less Engine or Module Time. 39 N. FIRST RUN PART is an Engine Part with 3,000 hours or less Parts Time operating in a First Run Engine. O. MODULE(S) means any one or more of the following assemblies of Parts: Fan Assembly and Low Pressure Compressor Assembly High Pressure Compressor Assembly High Pressure Turbine Assembly Low Pressure Turbine Assembly Main gearbox Any other Assembly of Parts so designated by IAE P. OPERATOR is the owner of one or more Engines operated for Commercial Aviation Use, the lessee if such Engine(s) is the subject of a long-term financing lease or as otherwise reasonably determined by IAE. Q. PART(S) means Engine parts sold by IAE and delivered to the Operator as original equipment in an Engine or Engine parts sold and delivered by IAE to the Operator as new spare parts in support of an Engine. R. PARTS CYCLE(S) means the aggregate total number of times a Part completes an Aircraft takeoff and landing cycle, whether or not thrust reverser is used on landing. As pilot training will involve extra throttle transients such as touch and go landings and takeoffs, IAE shall evaluate such transients for Parts Cycle determination. S. PARTS LIFE LIMIT is the maximum allowable total Parts Time or total Parts Cycles for specific Parts, including Reoperation if applicable, as established by IAE or by the United States Federal Aviation Administration. Parts Life Limits are published in the Time Limits Section (Chapter 05) of the applicable V2500 Series Engine Manual. T. PARTS REPAIR means the IAE designated restoration of Failed Parts to functional serviceable status, excluding repair of normal wear and tear, as determined by IAE. U. PARTS TIME is the total number of flight hours of operation of a Part. V. PRIMARY PART(S) are limited to those Parts listed in Section III while such Parts are within the Class Life indicated in Section III. W. RECONDITIONING means the restoration of an Engine or Module allowing substitution of new or serviceable used Parts, to the extent necessary for continued operation of the Engine or Module as a serviceable unit. When such Reconditioning is performed by IAE, the Parts Time or Parts Cycles, as applicable, of the replaced Part shall, for the purpose of this Service Policy, be applicable to the substituted new or serviceable used Part. Said replaced Part shall become the property of IAE. X. REOPERATION is the alteration to or modification of a Part. Y. RESULTANT DAMAGE is the damage suffered by a Part because of the Failure of another Part within the same Engine. Z. SCRAPPED PARTS (SCRAP, SCRAPPED, SCRAPPAGE) shall mean those Parts determined by IAE to be unserviceable and not Economically Repairable. The Operator shall cause such Parts to be mutilated or disposed of in such a manner as to preclude any possible further use as an Engine Part. VII GENERAL CONDITIONS The following general conditions govern the application of this Service Policy: A. Records and Audit The Operator shall maintain adequate records for the administration of this Service Policy and shall permit IAE to audit such records at reasonable intervals. B. Scrapping of Parts 1. Scrappage Verification Any Part for which a Parts Credit Allowance is requested shall be verified as Scrapped prior to the issuance of the Parts Credit Allowance. Verification of Scrappage shall occur as follows: a. At the Operator's, or its subcontractor's, facility. Such verification shall be accomplished by the IAE Field Representative. b. At IAE, provided that IAE concurs that the Part is to be Scrapped. Sufficient information to identify the Part, the Engine from which the Part was removed, and the reason for its return shall be provided. 2. Return of Parts IAE, at its sole option, may require the Operator to return to IAE any Part for which a Parts Credit Allowance is requested. Such return shall be a condition for the issuance of a Parts Credit Allowance. 3. Transportation Expenses Transportation expenses shall be at the expense of the Operator if such Parts are shipped to and from IAE for examination and verification; except that IAE shall pay the expense if such Parts as are shipped at the request of IAE. 4. Title Title to such Parts returned to IAE shall vest in IAE: a. Upon determination by IAE that the Operator is eligible for a Parts Credit Allowance. If it is determined that the Parts are scrapped Parts but are not eligible for Service Policy coverage, the Operator will be notified of the decision and the Parts returned at the Operator's expense if the Operator so requests; otherwise, the Parts will be disposed of by IAE without any type of adjustment, or 40 b. Upon shipment, when such Parts are determined to be Scrap at the Operator's facility and are shipped to IAE at the request of IAE. C. Repairability Requirements The Operator shall set aside and exclude from the operation of this Service Policy for a period of six months any Part for which IAE states it has, or plans to initiate, an active program to achieve a repair, corrective Reoperation or Parts Life Limit extension. In the event IAE has not released a repair procedure, corrective Reoperation, or Parts Life Limit extension by the expiration of this six month period, such Part shall be retained by the Operator and excluded from the operation of this Service Policy for additional periods beyond the expiration of said six month period only if agreed to by the Operator. D. Exclusions from Service Policy This Service Policy will not apply to any Engine, Module or Part if it has been determined to the reasonable satisfaction of IAE that said Engine, Module or Part has Failed because it: 1. Has not been properly installed or maintained in accordance with IAE recommendations unless such improper installation or maintenance was performed by IAE, or 2. Has been used contrary to the operating and maintenance instructions or recommendations authorized or issued by IAE and current at the time, or 3. Has been repaired or altered other than by an IAE designated V2500 Maintenance Center in such a way as to impair its safety, operation or efficiency, or 4. Has been subjected to: a. Misuse, neglect, or accident, or b. Ingestion of foreign material, or 5. Has been affected in any way by a part not defined as a Part herein, or 6. Has been affected in any way by occurrences not associated with ordinary use, such as, but not limited to, acts of war, rebellion, seizure or other belligerent acts. E. Payment Options IAE at its option may grant any Parts Credit Allowance as either a credit to the Operator's account with IAE or as a Part replacement. F. Presentation of Claims Any request for a Credit Allowance must be presented to IAE not later than 180 days after the removal from service of the Engine or Part for which the Credit Allowance is requested. If IAE disallows the request, written notification will be provided to the Operator. The Operator shall have 90 days from such notification to request a reconsideration of the request for Credit Allowance. IAE shall have the right to refuse any request for a Credit Allowance which is not submitted within the stated time periods. G. Duration of Service Policy This Service Policy will normally cease to apply to all Parts in any Engine that is more than ten years old as measured from the date of shipment of the Engine from the factory. Unless advised to the contrary by IAE, this Service Policy shall, however, continue to be applicable to individual Engines after the expiration of the ten year period on a year to year basis so that the Operator may continue to receive the benefits of the Service Policy on the Parts in these Engines. H. General Administration On matters concerning this Service Policy, the Operator is requested to address all correspondence to: IAE International Aero Engines AG Corporate Center II 628 Hebron Avenue Glastonbury, Connecticut 06033-2595 USA Attention: Warranty Administration I. Limitation of Liability 1. The express provisions of this Service Policy set forth the maximum liability of IAE with respect to any claims relating to this Service Policy. In the event of any conflict or inconsistency between the express provisions of this Service Policy and any Illustrations contained herein, the express provisions shall govern. 2. Except to the extent that the Credit Allowances and adjustments expressly set forth in this Service Policy may exceed the limitations of the corresponding portions of any warranties or representations included in any sales agreements, the provisions of this Service Policy do not modify, enlarge or extend in any manner the conditions governing the sale of its Engines and Parts by IAE. 41 3. IAE reserves the right to change or retract this Service Policy at any time at its sole discretion. No such retraction or change shall diminish the benefits which the Operator may be entitled to receive with respect to Engines for which an acceptable order has been placed with IAE or with respect to aircraft with installed Engines for which a firm unconditional order has been placed with the aircraft manufacturer prior to the announcement of any such retraction or change. J. Assignment of Service Policy This Service Policy shall not be assigned, either in whole or in part, by either party. IAE will, however, upon the written request of the Operator consider an extension of Service Policy Credit Allowances and adjustments to Engines, Modules and Parts sold or leased by an Operator to another Operator, to the extent only, however, that such Credit Allowances and adjustments exist at the time of such sale or lease and subject to the terms and conditions of the Service Policy. IAE shall not unreasonably withhold such extension of such Credit Allowances. 42 Exhibit D-2 IAE INTERNATIONAL AERO ENGINES AG V2500 NACELLE AND PARTS SERVICE POLICY Issued: November 16, 1988 43 IAE INTERNATIONAL AERO ENGINES AG V2500 NACELLE AND PARTS SERVICE POLICY This Nacelle and Parts Service Policy (Service Policy) is a statement of the terms and conditions under which IAE International Aero Engines AG ("IAE") will grant the Operators of its V2500 Nacelles certain Allowances and adjustments in the event that Parts of such Nacelles suffer Failure in service. This Service Policy is divided into four sections: Section I describes the Allowances and adjustments which Page 1 will be granted should the Nacelle or Part(s) suffer a Failure. Section II describes the Allowances and adjustments which Page 2 will be granted when IAE declares a Campaign Change. Section III contains the definitions of certain words and Page 3 terms used throughout this Service Policy. These words and terms are identified in the text of this Service Policy by the use of initial capital letters for such words and terms. Section IV contains the general conditions governing the Page 6 application of this Service Policy.
44 I ALLOWANCES AND ADJUSTMENTS A. First Run Nacelle and Part 1. A First Run Nacelle is a Nacelle with 6,000 hours or less Nacelle Time and a First Run Part is a Part with 6,000 hours or less Parts Time operating in a First Run Nacelle. 2. If a First Run Part suffers Direct Damage or Resultant Damage, and provided that the Part causing Resultant Damage is also a First Run Part: a. IAE will grant to the Operator: (1) A 100 percent Parts Credit Allowance for any such First Run Part Scrapped, and (2) A 100 percent Labor Allowance for Parts Repair of any First Run Part requiring Parts Repair. b. If such Damage of a First Run Part causes the removal of the Nacelle from the Aircraft, IAE will, in addition to Subparagraph a. above, grant to the Operator: (1) A 100 percent Labor Allowance for disassembly, reassembly and necessary testing of the Nacelle requiring Reconditioning as a result of such Damage of the First Run Part, and (2) A 100 percent Parts Credit Allowance for those Expendable Parts required in the Reconditioning of the Nacelle. c. If such Damage of a First Run Part causes the removal of the Nacelle from the Aircraft, IAE will arrange, upon request by the Operator, to Recondition the Nacelle or accomplish the Parts Repair at no charge to the Operator rather than providing the above Allowances. Such work will be accomplished at a V2500 Maintenance Center designated by IAE. Transportation charges to and from the Maintenance Center shall be paid by the operator. B. Primary Part 1. A Primary Part is a Part other than a First Run Part but having not more than 6,000 hours Parts Time. 2. Primary Parts not eligible for those Allowances granted to First Run Parts are eligible for Allowances under this Section I, Paragraph B., provided that the Primary Part suffers Direct Damage or Resultant Damage and Provided that the Part causing Resultant Damage is also a Primary Part. 3. IAE will grant to the Operator a Parts Credit Allowance for such a Primary Part Scrapped or a Labor Allowance for such a Primary Part for which a Parts Repair is designated in writing by IAE as being eligible for adjustment under this Section I, Paragraph B. Such Allowance will be based on 100 percent to 1,000 hours total Parts Time which then decreases, pro rata, to zero percent at 6000 hours Parts time. II CAMPAIGN CHANGE ALLOWANCES AND ADJUSTMENTS A. A Campaign Change is an IAE program, so designated in writing, for the Reoperation, replacement, addition, or deletion of a Part(s). IAE will grant the Allowances and adjustments specified in this Section II to the Operator when Campaign Change recommendations are complied with by the Operator. B. Standard Allowances 1. A 100 percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed or serviceable shelf stock Nacelle Parts which are Scrapped with 6,000 hours or less total Parts Time. 2. A 50 percent Parts Credit Allowance for the replacing Parts specified in the Campaign Change for installed or serviceable shelf stock Nacelle Parts which are Scrapped with more than 6,000 hours total Parts Time. 3. A 100 percent Labor Allowance for Reoperation of installed or serviceable shelf stock Nacelle Parts with 6,000 hours or less total Parts Time, which are Reoperated in accordance with the Campaign Change. 4. A 50 percent Labor Allowance for Reoperation of installed or serviceable shelf stock Nacelle Parts with more than 6,000 hours total Parts Time, which are Reoperated in accordance with the Campaign Change. 5. A 100 percent Labor Allowance for disassembly and reassembly of the Nacelle, if the disassembly is recommended by IAE for accomplishment of the Campaign Change and such disassembly is performed solely for the purpose of accomplishing the Campaign Change. C. Optional Allowances and Adjustments 1. When IAE declares a Campaign Change, IAE, at its sole option, may grant to the Operator allowances and adjustments, such as, but not necessarily limited to: a. No charge material b. Specially priced material c. Single payment settlements for the Operators' fleet d. Fixed allowance support for each Nacelle. 45 2. These optional allowances and adjustments will be provided either: a. Instead of the standard Allowances of Paragraph B., b. In addition to the standard Allowances of Paragraph B., or c. As a portion of the standard Allowances of Paragraph B. 3. In no event shall the worth to the Operator, as reasonably determined by IAE, be less than the amount that would have been granted to the Operator as a standard Campaign Change Allowance, per Paragraph B. In considering the use of these optional allowances and adjustments, IAE will attempt to minimize the financial and administrative impact on the Operator. III DEFINITIONS A. ALLOWANCES 1. PARTS CREDIT ALLOWANCE is an amount determined in accordance with the following formula: a. 100 percent Parts Credit Allowance = P b. 50 percent Parts Credit Allowance = P/2 c. Pro rata Parts Credit Allowance = 6,000 - T _________ x P 5,000 2. LABOR ALLOWANCE is an amount determined in accordance with the following formulas, except that in no event shall the amount to be granted for repair of Parts exceed the amount of the Parts Credit Allowance which would have been granted if the Part had been Scrapped. a. 100 percent Labor Allowance = H x R b. 50 percent Labor Allowance = H x R 2 c. Pro rata Labor Allowance = 6,000 - T _________ x H x R 5,000 3. The variables used in calculating the above Allowances are defined as: P = for a Part Scrapped because of Direct Damage or Resultant Damage, the IAE commercial price of the Part Scrapped current at the time of either the Nacelle removal or Part removal, whichever occurs sooner, or for replacement of Parts because of a Campaign Change, the IAE price of the replacing Part specified in the Campaign Change current at the time of notification to the Operator of the Campaign Change. T = actual Parts Time hours on a Part which has suffered Direct Damage or Resultant Damage or the Parts Life Limit as established for the Part. H = the man-hours required to accomplish the work as established in writing by IAE. R = the labor rate, expressed in dollars per hour, which will be determined as follows: a. If the labor is performed at the Operator's facility, or its subcontractor's facility, the labor rate will be the greater of the Operator's labor rate or the subcontractor's labor rate, where the labor rates were determined in accordance with IAE Form and provided to the Operator in writing, or b. If the labor is performed at a V2500 Maintenance Center designated by IAE, the labor rate will be the then current labor rate at that Center. B. CAMPAIGN CHANGE is an IAE program, so designated in writing, for the Reoperation, replacement, addition or deletion of a Part(s) and is characterized by the granting of certain Allowances to the Operator when such recommendations are complied with by the Operator. C. COMMERCIAL AVIATION USE is the operation of Nacelles in Aircraft used for commercial, corporate or private transport purposes. The operation of Nacelles by Government Agencies or Services is normally excluded except that IAE will consider written requests for the inclusion of such Nacelles under the provisions of this Service Policy. D. DIRECT DAMAGE is the damage suffered by a Part itself upon its Failure. E. ECONOMICALLY REPAIRABLE shall generally mean that the cost of the repair as determined by IAE exclusive of modification and transportation costs, will be equal to or less than 65 percent of the IAE commercial price of the Part at the time the repair is considered, or, shall be as otherwise reasonably determined by IAE. F. EXPENDABLE PARTS means those nonreusable Parts, as determined by IAE, which are required to be replaced during inspection or Reconditioning, regardless of the condition of the Part. G. FAILURE (FAILED) is the breakage, injury, or malfunction of a Part rendering it unserviceable and incapable of continued operation without corrective action. H. FIRST RUN NACELLE is a Nacelle with 6,000 hours or less Nacelle Time. I. FIRST RUN PART is a Nacelle Part with 6,000 hours or less Parts Time operating in a First Run Nacelle. 46 J. NACELLE(S) means V2500 nacelle(s) and thrust reverser, as described in IAE Specifications referenced below, as such Specifications may be revised from time to time, sold by IAE for Commercial Aviation Use, whether installed as new equipment in aircraft by the manufacturer thereof and delivered to the Operator or delivered directly to the Operator from IAE for use as a spare nacelle. A Nacelle which has been converted or upgraded in accordance with IAE instructions shall continue to qualify for Allowances and adjustments under the provisions of this Service Policy. Model No. Specification No. Specification Date V2500 -- ____________,198__ K. NACELLE TIME is the total number of flight hours of operation of a Nacelle. L. OPERATOR is the owner of one or more Nacelles operated for Commercial Aviation use, the lessee if such Nacelle(s) is the subject of a long-term financing lease or as otherwise reasonably determined by IAE. M. PART(S) means Nacelle parts sold by IAE and delivered to the Operator as original equipment in a Nacelle or Nacelle parts sold and delivered by IAE to the Operator as new spare parts in support of a Nacelle. N. PARTS LIFE LIMIT is the maximum allowable Parts Time, for specific Parts as established by IAE or by the Federal Aviation Administration in an Airworthiness Directive. O. PARTS REPAIR means the IAE designated restoration of Failed Parts to functional serviceable status, excluding repair of normal wear and tear, as determined by IAE. P. PARTS TIME is the total number of flight hours of operation of a Part. Q. PRIMARY PART means a Part other than a First Run Part but not having more than 6,000 hours Parts Time. R. RECONDITIONING means the restoration of a Nacelle allowing substitution of new or serviceable used Parts, to the extent necessary for continued operation of the Nacelle as a serviceable unit. When such Reconditioning is performed by IAE designated V2500 Maintenance Center, the Parts Time, of the replaced Part shall, for the purpose of this Service Policy, be applicable to the substituted new or serviceable used Part. Said replaced Part shall become the property of IAE. S. REOPERATION is the alternation to or modification of a Part. T. RESULTANT DAMAGE is the damage suffered by a Part because of the Failure of another Part within the same Nacelle. U. SCRAPPED PARTS (SCRAP, SCRAPPED, SCRAPPAGE) shall mean those Parts determined by IAE to be unserviceable and not Economically Repairable. The Operator shall cause such Parts to be mutilated or disposed of in such a manner as to preclude any possible further use as a Nacelle Part. IV GENERAL CONDITIONS The following general conditions govern the application of this Service Policy: A. Records and Audit The Operator shall maintain adequate records for the administration of this Service Policy and shall permit IAE to audit such records at reasonable intervals. B. Scrapping of Parts 1. Scrappage Verification Any Part for which a Parts Credit Allowance is requested shall be verified as Scrapped prior to the issuance of the Allowance. Verification of Scrappage shall occur as Follows: a. At the Operator's, or its subcontractor's, facility. Such verification shall be accomplished by the IAE Field Representative. b. At a V2500 Maintenance Center designated by IAE, provided that IAE concurs that the Part is to be Scrapped. Sufficient information to identify the Nacelle from which the Part was removed, and the reason for its return shall be provided. 2. Return of Parts IAE, at its sole option, may require the Operator to return to IAE any Part for which a Parts Credit Allowance is requested. Such return shall be a condition for the issuance of a Parts Credit Allowance. 3. Transportation Expenses Transportation expenses shall be at the expense of the Operator if such Parts are shipped to and from a V2500 Maintenance Center designated by IAE for examination and verification; except, that IAE shall pay the expense of transport of such Parts as are shipped at the request of IAE. 47 4. Title Title to such Parts returned to IAE shall vest in IAE. a. Upon determination by IAE that the Operator is eligible for a Parts Credit Allowance. If it is determined that the Parts are scrapped Parts but are not eligible for Service Policy coverage, the Operator will be notified of the decision and the Parts returned at the Operator's expense if the Operator so requests; otherwise, the Parts will be disposed of by IAE without any type of adjustment, or b. Upon shipment, when such Parts are determined to be Scrap at the Operator's facility and are shipped to IAE at the request of IAE. C. Repairability Requirements The Operator shall set aside and exclude from the operation of this Service Policy for a period of six months any Part for which IAE states it has, or plans to initiate, an active program to achieve a repair, corrective Reoperation or Parts Life Limit extension. In the event IAE has not released a repair procedure, corrective Reoperation, or Parts Life Limit extension by the expiration of this six month period, such Part shall be retained by the Operator and excluded from the operation of this Service Policy for additional periods beyond the expiration of said six month period only if agreed to by the Operator. D. Exclusions from Service Policy This Service Policy will not apply to any Nacelle, or Part if it has been determined to the reasonable satisfaction of IAE that said Nacelle or Part has Failed because it: 1. Has not been properly installed or maintained in accordance with IAE recommendations unless such improper installation or maintenance was performed by IAE or at any V2500 Maintenance Center designated by IAE. 2. Has been used contrary to the operating and maintenance instructions or recommendations authorized or issued by IAE and current at the time, or 3. Has been repaired or altered outside any V2500 Maintenance Center in such a way as to impair its safety, operation or efficiency, or 4. Has been subjected to: a. Misuse, neglect, or accident, or b. Ingestion of foreign material, or 5. Has been affected in any way by a part not defined as a Part herein, or 6. Has been affected in any way by occurrences not associated with ordinary use, such as, but not limited to, acts of war, rebellion, seizure or other belligerent acts. E. Payment Options IAE at its option may grant any Parts Credit Allowance as either a credit to the Operator's account or as a Part replacement. F. Presentation of Claims Any request for an Allowance must be presented to IAE not later than 180 days after the removal from service of the Engine or Part for which the Allowance is requested. If IAE disallows the request, written notification will be provided to the Operator. The Operator shall have 90 days from such notification to request a reconsideration of the request for Allowance. IAE shall have the right to refuse any request for an Allowance which is not submitted within the stated time periods. G. Duration of Service Policy This Service Policy will normally cease to apply to all Parts in any Nacelle that is more than ten years old as measured from the date of shipment of the Nacelle from the factory. This Service Policy shall, however, continue to be applicable to individual Nacelles after the expiration of the ten year period on a year to year basis so that the Operator may continue to receive the benefits of the Service Policy on the Parts in these Nacelles. H. General Administration On matters concerning this Service Policy, the Operator is requested to address all correspondence to: IAE International Aero Engines AG Corporate Center II 628 Hebron Avenue Glastonbury, Connecticut 06033-2595 USA Attention: Warranty Administration I. Limitation of Liability 1. The express provisions of this Service Policy set forth the maximum liability of IAE with respect to any claims relating to this Service Policy. 2. Except to the extent that the Allowances and adjustments expressly set forth in this Service Policy may exceed the limitations of the corresponding portions of any warranties or representations included in any sales agreements, the provisions of this Service Policy do not modify, enlarge or extend in any manner the conditions governing the sale of its Nacelles and Parts by IAE. 48 3. IAE reserves the right to change or retract this Service Policy at any time at its sole discretion. No such retraction or change shall diminish the benefits which the Operator may be entitled to receive with respect to Nacelles for which a acceptable order has been placed with IAE or with respect to aircraft with installed Nacelles for which firm orders have been placed or options obtained with the aircraft manufacturer prior to the announcement of any such retraction or change. J. Assignment of Service Policy This Service Policy shall not be assigned, either in whole or in part, by either party. IAE will, however, upon the written request of the Operator consider an extension of Service Policy Allowances and adjustments to Nacelles and Parts sold or leased by an Operator to another Operator, to the extent only, however, that such Allowances and adjustments exist at the time of such sale or lease and subject to the terms and conditions of the Service Policy. IAE shall not unreasonably withhold such extension of such Allowances. 49 EXHIBIT D-3 NON-INSTALLATION ITEMS WARRANTY WARRANTY FOR SPECIAL TOOLS AND GROUND EQUIPMENT 1. If it is shown that a defect in material or workmanship has become apparent in any item of special tooling and ground equipment within one year from the date of receipt of such item by the Operator, then IAE will either as it may in its sole discretion determine repair or exchange such item free of charge. 2. The obligations of IAE under this Warranty are subject to the following terms and conditions. 2.1 The defect must not be due to misuse, negligence of anyone other than IAE, accident or misapplication. 2.2 Such item shall not have been used, maintained, modified, stored or handled other than in a manner approved by IAE. 2.3 Any claim under this Warranty shall be made in writing to IAE within 90 days of the discovery of the defect and the defective item shall be made available or sent to IAE for inspection as it may require. 3. IAE shall not be liable for any incidental consequential or resultant loss or damage howsoever occurring nor for labor costs involved in removal or replacement of parts. 50 Exhibit D-4 V2500 PARTS COST GUARANTEE I INTRODUCTION IAE assures AWA that by the end of the 10 year period commencing with AWA's first commercial operation of Aircraft powered by V2500 Engines, the cumulative Eligible Parts Cost will not, subject to escalation, exceed a Guaranteed Cost Rate of $58.00 per Eligible Engine flight hour. Under this Guarantee, if the cumulative Eligible Parts Cost per Eligible Engine flight hour of AWA's Engines over the Period of Guarantee exceeds the escalated Guaranteed Cost Rate, IAE will credit AWA's account with IAE an amount of 75% of the excess costs. II GUARANTEE A. Period of Guarantee The Period of Guarantee will start on the date AWA initiates commercial operation of its first Aircraft powered by Eligible Engines and will terminate 10 years from that date. B. Eligible Engines The Engines that will be Eligible under this Guarantee shall be new installed and new spare Engines which are owned and operated by AWA during the Period of Guarantee and which have been acquired pursuant to the Proposal or Contract to which this Guarantee is attached and the related proposal or contract for delivery of Aircraft. The Engines shall remain Eligible provided that AWA or its authorized maintenance facility maintains them in accordance with the IAE instructions and recommendations contained in the applicable IAE publications including the latest Maintenance Management Plan as agreed to by AWA. C. Eligible Parts Costs Eligible Parts Costs shall comprise the cost of Parts which are removed from Eligible Engines and actually Scrapped as a result of: 1. a Failure of a Part in such Eligible Engines; 2. foreign object damage caused by the ingestion of birds, hail stones or runway gravel; 3. an Airworthiness Directive issued by the applicable Certification Authority; and 4. maintenance as recommended by IAE; except for Parts Scrapped as the result of life limitation and vendor proprietary accessories and parts therein. D. Adjusted Parts Cost Within thirty days following each anniversary of the commencement of the Period of Guarantee, AWA will report to IAE the Eligible Parts Costs incurred by AWA during the preceding year together with a statement of any contributions received from IAE or third parties towards such Eligible Parts Costs. Within the following sixty days, IAE and AWA will jointly calculate the Adjusted Parts Costs for that year making appropriate reductions for contributions received by AWA from IAE and third parties and for disallowed Parts Costs incurred by AWA during maintenance undertaken contrary to IAE recommendations. E. Guaranteed Parts Cost Within thirty days following each anniversary of the commencement of the Period of Guarantee, AWA will report to IAE the flight hours of Eligible Engines operated by AWA in the preceding year. Within the following sixty days, IAE and AWA will jointly calculate the Guaranteed Parts Cost for AWA for that year using the following formula: GPC = A x Escalated GCR where: A is the flight hours of Eligible Engines operated by AWA in that year; Escalated GCR is $58.00/EFH escalated for that year; and the Escalated Guaranteed Cost for any year is calculated by determining the arithmetic average of the Guaranteed Cost Rate calculated for each month of that year using the IAE Escalation Formula attached to this Proposal or Contract for a Base Month of January, 1994. F. Annual Statement Within one hundred and twenty days following the second and each subsequent anniversary of the commencement of the Period of Guarantee, IAE will credit AWA's account with IAE an amount equal to 75% of the difference between the sum of the Adjusted Parts Costs for each preceding year and the sum of the Guaranteed Parts Costs for each preceding year. III DEFINITIONS AND GENERAL CONDITIONS All of the definitions and General Conditions of the V2500 Engine and Parts Service Policy shall apply to this Guarantee. Engines and Engine maintenance excluded by the General Conditions of the Policy shall be excluded from this Guarantee except that Parts Costs incurred during Engine maintenance resulting from ingestion of birds, hailstones or runway gravel shall be included as Eligible under this Guarantee. 51 IV SPECIFIC CONDITIONS A. The Guaranteed Cost Rate is predicated on the use by AWA of: 1. An average flight cycle of no less than 1.9 hours; 2. Thrust levels which are derated an average of 10 percent for Takeoff and Climb relative to full Takeoff and Climb ratings; 3. An average Aircraft utilization equal to or less than 3,400 flight hours per year; and 4. An Aircraft and Engine delivery schedule in respect of 24 firm Aircraft and 6 spare Engines as described in the Proposal or Contract to which this Guarantee is attached. B. IAE reserves the right to make appropriate adjustments to the Guaranteed Cost Rate if there is, during the Period of Guarantee, a variation from the conditions upon which the Guaranteed Cost Rate is predicated or a discontinuation of ownership by AWA of any Engine or any V2500 powered Aircraft subsequent to delivery to AWA. C. In the event credits are issued under Section II, Paragraph F, such credits will be dedicated to the procurement of Parts aimed at correction of the situations contributing to excess Parts Costs. Accordingly, AWA and IAE will establish jointly the modifications or Parts to be selected, and AWA will incorporate the changes into Eligible Engines. V EXCLUSION OF BENEFITS The intent of this Guarantee is to provide specified benefits to AWA as a result of the failure of Eligible Engines to achieve the parts cost level stipulated in the Guarantee. It is not the intent, however, to duplicate benefits provided to AWA under any other applicable guarantee, sales warranty, service policy, or any special benefit of any kind as a result of the same failure. Therefore, the terms and conditions of this Guarantee notwithstanding, if the terms of this Guarantee should make duplicate benefits available to AWA from IAE or any third-party, AWA may elect to receive the benefits under this Guarantee or under any of the other benefits described above, but not both. 52 Exhibit D-5 V2500 RELIABILITY GUARANTEE I INTRODUCTION IAE assures AWA that by the end of the 10 year period commencing with AWA's first commercial operation of Aircraft powered by V2500 Engines, the cumulative Engine Shop Visit Rate will not exceed a Guaranteed Rate of 0.170 per 1000 Eligible Engine flight hours. Under this Guarantee, if the cumulative Engine Shop Visit Rate exceeds the Guaranteed Rate, IAE will credit AWA's account with IAE an amount of $25,000 U.S. Dollars for each Eligible Engine Shop Visit determined to have been in excess of the Guaranteed Rate. II GUARANTEE A. Period of Guarantee The Period of Guarantee will start on the date AWA initiates commercial operation of its first Aircraft powered by Eligible Engines and will terminate 10 years from that date. B. Eligible Engines The Engines that will be Eligible under this Guarantee shall be new installed and new spare Engines which are owned or operated by AWA during the Period of Guarantee and which have been acquired pursuant to the Proposal or Contract to which this Guarantee is attached and the related proposal or contract for delivery of Aircraft. The Engines shall remain Eligible provided that AWA or its authorized maintenance facility maintains them in accordance with the IAE instructions and recommendations contained in the applicable IAE publications including the latest Maintenance Management Plan for AWA. C. Eligible Shop Visits Eligible Shop Visits shall comprise the shop visits of Eligible Engines required for the following reasons: 1. a Failure of a Part in such Eligible Engines; 2. foreign object damage caused by the ingestion of birds, hailstones or runway gravel; 3. an Airworthiness Directive issued by the applicable Certification Authority; and 4. maintenance as recommended by IAE. D. Reporting of Engine Shop Visits and Engine Flight Hours Eligible Shop Visits shall be reported to IAE by AWA within thirty days after the date of such Engine Shop Visit using IAE Form TBD together with such other information as may be needed to determine the Eligibility of the Engine Shop Visit. Each such Form shall be verified by an authorized IAE Representative before submission. Should it be necessary for him to disqualify a reported Engine Shop Visit, supporting information will be furnished. Flight hours accumulated by Eligible Engines during each month during the Period of Guarantee shall be reported by AWA within thirty days after each month's end to IAE on IAE Form TBD unless other procedures are established for the reporting of flight hours. E. Credit Allowance Calculation A credit of $25,000 U.S. Dollars will be granted by IAE for each Eligible Engine Shop Visit determined as calculated below to be in excess of the Guaranteed Rate during the Period of Guarantee. An annual calculation will be made no later than sixty days after each yearly anniversary of the commencement of the Period of Guarantee provided that the necessary Engine Shop Visit records and Eligible Engine flight hour information have been reported to IAE. Each annual calculation will be made using data that will be cumulative from the start of the Period of Guarantee. An interim credit will be granted, if necessary, following the annual calculations for the second year and each subsequent year of the Period of Guarantee. If subsequent annual calculations show that on a cumulative basis, a previous interim credit (or portion thereof) was excessive, such excess amount shall be subject to repayment which will be effected by IAE issuing a debit against AWA's account with IAE. Credits and debits will be applied to AWA's account with IAE not later than thirty days following a calculation for the second year and each subsequent year of the Period of Guarantee, as applicable. Credit Allowance = (AR - GR) x $25,000 U.S. Dollars where: AR = Total Eligible Engine Shop Visits during the period of the calculation. GR = 0.170/1,000 x total Engine flight hours accumulated on Eligible Engines during the period of the calculation. (NOTE: GR will be rounded to the nearest whole number.) 53 III DEFINITIONS AND GENERAL CONDITIONS All of the Definitions and General Conditions of the V2500 Engine and Parts Service Policy shall apply to this Guarantee. Engines and Engine Shop Visits excluded by the General Conditions of the Policy shall be excluded from this Guarantee except that Engine Shop Visits resulting from ingestion of birds, hailstones or runway gravel shall be included as Eligible under this Guarantee. IV SPECIFIC CONDITIONS A. The Guaranteed Rate is predicated on the use by AWA of: 1. An average flight cycle of no less than 1.9 hours; 2. Thrust levels which are derated an average of 10 percent for Takeoff and Climb relative to full Takeoff and Climb ratings; 3. An average Engine utilization equal to or less than 3,400 flight hours per year; and 4. An Aircraft and Engine delivery schedule in respect of 24 firm Aircraft and 6 spare Engines as described in the Proposal or Contract to which this Guarantee is attached. B. IAE reserves the right to make appropriate adjustments to the Guaranteed Rate if there is, during the Period of Guarantee, a variation from the conditions upon which the Guaranteed Rate is predicated or a discontinuation of ownership by AWA of any Engine or any V2500 powered Aircraft subsequent to delivery to AWA. C. In the event credits are issued under Section II, such credits will be dedicated to the procurement of Parts aimed at correction of the situations contributing to excess Engine Shop Visits. Accordingly, AWA and IAE will establish jointly the modifications or Parts to be selected, and AWA will incorporate the changes into Eligible Engines. V EXCLUSION OF BENEFITS The intent of this Guarantee is to provide specified benefits to AWA as a result of the failure of Eligible Engines to achieve the reliability level stipulated in the Guarantee. It is not the intent, however, to duplicate benefits provided to AWA under any other applicable guarantee, sales warranty, service policy, or any special benefit of any kind as a result of the same failure. Therefore, the terms and conditions of this Guarantee notwithstanding, if the terms of this Guarantee should make duplicate benefits available to AWA from IAE or any third-party, AWA may elect to receive the benefits under this Guarantee or under any of the other benefits described above, but not both. 54 Exhibit D-6 V2500 INFLIGHT SHUTDOWN GUARANTEE I INTRODUCTION IAE assures AWA that by the end of the 10 year period commencing with AWA`s first commercial operation of Aircraft powered by V2500 Engines, the cumulative Engine Inflight Shutdown Rate will not exceed a Guaranteed Rate of .020 per 1000 Eligible Engine flight hours. Under this Guarantee, if the cumulative Eligible Inflight Shutdown Rate is determined to have exceeded the Guaranteed Rate over the Period of Guarantee, IAE will credit AWA`s account with IAE an amount of $10,000 U.S. Dollars for each Eligible Inflight Shutdown determined to have been in excess of the Guaranteed Rate. II GUARANTEE A. Period of Guarantee The Period of Guarantee will start on the date AWA initiates commercial operation of its first Aircraft powered by Eligible Engines and will terminate 10 years from that date. B. Eligible Engines The Engines that will be Eligible under this Guarantee shall be new installed and new spare Engines which are owned and operated by AWA during the Period of Guarantee and which have been acquired pursuant to the Proposal or Contract to which this Guarantee is attached and the related proposal or contract for delivery of Aircraft. The Engines shall remain Eligible provided that AWA or its authorized maintenance facility maintains them in accordance with the IAE instructions and recommendations contained in the applicable IAE publications including the latest Maintenance Management Plan as agreed to by AWA. C. Eligible Inflight Shutdowns Eligible Inflight Shutdowns shall comprise the inflight shutdown of an Eligible Engine during a scheduled revenue flight which is determined to have been caused by a Failure of a Part of such Engine. Multiple inflight shutdowns of the same Engine during the same flight leg for the same problem will be counted as one Eligible Inflight Shutdown. A subsequent inflight shutdown on a subsequent flight leg for the same problem because corrective action has not been taken will be excluded. D. Reporting of Eligible Inflight Shutdowns Eligible Inflight Shutdowns shall be reported to IAE by AWA within thirty days after the date of such Inflight Shutdown using IAE Form TBD together with such other information as may be needed to determine the Eligibility of the Inflight Shutdown. Each such Form shall be verified by an authorized IAE Representative before submission. Should it be necessary for him to disqualify a reported Inflight Shutdown, supporting information will be furnished. Flight hours accumulated by Eligible Engines during each month during the Period of Guarantee shall be reported by AWA within thirty days after each month's end to IAE on IAE Form TBD unless other procedures are established for the reporting of flight hours. E. Credit Allowance Calculation A credit of $10,000 U.S. Dollars will be granted by IAE for each Eligible Inflight Shutdown determined as calculated below to be in excess of the Guaranteed Rate during the Period of Guarantee. An annual calculation will be made no later than sixty days after each yearly anniversary of the commencement of the Period of Guarantee provided that the necessary Inflight Shutdown records and Eligible Engine flight hour information have been reported to IAE. Each annual calculation will be made using data that will be cumulative from the start of the Period of Guarantee. An interim credit will be granted, if necessary, following the annual calculations for the second year and each subsequent year of the Period of Guarantee. Credits will be applied to AWA`s account with IAE not later than thirty days following a calculation for the second year and each subsequent year of the Period of Guarantee, as applicable. The Credit Allowance = (AI - GI) x $10,000 U.S. Dollars Where: AI = Total Eligible Inflight Shutdowns during the period of the calculation; GI = (.020/1,000) x total Engine flight hours accumulated on Eligible Engines during the period of the calculation. (NOTE: GI will be rounded to the nearest whole number.) III DEFINITIONS AND GENERAL CONDITIONS All of the Definitions and General Conditions of the V2500 Engine and Parts Service Policy shall apply to this Guarantee. Engines and Inflight Shutdowns excluded by the General Conditions of the Policy shall be excluded from this Guarantee. 55 IV SPECIFIC CONDITIONS A. The Guaranteed Rate is predicated on the use by AWA of: 1. An average flight cycle of no less than 1.9 hours; 2. Thrust levels which are derated an average of 10 percent for Takeoff and Climb relative to full Takeoff and Climb ratings; 3. An average Aircraft utilization equal to or less than 3,400 flight hours per year; 4. An Aircraft and Engine delivery schedule in respect of 24 firm Aircraft and 6 spare Engines as described in the Proposal or Contract to which this Guarantee is attached. B. IAE reserves the right to make appropriate adjustments to the Guaranteed Rate if there is, during the Period of Guarantee, a variation from the conditions upon which the Guaranteed Rate is predicated or a discontinuation of ownership by AWA of any Engine or any V2500 powered Aircraft subsequent to delivery to AWA. C. In the event credits are issued under Section II, such credits will be dedicated to the procurement of Parts aimed at correction of the situations contributing to excess Inflight Shutdowns. Accordingly, AWA and IAE will establish jointly the modifications or Parts to be selected, and AWA will incorporate the changes into Eligible Engines. V EXCLUSION OF BENEFITS The intent of this Guarantee is to provide specified benefits to AWA as a result of the failure of Eligible Engines to achieve the reliability level stipulated in the Guarantee. It is not the intent, however, to duplicate benefits provided to AWA under any other applicable guarantee, sales warranty, service policy, or any special benefit of any kind as a result of the same failure. Therefore, the terms and conditions of this Guarantee notwithstanding, if the terms of this Guarantee should make duplicate benefits available to AWA from IAE or any third-party, AWA may elect to receive the benefits under this Guarantee or under any of the other benefits described above, but not both. 56 Exhibit D-7 V2500 FUEL CONSUMPTION RETENTION GUARANTEE I INTRODUCTION IAE assures AWA that at the end of the 10 year period commencing with AWA's first commercial operation of Aircraft powered by V2500 Engines, the fleet average cruise fuel consumption for Eligible Engines will not have increased by more than a Guaranteed Margin of 2.0%. Under this Guarantee, if the fleet average cruise fuel consumption for Eligible Engines exceeds the Guaranteed Margin at the end of the Guarantee Period, IAE will credit AWA's account with IAE an amount in respect of excess fuel consumed. II GUARANTEE A. Period of Guarantee The Period of Guarantee will start on the date AWA initiates commercial operation of its first Aircraft powered by Eligible Engines and will terminate 10 years from that date. B. Eligible Engines The Engines that will be Eligible under this Guarantee shall be new installed and new spare Engines which are owned and operated by AWA during the Period of Guarantee and which have been acquired pursuant to the Proposal or Contract to which this Guarantee is attached and the related proposal or contract for delivery of Aircraft. The Engines shall remain Eligible provided that AWA or its authorized maintenance facility maintains them in accordance with the IAE instructions and recommendations contained in the applicable IAE publications including the latest Maintenance Management Plan as agreed to by AWA. C. Fuel Consumption Measurement The inflight data required for administration of this Guarantee will be obtained by AWA during steady state cruise conditions using methods which will be mutually agreed between AWA and IAE. Steady state cruise conditions are defined as a minimum of five minutes at the same altitude, Mach number and thrust setting Engine Pressure Ratio in clear, smooth air with normal bleed and power extraction and autothrottle disengaged (unless flight evaluation shows this disengagement to be unnecessary). Data points falling within the following envelope of altitude, Mach number and Engine Pressure Ratio: Mach No. -- TBD to TBD, Altitude -- TBD to TBD feet, Engine Pressure Ratio -- TBD to TBD will be deemed to be Acceptable Data Points, provided that: a) the fuel consumption data for any Eligible Engine on which the engine parameters indicate a possible malfunction (including associated Aircraft systems), other than normal gas path deterioration, that is subsequently confirmed by maintenance action will not be considered acceptable data, and b) data which is obviously inaccurate under normal engine monitoring practices will not be considered acceptable data; this type of data will be rejected unless AWA validity checks have established that Total Air Temperature, Fuel Flow Aircraft and Engine Bleed Systems and other Aircraft parameters are within normal operating ranges. The data to be recorded will be that normally recorded for Engine Condition Monitoring purposes and will include the following: Altitude Mach Number Total Air Temperature (TAT) Indicated Airspeed (IAS) Engine Pressure Ratio (EPR) Fuel Flow Low Compressor Rotor Speed (N1) High Compressor Rotor Speed (N2) Exhaust Gas Temperature (EGT) Bleed Air Configuration Engine Fuel Flow measurements will be referred to in the Standard Engine Fuel Flow-Engine Pressure Ratio Relationship which will be defined for installed Engines by the Aircraft manufacturer during the Aircraft flight test certification program. D. Base Fuel Flow The Base Fuel Flow shall be the initial fuel flow level of each Eligible Engine on commencement of its commercial service. This shall be the average of the cruise fuel flow values for the first ten Acceptable Data Points recorded for each Eligible Engine. Base Fuel Flow is represented as a percentage deviation from the Standard Engine Fuel Flow-Engine Pressure Ratio Relationship. E. Cruise Fuel Flow The Cruise Fuel Flow shall be the average of the cruise fuel flow values for ten Acceptable Data Points for each installed Eligible Engine at any time after that Engine's Base Fuel Flow is established. Cruise Fuel Flow will also be expressed as a percent deviation from the Standard Engine Fuel Flow-Engine Pressure Ratio Relationship. 57 F. Engine Cruise Fuel Flow Deterioration The Cruise Fuel Flow Deterioration for an Eligible Engine shall be the difference between its Cruise Fuel Flow and the Base Fuel Flow expressed in percentage points. G. Periodic Fleet Average Cruise Fuel Consumption Deterioration The Periodic Fleet Average Cruise Fuel Consumption Deterioration shall be the average of the Cruise Fuel Flow Deterioration for all installed Eligible Engines for a 30 day reporting period. This is to be reported to IAE every 30 days. H. Final Fleet Average Cruise Fuel Consumption Deterioration The Final Fleet Average Cruise Fuel Consumption Deterioration is the average of the Periodic Fleet Average Cruise Fuel Consumption Deterioration values for all 30 day periods during the Period of Guarantee. I. Operational Data AWA shall provide the following data to IAE as indicated during the Period of the Guarantee: 1. Total quantity of fuel consumed by Eligible Engines during the Period (U.S. Gallons), every thirty days. 2. Average cost of fuel to AWA over the Period of Guarantee (U.S. Dollars per U.S. Gallon), every thirty days. 3. Individual Eligible Engine operating hours for each 30 day period during the Period of Guarantee identified by engine serial number, annually. 4. Engine maintenance action information, as requested. J. Excess Fuel Consumption Credit Calculation If at the end of the Period of Guarantee the Final Fleet Average Fuel Consumption Deterioration exceeds the Guaranteed Margin, IAE will grant AWA a credit in respect to excess fuel consumption calculated in accordance with the following formula: C = (D-GM)% YHF where: C = the amount of the credit in U.S. dollars D = the Final Fleet Average Fuel Consumption Deterioration GM = the Guaranteed Margin Y = average cruise fuel flow of new Eligible Engines expressed in U.S. gallons per hour H = the total of all flight hours flown by AWA's Eligible Engines during the Period of Guarantee F = The average net cost to AWA in U.S. Dollars per U.S. Gallon (after deduction of subsidies or government or other allowances received by AWA), of aviation fuel consumed by AWA during the Period of Guarantee. III DEFINITIONS AND GENERAL CONDITIONS All of the Definitions and General Conditions of the V2500 Engine and Parts Service Policy shall apply to this Guarantee. Engines excluded by the General Conditions of the Policy shall be excluded from this Guarantee. IV SPECIFIC CONDITIONS A. The Guaranteed Rate is predicated on the use by AWA of: 1. An average flight cycle of no less than 1.9hours; 2. Thrust levels which are derated an average of 10 percent for Takeoff and Climb relative to full Takeoff and Climb ratings; 3. An average Aircraft utilization equal to or less than 3,400 flight hours per year; 4. An Aircraft and Engine delivery schedule in respect of 24 firm Aircraft and 6 spare Engines as described in the Proposal or Contract to which this Guarantee is attached. B. IAE reserves the right to make appropriate adjustments to the Guaranteed Rate if there is, during the Period of Guarantee, a variation from the conditions upon which the Guaranteed Rate is predicated or a discontinuation of ownership by AWA of any Engine or any V2500 powered Aircraft subsequent to delivery to AWA. V EXCLUSION OF BENEFITS The intent of this Guarantee is to provide specified benefits to AWA as a result of the failure of Eligible Engines to achieve the performance level stipulated in the Guarantee. It is not the intent, however, to duplicate benefits provided to AWA under any other applicable guarantee, sales warranty, service policy, or any special benefit of any kind as a result of the same failure. Therefore, the terms and conditions of this Guarantee notwithstanding, if the terms of this Guarantee should make duplicate benefits available to AWA from IAE or any third-party, AWA may elect to receive the benefits under this Guarantee or under any of the other benefits described above, but not both. 58 Exhibit D-8 V2500 EXHAUST GAS TEMPERATURE GUARANTEE I INTRODUCTION IAE assures AWA that during the first 6,000 hours of operation of each V2500 Engine, the maximum stabilized takeoff exhaust gas temperature will not exceed the Certified Limit. Under this Guarantee if it is confirmed that the Certified Limit has been exceeded, IAE will provide technical assistance or perform Engine maintenance or both to correct the condition. For the purpose of this Guarantee, the Certified Limit is exceeded if the Engine will not achieve the specified engine pressure ratio for takeoff thrust without exceeding the Certified Limit for its Exhaust Gas Temperature. II GUARANTEE A. Period of Guarantee The Period of Guarantee for each Eligible Engine will start on the date AWA initiates commercial operation of its first Aircraft powered by such Engine and will terminate 10 years from that date or upon the expiration of the first 6,000 hours of operation of such Engine, whichever is the sooner. B. Eligible Engines The Engines that will be Eligible under this Guarantee shall be new installed and new spare Engines which are owned and operated by AWA during the Period of Guarantee and which have been acquired pursuant to the Proposal or Contract to which this Guarantee is attached and the related proposal or contract for delivery of Aircraft. The Engines shall remain Eligible provided that AWA or its authorized maintenance facility maintains them in accordance with the IAE instructions and recommendations contained in the applicable IAE publications including the latest Maintenance Management Plan as agreed to by AWA. C. Restoration of Installed Engine If during the Period of Guarantee, the maximum stabilized takeoff exhaust gas temperature of an Eligible Engine installed in an Aircraft operated by AWA exceeds the Certified Limit, AWA shall undertake on-wing Engine maintenance recommended by IAE, with technical assistance provided by IAE, to restore the performance of that Engine. D. Calibration of Removed Engine If the performance of an installed Eligible Engine cannot be restored by the maintenance recommended under Section II, Paragraph C, AWA shall promptly remove such Engine from the Aircraft and dispatch it at its cost for calibration in an IAE designated test cell. If such calibration verifies that the exhaust gas temperature of the Engine is not in excess of the Certified Limit or it is established that any excess is due to causes which are excluded by the General Conditions in Section III, then the cost of such test cell calibration and associated transportation will be borne by AWA. E. Restoration of Removed Engine If (i) calibration under Section II, Paragraph D verifies that the exhaust gas temperature of the Engine is in excess of the Certified Limit, and (ii) such excess was the sole reason for removing such Engine from the Aircraft, IAE shall: a) bear the cost of such test cell calibration; b) define the extent of work which will need to be carried out on the Eligible Engine, its Modules and its Parts to restore its performance such that its maximum stabilized exhaust gas temperature should not again exceed the Certified Limit prior to expiration of the Period of Guarantee; and, c) either: c.1 Issue a credit note to AWA in an amount equal to one hundred percent (100%) Parts Credit Allowance and Labor Allowance for work carried out by AWA calculated in accordance with the V2500 Engine and Parts Service Policy; or c.2 make no charge for such work carried out by IAE. III DEFINITIONS AND GENERAL CONDITIONS All of the Definitions and General Conditions of the V2500 Engine and Parts Service Policy shall apply to this Guarantee. Engines excluded by the General Conditions of the Policy shall be excluded from this Guarantee. IV SPECIFIC CONDITIONS A. The Guaranteed Rate is predicated on the use by AWA of: 1. An average flight cycle of no less than 1.9hours; 2. Thrust levels which are derated an average of 10 percent for Takeoff and Climb relative to full Takeoff and Climb ratings; 3. An average Aircraft utilization equal to or less than 3,400 flight hours per year; and 4. An Aircraft and Engine delivery schedule in respect of 24 firm Aircraft and 6 spare Engines as described in the Proposal or Contract to which this Guarantee is attached. B. IAE reserves the right to make appropriate adjustments to the Guaranteed Rate if there is, during the Period of Guarantee, a variation from the conditions upon which 59 the Guaranteed Rate is predicated or a discontinuation of ownership by AWA of any Engine or any V2500 powered Aircraft subsequent to delivery to AWA. V EXCLUSION OF BENEFITS The intent of this Guarantee is to provide specified benefits to AWA as a result of the failure of Eligible Engines to achieve the performance level stipulated in the Guarantee. It is not the intent, however, to duplicate benefits provided to AWA under any other applicable guarantee, sales warranty, service policy, or any special benefit of any kind as a result of the same failure. Therefore, the terms and conditions of this Guarantee notwithstanding, if the terms of this Guarantee should make duplicate benefits available to AWA from IAE or any third-party, AWA may elect to receive the benefits under this Guarantee or under any of the other benefits described above, but not both. EX-10.42 4 EXHIBIT 10.42 1 EXHIBIT 10.42 AMERICA WEST AIRLINES, INC. 1994 INCENTIVE EQUITY PLAN EFFECTIVE AS OF DECEMBER 1, 1994 2 AMERICA WEST AIRLINES, INC. 1994 INCENTIVE EQUITY PLAN America West Airlines, Inc., a Delaware corporation (the "Company"), hereby establishes this America West Airlines, Inc., 1994 Incentive Equity Plan (this "Plan"), effective as of December 1, 1994, subject to stockholder approval. 1. Purpose. The purpose of the Plan is to promote the interests of the Company by encouraging employees of the Company and its Subsidiaries and the Nonemployee Directors of the Company to acquire or increase their equity interests in the Company and to provide a means whereby employees may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. The Plan is also contemplated to enhance the ability of the Company and its Subsidiaries to attract and retain the services of individuals who are essential for the growth and profitability of the Company. 2. Definitions. As used in this Plan: (a) "Appreciation Right" means a right granted pursuant to Paragraph 5. (b) "Award" means an Appreciation Right, an Option Right, a Director Option, Phantom Shares, a Performance Unit, Bonus Stock, Restricted Stock or a Cash Tax Right. (c) "Board" means the Board of Directors of the Company. (d) "Bonus Stock" means unrestricted shares of Common Stock granted pursuant to Paragraph 9. (e) "Cash Tax Right" means a right granted pursuant to Paragraph 10. (f) "Change in Control" shall occur if: (i) the individuals who, as of December 1, 1994, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to December 1, 1994 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (ii) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended), but not including David Bonderman or James G. Coulter or any individual, entity or group which is controlled (whether directly or indirectly and whether through ownership of voting securities, contract or otherwise) by David Bonderman and/or James G. Coulter, acquires (directly or indirectly) the beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Power"); or (iii) any shares of Common Stock or any other voting securities of the Company shall be purchased pursuant to a tender or exchange offer (other than a tender or exchange offer made by the Company); or (iv) the Company's stockholders shall approve a merger or consolidation, sale or disposition of all or substantially all of the Company's assets or a plan of liquidation or dissolution of the Company, other than (A) a merger or consolidation in which the voting securities of the Company outstanding immediately prior thereto will become (by operation of law), or are to be converted into, voting securities of the surviving corporation or its parent corporation immediately after such merger or consolidation that are owned by the same person or entity or persons or entities as immediately prior thereto and possess at least 75% of the Voting Power held by the voting securities of the surviving corporation or its parent corporation, (B) a merger or consolidation effected to implement a 3 recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the Voting Power or (C) a merger or consolidation in which the Company is the surviving corporation and such transaction was determined not to be a Change in Control, which transaction and determination was approved by a majority of the Board in actions taken prior to, and with respect to, such transaction. (g) "Code" means the Internal Revenue Code of 1986, as in effect from time to time. (h) "Committee" means the Compensation/Human Resources Committee of the Board. (i) "Common Stock" means the Class B Common Stock, $0.01 par value, of the Company or any security into which such Common Stock may be changed by reason of any transaction or event of the type described in Paragraph 13. (j) "Date of Grant" means (i) with respect to an Award other than a Director Option, the date specified by the Committee on which such Award will become effective (which date will not be earlier than the date on which the Committee takes action with respect thereto) and (ii) with respect to a Director Option, the automatic date of grant as provided in Paragraph 11. (k) "Director Option" means the right to purchase a share of Common Stock upon exercise of an option granted pursuant to Paragraph 11. (l) "Dividend Equivalent" means, with respect to a Phantom Share, an amount equal to the amount of any dividends that are declared and become payable after the Date of Grant for such Award and on or before the date such Award is paid or forfeited, as the case may be. (m) "Grant Price" means the price per share of Common Stock at which an Appreciation Right not granted in tandem with an Option Right is granted. (n) "Management Objectives" means the objectives, if any, established by the Committee that are to be achieved with respect to an Award granted under this Plan, which may be described in terms of Company-wide objectives, in terms of objectives that are related to performance of the division, Subsidiary, department or function within the Company or a Subsidiary in which the Participant receiving the Award is employed or in individual or other terms, and which will relate to the period of time (Performance Cycle) determined by the Committee. The Management Objectives intended to qualify under Section 162(m) of the Code shall be with respect to one or more of the following: (i) earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"); (ii) earnings before interest and taxes ("EBIT"); (iii) EBITDA, EBIT or earnings before taxes and unusual or nonrecurring items as measured either against the annual budget or as a ratio to revenue; return on total capital; (iv) total stockholder return; (v) stock price performance; (vi) revenue per average seat mile; (vii) costs per average seat mile; and (viii) customer satisfaction rating using the PLOG survey. Which objectives to use with respect to an Award, the weighting of the objectives if more than one is used, and whether the objective is to be measured against a Company-established budget or target, an index or a peer group of airlines, shall be determined by the Committee in its discretion at the time of grant of the Award. A Management Objective need not be based on an increase or a positive result and may include, for example, maintaining the status quo or limiting economic losses. The Committee, in its sole discretion and without the consent of the Participant, may amend an Award to reflect (1) a change in corporate capitalization, such as a stock split or dividend, (2) a corporate transaction, such as a corporate merger, a corporate consolidation, any corporate separation (including a spinoff or other distribution of stock or property by a corporation), any corporate reorganization (whether or not such reorganization comes within the definition of such term in section 368 of the Code), or (3) any partial or complete corporate liquidation. With respect to an Award that is subject to Management Objectives, the Committee must first certify that the Management Objectives have been achieved before the Award may be paid. (o) "Market Value per Share" means, at any date, the closing sale price per share of the Common Stock on that date (or, if there are no sales on that date, the last preceding date on which there was a sale) in the principal market in which the Common Stock is traded. 4 (p) "Nonemployee Director" means a director of the Company who is not also an employee of the Company or a Subsidiary. (q) "Option Price" means the purchase price per share payable on exercise of an Option Right or Director Option. (r) "Option Right" means the right to purchase a share of Common Stock upon exercise of an option granted pursuant to Paragraph 4. (s) "Participant" means an employee of the Company or any of its Subsidiaries who is selected by the Committee to receive an Award under any of Paragraphs 4 through 10 and shall also include a Nonemployee Director who has received an automatic grant of Director Options pursuant to Paragraph 11. (t) "Performance Unit" means a unit equivalent to $100 (or such other value as the Committee determines) awarded pursuant to Paragraph 8. (u) "Phantom Shares" means notional shares of Common Stock awarded pursuant to Paragraph 7. (v) "Restricted Stock" means shares of Common Stock granted or sold pursuant to Paragraph 6 as to which neither the ownership restrictions nor the restriction on transfers referred to therein has expired. (w) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission (or any successor rule to the same effect) as in effect from time to time. (x) "Spread" means the amount determined by multiplying (a) the excess of the Market Value per Share on the date when an Appreciation Right is exercised over the Option Price provided for in the related Option Right or, if there is no tandem Option Right, the Grant Price provided for in the Appreciation Right by (b) the number of shares of Common Stock in respect of which the Appreciation Right is exercised. (y) "Subsidiary" means, at any time, any corporation in which at the time the Company then owns or controls, directly or indirectly, not less than 50% of the total combined voting power represented by all classes of stock issued by such corporation. 3. Shares Available Under Plan. Subject to adjustments as provided in Paragraph 13, (i) 3,500,000 is the maximum number of shares of Common Stock which may be issued or transferred and covered by all outstanding Awards under this Plan, of which number no more than 1,500,000 shares will be issued or transferred as Restricted Stock or Bonus Stock, and (ii) 350,000 is the maximum number of shares of Common Stock which may be issued pursuant to or covered by Option Rights and Appreciation Rights granted under this Plan to any one Participant during any calendar year. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. Upon exercise of any Appreciation Rights or the payment of any Phantom Shares, there will be deemed to have been delivered under this Plan for purposes of this Paragraph 3 the number of shares of Common Stock covered by the Appreciation Rights or equal to the Phantom Shares, as applicable, regardless of whether such Appreciation Rights or Phantom Shares were paid in cash or shares of Common Stock. Subject to the provisions of the preceding sentence, any shares of Common Stock which are subject to Option Rights, Appreciation Rights, or Phantom Shares awarded or sold as Restricted Stock that are terminated, unexercised, forfeited or surrendered or which expire for any reason will again be available for issuance under this Plan, unless, with respect to Restricted Stock, the Participant has received benefits of ownership with respect to such shares, such as dividends, but not including voting rights. 5 4. Option Rights. The Committee may from time to time authorize grants to any Participant of options to purchase shares of Common Stock upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant will specify the number of shares of Common Stock to which it pertains. (b) Each grant will specify its Option Price, which may not be less than 100% of the Market Value per Share on the Date of Grant. (c) Each grant will specify that the Option Price will be payable (i) in cash by check acceptable to the Company, (ii) by the transfer to the Company of shares of Common Stock already-owned by the optionee having an aggregate Market Value per Share at the date of exercise equal to the aggregate Option Price, (iii) from the proceeds of a sale through a broker of some or all of the shares to which such exercise relates, or (iv) by a combination of such methods of payment. (d) Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised. (e) Each grant will specify the required period or periods of continuous service by the Participant with the Company and/or any Subsidiary and/or the Management Objectives (if any) to be achieved before the Option Rights or installments thereof will become exercisable, and any grant may provide for the earlier exercise of the Option Rights in the event of a Change in Control or other corporate transaction or event or upon termination of the Participant's employment due to death, disability, retirement or otherwise. (f) Each grant the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of Management Objectives may specify a minimum level of achievement in respect of the specified Management Objectives below which no Options Rights will be exercisable and may set forth a formula or other method for determining the number of Option Rights that will be exercisable if performance is at or above such minimum but short of full achievement of the Management Objectives. (g) Option Rights granted under this Plan may be (i) options which are intended to qualify as incentive stock options under Section 422 of the Code, (ii) options which are not intended to so qualify or (iii) combinations of the foregoing. (h) Each grant shall specify the period during which the Option Right may be exercised, but no Option Right will be exercisable more than ten years from the Date of Grant. (i) Each grant of Option Rights will be evidenced by an agreement executed on behalf of the Company by any officer and delivered to the Participant and containing such terms and provisions, consistent with this Plan, as the Committee may approve. 5. Appreciation Rights. The Committee may also from time to time authorize grants to any Participant of Appreciation Rights upon such terms and conditions as it may determine in accordance with this Paragraph. Appreciation Rights may be granted in tandem with Option Rights or separate and apart from a grant of Option Rights. An Appreciation Right will be a right of the Participant granted such Award to receive from the Company, upon exercise, an amount which will be determined by the Committee at the Date of Grant and will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. An Appreciation Right granted in tandem with an Option Right may be exercised only by surrender of the related Option Right. Each grant of an Appreciation Right may utilize any or all of the authorizations, and will be subject to all of the limitations, contained in the following provisions: (a) Each grant will state whether it is made in tandem with Option Rights and, if not made in tandem with any Option Rights, will specify the number of shares of Common Stock in respect of which it is made. 6 (b) Each grant made in tandem with Option Rights will specify the Option Price and each grant not made in tandem with Option Rights will specify the Grant Price, which in either case will not be less than 100% of the Market Value per Share on the Date of Grant. (c) Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Company in (i) cash, (ii) shares of Common Stock having an aggregate Market Value per Share equal to the Spread or (iii) any combination thereof, as determined by the Committee in its sole discretion. (d) Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Committee at the Date of Grant (valuing shares of Common Stock for this purpose at their Market Value per Share at the date of exercise). (e) Each grant will specify the required period or periods of continuous service by the Participant with the Company and/or any Subsidiary and/or Management Objectives to be achieved before the Appreciation Rights or installments thereof will become exercisable, and will provide that no Appreciation Right may be exercised except at a time when the Spread is positive and, with respect to any grant made in tandem with Option Rights, when the related Option Right is also exercisable. Any grant may provide for the earlier exercise of the Appreciation Rights in the event of a Change in Control or other corporate transaction or event or upon the Participant's termination due to death, disability or retirement. (f) Each grant the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of Management Objectives may specify a minimum level of achievement in respect of the specified Management Objectives below which no Appreciation Rights will be exercisable and may set forth a formula or other method for determining the number of Appreciation Rights that will be exercisable if performance is at or above such minimum but short of full achievement of the Management Objectives. (g) Each grant of an Appreciation Right will be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant receiving the grant, which agreement will describe such Appreciation Right, identify any Option Right granted in tandem with such Appreciation Right, state that such Appreciation Right is subject to all the terms and conditions of this Plan and contain such other terms and provisions, consistent with this Plan, as the Committee may approve. 6. Restricted Stock. The Committee may also from time to time authorize grants or sales to any Participant of Restricted Stock upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant or sale will constitute an immediate transfer of the ownership of shares of Common Stock to the Participant in consideration of the performance of services, entitling such Participant to voting and other ownership rights, but subject to the restrictions hereinafter referred to. Each grant or sale may limit the Participant's dividend rights during the period in which the shares of Restricted Stock are subject to any such restrictions. (b) Each grant or sale will specify the Management Objectives, if any, that are to be achieved in order for the ownership restrictions to lapse. Each grant or sale that is subject to the achievement of Management Objectives will specify a minimum acceptable level of achievement in respect of the specified Management Objectives below which the shares of Restricted Stock will be forfeited and may set forth a formula or other method for determining the number of shares of Restricted Stock with respect to which restrictions will lapse if performance is at or above such minimum but short of full achievement of the Management Objectives. (c) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant. (d) Each such grant or sale will provide that the shares of Restricted Stock covered by such grant or sale will be subject, for a period to be determined by the Committee at the Date of Grant, to one or more 7 restrictions, including, without limitation, a restriction that constitutes a "substantial risk of forfeiture" within the meaning of Section 83 of the Code and the regulations thereunder, and any grant or sale may provide for the earlier termination of such period in the event of a Change in Control or other corporate transaction or event or upon termination of the Participant's employment due to death, disability, retirement or otherwise. (e) Each such grant or sale will provide that during the period for which such restriction or restrictions are to continue, the transferability of the Restricted Stock will be prohibited or restricted in a manner and to the extent prescribed by the Committee at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to continuing restrictions in the hands of any transferee). (f) Each grant or sale of Restricted Stock will be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant and containing such terms and provisions, consistent with this Plan, as the Committee may approve. (g) Unless otherwise approved by the Committee, certificates representing shares of Common Stock transferred pursuant to a grant of Restricted Stock will be held in escrow pursuant to an agreement satisfactory to the Committee until such time as the restrictions on transfer have expired or the shares have been forfeited. (h) The maximum number of shares of Restricted Stock that may be granted or sold to any one Participant in any calendar year is 150,000 shares. 7. Phantom Shares. The Committee may also from time to time authorize grants to any Participant of Phantom Shares upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant will specify the number of Phantom Shares to which it pertains and the payment or crediting of any Dividend Equivalents with respect to such Phantom Shares. (b) Each grant will specify the Management Objectives, if any, that are to be achieved in order for the Phantom Shares to be earned. Each grant that is subject to the achievement of Management Objectives will specify a minimum acceptable level of achievement in respect of the specified Management Objectives below which the Phantom Shares will be forfeited and may set forth a formula or other method for determining the number of Phantom Shares to be earned if performance is at or above such minimum but short of full achievement of the Management Objectives. (c) Each grant will specify the time and manner of payment of Phantom Shares which have been earned, which payment may be made in (i) cash, (ii) shares of Common Stock or (iii) any combination thereof, as determined by the Committee in its sole discretion. (d) Each grant of Phantom Shares will be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant and containing such terms and provisions, consistent with this Plan, as the Committee may approve, including provisions relating to a Change in Control or other corporate transaction or event or upon the Participant's termination due to death, disability or retirement. (e) The maximum number of Phantom Shares that may be granted to any one Participant in any calendar year is 150,000 shares. 8. Performance Units. The Committee may also from time to time authorize grants to any Participant of Performance Units upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant will specify the number of Performance Units to which it pertains. (b) Each grant will specify the Management Objectives that are to be achieved in order for the Performance Units to be earned. Each grant will specify a minimum acceptable level of achievement in 8 respect of the specified Management Objectives below which no payment will be made and may set forth a formula or other method for determining the amount of payment to be made if performance is at or above such minimum but short of full achievement of the Management Objectives. (c) Each grant will specify the time and manner of payment of Performance Units which have become payable, which payment may be made in (i) cash, (ii) shares of Common Stock having an aggregate Market Value per Share equal to the aggregate value of the Performance Units which have become payable or (iii) any combination thereof, as determined by the Committee in its sole discretion at the time of payment. (d) Each grant of a Performance Unit will be evidenced by an agreement executed on behalf of the Company by any officer and delivered to and accepted by the Participant and containing such terms and provisions, consistent with this Plan, as the Committee may approve, including provisions relating to a Change in Control or other corporate transaction or event or upon the Participant's termination of employment due to death, disability, retirement or otherwise. (e) The maximum amount of compensation that may be made subject to any Performance Unit grant made to any one Participant in any calendar year is $1.5 million. 9. Bonus Stock. The Committee may also from time to time authorize grants to any Participant of Bonus Stock, which shall constitute a transfer of shares of Common Stock, without other payment therefor, as additional compensation for the Participant's services to the Company or its Subsidiaries. 10. Cash Tax Rights. (a) The Committee may also from time to time authorize grants to any Participant of Cash Tax Rights upon such terms and conditions as it may determine in accordance with this Paragraph. Cash Tax Rights may be granted in tandem with any Award that is payable in shares of Common Stock. A Cash Tax Right will be the right of the Participant granted such Award to receive from the Company, upon receipt of shares of Common Stock pursuant to the tandem Award, an amount of cash, which will be determined by the Committee at the Date of Grant and will be expressed as a percentage of the Market Value per Share (not exceeding 100%) of each share of Common Stock received upon payment of the tandem Award. (b) Each grant of a Cash Tax Right will (i) state the Award it is made in tandem with and will specify the percentage of the Market Value per Share that shall be payable in cash and (ii) be evidenced by an agreement extended on behalf of the Company by any officer and delivered to and accepted, by the Participant and containing such terms and provisions, consistent with this Plan, as the Committee may approve, including provisions relating to a Change in Control or other corporate transaction or event or upon the Participant's termination of employment due to death, disability, retirement or otherwise. 11. Director Options. (a) Each Nonemployee Director who serves in such capacity on December 31, 1994 shall automatically receive, on such date, a Director Option for 3,000 shares of Common Stock. Each Nonemployee Director who is elected or appointed to the Board for the first time after the effective date of this Plan shall automatically receive, on the date of his or her election or appointment, a Director Option for 3,000 shares of Common Stock. (b) On the day following the regular annual meeting of the stockholders of the Company in each year that this Plan is in effect (commencing with the 1995 annual meeting of stockholders), each Nonemployee Director who is in office on that day and who was not elected for the first time at such annual meeting shall automatically receive a Director Option for 3,000 shares of Common Stock. (c) Each Director Option will be subject to all of the limitations contained in the following provisions: (i) Each Director Option shall become exercisable (vested) on the first day that is more than six months following its Date of Grant; provided that in no event shall any Director Option be exercisable prior to the approval of this Plan by the Company's stockholders. (ii) The Option Price of each Director Option shall be the Market Value per Share on its Date of Grant. 9 (iii) Each Director Option that is vested may be exercised in full at one time or in part from time to time by giving written notice to the Company, stating the number of shares of Common Stock with respect to which the Director Option is being exercised, accompanied by payment in full of the Option Price for such shares, which payment may be (i) in cash by check acceptable to the Company, (ii) by the transfer to the Company of shares of Common Stock already-owned by the optionee having an aggregate Market Value per Share at the date of exercise equal to the aggregate Option Price, (iii) from the proceeds of a sale through a broker of some or all of the shares to which such exercise relates, or (iv) by a combination of such methods of payment. (iv) Each Director Option shall expire 10 years from the Date of Grant thereof, but shall be subject to earlier termination as follows: Director Options, to the extent exercisable as of the date a Nonemployee Director ceases to serve as a director of the Company, must be exercised within three months of such date unless such termination from the Board results from the Nonemployee Director's death, disability or retirement, in which case the Director Options may be exercised by the optionee or the optionee's legal representative or the person to whom the Nonemployee Director's rights shall pass by will or the laws of descent and distribution, as the case may be, within three years from the date of termination; provided however, that no such event shall extend the normal expiration date of such Director Options. (v) In the event that the number of shares of Common Stock available for grants under this Plan is insufficient to make all automatic grants provided for in this Paragraph 11 on the applicable date, then all Nonemployee Directors who are entitled to a grant on such date shall share ratably in the number of shares then available for grant under this Plan, and shall have no right to receive a grant with respect to the deficiencies in the number of available shares and all future grants under this Paragraph 11 shall terminate. (vi) Grants made pursuant to this Paragraph 11 shall be subject to all of the terms and conditions of this Plan; however, if there is a conflict between the terms and conditions of this Paragraph 11 and the terms and conditions of any other Paragraph, then the terms and conditions of this Paragraph 11 shall control. The Committee may not exercise any discretion with respect to this Paragraph 11 which would be inconsistent with the intent that this Plan meet the requirements of Rule 16b-3. 12. Transferability. No Award that has not become payable or earned will be transferable by a Participant other than by will or the laws of descent and distribution. Director Options, Option Rights or Appreciation Rights will be exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. 13. Adjustments. The Board may make or provide for such adjustments in the maximum number of shares specified in Paragraph 3, in the numbers of shares of Common Stock covered by outstanding Director Options, Option Rights, Appreciation Rights and Phantom Shares granted hereunder, in the Option Price or Grant Price applicable to any such Director Options, Option Rights and Appreciation Rights, and/or in the kind of shares covered thereby (including shares of another issuer), as the Board, in its sole discretion exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, merger, consolidation, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities or any other corporation transaction or event having an effect similar to any of the foregoing. 14. Fractional Shares. The Company will not be required to issue any fractional share of Common Stock pursuant to this Plan. The Committee may provide for the elimination of fractions for the settlement of fractions in cash. 15. Withholding of Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any grant or payment made to a Participant or any other person under this Plan, or is requested by a Participant to withhold additional amounts with respect to such taxes, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such grant or payment that the Participant or such other person make arrangements satisfactory to the 10 Company for the payment of balance of the such taxes required or requested to be withheld, which arrangements in the discretion the Committee may include relinquishment of a portion of such Award or payment. With respect to any Participant who is subject to Rule 16b-3 at the time withholding is required with respect to an Award payable in Common Stock, the Company shall automatically withhold from such Award, to the extent such withholding is not satisfied by a tandem Cash Tax Right, if any, a number of shares of Common Stock having an aggregate Market Value per Share equal to the amount of taxes required to be withheld. 16. Parachute Tax Gross-Up. To the extent that the acceleration of vesting or any payment, distribution or issuance made to a Participant under the Plan (a "Benefit") is subject to a golden parachute excise tax under Section 4999(a) of the Code (a "Parachute Tax"), the Company shall pay such Participant an amount of cash (the "Gross-up Amount") such that the "net" Benefit received by the Participant under this Plan, after paying all applicable Parachute Taxes (including those on the Gross-up Amount) and any federal or state income taxes on the Gross-up Amount, shall be equal to the Benefit that such Participant would have received if such Parachute Tax had not been applicable. 17. Administration of the Plan. (a) This Plan will be administered by the Committee, which at all times will consist entirely of not less than three directors appointed by the Board, each of whom will be a "disinterested person" within the meaning Rule 16b-3 and an "outside director" within the meaning of Section 162(m) of the Code. A majority of the Committee will constitute a quorum, and the action of the members the Committee present at any meeting at which a quorum is present, or acts unanimously approved writing, will be the acts of the Committee. (b) The interpretation and construction by the Committee of any provision of this Plan or of any agreement, notification or document evidencing the grant of an Award and any determination by the Committee pursuant to any provision of this Plan or of any such agreement, notification or documentation will be final and conclusive. No member of the Committee will be liable for any such action or determination made in good faith or in the absence of gross negligence or willful misconduct on the part of such member. 18. Amendments, Etc. (a) This Plan may be amended from time to time by the Board but may not be amended by the Board without further approval by the stockholders of the Company if such amendment would result in this Plan no longer satisfying the requirements of Rule 16b-3; provided, however, that the provisions of Paragraph 11 may not be amended more than once every six months other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. (b) The Committee may, in its sole discretion, take any action it deems to be equitable under the circumstances or in the best interests of the Company with respect to any Award (other than a Director Option), unless such Award is intended to qualify as "performance based" compensation under Section 162(m) of the Code and such action would cause the Award to fail to so qualify. (c) This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant's employment or other service at any time. 19. Term. This Plan shall be effective as of December 1, 1994, subject to approval by the Company's stockholders; provided, however, no Award shall be exercisable or payable prior to the date of such stockholders' approval. In the event that this Plan is not approved by the stockholders of the Company within twelve months after the date of its adoption by the Board, this Plan and all Awards made under this Plan shall be automatically null and void. Unless sooner terminated, this Plan shall terminate on November 30, 2004, and no further Awards shall be made, but all outstanding Awards on such date shall remain effective in accordance with their terms and the terms of this Plan. EX-10.43 5 EXHIBIT 10.43 1 EXHIBIT 10.43 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of December 1, 1994 by and between America West Airlines, Inc., a Delaware corporation ("Company"), and William A. Franke ("Franke"). WHEREAS, Franke currently serves as the Chairman of the Board and Chief Executive Officer of the Company; WHEREAS, the Company desires for Franke to continue serving as the Chairman of the Board and Chief Executive Officer of the Company and Franke is willing to continue serving in such capacities, in each case on the terms and conditions herein set forth; and WHEREAS, the Compensation/Human Resources Committee of the Company's Board of Directors, the committee which administers the Incentive Plan (defined below), has authorized the granting of the Stock Grants described in Section 3.2 and the Stock Options described in Section 3.3. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions and Interpretations 1.1. Definitions For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings: "AmWest Registration Agreement" shall have the meaning specified in Section 5.1. "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy", as from time to time amended, and any successor statute thereto. "Board" shall mean the Board of Directors of the Company. "Cash Base Salary" shall have the meaning specified in Section 3.1. "Change in Control" shall occur if: (i) the individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (ii) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended), but not including David Bonderman or James G. Coulter or any individual, entity or group which is controlled (whether directly or indirectly and whether through the ownership of voting securities, by contract or otherwise) by David Bonderman and/or James G. Coulter, acquires (directly or indirectly) the beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Power"); or (iii) any Shares or other voting securities of the Company shall be purchased pursuant to a tender or exchange offer (other than a tender or exchange offer made by the Company); or (iv) the Company's stockholders shall approve a merger or consolidation involving the Company other than (A) a merger or consolidation in which the voting securities of the Company outstanding immediately prior thereto will become (by operation of law), or are to be converted into, voting securities of the surviving corporation or its parent corporation immediately after such merger or consolidation that are owned by the same person or entity or persons or entities as immediately prior thereto and possess at least 75% of the Voting Power held by the voting securities of the surviving corporation or its parent corporation, (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the Voting Power or (C) a merger or consolidation in which the Company is the surviving corporation and such transaction was determined not to be a Change in Control, which transaction and determination was approved by a majority of the Board in actions taken prior to, and with respect to, such transaction; or (v) the Company's stockholders shall approve a merger, consolidation, reorganization, disposition of assets, liquidation or other transaction (or series of related transactions) in which the Company will not survive as a publicly-owned corporation. "Code" shall mean the Internal Revenue Code of 1986, as in effect from time to time. "Disability" shall mean a physical or mental condition of Franke that, in the good faith judgment of not less than a majority of the entire membership of the Board, based upon certification by a licensed physician reasonably acceptable to Franke and the Board, (i) prevents Franke from being able to perform the services required under this Agreement, (ii) has continued for a period of at least six months during any period of twelve consecutive months and (iii) is expected to continue. "Dispute" shall have the meaning specified in Article VI. 2 "Good Reason" shall mean any of the following: (1) without Franke's express written consent, a material alteration in the nature or status of Franke's position, functions, duties or responsibilities with the Company, including any change which would (i) alter Franke's reporting responsibilities, (ii) cause Franke's position with the Company to become of less dignity or importance than the positions and attributes of Chairman of the Board and Chief Executive Officer and/or (iii) cause Franke not to have all of the powers, functions, duties and responsibilities described in the first sentence of Section 2.2(a); (2) without Franke's express written consent, the failure of the Company to perform any of its obligations under this Agreement in any material regard, but only if such failure shall continue unremedied for more than 15 days after written notice thereof is given by Franke to the Company; (3) without Franke's express written consent, the relocation of the principal executive offices of the Company outside the greater Phoenix, Arizona area or the Company's requiring Franke to be based other than at such principal executive offices; (4) a Change in Control, provided that if Franke terminates his employment on account of a Change in Control, such termination shall not be deemed to be for Good Reason unless Franke gives the required Notice of Termination upon, or within 180 days following, such Change in Control; (5) the failure the Company at any time during the Term to elect or re-elect, or to appoint or re-appoint, Franke to the offices of Chairman of the Board and Chief Executive Officer; (6) any purported termination by the Company of Franke's employment not in accordance with the provisions of this Agreement; (7) the failure of the Company to obtain any assumption agreement required by Section 8.5(a); (8) the failure of Franke to be elected or or appointed, or to be re-elected or re-appointed, as a director of the Company at any time during the Term; (9) the Company shall make an assignment for the benefit of creditors or is adjudicated insolvent or bankrupt under Title 11 of the Bankruptcy Code; (10) the Company voluntarily commences any proceeding under the Bankruptcy Code or files any petition under the Bankruptcy Code seeking the appointment of a receiver, trustee, custodian or liquidator for the Company or a substantial portion of its property; (11) involuntary proceedings are commenced against the Company under the Bankruptcy Code seeking reorganization or a creditors' arrangement with respect to the Company or the appointment of a receiver, trustee, custodian or liquidator for the Company or a substantial portion of its property and such proceedings are not dismissed within 60 days after commencement; (12) any order, judgment or decree is entered against the Company appointing any receiver or trustee for the Company or for all or a substantial portion of its property; or (13) the failure of the Company's stockholders to approve the Incentive Plan prior to June 1, 1995; provided, HOWEVER, rejection by the Company pursuant to Section 2.3 of a request by Franke made thereunder to extend the term of his employment shall not, by itself, constitute a Good Reason. "Holders" shall have the meaning specified in Section 5.1. "Incentive Plan" shall mean the Company's 1994 Incentive Equity Plan effective as of December 1, 1994. "Market Value per Share" means, at any date, the closing price per Share on that date (or, if there are no sales on that date, the last preceding date on which there was sale) in the principal market in which the Shares are traded. "Misconduct" shall mean one or more of the following: (i) the willful and continued failure by Franke to perform his duties described in Section 2.2 (other than any such failure resulting from Franke's incapacity due to physical or mental illness) after written notice of such failure has been given to Franke by the Company and Franke has had a reasonable period to correct such failure; (ii) the willful commission by Franke of acts that are dishonest and demonstrably injurious to the Company (monetarily or otherwise) in any material respect, provided no act taken by Franke shall be deemed to constitute Misconduct if such act was taken by Franke in good faith and in the reasonable belief that such act was in the best interest of the Company or in furtherance of Franke's duties and responsibilities described in Section 2.2;(iii) the conviction of Franke for a felony involving moral turpitude; or (iv) a material breach by Franke of any of the covenants set forth in this Agreement, but only if such breach shall continue unremedied for more than 15 days after written notice thereof is given to Franke by the Company. "Notice of Termination" shall mean a notice purporting to terminate Franke's employment in accordance with Section 4.1 or 4.2, which notice shall set forth in reasonable detail the reason for such termination and the facts and circumstances claimed to provide a basis for such termination. 3 "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust and an unincorporated organization. "Piggyback Registration Notice" shall have the meaning specified in Section 5.2(a). "Registrable Securities" shall have the meaning specified in Section 5.1. "Restricted Shares" shall have the meaning specified in Section 3.2(b). "SEC" shall mean the Securities and Exchange Commission. "Share" shall mean a share of the Class B common stock, $.01 par value, of the Company. "Stock Grants" shall have the meaning specified in Section 3.2(a). "Stock Option" shall have the meaning specified in Section 3.3(d). "Term" shall have the meaning specified in Section 2.3. "Termination Date" shall mean the termination date specified in a Notice of Termination delivered in accordance with Article IV, provided that in no event shall such termination date be less than 30 nor more than 60 days after the date such Notice of Termination is given. 1.2. Interpretations (a) In this Agreement, unless a clear contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, (ii) reference to any Article or Section, means such Article or Section hereof, (iii) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term, and (iv) where any provision of this Agreement refers to action to be taken by either party, or which such party is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such party. (b) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against either party solely because that party or its legal representative drafted such provision. ARTICLE II Employment; Positions and Duties; Term 2.1. Employment The Company hereby employs Franke as its Chairman of the Board and Chief Executive Officer and Franke hereby accepts such employment, in each case during the Term (as defined in Section 2.3) and on the terms and conditions set forth in this Agreement. 2.2. Positions and Duties (a) During the Term, Franke shall serve as the Chairman of the Board and Chief Executive Officer of the Company and shall have and may exercise all of the powers, functions, duties and responsibilities normally attributable to the positions of Chairman of the Board and Chief Executive Officer, including (without limitation) such duties and responsibilities as are set forth with respect to such offices in the Company's certificate of incorporation and bylaws (as from time to time in effect). Franke shall have such additional duties and responsibilities commensurate with such offices as from time to time may be reasonably assigned to him by the Board. At all times during the Term, Franke shall report directly to the Board and shall observe and comply with all lawful policies, directions and instructions of the Board which are consistent with the foregoing provisions of this paragraph (a). (b) The Company agrees to use its reasonable best efforts to cause Franke to be elected or appointed, or re-elected or re-appointed, as director of the Company at all times during the Term. (c) During the Term, Franke agrees to devote a substantial portion of his business time, attention, skill and efforts to the faithful and efficient performance of his duties hereunder. During the Term, Franke shall not enter into any business or accept employment with or for any Person other than with the Company; provided, however, that Franke may engage in the following activities so long as they do not interfere in any material respect with the performance of Franke's duties and responsibilities hereunder: (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach on a part-time basis at educational institutions, (iii) manage his personal investments and (iv) render consultation and financial advisory services to third parties. The Company acknowledges that Franke is the principal owner of Franke & Company, Inc. through which Franke owns and oversees equity interests in several enterprises and provides consultation and financial advisory services to third parties. (d) Franke shall at all times conduct himself in such a manner as not to knowingly prejudice, in any material respect, the reputation of the Company in the fields of business in which it is engaged or with the investment community or the public at large. 2.3. Term of Employment Subject to the provisions for earlier termination provided in the Agreement, the term of this Agreement shall commence on the date hereof and shall continue through December 31, 1995; provided, however, that Franke shall be entitled to extend the term of this Agreement to December 31, 1996 by giving written notice of such extension to the Company prior to November 1, 1995 and, provided, further, that the Company (acting 4 pursuant to instructions set forth in a resolution duly adopted by the affirmative vote of at least a majority of the entire membership of the Board) may, at any time within 15 day of receipt of such written notice of extension, give Franke written notice that it has rejected such extension, in which event Franke's employment hereunder shall terminate on December 31, 1995. As used in this Agreement, "Term" shall mean the original term of Franke's employment hereunder and any extension thereof in accordance with this Section 2.3. 2.4 Place of Employment Franke's place of employment during the term of his employment hereunder shall be the greater Phoenix, Arizona area. ARTICLE III Compensation and Benefits 3.1. Cash Base Salary For services rendered by Franke under this Agreement, the Company shall pay to Franke, during the Term, an annual cash base salary ("Cash Base Salary") of $300,000, payable in equal monthly amounts as earned. The amount of the Cash Base Salary may be increased at any time as the Board may deem appropriate. If the Cash Base Salary is increased as aforesaid, it may not thereafter be decreased unless a proportionally similar decrease is made to the base compensation of all other senior executives of the Company; provided that in no event may the Cash Base Salary be decreased below $300,000 per year. 3.2. Stock Grants (a) During the Term (but not thereafter) and as additional base compensation, the Company shall make grants of Shares to Franke (the "Stock Grants") as follows: (1) 11,000 Shares shall be issued and delivered to Franke as soon as practicable after the date hereof (the "1994 Shares"); (2) 30,334 Shares shall be issued and delivered to Franke as soon as practicable after January 1, 1995 (the "1995 Shares"); and (3) 25,000 Shares shall be issued and delivered to Franke as soon as practicable after January 1, 1996 (the "1996 Shares"). (b) Except as expressly set forth in this Section 3.2, (i) all Stock Grants shall be irrevocable and unconditional and (ii) none of the Shares included in the Stock Grants (the "Restricted Shares") shall be subject to forfeiture or surrender for any reason. (c) Franke will not sell, transfer or otherwise dispose of any of the Restricted Shares other than by will or by laws of descent and distribution; provided, however, that the foregoing restriction shall lapse with respect to any Restricted Shares which are no longer subject to forfeiture by Franke pursuant to paragraph (d) below and, provided further, that the foregoing restriction shall automatically lapse in full (i) upon the occurrence of a Change in Control, (ii) in the event of Franke's death or (iii) in the event Franke's employment is terminated by Franke for Good Reason or on account of Disability or by the Company for any reason other than Misconduct. (d) In the event Franke's employment is terminated by Franke pursuant to Section 4.1 other than for Good Reason or on account of Disability or by the Company pursuant to Section 4.2 for Misconduct, then: (1) if the Termination Date is prior to January 1, 1995, Franke shall forfeit and be obligated, for no consideration, to surrender to the Company that number of 1994 Shares determined by multiplying the 1994 Shares by a fraction the numerator of which shall be the number of whole calendar months within the period beginning on the Termination Date and ending on December 31, 1994 and the denominator of which shall be four; (2) if the Termination Date is after December 31, 1994 and prior to January 1, 1996, Franke shall forfeit and be obligated, for no consideration, to surrender to the Company that number of 1995 Shares determined by multiplying the 1995 Shares by a fraction the numerator of which shall be the number of whole calendar months within the period beginning on the Termination Date and ending on December 31, 1995 and the denominator of which shall be twelve; and (3) if the term of Franke's employment has been extended to December 31, 1996 in accordance with Section 2.3 and if the Termination Date is after December 31, 1995 and prior to January 1, 1997, Franke shall forfeit and be obligated, for no consideration, to surrender to the Company that number of 1996 Shares determined by multiplying the 1996 Shares by a fraction the numerator of which shall be the number of whole calendar months within the period beginning on the Termination Date and ending on December 31, 1996 and the denominator of which shall be twelve. (e) The Stock Grants shall be made pursuant to the Incentive Plan and, notwithstanding anything herein to the contrary, shall be subject to forfeiture in the event the Incentive Plan is not approved by the Company's stockholders. Accordingly, Franke will not sell, transfer or otherwise dispose of any of the Restricted Shares (other than by will or by laws of descent and distribution) until after the Incentive Plan has been approved by the Company's stockholders. (f) The Restricted Shares shall become vested when the restrictions set forth in paragraphs (c), (d) and (e) above (the "Vesting Restrictions") have lapsed with respect thereto. (g) Certificates evidencing the Restricted Shares will be issued by the Company in Franke's name. Such certificates may bear a legend setting forth or incorporating the Vesting Restrictions, and the Company may cause such certificates to be delivered upon issuance to the Secretary of the Company (or such other depositary as may be designated by the committee which administers the Incentive Plan) as a depositary for 5 safe-keeping until the Vesting Restrictions lapse with respect thereto or until forfeiture occurs with respect thereto pursuant to paragraph (d) or (e) above. The Company may require Franke to execute and deliver stock powers in the event of forfeiture. Upon the lapse of the Vesting Restrictions without forfeiture, the Company will cause a new certificate or certificates to be issued in the name of Franke without legend. (h) Franke shall be entitled to receive all dividends and distributions in respect of the Restricted Shares (subject to applicable tax withholding), to vote the Restricted Shares and to give consents, waivers and ratifications with respect to the Restricted Shares; provided, however, that distributions applicable to any Restricted Shares shall be held by the Company until (i) the Vesting Restrictions lapse with respect to such Shares, at which time such distributions shall be paid to Franke or his designee without interest or (ii) forfeiture occurs with respect to such Shares pursuant to paragraph (d) or (e) above, at which time such distributions shall be forfeited. (i) If requested by Franke at any time, the Company shall promptly request, and diligently seek in good faith to obtain, a no action letter from the SEC to the effect that the dates of purchase, within the meaning and for the purposes of the short-swing profit provisions of Section 16(b) of the Securities Exchange Act of 1934 (as amended), of the Restricted Shares are the respective grant dates thereof. 3.3 Stock Options (a) Franke is hereby granted an option to purchase 255,000 Shares, with an exercise price per Share equal to $8.75, being the Market Value per Share on the date hereof. Subject to paragraph (e) below, such option shall be immediately exercisable. (b) Franke is hereby granted (i) an option to purchase 50,000 Shares and (ii) an option to purchase 50,000 Shares, each with an exercise price per Share equal to $8.75, being the Market Value per Share on the date hereof. Subject to paragraph (e) below, (A) the option referred to in clause (i) above shall become exercisable in equal monthly installments, beginning January 1, 1996, so that such option is exercised in full during the calendar year 1996 and (B) the option referred to in clause (ii) above shall become exercisable in equal monthly installments, beginning January 1, 1997, so that such option is exercised in full during the calendar year 1997. (c) On August 25, 1995 and, if Franke's employment is extended to December 31, 1996 in accordance with Section 2.3, on August 25, 1996, Franke shall be granted (i) an option to purchase 50,000 Shares and (ii) an option to purchase 100,000 Shares, each with an exercise price per Share equal to the Market Value per Share on the date of grant; provided, however, that no such option shall be granted to Franke after the termination of his employment hereunder. Subject to paragraph (e) below, (A) each option referred to in clause (i) of the preceding sentence shall become exercisable in equal monthly installments, beginning one month after the date of grant, so that such option is exercisable in full one year after the date of grant and (B) each option referred to in clause (ii) of the preceding sentence shall become exercisable as to one-third of the Shares covered thereby on each anniversary of the date of grant, so that such option is exercisable in full three years after the date of grant. (d) Upon the exercise of any stock option granted to Franke under this Section 3.3 (a "Stock Option"), Franke shall pay to the Company an amount equal to the relevant exercise price, such amount to be paid (i) in cash, (ii) by delivering to the Company Shares already owned by Franke which have an aggregate Market Value per Share at the date of exercise equal to the relevant exercise price, (iii) by directing the Company to sell a sufficient number of Shares to be acquired on exercise of a Stock Option through a broker approved by the Company, in which event the proceeds of such sale shall be applied by the Company to the payment of the relevant exercise price, with any surplus then remaining to be paid to Franke or his designee, or (iv) by any combination of the foregoing. (e) The Stock Options are being, and in the case of the Stock Options referred to in paragraph (c) above shall be, granted pursuant to the Incentive Plan. Notwithstanding anything in this Agreement to the contrary, in no event shall any Stock Option be exercised (i) prior to the approval of the Incentive Plan by the stockholders of the Company or (ii) after the tenth anniversary of its date of grant. (f) Upon the occurrence of a Change in Control, each outstanding Stock Option shall become automatically vested in full and may be exercised at any time thereafter; provided, however, in no event shall such Stock Option be exercisable after the tenth anniversary of its date of grant. (g) In the event Franke's employment is terminated by Franke pursuant to Section 4.1 other than for Good Reason or on account of Disability or by the Company pursuant to Section 4.2 for Misconduct, each Stock Option outstanding on the Termination Date, to the extent then vested, may be exercised by Franke at any time within six months following the Termination Date, but not thereafter; provided, however, in no event shall such Stock Option be exercisable after the tenth anniversary of its date of grant. To the extent such Stock Option is not vested on such Termination Date, such Stock Option (or the portion thereof that is not vested on such Termination Date) shall automatically lapse and be cancelled unexercised as of such Termination Date. (h) In the event Franke's employment is terminated by reason of death, each outstanding Stock Option shall become automatically vested in full on the date of his death and may be exercised by the person to whom Franke's rights shall pass by will or by the laws of descent and distribution at any time within the one-year period beginning on the date of Franke's death, but not thereafter, and in no event shall such Stock Option be exercisable after the tenth anniversary of its date of grant. (i) In the event Franke's employment is terminated by reason of Disability, each outstanding Stock Option shall become automatically vested in full on the date of such Disability and may be exercised at any time within the 36-month period beginning on the date of such Disability, but not thereafter, and in no event shall such Stock Option be exercisable after the tenth anniversary of its date of grant. (j) Except as otherwise provided herein, each Stock Option may be exercised in whole or in part or in two or more successive parts. (k) No Stock Option shall be transferrable by Franke, otherwise than by will or by laws of descent and distribution. During the lifetime of Franke, no Stock Option may be exercised by anyone other than Franke. 6 (l) Each Stock Option may be exercised from time to time by a notice in writing which identifies such Stock Option and specifies the number of Shares in respect of which it is being exercised. Such notice shall be delivered to the Secretary of the Company or addressed to the Secretary of the Company at its principal corporate offices. The date of exercise of any Stock Option shall be the date the exercise notice is hand delivered or mailed to the Secretary of the Company, whichever is applicable. An election to exercise a Stock Option shall be irrevocable. (m) None of the Stock Options is intended to qualify as an incentive stock option under Section 422 of the Code. 3.4. Life Insurance During the Term, the Company agrees to maintain, at all times and without cost to Franke, a term life insurance policy on the life of Franke in the amount of $2 million, the proceeds of which, in the event of Franke's death, shall be payable to one or more beneficiaries designated by Franke or, in the absence of any such designation, to his estate. Such policy shall be issued by a solvent insurance company reasonably acceptable to Franke. 3.5. Annual Administrative Expense Allowance During the Term, the Company shall continue to pay to Franke or his designee, in accordance with past practices, an annual allowance of $50,000 (payable in equal monthly installments) for administrative expenses incurred by Franke in connection with the performance of his duties and responsibilities and the exercise of his powers and authority under this Agreement. So long as the Company is not in default under this Section 3.5, Franke shall be responsible for providing, in accordance with past practices, at least one administrative assistant/secretary. 3.6. Business Expenses The Company shall, in accordance with the rules and policies that it may establish from time to time for senior executives, reimburse Franke for business expenses reasonably incurred in the performance of Franke's duties. It is understood that Franke is authorized to incur reasonable business expenses for promoting the business and reputation of the Company, including reasonable expenditures for travel, lodging, meals and client and/or business associate entertainment. Requests for reimbursement for such expenses must be accompanied by appropriate documentation. 3.7. Other Benefits Franke shall be entitled to receive all fringe benefits and other perquisites that may be offered by the Company to its senior executives as a group or to any of its senior executives individually or to the members of the Board, including, without limitation, (i) participation in the various employee benefit plans or programs provided to senior executives of the Company in general, subject to meeting the eligibility requirements with respect to each of such benefit plans or programs, (ii) tax planning assistance, (iii) automobile allowances, (iv) club memberships and (v) on-line and interline, positive space travel privileges. However, nothing in this Section 3.7 shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described herein, provided the change similarly affects all senior executives of the Company or members of the Board, as the case may be, similarly situated. Notwithstanding the foregoing, Franke shall not be entitled to participate in the Incentive Plan or any other incentive plans offered to key employees of the Company, except as expressly provided herein. ARTICLE IV Termination of Employment 4.1. Termination by Franke Franke may, at any time prior to the end of the Term, terminate his employment hereunder for any reason by delivering a Notice of Termination to the Board. 4.2. Termination by the Company The Company may, at any time prior to the end of the Term, terminate Franke's employment hereunder for any reason by delivering a Notice of Termination to Franke; provided, however, that in no event shall the Company be entitled to terminate Franke's employment prior to the end of the Term unless the Board shall duly adopt, by the affirmative vote of at least a majority of the entire membership of the Board, a resolution authorizing such termination and stating that, in the opinion of the Board, sufficient reason exists therefor. 4.3. Accrued Cash Base Salary, Vacation Pay, etc. (a) Promptly upon the termination of Franke's employment for any reason, the Company shall pay to Franke a lump sum amount for (i) any unpaid Cash Base Salary earned hereunder prior to the termination date, (ii) all unused vacation time accrued by Franke as of the termination date in accordance with the Company's vacation policy for senior executives, (iii) all unpaid benefits earned by Franke as of the termination date under any and all incentive compensation plans or programs of the Company, (iv) any expenses in respect of which Franke has requested, and is entitled to, reimbursement in accordance with Section 3.6 and (v) any additional amounts or benefits which may be required to be paid in a lump sum by applicable law. (b) A termination of Franke's employment in accordance with this Agreement shall not alter or impair (i) any of Franke's rights or benefits under any issued and outstanding Stock Options except as provided in Section 3.3 or (ii) any of Franke's rights or benefits, if any, under employee benefit plans or programs maintained by the Company. 7 4.4. Other Benefits and Privileges The following provisions shall apply if Franke terminates his employment for Good Reason or if the Company terminates Franke's employment for any reason other than Misconduct or Disability: (i) Severance Payment. The Company shall promptly pay to Franke a severance payment (in cash or other immediately available funds) in the amount of (A) $1.5 million, if the Termination Date is prior to August 25, 1996, and (B) $1 million, if the Termination Date occurs on or after August 25, 1996; provided, however, that such severance payment shall be reduced to the extent necessary so that no portion of such payment (or of any other payment or benefit which constitutes a "parachute payment" within the meaning of Section 289G of the Code and which Franke has received or entitled to receive from the Company during the relevant calendar year) shall be subject to the excise tax imposed by Section 4999 of the Code, but only if, by reason of such reduction, Franke's net after tax benefit shall exceed the net after tax benefit if such reduction were not made. (ii) Medical Insurance. During the 24-month period following the Termination Date, the Company, at its cost, shall maintain in full force and effect for the continued benefit of Franke and Franke's dependents all benefits available to Franke and Franke's dependents under all medical plans and programs of the Company, provided that (a) Franke's continued participation is possible under the terms and provisions of such plans and programs and (b) Franke pays the regular employee premium, if any, required by such plans and programs. In the event that participation by Franke (or his dependents) in any such plan or program after the Termination Date is barred pursuant to the terms thereof, or in the event the Company shall terminate any such plan or program, the Company shall obtain for Franke (and/or his dependents) comparable coverage under individual policies. (iii) Life Insurance. During the 12-month period following the of Termination Date, the Company, at its cost, shall continue to provide Franke all life insurance coverages (and in the same amounts) provided to him by the Company immediately prior to the date on which the relevant Notice of Termination is given in accordance with this Article IV. (iv) Travel Privileges. The Company shall provide Franke (and wife and his dependents) lifetime on-line and interline, positive space travel privileges subject to the terms of the Company's non-revenue travel policy as from time to time in effect. 4.5. Company to Pay Benefits During Pendency of Dispute Either party may, within 10 days after its receipt of a Notice of Termination given by the other party, provide notice to the other party that a dispute exists concerning the termination, in which event such dispute shall be resolved in accordance with Article VI. Notwithstanding the pendency of any such dispute and notwithstanding any provision herein to the contrary, the Company will (i) continue to pay Franke the Cash Base Salary in effect when the notice giving rise to the dispute was given, (ii) continue to make the Stock Grants in accordance with Section 3.2, (iii) continue to grant the Stock Options in accordance with Section 3.3 and (iv) continue Franke as a participant in all compensation and benefit plans in which Franke was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved or, with respect to a Notice of Termination given by Franke, the date of termination specified in such notice, if earlier, but, in each case, not past the end of the Term. ARTICLE V Piggyback Registration Rights 5.1. Definitions Capitalized terms used herein and in Exhibit A hereto that are not otherwise defined herein shall have the meanings ascribed to them in that certain Registration Rights Agreement dated August 25, 1994 among the Company, AmWest Partners, L.P., and others therein named ("AmWest Registration Rights Agreement"), to which agreement reference is made for such definitions and for all purposes. In addition, the following terms, as used in this Article V, have the following meanings: "Holders" shall mean (i) Franke, his heirs and personal representatives and (ii) any direct or indirect transferee of Registrable Securities. "Registrable Securities" means (1) the 125,000 Shares heretofore granted to Franke as a bonus for his efforts relating to the successful reorganization of the Company under the Bankruptcy Code and (2) all of the equity securities of the Company acquired by Franke pursuant to this Agreement, including, without limitation, (a) the Stock Grants, (b) the Stock Options, (c) any Shares issued on exercise of the Stock Options and (d) any securities issued or issuable with respect to any such securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with the plan of distribution set forth in such registration statement, (ii) such securities shall have been distributed in accordance with Rule 144, (iii) the Company has caused to be delivered an opinion of counsel in accordance with Section 5.2(c) that such securities are distributable in accordance with Rule 144 or (iv) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered in exchange therefor by the Company and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force. 5.2. Piggyback Registration (a) Right to Include Registrable Securities. If the Company at any time proposes to register any of its equity securities under the Securities Act (other than by a registration (i) on Form S-4 or Form S-8, or any successor or similar form then in effect or (ii) pursuant to Section 2.1 of the AmWest Registration Rights Agreement) in a form and in a manner that would permit registration of the Registrable Securities, whether or not for sale for its own account, it will give prompt (but in no event less than 30 days prior to the proposed date of filing the registration statement relating to such registration) notice to all Holders of Registrable Securities 8 of the Company's intention to do so and of such Holders' rights under this Section 5.2. Upon the request of any such Holder made within 20 days after the receipt by such Holder of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method or methods of disposition thereof) (the "Piggyback Registration Notice"), the Company will use Commercially Reasonable Efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent required to permit the disposition (in accordance with the intended method or methods thereof as aforesaid) of the Registrable Securities so to be registered, provided that if, at any time after giving notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company may, at its election, give notice of such determination to each such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay all Registration Expenses in connection therewith) and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other equity securities. (b) Priority in Piggyback Registration. If (i) a registration pursuant to this Section 5.2 involves an underwritten offering of the securities being registered, whether or not for sale for the account of the Company, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction and (ii) the managing underwriter of such underwritten offering shall inform the Company and the Holders requesting such registration by letter of its belief that the amount of securities requested to be included in such registration exceeds the amount which can be sold in (or during the time of) such offering within a price range acceptable to the Company, then the Company will include in such registration such amount of securities which the Company is so advised can be sold in (or during the time of) such offering as follows: first, all securities proposed by the Company to be sold for its own account; second, such securities of the Company requested to be included in such registration pursuant to the terms of the AmWest Registration Rights Agreement and the GPA Registration Rights Agreement; third, such Registrable Securities requested to be included in such registration by all Holders pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included by such Holders; and fourth, all other securities of the Company requested to be included in such registration pro rata on the basis of the amount of such securities so proposed to be sold and so requested to be included. (c) The Holders shall be entitled to exercise their registration rights pursuant to this Section 5.2 at any time or times until all of the Registrable Securities have been sold pursuant to an effective registration statement under the Securities Act, or until the Company shall have obtained an opinion of counsel reasonably acceptable to the Company and Holders that such Registrable Securities may be sold without registration pursuant to available exemptions under Rule 144 without limitation on amount. 5.3. Registration Procedures Each registration pursuant to Section 5.2 shall be effected in accordance with the procedures, and subject to the indemnification and other provisions, set forth in Exhibit A hereto. ARTICLE VI Dispute Resolution (a) In the event a dispute shall arise between the parties as to whether the provisions of this Agreement have been complied with (a "Dispute"), the parties agree to resolve such Dispute in accordance with the following procedure: (1) A meeting shall be held promptly between the parties, attended by (in the case of the Company) by one or more individuals with decision-making authority regarding the Dispute, to attempt in good faith to negotiate a resolution of the Dispute. (2) If, within 10 days after such meeting, the parties have not succeeded in negotiating a resolution of the Dispute, the parties agree to submit the Dispute to mediation in accordance with the Commercial Mediation Rules of the American Arbitration Association. (3) The parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the American Arbitration Association if they have been unable to agree upon such appointment within 10 days following the 10-day period referred to in clause (2) above. (4) Upon appointment of the mediator, the parties agree to participate in good faith in the mediation and negotiations relating thereto for 15 days. (5) If the parties are not successful in resolving the Dispute through mediation within such 15-day period, the parties agree that the Dispute shall be settled by arbitration in accordance with the Expedited Procedures of the Commercial Arbitration Rules of the American Arbitration Association. (6) The fees and expenses of the mediator/arbitrators shall be borne solely by the non-prevailing party or, in the event there is no clear prevailing party, as the mediator/arbitrators deem appropriate. (7) If any dispute shall arise under this Agreement involving termination of Franke's employment with the Company or involving the failure or refusal of the Company to fully perform in accordance with the terms hereof, the Company shall reimburse Franke, on a current basis, for all legal fees and expenses, if any, incurred by Franke in connection with such dispute, together with interest thereon at the rate of 8% per annum, such interest to accrue from the date the Company receives Franke's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of such dispute in accordance with this Article VI includes a finding denying, in all material respects, Franke's claims in such dispute, Franke shall be required to reimburse the Company, over a period not to exceed 12 months from the date of such resolution, for all sums advanced to Franke with respect to such dispute pursuant to this paragraph (7). 9 (8) Except as provided above, each party shall pay its own costs and expenses (including, without limitation, attorneys' fees) relating to any mediation/arbitration proceeding conducted under this Article VI. (9) All mediation/arbitration conferences and hearings will be held in Phoenix, Arizona. (b) In the event there is any disputed question of law involved in any arbitration proceeding, such as the proper legal interpretation of any provision of this Agreement, the arbitrators shall make separate and distinct findings of all facts material to the disputed question of law to be decided and, on the basis of the facts so found, express their conclusion of the question of law. The facts so found shall be conclusive and binding on the parties, but any legal conclusion reached by the arbitrators from such facts may be submitted by either party to a court of law for final determination by initiation of a civil action in the manner provided by law. Such action, to be valid, must be commenced within 20 days after receipt of the arbitrators' decision. If no such civil action is commenced within such 20-day period, the legal conclusion reached by the arbitrators shall be conclusive and binding on the parties. Any such civil action shall be submitted, heard and determined solely on the basis of the facts found by the arbitrators. Neither of the parties shall, or shall be entitled to, submit any additional or different facts for consideration by the court. In the event any civil action is commenced under this paragraph (b), the party who prevails or substantially prevails (as determined by the court) in such civil action shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred in connection with such action and on appeal. (c) Except as limited by paragraph (b) above, the parties agree that judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. In the event legal proceedings are commenced to enforce the rights awarded in an arbitration proceeding, the party who prevails or substantially prevails in such legal proceeding shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred in connection with such legal proceeding and on appeal. (d) Except as provided above, (i) no legal action may be brought by either party with respect to any Dispute and (ii) all Disputes shall be determined only in accordance with the procedures set forth above. ARTICLE VII Antidilution Provisions and Reservation of Shares 7.1. Antidilution (a) In the event of any change after the date hereof in the number of issued shares of common stock (or any class thereof) of the Company by reason of any stock dividend, split-up, recapitalization, merger, combination, conversion, exchange of shares or other change in the corporate or capital structure of the Company, then there shall be appropriate and equitable adjustments made (with adjustments being cumulative if more than one of such events shall have occurred) in the number and kind of shares of stock or other securities of the Company (i) thereafter issued to Franke pursuant to Section 3.2(a), (ii) covered by Stock Options thereafter granted to Franke pursuant to Section 3.3(c) and (iii) thereafter issued upon exercise of the Stock Options then outstanding. Whenever an adjustment is made as required or permitted by the provisions of this paragraph (a), the Company shall promptly deliver to Franke written notice thereof setting forth a brief statement of the facts requiring such adjustment and the computation thereof. (b) In case of any liquidation, dissolution or winding up of the affairs of the Company, the Company shall make prompt, proportionate, equitable, lawful and adequate provision as part of the terms of such dissolution, liquidation or winding up such that Franke may thereafter receive, in lieu of each Share which Franke would have been entitled to receive under Section 3.2(a) or upon exercise of the outstanding Stock Options, the same kind and amount of any stock, securities or assets as may be issuable, distributable or payable on any such dissolution, liquidation or winding up with respect to each outstanding Share. 7.2. Covenant to Reserve Shares for Issuance The Company covenants that it will at all times reserve and keep available (free of preemptive rights) out of its authorized and unissued Shares, solely for the purpose of issuance pursuant to Section 3.2 or upon exercise of the Stock Options, the full number of Shares, if any, then issuable under Section 3.2 or upon exercise of all outstanding Stock Options. The Company further covenants that all Shares which shall be so issuable shall be duly and validly issued and fully paid and non-assessable. ARTICLE VIII Miscellaneous 8.1. No Mitigation The provisions of this Agreement are not intended to, nor shall they be construed to, require that Franke mitigate the amount of any payment provided for in this Agreement by seeking or accepting other employment, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Franke as the result of employment by another employer or otherwise. Without limitation of the foregoing, the Company's obligations to make the payments to Franke required under this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against Franke. 8.2. Assignability The obligations of Franke hereunder are personal and may not be assigned or delegated by Franke or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder as provided in Section 8.5. 10 8.3. Notices All notices and all other communications provided for in the Agreement shall be in writing and addressed (i) if to the Company, at its principal office address or such other address as it may have designated by written notice to Franke for purposes hereof, directed to the attention of the Board with a copy to the Secretary of the Company and (ii) if to Franke, at his residence address on the records of the Company or to such other address as he may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, except that any notice of change of address shall be effective only upon receipt. 8.4. Severability The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.5. Successors; Binding Agreement (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonable acceptable to Franke, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used herein, the term "Company" shall include any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 8.5 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Franke hereunder shall inure to the benefit of and be enforceable by Franke's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Franke should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Franke's devisee, legatee, or other designee or, if there be no such designee, to Franke's estate. 8.6. Tax Withholdings The Company shall withhold from all payments hereunder all applicable taxes (federal, state or other) which it is required to withhold therefrom unless Franke has otherwise paid to the Company the amount of such taxes. 8.7. Amendments and Waivers No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Franke and such member of the Board as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.8. Entire Agreement; Termination of Prior Agreement (a) The Company and Franke have heretofore entered into a Key Employee Protection Agreement dated as of June 27, 1994. Such Key Employee Protection Agreement shall automatically terminate in its entirety upon the execution and delivery of this Agreement by the Company and Franke. (b) This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 8.9. Governing Law THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISION. 8.10. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 8.11. Payment of Certain Taxes The Company will from time to time promptly pay all transfer, stamp or similar taxes that may be imposed in respect of the initial issuance of any Shares hereunder, but the Company shall not be obligated to pay any such taxes in respect of any transfer of Shares effected by Franke. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AMERICA WEST AIRLINES, INC. By: Chairman of Compensation/Human Resources Committee William A. Franke 11 PIGGYBACK REGISTRATION RIGHTS EXHIBIT A PROCEDURES AND INDEMNIFICATIONS 1. Defined Terms Capitalized terms used in this Exhibit A without definition shall have the meanings described or referred to in Sections 1.1 and 5.1 of the Employment Agreement of which this Exhibit A is a part (the "Employment Agreement"). 2. Registration Terms and Procedures (a) Registration Statement Form. Registrations under Section 5.2 of the Employment Agreement shall be on such appropriate registration forms of the SEC as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition. The Company agrees to include in any such registration statement all information that any Participating Holder shall reasonably request (to the extent such information relates to such Participating Holder). (b) Registration Expenses. The Company will pay all Registration Expenses incurred in connection with a registration to be effected pursuant to Section 5.2 of the Employment Agreement. (c) Registration of Securities. Participating Holders may seek to register different types of Registrable Securities and/or different classes of the same type of Registrable Securities simultaneously and the Company shall use its, and in the case of an underwritten offering, shall cause the managing underwriter or underwriters to use Commercially Reasonable Efforts to effect such registration and sale in accordance with the intended method or methods of disposition specified by such Holders. (d) Withdrawal. Any Holder participating in a registration pursuant to Section 5.2 of the Employment Agreement shall be permitted to withdraw all or part of its Registrable Securities from such registration at any time prior to the effective date of the registration statement covering such securities. (e) Registration Procedures. In connection with the Company's obligations to register Registrable Securities pursuant to the Employment Agreement, the Company will use Commercially Reasonable Efforts to effect such registration so as to permit the sale of any Registrable Securities included in such registration in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and (as soon thereafter as practicable) file with the SEC the requisite registration statement containing all information required thereby to effect such registration and thereafter use Commercially Reasonable Efforts to cause such registration statement to become and remain effective in accordance with the terms of the Employment Agreement, provided that as far in advance as practicable before filing such registration statement or any amendment, supplement or exhibit thereto (but, with respect to the filing of such registration statement, in no event later than seven days prior to such filing), the Company will furnish to the Participating Holders or their counsel copies of reasonably complete drafts of all such documents proposed to be filed (excluding exhibits, which shall be made available upon request by any Participating Holder), and any such Holder shall have the opportunity to object to any information contained therein and the Company will make the corrections reasonably requested by such Holder with respect to information relating to such Holder or the plan of distribution of the Registrable Securities prior to filing any such registration statement, amendment, supplement or exhibit; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith (A) as reasonably requested by any Participating Holder to which such registration statement relates (but only to the extent such request relates to information with respect to such Holder) and (B) as may be necessary to keep such registration statement effective for six months (or such shorter period as shall be necessary to complete the distribution of the securities covered thereby, but not before the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder), and comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement during such period in accordance with the intended method or methods of disposition by the seller or sellers thereof set forth in such registration statement; (iii) furnish to each Holder covered by, and each underwriter or agent participating in the disposition of securities under, such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case excluding all exhibits and documents incorporated by reference, which exhibits and documents shall be furnished to any such Person upon request), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act relating to such Holder's Registrable Securities, in conformity with the requirements of the Securities Act, and such other documents as such Holder, underwriter or agent may reasonably request to facilitate the disposition of such Registrable Securities; (iv) use Commercially Reasonable Efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under all applicable blue sky and other securities laws, and to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the securities owned by such Holder, except that the Company shall not for any such purpose be required to (a) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this clause (iv) be obligated to be so qualified, (b) subject itself to taxation in any such jurisdiction or (c) consent to general service of process in any jurisdiction; 12 (v) use Commercially Reasonable Efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities applicable to the Company as may be reasonably necessary to enable the seller or sellers thereof (or underwriter or agent, if any) to consummate the disposition of such Registrable Securities in accordance with the plan of distribution set forth in such registration statement; (vi) furnish to each Holder of Registrable Securities covered by such registration statement a signed counterpart, addressed to such Holder (and underwriter or agent, if any) of: (A) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), and (B) unless otherwise precluded under applicable accounting rules, a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, in each case, reasonably satisfactory in form and substance to such Holder (and underwriter or agent and their respective counsel) and covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriter or agent in underwritten public offerings of securities; (vii) promptly notify each Holder and any underwriter or agent participating in the disposition of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event known to the Company as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and promptly prepare and furnish to such Holder (or underwriter or agent, if any) a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; (viii) otherwise use Commercially Reasonable Efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable (but not more than fifteen months) after the effective date of the registration statement, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and furnish to each Holder covered by such registration statement or any participating underwriter or agent at least five (business days prior to the filing a copy of any amendment or supplement to such registration statement or prospectus; (ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; (x) use Commercially Reasonable Efforts to (A) list, on or prior to the effective date of such registration statement, all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities is then listed, if any, or (B) have authorized for quotation and/or listing, as applicable, on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") of the National Market System of NASDAQ if the Registrable Securities so qualify; (xi) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers; (xii) use Commercially Reasonable Efforts to prevent the issuance by the SEC or any other governmental agency or court of a stop order, injunction or other order suspending the effectiveness of such registration statement and, if such an order is issued, use Commercially Reasonable Efforts to cause such order to be lifted as promptly as practicable; (xiii) take such other actions as the Requisite Holders of such Registrable Securities shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xiv) promptly notify each seller and the underwriter or agent, if any: (A) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (B) of any written comments from the SEC with respect to any filing referred to in clause (A) above and of any written request by the SEC for amendments or supplements to such registration statement or prospectus; 13 (C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to, or of the issuance by the SEC of, any stop order suspending the effectiveness of such registration statement; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (xv) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the distribution of such Registrable Securities to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends, other than as required by applicable law) representing securities sold under a registration statement hereunder, and enable such securities to be in such denominations and registered in such names as such seller, underwriter or agent may request and keep available and make available to the Company's transfer agent, prior to the effectiveness of such registration statement, an adequate supply of such certificates; (xvi) not later than the effective date of such registration statement, provide a CUSIP number for all Registrable Securities covered by a registration statement hereunder; (xvii) incorporate in the registration statement or any amendment, supplement or post-effective amendment thereto such information as each Holder, the underwriter or agent (if any) or their respective counsel may reasonably request to be included therein with respect to any Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and any other terms of the offering of such Registrable Securities; (xviii) during any period when a prospectus is required to be delivered under the Securities Act, make periodic filings with the SEC pursuant to and containing the information required by the Exchange Act (whether or not the Company is required to make such filings pursuant to such Act); and (xix) in connection with an underwritten offering, participate, to the extent reasonably requested by the Requisite Holders or the managing underwriter for the offering, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows." (f) Agreements of Holders. (i) Each Holder of Registrable Securities as to which any registration is being effected shall furnish to the Company such information regarding such Holder, the Registrable Securities held by such Holder and the intended plan of distribution of such securities as the Company may from time to time reasonably request in writing in connection with such registration. (ii) Each Holder of Registrable Securities as to which any registration is being effected agrees, by acquisition of such Registrable Securities, that upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in clause (vii) of paragraph 1(e) above, such Holder will forthwith discontinue such Holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by clause (vii) of paragraph 1(e) above, (the period from the date on which such Holder receives a Suspension Notice to the date on which such Holder receives copies of the supplemented or amended prospectus being herein called the "Suspension Period"). The Company shall take such actions as are necessary to end the Suspension Period as promptly as practicable. In the event the Company shall give any such notice, the period referred to in clause (ii) of paragraph 1(e) above, shall be extended by a number of days equal to the number of days of the Suspension Period. 3. Underwritten Offerings If the Company at any time proposes to register any of its equity securities under the Securities Act as contemplated by Section 5.2 of the Employment Agreement and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any Participating Holder and subject to Section 5.2(b) of the Employment Agreement, arrange for such underwriters to include all of the Registrable Securities to be offered and sold by such Holder or Holders among the securities to be distributed by such underwriters. The Holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters, provided that such agreement is reasonably satisfactory in substance and form to the Company and the Requisite Holders. 4. Preparation; Reasonable Investigation In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Holders of Registrable Securities to be registered under such registration statement, their underwriters or agents, if any, and their respective counsel and accountants reasonable access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' or agents' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 5. Indemnification (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder participating in an offering provided for as described herein, and each other Person, if any, who controls such Holder within the meaning of the Securities Act (each such Person, an "Indemnified Party"), from and against any losses, claims, damages, liabilities or expenses, joint or several (each a "Loss" and collectively, "Losses"), to which such Indemnified Party may become subject under the Securities Act or otherwise, to the extent that such Losses (or actions or proceedings, whether 14 commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act (including all documents incorporated therein by reference), any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigating or defending against any such Loss, action or proceeding; provided that in any such case the Company shall not be liable to any particular Indemnified Party to the extent that such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Indemnified Party specifically for inclusion therein; and provided further that the Company shall not be liable in any such case to the extent it is finally determined by a court of competent jurisdiction that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made (i) in any such preliminary prospectus, if (A) it was the responsibility of such Indemnified Party to provide the Person asserting such Loss with a current copy of the prospectus and such Indemnified Party failed to deliver or cause to be delivered a copy of the prospectus to such Person after the Company had furnished such Indemnified Party with a sufficient number of copies of the same prior to the sale of Registrable Securities to the Person asserting such Loss and (B) the prospectus corrected such untrue statement or omission; or (ii) in such prospectus, if such untrue statement or omission is corrected in an amendment or supplement to such prospectus and such amendment or supplement has been delivered to the Indemnified Party prior to the sale of Registrable Securities to the Person asserting such Loss and the Indemnified Party thereafter fails to deliver the prospectus as so amended or supplemented prior to or concurrently with such sale after the Company had furnished such Indemnified Party with a sufficient number of copies of the same for delivery to purchasers of securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of such securities by such Indemnified Party. The Company shall also indemnifiy each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities hereunder, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to Indemnified Parties. (b) Indemnification by the Holders. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Sections 5.2 of the Employment Agreement and as a condition to indemnifying such sellers pursuant to this paragraph 5, that the Company shall have received an undertaking reasonably satisfactory to it from each prospective seller of such securities, to indemnify and hold harmless and reimburse (in the same manner and to the same extent as set forth in such subparagraph (a) of this paragraph 5) the Company, each director, officer, employee and agent of the Company, and each other Person, if any, who controls the Company within the meaning of the Securities Act, from and against any Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Securities Act (including all documents incorporated therein by reference), any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission from such registration statement, preliminary prospectus, final prospectus or summary prospectus, or any amendment or supplement thereto required to be stated therein or necessary to make the statements therein not misleading, if (but only if) such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such prospective seller specifically for inclusion therein; provided, however, that such prospective seller shall not be obligated to provide such indemnity to the extent that such Losses result, directly or indirectly, from the failure of the Company to promptly amend or take action to correct or supplement any such registration statement, prospectus, amendment or supplement based on corrected or supplemental information provided in writing by such prospective seller to the Company expressly for such purpose; and provided further, that the obligation to provide indemnification pursuant to this subparagraph (b) shall be several, and not joint and several, among such indemnifying parties. Notwithstanding anything in this paragraph 5 to the contrary, in no event shall the liability of any prospective seller under such indemnity be greater in amount than the amount of the proceeds received by such seller upon the sale of its Registrable Securities in the offering to which the Losses relate. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer, employee, agent or participating or controlling Person and shall survive the transfer of such securities by such prospective seller. (c) Notices of Claims, etc. Promptly alter receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in subparagraph (a) or (b) of this paragraph 5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give prompt written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this paragraph 5, except to the extent that the indemnifying party is actually and materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof (such assumption to constitute its acknowledgement of its agreement to indemnify the indemnified party with respect to such matters), jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified 15 party for any legal fees or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if, in such indemnified party's reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, such indemnified party shall be entitled to separate counsel at the expense of the indemnifying party; and provided, further, that, unless there exists a conflict of interest among indemnified parties, all indemnified parties in respect of such claim shall be entitled to only one counsel or firm of counsel for all such indemnified parties. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless in the reasonable judgment of any such indemnified party a conflict of interest exists between such indemnified party and any other of such indemnified parties in respect of such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of one additional counsel or firm of counsel for such indemnified parties. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all Losses in respect of such claim or litigation or (ii) would impose injunctive relief on such indemnified party. No indemnifying party shall be subject to any Losses for any settlement made without its consent, which consent shall not be unreasonably withheld. (d) Other Indemnification. The provisions of this paragraph 5 shall be in addition to any other rights to indemnification or contribution which an indemnified party may have pursuant to law, equity, contract or otherwise. (e) Indemnification Payments. The indemnification required by this paragraph 5 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, promptly as and when bills are received or Losses are incurred. (f) Contribution. If for any reason the foregoing indemnity and reimbursement is unavailable or is insufficient to hold harmless an indemnified party under subparagraph (a) or (b) of this paragraph 5, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any Loss (or actions or proceedings, whether commenced or threatened, in respect thereof), including, without limitation, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss, action or proceeding, in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. Notwithstanding anything in this subparagraph (f) to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this subparagraph (f) to contribute any amount in excess of the amount by which the net proceeds received such indemnifying party from the sale of Registrable Securities in the offering to which the Losses of the indemnified parties relate exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. EX-10.44 6 EXHIBIT 10.44 1 EXHIBIT 10.44 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of January 1, 1994 by and between America West Airlines, Inc., a Delaware corporation ("Company"), and A. Maurice Myers ("Myers"). WHEREAS, Myers is willing to serve as the President and Chief Operating Officer of the Company and the Company desires to retain Myers in such capacity on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions and Interpretations 1.1. Definitions For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings: "Aloha" shall mean Aloha Airlines, Inc., a Hawaii corporation. "Applicable Federal Rate" shall mean, in the case of either the House Note or the Stock Note, the applicable federal rate determined with respect to such Note in accordance with section 1274(d) of the Internal Revenue Code of 1986, as amended. "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy", as from time to time amended, and any successor statute thereto. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the District of Arizona. "Base Salary shall have the meaning specified in Section 3.1. "Board" shall mean the Board of Directors of the Company. "CEO" shall mean the Chief Executive Officer of the Company. "Chairman of the Board" shall mean the Company's Chairman of the Board. "Change in Control" shall occur if either: (i) the individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (ii) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended ) acquires the beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of 51% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. "Company Affiliate" shall mean any Person (other than an individual) directly or indirectly controlling, controlled by or under common control with, the Company. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Confidential Information" shall have the meaning specified in Section 5.1(a). "Confirmation Bonus" shall have the meaning specified in Section 3.3. "Deed of Trust" shall have the meaning specified in Section 3.5(a). "Disability" shall mean a physical or mental condition of Myers that, in the judgment of the Board, based upon certification by a licensed physician reasonably acceptable to Myers and the Board, (i) prevents Myers from being able to perform the services required under this Agreement, (ii) has continued for a period of at least six months during any period of twelve consecutive months and (iii) is expected to continue. "Dispute" shall have the meaning specified in Section 6.1. "Good Reason" shall mean, without Myers' express written consent, any of the following: (i) a substantial alteration in the nature or status of Myers' responsibilities; (ii) the failure of the Company to perform any of its obligations under this Agreement, but only if such failure shall continue unremedied for more than 15 days after written notice thereof is given by Myers to the Company; 2 (iii) the relocation of the office of the Company where Myers is employed at the date hereof (the "Employment Location") to a location more than 50 miles away from the Employment Location or the Company's requiring Myers to be permanently based more than 50 miles away from the Employment Location; or (iv) the failure of Myers to be elected to the Board on or before April 1, 1994. "House Note" shall have the meaning specified in Section 3.5(a). "Incentive Bonus" shall mean any bonus or other payment payable to Myers pursuant to any incentive plan adopted by the Board for the benefit of the Company's key employees. "Line of Credit" shall have the meaning specified in Section 3.6(a). "Misconduct" shall mean one or more of the following: (i) the willful and continued failure by Myers to perform his duties hereunder (other than any such failure resulting from Myers' incapacity due to physical or mental illness) after written notice of such failure has been given to Myers and Myers has had a reasonable period to correct such failure; (ii) the willful commission by Myers of acts that are dishonest and demonstrably or materially injurious to the Company, monetarily or otherwise; (iii) the conviction of Myers for a felony; or (iv) a material breach by Myers of any of the covenants set forth in this Agreement. "Notice of Termination" shall mean a notice purporting to terminate Myers' employment in accordance with Section 4.2 or 4.3, which notice shall (i) indicate the specific provision in such Section being relied upon and (ii) set forth in reasonable detail the reason for such termination and the facts and circumstances claimed to provide a basis for such termination. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust and an unincorporated organization. "Plan of Reorganization" shall mean any plan of reorganization which (i) is filed with the Bankruptcy Court under Chapter 11 of the Bankruptcy Code and (ii) contemplates and, if confirmed and consummated, would result in the emergence of the Company from its Chapter 11 bankruptcy proceedings. "Pledge Agreement" shall have the meaning specified in Section 3.6(a). "Pledged Stock" shall have the meaning specified in Section 3.6(a). "Residence" shall have the meaning specified in Section 3.5(a). "Restricted Period" shall have the meaning specified in Section 5.2(a). "Stock Note" shall have the meaning specified in Section 3.6(a). "Term" shall have the meaning specified in Section 2.3. "Termination Date" shall mean the termination date specified in a Notice of Termination delivered in accordance with Article IV, provided that in no event shall such termination date be less than 30 nor more than 60 days after the date such Notice is given. 1.2. Interpretations (a) In this Agreement, unless a clear contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, (ii) reference to any Article or Section, means such Article or Section hereof or such Schedule or Exhibit hereto, (iii) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term, and (iv) where any provision of this Agreement refers to action to be taken by either party, or which such party is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such party. (b) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against either party solely because that party or its legal representative drafted such provision. ARTICLE II Employment; Positions and Duties; Term 2.1. Employment The Company hereby employs Myers as its President and Chief Operating Officer and Myers hereby accepts such employment, in each case during the Term and on the other terms and conditions set forth in this Agreement. 3 2.2. Positions and Duties (a) During the Term, Myers shall serve as the President and Chief Operating Officer of the Company, and shall have such duties and responsibilities as are set forth with respect to such offices in the Company's certificate of incorporation and bylaws (as from time to time in effect) and such additional duties and responsibilities as are commensurate with such offices or as may from time to time be reasonably assigned to him by the Board, the Chairman of the Board or the CEO. Myers shall at all times observe and comply with all lawful policies, directions and instructions of the Board. (b) The Company agrees to use its reasonable best efforts to cause Myers to be elected as a director of the Company as soon as practicable after the date hereof. Myers agrees to serve as a director of the Company at all times during the Term. If requested to do so by the Board, Myers agrees to serve as a director and/or officer of any Company Affiliate during the Term. Upon the termination of his employment with the Company, Myers agrees to resign as a director of the Company. (c) Myers agrees to devote substantially all his business time, attention, skill and efforts to the faithful and efficient performance of his duties hereunder and shall not enter into any business or accept employment with or for any Person other than with the Company during the Term; provided, however, that Myers may (i) with prior approval of the Board, serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage his personal investments, in each case so long as such activities do not materially interfere with the performance Myers' duties and responsibilities hereunder. Myers shall at all times conduct himself in such a manner as not to prejudice the reputation of the Company in the fields of business in which it is engaged or with the public at large. 2.3. Term of Employment Subject to the provisions for earlier termination provided in the Agreement, the term of this Agreement shall commence on January 1, 1994 and shall continue through December 31, 1996; provided, however, that, commencing on March 1, 1996 and on each March 1 thereafter, the term of this Agreement shall automatically be extended one additional year unless, prior to such March 1, either party shall give written notice to the other that no further such automatic extensions shall occur, in which event Myers' employment shall terminate on the December 31 next following the March 1 in respect of which such notice is given. As used in this Agreement, "Term" shall mean the original term of this Agreement as automatically extended in accordance with this Section 2.3; provided, however, that in no event shall the Term continue beyond the termination of Myers' employment hereunder. ARTICLE III Compensation and Benefits 3.1. Base Compensation For services rendered by Myers under this Agreement, the Company shall pay to Myers, during the Term, a base salary ("Base Salary") of $375,000 per year, payable biweekly as earned in accordance with the Company's customary payroll practice for its senior executives and prorated for employment for less than a full calendar year. The amount of the Base Salary shall be reviewed by the Board on an annual basis and may be increased as the Board may deem appropriate. If the Base Salary is increased as aforesaid, it may not thereafter be decreased unless a similar decrease is made to the base compensation of all other senior executives of the Company; provided that in no event may the Base Salary be decreased below $375,000 per year. 3.2. Transition Allowance Prior to February 1, 1994, the Company shall pay Myers a lump-sum transition allowance of $100,000. 3.3. Confirmation Bonus If, during the Term, a Plan of Reorganization is filed with the Bankruptcy Court, the Company shall seek Bankruptcy Court approval to pay Myers a "reorganization success bonus" of not less than $400,000 (the "Confirmation Bonus") in the event such Plan of Reorganization is confirmed and consummated during the Term. 3.4. Relocation Expenses (a) The Company shall pay the reasonable expenses incurred by Myers and his wife during the Relocation Period for (i) interim lodging in the Phoenix, Arizona area and (ii) traveling between Phoenix, Arizona and Honolulu, Hawaii. As used herein, "Relocation Period" means the period from the date of this Agreement to the earlier of (i) the date on which Myers relocates his principal residence in the Phoenix, Arizona area and (ii) July 1, 1994; provided that in no event shall the Company's obligation under this paragraph (a) exceed $15,000. (b) The Company agrees to reimburse Myers promptly for all reasonable moving expenses (including packing, storage and cartage) incurred by Myers during the Term in relocating his principal residence to the Phoenix, Arizona area. 3.5. House Loan (a) Upon the purchase by Myers during the Term of his initial principal residence in the Phoenix, Arizona area (the "Residence"), the Company will lend to Myers up to $200,000 solely for the purpose of enabling Myers to pay all or a portion of the purchase price of the Residence. Such loan shall be evidenced by, and subject to the terms and conditions of, a promissory note duly executed by Myers and his wife and payable to the order of the Company (the "House Note"). The House Note shall be in form and substance reasonably acceptable to the Company and shall be effectively secured by a valid second lien deed of trust on the Residence (the "Deed of Trust"). The Deed of Trust shall be duly executed by Myers and his wife and shall be in form and substance reasonably acceptable to the Company. 4 (b) The stated maturity date of the House Note shall be December 31, 2003. On the stated maturity date of the House Note, the entire unpaid amount (principal and accrued interest) of the House Note shall be and become immediately due and payable. (c) The House Note shall bear interest, compounded monthly, at the Applicable Federal Rate. Accrued interest on the House Note shall be payable quarterly on each January 1, April 1, July 1 and October 1. (d) Anything herein or elsewhere to the contrary notwithstanding, (i) in the event the Confirmation Bonus becomes payable to Myers as contemplated by Section 3.3, the Company shall be entitled to apply the Confirmation Bonus (to the extent thereof) to payment of the House Note, in which event only the balance (if any) of the Confirmation Bonus shall be payable to Myers, (ii) in the event any severance payment becomes payable to Myers pursuant to Section 4.2 or 4.3, the Company shall be entitled to apply such severance payment (to the extent thereof) to payment of the House Note, in which event only the balance (if any) of such severance payment shall be payable to Myers and (iii) in the event Myers sells or otherwise disposes of the Residence, Myers shall immediately remit the proceeds thereof to the Company for application (to the extent thereof) to the payment of the House Note. All such payments on the House Note shall be applied first to accrued and unpaid interest and then to principal. (e) Anything herein or elsewhere to the contrary notwithstanding, the House Note (principal and accrued interest) shall be and become immediately due and payable 180 days after the earlier to occur of (i) the termination of Myers' employment hereunder pursuant to Article IV and (ii) Myers' death. (f) Anything herein or elsewhere to the contrary notwithstanding, the House Note (principal and accrued interest) shall be and become immediately due and payable if one or more of the following events shall occur: (i) Myers makes an assignment for the benefit of creditors or is adjudicated insolvent or bankrupt under Title 11 of the Bankruptcy Code; (ii) Myers voluntarily commences any proceeding under the Bankruptcy Code or files any petition under the Bankruptcy Code seeking the appointment of a receiver, trustee, custodian or liquidator for Myers or a substantial portion of his property; (iii) involuntary proceedings are commenced against Myers under the Bankruptcy Code seeking reorganization or a creditors' arrangement with respect to Myers or the appointment of a receiver, trustee, custodian or liquidator for Myers or a substantial portion of his property and such proceedings are not dismissed within 60 days after commencement; (iv) any order, judgment or decree is entered against Myers appointing any receiver or trustee for Myers or for all or a substantial portion of his property; or (v) Myers sells or otherwise disposes of the Residence. (g) Anything herein or elsewhere to the contrary notwithstanding, neither Myers nor his wife shall be personally liable (whether by operation of law or otherwise) for payments due under the House Note. The sole recourse of the Company for satisfaction of the House Note shall be against (i) the collateral covered by the Deed of Trust (including any proceeds from the sale or other disposition of the Residence), (ii) the Confirmation Bonus as contemplated by paragraph (d) above and (iii) any severance payment due to Myers pursuant to Section 4.2 or 4.3; provided, however, that nothing in this paragraph (g) is intended to or shall limit or otherwise adversely affect in any way (i) any right of the Company to proceed against the collateral covered by, or otherwise to exercise or enforce any of the remedies set forth in, the Deed of Trust, (ii) any right of the Company to name Myers and his wife as parties defendant in any action or suit for a judicial foreclosure of the Deed of Trust or in the exercise of any other right or remedy under the Deed of Trust or (iii) the right of the Company to apply the Confirmation Bonus and any severance payment (to the extent thereof) to the payment of the House Note as contemplated by paragraph (d) above. Except as otherwise specifically contemplated by the foregoing proviso, in no event will the Company (i) seek to hold Myers or his wife personally liable for the House Note or (ii) assert any claim against Myers or his wife for the payment of the House Note. 3.6. Stock Loan (a) If, during the Term, Myers exercises the stock option currently held by Myers with respect to shares of common stock of Aloha, the Company will lend to Myers up to $500,000 solely for the purpose of enabling Myers to pay the related exercise price and any related income taxes. Such loan shall be evidenced by, and subject to the terms and conditions of, a promissory note duly executed by Myers and payable to the order of the Company (the "Stock Note"). The Stock Note shall be in form and substance reasonably satisfactory to the Company and shall be effectively secured by a security agreement (the "Pledge Agreement") duly executed by Myers and creating a valid first priority security interest in the Aloha stock acquired by Myers upon exercise of such option (the "Pledged Stock"). The Pledge Agreement shall be in form and substance reasonably satisfactory to the Company and shall be accompanied by appropriate stock powers. (b) The Stock Note shall mature and automatically become immediately due and payable 90 days after the end of the Term unless (i) Myers' employment hereunder is terminated pursuant to Section 4.3 for Misconduct, in which event the Stock Note shall be due and payable 30 days after the end of the Term or (ii) Myers' employment hereunder is terminated pursuant to Section 2.3 as a result of a notice given by the Company thereunder, in which event the Stock Note shall be payable in three equal annual installments commencing on the first anniversary of the end of the Term. (c) The Stock Note shall bear interest, compounded monthly, at the Applicable Federal Rate. Prior to the maturity date of the Stock Note, accrued interest thereon shall be payable only to the extent of (i) any Incentive Bonus earned by Myers as contemplated by Section 3.12 and (ii) the proceeds from any sale or other disposition of the Pledged Stock. Anything herein or elsewhere to the contrary 5 notwithstanding, (i) in the event any Incentive Bonus becomes payable to Myers as contemplated by Section 3.12, the Company shall be entitled to apply such Incentive Bonus (to the extent thereof) to payment of all accrued and unpaid interest on the Stock Note, in which event only the balance (if any) of such Incentive Bonus shall be payable to Myers and (ii) in the event Myers sells or otherwise disposes of any shares of the Pledged Stock, Myers shall immediately remit the proceeds thereof to the Company for application (to the extent thereof) to the payment of the principal of and accrued interest on the Stock Note. (d) Anything herein or elsewhere to the contrary notwithstanding, the Stock Note (principal and accrued interest) shall be and become immediately due and payable 180 days after the first date on which the Pledged Shares may be sold by Myers in one or more transactions on the New York Stock Exchange, the American Stock Exchange or the NASDAQ in compliance with the registration requirements of applicable securities laws. (e) Anything herein or elsewhere to the contrary notwithstanding, the Stock Note (principal and accrued interest) shall be and become immediately due and payable if one or more of the following events shall occur: (i) Myers makes an assignment for the benefit of creditors or is adjudicated insolvent or bankrupt under Title 11 of the Bankruptcy Code; (ii) Myers voluntarily commences any proceeding under the Bankruptcy Code or files any petition under the Bankruptcy Code seeking the appointment of a receiver, trustee, custodian or liquidator for Myers or a substantial portion of his property; (iii) involuntary proceedings are commenced against Myers under the Bankruptcy Code seeking reorganization or a creditors' arrangement with respect to Myers or the appointment of a receiver, trustee, custodian or liquidator for Myers or a substantial portion of his property and such proceedings are not dismissed within 60 days after commencement; or (iv) any order, judgment or decree is entered against Myers appointing any receiver or trustee for Myers or for all or a substantial portion of his property. (f) Anything herein or elsewhere to the contrary notwithstanding, Myers shall not be personally liable (whether by operation of law or otherwise) for payments due under the Stock Note. The sole recourse of the Company for satisfaction of the Stock Note shall be against (i) the Pledged Stock and the proceeds thereof and (ii) Incentive Bonuses as contemplated by paragraph (c) above; provided, however, that nothing in this paragraph (f) is intended to or shall limit or otherwise adversely affect in any way (i) any right of the Company to proceed against the collateral covered by, or otherwise to exercise or enforce any of the remedies set forth in, the Pledge Agreement, (ii) any right of the Company to name Myers as a party defendant in any action or suit for a judicial foreclosure of the Pledge Agreement or in the exercise of any other right or remedy under the Pledge Agreement or (iii) the right of the Company to apply any Incentive Bonus (to the extent thereof) to the payment of the Stock Note as contemplated by paragraph (c) above. Except as otherwise specifically contemplated by the foregoing proviso, in no event will the Company (i) seek to hold Myers personally liable for the Stock Note or (ii) assert any claim against Myers for the payment of the Stock Note. (g) In no event shall the Company be required to make any loan under this Section 3.6 if the making of such loan would violate any law or regulation relating to the extension of credit for the purpose of purchasing or carrying any "margin stock". 3.7. Life Insurance Premiums During the Term, the Company agrees to pay on behalf of Myers the monthly premiums (but not more than $2,141.50 per month) accruing on Policy No. 939-350-991A issued by Metropolitan Life Insurance Company. 3.8. Stock Options In the event a Plan of Reorganization is filed with the Bankruptcy Court during the Term, the Company agrees to use its reasonable best efforts to cause such Plan of Reorganization to provide for the grant by the reorganized Company to Myers of options to purchase shares of common stock of the reorganized Company, which options shall be commensurate with Myers' duties and responsibilities to the reorganized Company except that in no event shall such options have an aggregate exercise price (at the stock's fair market value per share at the time of grant) of less than $750,000. 3.9. Reimbursement of Legal Fees In the event it becomes necessary for Myers to obtain legal assistance regarding the termination of his employment with Aloha, the Company agrees to reimburse Myers for all reasonable legal fees that Myers may incur in that regard. 3.10. Forfeited Aloha Pension Benefits Upon his termination of employment with the Company, Myers shall be entitled to receive from the Company an annual retirement benefit ("Retirement Benefit"), in the form of a straight life annuity beginning at age 65 ("Normal Retirement Annuity"), in an amount equal to X - (Y + Z), where (i) "X" is the amount of the Vested Acc'd BFT for the Term Date that precedes the date of Myers' termination of employment with the Company as reflected in Exhibit A hereto, (ii) "Y" is $49,866 and (iii) "Z" is the vested annual retirement benefit payable to Myers under the Company's qualified and nonqualified employee pension benefit plans (other than under this Section 3.10) in the form of a Normal Retirement Annuity, whether or not such benefit is received on such date or in another form. With respect to any such Company plan that is an individual account balance plan, the conversion of Myers' account balance under such plan into a Normal Retirement Annuity shall be calculated by independent actuaries selected by the Company (the "Actuaries"), disregarding any employee (including 401(k)) 6 contributions to such plan, using the applicable factors and interest rate established by Pension Benefit Guaranty Corporation for a plan termination on such date. In the event that Myers elects to retire prior to age 65 and receive the Retirement Benefit on such earlier date, the amount of the Retirement Benefit shall be reduced in the same proportion as the Vested Acc'd BFT in Exhibit A hereto is reduced with respect to a benefit commencement on such termination date. One-twelfth of the Retirement Benefit (reduced as aforesaid) shall be payable to Myers each month, following his retirement, through the month of his death. Notwithstanding the foregoing, in lieu of receiving a straight life annuity, Myers may elect, prior to his benefit commencement date hereunder, to receive the Retirement Benefit in the form of a joint survivor annuity, with his spouse (determined as of his benefit commencement date) as his contingent annuitant. Such joint survivor annuity shall be actuarially equivalent in value to the straight life annuity otherwise payable to Myers with such actuarial equivalence being determined by the Actuaries. 3.11. Business Expenses The Company shall, in accordance with the rules and policies that it may establish from time to time for senior executives, reimburse Myers for business expenses reasonably incurred in the performance of Myers' duties. It is understood that Myers is authorized to incur reasonable business expenses for promoting the business of the Company, including reasonable expenditures for travel, lodging, meals and client or business associate entertainment. Requests for reimbursement for such expenses must be accompanied by appropriate documentation. 3.12. Other Benefits Myers shall be entitled to receive all fringe benefits and other perquisites that may be offered by the Company to its senior executives as a group, including (i) participation in any incentive plans offered to key employees, (ii) participation in the various employee benefit plans or programs provided to the employees of the Company in general, subject to meeting the eligibility requirements with respect to each of such benefit plans or programs, (iii) tax planning assistance, (iv) a car allowance and (v) such other benefits or perquisites as may be approved by the Board during the Term. However, nothing in this Section 3.12 shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described herein, provided the change similarly affects all senior executives of the Company similarly situated. ARTICLE IV Termination of Employment 4.1. General (a) If Myers' employment is terminated due to Myers' death, this Agreement shall automatically terminate and thereafter the Company shall have no obligations to Myers or Myers' legal representatives or estate with respect to this Agreement other than the payment of any unpaid Base Salary earned hereunder at the date of Myers' death. (b) Myers' employment with the Company shall automatically terminate upon expiration of the Term in accordance with Section 2.3, in which event Myers shall not be entitled to further compensation or benefits hereunder other than (i) any unpaid Base Salary earned hereunder prior to the end of the Term, (ii) any amounts or benefits which may be required by applicable law and (iii) in the event such termination shall have occurred on account of a notice given by the Company pursuant to Section 2.3, a severance payment equal to 150% of the Base Salary in effect on the date of such notice, such severance to be paid within 30 days after the end of the Term. (c) Myers' employment with the Company may be terminated prior to the end of its Term as set forth in the following provisions of this Article IV. 4.2. Termination by Myers (a) Myers may, at any time prior to the end of the Term, terminate his employment hereunder for any reason by delivering a Notice of Termination to the Company. If Myers terminates his employment pursuant to this Section 4.2, he shall not be entitled to further compensation or benefits hereunder other than (i) any unpaid Base Salary earned hereunder prior to the Termination Date, (ii) any amounts or benefits which may be required by applicable law, (iii) if such termination is for Good Reason, a severance payment equal to 150% of the Base Salary in effect on the Termination Date and (iv) if such termination is due to a Change in Control, a severance payment equal to 200% of the Base Salary in effect on the Termination Date. In no event shall Myers be entitled to both of the severance payments described above. In the event Myers becomes entitled to a severance payment under this Section 4.2, the Company agrees to pay the same within 30 days after the Termination Date except as provided in paragraph (b) below. (b) If a Change in Control occurs on account of the consummation of a Plan of Reorganization and if Myers is offered a position with similar titles, duties and compensation with the reorganized Company following such Change in Control, for purposes of this Section 4.2, a termination by Myers will not be due to a Change in Control unless Myers has rejected such offer within 30 days. (c) If (i) a Change in Control occurs on account of the consummation of a Plan of Reorganization, (ii) Myers terminates his employment pursuant to this Section 4.2 on account of such Change in Control and (iii) Myers thereafter accepts a new offer of employment with the reorganized Company or a Company Affiliate within six months after the Termination Date, Myers shall promptly refund to the Company any severance payment paid or credited to Myers as a result of such termination. 4.3. Termination by the Company The Company may, at any time prior to the end of the Term, terminate Myers' employment hereunder for any reason deemed sufficient by the Board by delivering a Notice of Termination to Myers. If the Company terminates Myers' employment pursuant to this Section 4.3 for any reason other than Misconduct or Disability, Myers shall not be entitled to further compensation or benefits hereunder other 7 than (i) any unpaid Base Salary earned hereunder prior to the Termination Date, (ii) any amounts or benefits which may be required by applicable law and (iii) a severance payment equal to 150% of the Base Salary in effect on the Termination Date, such severance to be paid within 30 days after the Termination Date. If the Company terminates Myers' employment pursuant to this Section 4.3 for Misconduct or Disability, Myers shall not be entitled to further compensation or benefits hereunder other than (i) any unpaid Base Salary earned hereunder prior to the Termination Date and (ii) any amounts or benefits which may be required by applicable law. 4.4. Benefits and Privileges The following provisions shall apply if Myers terminates his employment pursuant to Section 4.2(a) for Good Reason or due to a Change in Control or if the Company terminates Myers' employment pursuant to Section 4.3 for any reason other than Misconduct or Disability: (i) Medical Insurance. During the 12-month period following the of Termination Date, the Company, at its cost, shall maintain in full force and effect for the continued benefit of Myers and Myers' dependents all benefits available to Myers and Myers' dependents under all medical plans and programs of the Company, provided that (a) Myers' continued participation is possible under the terms and provisions of such plans and programs and (b) Myers pays the regular employee contribution, if any, required by such plans and programs. In the event that participation by Myers (or his dependents) in any such plan or program after the Termination Date is barred pursuant to the terms thereof, or in the event the Company shall terminate any such plan or program, the Company shall obtain for Myers (and/or his dependents) comparable coverage under individual policies. (ii) Life Insurance. During the 12-month period following the of Termination Date, the Company, at its cost, shall continue to provide Myers all life insurance coverages (and in the same amounts) provided to him by the Company immediately prior to the Termination Date. (iii) Travel Privileges. The Company shall provide Myers (and wife and his dependents) such lifetime on-line and interline, positive space travel privileges subject to the terms of the Company's non-revenue travel policy for retired executives as from time to time in effect. (iv) Accrued Vacation Pay, etc. Promptly after the Termination Date, the Company shall pay to Myers a lump sum amount for (i) all unused vacation time accrued by Myers as of the Termination Date and (ii) all unpaid benefits earned by Myers as of the Termination Date under any and all incentive compensation plans or programs of the Company. 4.5. Disputes Either party may, within 10 days after its receipt of a Notice of Termination given by the other party, provide notice to the other party that a dispute exists concerning the termination, in which event such dispute shall be resolved in accordance with Article VI. Notwithstanding the pendency of any such dispute and notwithstanding any provision of Section 4.2 or 4.3 to the contrary, the Company will continue to pay Myers the Base Salary in effect when the notice giving rise to the dispute was given and continue Myers as a participant in all compensation and benefit plans in which Myers was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved, but in no event past the end of the Term. ARTICLE V Confidential Information and Non-Competition 5.1. Confidential Information (a) Myers recognizes that the services to be performed by him hereunder are special, unique and extraordinary and that, by reason of his employment with the Company, he may acquire Confidential Information and trade secrets concerning the operation of the Company or a Company Affiliate, the use or disclosure of which would cause the Company or a Company Affiliate substantial loss and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, Myers agrees with the Company that he will not at any time (whether during or after the Term), except in the performance of his obligations to the Company hereunder or with the prior written consent of the Board, directly or indirectly, disclose any secret or Confidential Information that he may learn or has learned by reason of his association with the Company, or any predecessors to its business or use any such information to the detriment of the Company. As used herein, "Confidential Information" includes information with respect to the Company's products, facilities and methods, research and development, trade secrets and other intellectual property, systems, patents and patent applications, procedures, manuals, confidential reports, product price lists, customer lists, financial information, business plans, prospects or opportunities. (b) Myers confirms that all Confidential Information is the exclusive property of the Company. All business records, papers and documents kept or made by Myers relating to the business of the Company or any Company Affiliate shall be and remain the property of the Company or such Company Affiliate, respectively, during the Term and all times thereafter. Upon the termination of his employment with the Company or upon the request of the Company at any time, Myers shall promptly deliver to the Company, and shall retain no copies of, any written materials, records and documents made by Myers or coming into his possession concerning the business or affairs of the Company or a Company Affiliate other than personal notes or correspondence of Myers not containing proprietary information relating to such business or affairs. (c) Myers agrees not to disclose to the Company, or to use on behalf of the Company, any confidential information or trade secrets of any of Myers' prior employers. 5.2. Non-Competition (a) While employed by the Company and for a period of 18 months thereafter (the "Restricted Period"), Myers shall not, unless he receives the prior written consent of the Board or the Chairman of the Board, own an interest in, manage, operate, join, control, lend money or render financial 8 or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any Person or other business organizations competing with the Company. (b) Myers has carefully read and considered the provisions of this Section 5.2 and, having done so, agrees that the restrictions set forth in this Section 5.2 (including the Restricted Period, scope of activity to be restrained and the geographical scope) are fair and reasonable and are reasonably required for the protection of the interests of the Company, its officers, directors, employees, creditors and shareholders. Myers understands that the restrictions contained in this Section 5.2 may limit his ability to engage in a business similar to the Company's business, but acknowledges that he will receive sufficiently high remuneration and other benefits from the Company hereunder to justify such restrictions. (c) During the Restricted Period, Myers shall not, whether for his own account or for the account of any other Person, intentionally (i) solicit, endeavor to entice or induce any employee of the Company or any Company Affiliate to terminate his employment with the Company or such Company Affiliate, accept employment with anyone else, or (ii) interfere in a similar manner with the business of the Company or any Company Affiliate. (d) In the event that any provision of this Section 5.2 relating to the Restricted Period and/or the areas of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period or areas such court deems reasonable and enforceable, the Restricted Period and/or areas of restriction deemed reasonable and enforceable by the court shall become and thereafter be the maximum time period and/or areas. 5.3. Stock Ownership Nothing in this Agreement shall prohibit Myers from acquiring or holding any issue of stock or securities of any Person that has any securities listed on a national securities exchange or quoted on the automated quotation system of the national Association of Securities Dealers, Inc., provided that at any time during the Restricted Period, Myers and members of his immediate family do not own or hold more than 5% of any voting securities of any such Person engaged in any business similar to or competitive with that conducted by the Company or any Company Affiliate. 5.4. Injunctive Relief Myers acknowledges that a breach of any of the covenants contained in this Article V may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Myers from engaging in activities prohibited by this Article V or such other relief as may required to specifically enforce any of the covenants contained in this Article V. Myers agrees to and hereby does submit to in personam jurisdiction before each and every such court for that purpose. ARTICLE VI Dispute Resolution (a) In the event a dispute shall arise between the parties as to whether the provisions of this Agreement have been complied with (a "Dispute"), the parties agree to resolve such Dispute in accordance with the following procedure: (i) A meeting shall be held promptly between the parties, attended by (in the case of the Company) by one or more individuals with decision-making authority regarding the Dispute, to attempt in good faith to negotiate a resolution of the Dispute. (ii) If, within 10 days after such meeting, the parties have not succeeded in negotiating a resolution of the Dispute, the parties agree to submit the Dispute to mediation in accordance with the Commercial Mediation Rules of the American Arbitration Association. (iii) The parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the American Arbitration Association if they have been unable to agree upon such appointment within 10 days following the 10-day period referred to in clause (ii) above. (iv) Upon appointment of the mediator, the parties agree to participate in good faith in the mediation and negotiations relating thereto for 15 days. (v) If the parties are not successful in resolving the Dispute through mediation within such 15-day period, the parties agree that the Dispute shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. (vi) The fees and expenses of the mediator/arbitrators shall be borne solely by the non-prevailing party or, in the event there is no clear prevailing party, as the mediator/arbitrators deem appropriate. Except as provided in the preceding sentence, each party shall pay its own costs and expenses (including, without limitation, attorneys' fees) relating to any mediation/arbitration proceeding conducted under this Article VI. (vii) All mediation/arbitration conferences and hearings will be held in Phoenix, Arizona. (b) In the event there is any disputed question of law involved in any arbitration proceeding, such as the proper legal interpretation of any provision of this Agreement, the arbitrators shall make separate and distinct findings of all facts material to the disputed question of law to be decided and, on the basis of the facts so found, express their conclusion of the question of law. The facts so found shall be conclusive and binding on the parties, but any legal conclusion reached by the arbitrators from such facts may be submitted by either party to a court of law for final determination by initiation of a civil action in the manner provided by law. Such action, to be valid, must be commenced 9 within 20 days after receipt of the arbitrators' decision. If no such civil action is commenced within such 20-day period, the legal conclusion reached by the arbitrators shall be conclusive and binding on the parties. Any such civil action shall be submitted, heard and determined solely on the basis of the facts found by the arbitrators. Neither of the parties shall, or shall be entitled to, submit any additional or different facts for consideration by the court. In the event any civil action is commenced under this paragraph (b), the party who prevails or substantially prevails (as determined by the court) in such civil action shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred in connection with such action and on appeal. (c) Except as limited by paragraph (b) above, the parties agree that judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. In the event legal proceedings are commenced to enforce the rights awarded in an arbitration proceeding, the party who prevails or substantially prevails in such legal proceeding shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred in connection with such legal proceeding and on appeal. (d) Nothing in Article VI is intended or shall be construed to prohibit either party from seeking and obtaining injunctive relief as contemplated by Section 5.4. (e) Except as provided above, (i) no legal action may be brought by either party with respect to any Dispute and (ii) all Disputes shall be determined only in accordance with the procedures set forth above. ARTICLE VII Miscellaneous 7.1. No Mitigation The provisions of this Agreement are not intended to, nor shall they be construed to, require that Myers seek or accept other employment following a termination of employment. Except as provided in Sections 3.5 and 3.6, the Company's obligations to make the payments to Myers required under this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Myers. 7.2. Assignability The obligations of Myers hereunder are personal and may not be assigned or delegated by Myers or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any Company Affiliate, provided that no such assignment or delegation shall relieve the Company of its obligations under this Agreement. 7.3. Notices All notices and all other communications provided for in the Agreement shall be in writing and addressed (i) if to the Company, at its principal office address or such other address as it may have designated by written notice to Myers for purposes hereof, directed to the attention of the Board with a copy to the Secretary of the Company and (ii) if to Myers, at his residence address on the records of the Company or to such other address as he may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, except that any notice of change of address shall be effective only upon receipt. 7.4. Severability The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7.5. Successors; Binding Agreement (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used herein, the term "Company" shall include any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 7.5 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Myers hereunder shall inure to the benefit of and be enforceable by Myers' personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Myers should die while any amounts would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Myers' devisee, legatee, or other designee or, if there be no such designee, to Myers' estate. 7.6. Tax Withholdings The Company shall withhold from all payments hereunder all applicable taxes (federal, state or other) which it is required to withhold therefrom. 10 7.7. Amendments and Waivers No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Myers and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.8. Entire Agreement This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 7.9. Governing Law The validity, interpretation, construction and performance of this Agreement, the House Note, the Deed of Trust, the Stock Note and the Pledge Agreement shall be governed by the laws of the State of Arizona. 7.10. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AMERICA WEST AIRLINES, INC. By: Chairman of the Board A. Maurice Myers 11 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement, dated as of September 20, 1994 (this "Amendment"), is entered into by and between America West Airlines, Inc., a Delaware corporation (the "Company"), and A. Maurice Myers ("Myers"). Capitalized terms used in this Amendment without definition shall have the meanings assigned to them in the Existing Agreement referred to below except as herein otherwise expressly provided or unless the context otherwise requires. WHEREAS, the Company and Myers have entered into that certain Employment Agreement, dated effective as of January 1, 1994 (the "Existing Agreement"); and WHEREAS, the Company and Myers desire to modify and amend Sections 3.8 and 4.2 of the Existing Agreement in certain respects. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I Modification of Section 3.8 Section 3.8 of the Existing Agreement is hereby amended to read in its entirety as follows: (a) The Company acknowledges and confirms its intention to established a stock incentive plan for its executive officers (the "Plan") and to cause the Plan to the approved by the Board and by the Company's stockholders, all prior to June 1, 1995. In the event that (i) the Company establishes the Plan, (ii) the Plan is approved by the Board and (iii) the Plan is approved by the shareholders of the Company as contemplated by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, the Company shall grant to Myers under the Plan an irrevocable and nonforfeitable option (the "Option") to purchase 75,000 shares of the Class B Common Stock of the Company ("Stock"). The Option shall not be immediately exercisable but, instead, shall become exercisable in accordance with the vesting schedule specified by the Board in connection with its approval of the grant of the Option, which vesting schedule shall be consistent with the vesting schedule applicable to options grants under the Plan to other senior executive officers of the Company. The term of the Option shall equal the maximum term of an option permitted under the Plan, but in no event shall the term of the Option be for less than seven years from the date of the grant of the Option. The exercise price per share of Stock under the Option shall be (i) $8.89 per share with respect to 37,500 shares and (B) with respect to the remainder of the shares, the average closing price per share of Stock as quoted in the Wall Street Journal for the 20 trading days immediately preceding the date of the grant of the Option. Except as otherwise provided in this Section 3.8, the terms and conditions of the Option shall be as provided in the Plan. (b) The Option shall be evidenced by a written option agreement between Myers and the Company, which shall contain customary terms and provisions for stock options (to the extent not contrary to those provided herein). (c) The aggregate number of shares of Stock and the exercise prices under the Option may be proportionately adjusted in an equitable manner determined by the Company, in its sole discretion, and without liability to Myers, for any increase or decrease in the number of issued shares of Stock resulting from the payment of any stock dividend, any stock split or any transaction which is a "corporation transaction" (as defined in the Treasury Regulations promulgated under Section 424 (formerly Section 425) of the Internal Revenue Code of 1986, as amended). (d) All shares of Stock issuable to Myers upon exercise of the Option shall, when issued to Myers as contemplated hereby and under the Plan, constitute validly issued, fully-paid and nonassessable shares of capital stock of the Company. (e) The Company covenants that, at all times after the grant of the Option, to reserve and keep available (free of preemptive rights) out of its authorized and unissued shares of Stock, solely for the purpose of issuance upon exercise of the Option, the full number of shares of Stock then issuable upon exercise of the Option. ARTICLE II Modification of Section 4.2 Section 4.2(b) of the Existing Agreement is hereby amended by replacing the number "30" with the number "180". ARTICLE III Miscellaneous Section 3.01. Successors; Binding Agreement. This Amendment shall be binding upon and 12 inure to the benefit of and be enforceable by the Company and its successors and assignees and by Myers and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Section 3.02. Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA. Section 3.03. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Section 3.04. Captions. Article and Section headings used in this Amendment are provided for convenience of reference only and shall not affect the construction of this Amendment. Section 3.05. Effect of Amendment. Upon execution of this Amendment by the parties, the Existing Agreement shall be deemed amended and modified as herein provided, but, except as so amended and modified, the Existing Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized. AMERICA WEST AIRLINES, INC. By: Chairman of the Board and Chief Executive Officer A. Maurice Myers 13 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement, dated as of October 1, 1994 (this "Amendment"), is entered into by and between America West Airlines, Inc., a Delaware corporation (the "Company"), and A. Maurice Myers ("Myers"). Capitalized terms used in this Amendment without definition shall have the meanings assigned to them in the Existing Agreement referred to below except as herein otherwise expressly provided or unless the context otherwise requires. WHEREAS, the Company and Myers have entered into that certain Employment Agreement, dated effective as of January 1, 1994 (the "Original Agreement"); WHEREAS, the Original Agreement has heretofore been amended by that certain First Amendment to Employment Agreement dated as of September 20, 1994 (the Original Agreement, as so amended, being herein called the "Existing Agreement"); and WHEREAS, the Company and Myers desire to modify and amend Section 3.5 of the Existing Agreement in certain respects. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I Modification of Section 3.5 Section 1.01. Modification of Paragraph (d). Paragraph (d) of Section 3.5 of the Existing Agreement is hereby amended by changing clause (i) of the first sentence thereof to read in its entirety as follows: (i) in the event any Incentive Bonus becomes payable to Myers as contemplated by Section 3.12, the Company shall be entitled to apply such Incentive Bonus (to the extent thereof) to the payment of the House Note, in which event only the balance (if any) of such Incentive Bonus shall be payable to Myers, Section 1.02. Modification of Paragraph (g). The second sentence of paragraph (g) of Section 3.5 of the Existing Agreement is hereby amended by: (a) replacing the phrase "the Confirmation Bonus", appearing in clause (ii) of such second sentence, with the phrase "Incentive Bonuses"; and (b) replacing the phrase "the Confirmation Bonus", appearing in clause (iii) of the proviso contained in such second sentence, with the phrase "any Incentive Bonus". ARTICLE II Miscellaneous Section 2.01. Successors; Binding Agreement. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the Company and its successors and assignees and by Myers and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Section 2.02. Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA. Section 2.03. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Section 2.04. Captions. Article and Section headings used in this Amendment are provided for convenience of reference only and shall not affect the construction of this Amendment. Section 2.05. Effect of Amendment. Upon execution of this Amendment by the parties, the Existing Agreement shall be deemed amended and modified as herein provided, but, except as so amended and modified, the Existing Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized. AMERICA WEST AIRLINES, INC. By: Chairman of the Board and Chief Executive Officer A. Maurice Myers 14 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This Third Amendment to Employment Agreement, dated as of January 1, 1995 (this "Amendment"), is entered into by and between America West Airlines, Inc., a Delaware corporation (the "Company"), and A. Maurice Myers ("Myers"). Capitalized terms used in this Amendment without definition shall have the meanings assigned to them in the Existing Agreement referred to below except as herein otherwise expressly provided or unless the context otherwise requires. WHEREAS, the Company and Myers have entered into that certain Employment Agreement, dated effective as of January 1, 1994 (the "Original Agreement"); WHEREAS, the Original Agreement has heretofore been amended by (i) that certain First Amendment to Employment Agreement dated as of September 20, 1994 and (ii) that certain Second Amendment to Employment Agreement dated as of October 1, 1994 (the Original Agreement, as so amended, being herein called the "Existing Agreement"); and WHEREAS, the Company and Myers desire to modify and amend the Existing Agreement in certain respects. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: 1. The definition of "Change in Control" appearing in Section 1.1 of the Existing Agreement is hereby amended by replacing the phrase " `Change in Control' shall occur if either" with the phrase " `Change in Control' shall occur if, after December 1, 1994, either". 2. The definition of "Notice of Termination" appearing in Section 1.1 of the Existing Agreement is hereby amended by replacing the word "and" at the end of clause (ii) with a comma and by adding the following at the end of clause (ii): "and (iii) specify the applicable Termination Date (as defined below)." 3. The definition of "Termination Date" appearing in Section 1.1 of the Existing Agreement is hereby amended by changing the proviso therein to read in its entirety as follows: "provided that in no event shall such termination date be (i) in the case of a termination pursuant to the first sentence of Section 4.2(a), less than 90 nor more than 120 days after the date such Notice is given and (ii) in the case of any other termination, less than 30 nor more than 60 days after the date such Notice is given". 4. Section 3.1 of the Existing Agreement is hereby amended to read in its entirety as follows: For services rendered by Myers under this Agreement, the Company shall pay to Myers, during the Term, an annual base salary (the "Base Salary"), payable biweekly as earned in accordance with the Company's customary payroll practice for its senior executives and prorated for employment for less than a full calendar year. The annual amount of the Base Salary shall be (i) $375,000 for the period ending December 31, 1994 and (ii) $400,000 for the period beginning January 1, 1995; provided, however, that the amount of the Base Salary shall be reviewed by the Board on an annual basis and may be increased as the Board may deem appropriate in its sole discretion. If the Base Salary is increased as aforesaid, it may not thereafter be decreased unless a similar decrease is made to the base compensation of all other senior executives of the Company; provided, however, that in no event may the Base Salary be decreased below $375,000 at any time prior to January 1, 1995 or below $400,000 at any time after December 31, 1994. 5. Section 3.5(b) of the Existing Agreement is hereby amended by adding the following at the end of the first sentence: "except that such stated maturity date shall be automatically extended by two years if Myers terminates his employment pursuant to the first sentence of Section 4.2(a)". 6. Section 3.5(e) of the Existing Agreement is hereby amended by changing clause (i) thereof to read in its entirety as follows: "(i) the termination of Myers' employment hereunder pursuant to Article IV (other than the first sentence of Section 4.2(a)) and". 7. Section 3.8 of the Existing Agreement is hereby amended to read in its entirety as follows: "[This Section intentionally left blank.]" 8. Section 4.2(a) of the Existing Agreement is hereby amended to read in its entirety as follows: "(a) If any person (other than William A. Franke or Myers) shall be elected CEO without Myers' written consent, Myers may terminate his employment hereunder prior to the end of the Term by delivering a Notice of Termination to the Company not more than 30 days after the date of such election and at least 90 days prior to the effective date of such termination. Myers may terminate his employment hereunder prior to the end of the Term for any other reason by delivering a Notice of 15 Termination to the Company at least 30 days prior to the effective date of such termination. If Myers terminates his employment pursuant to this Section 4.2, he shall not be entitled to further compensation or benefits hereunder other than (i) any unpaid Base Salary earned hereunder prior to the Termination Date, (ii) any amounts or benefits which may be required by applicable law, (iii) if such termination is for Good Reason or due to a Change in Control, a severance payment equal to 150% of the Base Salary in effect on the Termination Date and (iv) if such termination is pursuant to the first sentence of this paragraph (a), a severance payment equal to 100% of the Base Salary in effect on the Termination Date. In no event shall Myers be entitled to more than one severance payment under this Section 4.2. In the event Myers becomes entitled to a severance payment under this Section 4.2, the Company agrees to pay the same within 30 days after the Termination Date." 9. Section 4.4 of the Existing Agreement is hereby amended by changing the portion thereof which precedes paragraph (i) to read in its entirety as follows: "The following provisions shall apply if (i) Myers terminates his employment pursuant to the first sentence of Section 4.2(a), (ii) Myers terminates his employment pursuant to the second sentence of Section 4.2(a) for Good Reason or due to a Change in Control or (iii) the Company terminates Myers' employment pursuant to Section 4.3 for any reason other than Misconduct or Disability:". 10. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the Company and its successors and assignees and by Myers and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 11. THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA. 12. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13. Upon execution of this Amendment by the parties, the Existing Agreement shall be deemed amended and modified as herein provided, but, except as so amended and modified, the Existing Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized. AMERICA WEST AIRLINES, INC. By: Chairman of the Board and Chief Executive Officer A. Maurice Myers 16 ANNUAL LIFE ONLY BENEFIT (WITH 5% PAY INCREASES AFTER 1993)
RETIREMENT AGES VESTED TERM DATE ACC'D BFT 55 56 57 58 59 60 12/31/1993 49,866 20,001 21,717 23,612 25,721 28,070 30,702 12/31/1994 57,693 23,141 25,125 27,318 29,758 32,475 35,522 12/31/1995 65,926 41,204 42,852 44,500 46,148 47,796 12/31/1996 74,295 48,292 50,149 52,007 53,864 12/31/1997 77,462 52,287 54,223 56,160 12/31/1998 86,977 60,884 63,058 12/31/1999 97,250 70,506 12/31/2000 108,332 12/31/2001 120,280 12/31/2002 133,152 12/31/2002 147,010 12/31/2003 161,921
ANNUAL LIFE ONLY BENEFIT (WITH 5% PAY INCREASES AFTER 1993)
RETIREMENT AGES VESTED TERM DATE ACC'D BFT 61 62 63 64 65 12/31/1993 49,866 33,655 49,866 49,866 49,866 49,866 12/31/1994 57,693 38,937 57,693 57,693 57,693 57,693 12/31/1995 65,926 49,445 65,926 65,926 65,926 65,926 12/31/1996 74,295 55,721 74,295 74,295 74,295 74,295 12/31/1997 77,462 58,097 77,462 77,462 77,462 77,462 12/31/1998 86,977 65,233 86,977 86,977 86,977 86,977 12/31/1999 97,250 72,938 97,250 97,250 97,250 97,250 12/31/2000 108,332 81,249 108,332 108,332 108,332 108,332 12/31/2001 120,280 120,280 120,280 120,280 120,280 12/31/2002 133,152 133,152 133,152 133,152 12/31/2002 147,010 147,010 147,010 12/31/2003 161,921 161,921
EX-11.1 7 EXHIBIT 11.1 1 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY COMPANY ------------------------------------------------------------------- ------------ PERIOD FROM PERIOD FROM JANUARY 1 AUGUST 26 TO TO YEARS ENDED DECEMBER 31, DECEMBER 31 AUGUST 25 ----------------------------------------------------- 1994 1994 1993 1992 1991 1990 ------------ ----------- ----------- ----------- ----------- ----------- Primary Earnings Per Share Computation for Statements of Operations: Income (loss) before extraordinary item............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Adjustment for interest on debt reduction.......................... -- 2,584 4,210 -- -- -- Preferred stock dividend requirement........................ -- -- -- (1,672) (1,673) (1,673) ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item.... 7,864 (200,684 ) 41,375 (133,433) (223,689) (78,368) Extraordinary item, tax benefit...... -- -- -- -- -- -- Extraordinary item, net.............. -- 257,660 -- -- -- 2,024 ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock.............................. $ 7,846 $ 56,976 $ 41,375 $ (133,433) $ (223,689) $ (76,344) =========== =========== ========== ========== ========== ========== Weighted average number of common shares outstanding................... 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970 Assumed exercise of stock options and warrants(a).......................... -- 3,079,258 3,044,504 -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted....... 45,126,899 28,549,929 27,524,991 23,914,298 21,533,992 18,395,970 =========== =========== ========== ========== ========== ========== Primary earnings per common share: Income (loss) before extraordinary item................................. $ 0.17 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26) Extraordinary item..................... -- 9.02 -- -- -- 0.11 ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)...................... $ 0.17 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15) =========== =========== ========== ========== ========== ========== Income (loss) before extraordinary item................................. $ 7,846 $ (131,761) $ (222,016) $ (76,695) Preferred stock dividend requirement... -- (1,672) (1,673) (1,673) Interest adjustment net of taxes....... 870 4,964 4,408 2,818 ------------ ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item...... 8,716 (128,469) (219,281) (75,550) Extraordinary item, tax benefit........ -- 2,756 2,448 1,490 Extraordinary item, net................ -- -- -- 2,024 ------------ ----------- ----------- ----------- Income (loss) applicable to common stock................................ $ 8,716 $ (125,713) $ (216,833) $ (72,036) =========== ========== ========== ========== Weighted average number of common shares outstanding............................ 45,126,899 23,914,298 21,533,992 18,395,970 Assumes exercise of stock options and warrants............................. 2,011,352 7,383,922 6,704,746 4,922,120 ------------ ----------- ----------- ----------- Weighted average number of common shares as adjusted................... 47,138,251 31,298,220 28,238,738 23,318,090 =========== ========== ========== ========== Primary earnings per common share: Income (loss) before extraordinary item................................. $ 0.18 $ (4.10) $ (7.77) $ (3.24) Extraordinary item..................... -- 0.09 0.09 0.15 ------------ ----------- ----------- ----------- Net income (loss)(c)................... $ 0.18 $ (4.01) $ (7.68) $ (3.09) =========== ========== ========== ==========
1 2 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY COMPANY ------------------------------------------------------------------- ------------ PERIOD FROM PERIOD FROM JANUARY 1 AUGUST 26 TO TO YEARS ENDED DECEMBER 31, DECEMBER 31 AUGUST 25 ----------------------------------------------------- 1994 1994 1993 1992 1991 1990 ------------ ----------- ----------- ----------- ----------- ----------- Fully Diluted Earnings Per Share Computation for Statements of Operations: Income (loss) before extraordinary items............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Adjustment for interest on debt reduction........................... 870 2,520 5,812 -- -- -- Preferred stock dividend requirement......................... -- -- -- (1,672) (1,673) (1,673) ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary items.... 8,716 (200,748 ) 42,977 (133,433) (223,689) (78,368) Extraordinary items, tax benefit...... -- -- -- -- -- 2,024 Extraordinary items................... -- 257,660 -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (133,433) $ (223,689) $ (76,344) =========== =========== ========== ========== ========== ========== Weighted average number of common shares outstanding.................. 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970 Assumed exercise of stock options and warrants(a)......................... 2,011,352 3,079,258 4,240,761 -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted...... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970 =========== =========== ========== ========== ========== ========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................... $ 0.18 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26) Extraordinary items................... -- 9.02 -- -- -- 0.11 ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)(b).................. $ 0.18 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15) =========== =========== ========== ========== ========== ========== Additional Fully Diluted Computation: Additional adjustment to net income (loss) as adjusted per fully diluted computation above Income (loss) before extraordinary items as adjusted per fully diluted computation above................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Add -- Interest on 7.75% subordinated debenture, net of taxes............. -- -- -- -- 869 1,829 Add -- Interest on 7.5% subordinated debenture, net of taxes............. -- -- -- -- 806 1,712 Add -- Interest on 11.5% subordinated debentures, net of taxes............ -- -- -- -- 3,506 7,629 Add interest on debt reduction, net of taxes............................... 870 2,520 5,812 4,964 4,352 2,777 ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary items as adjusted................... 8,716 (200,748 ) 42,977 (126,797) (212,483) (62,748) Extraordinary items................... -- 257,660 -- 2,756 5,293 9,399 ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (124,041) $ (207,190) $ (53,349) =========== =========== ========== ========== ========== ========== Additional adjustment to weighted average number of shares outstanding Weighted average number of shares outstanding as adjusted per fully diluted computation above................................... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970
2 3 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE -- (CONTINUED) (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY COMPANY ------------------------------------------------------------------- ------------ PERIOD FROM PERIOD FROM JANUARY 1 AUGUST 26 TO TO YEARS ENDED DECEMBER 31, DECEMBER 31 AUGUST 25 ----------------------------------------------------- 1994 1994 1993 1992 1991 1990 ------------ ----------- ----------- ----------- ----------- ----------- Additional dilutive effect of outstanding options and warrants...... -- -- -- 7,383,922 6,704,746 5,266,266 Additional dilutive effect of assumed conversion of preferred stock: Series A 9.75%........................ -- -- -- -- -- -- Series B 10.5%........................ -- -- 851,294 1,164,596 1,164,596 1,164,596 Series C 9.75%........................ -- 73,099 73,099 73,099 73,099 73,099 Additional dilutive effect of assumed conversion of 7.75% subordinated debenture............................. -- 2,257,558 2,263,007 2,278,151 2,483,528 2,735,200 Additional dilutive effect of assumed conversion of 7.5% subordinated debenture............................. -- 2,264,932.. 2,272,548 2,291,607 2,347,604 2,551,060 Additional dilutive effect of assumed conversion of 11.5% subordinated debenture............................. -- 7,306,865 7,328,201 7,486,391 9,081,162 9,866,509 ------------ ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted............... 47,138,251 40,452,383 41,509,397 44,592,064 43,388,727 40,052,700 =========== =========== ========== ========== ========== ========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items................................. $ 0.18 $ (4.96 ) $ 1.04 $ (2.84) $ (4.90) $ (1.57) Extraordinary items..................... -- 6.37 -- 0.06 0.12 0.23 ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)(c).................... $ 0.18 $ 1.41 $ 1.04 $ (2.78) $ (4.78) $ (1.34) =========== =========== ========== ========== ========== ==========
--------------- (a) The stock options and warrants are included only in the periods in which they are dilutive. (b) The calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. (c) The calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result. 3 EX-27 8 EXHIBIT 27
5 1000 4-MOS DEC-31-1994 AUG-26-1994 DEC-31-1994 182581 0 61005 3531 24179 293518 544346 15882 1545092 341445 465598 451 0 0 594995 1545092 0 469766 0 430845 0 1074 22636 19736 11890 7846 0 0 0 7846 .17 .17 America West Airlines, Inc. emerged from Chapter 11 on August 15, 1994 and adopted fresh starting reporting in accordance with Statement of Position 90-7. Accordingly, the Company's post-reorganization financial statements have not been prepared on a consistent basis with such pre-reorganization financial statements and are not comparable in all respects to financial statements prior to reorganization.