##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K


|  |  |                                                                 
|- |  | ----------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES 
|  |  | EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

|  |  |                                                                    
|- |  | -------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
|  |  | EXCHANGE ACT OF 1934                                               

COMMISSION FILE NUMBER 1-12649

AMERICA WEST HOLDINGS CORPORATION


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) |  | 86-0847214
(I.R.S. EMPLOYER IDENTIFICATION NO.)

|                                                                                          |  |                                                                    
|----------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------
|111 WEST RIO SALADO PARKWAY
TEMPE, ARIZONA 85281
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | (480) 693-0800
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

|                                                                                  |  |                                                
|--------------------------------------------------------------------------------- |  | -----------------------------------------------
|TITLE OF EACH CLASS                                                               |  | NAME OF EACH EXCHANGE ON WHICH REGISTERED:     
|CLASS B COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK WARRANT, $.01 PAR VALUE |  | NEW YORK STOCK EXCHANGE
NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

COMMISSION FILE NUMBER 0-12337

AMERICA WEST AIRLINES, INC.


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) |  | 86-0418245
(I.R.S. EMPLOYER IDENTIFICATION NO.)

|                                                                                                  |  |                                                                    
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------
|4000 E. SKY HARBOR BOULEVARD
PHOENIX, ARIZONA 85034-3899
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | (480) 693-0800
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SENIOR UNSECURED NOTES DUE 2005
(TITLE OF CLASS)

Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
þ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 under the Securities Exchange Act of
1934) is not contained herein, and will not be contained, to the best of each
of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. þ

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes þ                      No





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##### Table of Contents



As of June 30, 2002, there were 32,781,851 shares of America West Holdings
Corporation Class B common stock, $.01 par value issued and outstanding. As of
such date, based on the closing sales price as quoted by the New York Stock
Exchange, 32,556,201 shares of Class B common stock, having an aggregate market
value of approximately $89,203,991 were held by non-affiliates. For purposes
of the above statement only, all directors and executive officers of the
registrants are assumed to be affiliates. As of June 30, 2002, all outstanding
equity securities of America West Airlines, Inc. were owned by America West
Holdings Corporation.

As of March 31, 2003, there were 941,431 shares of America West Holdings
Corporation Class A common stock and 32,771,285 shares of America West Holdings
Corporation Class B common stock outstanding. As of March 31, 2003, all
outstanding equity securities of America West Airlines, Inc. were owned by
America West Holdings Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to America West Holdings
Corporations 2003 annual meeting of stockholders, which proxy statement will
be filed under the Securities Exchange Act of 1934 within 120 days of the end
of America West Holdings Corporations fiscal year ended December 31, 2002, are
incorporated by reference into Part III of this Form 10-K.





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TABLE OF CONTENTS



|         |                                                                                                                            |  |  |  |  |  |  | 
|-------- | -------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  
|         | ITEM 1. BUSINESS                                                                                                          
|         | ITEM 2. PROPERTIES                                                                                                        
|         | ITEM 3. LEGAL PROCEEDINGS                                                                                                 
|         | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                               
|PART II 
|         | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                             
|         | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                                              
|         | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             
|         | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                       
|         | ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  AMERICA                      WEST HOLDINGS CORPORATION
|         | ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  AMERICA WEST AIRLINES, INC. (AWA)                                
|         | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                              
|PART III
|         | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS                                                              
|         | ITEM 11. EXECUTIVE COMPENSATION                                                                                           
|         | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                   
|         | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   
|         | ITEM 14. CONTROLS AND PROCEDURES                                                                                          
|PART IV 
|         | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                                  
|EX-3.2  
|EX-3.4  
|EX-10.56
|EX-23.1 
|EX-23.2 
|EX-99.1 
|EX-99.2 
|EX-99.3 
|EX-99.4 



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##### Table of Contents



TABLE OF CONTENTS

|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                      |  | PAGE
|PART I                                                                                                |  |     
|Item 1. Business                                                                                      |  | 2   
|Item 2. Properties                                                                                    |  | 18  
|Item 3. Legal Proceedings                                                                             |  | 18  
|Item 4. Submission of Matters to a Vote of Security Holders                                           |  | 18  
|PART II                                                                                               |  |     
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters                         |  | 19  
|Item 6. Selected Consolidated Financial Data                                                          |  | 20  
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations         |  | 21  
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                   |  | 37  
|Item 8A. Consolidated Financial Statements and Supplementary Data  America West Holdings
Corporation |  | 37  
|Item 8B. Financial Statements and Supplementary Data  America West Airlines, Inc.                    |  | 69  
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          |  | 97  
|PART III                                                                                              |  |     
|Item 10. Directors and Executive Officers of the Registrants                                          |  | 97  
|Item 11. Executive Compensation                                                                       |  | 97  
|Item 12. Security Ownership of Certain Beneficial Owners and Management                               |  | 97  
|Item 13. Certain Relationships and Related Transactions                                               |  | 97  
|Item 14. Controls and Procedures                                                                      |  | 97  
|PART IV                                                                                               |  |     
|Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                              |  | 98  





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This combined Form 10-K is filed by both America West Holdings Corporation
(Holdings or the Company) and its wholly owned subsidiary, America West
Airlines, Inc. (AWA or the Airline).

Note Concerning Forward-Looking Information

This report contains various forward-looking statements and information
that are based on managements beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words anticipate, estimate, project, expect and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key factors that may have a direct
bearing on the Companys or AWAs results are:



| |  |  | the continuing impact of the terrorist attacks of September 11,
2001, the potential impact of any future terrorist attacks and
government responses thereto, and the potential impact of the war
against Iraq and other hostilities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the duration and extent of the current soft economic conditions;                                                                                                                                                                    
|
| |  |  | limitations on the Companys or AWAs ability to obtain additional
financing due to high levels of debt and the financial and other
covenants in its debt instruments;                                                              
|
| |  |  | the cyclical nature of the airline industry;                                                                                                                                                                                        
|
| |  |  | competitive practices in the airline industry;                                                                                                                                                                                      
|
| |  |  | the impact of changes in fuel prices; and                                                                                                                                                                                           
|
| |  |  | relations with unionized employees generally and the impact and
outcome of labor negotiations.                                                                                                                                      

For additional discussion of such risks see Business  Risk Factors
Relating to America West and Industry Related Risksincluded in Item 1 of this
report. Any forward-looking statements speak only as of the date of this
report.

1



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##### Table of Contents






PART I




ITEM 1. BUSINESS

Holdings is a holding company that owns all of the stock of AWA. AWA
accounted for most of the Companys revenues and expenses in 2002. Based on
2002 revenues and operations, AWA is the eighth largest passenger airline in
the United States with the lowest cost structure of the eight major
hub-and-spoke airlines in the United States. At the end of 2002, AWA operated
a fleet of 143 aircraft with an average fleet age of 10.1 years and served 65
destinations in North America, including seven in Mexico and three in Canada.
Through regional alliance and code share arrangements with other airlines, AWA
served an additional 49 destinations in North America as of December 31, 2002.
In 2002, AWA flew approximately 19.5 million passengers and generated revenues
of approximately $2 billion. In addition, Holdings owns all of the outstanding
stock of The Leisure Company (TLC), which sells individual and group travel
packages, including air transportation on AWA and Hawaiian Airlines, hotel
accommodations, car rentals, cruise packages and other travel products,
directly to consumers as well as through retail travel agencies in the United
States, Canada and Mexico.

General information about us can be found at www.americawest.com/aboutawa
under the public/investor relations link. Our annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any
amendments or exhibits to those reports, are available free of charge through
our website as soon as reasonably practicable after we file them with, or
furnish them to, the SEC.

Overview

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. In 2002,
the nine largest U.S. airlines reported net losses of approximately $7.0
billion, of which approximately $1.8 billion was in the fourth quarter of 2002.
Two airlines, United Airlines and U.S. Airways, have filed for bankruptcy and
most other airlines have implemented cost reduction plans in order to preserve
liquidity and weather the current economic conditions. Passenger revenues
continue to be adversely affected by a decline in high-yield business traffic
and a general decline in the demand for air travel after the terrorist attacks.
The airline industry also incurred, and continues to face, an increase in
costs resulting from enhanced security measures, aviation-related insurance and
higher jet fuel prices.

In response to these difficult industry conditions, we completed a
financial restructuring, introduced a business-friendly pricing structure and
lowered our cost structure during 2002. Most significantly, during the first
quarter of 2002, as part of our financial restructuring, we closed a $429
million loan supported by a $380 million government loan guarantee. This loan
triggered expense reductions and additional financing (primarily aircraft rent
reductions and future financing commitments), resulting in a restructuring of
our indebtedness and lease commitments. See Note 4, Government Guaranteed
Loan in the Notes to the Consolidated Financial Statements. In 2002, we also
eliminated base commissions on tickets issued by travel agencies in the United
States effective March 21, 2002 and introduced a new pricing structure offering
business travelers lower and more flexible fares on March 24, 2002. See 
Revised Pricing Structure below. As a result of these initiatives, we
believe our cash balance as of December 31, 2002 remains relatively high as
compared to the average for the major U.S. domestic hub-and-spoke airlines, our
year-over-year domestic unit revenue and unit cost performance was better than
the industry average and our year-over-year improvement in pre-tax margin was
the highest of all major U. S. airlines.

Despite this progress, we expect to continue to post significant losses in
2003. We believe near-term revenues will continue to be negatively impacted by
the soft economic conditions and the decline in business traffic. In addition,
fuel prices have remained and may continue to remain well above historical
norms due to the threat of and the commencement of military action against Iraq
and continued political tension in Venezuela. Although there can be no
assurances, we believe that cash flow from operating activities coupled with
existing cash balances and financing commitments will be adequate to fund our
operating and capital needs as well as enable us to maintain compliance with
our various debt agreements
through at least December 31, 2003. See Risk Factors Relating to America
West and Industry Related Risksand Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital
Resources.

2



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Recent Events

Restatement of Previously Reported Amounts

Holdings
and AWA have restated their audited financial statements for the fiscal year ended December 31, 2001 and
their unaudited financial statements for the first, second and third
quarters of fiscal year ended December 31, 2002. The changes
include:



| |  |  |  a change in the timing from the first quarter of 2002 back
to the fourth quarter of 2001 of the non-cash impairment charge of
approximately $39.2 million recorded to adjust the carrying value of
owned aircraft to market value and the related non-cash impairment
charge of approximately $64.1 million recorded to write off
reorganization value in excess of amounts allocable to identifiable
assets (ERV) that arose in connection with the Companys plan of
reorganization from bankruptcy in 1994, both of which charges were
previously recorded in the first quarter of 2002; and
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  |  the recognition of full
valuations allowances relating to Holdings and AWAs net
deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

See Note 2, Restatement of
Previously Reported Amountsin
both Notes to
Consolidated Financial Statements of Holdings and Notes to Financial
Statements of AWA.

Impairment Charges

Statement
of Financial Accounting Standards (SFAS) No. 121
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of requires than an
impairment analysis be performed whenever circumstances indicate that
the carrying amount of an asset that an entity expects to hold and
use may not be recoverable.

As a
result of the adverse impacts on Holdings and AWA and the airline
industry as a whole resulting from the terrorist events of
September 11, 2001 and their aftermath, AWA performed an assessment of
impairment of its owned aircraft during 2001 and again in connection
with the preparation of the interim financial statements for the
first quarter of 2002.

As a
result of AWAs assessments, no impairment adjustment was
recorded in the financial statements previously issued for 2001. The Company
and AWA recorded an impairment charge of approximately $39.2 million in the first
quarter of 2002 to adjust the carrying value of AWAs owned aircraft to reflect market
values at that time. Such accounting treatment was considered appropriate at
the time of the issuance of the applicable financial statements. In connection
with the preparation of the financial statements and the related audit for the fiscal year ended
December 31, 2002, the Company and AWA determined that the more appropriate recognition of
the impairment charge of approximately $39.2 million is in the fourth quarter
of 2001 rather than in the first quarter of 2002.

In addition, SFAS No. 121 requires that goodwill that arose in a purchase
business combination be allocated, and included as part of the asset base, in
determining recoverability and measuring impairment. The Company and AWA did not have goodwill at December 31,
2001, but did have a significant amount of unamortized ERV. The
Company and AWA have
determined that a portion of the unamortized ERV balance should have
been allocated to AWAs owned aircraft in the
impairment analysis performed for the year ended December 31, 2001.

As more fully described in Note 3, Adoption of New Accounting Standard
in both Notes to Consolidated Financial Statements of Holdings and
Notes to Financial Statements of AWA, the remaining unamortized balance of ERV was
written-off in the first quarter of 2002 as a cumulative effect of a
change in accounting principle, upon adoption of SFAS No. 142,
Goodwill and Other Intangible Assets.

The impact of the above described matters
is to change the period of
recognition for these non-cash costs between late 2001 and early 2002. See Note 19,
Quarterly Financial Data (Unaudited)in Notes to Consolidated Financial
Statements of Holdings and Note 18, Quarterly Financial
Data (Unaudited) in Notes to Financial Statements of
AWA.

Deferred Income Taxes

SFAS No. 109 Accounting for Income Taxesrequires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.

3



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Holdings
and AWA had originally reported net deferred tax liabilities at
December 31, 2001. After consideration of the restatement
discussed above, Holdings and AWA each had net deferred tax assets
and were in a cumulative loss position for the three years
ended December 31, 2001. Full valuation allowances have been established
relating to Holdings
and AWAs net deferred tax assets at December 31, 2001, and
relating to
net deferred tax assets generated by losses in 2002. We expect to continue to record a full
valuation allowance on future tax benefits until we return to
profitability. See Note 9, Income Taxesand Note 19, Quarterly
Financial Data (Unaudited)in Notes to Consolidated
Financial Statements of Holdings and Note 10, Income
Taxes and Note 18, Quarterly Financial Data
(unaudited) in Notes to Financial Statements of AWA.

Elimination of Hub Operations in Columbus, Ohio

On February 10, 2003, we announced that we will eliminate hub operations
in Columbus, Ohio. We expect to commence downsizing our Columbus operations
in early April with completion scheduled in mid-June. During that period, we
expect to:



| |  |  | Gradually downsize the hub from 49 daily departures to 15
destinations to a planned four mainline flights per day to Phoenix and
Las Vegas;                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Phase 12 Columbus-based regional jets, all of which are currently
operated by Chautauqua Airlines (Chautauqua) under the America West
Express banner, out of our fleet; and
|
| |  |  | Reduce the number of employees in Columbus from approximately 400
to 65.                                                                                                     

In connection with the downsizing, we expect to terminate our regional
alliance with Chautauqua and to offer affected employees the opportunity to
transfer to other positions within AWA. Those who choose not to relocate will
receive severance packages. In addition, due to the downsizing of Columbus, we
expect to eliminate service to New York City LaGuardia Airport because
perimeter rules at that airport prohibit flights beyond 1,500 miles, which
precludes service from our hubs in Phoenix and Las Vegas. However, the Airline
will continue to serve the New York metropolitan area through both John F.
Kennedy and Newark International Airports. With the exception of LaGuardia, we
do not expect to close any other year-round AWA destination as a result of the
elimination of the Columbus hub.

In the first, second and third quarters of 2003, we expect to record
pre-tax special charges totaling approximately $10 to $15 million resulting
from the elimination of our Columbus hub operations. The charge is related to
the costs to terminate certain contracts, the write-off of leasehold
improvements and employee transfer and severance expenses. See Note 21,
Subsequent Event  Elimination of Hub Operations in Columbus, Ohioin Notes
to Consolidated Financial Statements.

Airline Operations

Our operations and business strategy have traditionally been focused
around our Phoenix, Arizona and Las Vegas, Nevada based route-network
(supplemented by regional airline alliances and strategic relationships with
other carriers), our low cost structure and our emphasis on customer service.
During 2002, in response to the adverse industry conditions, we shifted our
emphasis to maximize revenues generated by our existing route-network and
minimize our costs and expenses. In addition, we significantly reformed our
pricing structure in an effort to increase our share of key business markets.

Our Route Network

We operate our route system through a hub-and-spoke network centered
around our principal hubs in Phoenix, Arizona and Las Vegas, Nevada and a
mini-hub in Columbus, Ohio. As of December 31, 2002, we were the leading
airline serving Phoenix based on available seat miles, or ASMs, and takeoffs
and landings and ranked second in Las Vegas based on the same measures. Our
operations have focused on the Phoenix and Las Vegas markets and expanding our
reach beyond those markets through strategic relationships with other carriers,
including regional alliances with Chautauqua and Mesa Airlines (Mesa) and
code-sharing arrangements with other carriers. See  Regional Airline
Alliances and  Alliances with Other Airlines below. As discussed above, as
part of our emphasis on revenue maximization and cost reduction, we intend to
eliminate our Columbus hub operations, and in connection therewith, terminate
our regional alliance with Chautauqua during the first half of 2003. Although
recent industry conditions have resulted in a reduction of ASMs in 2002, we
expect to be in a position to continue the prudent growth of the Airline and
its Phoenix and Las Vegas centered networks as the economic environment
improves.

4



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Cost Control

We are committed to maintaining a low cost structure, which we believe
offers a significant competitive advantage over other major hub-and-spoke
airlines in the United States. In 2002, we continued to maintain our position
as having the lowest operating cost per available seat mile, or CASM, of all
the other major hub-and-spoke airlines in the United States and remained
competitive with the major point-to-point airline, Southwest Airlines. Our
CASM was 8.05 cents in 2002, which included approximately $19.0 million, or
0.07 cents per available seat mile, of charges associated with our financial
restructuring. Excluding these restructuring charges, we believe our CASM of
7.98 cents was approximately 24% less than the average CASM (excluding similar
restructuring charges) of the other major hub-and-spoke airlines in the United
States.

In 2002, we reduced our CASM, excluding restructuring charges, by 8.1%,
which we believe represented the most improvement amongst the major U.S.
airlines. This reduction was driven by a reduction in aircraft rents obtained
in connection with our financial restructuring, which reduced rent payments by
approximately $50 million per year for 2003 and each of the next six years, the
elimination of base commissions on tickets issued by travel agencies in the
United States and continued management focus on cost control.

In the current industry environment, our low cost focus has been extended
to capital spending and cash conservation. We intend to minimize capital
expenditures and defer discretionary expenditures.

Revised Pricing Structure

In an effort to maximize revenue and increase business traffic, we
eliminated our historic pricing structure in March 2002 and replaced it with a
simplified structure, the primary components of which include reduced business
fares (typically 40-75% below the walkup prices on other major network
carriers), elimination of Saturday night stay requirements and more fares
available on a one-way basis. At the same time, we significantly reduced the
number and level of highly discounted fares available through off-tariff
channels. Immediately following the introduction of the new fare structure,
higher-cost competitors placed extremely low prices in our non-stop markets and
Continental Airlines cancelled its long standing code share and frequent flyer
agreements with us. Despite these actions, we believe our year-over-year
domestic unit revenue performance has been better than the industry average
each month since the new structure was introduced and the net effect of our
revised pricing structure has been significantly positive to revenue.

Customer Service

We believe that the emphasis on customer service is essential to
rebuilding our business and leisure traffic. Therefore, we are committed to
building a successful airline by taking care of our customers. During 2002, we
continued to build on the customer service and reliability initiatives that we
first implemented in 2000. Largely as a result of our continued focus on
customer service, in 2002, we
continued to make significant improvements in a number of key areas as
reported to the Department of Transportation (DOT):



| |  |  | On-time performance improved to 82.9% in 2002 compared to 74.8% in
2001. In January, February and May 2002, AWA ranked first in the
industry in on-time performance;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Completion factor for the year was 99.0%, higher than any other year in our history;                                                                                
|
| |  |  | AWA posted a 16% improvement in mishandled baggage in 2002 compared to 2001;                                                                                        
|
| |  |  | Customer complaints to the DOT in 2002 decreased 56% compared to
2001and are at the lowest levels since 1996.                                                       

In January 2003, in response to customer requests, we began testing our
Buy on Boardmeal program. Initial customer feedback has been positive and,
based on the results of the test program, we are evaluating the extent to which
the program will be implemented.

Regional Airline Alliances

AWA has a regional alliance agreement with Mesa Airlines. Mesa, operating
as America West Express, provides regional feeder service to and from our
Phoenix and Las Vegas hubs to destinations in the western United States and
northern Mexico flying, principally, regional jets and large turboprop
aircraft. Through this arrangement with Mesa, we offered America West Express
service to an additional 22 destinations as of December 31, 2002.

5



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##### Table of Contents



Under this agreement, the America West Express regional fleet will
increase to 56 jet aircraft by 2005 with options for further expansion to as
many as 93 aircraft. The new regional jets will be used to grow AWAs service
from its hubs in Phoenix and Las Vegas. The alliance arrangement with Mesa
provides for the Airlines management of coordinated flight schedules and all
America West Express marketing and sales. All reservations are booked under
AWAs flight designator code. America West Express passengers connecting to or
from an AWA flight can purchase one airfare for their entire trip.

AWA also has a regional alliance agreement with Chautauqua Airlines.
Chautauqua operates the America West regional jet service to and from our
mini-hub in Columbus, Ohio to midwest and eastern United States business
markets. As discussed above, in February 2003, we announced that we will
eliminate hub operations in Columbus, Ohio. In connection with the downsizing
of the Columbus operation, we expect to terminate our relationship with
Chautauqua and the 12 Columbus-based regional jets, all of which are currently
operated by Chautauqua, will be phased out of AWAs fleet. See Recent
Events, above and Note 21, Subsequent Event  Elimination of Hub Operations
in Columbus, Ohioin Notes to Consolidated Financial Statements.

Alliances with Other Airlines

AWA maintains alliance agreements with several leading domestic and
international carriers to give customers a greater choice of destinations.
Airline alliance agreements provide an array of benefits that vary by partner.
By code sharing, each airline is able to offer additional destinations to its
customers under its flight designator code without materially increasing
operating expenses and capital expenditures. These agreements enable passengers
to fly seamlessly across a more extensive network than any one airline can
offer, while providing one-stop check-in, baggage transfers and a better level
of support and service. Frequent flyer arrangements provide members with
extended networks for earning and redeeming credits on partner carriers.
Lounge arrangements provide lounge members with access to partner carriers
lounges.

AWAs alliance agreement with British Airways allows British Airways to
code share on flights operated by AWA connecting to and from British Airways
Phoenix, San Francisco and Los Angeles services. The agreement also allows AWA
FlightFund members to earn credit for travel on British Airways and for
frequent flyer benefits earned by AWA customers to be redeemed for travel on
British Airways system.

Relationships with Northwest Airlines (Northwest) and EVA Airways
provide connecting service on AWA from those airlines pacific routes to Las
Vegas and Phoenix. The frequent flyer agreement with Northwest also provides
for FlightFund members to earn and redeem credit on Northwests transpacific
flights. In addition, lounge members have access to Northwests WorldClubs
lounges in the United States.

AWAs alliance agreement with Hawaiian Airlines (Hawaiian) and Big Sky
Airlines (Big Sky) allows AWA to code share on flights operated by those
carriers. AWAs agreement with Hawaiian offers connecting service to and from
Hawaiians non-stop Phoenix to Honolulu service and beyond to the other islands
of Hawaii. AWA FlightFund members can earn and redeem credit for travel on
Hawaiian. AWAs alliance with Big Sky offers connecting service in Denver,
Colorado; Spokane, Washington; Boise, Idaho and Billings, Montana to Big Skys
destinations in Montana and Washington state. AWA FlightFund members can earn
and redeem credit for travel on Big Sky.

Airline Competition and Marketing

The airline industry is highly competitive. Airlines compete on the basis
of pricing, scheduling (frequency and flight times), on-time performance,
frequent flyer programs, on-board products and other services. We compete with
all of the major airlines on medium and long haul routes to, from and through
our hubs and with a number of carriers for short haul flights at our Phoenix
and Las Vegas hubs. We compete with other major full service airlines based on
price and, due to our low cost structure, we are able to compete with other low
cost carriers in both short and long haul markets. The consolidation of
existing carriers and the entry of additional carriers in many of our markets
(as well as increased services by established carriers) could negatively impact
our results of operations. In addition, as discussed above under
 Revised
Pricing Structure,certain airlines have in the past engaged in retaliatory
activities, including deep pricing discounts in certain markets and termination
of alliance agreements, in response to changes in our pricing structure. For
additional discussion of industry competition and related government
regulation, see Risk Factors Relating to America West and Industry Related
Risks  The airline industry and the markets we serve are highly competitive
and we may be unable to compete effectively against carriers with substantially
greater resources or lower cost structures and, generally,  Government
Regulations.

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Most tickets for travel on AWA are sold by travel agents. Airlines often
pay override commissions in connection with special revenue programs, competing
not only with respect to the price of tickets sold but also with respect to the
amount of commissions paid. In March 2002, we announced the elimination of
base commissions for all travel agency issued tickets in the United States
(including Puerto Rico and the U.S. Virgin Islands) and Canada. We also
announced the introduction of the Agency AWArds commission program for travel
agents, which offers agencies the opportunity to earn commission payments in
exchange for booking more of their business on AWA. We believe that this
commission structure is competitive with the commission programs of the other
major airlines in the United States.

Most tickets sold by travel agents are sold through computer reservations
systems (CRS). Travel agents reliance on those CRSs have, from time to
time, significantly increased the cost of making reservations, which costs are
born by airlines that subscribe to the CRSs, including AWA. We have sought to
reduce these costs through several initiatives. First, AWAs electronic or
paperless ticketing program responds to customer needs and reduces distribution
costs for tickets booked directly through the Airlines reservation system and
through travel agencies. During 2002, approximately 86% of the Airlines
tickets were processed electronically, up from 78% during 2001. Second, AWA
provides the ability for its customers to book tickets directly through the
Internet using the Airlines web site located at www.americawest.com, thus
avoiding the more expensive CRSs. Bookings through americawest.com were
approximately 15% of total 2002 bookings, up from 10% in 2001.

Federal regulations have been promulgated that are intended to diminish
preferential scheduling displays and other practices with respect to CRSs that
place AWA and other similarly situated users at a competitive disadvantage to
airlines controlling the systems. Those regulations are presently under review
by the DOT. The DOT has announced a Notice of Proposed Rulemaking that could
change the existing
CRS rules. Most significant, are the proposed elimination of the
mandatory participation rule, under which an airline that owns or controls a
CRS is required to purchase the same level of service from other CRSs that it
purchases from the CRS it owns or controls, and the elimination of the rule
against discriminatory booking fees, which requires that all carriers pay the
same fee for the same level of service. The Airline is participating in the
federal rule making process related to CRSs.

Frequent Flyer Program

All major United States airlines offer frequent flyer programs to
encourage travel on their respective airlines and customer loyalty. AWA offers
the FlightFund program, which allows members to earn mileage credits by flying
AWA and America West Express, by flying on certain partner airlines and by
using the services of a wide variety of other program participants such as
hotels, rental car agencies and other specialty services. AWA also sells
mileage credits to credit card companies, telephone companies, hotels, car
rental agencies and others that participate in the FlightFund program.

Through the FlightFund program, accumulated mileage credits can be
redeemed for free travel on AWA, America West Express and certain partner
airlines and for first class upgrades on AWA. Use of mileage credits is
subject to industry standard restrictions including availability and blackout
dates. The Airline must purchase space on other airlines to accommodate
FlightFund redemption travel on those airlines.

We account for the FlightFund program under the incremental cost method
whereby travel awards are valued at the incremental cost of carrying one
passenger based on expected redemptions. Those incremental costs are based on
expectations of expenses to be incurred on a per passenger basis and include
fuel, liability insurance, food, beverages, supplies and ticketing costs that
are accrued as FlightFund members accumulate mileage credits. No profit or
overhead margin is included in the accrual for those incremental costs.
Revenue from the sale of mileage credits is deferred and recognized when
transportation is provided. Non-revenue FlightFund travel accounted for 2.7%,
2.6% and 2.6% of total revenue passenger miles for the years ended December 31,
2002, 2001 and 2000, respectively. We do not believe that non-revenue
FlightFund travel results in any significant displacement of revenue
passengers.

The Airlines Fleet

At December 31, 2002, AWA operated a fleet of 143 aircraft having an
average age of 10.1 years. In January 2002, AWA closed a $429 million loan
supported by a $380 million government loan guarantee that resulted in a
restructuring of its aircraft lease and purchase commitments. As a result, 17
new Airbus aircraft previously scheduled for delivery in 2003 and 2004 were
deferred by a total of 505 aircraft-months to 2004 through 2007. In addition,
AWA grounded two B737-200 aircraft in 2002 and, through negotiations with
aircraft lessors, retired five aircraft in 2002 to better size its fleet to the
current industry environment.

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In 2003, we plan to take delivery of two new A320 aircraft, retire two
A320 and two B737-300 aircraft and expect to operate a fleet of 141 aircraft at
the end of 2003 having an average age of 10.9 years.

AWAs fleet at the end of 2002 and as expected at the end of 2003 is
described in the table below:

|         |        |           |     |      |  |      |    |      |  |              |    |                          |  |  |      |      |  |  |      |      | 
|-------- | ------ | --------- | --- | ---- |  | ---- | -- | ---- |  | ------------ | -- | ------------------------ |  |  | ---- | ---- |  |  | ---- | ---- | 
|         |        |           |     |      |  |      |    |      |  | Number 12/31 |    | Average Age (Yrs.) 12/31
|Aircraft |        | Approx.   |     |      |  |      |   
|Types    |        | No. Seats |     | 2002 |  | 2003 |    | 2002 |  | 2003        
|         |        |           |     |      |  |      |    |      |  |             
|B737-200 |        |           | 113 |      |  |      | 10 |      |  |              | 10 |                          |  |  | 21.1 |      |  |  | 22.1 |     
|B737-300 |        |           | 132 |      |  |      | 39 |      |  |              | 37 |                          |  |  | 15.1 |      |  |  | 15.9 |     
|B757-200 |        |           | 190 |      |  |      | 13 |      |  |              | 13 |                          |  |  | 16.2 |      |  |  | 17.2 |     
|A319-100 |        |           | 124 |      |  |      | 32 |      |  |              | 32 |                          |  |  | 2.3  |      |  |  | 3.3  |     
|A320-200 |        |           | 150 |      |  |      | 49 |      |  |              | 49 |                          |  |  | 7.4  |      |  |  | 8.0  |     
|         |        |           |     |      |  |      |    |      |  |              |    |                          |  |  |      |      |  |  |      |     
|         | Totals |           |     |      |  |      |    | 143  |  |              |    | 141                      |  |  |      | 10.1 |  |  |      | 10.9 | 
|         |        |           |     |      |  |      |    |      |  |              |    |                          |  |  |      |      |  |  |      |     

As of March 31, 2003, AWA had firm commitments to purchase or acquire by
operating lease a total of 15 Airbus A318-100, one Airbus A319-100 and five
Airbus A320-200 aircraft for delivery in 2003 through 2007. AWA also has 17
options and 25 purchase rights to acquire aircraft in the A320 family of
aircraft (A318s, A319s, A320s and A321s) for delivery in 2005 through 2008.

We expect that expirations of aircraft operating leases scheduled to occur
over the next several years will allow AWA the flexibility to manage the growth
of its fleet size and related financial obligations in response to unfavorable
economic conditions. Certain of these leases contain put options pursuant to
which the lessors could require AWA to renew the leases for periods ranging
from eight months to 8.7 years or call options pursuant to which the lessors
could require AWA to return the aircraft to the lessors upon receipt of four to
nine months written notice. In 2002, AWA was required to renew the leases for
eight aircraft as a result of the exercise of put options by the aircraft
lessors. No call options were exercised in 2002. Assuming the exercise of the
put options, as of March 31, 2003, leases for 51 of AWAs aircraft were
scheduled to terminate through the end of 2007.

The following table illustrates AWAs committed orders, scheduled lease
expirations, and lessor put and call options for the years 2003-2007:

|                                         |                             |  |      |    |      |  |      |     |      |  |      |    |     |  |   |    |  |  |   |   | 
|---------------------------------------- | --------------------------- |  | ---- | -- | ---- |  | ---- | --- | ---- |  | ---- | -- | --- |  | - | -- |  |  | - | - | 
|                                         |                             |  | 2003 |    | 2004 |  | 2005 |     | 2006 |  | 2007
|                                         |                             |  |      |    |      |  |      |     |      |  |     
|Firm orders (A318-100/A319-100/A320-200) |                             |  | 2    |    |      |  | 2    |     |      |  | 2    |    |     |  | 7 |    |  |  | 8 |  
|Lessor put options                       |                             |  | 1    |    |      |  | 4    | (a) |      |  | 2    |    |     |  | 4 |    |  |  | 0 |  
|Lease terminations:                      |                             |  |      |    |      |  |      |     |      |  |      |    |     |  |   |    |  |  |   |  
|                                         | Scheduled lease expirations |  |      | 5  |      |  |      | 13  |      |  |      | 12 |     |  |   | 13 |  |  |   | 8 | 
|                                         | Lessor call options         |  |      | 10 | (b)  |  |      | 0   |      |  |      | 1  | (c) |  |   | 0  |  |  |   | 0 | 



---

|(a) |  | Includes one aircraft subject to a put option
in each of the years 2003  2009.                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes one aircraft callable in 2003  2004, one
aircraft callable in 2003  2005, one aircraft callable in
2003  2006, six aircraft callable in 2003  2008 and one
aircraft callable in 2003  2009.
|   
|(c) |  | Includes one aircraft callable in 2005  2006.                                                                                                                                                           

For further details on AWAs commitments to acquire aircraft, financing
strategies and capital requirements for aircraft, see Managements Discussion
and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resourcesand Risk Factors Relating to America West and Industry
Related Risks  Our high level of debt and fixed costs limits our ability to
fund general corporate requirements, limits our flexibility in responding to
competitive developments and increases our vulnerability to adverse economic
and industry conditions.

The Leisure Company

TLC sells individual and group travel packages including air
transportation on AWA and Hawaiian Airlines, hotel accommodations, car rentals
and other travel products directly to consumers and through retail travel
agencies in the United States, Canada and Mexico. TLCs travel packages are
sold under its America West Vacations brand. TLC is one of the largest tour
packagers to Las Vegas in the United States, contracting for volume blocks of
rooms with 33 Las Vegas hotels and resorts.

TLC launched sales of vacation packages to Hawaii during the fourth
quarter of 2002 as a result of the new code share agreement between AWA and
Hawaiian Airlines which became effective on October 11, 2002. This alliance
gives TLC nonstop service to Hawaii from nine cities, including Phoenix and Las
Vegas. Using the AWA network, customers can connect to Hawaii from more than
50 cities nationwide. TLC has partnered with approximately 60 hotels

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and
resorts on all islands of Hawaii for vacation packages in all price ranges.

TLC remains focused on high-volume leisure travel products which have
traditionally provided high profit margins. TLC has negotiated several
strategic partnerships with hotels, Internet travel sites and media companies
to capitalize on the continued growth in online travel sales. TLC sells
vacation packages and hotel rooms through its call center, via the Internet and
its websites AmericaWestVacations.com, AWVTravelAgents.com and AWVCruise.com,
through global distribution systems Sabre TourGuide and WorldSpan Tour Source
and through third-party websites on a co-branded or private-label basis. In
2002, approximately 49% of total bookings were made electronically compared to
28% in 2001.

TLC competes in a fragmented travel industry, which is highly competitive,
price sensitive and has relatively low barriers to entry. TLC competes for
customers with other wholesale travel companies, consolidators and E-travel
companies through national mass media, preferred supplier agreements and
Internet distribution agreements.

Employees and Labor Relations

The Companys businesses are labor intensive with wages, salaries and
benefits representing approximately 27% of the Companys operating expenses
during 2002.

As of December 31, 2002, the Company employed 11,050 full-time and 2,705
part-time employees, for a full-time equivalent of 12,111 employees. As of
December 31, 2002, AWA employed 10,825 full-time and 2,689 part-time employees,
for a full-time equivalent of 11,908 employees.

The Companys non-union employees are compensated on a pay-for-performance
basis under which salaries and wages are determined, in part, by performance
evaluations by an employees superiors and peers. The Company awards a bonus,
referred to as AWArd Pay, to eligible, non-executive, non-union employees
provided the Company achieves certain annually established targets. AWArd Pay
bonuses could range from 5% of base pay if those targets are met to 25% of base
pay if those targets are significantly exceeded. No bonuses were paid to
Company employees in 2002 as the Company did not meet the minimum operating
income threshold for a payout.

A large majority of the employees of the major airlines in the United
States are represented by labor unions. There have been numerous attempts by
unions to organize AWAs employees and we expect these organization efforts to
continue in the future. As illustrated by the table below, several groups of
AWAs employees have selected union representation and negotiated collective
bargaining agreements with the Airline. We cannot predict the outcome of any
continuing or future efforts to organize the Airlines employees or the terms
of any future labor agreements or the effect, if any, on the Companys or AWAs
operations or financial performance. For more discussion, see Risk Factors
Relating to America West and Industry Related Risks  Negotiations with labor
unions could divert management attention and disrupt operations and new
collective bargaining agreements or amendments to existing collective
bargaining agreements could increase our labor costs and operating expenses.

|                                              |  |                |       |       |  |                                        |  |              |  |             
|--------------------------------------------- |  | -------------- | ----- | ----- |  | -------------------------------------- |  | ------------ |  | ------------
|Employee                                      |  | Approx. No. of |       |       |  | Contract                               |  | Contract    
|Group                                         |  | Employees      |       | Union |  | Effective                              |  | Amendable   
|                                              |  |                |       |       |  |                                        |  |             
|Pilots                                        |  |                | 1,600 |       |  | Air Line Pilots Association            |  | May 1995*    |  | May 2000*   
|Dispatchers                                   |  |                | 40    |       |  | Transportation Workers Union           |  | March 1998   |  | March 2003  
|Maintenance technicians
and related personnel |  |                | 850   |       |  | International Brotherhood of Teamsters |  | October 1998 |  | October 2003
|Flight Attendants                             |  |                | 2,300 |       |  | Association of Flight Attendants       |  | May 1999     |  | May 2004    
|Fleet Service                                 |  |                | 2,000 |       |  | Transportation Workers Union           |  | June 2000    |  | June 2005   
|Stock Clerks                                  |  |                | 60    |       |  | International Brotherhood of Teamsters |  | *            |  | *           

     In contract negotiations.

On December 23, 2002, the Company announced that it had reached a
tentative agreement with the Air Line Pilots Association (ALPA) on a new
contract for AWAs pilots. The tentative agreement was subject to a membership
ratification vote in March 2003. On March 18, 2003, ALPA informed the Company
that a majority of AWAs pilots voted against ratification of the tentative
agreement. The Company will resume mediated discussions with ALPA at a date to
be determined by the National Mediation Board (NMB). The Company cannot
predict the outcome of those discussions.

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In addition, the Company is in negotiations with the International
Brotherhood of Teamsters (IBT) on a first contract covering the Companys
stock clerks, a work group of approximately 50 employees. The parties are
currently in mediation under the auspices of the NMB. The Company cannot
predict the form of this future collective bargaining agreement and therefore
the effect, if any, on AWAs operations or financial performance.

On August 19, 2002, the IBT filed an Application for Investigation of
Representation Dispute with the NMB, seeking to represent approximately 4,000
passenger service representatives and reservations agents. An election was
conducted and on November 12, 2002, the NMB dismissed the case, finding that
the majority of employees (2,051 of 3,619) chose not to be represented by a
union. Thereafter, the IBT appealed the election results claiming the Company
improperly interfered with the employees voting rights. The Company
vigorously denied any wrongdoing and the matter is currently being investigated
by the NMB. The Company cannot predict the outcome of the investigation.

The Companys Facilities

Our Companys principal facilities include administrative office space
located in Tempe and Phoenix, Arizona; reservations centers and other call
centers located in Tempe and Reno, Nevada; and airport and airport related
facilities associated with the Airlines hubs in Phoenix and Las Vegas and its
mini-hub in Columbus, Ohio. The following table describes Holdings and AWAs
principal properties:

|                                                                                       |  |                                                                                                                                            |  |                     |         |                     |  |                                                                                                       
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ------------------- |  | ------------------------------------------------------------------------------------------------------
|                                                                                       |  |                                                                                                                                            |  | Approximate         |         |                    
|                                                                                       |  |                                                                                                                                            |  | Internal Floor Area |         |                    
|Principal Properties                                                                   |  | Description                                                                                                                                |  | (sq. ft)            |         | Nature of Ownership
|                                                                                       |  |                                                                                                                                            |  |                     |         |                    
|Tempe, AZ Headquarters                                                                 |  | Nine story complex
housing headquarters
for Holdings, AWA and
TLC                                                                          |  |                     | 225,000 |                     |  | Lease expires April 2014                                                                              
|Terminal 4, Phoenix
Sky Harbor
International Airport                                   |  | 42 gates, ticket
counter space and
administrative
offices                                                                                  |  |                     | 330,000 |                     |  | Airport Use Agreement
expires June 2016. Gate
use governed by
month-to-month rates and
charges program
|Las Vegas McCarran
International Airport                                               |  | 17 gates, ticket
counter space and
concourse areas
10 gates, ticket                                                                        |  |                     | 100,000 |                     |  | Lease expires June 2007                                                                               
|Port Columbus
International Airport                                                    |  | counter space and
concourse areas                                                                                                          |  |                     | 45,000  |                     |  | Lease expires December
2004                                                                           
|Maintenance and
technical support
facility at Phoenix
Sky Harbor
International Airport |  | Four hangar bays,
hangar shops, two
flight simulator bays
and pilot training
facilities, warehouse
and commissary
facilities               |  |                     | 375,000 |                     |  | Facilities owned by AWA
on land leased from the
City of Phoenix. Lease
expires September 2019         
|Flight Training and
Systems Operations
Control Center,
Phoenix AZ                      |  | Construction
completed in February
2002. Complex
accommodates training
facilities, systems
operation control and
crew scheduling
functions |  |                     | 164,000 |                     |  | Facilities owned by AWA
on land leased from the
City of Phoenix. Lease
expires February 2031          

In addition, we have leased an aggregate of 230,000 square feet of office
space in Tempe and Phoenix, Arizona. Space for ticket counters, gates and back
offices has been obtained at each of the other airports operated by AWA
personnel, either by lease from the airport operator or by sublease from
another airline. Space and facilities at certain airports where AWAs
operation is managed by Mesa Airlines is provided by Mesa as part of AWAs
ground handling arrangement.

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Government Regulations

The airline industry is highly regulated as more fully described below.

DOT Oversight

AWA operates under a certificate of public convenience and necessity
issued by the DOT. Although the Airline Deregulation Act of 1978 abolished
regulation of domestic routes and fares, the DOT retains the authority to alter
or amend AWAs certificate or to revoke that certificate for intentional
failure to comply with the terms and conditions of the certificate. In
addition, the DOT has jurisdiction over international tariffs and pricing,
international routes, computer reservation systems, domestic code share
agreements, and economic and consumer protection matters such as advertising,
denied boarding compensation and smoking and has the authority to impose civil
penalties for violation of the United States Transportation Code or DOT
regulations.

FAA Funding

In 1997, new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration (FAA). Included in
the new law is a phase-in of a modified federal air transportation excise tax
structure with a system that includes: a domestic excise tax which started at
9% and declined to 7.5% in 1999; a domestic segment tax that started at $1.00
and increases to $3.00 by 2003; and an increase in taxes imposed on
international travel from $6.00 per international departure to an arrival and
departure tax of $12.00 (each way). Both the domestic segment tax and the
international arrival and departure tax are indexed for inflation. The
legislation also included a 7.5% excise tax on certain amounts paid to an air
carrier for the right to provide mileage and similar awards (e.g., purchase of
frequent flyer miles by a credit card company). As a result of competitive
pressures, AWA and other airlines have been limited in their ability to pass on
the cost of these taxes to passengers through fare increases.

Congress will be reviewing FAA funding in 2003 and that may result in
changes to the current funding mechanisms. AWA cannot currently estimate the
effect any new combination of ticket and segment taxes,
or any change in those taxes will have on its operating results. There
can be no assurance that any changes will not have a material adverse effect on
AWAs financial condition and results of operations.

Passenger Facility Charges

During 1990, Congress enacted legislation to permit airport authorities,
with prior approval from the DOT, to impose passenger facility charges (PFCs)
as a means of funding local airport projects. These charges, which are
intended to be collected by the airlines from their passengers, are limited to
$4.50 per enplanement, and to no more than $18.00 per round trip. As a result
of competitive pressure, AWA and other airlines have been limited in their
ability to pass on the cost of the PFCs to passengers through fare increases.

Additional Security and Safety Measures

On November 19, 2001, the President signed into law the Aviation and
Transportation Security Act (the ATSA). This law enhances aviation security
measures and federalizes many aspects of civil aviation security. ATSA
established a new Transportation Security Administration within the DOT. Under
the ATSA, all security screeners at airports are federal employees and a
significant number of other airport security functions are overseen and
performed by federal employees, including federal security managers, federal
law enforcement officers and federal air marshals. The ATSA mandated that
beginning on January 18, 2002, all checked baggage at United States airports be
screened using explosive detection systems, or, where such systems are not yet
available, using other screening techniques such as positively matching baggage
to a passenger who has boarded an aircraft. The ATSA requires all checked
baggage to be screened by explosive detection systems by December 31, 2003.
Other requirements in the ATSA that directly affect airline operations include:
the strengthening of cockpit doors; deploying federal air marshals on board
certain flights; improving airline crew security training; and expanding use of
criminal background checks of employees. Implementation of these and other
requirements of the ATSA will result in increased costs for air carriers and
may result in delays and disruptions to air travel. Under the ATSA, funding
for the new federal security system is to be provided by a $2.50 per
enplanement ticket tax, not to exceed $5.00 per one-way trip, and by imposing
additional direct fees on air carriers. Pursuant to the ATSA, air carriers
began collecting the new ticket tax from passengers on February 1, 2002 and
have been required to make additional payments to the Transportation Security
Administration. The total estimated cost to the Company of compliance with the
security requirements of the ATSA for 2003 is approximately $16.6 million. As
a result of competitive pressure, AWA and other airlines may be unable to
recover all of these additional security costs from passengers

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through
increased fares. In addition, we cannot forecast what new security and safety
requirements may be imposed in the future or the costs or financial impact of
complying with any such requirements.

War Risk Insurance

Since September 11, 2001, AWA and other airlines have been unable to
obtain third party war risk (terrorism) insurance at reasonable rates from the
commercial insurance market and have been obtaining this insurance through a
special program administered by the FAA. Under the terms of the Homeland
Security Act of 2002, this insurance will expire on August 31, 2003 unless
extended by the Secretary of Transportation until December 31, 2003. Should
the federal insurance program terminate, as a result of competitive pressures
AWA and other airlines would be limited in their ability to pass these
additional costs to passengers and the increase in costs could be material to
AWAs financial condition and results of operations.

Slot Restrictions

At New York Citys John F. Kennedy International Airport and LaGuardia
Airport, and Washington D.C.s Ronald Reagan National Airport, which have been
designated High Density Airports by the FAA, there are restrictions on the
number of aircraft that may land and take-off during peak hours. At the New
York airports, slot restrictions are abolished after January 1, 2007. In the
future, these takeoff and landing time slot restrictions and other restrictions
on the use of various airports and their facilities may result in
further curtailment of services by, and increased operating costs for,
individual airlines, including AWA, particularly in light of the increase in
the number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for non-use and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
All slots must be used on 80% of the dates during each two-month reporting
period. Failure to satisfy the 80% use rate will result in loss of the slot
which would revert to the FAA and be reassigned through a lottery arrangement.

AWA currently utilizes five slots at Kennedy Airport, nine slots at
LaGuardia Airport and 12 slots at National Airport during the restricted
periods. AWA utilizes these slots more than the requisite 80% use rate. Three
of the slots at National Airport are subject to expiration in December 2003,
and AWA intends to file a timely application for renewal. Approval of such
application is discretionary by the FAA. In connection with the downsizing of
its Columbus operations, AWA expects to eliminate service to LaGuardia Airport
because perimeter rules at that airport prohibit flights beyond 1,500 miles,
which precludes service from AWAs hubs in Phoenix and Las Vegas. See Note 21,
Subsequent Event  Elimination of Hub Operations in Columbus, Ohioin Notes
to Consolidated Financial Statements.

Perimeter Rule at Washington D.C.s Ronald Reagan National Airport

There is a federal prohibition on flights exceeding 1,250 miles operating
from or to National Airport. This perimeter rule generally prevents AWA from
flying non-stop to and from National Airport and its principal hubs of Phoenix
and Las Vegas. In 2000, Congress passed legislation which authorized the DOT
to grant exceptions to the 1,250 mile perimeter rule for up to 12 slots per
day. AWA was authorized six of these slots to operate two daily Phoenix -
National Airport round trips and one daily Las Vegas  National Airport round
trip. AWA will seek additional slots should they become available.

Noise Abatement and Other Restrictions

Numerous airports served by AWA, including those in Boston, Burbank,
Denver, Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange
County, San Diego, San Francisco, San Jose and Washington, D.C., have imposed
restrictions such as curfews, limits on aircraft noise levels, mandatory flight
paths, runway restrictions and limits on the number of average daily
departures, which limit the ability of air carriers to provide service to, or
increase service at, such airports. AWAs Boeing 757-200s, Boeing 737-300s,
Boeing 737-200s and Airbus A319s and A320s all comply with the current noise
abatement requirements of the airports listed above.

Aircraft Maintenance and Operations

AWA is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations and to impose civil
penalties for violations of the United States Transportation Code or FAA
regulations. To ensure compliance with its regulations, the FAA conducts
regular safety audits and requires AWA to obtain operating, airworthiness and
other certificates, which are subject to

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suspension or revocation for cause.
In addition, a combination of FAA and Occupational Safety and Health
Administration (OSHA) regulations on both federal and state levels apply to
all of AWAs ground-based operations and to in-flight cabin attendants.

AWA is also subject to the jurisdiction of the Department of Defense with
respect to its voluntary participation in their Commercial Passenger Airlift
program administered by the Air Forces Air Mobility Command.

Aging Aircraft Maintenance

The FAA issued several Airworthiness Directives (ADs) in 1990 mandating
changes to the older aircraft maintenance programs. These ADs were issued to
ensure that the oldest portion of the nations aircraft fleet remains airworthy
and require structural modifications to or inspections of those aircraft. All
of AWAs currently affected aircraft are in compliance with the aging
aircraft mandates. AWA constantly monitors its fleet of aircraft to ensure
safety levels that meet or exceed those mandated by the FAA and the DOT.

Environmental Matters

The Company is subject to regulation under major environmental laws
administered by federal, state and local agencies, including laws governing
air, water and waste discharge activities. While the Company strives to comply
with environmental laws and regulations, the Company has incurred and may
continue to incur costs to comply with applicable environmental laws, including
soil and groundwater cleanup and other related response costs. We believe,
however, that under current environmental laws and regulations these costs will
not have a material adverse effect on the Companys financial condition or
results of operations.

The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a hazardous substance into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances.
Many airports in the United States, including Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state implemented
groundwater investigations. AWA occupies facilities at some of these affected
airports and is a member of a fuel handling consortium which has experienced a
fuel leak into ground water at Phoenix Sky Harbor International Airport. AWA
does not believe that its operations have been included within the ambit of any
of these investigations and does not believe that its expenses associated with
the fuel leak at Phoenix Sky Harbor International Airport will be material.

The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and we expect that
the costs of compliance will continue to increase.

Risk Factors Relating to America West and Industry Related Risks

The terrorist attacks of September 11, 2001 and government responses have
had, and continue to have, a material adverse effect on our financial
condition, operations and prospects.

The terrorist attacks of September 11, 2001 have had, and continue to
have, a wide-ranging impact on our financial condition, operations and
prospects. The immediate impact of the terrorist attacks included a severe
strain on our liquidity as the government temporarily suspended all flights, as
passenger demand dropped precipitously after the attacks and as our credit
ratings were downgraded by both Moodys and Standard and Poors. Since then,
although passenger demand has recovered, we continue to experience reduced
demand compared to prior years and our costs relating to enhanced security
measures, aviation insurance, airport rents and landing fees have increased, in
some cases significantly. The continued impact of the terrorist attacks on our
operations, and the sufficiency of our financial resources to absorb this
impact, will depend on a number of factors, including:



| |  | The adverse impact that terrorist attacks, and the resulting government
responses, and the potential impact of the war against Iraq and other
hostilities will have on the travel industry and the economy in general;                                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The potential increase in fuel costs and decrease in availability of fuel
if oil-producing countries are affected by the aftermath of the terrorist
attacks, including the governments responses, and the ability of our
fuel-hedging program to manage this risk;

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| |  | Our ability to reduce our operating costs, conserve financial resources
and to continue implementing our restructuring plan, taking into account
the cost increases (including significant increases in the
cost of aviation insurance) expected to result from the aftermath of the
terrorist attacks and the governments responses;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Any resulting decline in the value of the aircraft in our fleet;                                                                                                                                                                                                                                                                      
| 
| |  | The number of crew members who may be called for duty in the reserve
forces of the armed services and the resulting impact on our ability to
operate as planned; and                                                                                                                                                                  

Future terrorist attacks and government responses to terrorist activity,
including war or other hostilities, could further reduce demand for air travel,
increase our costs and generally impact our liquidity or financial condition.
Our ability to obtain additional financing to absorb the impact of the
terrorist attacks, any government response to terrorist activity and any future
terrorist attacks, is limited by the constraints imposed by our existing debt,
reductions in the value of our aircraft and our relatively low credit ratings.

Increased insurance costs due to the terrorist attacks of September 11,
2001 may adversely impact our operations and financial results.

The terrorist attacks of September 11, 2001 resulted in staggering losses
to the insurance industry. These losses resulted in a significant increase in
our insurance premiums, which has negatively impacted our financial results.
In addition, these losses caused a general instability in that industry that
could affect some of our existing insurance carriers or our ability to obtain
future insurance coverage and resulted in a significant increase in insurance
premiums. To the extent that our existing insurance carriers are unable to
provide the insurance coverage contracted for, our insurance costs may further
increase.

Moreover, since September 11, 2001, AWA and other airlines have been
unable to obtain third party war risk (terrorism) insurance at reasonable rates
from the commercial insurance market and have been obtaining this insurance
through a special program administered by the FAA. Under the terms of the
Homeland Security Act of 2002, this insurance will expire on August 31, 2003
unless extend by the Secretary of Transportation until December 31, 2003.
Should the Federal insurance program terminate, as a result of competitive
pressures AWA and other airlines would be limited in their ability to pass
these additional costs to passengers and the increase in costs could be
material to AWAs financial condition.

We have sustained significant operating losses and expect to continue to
sustain significant losses in the near-term.

The soft economic conditions coupled with the terrorist attacks of
September 11, 2001 and the potential impact of the war against Iraq have had a
substantial negative impact on our revenues and costs. Our revenues for 2002
have declined 1% as compared to 2001 and 13% compared to 2000. In addition, we
have experienced an increase in costs related to enhanced security measures,
aviation insurance and airport rents and landing fees. We do not expect our
revenues to increase significantly until general economic conditions improve.
In addition, we expect the threat of further terrorist attacks to continue to
negatively impact our revenues and costs in the near-term and we expect a
further decline in the demand for air travel and a potentially substantial
increase in fuel costs to occur as a result of the war against Iraq. We may
not be able to effectively counter act decreasing revenues and increasing costs
through our cost reduction initiatives, customer service initiatives and
revised pricing structures. Moreover, our liquidity and borrowing options are
limited and we may not be able to survive a prolonged economic downturn,
further decreases in demand for air travel or substantial increases in fuel
costs.

Our high level of debt and fixed costs limits our ability to fund general
corporate requirements, limits our flexibility in responding to competitive
developments and increases our vulnerability to adverse economic and industry
conditions.

As of December 31, 2002, we owed approximately $720.1 million of debt. In
addition, we have incurred significant capitalized and operating lease
obligations in connection with the financing of aircraft and the lease of
airport and other facilities. We also have fixed costs associated with our
regional alliances with Mesa Airlines and Chautauqua Airlines. As a result of
our high leverage:

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| |  |  | We have only a limited ability to obtain additional financing, if
needed. Our existing debt is secured by a substantial portion of our
assets, leaving us with limited assets to use to obtain additional
financing. In addition, the terms of both the government-guaranteed loan
and the credit facility restrict our or AWAs ability to incur
additional indebtedness or issue equity unless we use the proceeds of
those transactions to prepay the government guaranteed loan and the
credit facility.                                                                                                                                                                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our ability to fund general corporate requirements, including capital
expenditures, may be impaired. We have substantial obligations to pay
principal and interest on our debt and other recurring fixed costs.
Further, we may be required to prepay portions of the government
guaranteed loan if our employee compensation costs exceed a certain
threshold. Accordingly, we may have to use our working capital to fund
such payments and costs instead of funding general corporate
requirements. In addition, because under the terms of certain of AWAs
indebtedness, AWA must maintain a minimum cash balance of $100 million,
we cannot use all of our available cash to fund operations, capital
expenditures and cash obligations without violating this minimum cash
balance requirement.
|
| |  |  | Our ability to respond to competitive developments and adverse
economic conditions may be limited. Without the ability to obtain
additional financing and with substantial fixed costs, we may not be
able to fund the capital expenditures, including the purchase of new
aircraft, required to keep us competitive or to withstand prolonged
adverse economic conditions.                                                                                                                                                                                                                                                                                                                                                                                                                           

Moreover, our flexibility is limited because many of the agreements
governing our indebtedness contain negative covenants that restrict our ability
to take certain actions as well as the minimum cash balance requirements
discussed above. A breach of these covenants or a failure to make any required
payments under our indebtedness or certain of our aircraft leases could result
in the acceleration of a substantial portion of our indebtedness. In the event
of a breach of these covenants, a failure to make required payments or an
acceleration of our indebtedness, it is likely that credit card companies would
begin to withhold proceeds due to us from the sale of our tickets and our
lessors may attempt to exercise remedies under their respective leases. In
such a situation, it is unlikely we would be able to repay the accelerated
indebtedness or make required lease payments.

Fluctuations in fuel costs could adversely affect our operating expenses
and results.

The price and supply of jet fuel are unpredictable and fluctuate based on
events outside our control, including geopolitical developments, regional
production patterns and environmental concerns. Since fuel is the principal
raw material used in our business, accounting for 14% of our total operating
expenses in 2002, price escalations or reductions in the supply of jet fuel
will increase our operating expenses and cause our operating results and net
income to decline. For example, with our current level of fuel consumption, a
one-cent per gallon increase in jet fuel prices will cause our annual operating
expense to increase by $4.4 million.

We have implemented a fuel-hedging program to manage the risk and effect
of fluctuating jet fuel prices on our business. Our hedging program is
intended to offset increases in jet fuel costs by using derivative instruments
keyed to the future price of heating oil, which is highly correlated to the
price of jet fuel delivered on the East Coast. Our hedging program does not
fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected fuel volumes for 2003. Hedging transactions
are in place with respect to approximately 40% of projected 2003 fuel
requirements, including 63% related to the first quarter of 2003. In order to
execute additional hedging transactions, we anticipate that we will have to
provide cash collateral or other credit support, which we may not be able to
provide in a cost-effective manner. Furthermore, our ability to effectively
hedge fuel prices is limited because we purchase a substantially larger portion
of our jet fuel requirements on the West Coast than our large competitors and
West Coast fuel prices are less correlated to heating oil prices and other
viable petroleum
derivatives than East Coast fuel prices and, therefore, more difficult to
hedge. The effectiveness of our fuel-hedging program may also be negatively
impacted by the war against Iraq and terrorist activity, including the
aftermath of the terrorist attacks of September 11, 2001 and the resulting
government responses. See The terrorist attacks of September 11, 2001 and
government responses have had, and continue to have, a material adverse effect
on our financial condition, operations and prospects.

Because of our relatively low credit ratings, our borrowing costs may be
high and our ability to incur additional debt may be impaired.

Our credit ratings are relatively low with Moodys assessment of AWAs
senior implied rating and senior unsecured debt rating at Caa3 and Ca,
respectively, and Standard & Poors ratings at B- for Holdings and CCC for
AWAs senior unsecured debt. Low credit ratings could cause our borrowing
costs to increase, which would increase our interest expense and could affect
our net income. In addition, our credit ratings could adversely affect

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our
ability to obtain additional financing. See Our high level of debt and fixed
costs limits our ability to fund general corporate requirements, limits our
flexibility in responding to competitive developments and increases our
vulnerability to adverse economic and industry conditions.The rating
agencies base their ratings on our financial performance and operations, our
cash flow and liquidity, the level of our debt and industry conditions in
general. If our financial performance or industry conditions do not improve,
we may face future downgrades, which could further negatively impact our
borrowing costs and the prices of our equity or debt securities.

Negotiations with labor unions could divert management attention and
disrupt operations and new collective bargaining agreements or amendments to
existing collective bargaining agreements could increase our labor costs and
operating expenses.

Some of our employees are represented by unions and other groups of our
employees may seek union representation in the future. We currently are
negotiating collective bargaining agreements with ALPA, which represents all of
our approximately 1,600 pilots, and IBT, which represents all of our
approximately 60 stock clerks. We had reached a tentative agreement with ALPA
in December 2002 on a new contract for AWAs pilots. However, in March 2003,
ALPA informed us that a majority of AWAs pilots had voted against ratification
of the tentative agreement. We will resume mediated discussions with ALPA at a
date to be determined by the NMB. We are also currently in mediation with the
IBT under the auspices of the NMB. In addition, the IBT is seeking to
represent approximately 4,000 passenger service representatives and reservation
agents and has appealed the result of an election conducted concerning union
representation. We cannot predict the outcome of the federal mediation with
IBT, the current negotiations with IBT and ALPA, IBTs appeal of election
results or any future negotiations relating to union representation or
collective bargaining agreements. Agreements reached in collective bargaining
may increase operating expenses and lower operating results and net income.
This is particularly significant because our current employee costs contribute
substantially to the low cost structure that we believe is one of our
competitive strengths and because the terms of the government guaranteed loan
restricts the amount we can spend on employee compensation. In addition,
negotiations with unions could divert management attention and disrupt
operations, which may result in increased operating expenses and lower net
income. If we are unable to negotiate acceptable collective bargaining
agreements, we might have to address the threat of, or wait through cooling
off periods, which could be followed by union-initiated work actions,
including strikes. Depending on the nature of the threat or the type and
duration of any work action, these actions could disrupt our operations and, as
a result, have a significant adverse affect on our operating results.

Fluctuations in interest rates could adversely affect our liquidity,
operating expenses and results.

Our indebtedness under both the government-guaranteed loan and our
existing $73.2 million term loan bears interest at fluctuating interest rates
based on the London interbank offered rate for deposits of U.S. dollars, or
LIBOR. LIBOR tends to fluctuate based on general economic conditions, general
interest rates, including the prime rate, and the supply of and demand for
credit in the London interbank market. We have not hedged our interest rate
exposure and, accordingly, our interest expense for any particular period may
fluctuate based on LIBOR. To the extent LIBOR increases, our interest expense
will increase, in
which event, we may have difficulties making interest payments and funding
our other fixed costs and our available cash flow for general corporate
requirements may be adversely affected.

Our operating costs could increase as a result of past, current or new
regulations that impose additional requirements and restrictions on airline
operations.

The airline industry is heavily regulated. Both federal and state
governments from time to time propose laws and regulations that impose
additional requirements and restrictions on airline operations. Implementing
these measures, such as aviation ticket taxes and passenger safety measures,
has increased operating costs for us and the airline industry as a whole. In
addition, new security measures imposed by the Aviation and Transportation
Security Act or otherwise by the FAA as a result of the recent terrorist
attacks are expected to continue to increase costs for us and the airline
industry as a whole. Depending on the implementation of these and other laws,
our operating costs could increase significantly. Certain governmental
agencies, such as the DOT and the FAA, have the authority to impose mandatory
orders, such as Airworthiness Directives in connection with our aircraft, and
civil penalties for violations of applicable laws and regulations, each of
which can result in material costs and adverse publicity. We cannot predict
which laws and regulations will be adopted or what other action regulators
might take. Accordingly, we cannot guarantee that future legislative and
regulatory acts will not have a material impact on our operating results.

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The airline industry and the markets we serve are highly competitive and
we may be unable to compete effectively against carriers with substantially
greater resources or lower cost structures.

The airline industry and most of the markets we serve are highly
competitive. We compete with other airlines on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. Certain airlines have in the past engaged in
retaliatory activities, including steep pricing discounts in certain markets
and termination of alliance agreements, in response to changes in our pricing
structure. Our principal competitor is Southwest Airlines, which has a lower
operating cost structure than we do. We also compete against other existing
carriers, many of which offer more extensive routes, frequencies and customer
loyalty, marketing and advertising programs than we do. From time to time, we
also compete with new carriers that enter the airline industry, which typically
have low operating cost structures. We may be unable to compete effectively
against carriers with substantially greater resources or lower cost structures.
The entry of additional new carriers in our markets, the consolidation of
existing carriers or increased competition from existing carriers, could
adversely affect our operating results.

Our business is sensitive to general economic conditions, unforeseen
events and seasonal fluctuations. As a result, our prior performance is not
necessarily indicative of our future results.

The air travel business historically fluctuates on a seasonal basis and in
response to general economic conditions. Due to the greater demand for air and
leisure travel during the summer months, revenues in the airline industry in
the second and third quarters of the year tend to be greater than revenues in
the first and fourth quarters of the year. In addition, the airline industry is
highly susceptible to unforeseen events that result in declines in revenues or
increased costs, such as political instability, regional hostilities, terrorist
attacks, recession, fuel price escalation, inflation, adverse weather
conditions, consumer preferences, labor instability or regulatory oversight.
Also, our results of operations for interim periods are not necessarily
indicative of those for an entire year and our prior results are not
necessarily indicative of our future results.

We depend on the expertise of our management team. If key individuals
leave unexpectedly, our business and operations could suffer.

Many of our executive officers are key to the management of our business
and operations. Our future success depends on our ability to retain these
officers and other capable managers. Although we believe
we could replace key personnel given adequate prior notice, the unexpected
departure of key executive officers could cause substantial disruption to our
business and operations. In addition, we may not be able to retain and recruit
talented personnel without incurring substantial costs. Moreover, in
connection with the government guaranteed loan, we agreed to limit the amount
of compensation we provide to our executives. As a result, our ability to
spend additional amounts to retain and recruit talented personnel is limited.

The stockholders who effectively control the voting power of Holdings
could take actions that would favor their own personal interests to the
detriment of our interests.

Currently, three stockholders collectively control more than 50% of the
total voting power of Holdings. These stockholders, TPG Partners, L.P., TPG
Parallel I, L.P. and Air Partners II, L.P. are all controlled by the same
company, TPG Advisors, Inc. Since TPG Advisors, Inc. is an investment firm, its
strategic objectives may be different than both the short-term or long-term
objectives of our board of directors and management. We cannot guarantee that
the controlling stockholders identified above will not try to influence
Holdings business in a way that would favor their own personal interests to
the detriment of our interests.

Conversion of the notes or exercise of the warrants issued in connection
with the government-guaranteed loan and related transactions will dilute the
ownership interests of existing stockholders.

The conversion or exercise of some or all of the notes or warrants issued
in connection with the government-guaranteed loan and related transactions will
dilute the ownership interests of existing stockholders and any sales in the
public market of the Class B common stock issuable upon such conversion or
exercise could adversely affect prevailing market prices of our Class B common
stock. In addition, the existence of the notes or warrants may encourage short
selling by market participants because conversion or exercise of the notes or
warrants could depress the price of our Class B common stock.

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ITEM 2. PROPERTIES

For a description of the Companys properties, see Item 1 of Part I of
this Report on Form 10-K.




ITEM 3. LEGAL PROCEEDINGS

Holdings, AWA and certain of Holdings stockholders, executive officers
and directors have been named as defendants in lawsuits filed in March and
April of 1999, and subsequently consolidated in the Federal District Court of
Arizona, alleging violations of the Securities Exchange Act of 1934, as
amended, in connection with Holdings public disclosures regarding its business
and prospects during 1997 and 1998. The defendants deny and are vigorously
defending the claims set forth in these lawsuits. While the outcome of these
lawsuits cannot be predicted with certainty, we currently expect that any
liability arising from such matters, to the extent not provided for through
insurance or otherwise, will not have a material adverse effect on the
Companys or AWAs business, financial condition and results of operation.

In addition, Holdings and its subsidiaries are parties to various legal
proceedings, including some purporting to be class action suits, and some which
demand large monetary damages or other relief, which, if granted, would require
significant expenditures. See Note 8, Commitments and Contingencies  (e)
Contingent Legal Obligations,in Notes to Consolidated Financial Statements.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Executive Officers of the Registrant

Set forth below is information with respect to the names, ages, positions
and offices with Holdings and AWA of the executive officers of Holdings and AWA
as of March 31, 2003.

W. Douglas Parker, Age 41. Chairman of the Board, President and Chief
Executive Officer of Holdings and AWA. Mr. Parker joined the Company as Senior
Vice President and Chief Financial Officer in June 1995. He was elected
Executive Vice President of the Company and Executive Vice President -
Corporate Group of AWA in April 1999. He was elected President of AWA in May
2000 and Chief Operating Officer of AWA in December 2000. He was elected to
his current positions in September 2001.

J. Scott Kirby, Age 35. Executive Vice President  Sales and Marketing of
Holdings and AWA. Mr. Kirby joined AWA as Senior Director  Schedules and
Planning in October 1995. In October 1997, Mr. Kirby was elected to the
position of Vice President  Planning and in May 1998, he was elected to the
position of Vice President  Revenue Management. In January 2000, he was
elected to the positions of Senior Vice President  E-Business and Technology
of Holdings and AWA. He was elected to his current positions in September
2001.

Jeffrey D. McClelland, Age 44. Executive Vice President and Chief
Operating Officer of AWA. Mr. McClelland joined AWA as Senior Vice President 
Operations in August 1999. He was elected Executive Vice President 
Operations in September 2001 and named Chief Operating Officer in November
2002. From 1991 until 1999, Mr. McClelland worked at Northwest Airlines, most
recently as Senior Vice President  Finance and Controller.

Lonnie D. Bane, Age 44. Senior Vice President  Human Resources of AWA.
Mr. Bane joined AWA in August 2000. From 1998 until 2000, Mr. Bane worked for
Corporate Express Delivery Systems, Inc., most recently as Senior Vice
President of Business Development and E-Commerce. From 1996 until 1998, Mr.
Bane served as Senior Vice President of Human Resources for CEMEX USA. From
1994 until 1996, Mr. Bane served as Vice President of Human Resources for the
Braking Systems Division of AlliedSignal.

Joseph C. Beery, Age 40.Senior Vice President and Chief Information
Officer of AWA. Mr. Beery joined AWA in 1999 as Senior Director  Business
Technology Delivery. In July 2000, Mr. Beery was elected to the position of
Vice President  Business Technology Delivery. He was elected to his current
position in December 2002. From 1989 until he joined AWA, Mr. Beery held a
variety of positions in the computer integrated manufacturing group of Motorola
Semi-Conductor.

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Hal M. Heule, Age 54. Senior Vice President  Technical Operations of
AWA. Mr. Heule joined AWA in January 2001. From 1994 until the time he joined
AWA, Mr. Heule served as Executive Vice President for Strand Associates, Inc.,
an aviation consulting firm.

C.A. Howlett, Age 59. Senior Vice President  Public Affairs of AWA and
Holdings. Mr. Howlett joined AWA as Vice President  Public Affairs in January
1995. On January 1, 1997, he was appointed Vice President  Public Affairs of
Holdings. He was elected to his current positions in February 1999.

Derek J. Kerr, Age 38.Senior Vice President and Chief Financial Officer
of AWA and Holdings. Mr. Kerr joined AWA as Senior Director  Financial
Planning in April 1996. He was elected to the position of Vice President 
Financial Planning and Analysis in May 1998. In February 2002, Mr. Kerr was
promoted to Senior Vice President  Financial Planning and Analysis. He was
elected to his current position in September 2002.

Anthony Mulé, Age 59. Senior Vice President  Customer Service of AWA.
Mr. Muléjoined AWA as Vice President  In-Flight Services in 1996. He was
elected to his current position in October 2000.

Jack Richards, Age 49. President and Chief Executive Officer of TLC. Mr.
Richards joined the Company as Chief Operating Officer of TLC in March 1999.
From 1992 until 1999, Mr. Richards served as President and Chief Operating
Officer of Adventure Tours USA. He was elected to his current position in
September 2001.

Michael R. Carreon, Age 49. Vice President and Controller of AWA. Mr.
Carreon joined AWA as Senior Director  Corporate Audit in December 1994. He
was elected to his current position in January 1996.

Linda M. Mitchell, Age 44.Vice President and General Counsel of AWA and
Assistant Secretary of AWA and TLC. Ms. Mitchell joined AWA as Senior Director
 Legal Affairs in January 1996. She was elected to her current positions in
February 2000.

Thomas T. Weir, Age 47. Vice President and Treasurer of AWA. Mr. Weir
joined AWA in February 2000. From 1988 until 2000, Mr. Weir held various sales
finance positions at Airbus Industrie of North America, Inc., most recently as
Sales Finance Director.

John R. Wilson, Age 38.Vice President  Financial Planning and Analysis.
Mr. Wilson joined AWA in June 1997 as Senior Director  Financial Analysis.
In October 2000, he was elected to the position of Vice President  Operations
Finance and became Vice President  Operations Planning and Analysis in
November 2001. He was elected to his current position in November 2002.




PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Class A common stock of Holdings, par value $.01 per share is not
publicly traded. The Class B common stock, par value $.01 per share, has been
traded on the New York Stock Exchange under the symbol AWA since August 26,
1994.

The following table sets forth, for the periods indicated, the high and
low sales prices of the Class B common stock as reported on the New York Stock
Exchange.

|                             |  |              |         |     |  |   |        | 
|---------------------------- |  | ------------ | ------- | --- |  | - | ------ | 
|                             |  | Class B     
|                             |  | Common Stock
|                             |  |             
|                             |  | High         |         | Low
|                             |  |              |         |    
|Year Ended December 31, 2002 |  |              |         |     |  |   |        | 
|First Quarter                |  | $            | 6.4500  |     |  | $ | 3.1500 | 
|Second Quarter               |  |              | 5.5100  |     |  |   | 2.4600 | 
|Third Quarter                |  |              | 2.8200  |     |  |   | 1.2000 | 
|Fourth Quarter               |  |              | 2.6500  |     |  |   | 0.9000 | 
|Year Ended December 31, 2001 |  |              |         |     |  |   |        | 
|First Quarter                |  | $            | 14.1875 |     |  | $ | 9.2500 | 
|Second Quarter               |  |              | 10.8100 |     |  |   | 8.5800 | 
|Third Quarter                |  |              | 10.7100 |     |  |   | 1.4500 | 
|Fourth Quarter               |  |              | 3.5000  |     |  |   | 1.5200 | 

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As of December 31, 2002, there were three record holders of Class A common
stock and approximately 2,892 record holders of Class B common stock.

Holdings has not paid cash dividends in any of the last three fiscal years
and does not anticipate paying cash dividends in the foreseeable future. Under
the terms of the government guaranteed loan, the Company is prohibited from
paying cash dividends prior to repayment of the loan in full.

In September 1995, the Company adopted a stock repurchase program. The
program was amended in December 1995, August 1997, August 1998, May 1999 and
February 2000. During 1995 through 2000, the Company repurchased approximately
16.5 million shares of Class B common stock and 7.4 million warrants to
purchase Class B common stock. The Company did not repurchase any Class B
common stock in 2001 or 2002. The Companys stock repurchase program expired
on December 31, 2002. Under the terms of the government guaranteed loan, the
Company is prohibited from purchasing any additional shares of its stock prior
to repayment of the loan in full.

AWA has 1,000 shares of common stock outstanding, all of which are owned
by Holdings. There is no established public trading market for AWAs common
stock. Except for limited ability to fund operating expenses of Holdings,
AWAs ability to pay cash dividends on its common stock is restricted by the
debt instruments and in the manner described above.

TLC has 1,000 shares of preferred stock outstanding, which are owned by
AWA, and 1,000 shares of common stock outstanding, which are owned by Holdings.
There is no established public trading market for TLCs preferred or common
stock.




ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Selected Consolidated Financial Data of Holdings

The selected consolidated data presented below under the captions
Consolidated Statements of Operations Dataand Consolidated Balance Sheet
Dataas of and for the years ended December 31, 2002, 2001, 2000, 1999 and
1998 are derived from the audited consolidated financial statements of
Holdings. The selected consolidated data should be read in conjunction with
the consolidated financial statements for the respective periods, the related
notes and the related reports of independent accountants.

|                                                                                              |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |        | 
|--------------------------------------------------------------------------------------------- | ------- | - | --------------------------------------- | ------ | ------- | - | ------------- | ------ | ---- | - | --------- | ------ |  | - | --------- | ------ |  | - | --------- | ------ | 
|                                                                                              |         |   | Year ended December 31,                
|                                                                                              |         |   |                                        
|                                                                                              |         |   | 2002                                    |        | 2001(a) |   | 2000          |        | 1999 |   | 1998     
|                                                                                              |         |   |                                         |        |         |   |               |        |      |   |          
|                                                                                              |         |   |                                         |        |         |   | (as restated) |        |      |   |           |        |  |   |           |        |  |   |          
|                                                                                              |         |   | (in thousands except per share amounts)
|Consolidated statements of operations data:                                                   |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |       
|Operating revenues                                                                            |         | $ | 2,047,116                               |        |         | $ | 2,065,913     |        |      | $ | 2,344,354 |        |  | $ | 2,210,884 |        |  | $ | 2,023,284 |       
|Operating expenses (b)                                                                        |         |   | 2,207,196                               |        |         |   | 2,483,784     |        |      |   | 2,356,991 |        |  |   | 2,006,333 |        |  |   | 1,814,221 |       
|Operating income (loss)                                                                       |         |   | (160,080                                | )      |         |   | (417,871      | )      |      |   | (12,637   | )      |  |   | 204,551   |        |  |   | 209,063   |       
|Income (loss) before income taxes and cumulative effect of change in accounting principle (c) |         |   | (214,757                                | )      |         |   | (324,387      | )      |      |   | 24,743    |        |  |   | 206,150   |        |  |   | 194,346   |       
|Income taxes (benefit)                                                                        |         |   | (35,071                                 | )      |         |   | (74,536       | )      |      |   | 17,064    |        |  |   | 86,761    |        |  |   | 85,775    |       
|Income (loss) before cumulative effect of change in
accounting principle                      |         |   | (179,686                                | )      |         |   | (249,851      | )      |      |   | 7,679     |        |  |   | 119,389   |        |  |   | 108,571   |       
|Net income (loss)                                                                             |         |   | (387,909                                | )      |         |   | (249,851      | )      |      |   | 7,679     |        |  |   | 119,389   |        |  |   | 108,571   |       
|Earnings (loss) per share before cumulative effect
of change in accounting principle:         |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |       
|                                                                                              | Basic   |   |                                         | (5.33  | )       |   |               | (7.42  | )    |   |           | 0.22   |  |   |           | 3.17   |  |   |           | 2.58   | 
|                                                                                              | Diluted |   |                                         | (5.33  | )       |   |               | (7.42  | )    |   |           | 0.22   |  |   |           | 3.03   |  |   |           | 2.40   | 
|Net income (loss) per share                                                                   |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |       
|                                                                                              | Basic   |   |                                         | (11.50 | )       |   |               | (7.42  | )    |   |           | 0.22   |  |   |           | 3.17   |  |   |           | 2.58   | 
|                                                                                              | Diluted |   |                                         | (11.50 | )       |   |               | (7.42  | )    |   |           | 0.22   |  |   |           | 3.03   |  |   |           | 2.40   | 
|Shares used for computation:                                                                  |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |       
|                                                                                              | Basic   |   |                                         | 33,723 |         |   |               | 33,670 |      |   |           | 35,139 |  |   |           | 37,679 |  |   |           | 42,102 | 
|                                                                                              | Diluted |   |                                         | 33,723 |         |   |               | 33,670 |      |   |           | 35,688 |  |   |           | 39,432 |  |   |           | 45,208 | 
|Consolidated balance sheet data (at end of period):                                           |         |   |                                         |        |         |   |               |        |      |   |           |        |  |   |           |        |  |   |           |       
|Total assets                                                                                  |         | $ | 1,438,953                               |        |         | $ | 1,469,218     |        |      | $ | 1,568,515 |        |  | $ | 1,507,154 |        |  | $ | 1,525,030 |       
|Long-term debt, less current maturities (d)                                                   |         |   | 700,983                                 |        |         |   | 224,550       |        |      |   | 145,578   |        |  |   | 155,168   |        |  |   | 207,906   |       
|Total stockholders equity                                                                    |         |   | 68,178                                  |        |         |   | 420,363       |        |      |   | 667,073   |        |  |   | 714,169   |        |  |   | 669,458   |       



---

|(a) |  | The Company has restated its
financial statements for the year ended December 31, 2001 to
reflect impairment charges on long-lived assets. See Note 2,
Restatement of Previously Reported Amounts in Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Includes $19.0 million of special charges in 2002 primarily
related to the restructuring completed on January 18, 2002,
resulting from the events of September 11, 2001 and $141.6 million
of special charges in 2001 related to the impairment of reorganization
value in excess of amounts allocable to identifiable assets
(ERV) and owned aircraft and engines, as well as the earlier
than planned return of seven leased aircraft and severance
expenses following a reduction-in-force in 2001. See Note 14,
Special Chargesin Notes to Consolidated Financial Statements.

20



---



##### Table of Contents



|(c) |  | Includes federal government assistance of $8.5 million and
$108.2 million recognized in 2002 and 2001, respectively, as
nonoperating income under the Air Transportation Safety and System
Stabilization Act to offset direct and incremental losses incurred
as a result of the September 11, 2001 terrorist attacks. See Note
15, Nonoperating Income (Expense)  Other, Netin Notes to
Consolidated Financial Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) |  | Includes a $429 million loan supported by a $380 million
government loan guarantee that was closed in January 2002 as part
of the Companys financial restructuring.                                                                                                                                                                                                                                                          

Selected Financial Data of AWA

The selected data presented below under the captions Statements of
Operations Dataand Balance Sheet Dataas of and for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998 are derived from the audited
financial statements of AWA. The selected data should be read in conjunction
with the financial statements for the respective periods, the related notes and
the related reports of independent accountants.

|                                                                                              |  |                         |           |         |  |               |           |      |  |      |           |   |  |   |           |  |  |   |           | 
|--------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ------- |  | ------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- |  |  | - | --------- | 
|                                                                                              |  | Year ended December 31,
|                                                                                              |  |                        
|                                                                                              |  | 2002                    |           | 2001(a) |  | 2000          |           | 1999 |  | 1998
|                                                                                              |  |                         |           |         |  |               |           |      |  |     
|                                                                                              |  |                         |           |         |  | (as restated) |           |      |  |      |           |   |  |   |           |  |  |  
|                                                                                              |  | (in thousands)         
|Statements of operations data:                                                                |  |                         |           |         |  |               |           |      |  |      |           |   |  |   |           |  |  |   |           | 
|Operating revenues                                                                            |  | $                       | 2,011,290 |         |  | $             | 2,020,963 |      |  | $    | 2,290,871 |   |  | $ | 2,146,955 |  |  | $ | 1,968,714 | 
|Operating expenses (b)                                                                        |  |                         | 2,175,440 |         |  |               | 2,444,360 |      |  |      | 2,303,609 |   |  |   | 1,949,054 |  |  |   | 1,770,868 | 
|Operating income (loss)                                                                       |  |                         | (164,150  | )       |  |               | (423,397  | )    |  |      | (12,738   | ) |  |   | 197,901   |  |  |   | 197,846   | 
|Income
(loss) before income taxes and cumulative effect of change in
accounting principle (c) |  |                         | (219,559  | )       |  |               | (326,223  | )    |  |      | 15,141    |   |  |   | 200,974   |  |  |   | 184,557   | 
|Income taxes (benefit)                                                                        |  |                         | (30,484   | )       |  |               | (83,108   | )    |  |      | 15,670    |   |  |   | 84,352    |  |  |   | 81,541    | 
|Income
(loss) before cumulative effect of change in accounting principle                      |  |                         | (189,075  | )       |  |               | (243,115  | )    |  |      | (529      | ) |  |   | 116,622   |  |  |   | 103,016   | 
|Net
income (loss)                                                                             |  |                         | (377,024  | )       |  |               | (243,115  | )    |  |      | (529      | ) |  |   | 116,622   |  |  |   | 103,016   | 
|Balance sheet data (at end of period):                                                        |  |                         |           |         |  |               |           |      |  |      |           |   |  |   |           |  |  |   |           | 
|Total assets                                                                                  |  | $                       | 1,645,015 |         |  | $             | 1,695,544 |      |  | $    | 1,785,473 |   |  | $ | 1,663,495 |  |  | $ | 1,594,644 | 
|Long-term
debt, less current maturities (d)                                                   |  |                         | 700,983   |         |  |               | 224,551   |      |  |      | 145,578   |   |  |   | 155,168   |  |  |   | 207,906   | 
|Total stockholders equity                                                                    |  |                         | 299,655   |         |  |               | 640,215   |      |  |      | 881,940   |   |  |   | 882,469   |  |  |   | 769,225   | 



---

|(a) |  | AWA has restated its financial
statements for the year ended December 31, 2001 to reflect
impairment charges on long-lived assets. See Note 2,
Restatement of Previously Reported Amounts in Notes to
Financial Statements.                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes $19.0 million of special charges in 2002 primarily
related to the restructuring completed on January 18, 2002, resulting
from the events of September 11, 2001 and $141.6 million of special
charges in 2001 related to the impairment of ERV and owned aircraft and
engines, as well as the earlier than planned return of seven leased
aircraft and severance expenses following a reduction-in-force in
2001. See Note 14, Special Chargesin Notes to Financial
Statements.
|   
|(c) |  | Includes federal government assistance of $8.5 million and $108.2
million recognized in 2002 and 2001,
respectively, as nonoperating income under the Air Transportation
Safety and System Stabilization Act to offset direct and incremental
losses incurred as a result of the September 11, 2001 terrorist
attacks. See Note 15, Nonoperating Income (Expense)  Other, Netin
Notes to Financial Statements.                                                                        
|   
|(d) |  | Includes a $429 million loan supported by a $380 million
government loan guarantee that was closed in January 2002 as part
of the Companys financial restructuring.                                                                                                                                                                                                                                                                                                                     




ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Holdings primary business activity is ownership of all the capital stock
of AWA and TLC. Managements Discussion and Analysis of Financial Condition
and Results of Operations presented below relates to the consolidated financial
statements of Holdings presented in Item 8A and the financial statements for
AWA presented in Item 8B.

Restatement of Previously Reported Amounts

Holdings
and AWA have restated their financial statements for the fiscal year
ended December 31, 2001 and their unaudited financial statements for the first, second and third
quarters of fiscal year ended December 31, 2002. The changes
include:



| |  |  | a change in the timing from the first quarter of 2002 back
to the fourth quarter of 2001 of the non-cash impairment charge of
approximately $39.2 million recorded to adjust the carrying value of
owned aircraft to market value and the related non-cash impairment
charge of approximately $64.1 million recorded to write off
reorganization value in excess of amounts allocable to identifiable
assets (ERV) that arose in connection with the Companys plan of
reorganization from bankruptcy in 1994, both of which charges were
previously recorded in the first quarter of 2002; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  |  the recognition of full
valuation allowances relating to Holdings and AWAs net
deferred tax assets.
| |  |  | -------------------------------------------------------------------------------------------------------

See Note 2, Restatement of Previously
Reported Amounts in both Notes to Consolidated Financial Statements of Holdings and Notes to Financial Statements of AWA.

Impairment Charges

Statement
of Financial Accounting Standards (SFAS) No. 121
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of requires that an impairment analysis be performed whenever circumstances indicate that the carrying amount of an asset that
an entity expects to hold and use may not be recoverable.

As a result of the adverse impacts on Holdings and AWA and the airline industry
as a whole resulting from the terrorist events of September 11, 2001 and their aftermath, AWA performed an assessment of
impairment of its owned aircraft during 2001 and again in connection with the preparation of the interim financial statements for
the first quarter of 2002.

As a result of AWAs assessments, no impairment adjustment was
recorded in the financial statements previously issued for 2001. The Company
and AWA recorded an impairment charge of approximately $39.2 million in the first
quarter of 2002 to adjust the carrying value of AWA's owned aircraft to reflect market
values at that time. Such accounting treatment was considered appropriate at
the time of the issuance of the applicable financial statements. In connection with the preparation of the financial statements
and the related audit
for the fiscal year ended December 31, 2002, the Company and AWA determined that
the more appropriate recognition of the impairment charge of approximately
$39.2 million is in the fourth quarter of 2001 rather than in the first quarter
of 2002.

In addition, SFAS No. 121 requires that goodwill that arose in a purchase
business combination be allocated, and included as part of the asset base, in
determining recoverability and measuring impairment. The Company and
AWA did not have goodwill at December 31,
2001, but did have a significant amount of unamortized ERV. The Company and AWA have
determined that a portion of the unamortized ERV balance should have been allocated to AWAs owned aircraft in the
impairment analysis performed for the year ended December 31, 2001.

As more fully described in Note 3, Adoption of New Accounting Standard
in both Notes to Consolidated
Financial Statements of Holdings and Notes to Financial Statements of AWA, the remaining unamortized balance of ERV was written-off in the
first quarter of 2002 as a cumulative effect of a change in accounting principle, upon adoption of SFAS No. 142, Goodwill and Other
Intangible Assets.

The impact of the above described matters is to change the period of
recognition for these non-cash costs between late 2001 and early 2002. See Note 19,
Quarterly Financial Data (Unaudited)in Notes to Consolidated Financial
Statements of Holdings and Note 18, Quarterly Financial Data
(Unaudited) in Notes to Financial Statements of AWA.

Deferred Income Taxes

SFAS No. 109 Accounting for Income Taxesrequires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.

Holdings
and AWA had originally reported net deferred tax liabilities at
December 31, 2001. After consideration of the restatement discussed above, Holdings and AWA each had net deferred tax assets and were
in a cumulative loss position for the three years
ended December 31, 2001. Full valuation allowances have been established
relating to Holdings and AWAs
net deferred tax assets at December 31, 2001, and relating to net deferred
tax assets generated by losses in 2002. We expect to continue to record a full
valuation allowance on future tax benefits until we return to profitability.
See Note 9, Income Taxesand Note 19, Quarterly
Financial Data (Unaudited)in Notes to Consolidated
Financial Statements of Holdings and Note 10, Income
Taxes and Note 18, Quarterly Financial Data
(Unaudited) in Notes to Financial Statements of AWA.

2002 in Review

Overview

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. In 2002,
the nine largest U.S. airlines reported net losses of approximately $7.0
billion, of which approximately $1.8 billion was in the fourth quarter of 2002.
Two airlines, United Airlines and U.S. Airways, have filed for bankruptcy and
most other airlines have implemented cost reduction plans in order to preserve
liquidity and weather the current economic conditions. Passenger revenues
continue to be adversely affected by a decline in high-yield business traffic
and a general decline in the demand for air travel after the terrorist attacks.
The airline industry also incurred, and

22



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##### Table of Contents



continues to face, an increase in
costs resulting from enhanced security measures, aviation-related insurance and
higher jet fuel prices.

In response to these difficult industry conditions, we completed a
financial restructuring, introduced a business-friendly pricing structure and
lowered our cost structure during 2002. Most significantly, during the first
quarter of 2002, as part of our financial restructuring, we closed a $429
million loan supported by a $380 million government loan guarantee. This loan
triggered expense reductions and additional financing (primarily aircraft rent
reductions and future financing commitments), resulting in a restructuring of
our indebtedness and lease commitments. See Note 4, Government Guaranteed
Loan in the Notes to the Consolidated Financial Statements. In 2002, we also
eliminated base commissions on tickets issued by travel agencies in the United
States effective March 21, 2002 and introduced a new pricing structure offering
business travelers lower and more flexible fares on March 24, 2002. See 
Revised Pricing Structure below. As a result of these initiatives, we
believe our cash balance as of December 31, 2002 remains relatively high as
compared to the average for the major U.S. domestic hub-and-spoke airlines, our
year-over-year domestic unit revenue and unit cost performance was better than
the industry average and our year-over-year improvement in pre-tax margin was
the highest of all major U. S. airlines.

Cost Control

We are committed to maintaining a low cost structure, which we believe
offers a significant competitive advantage over other major hub-and-spoke
airlines in the United States. In 2002, we continued to maintain
our position as having the lowest operating cost per available seat mile,
or CASM, of all the other major hub-and-spoke airlines in the United States and
remained competitive with the major point-to-point airline, Southwest Airlines.
Our CASM was 8.05 cents in 2002, which included approximately $19.0 million,
or 0.07 cents per available seat mile, of charges associated with our financial
restructuring. Excluding these restructuring charges, we believe our CASM of
7.98 cents was approximately 24% less than the average CASM (excluding similar
restructuring charges) of the other major hub-and-spoke airlines in the United
States.

In 2002, we reduced CASM, excluding restructuring charges, by 8.1%, which
we believe represented the most improvement amongst the major U. S. airlines.
This reduction was driven by a reduction in aircraft rents obtained in
connection with our financial restructuring, which reduced rent payments by
approximately $50 million per year for 2003 and each of the next six years, the
elimination of base commissions on tickets issued by travel agencies in the
United States and continued management focus on cost control.

In the current industry environment, our low cost focus has been extended
to capital spending and cash conservation. We intend to minimize capital
expenditures and defer discretionary expenditures.

Revised Pricing Structure

In an effort to maximize revenue and increase business traffic, we
eliminated our historic pricing structure in March 2002 and replaced it with a
simplified structure, the primary components of which include reduced business
fares (typically 40-75% below the walkup prices on other major network
carriers), elimination of Saturday night stay requirements and more fares
available on a one-way basis. At the same time, we significantly reduced the
number and level of highly discounted fares available through off-tariff
channels. Immediately following the introduction of the new fare structure,
higher-cost competitors placed extremely low prices in our non-stop markets and
Continental Airlines cancelled its long standing code share and frequent flyer
agreements with us. Despite these actions, we believe our year-over-year
domestic unit revenue performance has been better than the industry average
each month since the new structure was introduced and the net effect of our
revised pricing structure has been significantly positive to revenue.

Customer Service

We believe that the emphasis on customer service is essential to
rebuilding our business and leisure traffic. Therefore, we are committed to
building a successful airline by taking care of our customers. During 2002, we
continued to build on the customer service and reliability initiatives that we
first implemented in 2000. Largely as a result of our continued focus of
customer service, in 2002, AWA continued to make significant improvements in a
number of key areas as reported to the Department of Transportation (DOT):



| |  |  | On-time performance improved to 82.9% in 2002 compared to 74.8%
in 2001. In January, February and May 2002, AWA ranked first in the
industry in on-time performance;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Completion factor for the year was 99.0%, higher than any other year in our history;                                                                                

23



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##### Table of Contents





| |  |  | AWA posted a 16% improvement in mishandled baggage in 2002 compared to 2001;                                  
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | Customer complaints to the DOT in 2002 decreased 56% compared to
2001 and are at the lowest levels since 1996.

2003 Outlook

Despite the progress made in 2002, as a result of the continued economic
environment for the airline industry, we expect to incur a significant loss in
the first quarter and for the full year 2003. We believe near-term revenues
will continue to be negatively impacted by the soft economic conditions and the
decline in business traffic. In addition, fuel prices have remained and may
continue to remain well above historical norms due to the threat of and the
commencement of military action against Iraq and continued political
tension in Venezuela. Although there can be no assurances, we believe
that cash flow from operating activities coupled with existing cash balances
and financing commitments will be adequate to fund our operating and capital
needs as well as enable us to maintain compliance with our various debt
agreements through at least December 31, 2003. See Business  Risk Factors
Relating to America West and Industry Related Risks, above and Liquidity and
Capital Resources, below.

Results of Operations

Summary of Holdings Financial Results

Holdings recorded a consolidated loss before the cumulative effect of a
change in accounting principle of $179.7 million in 2002, a diluted loss per
share of $5.33. This compares to a consolidated net loss of $249.9 million or
$7.42 per diluted share, in 2001. Including the cumulative effect of a change
in accounting principle related to the Companys adoption of SFAS No. 142,
Goodwill and Other Intangible Assets,on January 1, 2002, Holdings net loss
for 2002 was $387.9 million, or $11.50 per diluted share. See Note 3,
Adoption of New Accounting Standardin Notes to Consolidated Financial
Statements. The 2002 results include special charges of $19.0 million
 primarily related to the restructuring completed on
January 18, 2002, (see Note 14, Special Chargesin Notes to Consolidated
Financial Statement) and a gain of $4.9 million related to a change in the Companys vacation policy for certain administrative
employees. The Company also recognized a nonoperating charge of $2.8
million related to the write-off of the Companys
investment in an e-commerce entity and a nonoperating gain of $8.5
million related to the federal government assistance
received under the Air Transportation Safety and system Stabilization Act. See
Note 15, Nonoperating Income (Expense)  Other, Netin Notes to Consolidated
Financial Statements. The 2001 results include a nonoperating gain of
$108.2 million related to the federal government
assistance, an $11.0 million gain resulting
from the settlement in March 2001 of a lawsuit related to an air-to-ground
telecommunication system that was previously written off and an $8.8 million
gain from an insurance settlement in the fourth
quarter of 2001. These gains were offset by $141.6 million of special
charges resulting from the impairment of ERV and
owned aircraft and engines, as well as the early termination of aircraft leases
and severance expenses following the reduction-in-force in 2001. The Company
also recognized a $2.1 million loss related to
the write down to realizable value of the Companys investment in Book4golf.com
in the third quarter of 2001. The Company recorded a consolidated income tax
benefit for financial reporting purposes of $35.1 million for the 2002 period
on a loss before income tax benefit and cumulative effect of a change in
accounting principle of $214.8 million. The benefit is primarily
due to additional carryback losses made available in 2002 as a result
of the enactment of new tax legislation allowing an extended
carryback period under the Job Creation and Workers Assistance Act of
2002. This compares to an income tax benefit
of $74.5 million in the 2001 period on a pretax loss of $324.4 million.

In 2000, the Company recognized net income of $7.7 million and income tax
expense of $17.1 million. Diluted earnings per share for 2000 were $0.22.

24



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##### Table of Contents



AWA

The following discussion provides an analysis of AWAs results of
operations and reasons for material changes therein for the years ended
December 31, 2002, 2001 and 2000.

AMERICA WEST AIRLINES, INC.

Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |           |           | 
|------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | -------- | ------------- | --------- | ---- | -------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                |                                                                                            |                                                                                                     |          | 2002          |           | 2001 |          | 2000     
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |          
|                                |                                                                                            |                                                                                                     |          | (as restated)
|Operating revenues:             |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                | Passenger                                                                                  |                                                                                                     | $        | 1,929,444     |           |      | $        | 1,941,877 |           |   | $       | 2,179,811 |          
|                                | Cargo                                                                                      |                                                                                                     |          | 27,574        |           |      |          | 33,824    |           |   |         | 37,377    |          
|                                | Other                                                                                      |                                                                                                     |          | 54,272        |           |      |          | 45,262    |           |   |         | 73,683    |          
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                |                                                                                            | Total operating revenues                                                                            |          |               | 2,011,290 |      |          |           | 2,020,963 |   |         |           | 2,290,871 | 
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|Operating expenses:             |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                | Salaries and related costs                                                                 |                                                                                                     |          | 594,858       |           |      |          | 601,986   |           |   |         | 556,906   |          
|                                | Aircraft rents                                                                             |                                                                                                     |          | 295,016       |           |      |          | 355,517   |           |   |         | 331,005   |          
|                                | Other rents and landing fees                                                               |                                                                                                     |          | 158,290       |           |      |          | 140,372   |           |   |         | 130,679   |          
|                                | Aircraft fuel                                                                              |                                                                                                     |          | 299,940       |           |      |          | 343,224   |           |   |         | 373,313   |          
|                                | Agency commissions                                                                         |                                                                                                     |          | 38,896        |           |      |          | 75,085    |           |   |         | 86,469    |          
|                                | Aircraft maintenance materials and repairs                                                 |                                                                                                     |          | 252,691       |           |      |          | 257,939   |           |   |         | 258,432   |          
|                                | Depreciation and amortization                                                              |                                                                                                     |          | 73,898        |           |      |          | 63,178    |           |   |         | 54,313    |          
|                                | Amortization of reorganization value in excess of
amounts allocable to identifiable assets |                                                                                                     |          |              |           |      |          | 19,896    |           |   |         | 19,896    |          
|                                | Special charges                                                                            |                                                                                                     |          | 19,030        |           |      |          | 141,638   |           |   |         |          |          
|                                | Other                                                                                      |                                                                                                     |          | 442,821       |           |      |          | 445,525   |           |   |         | 492,596   |          
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                |                                                                                            | Total operating expenses                                                                            |          |               | 2,175,440 |      |          |           | 2,444,360 |   |         |           | 2,303,609 | 
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|Operating loss                  |                                                                                            |                                                                                                     | (164,150 | )             |           |      | (423,397 | )         |           |   | (12,738 | )        
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|Nonoperating income (expenses): |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                | Interest income                                                                            |                                                                                                     |          | 17,220        |           |      |          | 22,654    |           |   |         | 23,706    |          
|                                | Interest expense, net                                                                      |                                                                                                     |          | (79,475       | )         |      |          | (33,789   | )         |   |         | (22,939   | )        
|                                | Federal government assistance                                                              |                                                                                                     |          | 8,466         |           |      |          | 108,246   |           |   |         |          |          
|                                | Loss on disposition of property and equipment                                              |                                                                                                     |          | (1,835        | )         |      |          | (3,000    | )         |   |         | (2,332    | )        
|                                | Other, net                                                                                 |                                                                                                     |          | 215           |           |      |          | 3,063     |           |   |         | 29,444    |          
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                |                                                                                            | Total nonoperating income (expenses), net                                                           |          |               | (55,409   | )    |          |           | 97,174    |   |         |           | 27,879    | 
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          
|                                |                                                                                            | Income (loss) before income taxes (benefit) and
cumulative effect of change in accounting principle |          | $             | (219,559  | )    |          | $         | (326,223  | ) |         | $         | 15,141    | 
|                                |                                                                                            |                                                                                                     |          |               |           |      |          |           |           |   |         |          

The table below sets forth selected operating data for AWA.

|                                               |                       |  |                         |      |        |  |        |      |           |  |           |      |  |         |         |         |         |  |       |      |  
|---------------------------------------------- | --------------------- |  | ----------------------- | ---- | ------ |  | ------ | ---- | --------- |  | --------- | ---- |  | ------- | ------- | ------- | ------- |  | ----- | ---- | -
|                                               |                       |  |                         |      |        |  |        |      |           |  |           |      |  |         | Percent |         | Percent
|                                               |                       |  | Year Ended December 31, |      | Change |  | Change
|                                               |                       |  | 2002                    |      | 2001   |  | 2000   |      | 2002-2001 |  | 2001-2000
|                                               |                       |  |                         |      |        |  |        |      |           |  |          
|Aircraft (end of period)                       |                       |  | 143                     |      |        |  | 146    |      |           |  | 138       |      |  |         | (2.0    | )       |         |  | 5.8   |     
|Average daily aircraft utilization (hours) (a) |                       |  | 9.6                     |      |        |  | 9.7    |      |           |  | 10.9      |      |  |         | (1.0    | )       |         |  | (11.0 | )   
|Available seat miles (in millions) (b)         |                       |  | 27,008                  |      |        |  | 26,539 |      |           |  | 27,112    |      |  |         | 1.8     |         |         |  | (2.1  | )   
|Block hours (in thousands) (c)                 |                       |  | 505                     |      |        |  | 508    |      |           |  | 517       |      |  |         | (0.6    | )       |         |  | (1.7  | )   
|Average stage length (miles) (d)               |                       |  | 949                     |      |        |  | 894    |      |           |  | 878       |      |  |         | 6.2     |         |         |  | 1.8   |     
|Average passenger journey (miles) (e)          |                       |  | 1,434                   |      |        |  | 1,325  |      |           |  | 1,269     |      |  |         | 8.2     |         |         |  | 4.4   |     
|Revenue passenger miles (in millions) (f)      |                       |  | 19,878                  |      |        |  | 19,074 |      |           |  | 19,113    |      |  |         | 4.2     |         |         |  | (0.2  | )   
|Load factor (percent) (g)                      |                       |  | 73.6                    |      |        |  | 71.9   |      |           |  | 70.5      |      |  | 1.7 pts |         | 1.4 pts
|Passenger enplanements (in thousands) (h)      |                       |  | 19,454                  |      |        |  | 19,576 |      |           |  | 19,954    |      |  |         | (0.6    | )       |         |  | (1.9  | )   
|Yield per revenue passenger mile (cents) (i)   |                       |  | 9.71                    |      |        |  | 10.18  |      |           |  | 11.40     |      |  |         | (4.6    | )       |         |  | (10.7 | )   
|Revenue per available seat mile:               |                       |  |                         |      |        |  |        |      |           |  |           |      |  |         |         |         |         |  |       |     
|                                               | Passenger (cents) (j) |  |                         | 7.14 |        |  |        | 7.32 |           |  |           | 8.04 |  |         |         | (2.5    | )       |  |       | (9.0 | )
|                                               | Total (cents) (k)     |  |                         | 7.45 |        |  |        | 7.61 |           |  |           | 8.45 |  |         |         | (2.1    | )       |  |       | (9.9 | )
|Fuel consumption (gallons in millions)         |                       |  | 411                     |      |        |  | 414    |      |           |  | 424       |      |  |         | (0.7    | )       |         |  | (2.4  | )   
|Average fuel price (cents per gallon)          |                       |  | 73.1                    |      |        |  | 83.0   |      |           |  | 88.1      |      |  |         | (11.9   | )       |         |  | (5.8  | )   
|Full-time equivalent employees (end of period) |                       |  | 11,908                  |      |        |  | 11,316 |      |           |  | 12,850    |      |  |         | 5.2     |         |         |  | (11.9 | )   



---

|(a) |  | Average daily aircraft utilization  The average number of block
hours per day for all aircraft in service.
|--- |  | -----------------------------------------------------------------------------------------------------------
|   
|(b) |  | Available seat mile (ASM)  A basic measure of production. It is
one seat flown one statute mile.        

25



---



##### Table of Contents



|(c) |  | Block hours  The hours measured from the moment an aircraft first
moves under its own power, including taxi time, for the purposes of
flight until the aircraft is docked at the next point of landing and its
power is shut down.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) |  | Average stage length  The average of the distances flown on each
segment of every route.                                                                                                                                          
|   
|(e) |  | Average passenger journey  The average one-way trip measured in
statute miles for one passenger origination.                                                                                                                      
|   
|(f) |  | Revenue passenger mile (RPM)  A basic measure of sales volume. It
is one passenger flown one mile.                                                                                                                              
|   
|(g) |  | Load factor  The percentage of available seats that are filled with
revenue passengers.                                                                                                                                           
|   
|(h) |  | Passenger enplanements  The number of passengers on board an
aircraft including local, connecting and through passengers.                                                                                                         
|   
|(i) |  | Yield  A measure of airline revenue derived by dividing passenger
revenue by revenue passenger miles and expressed in cents per mile.                                                                                             
|   
|(j) |  | Passenger revenue per available seat mile (RASM)  Total passenger
revenues divided by total available seat miles.                                                                                                               
|   
|(k) |  | Total revenue per available seat mile  Total operating revenues
divided by total available seat miles.                                                                                                                            

The table below sets forth the major components of CASM for AWA for the
applicable years.

|                                                                                            |  |                         |      |        |  |               |      |           |  |           |      |  |  |         |        |         |  |  |       |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | ---- | ------ |  | ------------- | ---- | --------- |  | --------- | ---- |  |  | ------- | ------ | ------- |  |  | ----- | -
|                                                                                            |  |                         |      |        |  |               |      |           |  |           |      |  |  | Percent |        | Percent
|                                                                                            |  | Year Ended December 31, |      | Change |  | Change       
|                                                                                            |  | 2002                    |      | 2001   |  | 2000          |      | 2002-2001 |  | 2001-2000
|                                                                                            |  |                         |      |        |  |               |      |           |  |          
|                                                                                            |  |                         |      |        |  | (as restated) |      |           |  |           |      |  |  |        
|                                                                                            |  |                         |      |        |  | (in cents)    |      |           |  |           |      |  |  |         |        |         |  | 
|Salaries and related costs                                                                  |  |                         | 2.20 |        |  |               | 2.27 |           |  |           | 2.06 |  |  |         | (2.9   | )       |  |  | 10.4  |  
|Aircraft rents                                                                              |  |                         | 1.09 |        |  |               | 1.34 |           |  |           | 1.22 |  |  |         | (18.5  | )       |  |  | 9.7   |  
|Other rents and landing fees                                                                |  |                         | 0.59 |        |  |               | 0.53 |           |  |           | 0.48 |  |  |         | 10.8   |         |  |  | 9.7   |  
|Aircraft fuel                                                                               |  |                         | 1.11 |        |  |               | 1.29 |           |  |           | 1.38 |  |  |         | (14.1  | )       |  |  | (6.1  | )
|Agency commissions                                                                          |  |                         | 0.14 |        |  |               | 0.28 |           |  |           | 0.32 |  |  |         | (49.1  | )       |  |  | (11.3 | )
|Aircraft maintenance materials and repairs                                                  |  |                         | 0.94 |        |  |               | 0.97 |           |  |           | 0.95 |  |  |         | (3.7   | )       |  |  | 2.0   |  
|Depreciation and amortization                                                               |  |                         | 0.27 |        |  |               | 0.24 |           |  |           | 0.20 |  |  |         | 14.9   |         |  |  | 18.8  |  
|Amortization of reorganization values in
excess of
amounts allocable to identifiable assets |  |                         |     |        |  |               | 0.08 |           |  |           | 0.07 |  |  |         | (100.0 | )       |  |  | 2.1   |  
|Special charges                                                                             |  |                         | 0.07 |        |  |               | 0.53 |           |  |           |     |  |  |         | (86.8  | )       |  |  | 100.0 |  
|Other                                                                                       |  |                         | 1.64 |        |  |               | 1.68 |           |  |           | 1.82 |  |  |         | (2.3   | )       |  |  | (7.6  | )
|                                                                                            |  |                         |      |        |  |               |      |           |  |           |      |  |  |         |        |         |  |  |       |  
|                                                                                            |  |                         | 8.05 |        |  |               | 9.21 |           |  |           | 8.50 |  |  |         | (12.6  | )       |  |  | 8.4   |  
|                                                                                            |  |                         |      |        |  |               |      |           |  |           |      |  |  |         |        |         |  |  |       |  

2002 Compared with 2001

AWA recorded an operating loss of $164.2 million in 2002 compared to an
operating loss of $423.4 million in 2001. Loss before income tax benefit and
the cumulative effect of a change in accounting principle was $219.6 million in
2002 compared to a pretax loss of $326.2 million in 2001.

Total operating revenues for 2002 were $2.0 billion. Passenger revenues
were $1.9 billion in 2002, which was relatively flat when compared to 2001. A
4.2% increase in RPMs exceeded a 1.8% increase in capacity, as measured by
ASMs, resulting in a 1.7 point increase in load factor to 73.6%. The increase
in load factor was offset by a 4.6% decrease in yield driven by a significant
decline in business travel and the introduction of security fees paid by
passengers. As a result, RASM decreased 2.5% to 7.14 cents in 2002 from 7.32
cents in 2001. Cargo revenues for 2002 decreased $6.3 million (18.5%) due to
lower freight and
mail volumes following the September 11, 2001 terrorist attacks. Other
revenues, which consist primarily of alcoholic beverage sales, contract service
sales, service charges and Mesa Airlines net revenues, increased $9.0 million
(19.9%) due primarily to higher ticket refund and reissue penalty fees for
ticketing changes.

Excluding special charges of $19.0 million and $141.6 million recognized
in 2002 and 2001, respectively, (see Note 14, Special Chargesin Notes to
Financial Statements) operating expenses decreased $146.3 million or 6.3%,
while ASMs increased 1.8% in 2002 as compared to 2001. As a result, CASM
excluding special charges decreased 8.1% to 7.98 cents in 2002 from 8.68 cents
in 2001. Significant changes in the components of operating expense per ASM
are explained as follows:

26



---



##### Table of Contents





| |  |  | Salaries and related costs per ASM decreased 2.9% due primarily to
lower average full-time equivalent headcount in 2002 as compared to 2001
despite a 1.8% increase in ASMs. A 3.9% decrease in the average number
of full-time equivalent employees (FTE) was offset in part by a 2.9%
increase in average salaries and related costs per FTE as a result of
higher medical, disability and workers compensation insurance costs
($16.9 million).                                                                                                                                                                                                                                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aircraft rent expense per ASM decreased 18.5% due primarily to the
reduction of rental rates negotiated with AWAs aircraft lessors as part
of the financial restructuring that was completed in January 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Other rents and landing fees expense per ASM increased 10.8% due
primarily to higher airport rents ($7.9 million), landing fees ($5.2
million) and costs for borrowed parts ($3.6 million). A $2.5 million
increase in flight simulator rents, primarily as a result of the sale
and leaseback of three previously owned flight simulators in the third
quarter of 2001, also contributed to the increase. These increases were
offset in part by a decrease in aircraft engine rents ($1.5 million).                                                                                                                                                                                                                                  
|
| |  |  | Aircraft fuel expense per ASM decreased 14.1% due primarily to an
11.9% decrease in the average price per gallon of fuel to 73.1 cents in
2002 from 83.0 cents in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | Agency commissions expense per ASM decreased 49.1% due primarily to
the elimination of base commissions for travel agency tickets issued in
the United States, effective March 21, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | Aircraft maintenance materials and repair expense per ASM decreased
3.7% due primarily to lower aircraft C-Check ($12.7 million), engine
overhaul ($4.1 million), airframe maintenance ($3.0 million) and
engineering order ($1.3 million) expenses. These decreases were offset
in part by a $12.8 million increase in the accrual for the estimated
costs of maintenance required to be performed upon the return of leased
aircraft and a $3.4 million increase in capitalized maintenance
amortization expense.                                                                                                                                                                                                                    
|
| |  |  | Depreciation and amortization expense per ASM increased 14.9% due
primarily to higher amortization expense related to computer hardware,
software and facility improvements ($8.5 million) and aircraft leasehold
improvements ($2.3 million). An increase in depreciation expense
related to rotable aircraft parts ($1.7 million) also contributed to the
increase. These increases were offset in part by a decrease in airframe
depreciation expense ($2.3 million).                                                                                                                                                                                                                                                               
|
| |  |  | Upon adoption of SFAS No. 142, Goodwill and Other Intangible
Assets,the Company wrote off its balance of reorganization value in
excess of amounts allocable to identifiable assets, effective January 1,
2002, resulting in a $19.9 million decrease in amortization expense in
2002 when compared to 2001. The impairment loss of $187.9 million was
recorded as the cumulative effect of a change in accounting principle.
See Note 3, Adoption of New Accounting Standardin Notes to Financial
Statements.                                                                                                                                                                                                                     
|
| |  |  | Other operating expenses per ASM decreased 2.3% to 1.64 cents from
1.68 cents primarily due to decreases in interrupted trip and baggage
claim expenses ($12.0 million), professional, technical
and legal fees ($10.7 million), catering ($13.3 million), advertising
($5.4 million), overnight and on-call maintenance expenses ($3.6
million), computer reservations system book fees ($3.0 million) and
furnished accommodations ($2.4 million). These decreases were offset in
part by higher traffic liability insurance expense ($31.2 million), the
settlement in 2001 of a lawsuit related to an air-to-ground
telecommunication system that was previously written off ($11.0 million)
and an insurance claim ($8.8 million).

Excluding the federal government assistance of $8.5 million and $108.2
million recognized in 2002 and 2001, respectively, net nonoperating expenses
increased $52.8 million to $63.9 million in 2002 from $11.1 million in 2001.
Net interest expense increased $45.7 million in 2002 due to higher average
outstanding debt as a result of the government guaranteed loan, while interest
income decreased $5.4 million. Higher average cash balances were offset by
lower escrow balances from the 2001-1 Pass Through Trust Certificates and lower
interest rates in 2002 compared to 2001.

27



---



##### Table of Contents



2001 Compared with 2000

AWA recorded an operating loss of $423.4 million in 2001 compared to an
operating loss of $12.7 million in 2000. Loss before income taxes for 2001 was
$326.2 million compared to $15.1 million of pretax income in 2000.

Total operating revenues for 2001 were $2.0 billion. Passenger revenues
were $1.9 billion in 2001, a decrease of $237.9 million or 10.9% from 2000.
RASM in 2001 decreased 9.0% to 7.32 cents from 8.04 cents due to a reduction in
demand for air travel following the September 11 terrorist attacks and a
reduction in business travel driven by a slowing economy. Yield decreased
10.7% to 10.18 cents in 2001 from 11.40 cents in 2000. ASMs decreased 2.1% in
2001 as compared to 2000 while RPMs were relatively flat year-over-year,
resulting in a 1.4 point increase in load factor. Cargo revenues for 2001
decreased $3.6 million (9.5%) due to lower freight and mail volumes following
the September 11 terrorist attacks. Other revenues, which consist primarily of
alcoholic beverage sales, contract service sales, service charges and Mesa
Airlines net revenues, decreased $28.4 million (38.6%) due primarily to lower
net revenues from AWAs code sharing agreement with Mesa Airlines, principally
as a result of the decline in demand for air travel and the slowing economy.

Operating expenses excluding $141.6 million of special charges recognized
in 2001 (see Note 14, Special Chargesin Notes to Financial Statements) were
relatively flat year-over-year, while ASMs decreased 2.1% in 2001 as compared
to 2000. As a result, CASM excluding special charges increased 2.1% to 8.68
cents in 2001 from 8.50 cents in 2000. A significant contributor to the
increase in CASM was the post-September 11 suspension of air service and
subsequent reduction of AWAs flight schedule as a result of reduced demand for
air travel, which reduced ASMs without a commensurate reduction in expenses.
Significant changes in the components of operating expense per ASM are
explained as follows:



| |  |  | Salaries and related costs per ASM increased 10.4% primarily due to
an increase in salaries and related costs per employee, the reduction in
ASMs and a higher number of employees in 2001 to support anticipated
growth. Average salaries and related costs per FTE increased 6.5%
primarily due to higher disability and medical insurance premiums ($13.5
million), a new collective bargaining agreement with the Companys fleet
service workers, which was entered into in June 2000 that included
higher wage rates, and contractual wage increases required by the
Companys agreement with its pilots. Payroll expense for fleet service
personnel increased by $10.5 million and pilot salaries increased by
$5.8 million in 2001. The average number of full-time equivalent
employees increased 1.4% year-over-year while ASMs decreased 2.1%.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aircraft rent expense per ASM increased 9.7% due primarily to the net
addition of five leased aircraft to the fleet during 2001 as compared to
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Other rents and landing fees expense per ASM increased 9.7% due
primarily to higher airport rentals ($8.0 million) and landing fees
($3.8 million), which were offset in part by lower costs for borrowed
parts ($2.6 million.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Aircraft fuel expense per ASM decreased 6.1% due primarily to a 5.8%
decrease in the average price per gallon of fuel to 83.0 cents in 2001
from 88.1 cents in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Agency commissions expense per ASM decreased 11.3% due primarily to a
10.9% decrease in passenger revenues. An increase in the percentage of
non-commissionable revenue in 2001 primarily as a result of increased
usage of the Companys website and other lower cost distribution
channels and a decrease in the travel agent commission cap from $50 to
$20, effective August 28, 2001, also contributed to the decrease.                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Aircraft maintenance materials and repairs expense per ASM increased
2.0% due primarily to the deferral of certain aircraft C-Check expenses
($3.1 million) in the post-September 11 period and the reduction in
ASMs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Depreciation and amortization expense per ASM increased 18.8% due
primarily to an increase in amortization expense related to aircraft
leasehold improvements ($2.8 million) and computer software and hardware
additions and facility improvements to support growth ($1.6 million).
Higher depreciation expense related to rotable aircraft parts ($2.3
million) and owned aircraft ($1.6 million) also contributed to the
increase.                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Amortization of excess reorganization value expense per ASM increased
due to the 2.1% decrease in ASMs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

28



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##### Table of Contents





| |  |  | Other operating expenses per ASM decreased 7.6% to 1.68 cents from
1.82 cents primarily due to lower interrupted trip and baggage claim
expenses as a result of AWAs improved operating performance ($19.9
million) and decreased discretionary spending which drove lower
advertising ($9.2 million) and catering ($3.8 million) costs. The
recovery of $11.0 million from the settlement in March 2001 of a lawsuit
related to an air-to-ground telecommunication system that was previously
written off, an $8.8 million insurance settlement in the fourth quarter
of 2001 and a $9.0 million charge in the fourth quarter of 2000 related
to the write-down to net realizable value of certain excess expendable
aircraft parts also contributed to the decrease. These decreases were
offset in part by higher costs related to traffic liability and other
insurance ($9.4 million) and security services ($5.0 million).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Excluding the $108.2 million of federal government assistance, AWA had net
nonoperating, pretax expenses of $11.1 million in 2001 as compared to $27.9
million of net nonoperating, pretax income in 2000. The year-over-year change
was due primarily to a $15.5 million gain on sale of 500,000 warrants to
purchase common stock of Priceline.com and an $8.6 million gain on sale of one
million shares of GetThere.com common stock in 2000. Net interest expense
increased $10.9 million in 2001 primarily due to higher average outstanding
debt. Interest income decreased $1.1 million due to lower interest rates and
cash and cash equivalent balances in 2001.

Liquidity and Capital Resources

Government Guaranteed Loan and Related Restructuring

In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee. Completion of the government loan and
related restructuring increased the Companys liquidity
by approximately $390 million ($429 million loan, less 550 basis point
first year guarantee fee to the U.S. Treasury Department and other loan
participants, and less other transaction fees). In addition, in connection
with the completion of the government guaranteed loan, AWA restructured its
senior secured credit facility, its aircraft purchase commitments and aircraft
leases, issued $104.5 million of 7.5% convertible notes, issued warrants to
purchase up to 18.8 million shares of its Class B common stock and received
certain financing from the State of Arizona and City of Phoenix. Primarily
related to this restructuring, the Company recorded a pre-tax special charge of
$21.1 million in the first quarter of 2002. Components of the special charge
are as follows:

|                                                            |       |   |                 |        | 
|----------------------------------------------------------- | ----- | - | --------------- | ------ | 
|                                                            |       |   | Special Charges
|                                                            |       |   |                
|                                                            |       |   | (In thousands) 
|Fleet restructuring costs                                   |       | $ | 9,915           |       
|Losses on sale-leaseback transactions                       |       |   | 6,328           |       
|Professional fees                                           |       |   | 4,745           |       
|Write-off of computer system and security equipment         |       |   | 3,411           |       
|Severance                                                   |       |   | 656             |       
|Revision of estimate for second quarter 2001 special charge |       |   | (4,000          | )     
|                                                            |       |   |                 |       
|                                                            | Total |   | $               | 21,055 | 
|                                                            |       |   |                 |       

Of the special charge amount, approximately $10.3 million, principally
related to losses on sale-leaseback transactions, fleet restructuring costs,
professional fees and severance, had not been paid and was therefore accrued as
of March 31, 2002. In the third quarter of 2002, AWA recorded a $2.0 million
reduction in special charges for fleet restructuring costs due to a revision of
the estimated costs related to early termination of certain aircraft leases.
As of December 31, 2002, approximately $5.8 million of the accrued special
charges for 2002 and prior periods remained unpaid. Approximately $2.5 million
related to estimated losses on sale-leaseback transactions is expected to be
paid by the fourth quarter of 2003. Approximately $3.3 million of fleet
restructuring costs, primarily related to rent payments for grounded aircraft,
is expected to be paid through the fourth quarter of 2005.

We expect to fund accrued special charges from funds provided by
operations, existing cash balances and future financings, if necessary. See
Commitments below for a discussion of our future cash commitments and Note 4,
Government Guaranteed Loan and Note 14, Special Charges in Notes to
Consolidated Financial Statements for a further discussion of the government
guaranteed loan, the related restructuring and special charges incurred in 2001
and 2002.

Sources and Uses of Cash

At December 31, 2002, Holdings and AWAs unrestricted cash and cash
equivalents and short-term investments were $360.5 million and $351.4 million,
respectively. Net cash used in operating activities for Holdings and AWA was
$22.9 million and $24.3 million, respectively, in 2002. This compares to
$152.4 million and $147.9 million of

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net cash provided by operating activities
for Holdings and AWA, respectively, in 2001. The year-over-year decrease in
net cash provided by operating activities of $175.2 million and $172.2 million
for Holdings and AWA, respectively, was due primarily to a higher loss in the
2002 period and payment in the 2002 period of amounts due vendors and aircraft
lessors that had been subject to the Companys cash conservation program prior
to the closing of the government loan in January 2002. During 2002, the
Company paid $58.1 million of transportation taxes to the IRS that had been
deferred from 2001, as allowed under the Air Transportation Safety and System
Stabilization Act. The Company also benefited from a $60.3 million federal
income tax refund in 2002.

In 2002, net cash used in investing activities by Holdings and AWA was
$6.3 million and $6.0 million, respectively. Principal investing activities
during 2002 included the purchase of two new A320 aircraft, which were
subsequently refinanced as part of a sale-leaseback transaction. The Company
also received $175.5 million of proceeds from the sale and leaseback of one new
A319 aircraft and four new A320 aircraft and purchased short-term investments
totaling $70.0 million. The 2001 period included the purchase of 11 new A319
aircraft and two new A320 aircraft. Ten of these aircraft were subsequently
refinanced in 2001 as the result of sale-leaseback transactions, resulting in
$332.8 million of proceeds to
AWA. The remaining three aircraft were refinanced in 2002 as the result
of the $175.5 million sale-leaseback transaction discussed above. The 2001
period also included $27.4 million of proceeds from the sale and leaseback of
two owned aircraft engines and three flight simulators and sales of short-term
investments totaling $50.7 million.

In 2002, net cash provided by financing activities by Holdings and AWA was
$208.1 million and $208.4 million, respectively, primarily due to the
government guaranteed loan discussed below. The Company also repaid $161.2
million of debt as a result of the sale and leaseback of the five aircraft
discussed above and paid $37.0 million in loan-related fees during 2002. In
addition, AWA made a mandatory repayment of approximately $16.7 million on its
$89.9 million term loan. The payment was made as a result of a decrease in the
fair market value of the assets securing the loan following the terrorist
attacks of September 11, 2001. Collateral for the loan consists of aircraft,
spare engines, rotable aircraft parts inventory and a maintenance facility.
AWA and the lenders also amended certain provisions in the loan agreement
related to the collateral appraisal procedures. See Note 7, Long-Term Debt
in Notes to Consolidated Financial Statements. During 2001, AWA borrowed
$378.4 million from its 2001-1 and 2000-1 Pass-Through Trusts to fund the
acquisition of the 13 new aircraft above and borrowed $45.0 million under the
Companys revolving credit facility. As a result of the sale-leaseback of the
ten aircraft discussed above, AWA repaid, or assigned to a third party on a
non-recourse basis, $281.4 million of the amounts borrowed. In addition,
during 2001, AWA repaid $66.5 million of indebtedness under its revolving
credit facility.

Capital expenditures for 2002 were approximately $157.2 million for
Holdings and $156.9 million for AWA. Included in these amounts are capital
expenditures for capitalized maintenance of approximately $118.7 million.
Capital expenditures for 2003 are expected to increase to approximately $200
million due to increased capitalized maintenance for engines that were
previously covered under warranty. Non-maintenance capital spending will be
approximately $45 million as, under the Companys cash conservation program,
spending continues to be limited to projects that are mandatory or have a
payback period less than one year. The Company currently intends to fund such
expenditures with cash from operations. See Commitments.

As a result of the commencement of military action in Iraq, in March 2003,
the Company announced a plan to reduce management, professional and
administrative payroll costs which will result in fewer employees within these
workgroups. In addition, the Companys business partners and vendors will be
asked to reduce their fees in order to further reduce costs and maintain
sufficient liquidity in this uncertain environment.

Pass Through Trusts

Since AWAs restructuring in 1994, AWA has set up 19 pass through trusts,
which have issued over $1.4 billion of pass through trust certificates (also
known as Enhanced Equipment Trust Certificates or EETC). These trusts are
off-balance sheet entities, the primary purpose of which is to finance the
acquisition of aircraft. Rather than finance each aircraft separately when
such aircraft is purchased or delivered, these trusts allow the Company to
raise the financing for several aircraft at one time and place such funds in
escrow pending the purchase or delivery of the relevant aircraft.

Each trust covered a set amount of aircraft scheduled to be delivered within a
specific period of time. At the time of each covered aircraft financing, the
relevant trust used the funds in escrow to purchase equipment notes relating to
the financed aircraft. The equipment notes were issued, at AWAs election,
either by AWA in connection with a mortgage financing of the
aircraft or by a separate owner trust in connection with a leveraged lease
financing of the aircraft. In the case of a leveraged lease financing, the
owner trust then leased the aircraft to AWA. In both cases, the equipment
notes are secured by a security interest in the aircraft. The pass through
trust certificates are not

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direct obligations of, nor guaranteed by, Holdings
or AWA. However, in the case of mortgage financings, the equipment notes
issued to the trusts are direct obligations of AWA and in the case of leveraged
lease financings, the leases are direct obligations of AWA. All aircraft
financed by these trusts are currently structured as leveraged lease
financings, which are not reflected as debt on the balance sheets of either AWA
or Holdings.

AWAs 2001-1 Pass Through Trusts provided for the financing of nine Airbus
A319 aircraft and five Airbus A320 aircraft. Of the 14 aircraft, 11 were
delivered in 2001 and three were delivered in 2002. Except for one aircraft
delivered in the first quarter of 2002, which was financed as a leveraged lease
upon delivery, the acquisition of each aircraft was initially structured as a
mortgage financing and subsequently converted into a leveraged lease financing
in sale-leaseback transactions. In connection with the purchase of two
aircraft delivered in the second quarter of 2002, AWA issued $64.2 million of
equipment notes. In June 2002, AWA converted the mortgage financing of three
aircraft delivered in 2001 and the two aircraft delivered in the second quarter
of 2002 into leveraged lease financings by entering into sale-leaseback
transactions. As a result, approximately $161.2 million of the equipment notes
were assumed, on a non-recourse basis, by the owner trustees that purchased the
aircraft from AWA.

Commitments

As of December 31, 2002, we had $720.1 million of long-term debt
(including current maturities). This amount consisted primarily of the $429
million government guaranteed loan, a $73.2 million secured term loan with a
group of financial institutions, $91.7 million face value of convertible senior
notes and notes payable secured by certain of AWAs aircraft.

The following table sets forth our cash obligations as of December 31,
2002.

|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |        |  |   |           |         | 
|-------------------------------------------------------------- | ------------------------------------------ | - | -------------- | ----- | ---- | - | ------- | ------ | ---- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | - | --------- | ------ |  | - | --------- | ------- | 
|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   | Beyond    |        |  |   |          
|                                                               |                                            |   | 2003           |       | 2004 |   | 2005    |        | 2006 |   | 2007    |        | 2007 |   | Total  
|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |        
|                                                               |                                            |   | (In thousands)
|Long-term debt:                                                |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |        |  |   |           |        
|                                                               | Equipment notes  Non EETC (1)             |   | $              | 9,673 |      |   | $       | 8,989  |      |   | $       | 8,305  |      |   | $       | 8,305  |  |   | $       | 7,771  |  |   | $         | 15,083 |  |   | $         | 58,126  | 
|                                                               | Promissory Note (2)                        |   |                | 2,443 |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           |       |  |   |           | 2,443   | 
|                                                               | Term loan (3)                              |   |                |      |      |   |         | 1,588  |      |   |         | 30,000 |      |   |         | 30,000 |  |   |         | 13,170 |  |   |           |       |  |   |           | 74,758  | 
|                                                               | 7.5% Convertible Senior Notes due
2009 (4) |   |                |      |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           | 97,894 |  |   |           | 97,894  | 
|                                                               | Government guaranteed loan (5)             |   |                |      |      |   |         | 85,800 |      |   |         | 85,800 |      |   |         | 85,800 |  |   |         | 85,800 |  |   |           | 85,800 |  |   |           | 429,000 | 
|                                                               | State loan (6)                             |   |                |      |      |   |         | 750    |      |   |         | 250    |      |   |         | 250    |  |   |         | 250    |  |   |           |       |  |   |           | 1,500   | 
|                                                               | 10 3/4% Senior Unsecured Notes due
2005    |   |                |      |      |   |         |       |      |   |         | 49,998 |      |   |         |       |  |   |         |       |  |   |           |       |  |   |           | 49,998  | 
|                                                               | Industrial development bonds (7)           |   |                |      |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           | 29,300 |  |   |           | 29,300  | 
|                                                               | AVSA promissory notes (8)                  |   |                | 7,000 |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           |       |  |   |           | 7,000   | 
|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |        |  |   |           |         | 
|                                                               |                                            |   | 19,116         |       |      |   | 97,127  |        |      |   | 174,353 |        |      |   | 124,355 |        |  |   | 106,991 |        |  |   | 228,077   |        |  |   | 750,019   |        
|Cash aircraft rental payments (9)                              |                                            |   | 328,255        |       |      |   | 304,065 |        |      |   | 286,220 |        |      |   | 262,325 |        |  |   | 248,501 |        |  |   | 1,965,540 |        |  |   | 3,394,906 |        
|Lease payments on equipment and
facility operating leases (10) |                                            |   | 19,499         |       |      |   | 17,682  |        |      |   | 17,251  |        |      |   | 15,485  |        |  |   | 14,125  |        |  |   | 74,218    |        |  |   | 158,260   |        
|Capital lease obligations                                      |                                            |   | 3,882          |       |      |   | 4,278   |        |      |   | 4,298   |        |      |   | 4,655   |        |  |   | 1,685   |        |  |   |          |        |  |   | 18,798    |        
|Special facility revenue bonds (11)                            |                                            |   | 1,362          |       |      |   | 1,362   |        |      |   | 1,362   |        |      |   | 1,362   |        |  |   | 1,362   |        |  |   | 37,469    |        |  |   | 44,279    |        
|Aircraft purchase commitments (12)                             |                                            |   | 87,859         |       |      |   | 82,748  |        |      |   | 84,970  |        |      |   | 224,009 |        |  |   | 264,746 |        |  |   |          |        |  |   | 744,332   |        
|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |        |  |   |           |         | 
|Total                                                          |                                            | $ | 459,973        |       |      | $ | 507,262 |        |      | $ | 568,454 |        |      | $ | 632,191 |        |  | $ | 637,410 |        |  | $ | 2,305,304 |        |  | $ | 5,110,594 |        
|                                                               |                                            |   |                |       |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |        |  |   |           |         | 



---

|(1) |  | Includes approximately $58.1 million of equipment notes with variable
interest rates of 2.75% to 3.0%, averaging 2.94%, installments due 2003
through 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes an unsecured promissory note maturing in June 2003 with a fixed
rate of 10%. In June 2002, AWA restructured the leases for six of its
Boeing 757-200 aircraft to improve lease rental rates and other terms.
Prior to the restructuring, AWA subleased the six aircraft from The Boeing
Company (Boeing), who in turn leased
the aircraft from five different head lessors. Under the restructuring,
AWA terminated the subleases with Boeing and assumed, amended and restated
the existing head leases for each aircraft. Upon closing of the
transactions, AWA paid approximately $11.8 million in security deposits and
advance rental payments to the head lessors, net of a refund from Boeing
for prorated prepaid rent under the subleases, prorated accrued rent under
the head leases and cash deposits for the estimated cost of certain
maintenance work required to be performed on the aircraft prior to their
return to Boeing. As a result of these transactions, Boeing also
relinquished its interest in approximately $11.2 million face value of 7.5%
convertible notes it received as compensation for certain concessions
granted under the restructuring completed on January 18, 2002.
Furthermore, AWA issued a $4.9 million note payable to Boeing for the value
of the concessions realized with respect to these six aircraft prior to the
termination of the subleases, of which approximately $2.5 million was paid
in 2002. The restructured leases have a remaining term of approximately
six years.

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|(3)  |  | Includes a $73.2 million secured term loan maturing at year-end 2007 with
a variable interest rate of 3.69% and $1.6 million of interest payable in
kind through December 31, 2002 at a fixed rate of 2%. Excludes $3.1
million of interest payable in kind through December 2004.                                                                                                                                                                                                                                
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(4)  |  | Includes $91.7 million face value of 7.5% convertible senior notes, due
2009, and $6.2 million of interest payable in kind through December 31,
2002. Excludes $15.5 million of interest payable in kind through December
2004. For financial reporting purposes, we recorded the convertible
senior notes at their fair market value on the date of issuance. As of
December 31, 2002, the balance of the convertible senior notes in the
accompanying consolidated balance sheet is approximately $62.4 million.
|    
|(5)  |  | Government guaranteed loan includes $429.0 million with a variable
interest rate of 2.2% and ratable principal payments due 2004 through
2008. Guarantee fees of approximately 8.0% of the outstanding guaranteed
principal balance in 2003 through 2008 are payable to the U.S. Treasury
Department and other loan participants.                                                                                                                                                                                 
|    
|(6)  |  | Includes Arizona State loan of $1.5 million due December 2007 with a
variable interest rate of 5.29%.                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(7)  |  | Includes $29.3 million of 6.3% industrial development bonds due April
2023.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(8)  |  | Includes AVSA promissory notes of $7.0 million due 2003 with a variable
interest rate of 3.06%.                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(9)  |  | Includes non-cancelable operating leases for 133 aircraft with remaining
terms ranging from three months to approximately 22 years. Management
estimates the debt equivalent value of these operating leases approximates
$2 billion using an interest rate of 10%.                                                                                                                                                                                                                                               
|    
|(10) |  | Includes leases for terminal space, ground facilities, the flight
training center and computer and other equipment under non-cancelable
operating leases.                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) |  | Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(12) |  | Includes commitments to purchase a total of 21 Airbus aircraft and spare
engines for delivery in 2003 through 2007.                                                                                                                                                                                                                                                                                                                                                                                               

We expect to fund these cash obligations from funds provided by
operations, the proceeds of the government guaranteed loan, the financing
commitments for Airbus aircraft obtained in connection with the government
loan, and future financings, if necessary. The cash available to us from these
sources, however, may not be sufficient to cover these cash obligations because
economic factors outside our control may reduce the amount of cash generated by
operations or increase our costs. For instance, a further economic downturn or
other events, including the commencement of hostilities against Iraq, could
reduce the demand for air travel, which would reduce the amount of cash
generated by operations. An increase in borrowing costs, either due to a
reduction in our credit rating or due to a general increase in interest rates,
or in the cost of fuel, maintenance, aircraft and aircraft engines and parts,
could increase our costs, which could decrease the amount of cash available to
cover the cash obligations. In addition, we may be required to prepay portions
of the government guaranteed loan if our employee compensation costs exceed a
certain threshold; we may be required to prepay portions of the term loan to
the extent the value of the collateral securing the term loan decreases; and we
may fail to meet the minimum liquidity threshold required to obtain the entire
amount of financing commitment for two of the Airbus aircraft. In any of these
cases, our liquidity may be adversely affected and we may not have sufficient
cash to prepay the government loan and meet our other obligations. Moreover,
certain of our long-term debt agreements
contain a $100 million minimum cash balance requirement. As a result, we
cannot use all of our available cash to fund operations, capital expenditures
and cash obligations without violating this requirement.

Although there can be no assurances, we believe that cash flow from
operating activities coupled with existing cash balances and financing
commitments will be adequate to fund our operating and capital needs as well as
enable us to maintain compliance with our various debt agreements through at
least December 31, 2003.

Financial Covenants and Credit Rating

In addition to the minimum cash balance requirements, our long-term debt
agreements contain various negative covenants that restrict our actions,
including our ability to pay dividends, together with any other restricted
payments. Moreover, under the terms of the government guaranteed loan, we are
prohibited from paying cash dividends prior to repayment of the loan in full.
Finally, our long-term debt agreements contain cross-default provisions, which
may be triggered by defaults by us under other agreements relating to
indebtedness. As of December 31, 2001, we had suspended payment under certain
aircraft leases and, as a result, had received notices of default from certain
aircraft lessors. In January 2002, we paid in full approximately $81 million in
deferred aircraft lease payments simultaneously with the funding of the $429
million loan supported by a $380 million government loan guarantee, thereby
curing the defaults. See Risk Factors Relating to America West and Industry
Related Risks

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     Our high level of debt and fixed costs limits our ability to
fund general corporate requirements, limits our flexibility in responding to
competitive developments and increases our vulnerability to adverse economic
and industry conditions.As of December 31, 2002, Holdings and AWA were in
compliance with the covenants in their long-term debt agreements

In June 2002, Standard & Poors raised its credit ratings on Holdings to
B- from CCC- and AWA for its senior unsecured debt to CCC from C and removed
them from Credit Watch, where they were placed on September 13, 2001. Ratings
on the various pass-through certificates were also raised. However, the
outlook on the industry and AWA continues to be negative. Moodys currently
rates AWAs senior unsecured debt at Ca. Our relatively low credit ratings may
impair our ability to incur additional indebtedness. The rating agencies base
their ratings on our financial performance and operations, our cash flow and
liquidity, the level of our debt and industry conditions in general. If our
financial performance or industry conditions do not improve, we may face future
downgrades, which could further negatively impact our borrowing costs and the
prices of our equity or debt securities. See Risk Factors Relating to America
West and Industry Related Risks  Because of our relatively low credit ratings,
our borrowing costs may be high and our ability to incur additional debt may be
impaired.

Other Information

Labor Relations

On December 23, 2002, the Company announced that it had reached a
tentative agreement with the Air Line Pilots Association (ALPA) on a new
contract for AWAs pilots. The tentative agreement was subject to a membership
ratification vote in March 2003. On March 18, 2003, ALPA informed the Company
that a majority of AWAs pilots voted against ratification of the tentative
agreement. The Company will resume mediated discussions with ALPA at a date to
be determined by the National Mediation Board (NMB). The Company cannot
predict the outcome of those discussions.

In addition, the Company is in negotiations with the International
Brotherhood of Teamsters (IBT) on a first contract covering the Companys
stock clerks, a work group of approximately 50 employees. The parties are
currently in mediation under the auspices of the NMB. The Company cannot
predict the form of this future collective bargaining agreement and therefore
the effect, if any, on AWAs operations or financial performance.

On August 19, 2002, the IBT filed an Application for Investigation of
Representation Dispute with the NMB, seeking to represent approximately 4,000
passenger service representatives and reservations agents.
An election was conducted and on November 12, 2002, the NMB dismissed the
case, finding that the majority of employees (2,051 of 3,619) chose not to be
represented by a union. Thereafter, the IBT appealed the election results
claiming the Company improperly interfered with the employees voting rights.
The Company vigorously denied any wrongdoing and the matter is currently being
investigated by the NMB. The Company cannot predict the outcome of the
investigation.

Income Taxes

At December 31, 2002, the Company had net operating loss carryforwards
(NOL), business tax credit carryforwards and alternative minimum tax credit
carryforwards for federal income tax purposes of approximately $399.6 million,
$1.9 million and $1.2 million, respectively. The NOL expire during the years
2007 through 2009 while the business credit carryforwards expire during the
years 2003 through 2006. However, such carryforwards are not available to
offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory ownership change (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of the Companys reorganization in 1994, the Companys ability to
utilize its NOL and business tax credit carryforwards may be restricted. The
alternative minimum tax credit may be carried forward without expiration and is
available to offset future income tax payable to the extent regular income tax
exceeds alternative minimum tax in any given year.

The Companys reorganization and the associated implementation of fresh
start reporting in 1994 gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax
expense (benefit) rate for financial reporting purposes that differs from the
current federal statutory income tax rate of 35% for the years ended December
31, 2001 and 2000.

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Government Regulations

On November 19, 2001, the President signed into law the Aviation and
Transportation Security Act (the ATSA). This law enhances aviation security
measures and federalizes many aspects of civil aviation security. ATSA
established a new Transportation Security Administration within the Department
of Transportation. Under the ATSA, all security screeners at airports will be
federal employees and a significant number of other airport security functions
will be overseen and performed by federal employees, including federal security
managers, federal law enforcement officers and federal air marshals. The ATSA
mandated that beginning on January 18, 2002, all checked baggage at United
States airports be screened using explosive detection systems, or, where such
systems are not yet available, using other screening techniques such as
positively matching baggage to a passenger who has boarded an aircraft. The
ATSA requires all checked baggage to be screened by explosive detection systems
by December 31, 2003. Other requirements in the ATSA that directly affect
airline operations include: the strengthening of cockpit doors; deploying
federal air marshals on board certain flights; improving airline crew security
training; and expanding use of criminal background checks of employees.
Implementation of these and other requirements of the ATSA will result in
increased costs for air carriers and may result in delays and disruptions to
air travel. Under the ATSA, funding for the new federal security system is to
be provided by a $2.50 per enplanement ticket tax, not to exceed $5.00 per
one-way trip, and by imposing additional direct fees on air carriers. Pursuant
to the ATSA, air carriers began collecting the new ticket tax from passengers
on February 1, 2002 and have been required to make additional payments to the
Transportation Security Administration. The total estimated cost to the
Company of compliance with the security requirements of the ATSA for 2003 is
approximately $16.6 million. As a result of competitive pressure, AWA and
other airlines may be unable to recover all of these additional security costs
from passengers through increased fares. In addition, we cannot forecast what
new security and safety requirements may be imposed in the future or the costs
or financial impact of complying with any such requirements.

In 1997, new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration (FAA). Included in
the new law is a phase-in of a modified federal air
transportation excise tax structure with a system that includes: a
domestic excise tax which started at 9% and declined to 7.5% in 1999; a
domestic segment tax that started at $1.00 and increases to $3.00 by 2003; and
an increase in taxes imposed on international travel from $6.00 per
international departure to an arrival and departure tax of $12.00 (each way).
Both the domestic segment tax and the international arrival and departure tax
are indexed for inflation. The legislation also included a 7.5% excise tax on
certain amounts paid to an air carrier for the right to provide mileage and
similar awards (e.g., purchase of frequent flyer miles by a credit card
company). As a result of competitive pressures, AWA and other airlines have
been limited in their ability to pass on the cost of these taxes to passengers
through fare increases.

Congress will be reviewing FAA funding in 2003 which may result in changes
to the current funding mechanisms. AWA cannot currently estimate the effect
any new combination of ticket and segment taxes, or any change in those taxes
will have on its operating results. There can be no assurance that any changes
will not have a material adverse effect on AWAs financial condition and
results of operations.

For additional information on government regulation and its effect on the
Company see Government Regulationsin Item 1, Business.

Related Party Transactions

As part of our reorganization in 1994, Continental Airlines and AWA
entered into an alliance agreement which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks   The stockholders who effectively control the voting
power of Holdings could take actions that would favor their own personal
interests to the detriment of our interests.AWA paid Continental
approximately $25.5 million, $30.1 million and $32.4 million and also received
approximately $15.9 million, $22.0 million and $25.5 million in 2002, 2001 and
2000, respectively, from Continental pursuant to these agreements.

AWA provides air transportation and certain administrative services to The
Leisure Company, a wholly owned subsidiary of Holdings that was formed on
January 1, 1998. The cost of air transportation and administrative services
are negotiated on an arms length basis. AWA had net air transportation sales
to TLC of $44.5 million, $60.2 million and $55.3 million, respectively, in
2002, 2001 and 2000 and also received $1.3 million in each of

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those years under
the services agreement.

Critical Accounting Policies

The preparation of our consolidated financial statements in accordance
with generally accepted accounting principles requires that we make certain
estimates and assumptions that affect the reported amount of assets and
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities at the date of our financial statements. We believe our estimates
and assumptions are reasonable; however, actual results could differ from those
estimates. We have identified the following critical accounting policies that
require the use of significant judgments and estimates relating to matters that
are inherently uncertain and may result in materially different results under
different assumptions and conditions.



| |  |  | Passenger Revenue  Passenger revenue is recognized when
transportation is provided. Ticket sales for transportation that has
not yet been provided are recorded as air traffic liability. Passenger
traffic commissions and related fees are expensed when the related
revenue is recognized. Passenger traffic commissions and related fees
not yet recognized are included as a prepaid expense. Due to complex
pricing structures, refund and exchange policies, and interline
agreements with other airlines, certain amounts are recognized in
revenue using estimates regarding both the timing of the revenue
recognition and the amount of revenue to be recognized. These estimates
are generally based on the statistical analysis of our historical data.
Any adjustments
resulting from periodic evaluations of the estimated air traffic liability
are included in results of operations during the period in which the
evaluations are completed.                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounting For Long-Lived Assets  Owned property and equipment are
recorded at cost and depreciated to residual values over the estimated
useful lives using the straight-line method. 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. Interest on advance payments for aircraft
acquisitions and on expenditures for aircraft improvements is
capitalized and added to the cost of the asset. The estimated useful
lives of our owned aircraft, jet engines, flight equipment and rotable
parts range from five to 30 years. The estimated useful lives of our
technical support facility and flight training center in Phoenix,
Arizona are 22 years and 30 years, respectively. The estimated useful
lives of our ground property and equipment range from three to 12 years.
We test for impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired
as defined by SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets.An impairment loss is recognized if the carrying
amount of the asset is not recoverable from its undiscounted cash flows
and is measured as the difference between the carrying amount and fair
value of the asset.
|
| |  |  | Frequent Flyer Accounting  We maintain 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 is recognized as a liability and charged to
operations as program members accumulate mileage. Travel awards are
valued at the incremental cost of carrying one passenger, based on
expected redemptions. Incremental costs are based on expectations of
expenses to be incurred on a per passenger basis and include fuel,
liability insurance, food, beverages, supplies and ticketing costs. We
also sell mileage credits to companies participating in our FlightFund
program, such as hotels, car rental agencies and credit card companies.
Transportation-related revenue from the sale of mileage credits is
deferred and recognized when transportation is provided. A change to
the estimated cost per mile, minimum award level, percentage of revenue
to be deferred or deferred recognition period could have a significant
impact on our revenues or mileage liability accrual in the year of the
change as well as future years.                                                                                                                                                                                                       
|
| |  |  | Long-Term Maintenance Reserve  We record an accrual for the
estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft upon their return to the lessors. These
estimates are based on historical costs and our assumptions regarding
the renewal of aircraft leases. A significant change to the Airlines
fleet plan could have a material impact on our reserve requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Recently Issued Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections as of April 2002. This
standard rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment
of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements and excludes extraordinary item
treatment for gains and losses associated with the extinguishment of debt that
do not meet the Accounting Principles Board (APB) Opinion No. 30, Reporting
the Results of Operations  Reporting

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the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions criteria. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB No. 30 for classification as an extraordinary item
shall be reclassified. SFAS No. 145 also amends SFAS No. 13, Accounting for
Leases, as well as other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. AWA adopted SFAS No. 145 effective January 1, 2002 with no
material impact on its financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This standard addresses
financial accounting and reporting for costs associated with exit or disposal
activities and replaces Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring.) SFAS No. 146 requires that a liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF No. 94-3, a liability for exit costs, as defined in EITF No. 94-3,
was recognized at the date of an entitys commitment to an exit plan. The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated by AWA after December 31, 2002. In February 2003, AWA announced
that it will eliminate hub operations in Columbus, Ohio. In accordance with
SFAS No. 146, AWA expects to record pretax special charges of approximately $10
to $15 million. See Note 21, Subsequent Event  Elimination of Hub Operations
in Columbus, Ohioin Notes to Consolidated Financial Statements.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN No. 45
also expands the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial recognition
and measurement provisions of FIN No. 45 are applicable on a prospective basis
to guarantees issued or modified. The disclosure requirements are effective
immediately. While the Company has various indemnity obligations
included in contracts entered into in the normal course of business,
these obligations are primarily in the form of indemnities that could
result in immaterial increases of future costs, but do not represent
significant commitments or contingent liabilities of the indebtedness
of others. As a result, the Company does not expect FIN No. 45 to have a material effect
on its financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of SFAS No.
123.SFAS No. 148 amended SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation. In addition, SFAS No. 148 amends APB Opinion No. 28,
Interim Financial Reporting,to require disclosure about those effects in
interim financial information. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002, including certain
amendments to required disclosures related to stock-based compensation included
in condensed financial statements for interim periods beginning after December
15, 2002. The Company has complied with the required disclosure items in SFAS
No. 148, and is still evaluating changing to the fair value based method of
accounting for stock-based employee compensation.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities.FIN No. 46 requires that companies that control another
entity through interests other than voting interests should consolidate the
controlled entity. FIN No. 46 applies to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. The related disclosure
requirements are effective immediately. The Company has evaluated the
provisions of FIN 46 and does not believe it to be reasonably possible that
adoption would have a material effect on its financial condition and results of
operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

(a) Commodity Price Risk

Aircraft fuel costs accounted for approximately 14% of the Companys total
operating expenses during 2002. At current consumption levels, a one-cent per
gallon change in the price of jet fuel would affect the Companys annual
operating results in 2003 by approximately $4.4 million. Accordingly, a
substantial change in the price of jet fuel would have a significant impact on
the Companys results of operations.

In 1996, AWA implemented a fuel hedging program to manage the risk from
fluctuating jet fuel prices. The programs objectives are to provide some
protection against extreme, upward movements in the price of jet fuel and to
protect AWAs ability to meet its annual fuel expense budget. Under the
program, AWA may enter into certain hedging transactions with approved
counterparties for future periods generally not exceeding 12 months.

As of December 31, 2002, the Company had entered into costless collar
transactions which establish an upper and lower limit on heating oil futures
prices. These transactions are in place with respect to approximately 40% of
projected 2003 fuel requirements, including 63% related to the first quarter of
2003. In order to execute additional hedging transactions, we anticipate that
we will have to provide cash collateral or other credit support, which we may
not be able to provide in a cost-effective manner. See Risk Factors Relating
to America West and Industry Related Risks  Fluctuations in fuel costs could
adversely affect our operating expenses and results.

The use of such hedging transactions in the Companys fuel hedging program
could result in the Company not fully benefiting from certain declines in
heating oil futures prices. At December 31, 2002, the Company estimates that a
10% increase in heating oil futures prices would increase the fair value of the
costless collar transactions by approximately $4.7 million. The Company
estimates that a 10% decrease in heating oil futures prices would decrease the
fair value of the costless collar transactions by approximately $1.7 million.

As of March 31, 2003, approximately 40% of AWAs 2003 projected fuel
requirements are hedged.

(b) Interest Rate Risk

The Companys exposure to interest rate risk relates primarily to its
variable rate long-term debt obligations. At December 31, 2002, the Companys
variable-rate long-term debt obligations of approximately $554 million
represented approximately 78% of its total long-term debt. If interest rates
increased 10% in 2003, the impact on the Companys results of operations would
not be material.




ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  AMERICA
WEST HOLDINGS CORPORATION

Consolidated balance sheets of Holdings as of December 31, 2002 and 2001,
and the related consolidated statements of operations, of cash flows and of
stockholders equity and comprehensive income (loss) for each of the years in
the three-year period ended December 31, 2002, together with the related notes
and the reports of PricewaterhouseCoopers LLP, independent accountants, and
KPMG LLP, independent auditors, are set forth on the following pages.

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REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
of America West Holdings Corporation:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders equity and comprehensive income (loss) present fairly, in all
material respects, the financial position of America West Holdings Corporation
at December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As more
fully described in Note 2, the Company has restated its financial
statements for the year ended December 31, 2001 to reflect impairment
charges on long-lived assets.

As discussed in Note 3 to the consolidated
financial statements, the Company changed its method of accounting for
reorganization value in excess of amounts allocable to identifiable assets in
connection with the adoption of Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets,effective January 1, 2002.

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
America West Holdings Corporation:

We have audited the accompanying consolidated statements of operations,
cash flows and stockholders equity and comprehensive income (loss) for the
year ended December 31, 2000. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of America West Holdings Corporation and subsidiaries for the year ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.

KPMG LLP
Phoenix, Arizona
March 28, 2001

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AMERICA WEST HOLDINGS CORPORATION

Consolidated Balance Sheets
December 31, 2002 and 2001
(in thousands except share data)

|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |               |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | -------- | ------- | ------- | --------- | --------- | ------------- | ------- | 
|                                           |                                                                                                                                                     |                           |                            |          | 2002    |         | 2001     
|                                           |                                                                                                                                                     |                           |                            |          |         |         |          
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           | (as restated)
|Assets                                     |                                                                                                                                                     |                           |                            |          |         |         |           |          
|Current assets:                            |                                                                                                                                                     |                           |                            |          |         |         |           |          
|                                           | Cash and cash equivalents                                                                                                                           |                           | $                          | 335,750  |         |         | $         | 156,865   |              
|                                           | Short-term investments                                                                                                                              |                           |                            | 24,738   |         |         |           |          |              
|                                           | Accounts receivable, less allowance for doubtful accounts of
$6,767 in 2002 and $3,216 in 2001                                                      |                           |                            | 82,197   |         |         |           | 109,012   |              
|                                           | Expendable spare parts and supplies, less allowance for obsolescence
of $9,261 in 2002 and $7,249 in 2001                                           |                           |                            | 55,894   |         |         |           | 51,833    |              
|                                           | Prepaid expenses                                                                                                                                    |                           |                            | 108,819  |         |         |           | 43,688    |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           | Total current assets       |          |         | 607,398 |           |           |               | 361,398 | 
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|Property and equipment:                    |                                                                                                                                                     |                           |                            |          |         |         |           |          
|                                           | Flight equipment                                                                                                                                    |                           |                            | 880,446  |         |         |           | 1,043,424 |              
|                                           | Other property and equipment                                                                                                                        |                           |                            | 274,329  |         |         |           | 258,400   |              
|                                           | Equipment purchase deposits                                                                                                                         |                           |                            | 46,050   |         |         |           | 49,650    |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           | 1,200,825                  |          |         |         | 1,351,474 |          
|                                           | Less accumulated depreciation and amortization                                                                                                      |                           |                            | 551,065  |         |         |           | 564,796   |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           | 649,760                    |          |         |         | 786,678   |          
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|Other assets:                              |                                                                                                                                                     |                           |                            |          |         |         |           |          
|                                           | Restricted cash                                                                                                                                     |                           |                            | 45,968   |         |         |           | 54,546    |              
|                                           | Reorganization value in excess of amounts allocable to identifiable assets, net                                                                     |                           |                            |         |         |         |           | 208,223   |              
|                                           | Other assets, net                                                                                                                                   |                           |                            | 135,827  |         |         |           | 58,373    |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           | 181,795                    |          |         |         | 321,142   |          
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     | $                         | 1,438,953                  |          |         | $       | 1,469,218 |          
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|Liabilities and Stockholders Equity       |                                                                                                                                                     |                           |                            |          |         |         |           |          
|Current liabilities:                       |                                                                                                                                                     |                           |                            |          |         |         |           |          
|                                           | Current maturities of long-term debt                                                                                                                |                           | $                          | 19,116   |         |         | $         | 119,141   |              
|                                           | Current obligations under capital leases                                                                                                            |                           |                            | 3,122    |         |         |           |          |              
|                                           | Accounts payable                                                                                                                                    |                           |                            | 183,304  |         |         |           | 253,318   |              
|                                           | Air traffic liability                                                                                                                               |                           |                            | 192,450  |         |         |           | 187,714   |              
|                                           | Accrued compensation and vacation benefits                                                                                                          |                           |                            | 39,076   |         |         |           | 41,470    |              
|                                           | Accrued taxes                                                                                                                                       |                           |                            | 35,159   |         |         |           | 59,240    |              
|                                           | Other accrued liabilities                                                                                                                           |                           |                            | 38,607   |         |         |           | 29,643    |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     | Total current liabilities |                            |          | 510,834 |         |           |           | 690,526       |        
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|Long-term debt, less current maturities    |                                                                                                                                                     |                           | 700,983                    |          |         |         | 224,550   |          
|Capital leases, less current obligations   |                                                                                                                                                     |                           | 11,999                     |          |         |         |          |          
|Deferred credits and other liabilities     |                                                                                                                                                     |                           | 146,959                    |          |         |         | 133,779   |          
|Commitments
and contingencies (see Note 8) |                                                                                                                                                     |                           |                            |          |         |         |           |          
|Stockholders equity:                      |                                                                                                                                                     |                           |                            |          |         |         |           |          
|                                           | Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued                                                                     |                           |                            |         |         |         |           |          |              
|                                           | Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 941,431 shares at December 31, 2002 and December 31, 2001 |                           |                            | 9        |         |         |           | 9         |              
|                                           | Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued
and outstanding 49,055,180 shares in 2002 and 49,070,346 shares in 2001 |                           |                            | 491      |         |         |           | 491       |              
|                                           | Additional paid-in capital                                                                                                                          |                           |                            | 628,868  |         |         |           | 593,784   |              
|                                           | Retained earnings (deficit)                                                                                                                         |                           |                            | (257,014 | )       |         |           | 130,895   |              
|                                           | Accumulated other comprehensive income                                                                                                              |                           |                            | 2,030    |         |         |           | 1,390     |              
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           |                            | 374,384  |         |         |           | 726,569   |              
|                                           | Less: Cost of Class B common stock in treasury,
16,283,895 shares in 2002 and 2001                                                                  |                           |                            | (306,206 | )       |         |           | (306,206  | )            
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     |                           | Total stockholders equity |          |         | 68,178  |           |           |               | 420,363 | 
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              
|                                           |                                                                                                                                                     | $                         | 1,438,953                  |          |         | $       | 1,469,218 |          
|                                           |                                                                                                                                                     |                           |                            |          |         |         |           |           |              

See accompanying notes to consolidated financial statements.

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AMERICA WEST HOLDINGS CORPORATION

Consolidated Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands except per share data)

|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | -------- | ------------- | --------- | ---- | -------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                                                    |                                                                                            |                                                                            |          | 2002          |           | 2001 |          | 2000     
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |          
|                                                                                                    |                                                                                            |                                                                            |          | (as restated)
|Operating revenues:                                                                                 |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    | Passenger                                                                                  |                                                                            | $        | 1,929,444     |           |      | $        | 1,941,877 |           |   | $       | 2,179,811 |          
|                                                                                                    | Cargo                                                                                      |                                                                            |          | 27,574        |           |      |          | 33,824    |           |   |         | 37,377    |          
|                                                                                                    | Other                                                                                      |                                                                            |          | 90,098        |           |      |          | 90,212    |           |   |         | 127,166   |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Total operating revenues                                                   |          |               | 2,047,116 |      |          |           | 2,065,913 |   |         |           | 2,344,354 | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Operating expenses:                                                                                 |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    | Salaries and related costs                                                                 |                                                                            |          | 596,645       |           |      |          | 603,819   |           |   |         | 559,578   |          
|                                                                                                    | Aircraft rents                                                                             |                                                                            |          | 295,016       |           |      |          | 355,517   |           |   |         | 331,005   |          
|                                                                                                    | Other rents and landing fees                                                               |                                                                            |          | 158,290       |           |      |          | 140,372   |           |   |         | 130,680   |          
|                                                                                                    | Aircraft fuel                                                                              |                                                                            |          | 299,940       |           |      |          | 343,224   |           |   |         | 373,313   |          
|                                                                                                    | Agency commissions                                                                         |                                                                            |          | 38,896        |           |      |          | 75,085    |           |   |         | 86,469    |          
|                                                                                                    | Aircraft maintenance materials and repairs                                                 |                                                                            |          | 252,691       |           |      |          | 257,939   |           |   |         | 258,432   |          
|                                                                                                    | Depreciation and amortization                                                              |                                                                            |          | 73,898        |           |      |          | 63,178    |           |   |         | 54,313    |          
|                                                                                                    | Amortization of reorganization value in excess of amounts
allocable to identifiable assets |                                                                            |          |              |           |      |          | 19,896    |           |   |         | 19,896    |          
|                                                                                                    | Special charges                                                                            |                                                                            |          | 19,030        |           |      |          | 141,638   |           |   |         |          |          
|                                                                                                    | Other                                                                                      |                                                                            |          | 472,790       |           |      |          | 483,116   |           |   |         | 543,305   |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Total operating expenses                                                   |          |               | 2,207,196 |      |          |           | 2,483,784 |   |         |           | 2,356,991 | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Operating loss                                                                                      |                                                                                            |                                                                            | (160,080 | )             |           |      | (417,871 | )         |           |   | (12,637 | )        
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Nonoperating income (expenses):                                                                     |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    | Interest income                                                                            |                                                                            |          | 10,549        |           |      |          | 14,785    |           |   |         | 15,980    |          
|                                                                                                    | Interest expense, net                                                                      |                                                                            |          | (72,442       | )         |      |          | (26,349   | )         |   |         | (15,449   | )        
|                                                                                                    | Federal government assistance                                                              |                                                                            |          | 8,466         |           |      |          | 108,246   |           |   |         |          |          
|                                                                                                    | Loss on disposition of property and equipment                                              |                                                                            |          | (1,852        | )         |      |          | (3,000    | )         |   |         | (2,332    | )        
|                                                                                                    | Gain on sale of investments                                                                |                                                                            |          |              |           |      |          |          |           |   |         | 36,417    |          
|                                                                                                    | Other, net                                                                                 |                                                                            |          | 602           |           |      |          | (198      | )         |   |         | 2,764     |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Total nonoperating income (expenses), net                                  |          |               | (54,677   | )    |          |           | 93,484    |   |         |           | 37,380    | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Income (loss) before income taxes (benefit) and cumulative effect
of change in accounting principle |                                                                                            |                                                                            | (214,757 | )             |           |      | (324,387 | )         |           |   | 24,743  |          
|Income taxes (benefit)                                                                              |                                                                                            |                                                                            | (35,071  | )             |           |      | (74,536  | )         |           |   | 17,064  |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Income (loss) before cumulative effect of change in
accounting principle                            |                                                                                            |                                                                            | (179,686 | )             |           |      | (249,851 | )         |           |   | 7,679   |          
|Cumulative effect of change in accounting principle                                                 |                                                                                            |                                                                            | (208,223 | )             |           |      |         |           |           |   |        |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Net income (loss)                                                                                   |                                                                                            | $                                                                          | (387,909 | )             |           | $    | (249,851 | )         |           | $ | 7,679   |          
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Basic earnings (loss) per share:                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    |                                                                                            | Earnings (loss) before cumulative effect of change in
accounting principle |          | $             | (5.33     | )    |          | $         | (7.42     | ) |         | $         | 0.22      | 
|                                                                                                    |                                                                                            | Cumulative effect of change in accounting principle                        |          |               | (6.17     | )    |          |           |          |   |         |           |          | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Basic earnings (loss) per share                                            |          | $             | (11.50    | )    |          | $         | (7.42     | ) |         | $         | 0.22      | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Diluted earnings (loss) per share:                                                                  |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    |                                                                                            | Earnings (loss) before cumulative effect of change in
accounting principle |          | $             | (5.33     | )    |          | $         | (7.42     | ) |         | $         | 0.22      | 
|                                                                                                    |                                                                                            | Cumulative effect of change in accounting principle                        |          |               | (6.17     | )    |          |           |          |   |         |           |          | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Diluted earnings (loss) per share                                          |          | $             | (11.50    | )    |          | $         | (7.42     | ) |         | $         | 0.22      | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|Shares used for computation:                                                                        |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |          
|                                                                                                    |                                                                                            | Basic                                                                      |          |               | 33,723    |      |          |           | 33,670    |   |         |           | 35,139    | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          
|                                                                                                    |                                                                                            | Diluted                                                                    |          |               | 33,723    |      |          |           | 33,670    |   |         |           | 35,688    | 
|                                                                                                    |                                                                                            |                                                                            |          |               |           |      |          |           |           |   |         |           |          

See accompanying notes to consolidated financial statements.

41



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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |          |          |  
|------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------- | --------------------------------------------------- | ----------------------------------------------------------------- | -------- | ------------- | ------- | ------- | -------- | -------- | -------- | ------- | ----- | -------- | -------- | -
|                                      |                                                                                                    |                   |                                                     |                                                                   |          | 2002          |         | 2001    |          | 2000    
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |         
|                                      |                                                                                                    |                   |                                                     |                                                                   |          | (as restated)
|Cash flows from operating activities: |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |        
|                                      |                                                                                                    | Net income (loss) |                                                     |                                                                   | (387,909 | )             |         | $       | (249,851 | )        |          | $       | 7,679 |         
|                                      | Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |      
|                                      |                                                                                                    |                   |                                                     | Cumulative effect of change in accounting principle               |          |               | 208,223 |         |          |          |         |         |       |          |         |  
|                                      |                                                                                                    |                   |                                                     | Depreciation and amortization                                     |          |               | 75,894  |         |          |          | 64,573   |         |       |          | 56,881   |  
|                                      |                                                                                                    |                   |                                                     | Amortization of capitalized maintenance                           |          |               | 111,576 |         |          |          | 116,809  |         |       |          | 121,031  |  
|                                      |                                                                                                    |                   |                                                     | Amortization of excess reorganization value                       |          |               |        |         |          |          | 21,497   |         |       |          | 21,496   |  
|                                      |                                                                                                    |                   |                                                     | Amortization of deferred credits                                  |          |               | (10,077 | )       |          |          | (6,928   | )       |       |          | (9,272   | )
|                                      |                                                                                                    |                   |                                                     | Amortization of deferred rent                                     |          |               | 11,452  |         |          |          |         |         |       |          |         |  
|                                      |                                                                                                    |                   |                                                     | Amortization of warrants                                          |          |               | 7,708   |         |          |          |         |         |       |          |         |  
|                                      |                                                                                                    |                   |                                                     | Amortization of debt issue costs                                  |          |               | 24,978  |         |          |          | 1,631    |         |       |          | 934      |  
|                                      |                                                                                                    |                   |                                                     | Amortization of bond discount                                     |          |               | 2,894   |         |          |          |         |         |       |          |         |  
|                                      |                                                                                                    |                   |                                                     | Loss (gain) on sale of subsidiaries                               |          |               |        |         |          |          | 2,257    |         |       |          | (11,125  | )
|                                      |                                                                                                    |                   |                                                     | Special charges                                                   |          |               | 19,055  |         |          |          | 77,604   |         |       |          |         |  
|                                      |                                                                                                    |                   |                                                     | Other                                                             |          |               | 16,746  |         |          |          | 5,218    |         |       |          | 4,779    |  
|                                      | Changes in operating assets and liabilities:                                                       |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |      
|                                      |                                                                                                    |                   |                                                     | Decrease (increase) in accounts receivable, net                   |          |               | 21,445  |         |          |          | 43,516   |         |       |          | (36,622  | )
|                                      |                                                                                                    |                   |                                                     | Decrease (increase) in expendable spare parts and supplies, net   |          |               | (4,061  | )       |          |          | (9,990   | )       |       |          | 7,484    |  
|                                      |                                                                                                    |                   |                                                     | Increase in prepaid expenses                                      |          |               | (64,726 | )       |          |          | (5,279   | )       |       |          | (2,596   | )
|                                      |                                                                                                    |                   |                                                     | Decrease (increase) in other assets, net                          |          |               | 5,634   |         |          |          | (42,744  | )       |       |          | 8,879    |  
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in accounts payable                           |          |               | (71,488 | )       |          |          | 73,178   |         |       |          | 9,926    |  
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in air traffic liability                      |          |               | 4,734   |         |          |          | (21,154  | )       |       |          | 16,216   |  
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in accrued compensation and vacation benefits |          |               | (3,050  | )       |          |          | 5,373    |         |       |          | (13,795  | )
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in accrued taxes                              |          |               | (24,647 | )       |          |          | 23       |         |       |          | 4,974    |  
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in other accrued liabilities                  |          |               | 16,720  |         |          |          | (6,345   | )       |       |          | (152     | )
|                                      |                                                                                                    |                   |                                                     | Increase (decrease) in other liabilities                          |          |               | 16,022  |         |          |          | (2,512   | )       |       |          | 3,425    |  
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      |                                                                                                    |                   |                                                     | Net cash provided by (used in) operating activities               |          |               | (22,877 | )       |          |          | 152,364  |         |       |          | 190,142  |  
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      | Cash flows from investing activities:                                                              |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |      
|                                      |                                                                                                    |                   | Purchases of property and equipment                 |                                                                   |          | (157,202      | )       |         |          | (633,246 | )        |         |       | (255,417 | )       
|                                      |                                                                                                    |                   | Purchases of short-term investments                 |                                                                   |          | (69,987       | )       |         |          | (45,863  | )        |         |       | (70,020  | )       
|                                      |                                                                                                    |                   | Sales of short-term investments                     |                                                                   |          | 45,249        |         |         |          | 96,549   |          |         |       | 34,951   |         
|                                      |                                                                                                    |                   | Proceeds from sales of aircraft                     |                                                                   |          | 175,478       |         |         |          | 332,800  |          |         |       |         |         
|                                      |                                                                                                    |                   | Proceeds from sales of other property and equipment |                                                                   |          | 122           |         |         |          | 28,900   |          |         |       | 38,611   |         
|                                      |                                                                                                    |                   | Net proceeds from sale of subsidiaries              |                                                                   |          |              |         |         |          |         |          |         |       | 44,530   |         
|                                      |                                                                                                    |                   | Equipment purchase deposits and other               |                                                                   |          |              |         |         |          | 14,900   |          |         |       | 3,182    |         
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      |                                                                                                    |                   |                                                     | Net cash used in investing activities                             |          |               | (6,340  | )       |          |          | (205,960 | )       |       |          | (204,163 | )
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      | Cash flows from financing activities:                                                              |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |      
|                                      |                                                                                                    |                   | Proceeds from issuance of debt                      |                                                                   |          | 435,386       |         |         |          | 423,422  |          |         |       | 143,310  |         
|                                      |                                                                                                    |                   | Repayment of debt                                   |                                                                   |          | (192,596      | )       |         |          | (357,723 | )        |         |       | (42,159  | )       
|                                      |                                                                                                    |                   | Payment of debt issue cost                          |                                                                   |          | (36,987       | )       |         |          |         |          |         |       |         |         
|                                      |                                                                                                    |                   | Acquisition of treasury stock                       |                                                                   |          |              |         |         |          |         |          |         |       | (60,653  | )       
|                                      |                                                                                                    |                   | Other                                               |                                                                   |          | 2,299         |         |         |          | 624      |          |         |       | 5,487    |         
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      |                                                                                                    |                   |                                                     | Net cash provided by financing activities                         |          |               | 208,102 |         |          |          | 66,323   |         |       |          | 45,985   |  
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      | Net increase in cash and cash equivalents                                                          |                   |                                                     | 178,885                                                           |          |               |         | 12,727  |          |          |          | 31,964  |      
|                                      | Cash and cash equivalents at beginning of year                                                     |                   |                                                     | 156,865                                                           |          |               |         | 144,138 |          |          |          | 112,174 |      
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      | Cash and cash equivalents at end of year                                                           |                   | $                                                   | 335,750                                                           |          |               | $       | 156,865 |          |          | $        | 144,138 |      
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         
|                                      | Cash, cash equivalents and short-term investments at end of year                                   |                   | $                                                   | 360,488                                                           |          |               | $       | 156,865 |          |          | $        | 194,824 |      
|                                      |                                                                                                    |                   |                                                     |                                                                   |          |               |         |         |          |          |          |         |       |         

See accompanying notes to consolidated financial statements.

42



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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands except share data)

|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |       |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -- | ------- | - | ------- | --- | ---------- | - | --------- | ------- | ------------- | - | -------- | -------- | ----- | - | - | ------ | ----------- | ------ | - | -------- | - | - | - | -------- | ----- | ------ | -
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        | ACCUMULATED |        |   |          |   |   |   |          |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    | CLASS A |   | CLASS B |     | ADDITIONAL |   | RETAINED  |         | OTHER         |   | CLASS B  |          |       |   |  
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    | COMMON  |   | COMMON  |     | PAID-IN    |   | EARNINGS/ |         | COMPREHENSIVE |   | TREASURY |          |       |   |  
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    | STOCK   |   | STOCK   |     | CAPITAL    |   | (DEFICIT) |         | INCOME (LOSS) |   | STOCK    |          | TOTAL
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |      
|Balance at December 31, 1999                                                                                                                                                                                      |                                                                                   | $                                                                                 | 11 |         |   | $       | 486 |            |   | $         | 599,078 |               |   | $        | 373,067  |       |   | $ |       |             |        | $ | (258,473 | ) |   | $ | 714,169  |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Net income                                                                                                                                                                                                        |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | 7,679    |       |   |   |       |             |        |   |         |   |   |   | 7,679    |      
|Other comprehensive income (loss):                                                                                                                                                                                |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|                                                                                                                                                                                                                  |                                                                                   | Adjustment to unrealized gain (loss)
on available-for-sale securities,
net of tax |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             | (1,108 | ) |          |   |  |   |          |       | (1,108 | )
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Total comprehensive income (loss)                                                                                                                                                                                 |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | 7,679    |       |   |   | (1,108 | )           |        |   |         |   |   |   | 6,571    |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Cancellation of 1,930 shares and
issuance of 442,010 shares of
Class B common stock pursuant
to the exercise of stock warrants
and stock options including tax
benefit from the exercise of stock
options of $593 |                                                                                   |                                                                                   |   |         |   |         | 4   |            |   |           | 6,281   |               |   |          |         |       |   |   |       |             |        |   |         |   |   |   | 6,285    |      
|Cancellation of 10,740 shares of
Class B common stock issued
as restricted stock                                                                                                                                  |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (331    | )             |   |          |         |       |   |   |       |             |        |   |         |   |   |   | (331     | )    
|Acquisition of 2,999,100 shares of
Class B treasury stock                                                                                                                                                         |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          |         |       |   |   |       |             |        |   | (49,825  | ) |   |   | (49,825  | )    
|Issuance of 50,000 shares of
Class B treasury stock                                                                                                                                                               |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (26     | )             |   |          |         |       |   |   |       |             |        |   | 1,057    |   |   |   | 1,031    |      
|Acquisition and retirement of
158,569 shares of Class A
common stock                                                                                                                                              |                                                                                   |                                                                                   | (2 | )       |   |         |    |            |   |           | (10,825 | )             |   |          |         |       |   |   |       |             |        |   |         |   |   |   | (10,827  | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Balance at December 31, 2000                                                                                                                                                                                      |                                                                                   |                                                                                   | 9  |         |   |         | 490 |            |   |           | 594,177 |               |   |          | 380,746  |       |   |   | (1,108 | )           |        |   | (307,241 | ) |   |   | 667,073  |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Net loss (a)                                                                                                                                                                                                      |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | (249,851 | )     |   |   |       |             |        |   |         |   |   |   | (249,851 | )    
|Other comprehensive income (loss):                                                                                                                                                                                |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|                                                                                                                                                                                                                  | Changes in the fair value of
derivative financial instruments,
net of tax         |                                                                                   |    |        |   |         |     |           |   |           |         |              |   |          |          |      |   |   |        | 1,390       |        |   |          |  |   |   |          | 1,390 |       
|                                                                                                                                                                                                                  | Adjustment to unrealized gain (loss)
on available-for-sale securities,
net of tax |                                                                                   |    |        |   |         |     |           |   |           |         |              |   |          |          |      |   |   |        | 1,108       |        |   |          |  |   |   |          | 1,108 |       
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Total comprehensive income (loss) (a)                                                                                                                                                                             |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | (249,851 | )     |   |   | 2,498  |             |        |   |         |   |   |   | (247,353 | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Issuance of 93,334 shares of Class B
common stock pursuant to the
exercise of stock options including
tax benefit from the exercise of
stock options of $8                                                        |                                                                                   |                                                                                   |   |         |   |         | 1   |            |   |           | 948     |               |   |          |         |       |   |   |       |             |        |   |         |   |   |   | 949      |      
|Cancellation of 14,244 shares of
Class B common stock issued
as restricted stock                                                                                                                                  |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (410    | )             |   |          |         |       |   |   |       |             |        |   |         |   |   |   | (410     | )    
|Issuance of 50,000 shares of Class B
treasury stock                                                                                                                                                               |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (606    | )             |   |          |         |       |   |   |       |             |        |   | 1,035    |   |   |   | 429      |      
|Other                                                                                                                                                                                                             |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (325    | )             |   |          |         |       |   |   |       |             |        |   |         |   |   |   | (325     | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Balance at December 31, 2001 (a)                                                                                                                                                                                  |                                                                                   |                                                                                   | 9  |         |   |         | 491 |            |   |           | 593,784 |               |   |          | 130,895  |       |   |   | 1,390  |             |        |   | (306,206 | ) |   |   | 420,363  |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Net loss                                                                                                                                                                                                          |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | (387,909 | )     |   |   |       |             |        |   |         |   |   |   | (387,909 | )    
|Other comprehensive income (loss):                                                                                                                                                                                |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|                                                                                                                                                                                                                  | Changes in the fair value of
derivative financial instruments,
net of tax         |                                                                                   |    |        |   |         |     |           |   |           |         |              |   |          |          |      |   |   |        | 640         |        |   |          |  |   |   |          | 640   |       
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Total comprehensive income (loss)                                                                                                                                                                                 |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           |        |               |   |          | (387,909 | )     |   |   | 640    |             |        |   |         |   |   |   | (387,269 | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Issuance of warrants to purchase
Class B common stock                                                                                                                                                             |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | 35,384  |               |   |          |         |       |   |   |       |             |        |   |         |   |   |   | 35,384   |      
|Cancellation of 15,166 shares of
Class B common stock issued as
restricted stock                                                                                                                                  |                                                                                   |                                                                                   |   |         |   |         |    |            |   |           | (300    | )             |   |          |         |       |   |   |       |             |        |   |         |   |   |   | (300     | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      
|Balance at December 31, 2002                                                                                                                                                                                      |                                                                                   | $                                                                                 | 9  |         |   | $       | 491 |            |   | $         | 628,868 |               |   | $        | (257,014 | )     |   | $ | 2,030  |             |        |   | (306,206 | ) |   | $ | (68,178  | )    
|                                                                                                                                                                                                                  |                                                                                   |                                                                                   |    |         |   |         |     |            |   |           |         |               |   |          |          |       |   |   |        |             |        |   |          |   |   |   |          |      



---

|(a) |  | As restated  See Note 2
|--- |  | ------------------------

See accompanying notes to consolidated financial statements

43



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##### Table of Contents



AMERICA WEST HOLDINGS
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

America West Holdings Corporation (Holdings or the Company) is a
holding company that owns all of the stock of America West Airlines, Inc.
(AWA or the Airline). AWA accounted for most of the Companys revenues and
expenses in 2002. Based on 2002 revenues and operations, AWA is the eighth
largest passenger airline in the United States with the lowest cost structure
of the eight major hub-and-spoke airlines. At the end of 2002, AWA operated a
fleet of 143 aircraft with an average fleet age of 10.1 years and served 65
destinations in North America, including seven in Mexico and three in Canada.
Through regional alliance and code share arrangements with other airlines, AWA
served an additional 49 destinations in North America as of December 31, 2002.
In 2002, AWA flew approximately 19.5 million passengers and generated revenues
of approximately $2 billion. In addition, Holdings owns all of the outstanding
stock of The Leisure Company (TLC), which sells individual and group travel
packages, including air transportation of AWA and Hawaiian Airlines, hotel
accommodations, car rentals, cruise packages and other travel products,
directly to consumers as well as through retail travel agencies in the United
States, Canada and Mexico.

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. In
response to these difficult industry conditions, the Company completed a
financial restructuring, introduced a business-friendly pricing structure and
lowered its cost structure in 2002. Despite these measures, the Company
expects to continue to post significant losses in 2003. The Company believes
near-term revenues will continue to be negatively impacted by the soft economic
conditions and the decline in business traffic. In addition, fuel prices have
remained and may continue to remain well above historical norms due to the
threat of and the commencement of military action against Iraq and continued
political tension in Venezuela.

The Company expects to fund its obligations from funds provided by
operations, the proceeds of the government guaranteed loan, the financing
commitments for Airbus aircraft obtained in connection with the government
loan, and future financings, if necessary. The cash available to the Company
from these sources, however, may not be sufficient to cover these cash
obligations because economic factors outside the Companys control may reduce
the amount of cash generated by operations or increase its costs. As noted
above, if the Company fails to generate sufficient cash from operations and
other sources, it may need to obtain additional financings to achieve its
longer term business objectives. There can be no assurance that such
financings will be available or, if available, will be at rates or prices
acceptable to the Company.

Although there can be no assurances, management believes that cash flow
from operating activities coupled with existing cash balances and financing
commitments will be adequate to fund the Companys operating and capital needs
as well as enable it to maintain compliance with its various debt agreements at
least through December 31, 2003.

1. Summary of Significant Accounting Policies

(a)  Basis of Presentation

The consolidated financial statements include the accounts of Holdings and
its wholly owned subsidiaries AWA and TLC. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior years consolidated financial
statements to conform to the current years presentation.

(b)  Cash, Cash Equivalents and Short-term Investments

Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments
consist of cash invested in certain debt securities with original maturities
greater than 90 days and less than one year. The debt securities are
classified as held to maturity and are carried at amortized cost which
approximates fair value.

(c)  Expendable Spare Parts and Supplies

Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on
hand at the date the aircraft are retired from service. In the fourth quarter
of 2000, the Company committed to the disposal of certain excess expendable
spare parts inventory with a net book value of approximately $11.0 million.

44



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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

As
a result, the Company recorded an operating expense of $9.0 million to write
down excess inventory to net realizable value.

(d)  Property and Equipment

Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized for the years ended
December 31, 2002, 2001, and 2000 was $3.0 million, $12.5 million and $9.0
million, respectively. Property and equipment is depreciated and amortized to
residual values over the estimated useful lives or the lease term, whichever is
less, using the straight-line method.

The estimated useful lives for the Companys ground property and equipment
range from three to 12 years for owned property and equipment and up to 22
years for the technical support facility. The estimated useful lives of the
Companys owned aircraft, jet engines, flight equipment and rotable parts range
from five to 30 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.

The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired as defined by Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to undiscounted future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
cost to sell.

(e)  Restricted Cash

Restricted cash includes cash deposits securing certain letters of credit
and surety bonds and cash held by institutions that process credit card sales
transactions.

(f)  Aircraft Maintenance and Repairs

Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual
for the estimated cost of scheduled airframe and engine overhauls required to
be performed on leased aircraft prior to their return to the lessors has been
recorded.

(g)  Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets (ERV)

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 142, Goodwill and Other Intangible Assets.SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. SFAS No. 142 does not permit the amortization of goodwill as
required by Accounting Principles Board (APB) Opinion No. 17, Intangible
Assets.Rather, goodwill is subject to a periodic impairment test, using a
two-step process. The first step is to identify a potential impairment. The
second step of the goodwill impairment test measures the amount of the
impairment loss, using a fair value-based approach. Under SFAS No. 142, ERV is
reported as goodwill and accounted for in the same manner as goodwill. SFAS
No. 142 was effective for fiscal years beginning after December 15, 2001. Upon
adoption of this statement on January 1, 2002, the Company recorded an
impairment loss of $208.2 million, which was supported by an independent
valuation of the Company. The
impairment loss was recorded as the cumulative effect of a change in
accounting principle. See Note 3, Adoption of New Accounting Standard.

Prior to adoption of SFAS No. 142, ERV was amortized on a straight line
basis over 20 years. Accumulated amortization at December 31, 2001 and 2000
was $178.1 million and $156.6 million, respectively.

45



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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

(h)  Derivative Instruments

AWAs fuel hedging contracts qualify as cash flow hedges under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,as they
hedge exposure to variable cash flows of forecasted transactions. Accordingly,
the derivative hedging instrument is recorded as an asset or liability on the
balance sheet at fair value and the effective portion of changes in the fair
value are initially recorded in Accumulated Other Comprehensive Income (Loss)
until the underlying fuel being hedged is used. The ineffective portion of
changes in fair value are recorded in earnings.

(i)  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.

The Company also sells mileage credits to companies participating in its
FlightFund program, such as hotels, car rental agencies and credit card
companies. Revenue from the sale of mileage credits is deferred and recognized
when transportation is provided.

(j)  Deferred Credits-Operating Leases

Rents for operating leases were adjusted to fair market value when the
Company emerged from bankruptcy in 1994. The net present value of the
difference between the stated lease rates and the fair market rates has been
recorded as a deferred credit in the accompanying consolidated balance sheets.
The deferred credit will be increased through charges to interest expense and
decreased on a straight-line basis as a reduction in rent expense over the
applicable lease periods. At December 31, 2002 and 2001, the unamortized
balance of the deferred credit was $52.4 million and $58.7 million,
respectively.

In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee. See Note 4, Government Guaranteed Loan.
This loan triggered aircraft rent concessions negotiated with approximately 20
aircraft lessors. Approximately $18.1 million of aircraft rent, which was
accrued as of December 31, 2001, was waived by the aircraft lessors. This
amount has been recorded as a deferred credit in the accompanying consolidated
balance sheet at December 31, 2002 and will be amortized over the remaining
lives of the applicable leases as a reduction in rent expense. At December 31,
2002, the unamortized balance of the deferred credit was approximately $10.9
million.

(k)  Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense. Due to
complex pricing structures, refund and exchange policies, and interline
agreements with other airlines, certain amounts are recognized in revenue using
estimates regarding both the timing of the revenue recognition and the amount
of revenue to be recognized.
These estimates are generally based on the statistical analysis of the
Companys historical data. Any adjustments resulting from periodic evaluations
of the estimated air traffic liability are included in results of operations
during the period in which the evaluations are completed.

(l)  Advertising Costs

The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 2002, 2001 and 2000 was $10.6 million,
$13.8 million and $26.3 million, respectively.

(m)  Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

carryforwards. A valuation allowance
is established, if necessary, for the amount of any tax benefits
that, based on available evidence, are not expected to be realized.

(n)  Stock Options

At December 31, 2002, the Company has two stock-based employee
compensation plans, which are described more fully in Note 11, Stock Options
and Awards.The Company accounts for its stock option plans in accordance
with the provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees,and related interpretations. As such, compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Accordingly, no compensation
cost has been recognized for stock options in the consolidated financial
statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, Accounting
for Stock-Based Compensation,the Companys net income (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts indicated
below:

|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|----------------------------------------------------- |  | -------------------------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                                      |  | 2002                                               |          | 2001 |  | 2000
|                                                      |  |                                                    |          |      |  |     
|                                                      |  | (as
restated)
(In thousands except per share data)
|Net income (loss), as reported                        |  | $                                                  | (387,909 | )    |  | $    | (249,851 | ) |  | $ | 7,679  |  
|Stock-based compensation
expense,
net of income taxes |  |                                                    | (3,709   | )    |  |      | (4,173   | ) |  |   | (5,970 | )
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Pro forma net income (loss)                           |  | $                                                  | (391,618 | )    |  | $    | (254,024 | ) |  | $ | 1,709  |  
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Earnings (loss) per share:                            |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Basic  as reported                                   |  | $                                                  | (11.50   | )    |  | $    | (7.42    | ) |  | $ | 0.22   |  
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Basic  pro forma                                     |  | $                                                  | (11.61   | )    |  | $    | (7.54    | ) |  | $ | 0.05   |  
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Diluted  as reported                                 |  | $                                                  | (11.50   | )    |  | $    | (7.42    | ) |  | $ | 0.22   |  
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  
|Diluted  pro forma                                   |  | $                                                  | (11.61   | )    |  | $    | (7.54    | ) |  | $ | 0.05   |  
|                                                      |  |                                                    |          |      |  |      |          |   |  |   |        |  

Pro forma net income (loss) reflects only options granted during the years
1995 through 2002. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income (loss) amounts presented above because compensation cost is reflected
over the options vesting period and compensation cost for options granted
prior to January 1, 1995 is not considered.

(o)  New Accounting Standards

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002. This standard rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of
that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements and excludes extraordinary item treatment for gains
and losses associated with the extinguishment of debt that do not meet the APB
Opinion No. 30, Reporting the Results of Operation  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions criteria. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB 30 for classification
as an extraordinary item shall be reclassified. SFAS No. 145 also amends SFAS
No. 13, Accounting for Leases, as well as other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Company adopted
SFAS No. 145 effective January 1, 2002 with no material impact on its financial
condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This standard addresses financial
accounting and reporting for costs associated with exit or disposal activities
and replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring.) SFAS No. 146 requires that a liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for exit costs, as
defined in EITF No. 94-3, was recognized at the date of an entitys commitment
to an exit plan. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated by the Company after December 31, 2002.
In February 2003, AWA announced that it will eliminate hub

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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

operations in Columbus, Ohio. In
accordance with SFAS No. 146, AWA expects to record pretax special charges of
approximately $10 to $15 million. See Note 21, Subsequent Event  Elimination
of Hub Operations in Columbus, Ohio.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN 45 requires a guarantor
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. FIN 45 also expands the
disclosures required to be made by a guarantor about its obligations under
certain guarantees that it has issued. Initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified. The disclosure requirements are effective immediately. While the
Company has various indemnity obligations included in contracts entered into in
the normal course of business, these obligations are primarily in the form of
indemnities that could result in immaterial increases of future costs, but do
not represent significant commitments or contingent liabilities of the
indebtedness of others. As a result, the Company does not expect FIN 45 to
have a material effect on its financial condition or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-  Transition and Disclosure, an amendment of SFAS
No. 123.SFAS No. 148 amended SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation. In addition, SFAS No. 148 amends APB Opinion No. 28,
Interim Financial Reporting", to require disclosure about those effects in
interim financial information. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002, including certain
amendments to required disclosures related to stock-based compensation included
in condensed financial statements for interim periods beginning after December
15, 2002. The Company has complied with the required disclosure items in SFAS
No. 148, and is still evaluating changing to the fair value based method of
accounting for stock-based employee compensation.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities.FIN 46 requires that companies that control another entity
through interests other than voting interests should consolidate the controlled
entity. FIN 46 applies to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The related disclosure requirements are effective
immediately. The Company has evaluated the provisions of FIN 46 and does not
believe it to be reasonably possible that adoption would have a material effect
on its financial condition and results of operations.

(p)  Use of Estimates

Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the
United States. Actual results could differ from those estimates.

2. Restatement of Previously Reported Amounts

The
Company has restated its financial statements for the fiscal year
ended December 31, 2001 and its unaudited financial statements for the first, second and third
quarters of fiscal year ended December 31, 2002. The changes
include:



| |  | a change in the timing from the first quarter of 2002 back
to the fourth quarter of 2001 of the non-cash impairment charge of
approximately $39.2 million recorded to adjust the carrying value of
owned aircraft to market value and the related non-cash impairment
charge of approximately $64.1 million recorded to write off ERV that arose in connection with the Companys plan of
reorganization from bankruptcy in 1994, both of which charges were
previously recorded in the first quarter of 2002; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | the recognition of a full valuation allowance relating to the Companys net
deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                  

See Note 2 Restatement of Previously Reported Amountsin Notes to
Consolidated Financial Statements.

48



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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Impairment Charges

Statement
of Financial Standards (SFAS) No. 121
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of requires that an
impairment analysis be performed whenever circumstances indicate that
the carrying amount of an asset that an entity expects to hold and
use may not be recoverable.

As a
result of the adverse impacts on Holdings and AWA and the airline
industry as a whole resulting from the terrorist events of
September 11, 2001 and their aftermath, AWA performed an assessment of
impairment of its owned aircraft during 2001 and again in connection
with the preparation of the interim financial statements for the
first quarter of 2002.

As a
result of AWAs assessments, no impairment adjustment was
recorded in the financial statements previously issued for 2001. The Company
recorded an impairment charge of approximately $39.2 million in the first
quarter of 2002 to adjust the carrying value of AWAs owned aircraft to reflect market
values at that time. Such accounting treatment was considered appropriate at
the time of the issuance of the applicable financial statements. In connection
with the preparation of the financial statements and the related
audit for the fiscal year ended
December 31, 2002, the Company determined that the more appropriate recognition of
the impairment charge of approximately $39.2 million is in the fourth quarter
of 2001 rather than in the first quarter of 2002.

In addition, SFAS No. 121 requires that goodwill that arose in a purchase
business combination be allocated, and included as part of the asset
base, in
determining recoverability and measuring impairment. The Company did not have goodwill at December 31,
2001, but did have a significant amount of unamortized ERV. The Company has
determined that a portion of the unamortized ERV balance should have
been allocated to AWAs owned aircraft in the
impairment analysis performed for the year ended December 31, 2001.

As more fully described in Note 3, Adoption of New Accounting Standard
in Notes to Consolidated Financial Statements, the remaining
unamortized balance of ERV was
written-off in the first quarter of 2002 as a cumulative effect of a
change in accounting principle, upon adoption of SFAS No. 142,
Goodwill and Other Intangible Assets.

The impact of the above described matters is to change the period of
recognition for these non-cash costs between late 2001 and early 2002. See Note 19,
Quarterly Financial Data (Unaudited)in Notes to Consolidated Financial
Statements.

Deferred Income Taxes

SFAS No. 109 Accounting for Income Taxesrequires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.

The
Company had originally reported a net deferred tax liability at
December 31, 2001. After consideration of the restatement
discussed above, the Company had a net deferred tax asset and was in a cumulative loss position for the three years
ended December 31, 2001. A full valuation allowance has been established
relating to the Companys net deferred tax assets at
December 31, 2001, and relating to
tax assets generated by losses in 2002. We expect to continue to record a full
valuation allowance on future tax benefits until we return to profitability. See Note 9, Income Taxesand Note 19, Quarterly
Financial Data (Unaudited)in Notes to Consolidated Financial Statements.

As a result of the adjustments discussed above, the Companys financial
statements for the first three quarters of 2002 and for the year ended 2001
have been restated from amounts previously reported. See Note 19, Quarterly
Financial Data (Unaudited)for a summary of the adjustments for these periods
on a quarterly basis. The principal effects of these adjustments on the
accompanying financial statements are set forth below:

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                 |  |                                      |          |             |  |          |          |   |  |   |          |  
|-------------------------------- |  | ------------------------------------ | -------- | ----------- |  | -------- | -------- | - |  | - | -------- | -
|                                 |  | For the Year Ended December 31, 2001
|                                 |  |                                     
|                                 |  | (in thousands except per share data)
|                                 |  | As Previously                        |          | Restatement |  | As      
|                                 |  | Reported                             |          | Adjustments |  | Restated
|                                 |  |                                      |          |             |  |         
|Operating loss                   |  | $                                    | (314,585 | )           |  |          | (103,286 | ) |  | $ | (417,871 | )
|                                 |  |                                      |          |             |  |          |          |   |  |   |          |  
|Loss before income tax benefit   |  |                                      | (221,101 | )           |  |          | (103,286 | ) |  |   | (324,387 | )
|Income tax benefit               |  |                                      | (73,230  | )           |  |          | (1,306   | ) |  |   | (74,536  | )
|Net loss                         |  | $                                    | (147,871 | )           |  |          | (101,980 | ) |  | $ | (249,851 | )
|                                 |  |                                      |          |             |  |          |          |   |  |   |          |  
|Basic and diluted loss per share |  | $                                    | (4.39    | )           |  |          | (3.03    | ) |  | $ | (7.42    | )
|                                 |  |                                      |          |             |  |          |          |   |  |   |          |  

3. Adoption of New Accounting Standard

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets.SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS No. 142 does not
permit the amortization of goodwill as required by APB Opinion No. 17,
Intangible Assets.Rather, goodwill is subject to a periodic impairment
test, using a two-step process. The first step is to identify a potential
impairment. The second step of the goodwill impairment test measures the
amount of the impairment loss, using a fair value-based approach. Under SFAS
No. 142, ERV is reported as goodwill and accounted for in the same manner as
goodwill. SFAS No. 142 was effective for fiscal years beginning after December
15, 2001. Upon adoption of this statement on January 1, 2002, the Company
recorded an impairment loss of $208.2 million, which was supported by an
independent valuation of the Company. The impairment loss was recorded as the
cumulative effect of a change in accounting principle.

The following table presents reported net income (loss) and earnings
(loss) per share exclusive of ERV amortization expense for the years ended
December 31, 2002, 2001 and 2000.

|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|---------------------------------- |  | --------------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------ | 
|                                   |  | For the Year Ended December 31,        
|                                   |  |                                        
|                                   |  | (In thousands except per share amounts)
|                                   |  | 2002                                    |          | 2001 |  | 2000
|                                   |  |                                         |          |      |  |     
|                                   |  | (as restated)                          
|Reported net income (loss)         |  | $                                       | (387,909 | )    |  | $    | (249,851 | ) |  | $ | 7,679  | 
|ERV amortization, net of tax (1)   |  |                                         |         |      |  |      | 21,497   |   |  |   | 21,496 | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Adjusted net income (loss)         |  | $                                       | (387,909 | )    |  | $    | (228,354 | ) |  | $ | 29,175 | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Basic earnings (loss) per share:   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Reported net income (loss)         |  | $                                       | (11.50   | )    |  | $    | (7.42    | ) |  | $ | 0.22   | 
|ERV amortization, net of tax (1)   |  |                                         |         |      |  |      | 0.64     |   |  |   | 0.61   | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Adjusted net income (loss)         |  | $                                       | (11.50   | )    |  | $    | (6.78    | ) |  | $ | 0.83   | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Diluted earnings (loss) per share: |  |                                         |          |      |  |      |          |   |  |   |        | 
|Reported net income (loss)         |  | $                                       | (11.50   | )    |  | $    | (7.42    | ) |  | $ | 0.22   | 
|ERV amortization, net of tax (1)   |  |                                         |         |      |  |      | 0.64     |   |  |   | 0.60   | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 
|Adjusted net income (loss)         |  | $                                       | (11.50   | )    |  | $    | (6.78    | ) |  | $ | 0.82   | 
|                                   |  |                                         |          |      |  |      |          |   |  |   |        | 



|(1) |  | Amortization of ERV is not a tax-deductible expense.
|--- |  | ----------------------------------------------------

4. Government Guaranteed Loan

In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee. This loan triggered concessions and
additional financing (primarily aircraft rent reductions and future financing
commitments), resulting in a restructuring of AWAs indebtedness and lease
commitments. The major components of the restructuring are:



| |  | Government Guaranteed Loan  The catalyst for AWAs restructuring
plan was a $429 million loan backed by a $380 million federal loan
guarantee. The loan has a seven-year term with ratable amortization in
years three through seven, an interest rate of three month LIBOR plus 40
basis points paid quarterly and annual
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|  |  | guarantee fees payable to the U.S. Treasury Department and other loan
participants of 550 basis points in year one and approximately 800 basis
points thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Aircraft Deferrals/Financing  AWA restructured its aircraft purchase
commitment with AVSA S.A.R.L., an affiliate of Airbus Industrie
(AVSA), to defer 17 new Airbus aircraft previously scheduled for
delivery in 2003 and 2004 by a total of 505 aircraft-months to 2004
through 2007. New financing commitments were obtained for 11 aircraft
which were either already delivered in 2001 or scheduled to be delivered
in 2002 and 2003. Delivery of two of these aircraft was subsequently
deferred until 2005. In order to obtain the entire amount of the
financing commitment for two of the aircraft, AWA must achieve a minimum
liquidity threshold. As a result, AWA has financing commitments for all
scheduled aircraft deliveries through the fourth quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | Aircraft Returns/Rent Reductions  Through negotiations with
approximately 20 aircraft lessors, AWA has retired 11 aircraft in 2001
and 2002 to better size its fleet to the current industry demand
environment. For the aircraft that remain, annual rent payments have
been reduced for each of the next six years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | Term-out of Line of Credit  AWAs $89.9 million secured credit
facility was converted into an $89.9 million secured term loan maturing
at year-end 2007. The loan has a six-year term with ratable amortization
in years four through six and an interest rate of one month LIBOR plus
225 basis points from the closing date through December 31, 2004 and one
month LIBOR plus 475 basis points from January 1, 2005 and thereafter.
In addition, AWA will pay interest in kind on the aggregate outstanding
principal amount of the loan at a rate of two percent per annum from the
closing date through December 31, 2004. In July 2002, AWA made a
mandatory repayment of approximately $16.7 million on the term loan as a
result of a decrease in the fair market value of the assets securing the
loan following the terrorist attacks of September 11, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | State/City Financing  From the State of Arizona and the City of
Phoenix, AWA received $0.7 million in job training grants and $1.5
million in other financing. In March 2003, AWA received $6.9 million
through the sale and leaseback of jetways at Phoenix Sky Harbor
International Airport.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
| |  | TPG Undertaking  At the request of the Air Transportation
Stabilization Board (ATSB), TPG Partners, L.P., and its affiliates,
owners of all 941,431 shares of America West Holdings Class A common
stock, have undertaken not to dispose of their Class A stock other than
in connection with an offer to acquire all the shares of the Companys
Class B common stock accepted or approved by the holders of a majority of
the Class B stock. This undertaking is subject to certain exceptions,
including transfers to TPG affiliates, repurchase of the Class A stock by
Holdings and exercise of PGs rights to convert the Class A stock into
Class B stock, and will terminate when the warrants issued in connection
with the term loan transactions discussed below expire or are exercised
and the underlying shares of Class B stock are sold, or TPG and its
affiliates no longer hold the Class A stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Warrants/Convertible Senior Notes  As compensation for various
elements of the restructuring plan, Holdings issued a warrant to purchase
up to 18.8 million shares of its Class B common stock to the federal
government and additional warrants to purchase up to 3.8 million shares
of its Class B common stock to other loan participants, in each case at
an exercise price of $3 per share and a term of ten years. For
accounting purposes, the warrants were valued at $35.4 million, or $1.57
per share, using the Black-Scholes pricing model with the following
assumptions: expected dividend yield of 0.0%, risk-free interest rate of
4.8%, volatility of 44.9% and an expected life of ten years. Holdings
also issued approximately $104.5 million in convertible senior notes as
partial compensation to aircraft lessors. The notes have a seven-year
term and a coupon rate of 7.5% with interest paid in kind for years one
through three. The notes are convertible after three years into Class B
common stock at $12 per share. During 2002, one aircraft lessor
relinquished its interest in approximately $11.8 million face value of
the 7.5% convertible notes upon the restructuring of leases for six
Boeing 757-200 aircraft. One aircraft lessor also relinquished its
interest in approximately $1.6 million face value of the 7.5% convertible
notes upon the exercise of its put rights to extend the leases for two
Boeing 737-300 aircraft.

In connection with the restructuring, Holdings and AWA granted to the
recipients of the notes and warrants certain registration rights. In May 2002,
Holdings and AWA filed a registration statement with the Securities and
Exchange Commission to satisfy their obligations to the recipients of the notes
and warrants. The registration statement covers:

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



| |  | The resale by the noteholders of $129,082,514 of 7.5% convertible
notes (including $24,617,954 of interest payable on the first six
interest payment dates, which are expected to be paid in the form of a
deemed loan added to the principal amount of the notes);
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The resale by the noteholders of up to 10,756,876 shares of Class B
common stock issuable upon conversion of the notes;                                                                                                                                            
| 
| |  | The resale by the ATSB of the ATSB warrant;                                                                                                                                                                                                                        
| 
| |  | The resale by the ATSB of up to 18,754,000 shares of Class B common
stock issuable upon its exercise of the ATSB warrant;                                                                                                                                          
| 
| |  | The issuance by the Company of shares of Class B common stock upon
the exercise of the ATSB warrant by holders other than the ATSB; and                                                                                                                            
| 
| |  | The resale by the holders of the other warrants of up to 3,783,000
shares of Class B common stock issuable upon exercise of the other
warrants.                                                                                                                    

5. Investments in Debt Securities

Cash equivalents and short-term investments as of December 31 are
classified as follows:

|                   |                                                   |   |                |         |      |   |         |         | 
|------------------ | ------------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                   |                                                   |   | 2002           |         | 2001
|                   |                                                   |   |                |         |     
|                   |                                                   |   | (in thousands)
|Corporate notes    |                                                   | $ | 208,750        |         |      | $ |        |        
|Money market funds |                                                   |   | 151,738        |         |      |   | 156,865 |        
|                   |                                                   |   |                |         |      |   |         |        
|                   | Total cash equivalents and short-term investments |   | $              | 360,488 |      |   | $       | 156,865 | 
|                   |                                                   |   |                |         |      |   |         |        

6.     Financial Instruments and Risk Management Fair Value of Financial
Instruments

Cash Equivalents, Short-term Investments and Receivables

The carrying amount approximates fair value because of the short-term
nature of these instruments.

Investments in Equity Securities

In May 2000, Holdings completed the sale of a majority interest in TLCs
retail operations, National Leisure Group and The Vacation Store, to Softbank
Capital Partners and General Catalyst LLC. TLC received $52 million in cash
and retained a 12% passive ownership interest in the restructured venture. In
response to additional capital calls, TLC invested an additional $1.2 million
in National Leisure Group during 2001. The investment is carried on the
Companys consolidated balance sheet at cost, which approximates $7.7 million
at December 31, 2002 and 2001.

The Company owned approximately 28,300 shares of Class A common stock of
Aeroxchange Ltd., an airline industry business-to-business e-commerce exchange,
at December 31, 2002 and 2001. The common stock of Aeroxchange is not publicly
traded on a securities exchange, therefore the fair value of the Companys
investment in Aeroxchange is not readily determinable. Accordingly, the
investment was carried at cost, which approximated $2.8 million at December 31,
2001. In March 2002, the Company wrote down its investment in Aeroxchange to
net realizable value, recognizing a pretax loss of $2.8 million. See Note 15,
Nonoperating Income (Expenses)  Other, Net.

Warrants

The Company is the holder of warrants in a number of on-line ventures that
are not public. The fair value of these warrants is not readily determinable.
Accordingly, the investments are carried at cost, which was not material at
December 31, 2002 or 2001.

Long-term Debt

At December 31, 2002 and 2001, the fair value of long-term debt was
approximately $657.9 million and $324.4 million, respectively. The Companys
long-term debt with a carrying value of $570.4 million and $179.7 million at
December 31, 2002 and 2001, respectively, approximates fair value because these
borrowings have variable interest

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

rate terms that approximate market interest rates for similar debt
instruments. The fair values of the Companys other long-term debt are
determined based on quoted market prices if available or market prices for
comparable debt instruments.

(b)  Fuel Price Risk Management

Under its fuel hedging program, the Company may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
12 months. As of December 31, 2002, the Company had entered into costless
collar transactions hedging approximately 40% of its projected 2003 fuel
requirements. The fair value of the Companys financial derivative instruments
was a net asset of approximately $3.6 million and $2.2 million at December 31,
2002 and 2001, respectively.

The Company is exposed to credit risks in the event any counterparty fails
to meet its obligations. The Company does not anticipate such non-performance
as counterparties are selected based on credit ratings, exposure to any one
counterparty is limited based on formal guidelines and the relative market
positions with such counterparties are closely monitored.

(c)  Concentration of Credit Risk

The Company does not believe it is subject to any significant
concentration of credit risk. Most of the Companys receivables result from
tickets sold to individual passengers through the use of major credit cards or
from tickets sold by other airlines and used by passengers on AWA. These
receivables are short-term, generally being settled shortly after the sale.

7. Long-Term Debt

Long-term debt at December 31, 2002 and 2001 consists of the following:

|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |        |          |  
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------ | ------- | -------------- | ------- | ---- | ------- | ------ | -------- | -
|                                                                                                                        |                                                                                  |                    |         | 2002           |         | 2001
|                                                                                                                        |                                                                                  |                    |         |                |         |     
|                                                                                                                        |                                                                                  |                    |         | (in thousands)
|Secured                                                                                                                 |                                                                                  |                    |         |                |         |      |         |       
|Equipment notes payable, variable interest rates of 2.75% to 3.00%, averaging
2.94%, installments due 2003 through 2008 |                                                                                  | $                  | 58,126  |                |         | $    | 79,360  |       
|Term loan, variable interest rate of 3.69%, installments due 2005 through 2007 (a)                                      |                                                                                  |                    | 74,758  |                |         |      | 89,855  |       
|                                                                                                                        | Equipment notes payable, fixed interest rates of 7.10% to 8.37%, averaging 7.29% |                    |         |               |         |      |         | 85,440 |         
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       
|                                                                                                                        |                                                                                  |                    | 132,884 |                |         |      | 254,655 |       
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       
|Unsecured                                                                                                               |                                                                                  |                    |         |                |         |      |         |       
|10 3/4% Senior Unsecured Notes, interest only payments until due in 2005 (b)                                            |                                                                                  |                    | 49,998  |                |         |      | 49,998  |       
|7.5% Convertible Senior Notes, interest only payments until due in 2009 (c)                                             |                                                                                  |                    | 97,894  |                |         |      |        |       
|Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
3.06%, installments due through 2003          |                                                                                  |                    | 7,000   |                |         |      | 10,500  |       
|Industrial development bonds, fixed interest rate of 6.3% due 2023 (d)                                                  |                                                                                  |                    | 29,300  |                |         |      | 29,300  |       
|Government guaranteed loan, variable interest rate of 2.20% installments due 2004
through 2008 (e)                      |                                                                                  |                    | 429,000 |                |         |      |        |       
|State loan, variable interest rate of 5.29%, installments due 2004 through 2007                                         |                                                                                  |                    | 1,500   |                |         |      |        |       
|Promissory note, fixed interest rate of 10%, due in 2003                                                                |                                                                                  |                    | 2,443   |                |         |      |        |       
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       
|                                                                                                                        |                                                                                  |                    | 617,135 |                |         |      | 89,798  |       
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       
|Total long-term debt                                                                                                    |                                                                                  |                    | 750,019 |                |         |      | 344,453 |       
|Less: Unamortized discount on debt                                                                                      |                                                                                  |                    | (29,920 | )              |         |      | (762    | )     
|                                                                                                                        |                                                                                  | Current maturities |         |                | (22,238 | )    |         |        | (119,141 | )
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       
|                                                                                                                        |                                                                                  | $                  | 697,861 |                |         | $    | 224,550 |       
|                                                                                                                        |                                                                                  |                    |         |                |         |      |         |       



|(a) |  | In December 1999, AWA entered into a $125 million senior secured
revolving credit facility with a group of financial institutions that had
a three-year term. Borrowings under this credit facility accrued interest
at either the base rate (prime rate or the rate which 1/21/2 of 1% in
excess of the Federal Funds Effective Rate) or the adjusted eurodollar
rate (LIBOR rate adjusted for certain reserve requirements in respect to
Eurodollar liabilities) plus the applicable margin based on Moodys
rating of AWAs senior unsecured notes. The credit agreement was secured
by certain assets of AWA. As of December 31, 2001, AWA had drawn $89.9
million against its available line of credit which was classified in
current maturities of long-term debt in the Companys consolidated balance
sheet. In January 2002, upon closing of the $429 million loan supported
by a $380 million government loan guarantee (see Note 4, Government
Guaranteed Loan), AWAs secured credit facility was converted into an
$89.9 million secured term loan maturing at year-end 2007. The loan has a
six-year term with ratable amortization in years four through six and an
interest rate of one month LIBOR plus 225 basis points from the closing
date through December 31, 2004 and one month LIBOR plus 475 basis points
from January 1, 2005 and
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED



|    |  | thereafter. In addition, AWA will pay interest in kind on the aggregate
outstanding principle amount of the loan at a rate of two percent per annum
from the closing date through December 31, 2004. In July 2002, AWA made a
mandatory repayment of approximately $16.7 million on its $89.9 million term
loan as a result of a decrease in the fair market value of the assets
securing the loan following the terrorist attacks of September 11, 2001.
Collateral for the loan consists of aircraft, spare engines, rotable
aircraft parts inventory and a maintenance facility. AWA and the lenders
also amended certain provisions in the loan agreement related to the
collateral appraisal procedures. The balance at December 31, 2002 includes
$1.6 million of interest payable in kind through December 31, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and
interest is payable in arrears semi-annually. The 10 3/4% Senior
Unsecured Notes may be redeemed at the option of the Company 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
|                    |  |           
|2002                |  |            | 101.792 | %
|2003 and thereafter |  |            | 100.000 | %



|(c) |  | In January 2002, Holdings issued approximately $104.5 million in
convertible senior notes, which are guaranteed by AWA, to certain aircraft
lessors as compensation for various elements of the restructuring plan.
The notes have a seven-year term, a coupon rate of 7.5% with interest paid
in kind for years one through three. The notes are convertible after
three years into Class B common stock at $12 per share. The notes may be
redeemed at the election of the Company, as a whole or in part, at any
time before January 18, 2005, at a redemption price equal to $1,000 per
$1,000 principal amount of the notes redeemed plus accrued and unpaid
interest, if any, to but excluding the date of redemption if (1) the
trading price of the common stock has exceeded 120% of the conversion
price then in effect for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day before the date of
mailing of the notice of provisional redemption, and (2) a shelf
registration statement covering resales of the notes and the common stock
issuable upon conversion thereof is effective and available for use and is
expected to remain effective and available for use for the 30 days
following the provisional redemption date, unless registration is no
longer required. At any time on or after January 18, 2005, the Company
may, at its option, redeem the notes in whole at any time or in part from
time to time, on any date prior to the stated maturity of the notes, at
the redemption price (expressed in percentages of the principal amount)
set forth below if, but only if, redeemed on a redemption date occurring
during the 12-month period beginning on the dates indicated:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |            |        |  
|----------------------------------- |  | ---------- | ------ | -
|                                    |  | Redemption
|During the Twelve Months Commencing |  | Price     
|                                    |  |           
|January 18, 2005                    |  |            | 103.75 | %
|January 18, 2006                    |  |            | 102.50 | %
|January 18, 2007                    |  |            | 101.25 | %
|January 18, 2008                    |  |            | 100.00 | %



|    |  | For financial reporting purposes, the Company recorded the convertible
senior notes at their fair market value on the date of issuance. The
balance at December 31, 2002 is net of an unamortized discount of $2.7
million and includes $6.2 million of interest payable in kind through
December 31, 2002. See Note 4, Government Guaranteed Loan.                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) |  | The industrial development revenue bonds are due April 2023. Interest
at 6.3% is payable semiannually (April 1 and October 1). The bonds are
subject to optional redemption prior to the maturity date on or after
April 1, 2008, in whole or in part, on any interest payment date at the
following redemption prices: 102 percent on April 1 or October 1, 2008;
101 percent on April 1 or October 1, 2009; and 100 percent on April 1,
2010 and thereafter.                   
|   
|(e) |  | In January 2002, AWA closed a $429 million loan backed by a $380 million
federal loan guarantee. The loan has a seven-year term with ratable
amortization in years three through seven, an interest rate of three month
LIBOR plus 40 basis points paid quarterly and guarantee fees payable to
the U.S. Treasury Department and other loan participants of 550 basis
points in year one and approximately 800 basis points thereafter. See
Note 4, Government Guaranteed Loan.

Secured financings totaling $132.9 million are collateralized by assets,
primarily aircraft, engines, simulators, rotable aircraft parts and AWAs
hangar facility, with a net book value of $316.6 million at December 31, 2002.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

At December 31, 2002, the estimated maturities of long-term debt are as
follows:

|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (in thousands)
|2003       |  | $              | 19,116  | 
|2004       |  |                | 97,127  | 
|2005       |  |                | 174,353 | 
|2006       |  |                | 124,355 | 
|2007       |  |                | 106,991 | 
|Thereafter |  |                | 228,077 | 
|           |  |                |         | 
|           |  | $              | 750,019 | 
|           |  |                |         | 

Certain of the Companys long-term debt agreements contain minimum cash
balance requirements and other covenants with which Holdings and AWA are in
compliance. Certain of these covenants restrict the Companys ability to pay
cash dividends on its common stock and make certain other restricted payments
(as specified therein). Finally, AWAs long-term debt agreements contain
cross-default provisions, which may be triggered by defaults by AWA under other
agreements relating to indebtedness. As of December 31, 2001, AWA had
suspended payment under certain aircraft leases and, as a result, had received
notices of default from certain aircraft lessors. In January 2002, AWA paid in
full approximately $81 million in deferred aircraft lease payments
simultaneously with the funding of the $429 million loan supported by a $380
million government loan guarantee, thereby curing the defaults. See Risk
Factors Relating to America West and Industry Related Risks  Our high level of
debt and fixed costs limits our ability to fund general corporate requirements,
limits our flexibility in responding to competitive developments and increases
our vulnerability to adverse economic and industry conditions.

8. Commitments and Contingencies

(a)  Leases

As of December 31, 2002, the Company had 133 aircraft under operating
leases with remaining terms ranging from three months to approximately 22
years. In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee that resulted in a restructuring of its
aircraft lease commitments. As a result, AWA has retired 11 aircraft in 2001
and 2002 to better size its fleet to the current industry demand environment.
In addition, under the restructured lease agreements, annual rent payments have
been reduced for each of the next six years (see Note 4, Government Guaranteed
Loan). Certain of these leases contain put options pursuant to which the
lessors could require AWA to renew the leases for periods ranging from eight
months to 8.7 years or call options pursuant to which the lessors could require
AWA to return the aircraft to the lessors upon receipt of four to nine months
written notice. The Company also has options to purchase certain of the
aircraft at fair market values at the end of the lease terms. Certain of the
agreements require security deposits, minimum return provisions and maintenance
reserve payments.

As a result of the rent restructuring associated with the government
guaranteed loan, one aircraft lease was amended to include a bargain purchase
option. As a result, this lease has been classified as a capital lease in
accordance with SFAS No. 13, Accounting for Leases,as amended, with an asset
value of $16.9 million and corresponding lease obligation of $14.5 million at
December 31, 2002.

In June 2002, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 13 months. Upon exercising this right, the lessor agreed to
relinquish its interest in approximately $0.7 million face value of 7.5%
convertible senior notes it received as compensation for certain concessions
granted under the restructuring completed on January 18, 2002. In October
2002, the same aircraft lessor exercised its put right to extend the lease for
another Boeing 737-300 aircraft for an additional 18 months. Upon exercising
the right, the lessor agreed to relinquish its interest in approximately $0.9
million face value of 7.5% convertible senior notes.

In June 2002, AWA restructured the leases for six of its Boeing 757-200
aircraft to improve lease rental rates and other terms. Prior to the
restructuring, AWA subleased the six aircraft from The Boeing Company
(Boeing), who in turn leased the aircraft from five different head lessors.
Under the restructuring, AWA terminated the subleases with Boeing and assumed,
amended and restated the existing head leases for each aircraft. Upon closing
of the transactions, AWA paid approximately $11.8 million in security deposits
and advance rental payments to the head lessors, net of a refund from Boeing
for prorated prepaid rent under the subleases, prorated accrued rent under the
head leases and cash deposits for the estimated cost of certain maintenance
work required to be performed on the aircraft prior to their return to Boeing.
As a result of these transactions, Boeing also relinquished its interest in
approximately $11.2 million face value of 7.5% convertible notes it received as
compensation for certain

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

concessions granted under the restructuring completed on January 18, 2002.
Furthermore, AWA issued a $4.9 million promissory note to Boeing for the value
of the concessions realized with respect to these six aircraft prior to the
termination of the subleases, of which approximately $2.5 million was paid in
2002. The promissory note has a fixed interest rate of 10% and matures in June
2003. The restructured leases have a remaining term of approximately six years
and are being accounted for as operating leases.

In September 2002, one aircraft lessor exercised its put rights under its
aircraft lease agreements to extend the leases for two Airbus A320 aircraft for
an additional 12 months each.

In November 2002, one aircraft lessor exercised its put rights under its
aircraft lease agreements to extend the leases for four Boeing 737-300 aircraft
for an additional 18 months each.

The Company also leases certain terminal space, ground facilities and
computer and other equipment under noncancelable operating leases.

At December 31, 2002, the scheduled future minimum cash rental payments
under capital leases and noncancelable operating leases with initial terms of
more than one year are as follows:

|                                                        |  |                |        |           |  |   |           | 
|------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | --------- | 
|                                                        |  | Capital        |        | Operating
|Years Ending December 31,                               |  | Leases         |        | Leases   
|                                                        |  |                |        |          
|                                                        |  | (in thousands)
|2003                                                    |  | $              | 4,458  |           |  | $ | 347,217   | 
|2004                                                    |  |                | 5,199  |           |  |   | 321,202   | 
|2005                                                    |  |                | 5,041  |           |  |   | 302,921   | 
|2006                                                    |  |                | 5,115  |           |  |   | 277,257   | 
|2007                                                    |  |                | 1,797  |           |  |   | 262,067   | 
|Thereafter                                              |  |                |       |           |  |   | 2,038,315 | 
|                                                        |  |                |        |           |  |   |           | 
|Total minimum lease payments                            |  |                | 21,610 |           |  | $ | 3,548,979 | 
|                                                        |  |                |        |           |  |   |           | 
|Less: Amounts of lease payments that represent interest |  |                | (6,489 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Present value of future minimum capital lease payments  |  |                | 15,121 |           |  |   |           | 
|Less: Current obligations under capital leases          |  |                | (3,122 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Long-term capital lease obligations                     |  | $              | 11,999 |           |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 

Rent expense (excluding landing fees) was approximately $409 million, $457
million and $427 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

Collectively, the operating lease agreements require security deposits
with lessors of $20.9 million and bank letters of credit of $13.8 million. The
letters of credit are collateralized by $13.8 million of restricted cash.

(b)  Revenue Bonds

In June 1999, Series 1999 special facility revenue bonds (new bonds)
were issued by a municipality to fund the retirement of the Series 1994A bonds
(old bonds) and the construction of a new concourse with 14 gates at Terminal
4 in Phoenix Sky Harbor International Airport in support of AWAs strategic
growth plan. The new bonds are due June 2019 with interest accruing at 6.25%
per annum payable semiannually on June 1 and December 1, commencing on December
1, 1999. The new bonds are subject to optional redemption prior to the
maturity date on or after June 1, 2009 in whole or in part, on any interest
payment date at the following redemption prices: 101% on June 1 or December 1,
2009; 100.5% on June 1 or December 1, 2010; and 100% on June 1, 2011 and
thereafter. In accordance with EITF Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction,the Company accounts for this as an
operating lease.

In
connection with these bonds, AWA entered into an Amended and Restated
Airport Use Agreement, pursuant to which AWA agreed to make
sufficient payments to the Industrial Development Authority
(IDA) to cover the principal and interest of the bonds and
to indemnify the IDA for any claims arising out of the issuance and
sale of the bonds and the use and occupancy of the concourses financed by these
bonds and the old bonds. At December 31, 2002, the outstanding
principal amount of the bonds was $21.8 million. The Company
estimates its remaining payments to cover the principal and interest
of these bonds will be approximately $44.3 million.

(c)  Aircraft Acquisitions

In January 2002, upon closing of the $429 million loan supported by a $380
million government loan guarantee, AWA restructured its aircraft purchase
commitment to AVSA. As a result, 17 new Airbus aircraft previously scheduled
for delivery in 2003 and 2004 were deferred by a total of 505 aircraft-months
to 2004 through 2007. At December 31, 2002, AWA had firm commitments to AVSA
for a total of 15 Airbus A318-100, one Airbus A319-100 and five Airbus A320-200
aircraft with delivery through 2007 at a cost of approximately $800 million.
The agreement with AVSA also includes options to purchase an additional 17 A320
family aircraft during 2006 through 2008 and purchase rights for an additional
25 aircraft in the A320 family of aircraft for delivery in 2005 to 2008.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

The Company has an agreement with International Aero Engines (IAE) which
provides for the purchase by the Company of four new V2500-A5 spare engines
scheduled for delivery through 2004 for use on certain of the A320 fleet. At
December 31, 2002, the four engines have an estimated aggregate cost of $19
million.

The following table reflects estimated cash payments under the
restructured aircraft purchase agreement with AVSA and the IAE engine contract.
Actual payments may vary due to inflation factor adjustments and changes in
the delivery schedule of the equipment. The estimated cash payments include
progress payments that will be made in cash, as opposed to being financed under
an existing progress payment financing facility.

|     |  |                |         | 
|---- |  | -------------- | ------- | 
|     |  | (in thousands)
|2003 |  | $              | 87,859  | 
|2004 |  |                | 82,748  | 
|2005 |  |                | 84,970  | 
|2006 |  |                | 224,009 | 
|2007 |  |                | 264,746 | 
|     |  |                |         | 
|     |  | $              | 744,332 | 
|     |  |                |         | 

In May 2001, America West Airlines 2001-1 Pass Through Trusts issued
$427.2 million of Pass Through Trust Certificates in connection with the
financing of nine Airbus A319 aircraft and five Airbus A320 aircraft. The
combined effective interest rate on this financing is 7.66% on a fixed rate
equivalent basis at the time of closing.

The Pass Through Trust Certificates were issued by separate trusts that
hold equipment notes issued upon delivery of each financed aircraft. Proceeds
from the certificates were deposited in an escrow account pending their
application to purchase the equipment notes. The equipment notes were issued,
at AWAs election, either by AWA in connection with a mortgage financing of the
aircraft or by a separate owner trust in connection with a leveraged lease
financing of the aircraft. In the case of a leveraged lease financing, the
owner trust then leased the aircraft to AWA. In both cases, the equipment
notes are secured by a security interest in the aircraft. The pass through
trust certificates are not direct obligations of, nor guaranteed by, Holdings
or AWA. However, in the case of mortgage financings, the equipment notes
issued to the trusts are direct obligations of AWA and in the case of leveraged
lease financing, the leases are direct obligations of AWA.

Of the 14 aircraft financed under the 2001-1 Pass Through Trusts, 11 were
delivered in 2001, including three in the fourth quarter of 2001. One aircraft
was delivered in the first quarter of 2002 and two were delivered in the second
quarter of 2002. Except for the aircraft delivered in the first quarter of
2002, which was already financed as a leveraged lease upon delivery, the
acquisition of each aircraft was initially structured as a mortgage financing
and subsequently converted into a leveraged lease financing in sale-leaseback
transactions. In connection with the purchase of the two aircraft delivered in
the second quarter of 2002, AWA issued $64.2 million of equipment notes. In
June 2002, AWA converted the mortgage financing of the three aircraft delivered
in the fourth quarter of 2001 and the two aircraft delivered in the second
quarter of 2002 into a leveraged lease financing by entering into
sale-leaseback transactions. As a result, approximately $161.2 million of the
equipment notes were assumed, on a non-recourse basis, by the owner trustees
that purchased the aircraft from AWA.

In January 2002, in conjunction with the $429 million loan supported by a
$380 million government loan guarantee, AWA obtained new financing commitments
for 11 aircraft which were either already delivered in 2001 or scheduled to be
delivered in 2002 and 2003. Delivery of two of these aircraft was subsequently
deferred until 2005. In order to obtain the entire amount of the financing
commitment for two of the aircraft, AWA must achieve an established minimum
liquidity threshold. As a result, AWA has financing commitments for all
scheduled aircraft deliveries through the fourth quarter of 2003. See Note 4,
Government Guaranteed Loan.

(d)  Sale-Leaseback Transactions

As part of the restructuring completed on January 18, 2002, AWA committed
to the sale and leaseback of eight aircraft. The sale and leaseback of five of
these aircraft was completed in June 2002 and resulted in pretax losses of
approximately $2.4 million. The sale and leaseback of one aircraft was
completed in November 2002 and resulted in a pretax loss of approximately $1.4
million. The losses on the sale-leaseback transactions, which were subject to
a firm commitment in January 2002, were accrued in the accompanying
consolidated statements of operations classified in Special Chargesin the
first quarter of 2002. See Note 14, Special Charges.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

In January 2001, AWA borrowed $49.4 million from the America West Airlines
2000-1 Pass Through Trusts to fund the acquisition of two new A319 Airbus
aircraft. In March 2001, AWA entered into a sale-leaseback transaction whereby
the Company sold these aircraft resulting in a $9.6 million gain. This gain
was deferred and is being amortized over the term of the operating leases,
which approximates 22 years, as a reduction in rent expense.

In the second and third quarters of 2001, AWA borrowed $232.0 million from
the America West Airlines 2001-1 Pass Through Trusts to fund the acquisition of
eight new A319 Airbus aircraft. In October 2001, AWA completed the sale of
these eight aircraft as part of a sale-leaseback transaction. The $34.1
million gain resulting from this transaction was deferred and is being
amortized over the term of the operating leases, which approximates 20 years,
as a reduction in rent expense.

In September 2001, AWA completed the sale of two owned aircraft engines,
with a combined net book value of $10.9 million, for approximately $10.0
million as part of a sale-leaseback transaction. The resulting $0.9 million
pretax loss on this transaction was recognized in the accompanying consolidated
statements of operations for the year ended December 31, 2001, classified in
Nonoperating Income (Expense)  Other, Net.

In October 2001, AWA completed the sale of two owned A320 flight
simulators as part of a sale-leaseback transaction. The flight simulators,
with a combined net book value of $14.6 million, were sold for approximately
$17.4 million. The gain resulting from this transaction was deferred and is
being amortized over the term of the operating lease, which approximates nine
years, as a reduction in rent expense.

(e)  Contingent Legal Obligations

Holdings and its subsidiaries are parties to various legal proceedings,
including some purporting to be class action suits, and some which demand large
monetary damages or other relief, which, if granted, would require significant
expenditures. In certain cases where it is probable that the outcome will
result in monetary damages, the Company has reviewed available information and
determined that the best estimate of losses to be incurred related to these
cases is $2 million, which has been accrued. For those cases where a loss is
possible, or cases where a range of loss is probable but no amount within the
range is a better estimate than any other amount, the estimated amount of
exposure ranges from $0 to $25 million. In these instances, no accrual has
been recorded.

(f)  General Guarantees and Indemnifications

The Company is the lessee under many aircraft financing agreements
(including leveraged lease financings of aircraft under the pass through
trusts) and real estate leases. It is common in such transactions for the
Company as the lessee to agree to indemnify the lessor and other related third
parties for the manufacture, design, ownership, financing, use, operation and
maintenance of the aircraft, and for tort liabilities that arise out of or
relate to the Companys use or occupancy of the leased asset. In some cases,
this indemnity extends to related liabilities arising from the negligence of
the indemnified parties, but usually excludes any liabilities caused by their
gross negligence or willful misconduct. Additionally, in the case of real
estate leases, the Company typically indemnifies such parties for any
environmental liability that arises out of or relates to the Companys use of
the leased premises. The Company expects that it would be covered by insurance
(subject to deductibles) for most tort liabilities and related indemnities
described above with respect to leased real estate and operated aircraft.

9. Income Taxes

The Company recorded income tax expense (benefit) as follows:

|                                   |                     |   |                         |         |      |   |                |         |   |   |        |       | 
|---------------------------------- | ------------------- | - | ----------------------- | ------- | ---- | - | -------------- | ------- | - | - | ------ | ----- | 
|                                   |                     |   | Year Ended December 31,
|                                   |                     |   |                        
|                                   |                     |   | 2002                    |         | 2001 |   | 2000          
|                                   |                     |   |                         |         |      |   |               
|                                   |                     |   |                         |         |      |   | (as restated)  |         |   |   |       
|                                   |                     |   |                         |         |      |   | (in thousands) |         |   |   |       
|Federal                            |                     | $ | (35,071                 | )       |      | $ | (33,991        | )       |   | $ | 6,352  |      
|State                              |                     |   |                        |         |      |   |               |         |   |   | 786    |      
|                                   |                     |   |                         |         |      |   |                |         |   |   |        |      
|                                   | Total current taxes |   |                         | (35,071 | )    |   |                | (33,991 | ) |   |        | 7,138 | 
|Deferred taxes                     |                     |   |                        |         |      |   | (40,545        | )       |   |   | 9,926  |      
|                                   |                     |   |                         |         |      |   |                |         |   |   |        |      
|Total income tax expense (benefit) |                     | $ | (35,071                 | )       |      | $ | (74,536        | )       |   | $ | 17,064 |      
|                                   |                     |   |                         |         |      |   |                |         |   |   |        |      

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

The Companys emergence from bankruptcy reorganization in 1994 and the
associated implementation of fresh start reporting gave rise to significant
items of expense for financial reporting purposes that are not deductible for
income tax purposes. In large measure, it is these nondeductible (for income
tax purposes) expenses that result in an effective tax expense (benefit) rate
for financial reporting purposes that differs from the current federal
statutory income tax rate of 35% for the years ended December 31, 2001 and
2000.

Income tax expense (benefit) differs from amounts computed at the federal
statutory income tax rate as follows:

|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |        | 
|------------------------------------------------------------------------------- | ----- | - | ----------------------- | ------- | ---- | - | -------- | ------- | - | - | ------ | ------ | 
|                                                                                |       |   | Year Ended December 31,
|                                                                                |       |   |                        
|                                                                                |       |   | 2002                    |         | 2001 |   | 2000    
|                                                                                |       |   |                         |         |      |   |         
|                                                                                |       |   | (as restated)          
|                                                                                |       |   | (in thousands)         
|Income tax expense (benefit) at the federal
statutory income tax rate           |       | $ | (75,165                 | )       |      | $ | (113,535 | )       |   | $ | 8,660  |       
|State income tax expense (benefit), net of
federal income tax expense (benefit) |       |   | (8,024                  | )       |      |   | (8,925   | )       |   |   | 1,329  |       
|Nondeductible write-off of ERV in connection
with asset impairment charges      |       |   |                        |         |      |   | 22,421   |         |   |   |       |       
|Nondeductible amortization of ERV                                               |       |   |                        |         |      |   | 7,523    |         |   |   | 7,524  |       
|Change in valuation allowance                                                   |       |   | 38,137                  |         |      |   | 13,522   |         |   |   | (1,420 | )     
|Expired tax credits                                                             |       |   | 7,987                   |         |      |   | 409      |         |   |   | 1,420  |       
|Other, net                                                                      |       |   | 1,994                   |         |      |   | 4,049    |         |   |   | (449   | )     
|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |       
|                                                                                | Total |   | $                       | (35,071 | )    |   | $        | (74,536 | ) |   | $      | 17,064 | 
|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |       

As of December 31, 2002, the Company has available net operating loss
carryforwards (NOL), business tax credit carryforwards and alternative
minimum tax credit carryforwards for federal income tax purposes of
approximately $399.6 million, $1.9 million, $1.2 million, respectively. The
NOL expire during the years 2007 through 2009 while the business credit
carryforwards expire during the years 2003 through 2006. However, such
carryforwards are not available to offset federal (and in certain
circumstances, state) alternative minimum taxable income. Further, as a result
of a statutory ownership change (as defined for purposes of Section 382 of
the Internal Revenue Code) that occurred as a result of the Companys
reorganization in 1994, the Companys ability to utilize its NOL and business
tax credit carryforwards may be restricted. The alternative minimum tax credit
may be carried forward without expiration and is available to offset future
income tax payable to the extent regular income tax exceeds alternative minimum
tax in any given year.

In February 2002, Holdings filed its 2001 consolidated income tax return
with the IRS, which included a claim to carryback losses incurred in 2001 to
the tax years 1999 and 2000. This resulted in a refund of approximately $33.9
million, of which substantially all was received in the first quarter of 2002.
In March 2002, Holdings filed a revised claim for carryback losses under the
Job Creation and Workers Assistance Act of 2002, resulting in an additional
refund of approximately $26.4 million which was received in the second quarter
of 2002. Holdings will be able to carryback a portion of its 2002 loss to
prior years and obtain a refund of $3.2 million.

Composition of Deferred Tax Items:

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of the Companys deferred tax assets and liabilities are
a result of the temporary differences related to the items described as
follows:
59Table of ContentsAMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                    |                                                                                |                              |                                    |          |                |   |        |         |               |   | 
|----------------------------------- | ------------------------------------------------------------------------------ | ---------------------------- | ---------------------------------- | -------- | -------------- | - | ------ | ------- | ------------- | - | 
|                                    |                                                                                |                              |                                    |          | 2002           |   | 2001  
|                                    |                                                                                |                              |                                    |          |                |   |       
|                                    |                                                                                |                              |                                    |          |                |   |        |         | (as restated)
|                                    |                                                                                |                              |                                    |          | (in thousands)
|Deferred income tax liabilities     |                                                                                |                              |                                    |          |                |   |        |        
|                                    | Property and equipment, principally depreciation and
fresh start differences |                              | $                                  | (112,213 | )              |   | $      | (95,664 | )            
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              
|                                    |                                                                                | Total deferred tax liability |                                    |          | (112,213       | ) |        |         | (95,664       | )
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              
|Deferred tax assets
Aircraft leases |                                                                                |                              | 18,634                             |          |                |   | 16,240 |        
|                                    | Frequent flyer accrual                                                         |                              |                                    | 6,240    |                |   |        | 5,685   |              
|                                    | Net operating loss carryforwards                                               |                              |                                    | 160,248  |                |   |        | 88,088  |              
|                                    | Tax credit carryforwards                                                       |                              |                                    | 1,874    |                |   |        | 9,862   |              
|                                    | Other                                                                          |                              |                                    | 4,004    |                |   |        | 16,439  |              
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              
|                                    |                                                                                | Total deferred tax assets    |                                    |          | 191,000        |   |        |         | 136,314       |  
|                                    | Valuation allowance                                                            |                              |                                    | (78,787  | )              |   |        | (40,650 | )            
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              
|                                    |                                                                                |                              | 112,213                            |          |                |   | 95,664 |        
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              
|                                    |                                                                                |                              | Net deferred tax asset (liability) |          | $              |  |        |         | $             |  | 
|                                    |                                                                                |                              |                                    |          |                |   |        |         |              

SFAS No. 109, Accounting for Income Taxes,requires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.

The Company was in a cumulative loss position for the three years ended
December 31, 2001. Accordingly, a full valuation allowance has been
established relating to the Companys net deferred tax assets as December 31,
2001, and to tax benefits generated in 2002. We expect to continue to record a
full valuation allowance on future tax benefits until we can sustain an
appropriate level of profitability.

10. 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 limitations that the Board of Directors fixes, without
any stockholder approval. No shares of preferred stock have been issued.

Common Stock

The holders of Class A common stock are entitled to fifty votes per share,
and the holders of Class B common stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting
rights of non-U.S. citizens are limited. The Class A common stock is
convertible into an equal number of Class B shares at any time at the election
of the holders of the Class A common stock. Holdings Class B common stock is
listed on the New York Stock Exchange.

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.

Treasury Stock

In September 1995, the Company adopted a stock repurchase program. The
program was amended in December 1995, August 1997, August 1998, May 1999 and
February 2000. During 1995 through 2000, the Company repurchased approximately
16.5 million shares of Class B common stock and 7.4 million warrants. The
Company did not repurchase any Class B common stock in 2001 or 2002 and the
stock repurchase program expired on December 31, 2002. Under the terms of the
government guaranteed loan (see Note 4, Government Guaranteed Loan), the
Company is prohibited from purchasing any additional shares of its stock prior
to repayment of the loan

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

in full.

Warrants

As compensation for various elements of the Companys financial
restructuring completed in January 2002, Holdings issued a warrant to purchase
18.8 million shares of its Class B common stock to the federal government and
additional warrants to purchase 3.8 million shares of its Class B common stock
to other loan participants, in each case at an exercise price of $3 per share
and a term of ten years. For accounting purposes, the warrants were valued at
$35.4 million, or $1.57 per share, using the Black-Scholes pricing model with
the following assumptions: expected dividend yield of 0.0%, risk-free interest
rate of 4.8%, volatility of 44.9% and an expected life of ten years.

11. Stock Options and Awards

Under the 1994 Incentive Equity Plan, as amended (the 1994 Incentive
Plan), the Companys Board of Directors (the Board) was authorized to grant
stock options to officers and key employees. The maximum number of shares of
Class B common stock authorized for issuance under the Plan was 9.0 million
shares.

As of March 27, 2002, only 205,831 shares of the Companys Class B common
stock remained available for future grants under the 1994 Incentive Plan. As
of that date, although awards covering an aggregate of 6,799,570 shares of
Class B common stock remained outstanding under the 1994 Incentive Plan, all
options granted prior to December 31, 2001 were significantly out-of-the-money
(based on the $5.55 per share closing price of the Companys Class B common
stock as reported on the New York Stock Exchange on March 27, 2002) due to the
significant drop in the price of the Companys stock during 2001 (largely as a
result of the events of September 11, 2001 and its aftermath). Consequently,
these options had lost substantially all value as retention and incentive
tools. The Board is strongly opposed to repricing outstanding stock options
and, in connection with the government guaranteed loan, the Company agreed not
to reprice any outstanding stock options so long as the loan remains
outstanding.

For these reasons, on March 27, 2002, the Board adopted the Companys 2002
Incentive Equity Plan (the 2002 Incentive Plan), subject to stockholder
approval. A total of 8,000,000 shares of Class B common stock, which the
Company believes will be adequate to fund the requirements under its long-term
compensation arrangements through 2005, have been reserved for issuance under
the 2002 Incentive Plan. At the same time, the Board determined that,
regardless of share availability, no new awards will be granted under the 1994
Incentive Plan following stockholder approval of the 2002 Incentive Plan. In
May 2002, the Companys stockholders approved the adoption of the 2002
Incentive Plan.

Stock options are granted with an exercise price equal to the stocks fair
market value at the date of grant, generally become exercisable over a
three-year period and expire if unexercised at the end of 10 years. At
December 31, 2002, approximately 6.0 million shares are available for grant
under the 2002 Incentive Plan.

Stock option activity during the years indicated is as follows:

|                              |           |        |           |                |         |   |           |       | 
|----------------------------- | --------- | ------ | --------- | -------------- | ------- | - | --------- | ----- | 
|                              |           |        |           |                |         |   | Weighted-
|                              |           |        | Number of |                | Average
|1994 Plan                     |           | Shares |           | Exercise Price
|                              |           |        |           |               
|Balance at December 31, 1999: |           |        | 5,242,569 |                |         | $ | 16.90     |      
|                              | Granted   |        |           | 1,782,300      |         |   | $         | 13.49 | 
|                              | Exercised |        |           | (442,010       | )       |   | $         | 12.93 | 
|                              | Canceled  |        |           | (680,388       | )       |   | $         | 19.26 | 
|                              |           |        |           |                |         |   |           |      
|Balance at December 31, 2000: |           |        | 5,902,471 |                |         | $ | 15.90     |      
|                              | Granted   |        |           | 257,000        |         |   | $         | 11.30 | 
|                              | Exercised |        |           | (93,334        | )       |   | $         | 10.17 | 
|                              | Canceled  |        |           | (777,251       | )       |   | $         | 16.16 | 
|                              |           |        |           |                |         |   |           |      
|Balance at December 31, 2001: |           |        | 5,288,886 |                |         | $ | 15.74     |      
|                              | Granted   |        |           | 986,987        |         |   | $         | 3.79  | 
|                              | Exercised |        |           |               |         |   |           |      | 
|                              | Canceled  |        |           | (362,267       | )       |   | $         | 11.38 | 
|                              |           |        |           |                |         |   |           |      
|Balance at December 31, 2002: |           |        | 5,913,606 |                |         | $ | 14.01     |      
|                              |           |        |           |                |         |   |           |      

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                              |           |        |           |                |         |   |           |      | 
|----------------------------- | --------- | ------ | --------- | -------------- | ------- | - | --------- | ---- | 
|                              |           |        |           |                |         |   | Weighted-
|                              |           |        | Number of |                | Average
|2002 Plan                     |           | Shares |           | Exercise Price
|                              |           |        |           |               
|Balance at December 31, 2001: |           |        |          |                |         | $ |          |     
|                              | Granted   |        |           | 2,092,963      |         |   | $         | 5.01 | 
|                              | Exercised |        |           |               |         |   |           |     | 
|                              | Canceled  |        |           | (71,000        | )       |   | $         | 5.36 | 
|                              |           |        |           |                |         |   |           |     
|Balance at December 31, 2002: |           |        | 2,021,963 |                |         | $ | 5.00      |     
|                              |           |        |           |                |         |   |           |     

At December 31, 2002, options outstanding and exercisable by price range
are as follows:

|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 
|---------------- |  | ----------- | --------- | ---------------- |  | -------------- | ---- | ----------- |  | -------- | ----- | ------- |  |  | --------- | -------- |  | - | ----- | 
|                 |  |             |           |                  |  | Weighted       |      |             |  |          |       |         |  |  |           | Weighted
|                 |  |             |           |                  |  | Average        |      | Weighted    |  | Options  |       | Average
|Range of         |  | Options     |           | Remaining        |  | Average        |      | Currently   |  | Exercise
|Exercise Prices  |  | Outstanding |           | Contractual Life |  | Exercise Price |      | Exercisable |  | Price   
|                 |  |             |           |                  |  |                |      |             |  |         
|$2.17 to $3.80   |  |             | 1,253,987 |                  |  |                | 9.17 |             |  | $        | 3.44  |         |  |  | 90,000    |          |  | $ | 3.20  | 
|$5.55 to $8.00   |  |             | 1,646,963 |                  |  |                | 9.19 |             |  | $        | 5.57  |         |  |  | 12,000    |          |  | $ | 8.00  | 
|$8.75 to $12.00  |  |             | 1,927,334 |                  |  |                | 5.60 |             |  | $        | 10.50 |         |  |  | 1,605,311 |          |  | $ | 10.45 | 
|$12.88 to $18.75 |  |             | 1,671,500 |                  |  |                | 5.66 |             |  | $        | 16.16 |         |  |  | 1,544,838 |          |  | $ | 16.11 | 
|$19.63 to $29.19 |  |             | 1,435,785 |                  |  |                | 5.65 |             |  | $        | 22.44 |         |  |  | 1,417,452 |          |  | $ | 22.47 | 
|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 
|                 |  |             | 7,935,569 |                  |  |                | 6.93 |             |  | $        | 11.71 |         |  |  | 4,669,601 |          |  | $ | 15.83 | 
|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 

There were 4,027,196 and 3,205,576 stock options exercisable as of
December 31, 2001 and December 31, 2000, respectively. The per share
weighted-average fair value of stock options granted during 2002, 2001 and 2000
was $2.87, $3.92 and $5.38, respectively, on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 2002  expected dividend yield of 0.0%, risk-free interest rate of
3.9%, volatility of 87.9% and an expected life of four years; 2001  expected
dividend yield of 0.0%, risk-free interest rate of 4.8%, volatility of 44.9%
and an expected life of four years; 2000  expected dividend yield of 0.0%,
risk-free interest rate of 6.1%, volatility of 52.2% and an expected life of
four years.

Under the 1994 Plan, the Company granted 20,000 shares of Class B common
stock as restricted stock to certain officers and key employees in 2000. There
were no restricted stock grants in 2001 or 2002. The Company recognized
compensation expense of $0.7 million, $0.8 million and $1.6 million related to
restricted stock in 2002, 2001 and 2000, respectively. At December 31, 2002,
78,462 shares of restricted stock were vested.

The stock option plans also provide for the issuance of stock and grant of
stock options to non-employee directors. The Company has granted options to
purchase 363,000 shares of Class B common stock to members of the Board of
Directors who are not employees of the Company. The options have a ten-year
term and are exercisable six months after the date of grant. As of December
31, 2002, 249,000 options were outstanding and exercisable at prices ranging
from $3.20 to $29.19 per share. On December 31, 2001 and 2000, non-employee
directors were also granted Class B common stock pursuant to the 1994 Plan
totaling 9,750 shares and 9,000 shares, respectively. There were no grants of
Class B common stock to non-employee directors in 2002.

12. Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes unrealized gains and losses on
available-for-sale securities and changes in the fair value of derivative
financial instruments that qualify for hedge accounting. For the years ended
December 31, 2002 and 2001, the Company recorded a total comprehensive loss of
$387.3 million and $247.4 million, respectively. The difference between net
income (loss) and comprehensive loss for the years ended December 31, 2002 and
2001 is detailed in the following table:
62Table of ContentsAMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                   |                                                                                                                                                                     |   |                         |       |      |   |                |        |   |   |       |        |  
|------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | ----- | ---- | - | -------------- | ------ | - | - | ----- | ------ | -
|                   |                                                                                                                                                                     |   | Year Ended December 31,
|                   |                                                                                                                                                                     |   |                        
|                   |                                                                                                                                                                     |   | 2002                    |       | 2001 |   | 2000          
|                   |                                                                                                                                                                     |   |                         |       |      |   |               
|                   |                                                                                                                                                                     |   |                         |       |      |   | (as restated)  |        |   |   |      
|                   |                                                                                                                                                                     |   |                         |       |      |   | (in thousands) |        |   |   |      
|Net income (loss)  |                                                                                                                                                                     | $ | (387,909                | )     |      | $ | (249,851       | )      |   | $ | 7,679 |       
|                   |                                                                                                                                                                     |   |                         |       |      |   |                |        |   |   |       |       
|                   | Unrealized gains (losses) on derivative instruments, net of
deferred taxes of $458 in 2002 and $1,190 in 2001                                                       |   |                         | 1,178 |      |   |                | (3,146 | ) |   |       |       |  
|                   | Reclassification adjustment to net loss of previously reported
unrealized losses (gains) on derivative instruments, net of taxes
of $209 in 2002 and $1,715 in 2001 |   |                         | (538  | )    |   |                | 4,536  |   |   |       |       |  
|                   | Unrealized losses on marketable equity securities, net of
deferred taxes of $121 and $674 in 2000                                                                   |   |                         |      |      |   |                | (199   | ) |   |       | (1,108 | )
|                   | Realized losses on marketable equity securities, net of taxes of $795 in 2001                                                                                       |   |                         |      |      |   |                | 1,307  |   |   |       |       |  
|                   |                                                                                                                                                                     |   |                         |       |      |   |                |        |   |   |       |       
|                   | Total other comprehensive income                                                                                                                                    |   |                         | 640   |      |   |                | 2,498  |   |   |       | (1,108 | )
|                   |                                                                                                                                                                     |   |                         |       |      |   |                |        |   |   |       |       
|Comprehensive loss |                                                                                                                                                                     | $ | (387,269                | )     |      | $ | (247,353       | )      |   | $ | 6,571 | )     
|                   |                                                                                                                                                                     |   |                         |       |      |   |                |        |   |   |       |       

In July 2000, Holdings completed the sale of America West Golf Vacations,
a division of TLC, to Book4golf.com, a provider of Internet-based, real-time,
golf tee time reservation systems. TLC received 900,000 common shares, with a
fair market value of $2.1 million. The Company recorded a nonoperating pretax
gain on sale of $2.0 million in the third quarter of 2000. In accordance with
SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities,the Company had classified TLCs investment in Book4golf.com as
available-for-sale securities in the Companys consolidated balance sheet.
SFAS No. 130, Reporting Comprehensive Incomerequires unrealized gains or
losses on the Companys available-for-sale securities to be included in
accumulated other comprehensive income, a component of stockholders equity.
In the third quarter of 2001, management determined the decline in market value
of the Companys investment in Book4golf.com, approximately $2.1 million since
July 2000, was other than temporary. In accordance with SFAS No. 12,
Accounting for Certain Marketable Securities,the investment was written down
to realizable value, recognizing a nonoperating pretax loss of $2.1 million.
The tax benefit associated with the loss was $0.8 million.

13. Employee Benefit Plan

The Company has a 401(k) defined contribution plan, covering essentially
all employees of the Company. Participants may contribute from 1 to 15% of
their pretax earnings to a maximum of $11,000 in 2002. The Companys matching
contribution is determined annually by the Board of Directors. The Companys
contribution expense to the plan totaled $8.7 million, $8.1 million and $9.0
million in 2002, 2001 and 2000, respectively.

14. Special Charges

In the first quarter of 2002, the Company recorded a pretax special charge
of $21.1 million, primarily related to the restructuring completed on January
18, 2002, resulting from the events of September 11, 2001. Components of the
special charge are as follows:

|                                                                    |       |   |                 |        |               |   |        |        | 
|------------------------------------------------------------------- | ----- | - | --------------- | ------ | ------------- | - | ------ | ------ | 
|                                                                    |       |   | Special Charges
|                                                                    |       |   | (as restated)   |        | (as reported)
|                                                                    |       |   | (In thousands) 
|Impairment of owned aircraft and engines (based on appraised value) |       | $ |                |        |               | $ | 39,225 |       
|Fleet restructuring costs                                           |       |   | 9,915           |        |               |   | 9,915  |       
|Losses on sale-leaseback transactions                               |       |   | 6,328           |        |               |   | 6,328  |       
|Professional fees                                                   |       |   | 4,745           |        |               |   | 4,745  |       
|Write-off of computer system and security equipment                 |       |   | 3,411           |        |               |   | 3,411  |       
|Severance                                                           |       |   | 656             |        |               |   | 656    |       
|Revision of estimate for second quarter 2001 special charge         |       |   | (4,000          | )      |               |   | (4,000 | )     
|                                                                    |       |   |                 |        |               |   |        |       
|                                                                    | Total |   | $               | 21,055 |               |   | $      | 60,280 | 
|                                                                    |       |   |                 |        |               |   |        |       

Of this amount, approximately $10.3 million, principally related to losses
on sale-leaseback transactions, fleet restructuring costs, professional fees
and severance was accrued.

In the third quarter of 2002, the Company recorded a $2.0 million
reduction in special charges due to a revision of the estimated costs related
to the early termination of certain aircraft leases.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

In April 2001, Holdings implemented a cost reduction plan to respond to a
softening economy. The plan included a slowing of the airlines growth through
the return of seven older 737-300 leased aircraft to the lessors in the second
half of 2001 and January 2002 and significant reductions in overhead due in
part to select reductions-in-force of management, administrative and clerical
personnel. The Company recorded a pretax charge of $35.7 million in the second
quarter of 2001 related to the earlier-than-planned aircraft returns and
reductions-in-force.

In the fourth quarter of 2001, the Company recorded a pretax special
charge of $106.0 million related to the impairment of owned aircraft
and engines as a result of declines in market value resulting from
the terrorist attacks of September 11, 2001 and their aftermath.
Fair value for purposes of determining impairment was determined by
independent appraisal and the impairment charge included an
allocation of unamortized ERV at December 31, 2001 of
approximately $64.1 million. Special charges for the year ended
December 31, 2001 also include charges for the early termination of leases for one A320 and one 737-300
aircraft.

The following table presents the payments and other settlements made
during 2002 and the remaining special charge accruals as of December 31, 2002.

|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|--------------------------------------------------------------- |  | --------- | ------ | ------------- |  | ------------ | ------- | ----------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                                                |  | Sale-     |        | Fleet         |  | Professional |         | Reductions- |  |            |        |       |  |   |        |  
|                                                                |  | Leaseback |        | Restructuring |  | Fees         |         | in-force    |  | Impairment |        | Total
|                                                                |  |           |        |               |  |              |         |             |  |            |        |      
|Balance at December 31, 2000                                    |  | $         |       |               |  | $            |        |             |  | $          |       |       |  | $ |       |   |  | $ |         |   |  | $ |         |  
|Special charges                                                 |  |           |       |               |  |              | 25,226  |             |  |            |       |       |  |   | 1,149  |   |  |   | 115,290  |   |  |   | 141,665  |  
|Payments                                                        |  |           |       |               |  |              | (8,440  | )           |  |            |       |       |  |   | (1,066 | ) |  |   |         |   |  |   | (9,506   | )
|Impairment loss                                                 |  |           |       |               |  |              |        |             |  |            |       |       |  |   |       |   |  |   | (115,290 | ) |  |   | (115,290 | )
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2001 (a)                                |  |           |       |               |  |              | 16,786  |             |  |            |       |       |  |   | 83     |   |  |   |         |   |  |   | 16,869   |  
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Special charges                                                 |  |           | 6,328  |               |  |              | 10,582  |             |  |            | 1,489  |       |  |   | 631    |   |  |   |         |   |  |   | 19,030   |  
|Reclassification of aircraft rent
due
to restructuring          |  |           |       |               |  |              | 4,696   |             |  |            |       |       |  |   |       |   |  |   |         |   |  |   | 4,696    |  
|Payments                                                        |  |           |       |               |  |              | (14,516 | )           |  |            | (1,489 | )     |  |   | (714   | ) |  |   |         |   |  |   | (16,719  | )
|Issuance of convertible notes                                   |  |           |       |               |  |              | (5,000  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (5,000   | )
|Forfeiture of security deposits                                 |  |           |       |               |  |              | (2,289  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (2,289   | )
|Loss on sale-leasebacks                                         |  |           | (3,852 | )             |  |              |        |             |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (3,852   | )
|Reclassification of capitalized
maintenance for parked aircraft |  |           |       |               |  |              | (902    | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (902     | )
|Revision of estimate                                            |  |           |       |               |  |              | (6,000  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (6,000   | )
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Balance
at December 31, 2002                                    |  |           | $2,476 |               |  |              | $3,357  |             |  | $          |       |       |  | $ |       |   |  | $ |         |   |  |   | $5,833   |  
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  



|(a) |  | As restated  See Note 2
|--- |  | ------------------------

The Company expects to make payments related to these special charges
through the fourth quarter of 2005.

15.     Nonoperating Income (Expense)  Other, Net

Under the airline compensation provisions of the Air Transportation Safety
and System Stabilization Act (the Act), each air carrier was entitled to
receive the lesser of: (i) its direct and incremental losses for the period
September 11, 2001 to December 31, 2001 or (ii) its proportional available seat
mile allocation (based on available seat miles for August 2001) of the $4.5
billion compensation available under the Act. In 2001, AWA received $98.2
million under the Act from the United States government and expected to
receive, based on its losses and its share of available seat miles, at least an
additional $10.0 million. In accordance with EITF Issue No. 01-10, Accounting
for the Impact of the Terrorist Attacks of September 11, 2001,AWA recognized
$108.2 million of federal government assistance in 2001 as nonoperating income
because direct and incremental losses incurred during 2001 exceeded that
amount. In July 2002, AWA received an additional $12.3 million under the Act.
Accordingly, $10.0 million was credited against the receivable established in
2001 and $2.3 million was recognized as nonoperating income in the second
quarter of 2002. In August 2002, AWA received an additional payment of $6.2
million under the Act, which was recognized as nonoperating income in the third
quarter of 2002.

In March 2002, the Company wrote down its investment in Aeroxchange, an
e-commerce entity, which was carried at cost, to net realizable value
recognizing a pretax loss of $2.8 million. See Note 6, Financial Instruments
and Risk Management  (a) Fair Value of Financial Instruments  Investments in
Equity Securities.

In September 2001, AWA completed the sale of two owned aircraft engines,
with a combined net book value of $10.9 million, for approximately $10.0
million as part of a sale leaseback transaction, resulting in a $0.9 million
pretax loss.

In July 2001, AWA recognized a pretax gain of approximately $1.1 million
from the sale of 62,240 warrants to purchase common stock of Expedia.com.

64



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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

In September 2000, AWA recorded an $8.8 million pretax unrealized gain on
the Companys investment in one million shares of GetThere.com common stock.
AWA sold all one million shares of GetThere.com for approximately $17.8 million
in October 2000.

In July 2000, Holdings completed the sale of America West Golf Vacations,
a division of TLC, to Book4golf.com, a provider of Internet-based, real-time,
golf tee time reservation systems. TLC received 900,000 common shares, with a
fair market value of $2.1 million. The Company recorded a nonoperating pretax
gain on sale of $2.0 million in the third quarter of 2000. In the third
quarter of 2001, management determined the decline in market value of the
Companys investment in Book4golf.com, approximately $2.1 million since July
2000, was other than temporary. In accordance with SFAS No. 12, Accounting
for Certain Marketable Securities,the investment was written down to
realizable value, recognizing a pretax loss of $2.1 million. See
Note 12, Other Comprehensive Income (Loss).

In May 2000, Holdings completed the sale of a majority interest in TLCs
retail operations, National Leisure Group and The Vacation Store, to Softbank
Capital Partners and General Catalyst LLC. TLC received $52 million in cash
and retained a 12% passive ownership interest in the restructured venture. The
Company recorded a $9.2 million pretax gain on this sale transaction.

In March 2000, AWA sold 500,000 warrants to purchase common stock of
Priceline.com, Inc. for approximately $18.0 million, resulting in a pretax gain
of approximately $15.5 million.

16.     Earnings (Loss) Per Share

|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |            | 
|-------------------------------------------------------------------------- | ------------------------------------------------------ | - | ------------------------------------------- | ---------- | ---- | - | ------------- | ---------- |  | - | ---------- | ---------- | 
|                                                                           |                                                        |   | Year Ended December 31,                    
|                                                                           |                                                        |   |                                            
|                                                                           |                                                        |   | 2002                                        |            | 2001 |   | 2000         
|                                                                           |                                                        |   |                                             |            |      |   |              
|                                                                           |                                                        |   |                                             |            |      |   | (as restated) |            |  |   |           
|                                                                           |                                                        |   | (in thousands of dollars except share data)
|BASIC EARNINGS (LOSS) PER SHARE                                            |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Income (loss) before cumulative effect of change in accounting principle   |                                                        | $ | (179,686                                    | )          |      | $ | (249,851      | )          |  | $ | 7,679      |           
|Cumulative effect of change in accounting principle                        |                                                        |   | (208,223                                    | )          |      |   |              |            |  |   |           |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Net income (loss)                                                          |                                                        | $ | (387,909                                    | )          |      | $ | (249,851      | )          |  | $ | 7,679      |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Weighted average common shares outstanding                                 |                                                        |   | 33,723,252                                  |            |      |   | 33,669,858    |            |  |   | 35,139,084 |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Basic earnings (loss) per share:                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Earnings (loss) before cumulative effect of change in accounting
principle |                                                        | $ | (5.33                                       | )          |      | $ | (7.42         | )          |  | $ | 0.22       |           
|Cumulative effect of change in accounting principle                        |                                                        |   | (6.17                                       | )          |      |   |              |            |  |   |           |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Net earnings (loss)                                                        |                                                        | $ | (11.50                                      | )          |      | $ | (7.42         | )          |  | $ | 0.22       |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|DILUTED EARNINGS (LOSS) PER SHARE                                          |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Income (loss) before cumulative effect of change in accounting principle   |                                                        | $ | (179,686                                    | )          |      | $ | (249,851      | )          |  | $ | 7,679      |           
|Cumulative effect of change in accounting principle                        |                                                        |   | (208,223                                    | )          |      |   |              |            |  |   |           |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Net income (loss)                                                          |                                                        | $ | (387,909                                    | )          |      | $ | (249,851      | )          |  | $ | 7,679      |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Share computation:                                                         |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|                                                                           | Weighted average common shares outstanding             |   |                                             | 33,723,252 |      |   |               | 33,669,858 |  |   |            | 35,139,084 | 
|                                                                           | Assumed exercise of stock options and warrants         |   |                                             |           |      |   |               |           |  |   |            | 549,093    | 
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|                                                                           | Weighted average common shares outstanding as adjusted |   |                                             | 33,723,252 |      |   |               | 33,669,858 |  |   |            | 35,688,177 | 
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Diluted earnings (loss) per share:                                         |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Earnings (loss) before cumulative effect of change in accounting
principle |                                                        | $ | (5.33                                       | )          |      | $ | (7.42         | )          |  | $ | 0.22       |           
|Cumulative effect of change in accounting principle                        |                                                        |   | (6.17                                       | )          |      |   |              |            |  |   |           |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           
|Net earnings (loss)                                                        |                                                        | $ | (11.50                                      | )          |      | $ | (7.42         | )          |  | $ | 0.22       |           
|                                                                           |                                                        |   |                                             |            |      |   |               |            |  |   |            |           

For the years ended December 31, 2002, 2001 and 2000, options of
7,292,706, 5,062,194 and 3,592,311 respectively, are not included in the
computation of diluted EPS because the option exercise prices were greater than
the average market price of common stock for the period. In addition, for the
year ended December 31, 2002, 22,074 incremental shares from assumed exercise
of stock options and 2,794,399 incremental shares from assumed exercise of
warrants issued in conjunction with the government guaranteed loan are not
included in the computation of diluted EPS because of the antidilutive effect
on EPS. For the year ended December 31, 2001, 68,677 incremental shares from
assumed exercise of stock options are not included in the computation of
diluted EPS

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

because of the antidilutive effect on EPS.

17. Supplemental Information to Consolidated Statements of Cash Flows

Supplemental disclosure of cash flow information and non-cash investing
and financing activities were as follows:

|                       |                                                              |  |                         |         |      |  |                |         |   |  |   |         |  
|---------------------- | ------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | -------------- | ------- | - |  | - | ------- | -
|                       |                                                              |  | Year Ended December 31,
|                       |                                                              |  |                        
|                       |                                                              |  | 2002                    |         | 2001 |  | 2000          
|                       |                                                              |  |                         |         |      |  |               
|                       |                                                              |  |                         |         |      |  | (in thousands) |         |   |  |  
|Non-cash transactions: |                                                              |  |                         |         |      |  |                |         |   |  |   |        
|                       | Issuance of convertible notes, net of cancellations          |  | $                       | 59,621  |      |  | $              |        |   |  | $ |        |  
|                       | Issuance of warrants                                         |  |                         | 35,383  |      |  |                |        |   |  |   |        |  
|                       | Equipment acquired through capital leases                    |  |                         | 17,753  |      |  |                |        |   |  |   |        |  
|                       | Equipment acquired with issuance of notes payable            |  |                         | 64,163  |      |  |                |        |   |  |   |        |  
|                       | Notes payable issued for equipment purchase deposits         |  |                         | 10,500  |      |  |                | 10,500  |   |  |   | 42,000  |  
|                       | Notes payable canceled under the aircraft
purchase agreement |  |                         | (10,500 | )    |  |                | (38,500 | ) |  |   | (38,500 | )
|                       | Payment in kind notes issued, net of returns                 |  |                         | 7,756   |      |  |                |        |   |  |   |        |  
|Cash transactions:     |                                                              |  |                         |         |      |  |                |         |   |  |   |        
|                       | Interest paid, net of amounts capitalized                    |  |                         | 25,942  |      |  |                | 24,242  |   |  |   | 11,536  |  
|                       | Income taxes paid (refunded)                                 |  |                         | (63,353 | )    |  |                | (8,588  | ) |  |   | 9,859   |  

18. Related Party Transactions

As part of our reorganization in 1994, Continental Airlines and AWA
entered into an alliance agreement which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks  The stockholders who effectively control the voting
power of Holdings could take actions that would favor their own personal
interests to the detriment of our interests.AWA paid Continental
approximately $25.5 million, $30.1 million and $32.4 million and also received
approximately $15.9 million, $22.0 million and $25.5 million in 2002, 2001 and
2000, respectively, from Continental pursuant to these agreements.

19. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2002 and 2001 follows (in
thousands of dollars except per share amounts):

|                                                                           |         |   |               |       |               |   |               |        |               |   |         |       |   |   |         |       |  
|-------------------------------------------------------------------------- | ------- | - | ------------- | ----- | ------------- | - | ------------- | ------ | ------------- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                           |         |   | 1st Quarter   |       | 2nd Quarter  
|                                                                           |         |   |               |       |              
|                                                                           |         |   | (as restated) |       | (as reported) |   | (as restated) |        | (as reported)
|2002                                                                       |         |   |               |       |               |   |               |        |               |   |         |       |   |   |         |      
|Operating revenues                                                         |         | $ | 460,291       |       |               | $ | 460,291       |        |               | $ | 544,146 |       |   | $ | 544,146 |      
|Operating income (loss)                                                    |         |   | (83,466       | )     |               |   | (122,691      | )      |               |   | 1,421   |       |   |   | 1,421   |      
|Nonoperating income (expenses),
net                                        |         |   | (16,842       | )     |               |   | (16,842       | )      |               |   | (14,276 | )     |   |   | (14,276 | )    
|Income tax benefit                                                         |         |   | 35,071        |       |               |   | 53,512        |        |               |   |        |       |   |   | 4,401   |      
|Loss before cumulative effect of
change in accounting principle            |         |   | (65,237       | )(1)  |               |   | (86,021       | )(1)   |               |   | (12,855 | )(2)  |   |   | (8,454  | )(2) 
|Net
loss                                                                   |         |   | (273,460      | )     |               |   | (358,305      | )      |               |   | (12,855 | )     |   |   | (8,454  | )    
|Loss
per share before cumulative effect of change in accounting
principle: |         |   |               |       |               |   |               |        |               |   |         |       |   |   |         |      
|                                                                           | Basic   |   |               | (1.93 | )             |   |               | (2.55  | )             |   |         | (0.38 | ) |   |         | (0.25 | )
|                                                                           | Diluted |   |               | (1.93 | )             |   |               | (2.55  | )             |   |         | (0.38 | ) |   |         | (0.25 | )
|Net loss per share:                                                        |         |   |               |       |               |   |               |        |               |   |         |       |   |   |         |      
|                                                                           | Basic   |   |               | (8.10 | )             |   |               | (10.62 | )             |   |         | (0.38 | ) |   |         | (0.25 | )
|                                                                           | Diluted |   |               | (8.10 | )             |   |               | (10.62 | )             |   |         | (0.38 | ) |   |         | (0.25 | )

|                                                                           |         |   |               |       |               |   |         |       |   |   |         |       |  
|-------------------------------------------------------------------------- | ------- | - | ------------- | ----- | ------------- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                           |         |   | 3rd Quarter   |       | 4th Quarter  
|                                                                           |         |   |               |       |              
|                                                                           |         |   | (as restated) |       | (as reported) |   |         |       |  
|2002                                                                       |         |   |               |       |               |   |         |       |   |   |         |      
|Operating revenues                                                         |         | $ | 520,351       |       |               | $ | 520,351 |       |   | $ | 522,328 |      
|Operating loss                                                             |         |   | (40,167       | )     |               |   | (40,167 | )     |   |   | (37,868 | )    
|Nonoperating income (expenses),
net                                        |         |   | (9,415        | )     |               |   | (9,415  | )     |   |   | (14,144 | )    
|Income tax benefit                                                         |         |   |              |       |               |   | 18,592  |       |   |   |        |      
|Loss
before cumulative effect of change in accounting principle            |         |   | (49,582       | )(3)  |               |   | (30,990 | )(3)  |   |   | (52,012 | )(4) 
|Net
loss                                                                   |         |   | (49,582       | )     |               |   | (30,990 | )     |   |   | (52,012 | )    
|Loss
per share before cumulative effect of change in accounting
principle: |         |   |               |       |               |   |         |       |   |   |         |       |  
|                                                                           | Basic   |   |               | (1.47 | )             |   |         | (0.92 | ) |   |         | (1.54 | )
|                                                                           | Diluted |   |               | (1.47 | )             |   |         | (0.92 | ) |   |         | (1.54 | )
|Net loss per share:                                                        |         |   |               |       |               |   |         |       |   |   |         |       |  
|                                                                           | Basic   |   |               | (1.47 | )             |   |         | (0.92 | ) |   |         | (1.54 | )
|                                                                           | Diluted |   |               | (1.47 | )             |   |         | (0.92 | ) |   |         | (1.54 | )

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                                                |         |   |             |       |             |   |         |       |  
|--------------------------------------------------------------- | ------- | - | ----------- | ----- | ----------- | - | ------- | ----- | -
|                                                                |         |   | 1st Quarter |       | 2nd Quarter
|                                                                |         |   |             |       |            
|2001                                                            |         |   |             |       |             |   |         |      
|Operating revenues                                              |         | $ | 587,473     |       |             | $ | 587,199 |      
|Operating loss                                                  |         |   | (24,506     | )     |             |   | (53,513 | )    
|Nonoperating income (expenses),
net                             |         |   | (2,404      | )     |             |   | (370    | )    
|Income tax benefit                                              |         |   | 14,074      |       |             |   | 11,399  |      
|Loss before cumulative effect of
change in accounting principle |         |   | (12,836     | )(5)  |             |   | (42,484 | )(6) 
|Loss per share:                                                 |         |   |             |       |             |   |         |      
|                                                                | Basic   |   |             | (0.38 | )           |   |         | (1.26 | )
|                                                                | Diluted |   |             | (0.38 | )           |   |         | (1.26 | )

|                                                                |         |   |             |       |             |   |               |       |               |   |          |       |  
|--------------------------------------------------------------- | ------- | - | ----------- | ----- | ----------- | - | ------------- | ----- | ------------- | - | -------- | ----- | -
|                                                                |         |   | 3rd Quarter |       | 4th Quarter
|                                                                |         |   |             |       |            
|                                                                |         |   |             |       |             |   | (as restated) |       | (as reported)
|2001                                                            |         |   |             |       |             |   |               |       |               |   |          |      
|Operating revenues                                              |         | $ | 491,355     |       |             | $ | 399,886       |       |               | $ | 399,886  |      
|Operating loss                                                  |         |   | (98,917     | )     |             |   | (240,935      | )     |               |   | (137,649 | )    
|Nonoperating income (expenses),
net                             |         |   | 52,156      |       |             |   | 44,102        |       |               |   | 44,102   |      
|Income tax benefit                                              |         |   | 15,082      |       |             |   | 33,981        |       |               |   | 32,675   |      
|Loss before cumulative effect of
change in accounting principle |         |   | (31,679     | )(7)  |             |   | (162,852      | )(8)  |               |   | (60,872  | )(8) 
|Loss per share:                                                 |         |   |             |       |             |   |               |       |               |   |          |      
|                                                                | Basic   |   |             | (0.94 | )           |   |               | (4.83 | )             |   |          | (1.81 | )
|                                                                | Diluted |   |             | (0.94 | )           |   |               | (4.83 | )             |   |          | (1.81 | )



|(1) |  | Includes a $21.0 million pretax charge primarily related to the
restructuring completed on January 18, 2002, resulting from the
events of September 11, 2001, and a pretax charge of $2.8 million
related to the write down to net realizable value of an investment
in an e-commerce entity that was carried at cost.                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a $2.3 million pretax gain related to additional
federal grant proceeds received under the Air Transportation
Safety and System Stabilization Act to offset losses resulting
from the September 11, 2001 terrorist attacks.                                                                                                                                                                                                                 
|   
|(3) |  | Includes a $6.2 million pretax gain related to additional
federal grant proceeds received under the Air Transportation
Safety and System Stabilization Act and a $2.0 million pretax
reduction in special charges due to a revision of the estimated
costs related to the early termination of certain aircraft leases.                                                                                                                              
|   
|(4) |  | Includes a $4.9 million pretax credit related to a change in
the Companys vacation policy for certain administrative
employees.                                                                                                                                                                                                                                                                                                                     
|   
|(5) |  | Includes an $11.0 million pretax gain resulting from the
settlement in March 2001 of a lawsuit related to an air-to-ground
telecommunication system that was previously written off.                                                                                                                                                                                                                                                                 
|   
|(6) |  | Includes a $35.7 million pretax charge related to the
earlier-than-planned return of aircraft and reductions-in-force
resulting from the Companys cost reduction initiatives.                                                                                                                                                                                                                                                                       
|   
|(7) |  | Includes a $60.3 million pretax gain related to a federal grant
received under the Air Transportation Safety and System
Stabilization Act to offset losses resulting from the September
11, 2001 terrorist attacks and a $2.1 million pretax loss related
to the write-down to realizable value of the Companys investment
in Book4golf.com.                                                                                                        
|   
|(8) |  | Includes a $47.9 million pretax gain related to a federal grant
received under the Air Transportation Safety and System
Stabilization Act to offset losses resulting from the September
11, 2001 terrorist attacks and an $8.8 million pretax gain from an
insurance settlement. Also includes $106.0 million of pretax
special charges related to the impairment of ERV and owned
aircraft and engines and the early termination of aircraft leases.

Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share in 2002 and
2001 does not equal the total computed for the year.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

20.     Segment Disclosures

Holdings is one reportable operating segment. Accordingly, the segment
reporting financial data required by SFAS No. 131 is included in the
accompanying consolidated balance sheets and statements of operations.

21.     Subsequent Event

Elimination of Hub Operations in Columbus, Ohio

In February 2003, AWA announced that it is eliminating hub operations in
Columbus, Ohio and, as a result, will be phasing 12 regional jets out of the
America West Express fleet. Between early April and mid-June of 2003, AWA will
gradually downsize the hub from 49 daily departures to 15 destinations to a
planned four mainline flights per day to Phoenix and Las Vegas. With the
downsizing of Columbus, AWA must eliminate service to New York City LaGuardia
Airport because perimeter rules at the airport prohibit flights beyond 1,500
miles. This precludes service from AWAs hubs in Phoenix and Las Vegas. In
the first, second and thirds quarters of 2003, the Company expects to record a
pre-tax special charge of approximately $10 to $15 million resulting from the
elimination of its Columbus hub operations. The charge is related to the costs
to terminate certain contracts, the write-off of leasehold improvements and
employee transfer and severance expenses.

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ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  AMERICA WEST AIRLINES,
INC. (AWA)

Balance sheets of AWA as of December 31, 2002 and 2001, and the related
statements of operations, of cash flows and of stockholders equity and
comprehensive income for each of the years in the three-year period ended
December 31, 2002, together with the related notes and the reports of
PricewaterhouseCoopers LLP, independent accountants, and KPMG LLP, independent
auditors, are set forth on the following pages.

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REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholder
of America West Airlines, Inc.:

In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of stockholders equity and comprehensive
income (loss) present fairly, in all material respects, the financial position
of America West Airlines, Inc. (a wholly owned subsidiary of America West
Holdings Corporation) at December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As more
fully described in Note 2, the Company has restated its financial
statements for the year ended December 31, 2001 to reflect impairment
charges on long-lived assets.

As
discussed in Note 3 to the financial
statements, the Company changed its method of accounting for reorganization
value in excess of amounts allocable to identifiable assets in connection with
the adoption of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets effective January 1, 2002.

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholder
America West Airlines, Inc.:

We have audited the accompanying statements of operations, cash flows and
stockholders equity of America West Airlines, Inc. for the year ended December
31, 2000. 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 audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of America
West Airlines, Inc. for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

KPMG LLP
Phoenix, Arizona
March 28, 2001

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AMERICA WEST AIRLINES, INC.
Balance Sheets
December 31, 2002 and 2001
(in thousands except share data)

|                                           |                                                                                                           |                           |                            |          |         |         |           |           |               |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | -------- | ------- | ------- | --------- | --------- | ------------- | ------- | 
|                                           |                                                                                                           |                           |                            |          | 2002    |         | 2001     
|                                           |                                                                                                           |                           |                            |          |         |         |          
|                                           |                                                                                                           |                           |                            |          |         |         |           |           | (as restated)
|Assets                                     |                                                                                                           |                           |                            |          |         |         |           |          
|Current assets:                            |                                                                                                           |                           |                            |          |         |         |           |          
|                                           | Cash and cash equivalents                                                                                 |                           | $                          | 326,612  |         |         | $         | 148,520   |              
|                                           | Short-term investments                                                                                    |                           |                            | 24,738   |         |         |           |          |              
|                                           | Accounts receivable, less allowance for doubtful accounts of
$5,354 in 2002 and $1,945 in 2001            |                           |                            | 72,667   |         |         |           | 103,431   |              
|                                           | Advances to parent company and affiliate, net (see Note 6)                                                |                           |                            |         |         |         |           | 265,361   |              
|                                           | Expendable spare parts and supplies, less allowance for obsolescence
of $9,261 in 2002 and $7,249 in 2001 |                           |                            | 55,894   |         |         |           | 51,833    |              
|                                           | Prepaid expenses                                                                                          |                           |                            | 106,069  |         |         |           | 40,589    |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           | Total current assets      |                            |          | 585,980 |         |           |           | 609,734       |        
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|Property and equipment:                    |                                                                                                           |                           |                            |          |         |         |           |          
|                                           | Flight equipment                                                                                          |                           |                            | 880,446  |         |         |           | 1,043,424 |              
|                                           | Other property and equipment                                                                              |                           |                            | 266,060  |         |         |           | 249,739   |              
|                                           | Equipment purchase deposits                                                                               |                           |                            | 46,050   |         |         |           | 49,650    |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           |                           | 1,192,556                  |          |         |         | 1,342,813 |          
|                                           | Less accumulated depreciation and amortization                                                            |                           |                            | 544,821  |         |         |           | 559,175   |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           |                           | 647,735                    |          |         |         | 783,638   |          
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|Other assets:                              |                                                                                                           |                           |                            |          |         |         |           |          
|                                           | Restricted cash                                                                                           |                           |                            | 45,968   |         |         |           | 50,859    |              
|                                           | Advances to parent company, net (see Note 6)                                                              |                           |                            | 223,695  |         |         |           |          |              
|                                           | Reorganization value in excess of amounts allocable to identifiable assets, net                           |                           |                            |         |         |         |           | 187,949   |              
|                                           | Other assets, net                                                                                         |                           |                            | 141,637  |         |         |           | 63,364    |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           |                           | 411,300                    |          |         |         | 302,172   |          
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           | $                         | 1,645,015                  |          |         | $       | 1,695,544 |          
|                                           |                                                                                                           |                           |                            |          |         |         |           |           |              
|Liabilities and Stockholders Equity       |                                                                                                           |                           |                            |          |         |         |           |          
|Current liabilities:                       |                                                                                                           |                           |                            |          |         |         |           |          
|                                           | Current maturities of long-term debt                                                                      |                           | $                          | 19,116   |         |         | $         | 119,141   |              
|                                           | Current obligations under capital leases                                                                  |                           |                            | 3,122    |         |         |           |          |              
|                                           | Accounts payable                                                                                          |                           |                            | 176,903  |         |         |           | 243,996   |              
|                                           | Payable to affiliate, net                                                                                 |                           |                            | 12,175   |         |         |           |          |              
|                                           | Air traffic liability                                                                                     |                           |                            | 170,091  |         |         |           | 176,985   |              
|                                           | Accrued compensation and vacation benefits                                                                |                           |                            | 39,007   |         |         |           | 40,912    |              
|                                           | Accrued taxes                                                                                             |                           |                            | 28,809   |         |         |           | 88,382    |              
|                                           | Other accrued liabilities                                                                                 |                           |                            | 38,450   |         |         |           | 29,397    |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           | Total current liabilities |                            |          | 487,673 |         |           |           | 698,813       |        
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|Long-term debt, less current maturities    |                                                                                                           |                           | 700,983                    |          |         |         | 224,551   |          
|Capital leases, less current obligations   |                                                                                                           |                           | 11,999                     |          |         |         |          |          
|Deferred credits and other liabilities     |                                                                                                           |                           | 145,145                    |          |         |         | 131,965   |          
|Commitments and contingencies (see Note 8) |                                                                                                           |                           |                            |          |         |         |           |          
|Stockholders equity:                      |                                                                                                           |                           |                            |          |         |         |           |          
|                                           | Class B common stock, $.01 par value. Authorized 1,000 shares; issued and
outstanding 1,000 shares        |                           |                            |         |         |         |           |          |              
|                                           | Additional paid-in capital                                                                                |                           |                            | 555,132  |         |         |           | 519,748   |              
|                                           | Retained earnings (deficit)                                                                               |                           |                            | (257,947 | )       |         |           | 119,077   |              
|                                           | Accumulated other comprehensive income                                                                    |                           |                            | 2,030    |         |         |           | 1,390     |              
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           |                           | Total stockholders equity |          |         | 299,215 |           |           |               | 640,215 | 
|                                           |                                                                                                           |                           |                            |          |         |         |           |          
|                                           |                                                                                                           | $                         | 1,645,015                  |          |         | $       | 1,695,544 |          
|                                           |                                                                                                           |                           |                            |          |         |         |           |           |              

See accompanying notes to financial statements.

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AMERICA WEST AIRLINES, INC.
Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |           |        |           | 
|------------------------------- | --------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------ | --------- | ------------- | --------- | -------- | --------- | -------- | --------- | ------- | --------- | ------ | --------- | 
|                                |                                                                                                     |                                           |                          |           | 2002          |           | 2001     |           | 2000    
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |         
|                                |                                                                                                     |                                           |                          |           | (as restated)
|Operating revenues:             |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                | Passenger                                                                                           |                                           | $                        | 1,929,444 |               |           | $        | 1,941,877 |          |           | $       | 2,179,811 |       
|                                | Cargo                                                                                               |                                           |                          | 27,574    |               |           |          | 33,824    |          |           |         | 37,377    |       
|                                | Other                                                                                               |                                           |                          | 54,272    |               |           |          | 45,262    |          |           |         | 73,683    |       
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                |                                                                                                     |                                           | Total operating revenues |           |               | 2,011,290 |          |           |          | 2,020,963 |         |           |        | 2,290,871 | 
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|Operating expenses:             |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                | Salaries and related costs                                                                          |                                           |                          | 594,858   |               |           |          | 601,986   |          |           |         | 556,906   |       
|                                | Aircraft rents                                                                                      |                                           |                          | 295,016   |               |           |          | 355,517   |          |           |         | 331,005   |       
|                                | Other rents and landing fees                                                                        |                                           |                          | 158,290   |               |           |          | 140,372   |          |           |         | 130,679   |       
|                                | Aircraft fuel                                                                                       |                                           |                          | 299,940   |               |           |          | 343,224   |          |           |         | 373,313   |       
|                                | Agency commissions                                                                                  |                                           |                          | 38,896    |               |           |          | 75,085    |          |           |         | 86,469    |       
|                                | Aircraft maintenance materials and repairs                                                          |                                           |                          | 252,691   |               |           |          | 257,939   |          |           |         | 258,432   |       
|                                | Depreciation and amortization                                                                       |                                           |                          | 73,898    |               |           |          | 63,178    |          |           |         | 54,313    |       
|                                | Amortization of reorganization value in excess of
amounts allocable to identifiable assets          |                                           |                          |          |               |           |          | 19,896    |          |           |         | 19,896    |       
|                                | Special charges                                                                                     |                                           |                          | 19,030    |               |           |          | 141,638   |          |           |         |          |       
|                                | Other                                                                                               |                                           |                          | 442,821   |               |           |          | 445,525   |          |           |         | 492,596   |       
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                |                                                                                                     |                                           | Total operating expenses |           |               | 2,175,440 |          |           |          | 2,444,360 |         |           |        | 2,303,609 | 
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|Operating loss                  |                                                                                                     |                                           | (164,150                 | )         |               |           | (423,397 | )         |          |           | (12,738 | )        
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|Nonoperating income (expenses): |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                | Interest income                                                                                     |                                           |                          | 17,220    |               |           |          | 22,654    |          |           |         | 23,706    |       
|                                | Interest expense, net                                                                               |                                           |                          | (79,475   | )             |           |          | (33,789   | )        |           |         | (22,939   | )     
|                                | Federal government assistance                                                                       |                                           |                          | 8,466     |               |           |          | 108,246   |          |           |         |          |       
|                                | Loss on disposition of property and equipment                                                       |                                           |                          | (1,835    | )             |           |          | (3,000    | )        |           |         | (2,332    | )     
|                                | Gain on sale of investments                                                                         |                                           |                          |          |               |           |          |          |          |           |         | 25,250    |       
|                                | Other, net                                                                                          |                                           |                          | 215       |               |           |          | 3,063     |          |           |         | 4,194     |       
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                |                                                                                                     | Total nonoperating income (expenses), net |                          |           | (55,409       | )         |          |           | 97,174   |           |         |           | 27,879 |          
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                | Income (loss) before income taxes (benefit) and cumulative
effect of change in accounting principle |                                           |                          | (219,559  | )             |           |          | (326,223  | )        |           |         | 15,141    |       
|Income taxes (benefit)          |                                                                                                     |                                           | (30,484                  | )         |               |           | (83,108  | )         |          |           | 15,670  |          
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                | Loss before cumulative effect of change in accounting principle                                     |                                           |                          | (189,075  | )             |           |          | (243,115  | )        |           |         | (529      | )     
|                                | Cumulative effect of change in accounting principle                                                 |                                           |                          | (187,949  | )             |           |          |          |          |           |         |          |       
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |          
|                                |                                                                                                     | Net loss                                  |                          | $         | (377,024      | )         |          | $         | (243,115 | )         |         | $         | (529   | )        
|                                |                                                                                                     |                                           |                          |           |               |           |          |           |          |           |         |           |       

See accompanying notes to financial statements.

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AMERICA WEST AIRLINES, INC.
Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |          |         |          |  
|------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------- | ------- | -------- | ------------- | -------- | ------- | -------- | ------- | -------- | -
|                                                                    |                                                                                           |                                                     |                                                     |          | 2002    |         | 2001    |          | 2000         
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |              
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          | (as restated) |          |         |          |        
|Cash flows from operating activities:                               |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    | Net loss                                                                                  |                                                     | $                                                   | (377,024 | )       |         | $       | (243,115 | )             |          | $       | (529     | )      
|                                                                    | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                     |                                                     |          |         |         |         |          |               |          |         |          |        
|                                                                    |                                                                                           | Cumulative effect of change in accounting principle |                                                     |          | 187,949 |         |         |          |              |          |         |          |        |         
|                                                                    |                                                                                           | Depreciation and amortization                       |                                                     |          | 74,591  |         |         |          | 63,178        |          |         |          | 54,313  |         
|                                                                    |                                                                                           | Amortization of capitalized maintenance             |                                                     |          | 111,576 |         |         |          | 116,809       |          |         |          | 121,031 |         
|                                                                    |                                                                                           | Amortization of excess reorganization value         |                                                     |          |        |         |         |          | 19,896        |          |         |          | 19,896  |         
|                                                                    |                                                                                           | Amortization of deferred credits                    |                                                     |          | (10,077 | )       |         |          | (6,928        | )        |         |          | (9,272  | )       
|                                                                    |                                                                                           | Amortization of deferred rent                       |                                                     |          | 11,452  |         |         |          |              |          |         |          |        |         
|                                                                    |                                                                                           | Amortization of warrants                            |                                                     |          | 7,708   |         |         |          |              |          |         |          |        |         
|                                                                    |                                                                                           | Amortization of debt issue costs                    |                                                     |          | 24,978  |         |         |          | 1,631         |          |         |          | 934     |         
|                                                                    |                                                                                           | Amortization of bond discount                       |                                                     |          | 2,894   |         |         |          |              |          |         |          |        |         
|                                                                    |                                                                                           | Special charges                                     |                                                     |          | 19,030  |         |         |          | 77,577        |          |         |          |        |         
|                                                                    |                                                                                           | Other                                               |                                                     |          | 15,784  |         |         |          | 3,437         |          |         |          | 3,199   |         
|Changes in operating assets and liabilities:                        |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    | Decrease (increase) in accounts receivable, net                                           |                                                     |                                                     | 67,059   |         |         |         | 34,700   |               |          |         | (53,143  | )      
|                                                                    | Decrease (increase) in expendable spare parts and supplies, net                           |                                                     |                                                     | (4,061   | )       |         |         | (9,990   | )             |          |         | 7,484    |        
|                                                                    | Increase in prepaid expenses                                                              |                                                     |                                                     | (64,130  | )       |         |         | (6,204   | )             |          |         | (2,771   | )      
|                                                                    | Decrease in other assets, net                                                             |                                                     |                                                     | 1,127    |         |         |         | 43,294   |               |          |         | 7,891    |        
|                                                                    | Increase (decrease) in accounts payable                                                   |                                                     |                                                     | (56,393  | )       |         |         | 72,645   |               |          |         | 16,908   |        
|                                                                    | Increase (decrease) in air traffic liability                                              |                                                     |                                                     | (6,894   | )       |         |         | (6,546   | )             |          |         | 8,004    |        
|                                                                    | Increase (decrease) in accrued compensation and vacation benefits                         |                                                     |                                                     | (2,536   | )       |         |         | 5,062    |               |          |         | (12,377  | )      
|                                                                    | Increase (decrease) in accrued taxes                                                      |                                                     |                                                     | (60,140  | )       |         |         | (8,544   | )             |          |         | 10,539   |        
|                                                                    | Increase (decrease) in other accrued liabilities                                          |                                                     |                                                     | 16,809   |         |         |         | (6,459   | )             |          |         | 180      |        
|                                                                    | Increase (decrease) in other liabilities                                                  |                                                     |                                                     | 16,022   |         |         |         | (2,512   | )             |          |         | 3,425    |        
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    |                                                                                           |                                                     | Net cash provided by (used in) operating activities |          |         | (24,276 | )       |          |               | 147,931  |         |          |         | 175,712  |  
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|Cash flows from investing activities:                               |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    | Purchases of property and equipment                                                       |                                                     |                                                     | (156,896 | )       |         |         | (632,746 | )             |          |         | (252,177 | )      
|                                                                    | Purchases of short-term investments                                                       |                                                     |                                                     | (69,987  | )       |         |         | (45,863  | )             |          |         | (70,020  | )      
|                                                                    | Sales of short-term investments                                                           |                                                     |                                                     | 45,249   |         |         |         | 96,549   |               |          |         | 34,951   |        
|                                                                    | Proceeds from sales of aircraft                                                           |                                                     |                                                     | 175,478  |         |         |         | 332,800  |               |          |         |         |        
|                                                                    | Proceeds from sales of other property and equipment                                       |                                                     |                                                     | 121      |         |         |         | 28,900   |               |          |         | 38,611   |        
|                                                                    | Equipment purchase deposits and other                                                     |                                                     |                                                     |         |         |         |         | 16,100   |               |          |         | 5,582    |        
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    |                                                                                           |                                                     | Net cash used in investing activities               |          |         | (6,035  | )       |          |               | (204,260 | )       |          |         | (243,053 | )
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|Cash flows from financing activities
Proceeds from issuance of debt |                                                                                           |                                                     | 435,386                                             |          |         |         | 423,422 |          |               |          | 143,310 |         
|                                                                    | Repayment of debt                                                                         |                                                     |                                                     | (192,596 | )       |         |         | (357,723 | )             |          |         | (42,159  | )      
|                                                                    | Payment of debt issue costs                                                               |                                                     |                                                     | (36,987  | )       |         |         |         |               |          |         |         |        
|                                                                    | Other                                                                                     |                                                     |                                                     | 2,600    |         |         |         |         |               |          |         | (205     | )      
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    |                                                                                           |                                                     | Net cash provided by financing activities           |          |         | 208,403 |         |          |               | 65,699   |         |          |         | 100,946  |  
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|                                                                    |                                                                                           |                                                     | Net increase in cash and cash equivalents           |          |         | 178,092 |         |          |               | 9,370    |         |          |         | 33,605   |  
|Cash and cash equivalents at beginning of year                      |                                                                                           |                                                     | 148,520                                             |          |         |         | 139,150 |          |               |          | 105,545 |         
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |         
|Cash and cash equivalents at end of year                            |                                                                                           | $                                                   | 326,612                                             |          |         | $       | 148,520 |          |               | $        | 139,150 |         
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |          |        
|Cash, cash equivalents and short-term investments at end of year    |                                                                                           | $                                                   | 351,350                                             |          |         | $       | 148,520 |          |               | $        | 189,836 |         
|                                                                    |                                                                                           |                                                     |                                                     |          |         |         |         |          |               |          |         |          |        

See accompanying notes to financial statements.

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AMERICA WEST AIRLINES, INC.
Statements of Stockholders Equity and Comprehensive Income
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands except share data)

|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |     |       | 
|------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------- | ---------- | - | --------- | -------- | ------------- | - | ----- | ----- | ----------- | ----- | - | -------- | --- | ----- | 
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       | ACCUMULATED |       |   |          |    
|                                      |                                                                           |                                                                           |         | ADDITIONAL |   | RETAINED  |          | OTHER         |   |       |       |            
|                                      |                                                                           |                                                                           |         | PAID-IN    |   | EARNINGS/ |          | COMPREHENSIVE |   |       |       |            
|                                      |                                                                           |                                                                           |         | CAPITAL    |   | (DEFICIT) |          | INCOME        |   | TOTAL
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |      
|Balance at December 31, 1999          |                                                                           | $                                                                         | 519,748 |            |   | $         | 362,721  |               |   | $     |      |             |       | $ | 882,469  |    
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Net loss                              |                                                                           |                                                                           |        |            |   |           | (529     | )             |   |       |      |             |       |   | (529     | )  
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Balance at December 31, 2000          |                                                                           |                                                                           | 519,748 |            |   |           | 362,192  |               |   |       |      |             |       |   | 881,940  |    
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Net loss (a)                          |                                                                           |                                                                           |        |            |   |           | (243,115 | )             |   |       |      |             |       |   | (243,115 | )  
|Other comprehensive income:           |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|                                      |                                                                           | Changes in the fair value of derivative
financial instruments, net of tax |         |            |  |           |          |               |  |       |       |             | 1,390 |   |          |     | 1,390 | 
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Total comprehensive income (loss) (a) |                                                                           |                                                                           |        |            |   |           | (243,115 | )             |   |       | 1,390 |             |       |   | (241,725 | )  
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Balance at December 31, 2001 (a)      |                                                                           |                                                                           | 519,748 |            |   |           | 119,077  |               |   |       | 1,390 |             |       |   | 640,215  |    
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Net loss                              |                                                                           |                                                                           |        |            |   |           | (377,024 | )             |   |       |      |             |       |   | (377,024 | )  
|Other comprehensive income:           |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|                                      | Changes in the fair value of derivative
financial instruments, net of tax |                                                                           |         |           |   |           |          |              |   |       |       | 640         |       |   |          | 640 |      
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Total comprehensive income (loss)     |                                                                           |                                                                           |        |            |   |           | (377,024 | )             |   |       | 640   |             |       |   | (376,384 | )  
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Non-cash capital contribution         |                                                                           |                                                                           | 35,384  |            |   |           |         |               |   |       |      |             |       |   | 35,384   |    
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    
|Balance at December 31, 2002          |                                                                           | $                                                                         | 555,132 |            |   | $         | (257,947 | )             |   | $     | 2,030 |             |       | $ | 299,215  |    
|                                      |                                                                           |                                                                           |         |            |   |           |          |               |   |       |       |             |       |   |          |    



|(a) |  | As restated  See Note 2
|--- |  | ------------------------

See accompanying notes to financial statements.

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AMERICA WEST HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

America West Holdings Corporation (Holdings or the Company) is a
holding company that owns all of the stock of America West Airlines, Inc.
(AWA or the Airline). AWA accounted for most of the Companys revenues and
expenses in 2002. Based on 2002 revenues and operations, AWA is the eighth
largest passenger airline in the United States with the lowest cost structure
of the eight major hub-and-spoke airlines. At the end of 2002, AWA operated a
fleet of 143 aircraft with an average fleet age of 10.1 years and served 65
destinations in North America, including seven in Mexico and three in Canada.
Through regional alliance and code share arrangements with other airlines, AWA
served an additional 49 destinations in North America as of December 31, 2002.
In 2002, AWA flew approximately 19.5 million passengers and generated revenues
of approximately $2 billion.

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. In
response to these difficult industry conditions, AWA completed a financial
restructuring, introduced a business-friendly pricing structure and lowered its
cost structure in 2002. Despite these measures, AWA expects to continue to
post significant losses in 2003. AWA believes near-term revenues will continue
to be negatively impacted by the soft economic conditions and the decline in
business traffic. In addition, fuel prices have remained and may continue to
remain well above historical norms due to the threat of and the commencement of
military action against Iraq and continued political tension in Venezuela.

AWA expects to fund its obligations from funds provided by operations, the
proceeds of the government guaranteed loan, the financing commitments for
Airbus aircraft obtained in connection with the government loan, and future
financings, if necessary. The cash available to AWA from these sources,
however, may not be sufficient to cover these cash obligations because economic
factors outside AWAs control may reduce the amount of cash generated by
operations or increase its costs. As noted above, if AWA fails to generate
sufficient cash from operations and other sources, it may need to obtain
additional financings to achieve its longer term business objectives. There
can be no assurance that such financings will be available or, if available,
will be at rates or prices acceptable to AWA.

Although there can be no assurances, management believes that cash flow
from operating activities coupled with existing cash balances and financing
commitments will be adequate to fund AWAs operating and capital needs as well
as enable it to maintain compliance with its various debt agreements through at
least December 31, 2003.

1.     Summary of Significant Accounting Policies

(a)  Cash, Cash Equivalents and Short-term Investments

Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments
consist of cash invested in certain debt securities with original maturities
greater than 90 days and less than one year. The debt securities are
classified as held to maturity and are carried at amortized cost which
approximates fair value.

(b)  Expendable Spare Parts and Supplies

Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on
hand at the date the aircraft are retired from service. In the fourth quarter
of 2000, AWA committed to the disposal of certain excess expendable spare parts
inventory with a net book value of approximately $11.0 million. As a result,
AWA recorded an operating expense of $9.0 million to write down excess
inventory to net realizable value.

(c)  Property and Equipment

Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized for the years ended
December 31, 2002, 2001 and 2000 was $3.0 million, $12.5 million and $9.0
million, respectively. Property and equipment is depreciated and amortized to
residual values over the estimated useful lives or the lease term, whichever is
less, using the straight-line method.

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AMERICA WEST AIRLINES INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED

The estimated useful lives for AWAs ground property and equipment range
from three to 12 years for owned property and equipment and up to 22 years for
the technical support facility. The estimated useful lives of AWAs owned
aircraft, jet engines, flight equipment and rotable parts range from five to 30
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.

AWA records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired as defined
by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less cost to sell.

(d)  Restricted Cash

Restricted cash includes cash deposits securing certain letters of credit
and surety bonds and cash held by institutions that process credit card sales
transactions.

(e)  Aircraft Maintenance and Repairs

Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual
for the estimated cost of scheduled airframe and engine overhauls required to
be performed on leased aircraft prior to their return to the lessors has been
recorded.

(f)  Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets (ERV)

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets.SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS No. 142 does not
permit the amortization of goodwill as required by APB Opinion No. 17,
Intangible Assets.Rather, goodwill is subject to a periodic impairment
test, using a two-step process. The first step is to identify a potential
impairment. The second step of the goodwill impairment test measures the
amount of the impairment loss, using a fair value-based approach. Under SFAS
No. 142, ERV is reported as goodwill and accounted for in the same manner as
goodwill. SFAS No. 142 was effective for fiscal years beginning after December
15, 2001. Upon adoption of this statement on January 1, 2002, AWA recorded an
impairment loss of $187.9 million, which was supported by an independent
valuation of the Company. The impairment loss was recorded as the cumulative
effect of a change in accounting principle. See Note 3, Adoption of New
Accounting Standard.

Prior to adoption of SFAS No. 142, ERV was amortized on a straight line
basis over 20 years. Accumulated amortization at December 31, 2001 and 2000
was $171.7 million and $151.8 million, respectively.

(g)  Derivative Instruments

AWAs fuel hedging contracts qualify as cash flow hedges under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,as they
hedge exposure to variable cash flows of forecasted transactions. Accordingly,
the derivative hedging instrument is recorded as an asset or liability on the
balance sheet at fair value and the effective portion of changes in the fair
value are initially recorded in Other Comprehensive Income (Loss)until the
underlying fuel being hedged is used. The ineffective portion of changes in
fair value are recorded in earnings.

(h)  Frequent Flyer Awards

AWA maintains a frequent travel award program known as FlightFund that
provides a variety of awards to program members based on accumulated mileage.
The estimated cost of providing the free travel, using the incremental cost
method as adjusted for estimated redemption rates, is recognized as a liability
and charged to operations as program members accumulate mileage.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

AWA also sells mileage credits to companies participating in its
FlightFund program, such as hotels, car rental agencies and credit card
companies. Revenue from the sale of mileage credits is deferred and recognized
when transportation is provided.

(i)  Deferred Credit-Operating Leases

Rents for operating leases were adjusted to fair market value when AWA
emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a
deferred credit in the accompanying balance sheets. The deferred credit will
be increased through charges to interest expense and decreased on a
straight-line basis as a reduction in rent expense over the applicable lease
periods. At December 31, 2002 and 2001, the unamortized balance of the
deferred credit was $52.4 million and $58.7 million, respectively.

In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee. See Note 4, Government Guaranteed Loan.
This loan triggered aircraft rent concessions negotiated with approximately 20
aircraft lessors. Approximately $18.1 million of aircraft rent, which was
accrued as of December 31, 2001, was waived by the aircraft lessors. This
amount has been recorded as a deferred credit in the accompanying balance sheet
at December 31, 2002 and will be amortized over the remaining lives of the
applicable leases as a reduction in rent expense. At December 31, 2002, the
unamortized balance of the deferred credit was approximately $10.9 million.

(j)  Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense. Passenger
traffic commissions and related fees not yet recognized are included as a
prepaid expense. Due to complex pricing structures, refund and exchange
policies, and interline agreements with other airlines, certain amounts are
recognized in revenue using estimates regarding both the timing of the revenue
recognition and the amount of revenue to be recognized. These estimates are
generally based on the statistical analysis of the Companys historical data.
Any adjustments resulting from periodic evaluations of the estimated air
traffic liability are included in results of operations during the period in
which the evaluations are completed.

(k)  Advertising Costs

AWA expenses the costs of advertising as incurred. Advertising expense
for the years ended December 31, 2002, 2001 and 2000 was $6.5 million, $10.1
million and $18.7 million, respectively.

(l)  Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. A valuation
allowance is established, if necessary, for the amount of any tax
benefits that, based on available evidence, are not expected to be
realized.

(m)  New Accounting Standards

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002. This standard rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of that
Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements and excludes extraordinary item treatment for gains and losses
associated with the extinguishment of debt that do not meet the APB Opinion No.
30, Reporting the Results of Operations  Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions criteria. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB No. 30 for
classification as an extraordinary item shall be reclassified. SFAS No. 145
also amends SFAS No. 13, Accounting for Leases, as well as other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. AWA
adopted SFAS No. 145 effective January 1, 2002 with no material impact on its
financial condition or results of operations.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.This standard addresses
financial accounting and reporting for costs associated with exit or disposal
activities and replaces EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring.)SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF No. 94-3, a liability for exit
costs, as defined in EITF No. 94-3, was recognized at the date of an entitys
commitment to an exit plan. The provisions of SFAS No. 146 are effective for
exit or disposal activities that are initiated by AWA after December 31, 2002.
In February 2003, AWA announced that it will eliminate hub operations in
Columbus, Ohio. In accordance with SFAS No. 146, AWA expects to record pretax
special charges of approximately $10 to $15 million. See Note 20, Subsequent
Event  Elimination of Hub Operations in Columbus, Ohio.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN No. 45
also expands the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial recognition
and measurement provisions of FIN No. 45 are applicable on a prospective basis
to guarantees issued or modified. The disclosure requirements are effective
immediately. While the Company has various indemnity obligations included in
contracts entered into in the normal course of business, these obligations are
primarily in the form of indemnities that could result in immaterial increases
of future costs, but do not represent significant commitments or contingent
liabilities of the indebtedness of others. As a result, the Company does not
expect FIN 45 to have a material effect on its financial condition or results
of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of SFAS No.
123.SFAS No. 148 amended SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation. In addition, SFAS No. 148 amends APB Opinion No. 28,
Interim Financial Reporting,to require disclosure about those effects in
interim financial information. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002, including certain
amendments to required disclosures related to stock-based compensation included
in condensed financial statements for interim periods beginning after December
15, 2002. The Company has complied with the required disclosure items in SFAS
No. 148, and is still evaluating changing to the fair value based method of
accounting for stock-based employee compensation.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities.FIN No. 46 requires that companies that control another
entity through interests other than voting interests should consolidate the
controlled entity. FIN No. 46 applies to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. The related disclosure
requirements are effective immediately. The Company has evaluated the
provisions of FIN No. 46 and does not believe it to be reasonably possible that
adoption would have a material effect on its financial condition and results of
operations.

(n)  Use of Estimates

Management of AWA has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
accounting principles generally accepted in the United States. Actual results
could differ from those estimates.

(o)  Reclassification

Certain reclassifications have been made to the prior years financial
statements to conform to the current years presentation.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

2. Restatement of Previously Reported Amounts

AWA has restated its audited financial statements for the fiscal year ended December 31, 2001 and
its unaudited financial statements for the first, second and third
quarters of fiscal year ended December 31, 2002. The changes include:



| |  |  | a change in the timing from the first quarter of 2002 back
to the fourth quarter of 2001 of the non-cash impairment charge of
approximately $39.2 million recorded to adjust the carrying value of
owned aircraft to market value and the related non-cash impairment
charge of approximately $64.1 million recorded to write off
reorganization value in excess of amounts allocable to identifiable
assets (ERV) that arose in connection with AWAs plan of
reorganization from bankruptcy in 1994, both of which charges were
previously recorded in the first quarter of 2002; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the recognition of a full valuation allowance relating to AWAs net
deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

See Note 2 Restatement of Previously Reported Amountsin Notes to Financial
Statements.

Impairment Charges

Statement
of Financial Accounting Standards (SFAS) No. 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of requires that an impairment analysis be performed whenever circumstances indicate that the carrying amount
of an asset that an entity expects to hold and use may not be recoverable.

As a
result of the adverse impacts on AWA and the airline industry as a
whole resulting from the terrorist events of September 11, 2001 and their aftermath, AWA
performed an assessment of
impairment of its owned aircraft during 2001 and again in connection with the preparation of the interim financial statements for the first quarter of
2002.

As a result of AWAs assessments, no impairment adjustment was
recorded in the financial statements previously issued for 2001. AWA
recorded an impairment charge of approximately $39.2 million in the first
quarter of 2002 to adjust the carrying value of its owned aircraft to reflect market
values at that time. Such accounting treatment was considered appropriate at
the time of the issuance of the applicable financial statements. In connection
with the preparation of the financial statements and the related audit for the fiscal year ended
December 31, 2002, AWA determined that the more appropriate recognition of
the impairment charge of approximately $39.2 million is in the fourth quarter
of 2001 rather than in the first quarter of 2002.

In addition, SFAS No. 121 requires that goodwill that arose in a purchase
business combination be allocated, and included as part of the asset base, in
determining recoverability and measuring impairment. AWA did not have goodwill at December 31,
2001, but did have a significant amount of unamortized ERV, AWA
determined that a portion of the unamortized ERV balance should have
been allocated to AWAs owned aircraft in the
impairment analysis performed for the year ended December 31, 2001.

As more fully described in Note 3, Adoption of New Accounting Standard
in Notes to Financial Statements, the remaining unamortized balance of ERV was
written-off in the first quarter of 2002, as a cumulative effect of a change in accounting principle upon adoption of SFAS No. 142,
Goodwill and Other Intangible Assets.

The impact of the above described matters is to change the period of
recognition for these non-cash costs between late 2001 and early
2002. See Note 18,
Quarterly Financial Data (Unaudited)in Notes to Financial
Statements.

Deferred Income Taxes

SFAS No. 109 Accounting for Income Taxesrequires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore,
cumulative losses weigh heavily in the overall assessment.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

AWA had
originally reported a net deferred tax liability at December 31,
2001. After consideration of the restatement discussed above, AWA had
a net deferred tax asset and was in a cumulative loss position for the three years
ended December 31, 2001. A full valuation allowance has been established
relating to AWAs net deferred tax asset at December 31,
2001, and relating to
tax assets generated by losses in 2002. We expect to continue to record a full
valuation allowance on future tax benefits until we can return to profitability. See Note 10, Income Taxesand Note 18, Quarterly
Financial Data (Unaudited)in Notes to Financial Statements.

As a
result of the adjustments discussed above, AWAs financial
statements for the first three quarters of 2002 and for the year ended 2001
have been restated from amounts previously reported. See Note 18, Quarterly
Financial Date (Unaudited) for a summary of the adjustments for these periods
on a quarterly basis. The principal effects of these adjustments on the
accompanying financial statements are set forth below.

|                               |  |                                      |          |             |  |                |          |   |  |   |          |  
|------------------------------ |  | ------------------------------------ | -------- | ----------- |  | -------------- | -------- | - |  | - | -------- | -
|                               |  | For the Year Ended December 31, 2001
|                               |  |                                     
|                               |  |                                      |          |             |  | (in thousands) |          |   |  |  
|                               |  | As Previously                        |          | Restatement |  | As            
|                               |  | Reported                             |          | Adjustments |  | Restated      
|                               |  |                                      |          |             |  |               
|Operating loss                 |  | $                                    | (320,111 | )           |  |                | (103,286 | ) |  | $ | (423,397 | )
|                               |  |                                      |          |             |  |                |          |   |  |   |          |  
|Loss before income tax benefit |  |                                      | (222,937 | )           |  |                | (103,286 | ) |  |   | (326,223 | )
|Income tax benefit             |  |                                      | (74,539  | )           |  |                | (8,569   | ) |  |   | (83,108  | )
|Net loss                       |  | $                                    | (148,398 | )           |  |                | (94,717  | ) |  | $ | (243,115 | )
|                               |  |                                      |          |             |  |                |          |   |  |   |          |  

3. Adoption of New Accounting Standard

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets.SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS No. 142 does not
permit the amortization of goodwill as required by APB Opinion No. 17,
Intangible Assets.Rather, goodwill is subject to a periodic impairment
test, using a two-step process. The first step is to identify a potential
impairment. The second step of the goodwill impairment test measures the
amount of the impairment loss, using a fair value-based approach. Under SFAS
No. 142, ERV is reported as goodwill and accounted for in the same manner as
goodwill. SFAS No. 142 was effective for fiscal years beginning after December
15, 2001. Upon adoption of this statement on January 1, 2002, AWA recorded an
impairment loss of $187.9 million, which was supported by an independent
valuation of the Company. The impairment loss was recorded as the cumulative
effect of a change in accounting principle.

The following table presents reported net income (loss) exclusive of ERV
amortization expense for the years ended December 31, 2002, 2001 and 2000.

|                                 |  |                                 |          |      |  |      |          |   |  |   |        |  
|-------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                 |  | For the Year Ended December 31,
|                                 |  |                                
|                                 |  | 2002                            |          | 2001 |  | 2000
|                                 |  |                                 |          |      |  |     
|                                 |  | (as restated)                  
|Reported net income (loss)       |  | $                               | (377,024 | )    |  | $    | (243,115 | ) |  | $ | (529   | )
|ERV amortization, net of tax (1) |  |                                 |         |      |  |      | 19,896   |   |  |   | 19,896 |  
|                                 |  |                                 |          |      |  |      |          |   |  |   |        |  
|Adjusted net income (loss)       |  | $                               | (377,024 | )    |  | $    | (223,219 | ) |  | $ | 19,367 |  
|                                 |  |                                 |          |      |  |      |          |   |  |   |        |  

(1)  Amortization of ERV is not a tax-deductible expense.

4. Government Guaranteed Loan

In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee. This loan triggered concessions and
additional financing (primarily aircraft rent reductions and future financing
commitments), resulting in a restructuring of AWAs indebtedness and lease
commitments. The major components of the restructuring are:



| |  |  | Government Guaranteed Loan  The catalyst for AWAs restructuring
plan was a $429 million loan backed by a $380 million federal loan
guarantee. The loan has a seven-year term with ratable amortization in
years three through seven, an interest rate of three month LIBOR plus 40
basis points paid quarterly and annual guarantee fees payable to the
U.S. Treasury Department and other loan participants of 550 basis points
in year one and approximately 800 basis points thereafter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED



| |  |  | Aircraft Deferrals/Financing  AWA restructured its aircraft purchase
commitment with AVSA, to defer 17 new Airbus aircraft previously
scheduled for delivery in 2003 and 2004 by a total of 505
aircraft-months to 2004 through 2007. New financing commitments were
obtained for 11 aircraft which were either already delivered in 2001 or
scheduled to be delivered in 2002 and 2003. Delivery of two of these
aircraft was subsequently deferred until 2005. In order to obtain the
entire amount of the financing commitment for two of the aircraft, AWA
must achieve a minimum liquidity threshold. As a result, AWA has
financing commitments for all scheduled aircraft deliveries through the
fourth quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aircraft Returns/Rent Reductions  Through negotiations with
approximately 20 aircraft lessors, AWA has retired 11 aircraft in 2001
and 2002 to better size its fleet to the current industry demand
environment. For the aircraft that remain, annual rent payments have
been reduced for each of the next six years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Term-out of Line of Credit  AWAs $89.9 million secured credit
facility was converted into an $89.9 million secured term loan maturing
at year-end 2007. The loan has a six-year term with ratable
amortization in years four through six and an interest rate of one month
LIBOR plus 225 basis points from the closing date through December 31,
2004 and one month LIBOR plus 475 basis points from January 1, 2005 and
thereafter. In addition, AWA will pay interest in kind on the aggregate
outstanding principal amount of the loan at a rate of two percent per
annum from the closing date through December 31, 2004. In July 2002,
AWA made a mandatory repayment of approximately $16.7 million on the
term loan as a result of a decrease in the fair market value of the
assets securing the loan following the terrorist attacks of September
11, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | State/City Financing  From the State of Arizona and the City of
Phoenix, AWA received $0.7 million in job training grants and $1.5
million in other financing. In March 2003, AWA received $6.9 million
through the sale and leaseback of jetways at Phoenix Sky Harbor
International Airport.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | TPG Undertaking  At the request of the ATSB, TPG Partners, L.P., and
its affiliates, owners of all 941,431 shares of America West Holdings
Class A common stock, have undertaken not to dispose of their Class A
stock other than in connection with an offer to acquire all the shares
of the Companys Class B common stock accepted or approved by the
holders of a majority of the Class B stock. This undertaking is subject
to certain exceptions, including transfers to TPG affiliates, repurchase
of the Class A stock by Holdings and exercise of TPGs rights to convert
the Class A stock into Class B stock, and will terminate when the
warrants issued in connection with the term loan transactions discussed
below expire or are exercised and the underlying shares of Class B stock
are sold, or TPG and its affiliates no longer hold the Class A stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Warrants/Convertible Senior Notes  As compensation for various
elements of the restructuring plan, Holdings issued a warrant to
purchase up to 18.8 million shares of its Class B common stock to the
federal government and additional warrants to purchase up to 3.8 million
shares of its Class B common stock to other loan participants, in each
case at an exercise price of $3 per share and a term of ten years. For
accounting purposes, the warrants were valued at $35.4 million, or $1.57
per share, using the Black-Scholes pricing model with the following
assumptions: expected dividend yield of 0.0%, risk-free interest rate
of 4.8%, volatility of 44.9% and an expected life of ten years.
Holdings also issued approximately $104.5 million in convertible senior
notes as partial compensation to aircraft lessors. The notes have a
seven-year term and a coupon rate of 7.5% with interest paid in kind for
years one through three. The notes are convertible after three years
into Class B common stock at $12 per share. During 2002, one aircraft
lessor relinquished its interest in approximately $11.8 million face
value of the 7.5% convertible notes upon the restructuring of leases for
six Boeing 757-200 aircraft. One aircraft lessor also relinquished its
interest in approximately $1.6 million face value of the 7.5%
convertible notes upon the exercise of its put rights to extend the
leases for two Boeing 737-300 aircraft.

In connection with the restructuring, Holdings and AWA granted to the
recipients of the notes and warrants certain registration rights. In May 2002,
Holdings and AWA filed a registration statement with the Securities and
Exchange Commission to satisfy their obligations to the recipients of the notes
and warrants. The registration statement covers:



| |  |  | The resale by the noteholders of $129,082,514 of 7.5% convertible
notes (including $24,617,954 of interest payable on the first six
interest payment dates, which are expected to be paid in the form of a
deemed loan added to the principal amount of the notes);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED



| |  |  | The resale by the noteholders of up to 10,756,876 shares of Class B
common stock issuable upon conversion of the notes;                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The resale by the ATSB of the ATSB warrant;                                                                                                    
|
| |  |  | The resale by the ATSB of up to 18,754,000 shares of Class B common
stock issuable upon its exercise of the ATSB warrant;                      
|
| |  |  | The issuance by the Company of shares of Class B common stock upon
the exercise of the ATSB warrant by holders other than the ATSB; and        
|
| |  |  | The resale by the holders of the other warrants of up to 3,783,000
shares of Class B common stock issuable upon exercise of the other
warrants.

5. Investments in Debt Securities

Cash equivalents and short-term investments as of December 31 are
classified as follows:

|                   |                                                   |   |                |         |      |   |         |         | 
|------------------ | ------------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                   |                                                   |   | 2002           |         | 2001
|                   |                                                   |   |                |         |     
|                   |                                                   |   | (in thousands)
|Corporate notes    |                                                   | $ | 208,750        |         |      | $ |        |        
|Money market funds |                                                   |   | 142,600        |         |      |   | 148,520 |        
|                   |                                                   |   |                |         |      |   |         |        
|                   | Total cash equivalents and short-term investments |   | $              | 351,350 |      |   | $       | 148,520 | 
|                   |                                                   |   |                |         |      |   |         |        

6. Financial Instruments and Risk Management

(a)  Fair Value of Financial Instruments

Cash Equivalents, Short-term Investments and Receivables

The carrying amount approximates fair value because of the short-term
nature of these instruments.

Investments in Equity Securities

AWA owned approximately 28,300 shares of Class A common stock of
Aeroxchange Ltd., an airline industry business-to-business e-commerce exchange,
at December 31, 2002 and 2001. The common stock of Aeroxchange is not publicly
traded on a securities exchange, therefore the fair value of AWAs investment
in Aeroxchange is not readily determinable. Accordingly, the investment was
carried at cost, which approximated $2.8 million at December 31, 2001. In
March 2002, AWA wrote down its investment in Aeroxchange to net realizable
value, recognizing a pretax loss of $2.8 million. See Note 15, Nonoperating
Income (Expenses)  Other, Net.

Warrants

AWA is the holder of warrants in a number of on-line ventures that are not
public. The fair value of these warrants is not readily determinable.
Accordingly, the investments are carried at cost, which was not material at
December 31, 2002 or 2001.

Long-term Debt

At December 31, 2002 and 2001, the fair value of long-term debt was
approximately $657.9 million and $324.4 million, respectively. The Companys
long-term debt with a carrying value of $570.4 million and $179.7 million at
December 31, 2002 and 2001, respectively, approximates fair value because these
borrowings have variable interest rate terms that approximate market interest
rates for similar debt instruments. The fair values of the Companys other
long-term debt are determined based on quoted market prices if available or
market prices for comparable debt instruments.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

(b)  Fuel Price Risk Management

Under its fuel hedging program, AWA may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
12 months. As of December 31, 2002, AWA had entered into costless collar
transactions hedging approximately 40% of its projected 2003 fuel requirements.
The fair value of AWAs financial derivative instruments was a net asset of
approximately $3.6 million and $2.2 million at December 31, 2002 and 2001,
respectively.

AWA is exposed to credit risks in the event any counterparty fails to meet
its obligations. AWA does not anticipate such non-performance as
counterparties are selected based on credit ratings, exposure to any one
counterparty is limited based on formal guidelines and the relative market
positions with such counterparties are closely monitored.

(c)  Concentration of Credit Risk

AWA does not believe it is subject to any significant concentration of
credit risk. Most of AWAs receivables result from tickets sold to individual
passengers through the use of major credit cards or from tickets sold by other
airlines and used by passengers on AWA. These receivables are short-term,
generally being settled shortly after the sale.

7. Advances to Parent Company and Affiliate

As of December 31, 2001, AWA had net advances to Holdings of $257.8
million, which were classified in AWAs balance sheet as current assets. In
January 2002, AWA closed a $429 million loan supported by a $380 million
government loan guarantee. See Note 4, Government Guaranteed Loan.The
terms of this loan and AWAs secured term loan restrict Holdings and AWAs
ability to incur additional indebtedness or issue equity unless the proceeds of
those transactions are used to prepay the government guaranteed loan and the
term loan. Accordingly, as a result of this transaction, AWAs net advances to
Holdings have been classified in Other Assets on AWAs balance sheet.

In 2002, AWAs net advances to Holdings were reduced by approximately $34
million as the result of income tax refunds received in 2002. See Note 10,
Income Taxes.At December 31, 2002, AWA had net advances to Holdings of
approximately $223.7 million.

As of December 31, 2001, AWA had net advances of $8.1 million to TLC, a
wholly owned subsidiary of Holdings, including $16.0 million advanced by AWA to
TLC under a revolving line of credit. In January 2002, upon closing of the
government guaranteed loan, TLC repaid the $16.0 million loan in full to AWA.

As of December 31, 2002, AWA had a net payable of $1.8 million due
principally to TLC. This payable, which is primarily related to credit card
receipts collected by AWA for vacation packages sold by TLC, was classified in
AWAs balance sheet as a current liability.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

8. Long-Term Debt

Long-term debt at December 31, 2002 and 2001 consists of the following:

|                                                                                                                        |                    |   |                |         |      |   |         |          |  
|----------------------------------------------------------------------------------------------------------------------- | ------------------ | - | -------------- | ------- | ---- | - | ------- | -------- | -
|                                                                                                                        |                    |   | 2002           |         | 2001
|                                                                                                                        |                    |   |                |         |     
|                                                                                                                        |                    |   | (in thousands)
|Secured                                                                                                                 |                    |   |                |         |      |   |         |         
|Equipment notes payable, variable interest rates of 2.75% to 3.00%, averaging
2.94%, installments due 2003 through 2008 |                    | $ | 58,126         |         |      | $ | 79,360  |         
|Term loan, variable interest rate of 3.69%, installments due 2005 through 2007 (a)                                      |                    |   | 74,758         |         |      |   | 89,855  |         
|Equipment notes payable, fixed interest rates of 7.10% to 8.37%, averaging
7.29%                                        |                    |   |               |         |      |   | 85,440  |         
|                                                                                                                        |                    |   |                |         |      |   |         |         
|                                                                                                                        |                    |   | 132,884        |         |      |   | 254,655 |         
|                                                                                                                        |                    |   |                |         |      |   |         |         
|Unsecured                                                                                                               |                    |   |                |         |      |   |         |         
|10 3/4% Senior Unsecured Notes, interest only payments until due in 2005 (b)                                            |                    |   | 49,998         |         |      |   | 49,998  |         
|7.5% Convertible Senior Notes, interest only payments until due in 2009 (c)                                             |                    |   | 97,894         |         |      |   |        |         
|Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
3.06%, installments due through 2003          |                    |   | 7,000          |         |      |   | 10,500  |         
|Industrial development bonds, fixed interest rate of 6.3% due 2023 (d)                                                  |                    |   | 29,300         |         |      |   | 29,300  |         
|Government guaranteed loan, variable interest rate of 2.20% installments due 2004
through 2008 (e)                      |                    |   | 429,000        |         |      |   |        |         
|State loan, variable interest rate of 5.29%, installments due 2004 through 2007                                         |                    |   | 1,500          |         |      |   |        |         
|Promissory note, fixed interest rate of 10%, due in 2003                                                                |                    |   | 2,443          |         |      |   |        |         
|                                                                                                                        |                    |   |                |         |      |   |         |         
|                                                                                                                        |                    |   | 617,135        |         |      |   | 89,798  |         
|                                                                                                                        |                    |   |                |         |      |   |         |         
|Total long-term debt                                                                                                    |                    |   | 750,019        |         |      |   | 344,453 |         
|Less: Unamortized discount on debt                                                                                      |                    |   | (29,920        | )       |      |   | (762    | )       
|                                                                                                                        | Current maturities |   |                | (22,238 | )    |   |         | (119,141 | )
|                                                                                                                        |                    |   |                |         |      |   |         |         
|                                                                                                                        |                    | $ | 697,861        |         |      | $ | 224,550 |         
|                                                                                                                        |                    |   |                |         |      |   |         |         



|(a) |  | In December 1999, AWA entered into a $125 million senior secured
revolving credit facility with a group of financial institutions that had
a three-year term. Borrowings under this credit facility accrued interest
at either the base rate (prime rate or the rate which is 1/2 of 1% in
excess of the Federal Funds Effective Rate) or the adjusted eurodollar
rate (LIBOR rate adjusted for certain reserve requirements in respect to
Eurodollar liabilities) plus the applicable margin based on Moodys
rating of AWAs senior unsecured notes. The credit agreement was secured
by certain assets of AWA. As of December 31, 2001, AWA had drawn $89.9
million against its available line of credit which was classified in
current maturities of long-term debt in the Companys consolidated balance
sheet. In January 2002, upon closing of the $429 million loan supported
by a $380 million government loan guarantee (see Note 4, Government
Guaranteed Loan), AWAs secured credit facility was converted into an
$89.9 million secured term loan maturing at year-end 2007. The loan has a
six-year term with ratable amortization in years four through six and an
interest rate of one month LIBOR plus 225 basis points from the closing
date through December 31, 2004 and one month LIBOR plus 475 basis points
from January 1, 2005 and thereafter. In addition, AWA will pay interest
in kind on the aggregate outstanding principle amount of the loan at a
rate of two percent per annum from the closing date through December 31,
2004. In July 2002, AWA made a mandatory repayment of approximately $16.7
million on its $89.9 million term loan as a result of a decrease in the
fair market value of the assets securing the loan following the terrorist
attacks of September 11, 2001. Collateral for the loan consists of
aircraft, spare engines, rotable aircraft parts inventory and a
maintenance facility. AWA and the lenders also amended certain provisions
in the loan agreement related to the collateral appraisal procedures. The
balance at December 31, 2002 includes $1.6 million of interest payable in
kind through December 31, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and
interest is payable in arrears semi-annually. The 10 3/4% Senior
Unsecured Notes may be redeemed at the option of the Company 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
|                    |  |           
|2002                |  |            | 101.792 | %
|2003 and thereafter |  |            | 100.000 | %



|(c) |  | In January 2002, Holdings issued approximately $104.5 million in
convertible senior notes, which are guaranteed by AWA, to certain aircraft
lessors as compensation for various elements of the restructuring plan.
The notes have a seven-year term, a coupon rate of 7.5% with interest paid
in kind for years one through three. The notes are convertible after
three years into Class B common stock at $12 per share. The notes may be
redeemed at the election of the Company, as a whole or in part, at any
time before January 18, 2005, at a redemption price equal to $1,000 per
$1,000 principal amount of the notes redeemed plus accrued and unpaid
interest, if any, to but excluding the date of redemption if (1) the
trading price of the common stock has exceeded 120% of the conversion
price then in effect for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day before the date of
mailing of the notice of provisional redemption, and
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED



|(2) |  | a shelf registration statement covering resales of the notes and the
common stock issuable upon conversion thereof is effective and available for
use and is expected to remain effective and available for use for the 30
days following the provisional redemption date, unless registration is no
longer required. At any time on or after January 18, 2005, the Company may,
at its option, redeem the notes in whole at any time or in part from time to
time, on any date prior to the stated maturity of the notes, at the
redemption price (expressed in percentages of the principal amount) set
forth below if, but only if, redeemed on a redemption date occurring during
the 12-month period beginning on the dates indicated:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |            |        |  
|----------------------------------- |  | ---------- | ------ | -
|                                    |  | Redemption
|During the Twelve Months Commencing |  | Price     
|                                    |  |           
|January 18, 2005                    |  |            | 103.75 | %
|January 18, 2006                    |  |            | 102.50 | %
|January 18, 2007                    |  |            | 101.25 | %
|January 18, 2008                    |  |            | 100.00 | %



|    |  | For financial reporting purposes, AWA recorded the convertible senior notes
at their fair market value on the date of issuance. The balance at December
31, 2002 is net of an unamortized discount of $2.7 million and includes $6.2
million of interest payable in kind through December 31, 2002. See Note 4,
Government Guaranteed Loan.                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) |  | The industrial development revenue bonds are due April 2023. Interest at
6.3% is payable semiannually (April 1 and October 1). The bonds are
subject to optional redemption prior to the maturity date on or after
April 1, 2008, in whole or in part, on any interest payment date at the
following redemption prices: 102 percent on April 1 or October 1, 2008;
101 percent on April 1 or October 1, 2009; and 100 percent on April 1,
2010 and thereafter.                   
|   
|(e) |  | In January 2002, AWA closed a $429 million loan backed by a $380 million
federal loan guarantee. The loan has a seven-year term with ratable
amortization in years three through seven, an interest rate of three month
LIBOR plus 40 basis points paid quarterly and guarantee fees payable to
the U.S. Treasury Department and other loan participants of 550 basis
points in year one and approximately 800 basis points thereafter. See
Note 4, Government Guaranteed Loan.

Secured financings totaling $132.9 million are collateralized by assets,
primarily aircraft, engines, simulators, rotable aircraft parts and AWAs
hangar facility, with a net book value of $316.6 million at December 31, 2002.

At December 31, 2002, the estimated maturities of long-term debt are as
follows:

|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (in thousands)
|2003       |  | $              | 19,116  | 
|2004       |  |                | 97,127  | 
|2005       |  |                | 174,353 | 
|2006       |  |                | 124,355 | 
|2007       |  |                | 106,991 | 
|Thereafter |  |                | 228,077 | 
|           |  |                |         | 
|           |  | $              | 750,019 | 
|           |  |                |         | 

Certain of the Companys long-term debt agreements contain minimum cash
balance requirements and other covenants with which Holdings and AWA are in
compliance. Certain of these covenants restrict the Companys ability to pay
cash dividends on its common stock and make certain other restricted payments
(as specified therein). Finally, AWAs long-term debt agreements contain
cross-default provisions, which may be triggered by defaults by AWA under other
agreements relating to indebtedness. As of December 31, 2001, AWA had
suspended payment under certain aircraft leases and, as a result, had received
notices of default from certain aircraft lessors. In January 2002, AWA paid in
full approximately $81 million in deferred aircraft lease payments
simultaneously with the funding of the $429 million loan supported by a $380
million government loan guarantee, thereby curing the defaults. See Risk
Factors Relating to America West and Industry Related Risks  Our high level of
debt and fixed costs limits our ability to fund general corporate requirements,
limits our flexibility in responding to competitive developments and increases
our vulnerability to adverse economic and industry conditions.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

9. Commitments and Contingencies

(a)  Leases

As of December 31, 2002, the Company had 133 aircraft under operating
leases with remaining terms ranging from three months to approximately 22
years. In January 2002, AWA closed a $429 million loan supported by a $380
million government loan guarantee that resulted in a restructuring of its
aircraft lease commitments. As a result, AWA has retired 11 aircraft in 2001
and 2002 to better size its fleet to the current industry demand environment.
In addition, under the restructured lease agreements, annual rent payments have
been reduced for each of the next six years (see Note 4, Government
Guaranteed Loan). Certain of these leases contain put options pursuant to
which the lessors could require AWA to renew the leases for periods ranging
from eight months to 8.5 years or call options pursuant to which the lessors
could require AWA to return the aircraft to the lessors upon receipt of four to
nine months written notice. The Company also has options to purchase certain
of the aircraft at fair market values at the end of the lease terms. Certain
of the agreements require security deposits, minimum return provisions and
maintenance reserve payments.

As a result of the rent restructuring associated with the government
guaranteed loan, one aircraft lease was amended to include a bargain purchase
option. As a result, this lease has been classified as a capital lease in
accordance with SFAS No. 13, Accounting for Leases,as amended, with an asset
value of $16.9 million and corresponding lease obligation of $14.5 million at
December 31, 2002.

In June 2002, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 13 months. Upon exercising this right, the lessor agreed to
relinquish its interest in approximately $0.7 million face value of 7.5%
convertible senior notes it received as compensation for certain concessions
granted under the restructuring completed on January 18, 2002. In October
2002, the same aircraft lessor exercised its put right to extend the lease for
another Boeing 737-300 aircraft for an additional 18 months. Upon exercising
the right, the lessor agreed to relinquish its interest in approximately $0.9
million face value of 7.5% convertible senior notes.

In June 2002, AWA restructured the leases for six of its Boeing 757-200
aircraft to improve lease rental rates and other terms. Prior to the
restructuring, AWA subleased the six aircraft from The Boeing Company
(Boeing), who in turn leased the aircraft from five different head lessors.
Under the restructuring, AWA terminated the subleases with Boeing and assumed,
amended and restated the existing head leases for each aircraft. Upon closing
of the transactions, AWA paid approximately $11.8 million in security deposits
and advance rental payments to the head lessors, net of a refund from Boeing
for prorated prepaid rent under the subleases, prorated accrued rent under the
head leases and cash deposits for the estimated cost of certain maintenance
work required to be performed on the aircraft prior to their return to Boeing.
As a result of these transactions, Boeing also relinquished its interest in
approximately $11.2 million face value of 7.5% convertible notes it received as
compensation for certain concessions granted under the restructuring completed
on January 18, 2002. Furthermore, AWA issued a $4.9 million promissory note to
Boeing for the value of the concessions realized with respect to these six
aircraft prior to the termination of the subleases, of which approximately $2.5
million was paid in 2002. The promissory note has a fixed interest rate of 10%
and matures in June 2003. The restructured leases have a remaining term of
approximately six years and are being accounted for as operating leases.

In September 2002, two aircraft lessors exercised their put rights under
their aircraft lease agreements to extend the leases for two Airbus A320
aircraft for an additional 12 months each.

In November 2002, one aircraft lessor exercised its put rights under its
aircraft lease agreement to extend the leases for four Boeing 737-300 aircraft
for an additional 18 months each.

The Company also leases certain terminal space, ground facilities and
computer and other equipment under noncancelable operating leases.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

At December 31, 2002, the scheduled future minimum cash rental payments
under capital leases and noncancelable operating leases with initial terms of
more than one year are as follows:

|                                                        |  |                |        |           |  |   |           | 
|------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | --------- | 
|                                                        |  | Capital        |        | Operating
|Years Ending December 31,                               |  | Leases         |        | Leases   
|                                                        |  |                |        |          
|                                                        |  | (in thousands)
|2003                                                    |  | $              | 4,458  |           |  | $ | 347,217   | 
|2004                                                    |  |                | 5,199  |           |  |   | 321,202   | 
|2005                                                    |  |                | 5,041  |           |  |   | 302,921   | 
|2006                                                    |  |                | 5,115  |           |  |   | 277,257   | 
|2007                                                    |  |                | 1,797  |           |  |   | 262,067   | 
|Thereafter                                              |  |                |       |           |  |   | 2,038,315 | 
|                                                        |  |                |        |           |  |   |           | 
|Total minimum lease payments                            |  |                | 21,610 |           |  | $ | 3,548,979 | 
|                                                        |  |                |        |           |  |   |           | 
|Less: Amounts of lease payments that represent interest |  |                | (6,489 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Present value of future minimum capital lease payments  |  |                | 15,121 |           |  |   |           | 
|Less: Current obligations under capital leases          |  |                | (3,122 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Long-term capital lease obligations                     |  | $              | 11,999 |           |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 

Rent expense (excluding landing fees) was approximately $409 million, $457
million and $427 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

Collectively, the operating lease agreements require security deposits
with lessors of $20.9 million and bank letters of credit of $13.8 million. The
letters of credit are collateralized by $13.8 million of restricted cash.

(b)  Revenue Bonds

In June 1999, Series 1999 special facility revenue bonds (new bonds)
were issued by a municipality to fund the retirement of the Series 1994A bonds
(old bonds) and the construction of a new concourse with 14 gates at Terminal
4 in Phoenix Sky Harbor International Airport in support of AWAs strategic
growth plan. The new bonds are due June 2019 with interest accruing at 6.25%
per annum payable semiannually on June 1 and December 1, commencing on December
1, 1999. The new bonds are subject to optional redemption prior to the
maturity date on or after June 1, 2009 in whole or in part, on any interest
payment date at the following redemption prices: 101% on June 1 or December 1,
2009; 100.5% on June 1 or December 1, 2010; and 100% on June 1, 2011 and
thereafter. In accordance with EITF Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction,the Company accounts for this as an
operating lease.

In
connection with these bonds, AWA entered into an Amended and Restated
Airport Use Agreement, pursuant to which AWA agreed to make
sufficient payments to the Industrial Development Authority
(IDA) to cover the principal and interest of the bonds
and to indemnify the IDA for any claims arising out of the issuance
and sale of the bonds and the use and occupancy of the concourses
financed by these bonds and the old bonds. At December 31, 2002,
the outstanding principal amount of the bonds was $21.8 million.
The Company estimates its remaining payments to cover the principal
and interest of these bonds will be approximately $44.3 million.

(c)  Aircraft Acquisitions

In January 2002, upon closing of the $429 million loan supported by a $380
million government loan guarantee, AWA restructured its aircraft purchase
commitment to AVSA. As a result, 17 new Airbus aircraft previously scheduled
for delivery in 2003 and 2004 were deferred by a total of 505 aircraft-months
to 2004 through 2007. At December 31, 2002, AWA had firm commitments to AVSA
for a total of 15 Airbus A318-100, one Airbus A319-100 and five Airbus A320-200
aircraft with delivery through 2007 at a cost of approximately $800 million.
The agreement with AVSA also includes options to purchase an additional 17 A320
family aircraft during 2006 through 2008 and purchase rights for an additional
25 aircraft in the A320 family of aircraft for delivery in 2005 to 2008.

The Company has an agreement with International Aero Engines (IAE) which
provides for the purchase by the Company of four new V2500-A5 spare engines
scheduled for delivery through 2004 for use on certain of the A320 fleet. At
December 31, 2002, the four engines have an estimated aggregate cost of $19
million.

The following table reflects estimated cash payments under the
restructured aircraft purchase agreement with AVSA and the IAE engine contract.
Actual payments may vary due to inflation factor adjustments and changes in
the delivery schedule of the equipment. The estimated cash payments include
progress payments that will be made in cash, as opposed to being financed under
an existing progress payment financing facility.

|     |  |                |         | 
|---- |  | -------------- | ------- | 
|     |  | (in thousands)
|2003 |  | $              | 87,859  | 
|2004 |  |                | 82,748  | 
|2005 |  |                | 84,970  | 
|2006 |  |                | 224,009 | 
|2007 |  |                | 264,746 | 
|     |  |                |         | 
|     |  | $              | 744,332 | 
|     |  |                |         | 

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

In May 2001, America West Airlines 2001-1 Pass Through Trusts issued
$427.2 million of Pass Through Trust Certificates in connection with the
financing of nine Airbus A319 aircraft and five Airbus A320 aircraft. The
combined effective interest rate on this financing is 7.66% on a fixed rate
equivalent basis at the time of closing.

The Pass Through Trust Certificates were issued by separate trusts that
hold equipment notes issued upon delivery of each financed aircraft. Proceeds
from the certificates were deposited in an escrow account pending their
application to purchase the equipment notes. The equipment notes were issued,
at AWAs election, either by AWA in connection with a mortgage financing of the
aircraft or by a separate owner trust in connection with a leveraged lease
financing of the aircraft. In the case of a leveraged lease financing, the
owner trust then leased the aircraft to AWA. In both cases, the equipment
notes are secured by a security interest in the aircraft. The pass through
trust certificates are not direct obligations of, nor guaranteed by, Holdings
or AWA. However, in the case of mortgage financings, the equipment notes
issued to the trusts are direct obligations of AWA and in the case of leveraged
lease financing, the leases are direct obligations of AWA.

Of the 14 aircraft financed under the 2001-1 Pass Through Trusts, 11 were
delivered in 2001, including three in the fourth quarter of 2001. One aircraft
was delivered in the first quarter of 2002 and two were delivered in the second
quarter of 2002. Except for the aircraft delivered in the first quarter of
2002, which was already financed as a leveraged lease upon delivery, the
acquisition of each aircraft was initially structured as a mortgage financing
and subsequently converted into a leveraged lease financing in sale-leaseback
transactions. In connection with the purchase of the two aircraft delivered in
the second quarter of 2002, AWA issued $64.2 million of equipment notes. In
June 2002, AWA converted the mortgage financing of the three aircraft delivered
in the fourth quarter of 2001 and the two aircraft delivered in the second
quarter of 2002 into a leveraged lease financing by entering into
sale-leaseback transactions. As a result, approximately $161.2 million of the
equipment notes were assumed, on a non-recourse basis, by the owner trustees
that purchased the aircraft from AWA.

In January 2002, in conjunction with the $429 million loan supported by a
$380 million government loan guarantee, AWA obtained new financing commitments
for 11 aircraft which were either already delivered in 2001 or scheduled to be
delivered in 2002 and 2003. Delivery of two of these aircraft was subsequently
deferred until 2005. In order to obtain the entire amount of the financing
commitment for two of the aircraft, AWA must achieve an established minimum
liquidity threshold. As a result, AWA has financing commitments for all
scheduled aircraft deliveries through the fourth quarter of 2003. See Note 4,
Government Guaranteed Loan.

(d)  Sale-Leaseback Transactions

As part of the restructuring completed on January 18, 2002, AWA committed
to the sale and leaseback of eight aircraft. The sale and leaseback of five of
these aircraft was completed in June 2002 and resulted in pretax losses of
approximately $2.4 million. The sale and leaseback of one aircraft was
completed in November 2002 and resulted in a pretax loss of approximately $1.4
million. The losses on the sale-leaseback transactions, which were subject to
a firm commitment in January 2002, were accrued in the accompanying statements
of operations classified in Special Chargesin the first quarter of 2002.
See Note 14, Special Charges.

In January 2001, AWA borrowed $49.4 million from the America West Airlines
2000-1 Pass Through Trusts to fund the acquisition of two new A319 Airbus
aircraft. In March 2001, AWA entered into a sale-leaseback transaction whereby
the Company sold these aircraft resulting in a $9.6 million gain. This gain
was deferred and is being amortized over the term of the operating leases,
which approximates 22 years, as a reduction in rent expense.

In the second and third quarters of 2001, AWA borrowed $232.0 million from
the America West Airlines 2001-1 Pass Through Trusts to fund the acquisition of
eight new A319 Airbus aircraft. In October 2001, AWA completed the sale of
these eight aircraft as part of a sale-leaseback transaction. The $34.1
million gain resulting from this transaction was deferred and is being
amortized over the term of the operating leases, which approximates 20 years,
as a reduction in rent expense.

In September 2001, AWA completed the sale of two owned aircraft engines,
with a combined net book value of $10.9 million, for approximately $10.0
million as part of a sale-leaseback transaction. The resulting $0.9 million
pretax loss on this transaction was recognized in the accompanying statements
of operations for the year ended December 31, 2001, classified in Nonoperating
Income (Expense)  Other, Net.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

In October 2001, AWA completed the sale of two owned A320 flight
simulators as part of a sale-leaseback transaction. The flight simulators,
with a combined net book value of $14.6 million, were sold for approximately
$17.4 million. The gain resulting from this transaction was deferred and is
being amortized over the term of the operating lease, which approximates nine
years, as a reduction in rent expense.

(e)  Contingent Legal Obligations

Holdings and its subsidiaries are parties to various legal proceedings,
including some purporting to be class action suits, and some which demand large
monetary damages or other relief, which, if granted, would require significant
expenditures. In certain cases where it is probable that the outcome will
result in monetary damages, the Company has reviewed available information and
determined that the best estimate of losses to be incurred related to these
cases is $2 million, which has been accrued. For those cases where a loss is
possible, or cases where a range of loss is probable but no amount within the
range is a better estimate than any other amount, the estimated amount of
exposure ranges from $0 to $25 million. In these instances, no accrual has
been recorded.

(f)  General Guarantees and Indemnifications

The Company is the lessee under many aircraft financing agreements
(including leveraged lease financings of aircraft under the pass through
trusts) and real estate leases. It is common in such transactions for the
Company as the lessee to agree to indemnify the lessor and other related third
parties for the manufacture, design, ownership, financing, use, operation and
maintenance of the aircraft, and for tort liabilities that arise out of or
relate to the Companys use or occupancy of the leased asset. In some cases,
this indemnity extends to related liabilities arising from the negligence of
the indemnified parties, but usually excludes any liabilities caused by their
gross negligence or willful misconduct. Additionally, in the case of real
estate leases, the Company typically indemnifies such parties for any
environmental liability that arises out of or relates to the Companys use of
the leased premises. The Company expects that it would be covered by insurance
(subject to deductibles) for most tort liabilities and related indemnities
described above with respect to leased real estate and operated aircraft.

10. Income Taxes

AWA is included In Holdings consolidated income tax return. Income tax
expense in the accompanying statements of operations has been determined on a
separate company basis.

AWA recorded income tax expense (benefit) as follows:

|                                   |         |                     |         |                         |         |      |         |         |         |   |        |       |       | 
|---------------------------------- | ------- | ------------------- | ------- | ----------------------- | ------- | ---- | ------- | ------- | ------- | - | ------ | ----- | ----- | 
|                                   |         |                     |         | Year Ended December 31,
|                                   |         |                     |         |                        
|                                   |         |                     |         | 2002                    |         | 2001 |         | 2000   
|                                   |         |                     |         |                         |         |      |         |        
|                                   |         |                     |         | (as restated)          
|                                   |         |                     |         | (in thousands)         
|Current taxes:                     |         |                     |         |                         |         |      |         |         |         |   |        |      
|                                   | Federal |                     | $       | (30,484                 | )       |      | $       | (33,830 | )       |   | $      | 2,296 |      
|                                   | State   |                     |         |                        |         |      |         |        |         |   |        | 284   |      
|                                   |         |                     |         |                         |         |      |         |         |         |   |        |      
|                                   |         | Total current taxes |         |                         | (30,484 | )    |         |         | (33,830 | ) |        |       | 2,580 | 
|Deferred taxes                     |         |                     |        |                         |         |      | (49,278 | )       |         |   | 13,090 |      
|                                   |         |                     |         |                         |         |      |         |         |         |   |        |      
|Total income tax expense (benefit) |         | $                   | (30,484 | )                       |         | $    | (83,108 | )       |         | $ | 15,670 |      
|                                   |         |                     |         |                         |         |      |         |         |         |   |        |       |      

AWAs emergence from bankruptcy reorganization in 1994 and the associated
implementation of fresh start reporting gave rise to significant items of
expense for financial reporting purposes that are not deductible for income tax
purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses that result in an effective tax expense (benefit) rate for
financial reporting purposes that differs from the current federal statutory
income tax rate of 35% for the years ended December 31, 2001 and 2000.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

Income tax expense (benefit) differs from amounts computed at the federal
statutory income tax rate as follows:

|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |        | 
|------------------------------------------------------------------------------- | ----- | - | ----------------------- | ------- | ---- | - | -------- | ------- | - | - | ------ | ------ | 
|                                                                                |       |   | Year Ended December 31,
|                                                                                |       |   |                        
|                                                                                |       |   | 2002                    |         | 2001 |   | 2000    
|                                                                                |       |   |                         |         |      |   |         
|                                                                                |       |   | (as restated)          
|                                                                                |       |   | (in thousands)         
|Income tax expense (benefit) at the federal
statutory income tax rate           |       | $ | (76,846                 | )       |      | $ | (114,178 | )       |   | $ | 5,299  |       
|State income tax expense (benefit), net of
Federal income tax expense (benefit) |       |   | (8,210                  | )       |      |   | (9,059   | )       |   |   | 1,045  |       
|Nondeductible write-off of ERV in connection
with asset impairment charge       |       |   |                        |         |      |   | 22,421   |         |   |   |       |       
|Nondeductible amortization of ERV                                               |       |   |                        |         |      |   | 6,963    |         |   |   | 6,963  |       
|Change in valuation allowance                                                   |       |   | 44,600                  |         |      |   | 6,259    |         |   |   | (1,420 | )     
|Expired tax credits                                                             |       |   | 7,987                   |         |      |   | 409      |         |   |   | 1,420  |       
|Other, net                                                                      |       |   | 1,985                   |         |      |   | 4,077    |         |   |   | 2,363  |       
|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |       
|                                                                                | Total |   | $                       | (30,484 | )    |   | $        | (83,108 | ) |   | $      | 15,670 | 
|                                                                                |       |   |                         |         |      |   |          |         |   |   |        |       

As of December 31, 2002, AWA has available net operating loss
carryforwards (NOL) and business tax credit carryforwards for federal income
tax purposes of approximately $399.6 million and $1.9 million, respectively.
The NOL expire during the years 2007 through 2009 while the business credit
carryforwards expire during the years 2003 through 2006. However, such
carryforwards are not available to offset federal (and in certain
circumstances, state) alternative minimum taxable income. Further, as a result
of a statutory ownership change (as defined for purposes of Section 382 of
the Internal Revenue Code) that occurred as a result of AWAs reorganization in
1994, AWAs ability to utilize its NOL and business tax credit carryforwards
may be restricted.

In February 2002, Holdings filed its 2001 consolidated income tax return
with the IRS, which included a claim to carryback losses incurred in 2001 to
the tax years 1999 and 2000. This resulted in a refund of approximately $33.9
million, of which substantially all was received in the first quarter of 2002.
In March 2002, Holdings filed a revised claim for carryback losses under the
Job Creation and Workers Assistance Act of 2002, resulting in an additional
refund of approximately $26.4 million which was received in the second quarter
of 2002. Holdings will be able to carryback a portion of its 2002 loss to
prior years and obtain a refund of $3.2 million.

Composition of Deferred Tax Items:

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of AWAs deferred tax assets and liabilities are a
result of the temporary differences related to the items described as follows:

|                                |                                                                                |                                    |         |                |          |      |        |               |         |  
|------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------- | ------- | -------------- | -------- | ---- | ------ | ------------- | ------- | -
|                                |                                                                                |                                    |         | 2002           |          | 2001
|                                |                                                                                |                                    |         |                |          |     
|                                |                                                                                |                                    |         |                |          |      |        | (as restated)
|                                |                                                                                |                                    |         | (in thousands)
|Deferred income tax liabilities |                                                                                |                                    |         |                |          |      |        |              
|                                | Property and equipment, principally depreciation and fresh start differences |                                    | $       | (112,442       | )        |      | $      | (96,043       | )      
|                                |                                                                                |                                    |         |                |          |      |        |               |        
|                                |                                                                                | Total deferred tax liability       |         |                | (112,442 | )    |        |               | (96,043 | )
|                                |                                                                                |                                    |         |                |          |      |        |              
|Deferred tax assets             |                                                                                |                                    |         |                |          |      |        |              
|                                | Aircraft leases                                                                |                                    |         | 18,634         |          |      |        | 16,240        |        
|                                | Frequent flyer accrual                                                         |                                    |         | 6,240          |          |      |        | 5,685         |        
|                                | Net operating loss carryforwards                                               |                                    |         | 160,248        |          |      |        | 88,088        |        
|                                | Tax credit carryforwards                                                       |                                    |         | 1,874          |          |      |        | 9,862         |        
|                                | Other                                                                          |                                    |         | 3,433          |          |      |        | 9,555         |        
|                                |                                                                                |                                    |         |                |          |      |        |              
|                                |                                                                                | Total deferred tax assets          |         |                | 190,429  |      |        |               | 129,430 |  
|                                | Valuation allowance                                                            |                                    |         | (77,987        | )        |      |        | (33,387       | )      
|                                |                                                                                |                                    |         |                |          |      |        |              
|                                |                                                                                |                                    | 112,442 |                |          |      | 96,043 |              
|                                |                                                                                |                                    |         |                |          |      |        |              
|                                |                                                                                | Net deferred tax asset (liability) |         | $              |         |      |        | $             |        |  
|                                |                                                                                |                                    |         |                |          |      |        |               |        

SFAS No. 109, Accounting for Income Taxes,requires that a valuation
allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including the companys
performance, the market environment in which the company operates, forecasts of
future profitability, the utilization of past tax credits, length of
carryforward periods and similar factors. SFAS No. 109 further states that it
is difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

Therefore, cumulative losses weigh heavily in the overall assessment.

The Company was in a cumulative loss position for the three years ended
December 31, 2001. Accordingly, a full valuation allowance has been
established relating to the Companys net deferred tax assets as December 31,
2001, and to tax benefits generated in 2002. We expect to continue to record a
full valuation allowance on future tax benefits until we can sustain an
appropriate level of profitability.

11. Capital Stock

Common Stock

The holders of common stock are entitled to one vote for each share of
stock held by the holder. Holders of common stock have no right to cumulate
their votes in the election of directors. The holders of common stock are
entitled to receive, when and if declared by the Board of Directors, out of the
assets of AWA which are by law available, dividends payable either in cash, in
stock or otherwise.

Warrants

As compensation for various elements of the Companys financial
restructuring completed in January 2002, Holdings issued a warrant to purchase
18.8 million shares of its Class B common stock to the federal government and
additional warrants to purchase 3.8 million shares of its Class B common stock
to other loan participants, in each case at an exercise price of $3 per share
and a term of ten years. For accounting purposes, the warrants were valued at
$35.4 million, or $1.57 per share, using the Black-Scholes pricing model with
the following assumptions: expected dividend yield of 0.0%, risk-free interest
rate of 4.8%, volatility of 44.9% and an expected life of ten years. The
warrants were recorded by AWA as a non-cash capital contribution in the
accompanying statements of stockholders equity and comprehensive income.

12. Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes changes in the fair value of
derivative financial instruments that qualify for hedge accounting. For the
years ended December 31, 2002 and 2001, AWA recorded a total comprehensive loss
of $376.4 million and $241.7 million, respectively. The difference between net
loss and comprehensive loss for the years ended December 31, 2002 and 2001 is
detailed in the following table:

|                   |                                                                                                                                                             |   |                         |       |      |   |          |        |   |   |      |   | 
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | ----- | ---- | - | -------- | ------ | - | - | ---- | - | 
|                   |                                                                                                                                                             |   | Year ended December 31,
|                   |                                                                                                                                                             |   |                        
|                   |                                                                                                                                                             |   | 2002                    |       | 2001 |   | 2000    
|                   |                                                                                                                                                             |   |                         |       |      |   |         
|                   |                                                                                                                                                             |   | (as restated)          
|                   |                                                                                                                                                             |   | (in thousands)         
|Net loss           |                                                                                                                                                             | $ | (377,024                | )     |      | $ | (243,115 | )      |   | $ | (529 | )
|                   |                                                                                                                                                             |   |                         |       |      |   |          |        |   |   |      |  
|                   | Unrealized losses on derivative instruments, net of deferred
taxes
of $458 in 2002 and $1,190 in 2001                                                       |   |                         | 1,178 |      |   |          | (3,146 | ) |   |      |  | 
|                   | Reclassification adjustment to net loss of previously reported
unrealized losses on derivative instruments, net of taxes of
$209 in 2002 and $1,715 in 2001 |   |                         | (538  | )    |   |          | 4,536  |   |   |      |  | 
|                   |                                                                                                                                                             |   |                         |       |      |   |          |        |   |   |      |  
|                   | Total other comprehensive income                                                                                                                            |   |                         | 640   |      |   |          | 1,390  |   |   |      |  | 
|                   |                                                                                                                                                             |   |                         |       |      |   |          |        |   |   |      |  
|Comprehensive loss |                                                                                                                                                             | $ | (376,384                | )     |      | $ | (241,725 | )      |   | $ | (529 | )
|                   |                                                                                                                                                             |   |                         |       |      |   |          |        |   |   |      |  

13. Employee Benefit Plan

AWA has a 401(k) defined contribution plan, covering essentially all
employees of AWA. Participants may contribute from 1 to 15% of their pretax
earnings to a maximum of $11,000 in 2002. AWAs matching contribution is
determined annually by the Board of Directors. AWAs contribution expense to
the plan totaled $8.6 million, $8.0 million and $8.9 million in 2002, 2001 and
2000, respectively.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

14. Special Charges

In the first quarter of 2002, AWA recorded a pretax special charge of
$21.0 million, primarily related to the restructuring completed on January 18,
2002, resulting from the events of September 11, 2001. Components of the
special charge are as follows:

|                                                                    |       |   |                 |        |               |   |        |        | 
|------------------------------------------------------------------- | ----- | - | --------------- | ------ | ------------- | - | ------ | ------ | 
|                                                                    |       |   | Special Charges
|                                                                    |       |   |                
|                                                                    |       |   | (as restated)   |        | (as reported)
|                                                                    |       |   | (In thousands) 
|Impairment of owned aircraft and engines (based on appraised value) |       | $ |                |        |               | $ | 39,225 |       
|Fleet restructuring costs                                           |       |   | 9,915           |        |               |   | 9,915  |       
|Losses on sale-leaseback transactions                               |       |   | 6,328           |        |               |   | 6,328  |       
|Professional fees                                                   |       |   | 4,745           |        |               |   | 4,745  |       
|Write-off of computer system and security equipment                 |       |   | 3,411           |        |               |   | 3,411  |       
|Severance                                                           |       |   | 631             |        |               |   | 631    |       
|Revision of estimate for second quarter 2001 special charge         |       |   | (4,000          | )      |               |   | (4,000 | )     
|                                                                    |       |   |                 |        |               |   |        |       
|                                                                    | Total |   | $               | 21,030 |               |   | $      | 60,255 | 
|                                                                    |       |   |                 |        |               |   |        |       

Of this amount, approximately $10.3 million, principally related to losses
on sale-leaseback transactions, fleet restructuring costs, professional fees
and severance was accrued.

In the third quarter of 2002, AWA recorded a $2.0 million reduction in
special charges due to a revision of the estimated costs related to the early
termination of certain aircraft leases.

In April 2001, AWA implemented a cost reduction plan to respond to a
softening economy. The plan included a slowing of the airlines growth through
the return of seven older 737-300 leased aircraft to the lessors in the second
half of 2001 and January 2002 and significant reductions in overhead due in
part to select reductions-in-force of management, administrative and clerical
personnel. AWA recorded a pretax charge of $35.7 million in the second quarter
of 2001 related to the earlier-than-planned aircraft returns and
reductions-in-force.

In the fourth quarter of 2001, AWA recorded a pretax special charge of
$106.0 million related to the impairment of owned aircraft and
engines as a result of declines in market value resulting from the
terrorist attacks of September 11, 2001 and their aftermath. Fair value for purposes of determining impairment was determined by independent appraisal and the impairment charge
included an allocation of unamortized ERV at December 31, 2001 of approximately $64.1 million. Special charges for the
year ended December 31, 2001 also include charges for the early termination of leases for one A320 and one 737-300 aircraft.

The following table presents the payments and other settlements made
during 2002 and the remaining special charge accruals as of December 31, 2002.

|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|--------------------------------------------------------------- |  | --------- | ------ | ------------- |  | ------------ | ------- | ----------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                                                |  | Sale-     |        | Fleet         |  | Professional |         | Reductions- |  |            |        |       |  |   |        |  
|                                                                |  | Leaseback |        | Restructuring |  | Fees         |         | in-force    |  | Impairment |        | Total
|                                                                |  |           |        |               |  |              |         |             |  |            |        |      
|Balance at December 31, 2000                                    |  | $         |       |               |  | $            |        |             |  | $          |       |       |  | $ |       |   |  | $ |         |   |  | $ |         |  
|Special charges                                                 |  |           |       |               |  |              | 25,226  |             |  |            |       |       |  |   | 1,122  |   |  |   | 115,290  |   |  |   | 141,638  |  
|Payments                                                        |  |           |       |               |  |              | (8,440  | )           |  |            |       |       |  |   | (1,039 | ) |  |   |         |   |  |   | (9,479   | )
|Impairment loss                                                 |  |           |       |               |  |              |        |             |  |            |       |       |  |   |       |   |  |   | (115,290 | ) |  |   | (115,290 | )
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2001 (a)                                |  |           |       |               |  |              | 16,786  |             |  |            |       |       |  |   | 83     |   |  |   |         |   |  |   | 16,869   |  
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Special charges                                                 |  |           | 6,328  |               |  |              | 10,582  |             |  |            | 1,489  |       |  |   | 631    |   |  |   |         |   |  |   | 19,030   |  
|Reclassification of aircraft rent
due
to restructuring          |  |           |       |               |  |              | 4,696   |             |  |            |       |       |  |   |       |   |  |   |         |   |  |   | 4,696    |  
|Payments                                                        |  |           |       |               |  |              | (14,516 | )           |  |            | (1,489 | )     |  |   | (714   | ) |  |   |         |   |  |   | (16,719  | )
|Issuance of convertible notes                                   |  |           |       |               |  |              | (5,000  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (5,000   | )
|Forfeiture of security deposits                                 |  |           |       |               |  |              | (2,289  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (2,289   | )
|Loss on sale-leasebacks                                         |  |           | (3,852 | )             |  |              |        |             |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (3,852   | )
|Reclassification of capitalized
maintenance for parked aircraft |  |           |       |               |  |              | (902    | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (902     | )
|Revision of estimate                                            |  |           |       |               |  |              | (6,000  | )           |  |            |       |       |  |   |       |   |  |   |         |   |  |   | (6,000   | )
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2002                                    |  | $         | 2,476  |               |  | $            | 3,357   |             |  | $          |       |       |  | $ |       |   |  | $ |         |   |  | $ | 5,833    |  
|                                                                |  |           |        |               |  |              |         |             |  |            |        |       |  |   |        |   |  |   |          |   |  |   |          |  

(a)  As restated  See Note 2

AWA expects to make payments related to these special charges through the
fourth quarter of 2005.

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

15. Nonoperating Income (Expense)  Other, Net

Under the airline compensation provisions of the Air Transportation Safety
and System Stabilization Act (the Act), each air carrier was entitled to
receive the lesser of: (i) its direct and incremental losses for the period
September 11, 2001 to December 31, 2001 or (ii) its proportional available seat
mile allocation (based on available seat miles for August 2001) of the $4.5
billion compensation available under the Act. In 2001, AWA received $98.2
million under the Act from the United States government and expected to
receive, based on its losses and its share of available seat miles, at least an
additional $10.0 million. In accordance with EITF Issue No. 01-10, Accounting
for the Impact of the Terrorist Attacks of September 11, 2001,AWA recognized
$108.2 million of federal government assistance in 2001 as nonoperating income
because direct and incremental losses incurred during 2001 exceeded that
amount. In July 2002, AWA received an additional $12.3 million under the Act.
Accordingly, $10.0 million was credited against the receivable established in
2001 and $2.3 million was recognized as nonoperating income in the second
quarter of 2002. In August 2002, AWA received an additional payment of $6.2
million under the Act, which was recognized as nonoperating income in the third
quarter of 2002.

In March 2002, AWA wrote down its investment in Aeroxchange, an e-commerce
entity, which was carried at cost, to net realizable value recognizing a pretax
loss of $2.8 million. See Note 6, Financial Instruments and Risk Management 
(a) Fair Value of Financial Instruments  Investments in Equity Securities.

In September 2001, AWA completed the sale of two owned aircraft engines,
with a combined net book value of $10.9 million, for approximately $10.0
million as part of a sale leaseback transaction, resulting in a $0.9 million
pretax loss.

In July 2001, AWA recognized a pretax gain of approximately $1.1 million
from the sale of 62,240 warrants to purchase common stock of Expedia.com.

In September 2000, AWA recorded an $8.8 million pretax unrealized gain on
the Companys investment in one million shares of GetThere.com common stock.
AWA sold all one million shares of GetThere.com for approximately $17.8 million
in October 2000.

In March 2000, AWA sold 500,000 warrants to purchase common stock of
Priceline.com, Inc. for approximately $18.0 million, resulting in a pretax gain
of approximately $15.5 million.

16. Supplemental Information to Statements of Cash Flows

Supplemental disclosure of cash flow information and non-cash investing
and financing activities were as follows:

|                       |                                                              |  |                         |         |      |  |      |         |   |  |   |         |  
|---------------------- | ------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                       |                                                              |  | Year Ended December 31,
|                       |                                                              |  |                        
|                       |                                                              |  | 2002                    |         | 2001 |  | 2000
|                       |                                                              |  |                         |         |      |  |     
|                       |                                                              |  | (in thousands)         
|Non-cash transactions: |                                                              |  |                         |         |      |  |      |         |   |  |   |        
|                       | Reclassification of advances to parent company, net          |  | $                       | 223,695 |      |  | $    |        |   |  | $ |        |  
|                       | Issuance of convertible notes, net of cancellations          |  |                         | 59,621  |      |  |      |        |   |  |   |        |  
|                       | Issuance of warrants                                         |  |                         | 35,383  |      |  |      |        |   |  |   |        |  
|                       | Equipment acquired through capital leases                    |  |                         | 17,753  |      |  |      |        |   |  |   |        |  
|                       | Equipment acquired with issuance of notes payable            |  |                         | 64,163  |      |  |      |        |   |  |   |        |  
|                       | Notes payable issued for equipment purchase deposits         |  |                         | 10,500  |      |  |      | 10,500  |   |  |   | 42,000  |  
|                       | Notes payable canceled under the aircraft
purchase agreement |  |                         | (10,500 | )    |  |      | (38,500 | ) |  |   | (38,500 | )
|                       | Payment in kind notes issued, net of returns                 |  |                         | 7,756   |      |  |      |        |   |  |   |        |  
|Cash transactions:     |                                                              |  |                         |         |      |  |      |         |   |  |   |        
|                       | Interest paid, net of amounts capitalized                    |  |                         | 25,942  |      |  |      | 24,240  |   |  |   | 11,536  |  
|                       | Income taxes paid (refunded)                                 |  |                         | (63,505 | )    |  |      | (255    | ) |  |   | 2,852   |  

17. Related Party Transactions

As part of our reorganization in 1994, Continental Airlines and AWA
entered into an alliance agreement which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks  The stockholders who effectively control the

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED

voting power of Holdings could take actions that would favor their own
personal interests to the detriment of our interests.AWA paid Continental
approximately $25.5 million, $30.1 million and $32.4 million and also received
approximately $15.9 million, $22.0 million and $25.5 million in 2002, 2001 and
2000, respectively, from Continental pursuant to these agreements.

AWA provides air transportation and certain administrative services to The
Leisure Company, a wholly owned subsidiary of Holdings that was formed on
January 1, 1998. The cost of air transportation and administrative services
are negotiated on an arms length basis. AWA had net air transportation sales
to TLC of $44.5 million, $60.2 million and $55.3 million, respectively, in
2002, 2001 and 2000, and also received $1.3 million in each of those years
under the services agreement.

18. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2002 and 2001 follows (in
thousands of dollars):

|                                                                |  |               |          |               |  |               |          |               |  |   |         |       |  |   |         |      
|--------------------------------------------------------------- |  | ------------- | -------- | ------------- |  | ------------- | -------- | ------------- |  | - | ------- | ----- |  | - | ------- | -----
|                                                                |  | 1st Quarter   |          | 2nd Quarter  
|                                                                |  |               |          |              
|                                                                |  | (as restated) |          | (as reported) |  | (as restated) |          | (as reported)
|2002                                                            |  |               |          |               |  |               |          |               |  |   |         |       |  |   |         |      
|Operating revenues                                              |  | $             | 453,599  |               |  | $             | 453,599  |               |  | $ | 533,144 |       |  | $ | 533,144 |      
|Operating loss                                                  |  |               | (82,328  | )             |  |               | (121,553 | )             |  |   | (1,055  | )     |  |   | (1,055  | )    
|Nonoperating income (expenses),
net                             |  |               | (16,857  | )             |  |               | (16,857  | )             |  |   | (14,407 | )     |  |   | (14,407 | )    
|Income tax benefit                                              |  |               | (30,484  | )             |  |               | (53,078  | )             |  |   |        |       |  |   | (5,414  | )    
|Loss before cumulative effect of
change in accounting principle |  |               | (68,701  | ) (1)         |  |               | (85,392  | ) (1)         |  |   | (15,462 | ) (2) |  |   | (10,048 | ) (2)
|Net
loss                                                        |  |               | (256,650 | )             |  |               | (337,342 | )             |  |   | (15,462 | )     |  |   | (10,048 | )    

|                                                                |  |               |         |               |  |   |          |       |  |  |  |  |  |   |         |      
|--------------------------------------------------------------- |  | ------------- | ------- | ------------- |  | - | -------- | ----- |  |  |  |  |  | - | ------- | -----
|                                                                |  | 3rd Quarter   |         | 4th Quarter  
|                                                                |  |               |         |              
|                                                                |  | (as restated) |         | (as reported) |  |   |          |       |  |  |  | 
|                                                                |  |               |         |               |  |   |          |       |  |  |  | 
|2002                                                            |  |               |         |               |  |   |          |       |  |  |  |  |  |   |         |      
|Operating revenues                                              |  | $             | 510,050 |               |  | $ | 510,050  |       |  |  |  |  |  | $ | 514,497 |      
|Operating loss                                                  |  |               | (42,232 | )             |  |   | (42,232  | )     |  |  |  |  |  |   | (38,535 | )    
|Nonoperating income (expenses),
net                             |  |               | (9,539  | )             |  |   | (9,539   | )     |  |  |  |  |  |   | (14,606 | )    
|Income tax benefit                                              |  |               |        |               |  |   | (19,444) |       |  |  |  |  |  |   |        |      
|Loss before cumulative effect of
change in accounting principle |  |               | (51,771 | ) (3)         |  |   | (32,327  | ) (3) |  |  |  |  |  |   | (53,141 | ) (4)
|Net
loss                                                        |  |               | (51,771 | )             |  |   | (32,327  | )     |  |  |  |  |  |   | (53,141 | )    

|                                    |  |             |  |             |  |   |         |       |  |  |  |  |  |   |         |      
|----------------------------------- |  | ----------- |  | ----------- |  | - | ------- | ----- |  |  |  |  |  | - | ------- | -----
|                                    |  | 1st Quarter |  | 2nd Quarter
|                                    |  |             |  |            
|2001                                |  |             |  |             |  |   |         |       |  |  |  |  |  |   |         |      
|Operating revenues                  |  |             |  |             |  | $ | 577,007 |       |  |  |  |  |  | $ | 573,909 |      
|Operating loss                      |  |             |  |             |  |   | (25,292 | )     |  |  |  |  |  |   | (55,807 | )    
|Nonoperating income (expenses),
net |  |             |  |             |  |   | (1,726  | )     |  |  |  |  |  |   | (127    | )    
|Income tax benefit                  |  |             |  |             |  |   | 13,964  |       |  |  |  |  |  |   | 12,636  |      
|Net loss                            |  |             |  |             |  |   | (13,054 | ) (5) |  |  |  |  |  |   | (43,298 | ) (6)

|                                    |  |             |  |             |  |   |          |       |  |               |          |               |  |   |          |      
|----------------------------------- |  | ----------- |  | ----------- |  | - | -------- | ----- |  | ------------- | -------- | ------------- |  | - | -------- | -----
|                                    |  | 3rd Quarter |  | 4th Quarter
|                                    |  |             |  |            
|                                    |  |             |  |             |  |   |          |       |  | (as restated) |          | (as reported)
|2001                                |  |             |  |             |  |   |          |       |  |               |          |               |  |   |          |      
|Operating revenues                  |  |             |  |             |  | $ | 463,345  |       |  | $             | 354,936  |               |  | $ | 354,936  |      
|Operating loss                      |  |             |  |             |  |   | (100,926 | )     |  |               | (246,461 | )             |  |   | (143,175 | )    
|Nonoperating income (expenses),
net |  |             |  |             |  |   | 54,608   |       |  |               | 47,792   |               |  |   | 47,792   |      
|Income tax benefit (expense)        |  |             |  |             |  |   | 15,258   |       |  |               | (42,553  | )             |  |   | (33,984  | )    
|Net loss                            |  |             |  |             |  |   | (31,060  | ) (7) |  |               | (156,116 | ) (8)         |  |   | (61,399  | ) (8)



|(1) |  | Includes a $21.0 million pretax charge primarily related to the
restructuring completed on January 18, 2002, resulting from the events
of September 11, 2001, and a pretax charge of $2.8 million related to
the write down to net realizable value of an investment in an
e-commerce entity that was carried at cost. 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a $2.3 million pretax gain related to additional federal
grant proceeds received under the Air Transportation Safety and System
Stabilization Act to offset losses resulting from the September 11, 2001
terrorist attacks.                                                                                   
|   
|(3) |  | Includes a $6.2 million pretax gain related to additional federal
grant proceeds received under the Air Transportation Safety and System
Stabilization Act and a $2.0 million pretax reduction in special charges
due to a revision of the estimated costs related to the early
termination of certain aircraft leases.
|   
|(4) |  | Includes a $4.8 million pretax credit related to a change in the
Companys vacation policy for certain administrative employees.                                                                                                                                                                                       

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AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS  CONTINUED



|(5) |  | Includes an $11.0 million pretax gain resulting from the settlement
in March 2001 of a lawsuit related to an air-to-ground telecommunication
system that was previously written off.                                                                                                                                                                                                                                                                                                                                                             
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | Includes a $35.7 million pretax charge related to the
earlier-than-planned return of aircraft and reductions-in-force
resulting from the Companys cost reduction initiatives.                                                                                                                                                                                                                                                                                                                                                                   
|   
|(7) |  | Includes a $60.3 million pretax gain related to a federal grant
received under the Air Transportation Safety and System Stabilization
Act to offset losses resulting from the September 11, 2001 terrorist
attacks.                                                                                                                                                                                                                                                                                                                              
|   
|(8) |  | Includes a $47.9 million pretax gain related to a federal grant
received under the Air Transportation Safety and System Stabilization
Act to offset losses resulting from the September 11, 2001 terrorist
attacks, $2.7 million of pretax special charges related to the early
termination of aircraft leases and an $8.8 million pretax gain from an
insurance settlement. Also includes $106.0 million of pretax special
charges related to the impairment of ERV and owned aircraft and engines
and the early termination of aircraft leases.

19. Segment Disclosures

AWA is one reportable operating segment. Accordingly, the segment
reporting financial data required by SFAS No. 131 is included in the
accompanying balance sheets and statements of operations.

20. Subsequent Event

Elimination of Hub Operations in Columbus, Ohio

In February 2003, AWA announced that it is eliminating hub operations in
Columbus, Ohio and, as a result, will be phasing 12 regional jets out of the
America West Express fleet. Between early April and mid-June of 2003, AWA will
gradually downsize the hub from 49 daily departures to 15 destinations to a
planned four mainline flights per day to Phoenix and Las Vegas. With the
downsizing of Columbus, AWA must eliminate service to New York City LaGuardia
Airport because perimeter rules at the airport prohibit flights beyond 1,500
miles. This precludes service from AWAs hubs in Phoenix and Las Vegas. In
the first, second and third quarters of 2003, the Company expects to record a
pretax special charge of approximately $10 to $15 million resulting from the
elimination of its Columbus hub operations. The charge is related to the costs
to terminate certain contracts, the write-off of leasehold improvements and
employee transfer and severance expenses.

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##### Table of Contents






ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




PART III




ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

Information respecting continuing directors and nominees of the Company is
set forth under the caption Election of Directorsin Holdings Proxy
Statement relating to its 2003 Annual Meeting of Stockholders and is
incorporated by reference into this Form 10-K Report. The Proxy Statement will
be filed with the Securities and Exchange Commission in accordance with Rule
14a-6(c) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act.) With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
the Proxy Statement is not being filed as a part hereof. Information respecting
executive officers of Holdings is set forth at Part I of this Report.

Information respecting compliance with Section 16(a) of the Exchange Act
is set forth under the caption Section 16(a) Beneficial Ownership Reporting
Compliancein the Proxy Statement and is incorporated by references into this
Form 10-K Report.




ITEM 11.     EXECUTIVE COMPENSATION

Information concerning executive compensation required by Item 11 is set
forth under the captions Executive Compensation, Stock Option Grants and
Exercises, Employment Agreementsand Compensation Committee Interlocksin
the Proxy Statement and is incorporated by reference into this Form 10-K
Report.




ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management required by Item 12 is set forth under the caption Security
Ownership of Certain Beneficial Owners and Managementin the Proxy Statement
and is incorporated by reference into this Form 10-K Report.




ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions
required by Item 13 is set forth under the captions Employment Agreementsand
Certain Transactionsin the Proxy Statement and is incorporated by reference
into this Form 10-K Report.




ITEM 14.     CONTROLS AND PROCEDURES



| | a. |  | Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                   
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Based on their evaluation of our disclosure controls and procedures
conducted within 90 days of the date of filing this report on Form 10-K,
our Chief Executive Officer and Chief Financial Officer have concluded
that the disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as
amended) of Holdings and AWA are effective.
|
| | b. |  | Changes in Internal Controls                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | There were no significant changes in the internal controls of Holdings and
AWA or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.                                                                                                                                                                                                      

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PART IV




ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following financial statements, the Reports of Independent Accountants
and the Independent Auditors Reports are filed in Part II, Item 8A and 8B of
this report on the pages indicated:

America West Holdings Corporation



| | Report of Independent Accountants  page 38.
| | --------------------------------------------



| | Independent Auditors Report  page 39.
| | ---------------------------------------



| | Consolidated Balance Sheets  December 31, 2002 and 2001  page 40.
| | -------------------------------------------------------------------



| | Consolidated Statements of Operations -Years ended December 31, 2002,
2001 and 2000  page 41.
| | ----------------------------------------------------------------------------------------------



| | Consolidated Statements of Cash Flows-Years ended December 31, 2002,
2001 and 2000   page 42.
| | ----------------------------------------------------------------------------------------------



| | Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss)-Years ended December 31, 2002, 2001 and 2000   page 43.
| | ----------------------------------------------------------------------------------------------------------------------------------------



| | Notes to Consolidated Financial Statements  page 44.
| | -----------------------------------------------------

America West Airlines, Inc.



| | Report of Independent Accountants  page 70.
| | --------------------------------------------



| | Independent Auditors Report  page 71.
| | ---------------------------------------



| | Balance Sheets  December 31, 2002 and 2001  page 72.
| | ------------------------------------------------------



| | Statements of Operations  Years ended December 31, 2002, 2001 and
2000   page 73.
| | -----------------------------------------------------------------------------------



| | Statements of Cash Flows  Years ended December 31, 2002, 2001 and
2000   page 74.
| | -----------------------------------------------------------------------------------



| | Statements of Stockholders Equity and Comprehensive Income-Years
ended December 31, 2002, 2001 and 2000   page 75.
| | --------------------------------------------------------------------------------------------------------------------



| | Notes to Financial Statements  page 76.
| | ----------------------------------------

(a)(2) Financial Statement Schedules

America West Holdings Corporation



| | Report of Independent Accountants on Financial Statement Schedule -
page 111.
| | -----------------------------------------------------------------------------



| | Independent Auditors Report on Schedule  page 112.
| | ----------------------------------------------------



| | Schedule II: Valuation and Qualifying Accounts  page 113.
| | ----------------------------------------------------------

America West Airlines, Inc.



| | Report of Independent Accountants on Financial Statement Schedule -
page 114.
| | -----------------------------------------------------------------------------



| | Independent Auditors Report on Schedule  page 115.
| | ----------------------------------------------------



| | Schedule II: Valuation and Qualifying Accounts  page 116.
| | ----------------------------------------------------------

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All other information and schedules have been omitted as not applicable or
because the required information is included in the financial statements or
notes thereto.

(b)  Reports on Form 8-K



| | Holdings and AWA filed a report on Form 8-K, dated October 11, 2002,
furnishing under Item 5 a press release, dated September 30, 2002,
announcing that Derek J. Kerr has been elected new Chief Financial
Officer of the two companies replacing Bernard L. Han, who has
resigned effective October 14, 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(c)  Exhibits



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2.2            |  | Agreement and Plan of Merger, dated as of December 19, 1996, by and among
America West Holdings Corporation (Holdings), America West Airlines, Inc.
(AWA) and AWA Merger, Inc., with an effective date and time as of midnight
on December 31, 1996  Incorporated by reference to Exhibit 2.1 to Holdings
Registration Statement on Form 8-B dated January 13, 1997.                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.1            |  | Restated Certificate of Incorporation of AWA (included in Exhibit 2.2 above).                                                                                                                                                                                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|*3.2           |  | Restated Bylaws of AWA.                                                                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.3            |  | Certificate of Incorporation of Holdings (filed with the Secretary of State
of the State of Delaware on December 13, 1996)  Incorporated by reference to
Exhibit 3.1 of Holdings Registration Statement on Form 8-B dated January 13,
1997.                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|*3.4           |  | Restated Bylaws of Holdings.                                                                                                                                                                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.1            |  | Indenture for 10 3/4% Senior Unsecured Notes due 2005  Incorporated by
reference to Exhibit 4.1 to AWAs Registration Statement on Form S-4 dated
August 7, 1995 (File No. 33-61099).                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.2            |  | Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).                                                                                                                                                                                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.7            |  | Stock Option Agreement, dated as of December 31, 1996, between Holdings and
AWA  Incorporated by reference to Exhibit 4.5 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.8            |  | Registration Rights Agreement, dated as of August 25, 1994, among AWA, AmWest
Partners, L.P. and other holders  Incorporated by reference to Exhibit 4.6
to the AWAs Current Report on Form 8-K dated August 25, 1994 (File No.
000-12337).                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.9            |  | Assumption of Certain Obligations Under Registration Rights Agreement
executed by Holdings for the benefit of TPG Partners, L.P., TPG Parallel I,
L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc.,
Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund,
L.P.  Incorporated by reference to Exhibit 4.7 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.10           |  | Form of Pass Through Trust Agreement, dated as of November 26, 1996, between
AWA and Fleet National Bank, as Trustee  Incorporated by reference to
Exhibit 4.1 to AWAs Current Report on Form 8-K dated November 26, 1996 (File
No. 000-12337).                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.12           |  | Form of Pass Through Trust Agreement, dated as of June 17, 1997, between AWA
and Fleet National Bank, as Trustee  Incorporated by reference to Exhibit
4.5 to AWAs Registration Statement on Form S-3 dated June 4, 1997 (File No.
333-27351).                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.13           |  | Forms of Pass Through Trust Agreements, dated as of October 6, 1998, between
AWA and Wilmington Trust Company, as Trustee  Incorporated by reference to
Exhibits 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on
Form S-4 dated March 25, 1999 (File No. 333-71615).                                                                                                                                          

99



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Pass Through Trust Agreements, dated as of September 21, 1999, between AWA
and Wilmington Trust Company, as Trustee, made with respect to the formation
of America West Airlines Pass Through Trusts, Series 1999-1G-S, 1999-1G-O,
1999-1C-S and 1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, the issuance of 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, the issuance of
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and 1999-1G-O, and
the issuance of 8.54% Exchange Pass Through Certificates, Series 1999-1C-S
and 1999-1C-O  Incorporated by reference to AWAs Quarterly Report on Form
10-Q for the period ended September 30, 1999 (File No. 000-12337).                                                                                                                                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.15 |  | Insurance and Indemnity Agreement, dated as of September 21, 1999, among AWA,
Ambac Assurance Corporation as Policy Provider and Wilmington Trust Company
as Subordination Agent and Trustee under the Pass Through Trust 1999-1G-O 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated March 16, 2000 (File No. 333-93393).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.16 |  | Pass Through Trust Agreement, dated as of July 7, 2000, between AWA, and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2000-1G-0, 2000-1G-S,
2000-1C-O and 2000-1C-S, the issuance of 8.057% Initial Pass Through
Certificates, Series 2000-1G-O and 2000-1G-S, the issuance of 9.244% Initial
Pass Through Certificates, Series 2000-1C-O and 2000-1C-S, the issuance of
8.057% Exchange Pass Through Certificates, Series 2000-1G-O and 2000-1G-S and
the issuance of 9.244% Exchange Pass Through Certificates, Series 2000-1C-O
and 2000-1C-S  Incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6
to AWAs Registration Statement on Form S-4 dated September 12, 2002 (File
No. 333-44930).                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.17 |  | Insurance and Indemnity Agreement, dated as of July 7, 2000, among AWA, Ambac
Assurance Corporation as Policy Provider and Wilmington Trust company as
Subordination Agent and Trustee under the Pass Through Trust 2000-1G 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated September 12, 2002 (File No. 333-44930).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.18 |  | Pass Through Trust Agreement, dated as of May 17, 2001, between AWA and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2001-1G-O, 2001-1G-S,
2001-1C-O, 2001-1C-S, 2001-1D-O and 2001-1D-S, the issuance of 7.10% Initial
Pass Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of
8.37% Initial Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, the
issuance of Six-Month LIBOR plus 3.20% Initial Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S, the issuance of 7.10% Exchange Pass
Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of 8.37%
Exchange Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, and the
issuance of Six-Month LIBOR plus 3.20% Exchange Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S  Incorporated by reference to Exhibits
4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on Form S-4
dated February 14, 2002 (File No. 333-69356).
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.19 |  | Insurance and Indemnity Agreement (Series G), dated as of May 17, 2001, among
AWA, Ambac Assurance Corporation as Policy Provider and Wilmington Trust
company as Subordination Agent  Incorporated by reference to Exhibit 4.20 to
AWAs Registration Statement on Form S-4 dated February 14, 2002 (File No.
333-69356).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.20 |  | Indenture, dated as of January 18, 2002, between America West Holdings
Corporation and Wilmington Trust Company, as Trustee and not in its
individual capacity, for America West Holdings Corporation 7.5% Convertible
Senior Notes due 2009  Incorporated by reference to Exhibit 4.15 to
Holdings and AWAs Current Report on Form 8-K dated January 31, 2002 (File
Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.21 |  | Form of America West Holdings Corporation 7.5% Convertible Senior Notes due
2009  Incorporated by reference to Exhibit 4.16 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.22 |  | Registration Rights Agreement, dated January 18, 2002, with respect to shares
of Class B Common Stock underlying the America West Holdings Corporation 7.5%
Convertible Senior Notes due 2009  Incorporated by reference to Exhibit 4.17
to Holdings and AWAs Current Report on Form 8-K dated January 31, 2002
(File Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

100



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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.23     |  | Guaranty, dated as of January 18, 2002, by America West Airlines, Inc., in
favor of the Holders and the Trustee under the Indenture dated January 18,
2002  Incorporated by reference to Exhibit 4.18 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.24     |  | Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002,
issued to the Air Transportation Stabilization Board and the other warrant
recipients under the $429,000,000 Loan Agreement dated January 18, 2002 
Incorporated by reference to Exhibit 4.19 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.25     |  | Registration Rights Agreement, dated January 18, 2002, between America West
Holdings Corporation and the Air Transportation Stabilization Board with
respect to shares of Class B Common Stock underlying the Warrant to Purchase
Class B Common Stock  Incorporated by reference to Exhibit 4.20 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.26     |  | Warrant Registration Rights Agreement between America West Holdings
Corporation and the other warrant recipients under the $429,000,000 Loan
Agreement dated January 18, 2002, with respect to shares of Class B Common
Stock underlying their Warrants to Purchase Class B Common Stock 
Incorporated by reference to Exhibit 4.21 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.11    |  | Airport Use Agreement, dated as of July 1, 1989, among the City of Phoenix,
The Industrial Development Authority of the City of Phoenix, Arizona and AWA
(Airport Use Agreement)  Incorporated by reference to Exhibit 10-(D)(9) to
AWAs Annual Report on Form 10-K for the year ended December 31, 1989 (File
No. 000-12337).                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12    |  | First Amendment to Airport Use Agreement, dated as of August 1, 1990 -
Incorporated by reference to Exhibit 10-(D)(9) to AWAs Quarterly Report on
Form 10-Q for the period ended September 30, 1990 (File No. 000-12337).                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.19    |  | Management Rights Agreement, dated as of August 25, 1994, between TPG
Partners L.P., TPG Genpar, L.P. and AWA  Incorporated by reference to
Exhibit 10.47 to AWAs Registration Statement on Form S-1 dated August 23,
1994, as amended (File No. 33-54243).                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.20(1) |  | Amended and Restated V2500 Support Contract, dated as of October 7, 1998,
between AWA and IAE International Aero Engines AG and Side Letters Nos. 1 and
2 thereto  Incorporated by reference to Exhibit 10.20 to AWAs Annual Report
on Form 10-K for the year ended December 31, 1998 (File No. 000-12337).                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|+10.21   |  | Amended and Restated America West 1994 Incentive Equity Plan  Incorporated
by reference to Exhibit 10.21 to AWAs Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001 (File No. 000-12337).                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.25(1) |  | Airbus A320/A319 Purchase Agreement, dated as of September 12, 1997, between
AVSA S.A.R.L and AWA, including Letter Agreements Nos. 1-10  Incorporated by
reference to Exhibit 10.26 to Holdings Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 001-12649).                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.26    |  | Revolving Credit Agreement, dated as of December 10, 1999, among AWA and The
Industrial Bank of Japan, Limited, Citicorp USA, Inc., Salomon Smith Barney,
Inc. and Bankers Trust Company  Incorporated by reference to Exhibit 10.26
to AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
(File No. 000-12337).                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.28(1) |  | Amendment No. 1, dated as of March 31, 1998, to the Airbus A320/A319 Purchase
Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.28 to Holdings Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 001-12649).                                                                                                                                          

101



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|         |  |                                                                                                                                                                                                                                                                                                                                                    
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29    |  | Financing Agreement, dated as of April 1, 1998, between the Industrial
Development Authority of the City of Phoenix, Arizona and AWA  Incorporated
by reference to Exhibit 10.29 to Holdings Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 001-12649).                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.30    |  | Indenture of Trust, dated as of April 1, 1998, from the Industrial
Development Authority of the City of Phoenix, Arizona to Norwest Bank,
Arizona N.A.  Incorporated by reference to Exhibit 10.30 to Holdings
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
001-12649).                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.32(1) |  | Amendment No. 2, dated as of December 9, 1998, to the Airbus A320/A319
Purchase Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and
AWA  Incorporated by reference to Exhibit 10.32 to AWAs Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 000-12337).                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.34    |  | Second Amendment to Airport Use Agreement, dated as of August 25, 1995 -
Incorporated by reference to Exhibit 10.34 to AWAs Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 000-12337).                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.35    |  | Indenture of Trust, dated as of June 1, 1999, from The Industrial Development
Authority of the City of Phoenix, Arizona to Bank One Arizona, N.A. -
Incorporated by reference to Exhibit 10.35 to AWAs Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 000-12337).                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.36(1) |  | Amendment No. 3, dated as of October 14, 1999, to the Airbus A320/319
Purchase Agreement, dated as of September 12, 1997, between AVSA, S.A.R.L.
and AWA, including Letter Agreement Nos. 1  8 thereto  Incorporated by
reference to Exhibit 10.36 to AWAs Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 000-12337).
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.38(1) |  | Amendment No. 4, dated as of July 1, 2000, to the Airbus A320/319 Purchase
Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.38 to AWAs Quarterly Report on Form
10-Q for the quarter ended September 30, 2000 (File No. 000-12337).                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.39(1) |  | Amendment No. 5, dated as of October 12, 2000, to the Airbus A320/319
Purchase Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and
AWA  Incorporated by reference to Exhibit 10.39 to AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 (File No. 000-12337).                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.40    |  | Purchase Agreement, dated as of December 27, 2000, between Holdings, AWA and
Continental Airlines, Inc., including Letter Agreement.  Incorporated by
reference to Exhibit 10.40 to Holdings and AWAs Annual Report on Form 10-K
for the year ended December 31, 2000 (File Nos. 001-12649 and 000-12337).                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.41    |  | Priority Distribution Agreement, dated as of August 25, 1994, between TPG
Partners, L.P., TPG Parallel I, L.P., Air Partners II, L.P., and Continental
Airlines, Inc.  Incorporated by reference to Exhibit 3 to Schedule 13D filed
by TPG Partners, L.P. on September 6, 1994.                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.44    |  | Disposition and Redevelopment Agreement, dated as of February 5, 2001,
between AWA and the City of Phoenix, AZ  Incorporated by reference to
Exhibit 10.44 to AWAs Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001 (File No. 000-12337).                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.45(1) |  | Unsubordinated Ground Lease, dated as of February 5, 2001, between AWA and
the City of Phoenix, AZ  Incorporated by reference to Exhibit 10.45 to
AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(File No. 000-12337).                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                    
|10.46(1) |  | Code Share and Revenue Sharing Agreement, dated as of March 20, 2001, between
AWA and Mesa Airlines, Inc.  Incorporated by reference to Exhibit 10.46 to
AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(File No. 000-12337).                                                                                           

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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.47    |  | Amendment No. 1, dated April 16, 2001, to Revolving Credit Agreement dated as
of December 10, 1999, among AWA and The Industrial Bank of Japan, Limited,
Citicorp USA, Inc., Salomon Smith Barney Inc. and Bankers Trust Company (the
Credit Agreement)  Incorporated by reference to Exhibit 10.47 to AWAs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No.
000-12337).                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.48    |  | Amendment No. 2, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.48 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.49    |  | Amendment No. 3, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.49 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.50(1) |  | Agreement (regarding restrictions on compensation), dated as of January 18,
2002, among America West Airlines, Inc., America West Holdings Corporation
and the Air Transportation Stabilization Board  Incorporated by reference to
Exhibit 10.50 to Holdings and AWAs Current Report on Form 8-K dated January
31, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.51(1) |  | $429,000,000 Loan Agreement, dated as of January 18, 2002, among America West
Airlines, Inc., Citibank, N.A., as Agent, KPMG Consulting, Inc., as Loan
Administrator, Citibank, N.A., as Initial Lender and the Air Transportation
Stabilization Board  Incorporated by reference to Exhibit 10.51 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.52    |  | Amended and Restated Term Loan Agreement, dated as of January 18, 2002, among
America West Airlines, Inc., the Lenders listed therein, The Industrial Bank
of Japan, Limited, as Arranger, Co- Lead Book Manager, Agent and Lender,
Citicorp USA, Inc., as Arranger and Syndication Agent, Salomon Smith Barney,
as Co-Lead Book Manager and Bankers Trust Company, as Documentation Agent 
Incorporated by reference to Exhibit 10.52 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.53    |  | Undertaking (regarding restrictions on transfer of Class A Common Stock),
dated as of January 18, 2002, among America West Holdings Corporation, TPG
Partners, L.P., TPG Parallel I, L.P. and Air Partners II, L.P. for the
benefit of the Air Transportation Stabilization Board  Incorporated by
reference to Exhibit 10.53 to Holdings and AWAs Current Report on Form 8-K
dated January 31, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.54    |  | 2002 Incentive Equity Plan  Incorporated by reference to Appendix A to
Holdings Proxy Statement on Schedule 14A filed on April 17, 2002 (File No.
001-12649).                                                                                                                                                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.55    |  | Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of May
28, 2002, among AWA, the lenders from time to time party thereto, Mizuho
Corporate Bank, Ltd., Citicorp USA, Inc., Salomon Smith Barney, Inc., and
Deutsche Bank Trust Company Americas  Incorporated by reference to Exhibit
10.55 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*10.56   |  | Second Amendment to Code Share and Revenue Sharing Agreement, as amended,
dated as of October 24, 2002, by and among AWA, Mesa Airlines, Inc., Freedom
Airlines, Inc. and Air Midwest, Inc.                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|21.1     |  | Subsidiaries of Holdings.  Incorporated by reference to Exhibit 21.1 to
Holdings and AWAs Annual Report on Form 10-K for the year ended December
31, 2000 (File Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*23.1    |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*23.2    |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|24.1     |  | Power of Attorney, pursuant to which amendments to this Annual Report on Form
10-K may be filed, is included on the signature pages of this Annual Report
on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                              

103



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|      |  |                                                                                                                                   
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------
|*99.1 |  | Certification of Holdingss Chief Executive Officer, W. Douglas Parker,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|      |  |                                                                                                                                   
|*99.2 |  | Certification of Holdingss Chief Financial Officer, Derek J. Kerr, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.    
|      |  |                                                                                                                                   
|*99.3 |  | Certification of AWAs Chief Executive Officer, W. Douglas Parker, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.     
|      |  |                                                                                                                                   
|*99.4 |  | Certification of AWAs Chief Financial Officer, Derek J. Kerr, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.         

|*   |  | Filed herewith.                                                                      
|--- |  | -------------------------------------------------------------------------------------
|   
|+   |  | Represents a management contract or compensatory plan or arrangement.                
|   
|(1) |  | The Company has sought confidential treatment for portions of the referenced exhibit.

104



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Holdings Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                     |  |                                   |  |                                                
|-------------------- |  | --------------------------------- |  | -----------------------------------------------
|                     |  | AMERICA WEST HOLDINGS CORPORATION
|                     |  |                                   |  |                                                
|Date: March 31, 2003 |  | By:                               |  | /s/ W. Douglas Parker

W. Douglas Parker,      
|                     |  |                                   |  | Chairman, President and Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned, directors and officers of America West Holdings
Corporation, do hereby severally constitute and appoint W. Douglas Parker and
Linda M. Mitchell and each or any of them, our true and lawful attorneys and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments to the Registrants Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, and to file the same with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each or any
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys and agents, and each of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 2003.

|                                                   |  |                                                                             
|-------------------------------------------------- |  | ----------------------------------------------------------------------------
|SIGNATURE                                          |  | TITLE                                                                       
|                                                   |  |                                                                             
|                                                   |  |                                                                             
|/s/ W. Douglas Parker                              |  | Chairman, President and Chief Executive Officer(Principal
Executive Officer)
|W. Douglas Parker                                  |  |                                                                             
|                                                   |  |                                                                             
|/s/ Derek J. Kerr                                  |  | Senior Vice President(Principal Financial and Accounting Officer)           
|Derek J. Kerr                                      |  |                                                                             
|                                                   |  |                                                                             
|/s/ Herbert M. Baum

      Herbert M. Baum         |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ John L. Goolsby

      John L. Goolsby         |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ Walter T. Klenz

      Walter T. Klenz         |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ Richard C. Kraemer

      Richard C. Kraemer   |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ Robert J. Miller

      Robert J. Miller       |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ Denise M. OLeary

      Denise M. OLeary     |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ Richard P. Schifter

      Richard P. Schifter |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ John F. Tierney

      John F. Tierney         |  | Director                                                                    
|                                                   |  |                                                                             
|/s/ J. Steven Whisler

      J. Steven Whisler     |  | Director                                                                    

105



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CERTIFICATIONS

I, W. Douglas Parker, certify that:

1.      I have reviewed this annual report on Form 10-K of America West
Holdings Corporation;

2.      Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.      Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.      The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)      designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)      evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)      presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.      The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a)      all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)      any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.      The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|                     |  |                                         
|-------------------- |  | ----------------------------------------
|Date: March 31, 2003 |  | /s/ W. Douglas Parker

W. Douglas Parker
|                     |  | Chief Executive Officer                 

106



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I, Derek J. Kerr, certify that:

1.      I have reviewed this annual report on Form 10-K of America West
Holdings Corporation;

2.      Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.      Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.      The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)      designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)      evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)      presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.      The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a)      all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)      any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.      The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|                     |  |                                 
|-------------------- |  | --------------------------------
|Date: March 31, 2003 |  | /s/ Derek J. Kerr

Derek J. Kerr
|                     |  | Chief Financial Officer         

107



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Airlines, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                     |  |  |                             |                                                
|-------------------- |  |  | --------------------------- | -----------------------------------------------
|                     |  |  | AMERICA WEST AIRLINES, INC.
|                     |  |  |                             |                                                
|Date: March 31, 2003 |  |  | By:                         | /s/ W. Douglas Parker                          
|                     |  |  |                             |                                                
|                     |  |  |                             | W. Douglas Parker,                             
|                     |  |  |                             | Chairman, President and Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned, directors and officers of America West Airlines,
Inc., do hereby severally constitute and appoint W. Douglas Parker and Linda M.
Mitchell and each or any of them, our true and lawful attorneys and agents,
with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, and to file the same with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys and agents, and each or any of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents, and each of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 2003.

|                        |  |                                                
|----------------------- |  | -----------------------------------------------
|SIGNATURE               |  | TITLE                                          
|/s/ W. Douglas Parker   |  | Chairman, President and Chief Executive Officer
|                        |  | (Principal Executive Officer)                  
|W. Douglas Parker       |  |                                                
|                        |  |                                                
|/s/ Derek J. Kerr       |  | Senior Vice President                          
|                        |  | (Principal Financial Officer)                  
|Derek J. Kerr           |  |                                                
|                        |  |                                                
|/s/ Michael R. Carreon  |  | Vice President and Controller                  
|                        |  | (Principal Accounting Officer)                 
|Michael R. Carreon      |  |                                                
|                        |  |                                                
|/s/ Herbert M. Baum     |  | Director                                       
|                        |  |                                                
|Herbert M. Baum         |  |                                                
|                        |  |                                                
|/s/ John L. Goolsby     |  | Director                                       
|                        |  |                                                
|John L. Goolsby         |  |                                                
|                        |  |                                                
|/s/ Walter T. Klenz     |  | Director                                       
|                        |  |                                                
|Walter T. Klenz         |  |                                                
|                        |  |                                                
|/s/ Richard C. Kraemer  |  | Director                                       
|                        |  |                                                
|Richard C. Kraemer      |  |                                                
|                        |  |                                                
|/s/ Robert J. Miller    |  | Director                                       
|                        |  |                                                
|Robert J. Miller        |  |                                                
|                        |  |                                                
|/s/ Denise M. OLeary   |  | Director                                       
|                        |  |                                                
|Denise M. OLeary       |  |                                                
|                        |  |                                                
|/s/ Richard P. Schifter |  | Director                                       
|                        |  |                                                
|Richard P. Schifter     |  |                                                
|                        |  |                                                
|/s/John F. Tierney      |  | Director                                       
|                        |  |                                                
|John F. Tierney         |  |                                                
|                        |  |                                                
|/s/J. Steven Whisler    |  | Director                                       
|                        |  |                                                
|J. Steven Whisler       |  |                                                

108



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CERTIFICATIONS

I, W. Douglas Parker, certify that:

1.     I have reviewed this annual report on Form 10-K of America West
Airlines, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|                     |  |                        
|-------------------- |  | -----------------------
|Date: March 31, 2003 |  | /s/ W. Douglas Parker  
|                     |  |                        
|                     |  | W. Douglas Parker      
|                     |  | Chief Executive Officer

109



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I, Derek J. Kerr, certify that:

1.     I have reviewed this annual report on Form 10-K of America West
Airlines, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|                     |  |                        
|-------------------- |  | -----------------------
|Date: March 31, 2003 |  | /s/ Derek J. Kerr      
|                     |  |                        
|                     |  | Derek J. Kerr          
|                     |  | Chief Financial Officer

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Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors
of America West Holdings Corporation:

Our audits of the consolidated financial statements of America West
Holdings Corporation referred to in our report dated March 24, 2003 (except
for Notes 2 and 21 as to which the dates are March 24, 2003 and February 28,
2003, respectively) appearing in this Annual Report on Form 10-K also included
an audit of the 2002 and 2001 financial statement schedule information included
in the financial statement schedule listed in Item 15(a)(2) of this Form 10-K.
In our opinion, the 2002 and 2001 financial statement schedule information
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements for
the years ended December 31, 2002 and 2001.

As discussed in the note to the financial statement
schedule, the Company has restated the information for the valuation
allowance on net deferred tax assets for the year ended
December 31, 2001.

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

111



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INDEPENDENT AUDITORS REPORT ON SCHEDULE

The Board of Directors and Stockholders
America West Holdings Corporation:

The audit referred to in our report dated March 28, 2001, included the related
consolidated financial statement schedule as listed in Item 15(a)(2) for the
year ended December 31, 2000, included herein. The consolidated financial
statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated financial statement
schedule based on our audit. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

KPMG LLP
Phoenix, Arizona
March 28, 2001

112



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AMERICA WEST HOLDINGS CORPORATION
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|----------------------------------------------- | ------------------------------------------ | --------- | ---------- | --------- |  | ---------- | - | --------- |  |  | - | ------ | ------- |  | - | ------ | 
|                                                |                                            |           | Balance at |           |  |            |   |           |  |  |   |        | Balance
|                                                |                                            |           | Beginning  |           |  |            |   |           |  |  |   |        | at End 
|Description                                     |                                            | of Period |            | Additions |  | Deductions |   | of Period
|                                                |                                            |           |            |           |  |            |   |          
|Allowance for doubtful receivables:             |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 3,216     |  |            | $ | 6,755     |  |  | $ | 3,204  |         |  | $ | 6,767  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 1,794     |  |            | $ | 9,110     |  |  | $ | 7,688  |         |  | $ | 3,216  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 2,453     |  |            | $ | 3,223     |  |  | $ | 3,882  |         |  | $ | 1,794  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Allowance for obsolescence:                     |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 7,249     |  |            | $ | 3,029     |  |  | $ | 1,017  |         |  | $ | 9,261  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 5,439     |  |            | $ | 2,478     |  |  | $ | 668    |         |  | $ | 7,249  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 5,612     |  |            | $ | 11,413    |  |  | $ | 11,586 |         |  | $ | 5,439  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Valuation allowance on deferred tax asset, net: |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 40,650    |  |            | $ | 46,124    |  |  | $ | 7,987  |         |  | $ | 78,787 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001 (as restated) |           | $          | 27,128    |  |            | $ | 13,931    |  |  | $ | 409    |         |  | $ | 40,650 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 28,548    |  |            | $ |          |  |  | $ | 1,420  |         |  | $ | 27,128 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Leased aircraft return provision:               |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 11,277    |  |            | $ | 17,636    |  |  | $ | 6,472  |         |  | $ | 22,441 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 12,590    |  |            | $ | 1,788     |  |  | $ | 3,101  |         |  | $ | 11,277 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 14,403    |  |            | $ | 2,719     |  |  | $ | 4,532  |         |  | $ | 12,590 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 

The information for the valuation allowance on net
deferred tax assets has been restated for the year ended
December 31, 2001 to reflect the tax impact of a restatement
relating to impairment charges. See Note 2 of Notes to
Consolidated Financial Statements.

113



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Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors
of America West Airlines, Inc.:

Our audits of the financial statements of America West Airlines, Inc. referred
to in our report dated March 24, 2003 (except for Notes 2 and 20, as to which
the dates are March 24, 2003 and February 28, 2003, respectively) appearing in
this Annual Report on Form 10-K also included an audit of the 2002 and 2001
financial statement schedule information included in the financial statement
schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, the 2002
and 2001 financial statement schedule information presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements for the years ended December 31, 2002 and
2001.

As discussed in the note to the
financial statement schedule, the Company has restated the
information for the valuation allowance on net deferred tax
assets for the year ended December 31, 2001.

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

114



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INDEPENDENT AUDITORS REPORT ON SCHEDULE

The Board of Directors and Stockholder
America West Airlines, Inc.:

The audit referred to in our report dated March 28, 2001, included the
related financial statement schedule as listed in Item 15(a)(2) for the year
ended December 31, 2000, included herein. The financial statement schedule is
the responsibility of the Companys management. Our responsibility is to
express an opinion on the financial statement schedule based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

KPMG LLP
Phoenix, Arizona
March 28, 2001

115



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AMERICA WEST AIRLINES, INC.
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|----------------------------------------------- | ------------------------------------------ | --------- | ---------- | --------- |  | ---------- | - | --------- |  |  | - | ------ | ------- |  | - | ------ | 
|                                                |                                            |           | Balance at |           |  |            |   |           |  |  |   |        | Balance
|                                                |                                            |           | Beginning  |           |  |            |   |           |  |  |   |        | at End 
|Description                                     |                                            | of Period |            | Additions |  | Deductions |   | of Period
|                                                |                                            |           |            |           |  |            |   |          
|Allowance for doubtful receivables:             |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 1,945     |  |            | $ | 6,456     |  |  | $ | 3,047  |         |  | $ | 5,354  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 1,401     |  |            | $ | 7,860     |  |  | $ | 7,316  |         |  | $ | 1,945  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 2,005     |  |            | $ | 3,000     |  |  | $ | 3,604  |         |  | $ | 1,401  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Allowance for obsolescence:                     |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 7,249     |  |            | $ | 3,029     |  |  | $ | 1,017  |         |  | $ | 9,261  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 5,439     |  |            | $ | 2,478     |  |  | $ | 668    |         |  | $ | 7,249  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 5,612     |  |            | $ | 11,413    |  |  | $ | 11,586 |         |  | $ | 5,439  | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Valuation allowance on deferred tax asset, net: |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 33,387    |  |            | $ | 52,587    |  |  | $ | 7,987  |         |  | $ | 77,987 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001 (as restated) |           | $          | 27,128    |  |            | $ | 6,668     |  |  | $ | 409    |         |  | $ | 33,387 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 28,548    |  |            | $ |          |  |  | $ | 1,420  |         |  | $ | 27,128 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|Leased aircraft return provision:               |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |       
|                                                | Year ended December 31, 2002               |           | $          | 11,277    |  |            | $ | 17,636    |  |  | $ | 6,472  |         |  | $ | 22,441 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2001               |           | $          | 12,590    |  |            | $ | 1,788     |  |  | $ | 3,101  |         |  | $ | 11,277 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 
|                                                | Year ended December 31, 2000               |           | $          | 14,403    |  |            | $ | 2,719     |  |  | $ | 4,532  |         |  | $ | 12,590 | 
|                                                |                                            |           |            |           |  |            |   |           |  |  |   |        |         |  |   |        | 

The information for the valuation
allowance on net deferred tax assets has been restated for the year
ended December 31, 2001 to reflect the tax impact of a
restatement relating to impairment charges. See Note 2 of Notes
to Financial Statements.

116



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##### Table of Contents



INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.2     |  | Agreement and Plan of Merger, dated as of December 19, 1996, by and among
America West Holdings Corporation (Holdings), America West Airlines, Inc.
(AWA) and AWA Merger, Inc., with an effective date and time as of midnight
on December 31, 1996  Incorporated by reference to Exhibit 2.1 to Holdings
Registration Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.1     |  | Restated Certificate of Incorporation of AWA (included in Exhibit 2.2 above).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|*3.2    |  | Restated Bylaws of AWA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.3     |  | Certificate of Incorporation of Holdings (filed with the Secretary of State
of the State of Delaware on December 13, 1996)  Incorporated by reference to
Exhibit 3.1 of Holdings Registration Statement on Form 8-B dated January 13,
1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|*3.4    |  | Restated Bylaws of Holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.1     |  | Indenture for 10 3/4% Senior Unsecured Notes due 2005  Incorporated by
reference to Exhibit 4.1 to AWAs Registration Statement on Form S-4 dated
August 7, 1995 (File No. 33-61099).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.2     |  | Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.7     |  | Stock Option Agreement, dated as of December 31, 1996, between Holdings and
AWA  Incorporated by reference to Exhibit 4.5 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.8     |  | Registration Rights Agreement, dated as of August 25, 1994, among AWA, AmWest
Partners, L.P. and other holders  Incorporated by reference to Exhibit 4.6
to the AWAs Current Report on Form 8-K dated August 25, 1994 (File No.
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.9     |  | Assumption of Certain Obligations Under Registration Rights Agreement
executed by Holdings for the benefit of TPG Partners, L.P., TPG Parallel I,
L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc.,
Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund,
L.P.  Incorporated by reference to Exhibit 4.7 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.10    |  | Form of Pass Through Trust Agreement, dated as of November 26, 1996, between
AWA and Fleet National Bank, as Trustee  Incorporated by reference to
Exhibit 4.1 to AWAs Current Report on Form 8-K dated November 26, 1996 (File
No. 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.12    |  | Form of Pass Through Trust Agreement, dated as of June 17, 1997, between AWA
and Fleet National Bank, as Trustee  Incorporated by reference to Exhibit
4.5 to AWAs Registration Statement on Form S-3 dated June 4, 1997 (File No.
333-27351).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.13    |  | Forms of Pass Through Trust Agreements, dated as of October 6, 1998, between
AWA and Wilmington Trust Company, as Trustee  Incorporated by reference to
Exhibits 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on
Form S-4 dated March 25, 1999 (File No. 333-71615).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.14    |  | Pass Through Trust Agreements, dated as of September 21, 1999, between AWA
and Wilmington Trust Company, as Trustee, made with respect to the formation
of America West Airlines Pass Through Trusts, Series 1999-1G-S, 1999-1G-O,
1999-1C-S and 1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, the issuance of 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, the issuance of
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and 1999-1G-O, and
the issuance of 8.54% Exchange Pass Through Certificates, Series 1999-1C-S
and 1999-1C-O  Incorporated by reference to AWAs Quarterly Report on Form
10-Q for the period ended September 30, 1999 (File No. 000-12337).

117



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.15    |  | Insurance and Indemnity Agreement, dated as of September 21, 1999, among AWA,
Ambac Assurance Corporation as Policy Provider and Wilmington Trust Company
as Subordination Agent and Trustee under the Pass Through Trust 1999-1G-O 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated March 16, 2000 (File No. 333-93393).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.16    |  | Pass Through Trust Agreement, dated as of July 7, 2000, between AWA, and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2000-1G-0, 2000-1G-S,
2000-1C-O and 2000-1C-S, the issuance of 8.057% Initial Pass Through
Certificates, Series 2000-1G-O and 2000-1G-S, the issuance of 9.244% Initial
Pass Through Certificates, Series 2000-1C-O and 2000-1C-S, the issuance of
8.057% Exchange Pass Through Certificates, Series 2000-1G-O and 2000-1G-S and
the issuance of 9.244% Exchange Pass Through Certificates, Series 2000-1C-O
and 2000-1C-S  Incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6
to AWAs Registration Statement on Form S-4 dated September 12, 2002 (File
No. 333-44930).                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.17    |  | Insurance and Indemnity Agreement, dated as of July 7, 2000, among AWA, Ambac
Assurance Corporation as Policy Provider and Wilmington Trust company as
Subordination Agent and Trustee under the Pass Through Trust 2000-1G 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated September 12, 2002 (File No. 333-44930).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.18    |  | Pass Through Trust Agreement, dated as of May 17, 2001, between AWA and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2001-1G-O, 2001-1G-S,
2001-1C-O, 2001-1C-S, 2001-1D-O and 2001-1D-S, the issuance of 7.10% Initial
Pass Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of
8.37% Initial Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, the
issuance of Six-Month LIBOR plus 3.20% Initial Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S, the issuance of 7.10% Exchange Pass
Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of 8.37%
Exchange Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, and the
issuance of Six-Month LIBOR plus 3.20% Exchange Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S  Incorporated by reference to Exhibits
4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on Form S-4
dated February 14, 2002 (File No. 333-69356).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.19    |  | Insurance and Indemnity Agreement (Series G), dated as of May 17, 2001, among
AWA, Ambac Assurance Corporation as Policy Provider and Wilmington Trust
company as Subordination Agent  Incorporated by reference to Exhibit 4.20 to
AWAs Registration Statement on Form S-4 dated February 14, 2002 (File No.
333-69356).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.20    |  | Indenture, dated as of January 18, 2002, between America West Holdings
Corporation and Wilmington Trust Company, as Trustee and not in its
individual capacity, for America West Holdings Corporation 7.5% Convertible
Senior Notes due 2009  Incorporated by reference to Exhibit 4.15 to
Holdings and AWAs Current Report on Form 8-K dated January 31, 2002 (File
Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.21    |  | Form of America West Holdings Corporation 7.5% Convertible Senior Notes due
2009  Incorporated by reference to Exhibit 4.16 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.22    |  | Registration Rights Agreement, dated January 18, 2002, with respect to shares
of Class B Common Stock underlying the America West Holdings Corporation 7.5%
Convertible Senior Notes due 2009  Incorporated by reference to Exhibit 4.17
to Holdings and AWAs Current Report on Form 8-K dated January 31, 2002
(File Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.23    |  | Guaranty, dated as of January 18, 2002, by America West Airlines, Inc., in
favor of the Holders and the Trustee under the Indenture dated January 18,
2002  Incorporated by reference to Exhibit 4.18 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

118



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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.24     |  | Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002,
issued to the Air Transportation Stabilization Board and the other warrant
recipients under the $429,000,000 Loan Agreement dated January 18, 2002 
Incorporated by reference to Exhibit 4.19 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.25     |  | Registration Rights Agreement, dated January 18, 2002, between America West
Holdings Corporation and the Air Transportation Stabilization Board with
respect to shares of Class B Common Stock underlying the Warrant to Purchase
Class B Common Stock  Incorporated by reference to Exhibit 4.20 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.26     |  | Warrant Registration Rights Agreement between America West Holdings
Corporation and the other warrant recipients under the $429,000,000 Loan
Agreement dated January 18, 2002, with respect to shares of Class B Common
Stock underlying their Warrants to Purchase Class B Common Stock 
Incorporated by reference to Exhibit 4.21 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.11    |  | Airport Use Agreement, dated as of July 1, 1989, among the City of Phoenix,
The Industrial Development Authority of the City of Phoenix, Arizona and AWA
(Airport Use Agreement)  Incorporated by reference to Exhibit 10-(D)(9) to
AWAs Annual Report on Form 10-K for the year ended December 31, 1989 (File
No. 000-12337).                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12    |  | First Amendment to Airport Use Agreement, dated as of August 1, 1990 -
Incorporated by reference to Exhibit 10-(D)(9) to AWAs Quarterly Report on
Form 10-Q for the period ended September 30, 1990 (File No. 000-12337).                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.19    |  | Management Rights Agreement, dated as of August 25, 1994, between TPG
Partners L.P., TPG Genpar, L.P. and AWA  Incorporated by reference to
Exhibit 10.47 to AWAs Registration Statement on Form S-1 dated August 23,
1994, as amended (File No. 33-54243).                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.20(1) |  | Amended and Restated V2500 Support Contract, dated as of October 7, 1998,
between AWA and IAE International Aero Engines AG and Side Letters Nos. 1 and
2 thereto  Incorporated by reference to Exhibit 10.20 to AWAs Annual Report
on Form 10-K for the year ended December 31, 1998 (File No. 000-12337).                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|+10.21   |  | Amended and Restated America West 1994 Incentive Equity Plan  Incorporated
by reference to Exhibit 10.21 to AWAs Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001 (File No. 000-12337).                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.25(1) |  | Airbus A320/A319 Purchase Agreement, dated as of September 12, 1997, between
AVSA S.A.R.L and AWA, including Letter Agreements Nos. 1-10  Incorporated by
reference to Exhibit 10.26 to Holdings Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 001-12649).                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.26    |  | Revolving Credit Agreement, dated as of December 10, 1999, among AWA and The
Industrial Bank of Japan, Limited, Citicorp USA, Inc., Salomon Smith Barney,
Inc. and Bankers Trust Company  Incorporated by reference to Exhibit 10.26
to AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
(File No. 000-12337).                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.28(1) |  | Amendment No. 1, dated as of March 31, 1998, to the Airbus A320/A319 Purchase
Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.28 to Holdings Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 001-12649).                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.29    |  | Financing Agreement, dated as of April 1, 1998, between the Industrial
Development Authority of the City of Phoenix, Arizona and AWA  Incorporated
by reference to Exhibit 10.29 to Holdings Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 001-12649).                                                                                                                                                            

119



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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.30    |  | Indenture of Trust, dated as of April 1, 1998, from the Industrial
Development Authority of the City of Phoenix, Arizona to Norwest Bank,
Arizona N.A.  Incorporated by reference to Exhibit 10.30 to Holdings
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
001-12649).                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.32(1) |  | Amendment No. 2, dated as of December 9, 1998, to the Airbus A320/A319
Purchase Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and
AWA  Incorporated by reference to Exhibit 10.32 to AWAs Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 000-12337).                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.34    |  | Second Amendment to Airport Use Agreement, dated as of August 25, 1995 -
Incorporated by reference to Exhibit 10.34 to AWAs Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 000-12337).                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.35    |  | Indenture of Trust, dated as of June 1, 1999, from The Industrial Development
Authority of the City of Phoenix, Arizona to Bank One Arizona, N.A. -
Incorporated by reference to Exhibit 10.35 to AWAs Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 000-12337).                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.36(1) |  | Amendment No. 3, dated as of October 14, 1999, to the Airbus A320/319
Purchase Agreement, dated as of September 12, 1997, between AVSA, S.A.R.L.
and AWA, including Letter Agreement Nos. 1  8 thereto  Incorporated by
reference to Exhibit 10.36 to AWAs Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 000-12337).                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.38(1) |  | Amendment No. 4, dated as of July 1, 2000, to the Airbus A320/319 Purchase
Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and AWA -
Incorporated by reference to Exhibit 10.38 to AWAs Quarterly Report on Form
10-Q for the quarter ended September 30, 2000 (File No. 000-12337).                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.39(1) |  | Amendment No. 5, dated as of October 12, 2000, to the Airbus A320/319
Purchase Agreement, dated as of September 12, 1997, between AVSA S.A.R.L. and
AWA  Incorporated by reference to Exhibit 10.39 to AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 (File No. 000-12337).                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.40    |  | Purchase Agreement, dated as of December 27, 2000, between Holdings, AWA and
Continental Airlines, Inc., including Letter Agreement.  Incorporated by
reference to Exhibit 10.40 to Holdings and AWAs Annual Report on Form 10-K
for the year ended December 31, 2000 (File Nos. 001-12649 and 000-12337).                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.41    |  | Priority Distribution Agreement, dated as of August 25, 1994, between TPG
Partners, L.P., TPG Parallel I, L.P., Air Partners II, L.P., and Continental
Airlines, Inc.  Incorporated by reference to Exhibit 3 to Schedule 13D filed
by TPG Partners, L.P. on September 6, 1994.                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.44    |  | Disposition and Redevelopment Agreement, dated as of February 5, 2001,
between AWA and the City of Phoenix, AZ  Incorporated by reference to
Exhibit 10.44 to AWAs Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001 (File No. 000-12337).                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.45(1) |  | Unsubordinated Ground Lease, dated as of February 5, 2001, between AWA and
the City of Phoenix, AZ  Incorporated by reference to Exhibit 10.45 to
AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(File No. 000-12337).                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.46(1) |  | Code Share and Revenue Sharing Agreement, dated as of March 20, 2001, between
AWA and Mesa Airlines, Inc.  Incorporated by reference to Exhibit 10.46 to
AWAs Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(File No. 000-12337).                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|10.47    |  | Amendment No. 1, dated April 16, 2001, to Revolving Credit Agreement dated as
of December 10, 1999, among AWA and The Industrial Bank of Japan, Limited,
Citicorp USA, Inc., Salomon Smith Barney Inc. and Bankers Trust Company (the
Credit Agreement)  Incorporated by reference to Exhibit 10.47 to AWAs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No.
000-12337).

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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.48    |  | Amendment No. 2, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.48 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.49    |  | Amendment No. 3, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.49 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.50(1) |  | Agreement (regarding restrictions on compensation), dated as of January 18,
2002, among America West Airlines, Inc., America West Holdings Corporation
and the Air Transportation Stabilization Board  Incorporated by reference to
Exhibit 10.50 to Holdings and AWAs Current Report on Form 8-K dated January
31, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.51(1) |  | $429,000,000 Loan Agreement, dated as of January 18, 2002, among America West
Airlines, Inc., Citibank, N.A., as Agent, KPMG Consulting, Inc., as Loan
Administrator, Citibank, N.A., as Initial Lender and the Air Transportation
Stabilization Board  Incorporated by reference to Exhibit 10.51 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.52    |  | Amended and Restated Term Loan Agreement, dated as of January 18, 2002, among
America West Airlines, Inc., the Lenders listed therein, The Industrial Bank
of Japan, Limited, as Arranger, Co- Lead Book Manager, Agent and Lender,
Citicorp USA, Inc., as Arranger and Syndication Agent, Salomon Smith Barney,
as Co-Lead Book Manager and Bankers Trust Company, as Documentation Agent 
Incorporated by reference to Exhibit 10.52 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.53    |  | Undertaking (regarding restrictions on transfer of Class A Common Stock),
dated as of January 18, 2002, among America West Holdings Corporation, TPG
Partners, L.P., TPG Parallel I, L.P. and Air Partners II, L.P. for the
benefit of the Air Transportation Stabilization Board  Incorporated by
reference to Exhibit 10.53 to Holdings and AWAs Current Report on Form 8-K
dated January 31, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.54    |  | 2002 Incentive Equity Plan  Incorporated by reference to Appendix A to
Holdings Proxy Statement on Schedule 14A filed on April 17, 2002 (File No.
001-12649).                                                                                                                                                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.55    |  | Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of May
28, 2002, among AWA, the lenders from time to time party thereto, Mizuho
Corporate Bank, Ltd., Citicorp USA, Inc., Salomon Smith Barney, Inc., and
Deutsche Bank Trust Company Americas  Incorporated by reference to Exhibit
10.55 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*10.56   |  | Second Amendment to Code Share and Revenue Sharing Agreement, as amended,
dated as of October 24, 2002, by and among AWA, Mesa Airlines, Inc., Freedom
Airlines, Inc. and Air Midwest, Inc.                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|21.1     |  | Subsidiaries of Holdings.  Incorporated by reference to Exhibit 21.1 to
Holdings and AWAs Annual Report on Form 10-K for the year ended December
31, 2000 (File Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*23.1    |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*23.2    |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|24.1     |  | Power of Attorney, pursuant to which amendments to this Annual Report on Form
10-K may be filed, is included on the signature pages of this Annual Report
on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*99.1    |  | Certification of Holdings Chief Executive Officer, W. Douglas Parker,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                    

121



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##### Table of Contents



|        |  |                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                              
|Number  |  | Title                                                                                                                        
|        |  |                                                                                                                              
|*99.2   |  | Certification of Holdings Chief Financial Officer, Derek J. Kerr, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                              
|*99.3   |  | Certification of AWAs Chief Executive Officer, W. Douglas Parker, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                              
|*99.4   |  | Certification of AWAs Chief Financial Officer, Derek J. Kerr, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.    



|*   |  | Filed herewith.                                                                      
|--- |  | -------------------------------------------------------------------------------------
|   
|+   |  | Represents a management contract or compensatory plan or arrangement.                
|   
|(1) |  | The Company has sought confidential treatment for portions of the referenced exhibit.

122