##### 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, 2004ORo
    

TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 1-12649 AMERICA WEST HOLDINGS CORPORATION
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
    
    86-0847214(STATE OR OTHER JURISDICTION OF
    
    (I.R.S. EMPLOYER IDENTIFICATION NO.)INCORPORATION OR ORGANIZATION)111 WEST RIO SALADO PARKWAY
    
    (480) 693-0800TEMPE, ARIZONA 85281
    
    (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS
    
    NAME OF EACH EXCHANGE ON WHICH REGISTERED:CLASS B COMMON STOCK, $.01 PAR VALUE
    
    NEW YORK STOCK EXCHANGE
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE COMMISSION FILE NUMBER 0-12337 AMERICA WEST AIRLINES, INC.
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
    
    86-0418245(STATE OR OTHER JURISDICTION OF
    
    (I.R.S. EMPLOYER IDENTIFICATION NO.)INCORPORATION OR ORGANIZATION)4000 E. SKY HARBOR BOULEVARD
    
    (480) 693-0800PHOENIX, ARIZONA 85034-3899
    
    (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(TITLE OF CLASS) Indicate by check mark whether each of the registrants: (1) has filed all reports required to
be filed by Section 13 or15(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 o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of each of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
thisForm 10-Kor any amendment to thisForm 10-K.þ Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange
Act Rule 12b-2) America
West Holdings
Corporation            Yes þNo o America
West Airlines, Inc.
                           Yes oNo þ As of June 30, 2004, there were 35,204,800 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, 35,029,271 shares of Class B common stock, having
an aggregate market value of approximately $318,065,781 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, 2004, all outstanding equity securities of America West Airlines,
Inc. were owned by America West Holdings Corporation. As of March 14, 2005, there were 859,117 shares of America West Holdings Corporation Class A
common stock and 35,316,871 shares of America West Holdings Corporation Class B common stock
outstanding. As of March 14, 2005, 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 2005 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, 2004, are incorporated by reference into Part III of this Annual Report onForm 10-K. America West Airlines, Inc. meets the conditions set forth in General Instruction I(1)(A) and
(B) and is therefore filing this form with reduced disclosure format pursuant to General
Instruction I(2).




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TABLE OF CONTENTS PAGEPART IItem 1.
    
    Business
    
    
    2Item 2.
    
    Properties
    
    
    18Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    20Item 6.
    
    Selected Consolidated Financial Data
    
    
    21Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8A.
    
    Consolidated Financial Statements and Supplementary Data  America West Holdings Corporation
    
    
    40Item 8B.
    
    Consolidated Financial Statements and Supplementary Data  America West Airlines, Inc
    
    
    71Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    97Item 9A.
    
    Controls and Procedures
    
    
    97Item 9B.
    
    Other Information
    
    
    100PART IIIItem 10.
    
    Directors and Executive Officers of the Registrants
    
    
    101Item 11.
    
    Executive Compensation
    
    
    101Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    101Item 13.
    
    Certain Relationships and Related Transactions
    
    
    101Item 14.
    
    Principal Accountant Fees and Services
    
    
    101PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    102EX-3.2EX-3.4EX-10.41EX-10.42EX-10.43EX-10.47EX-10.48EX-10.49EX-10.50EX-10.51EX-10.53EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2




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##### Table of Contents



This combined Annual Report on 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 within the meaning of Section 21E of
the Securities Exchange Act, as amended (the Exchange Act). These statements 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, expect, project
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 our results are:  
    general economic conditions;
    the impact of global instability caused by military actions, terrorism, disease
outbreaks and natural disasters;
    limitations on our flexibility in responding to industry conditions due to high fixed
costs and restrictions imposed by our debt instruments;
    changes in federal and state laws and regulations;
    changes in prevailing interest rates and the availability of and terms of financing to fund our business;
    the ability to attract and retain qualified personnel;
    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 these factors and other risks, see Business  Risk Factors
Relating to the Company and Industry Related Risks included in Item 1 of this Annual Report. In
light of these risks, uncertainties and assumptions, the forward-looking events described in this
annual report on Form 10-K might not occur. Any forward-looking statements speak only as of the
date of this Annual Report. 1




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##### Table of Contents



PART I 
 ITEM 1. BUSINESS Overview Holdings, a Delaware corporation formed in 1996, is a holding company that owns all of the
stock of AWA, a Delaware corporation formed in 1981. AWA accounted for most of the Companys
revenues and expenses in 2004. Based on 2004 operating revenues and available seat miles, or
ASMs, AWA is the eighth largest passenger airline and the second largest low cost carrier in the
United States. AWA is the largest low-cost carrier that operates a hub-and-spoke network, with
large hubs in both Phoenix, Arizona and Las Vegas, Nevada. Since 2003, AWA has also offered
limited point-to-point service in certain major transcontinental markets. At the end of 2004, AWA
operated a fleet of 138 aircraft with an average age of 10.7 years and served 63 destinations in
North America, including eight in Mexico, three in Canada and one in Costa Rica. Through regional
alliance and code share arrangements with other airlines, AWA served an additional 51 destinations
in North America and the Middle East. In 2004, AWA flew approximately 21.1 million passengers and
generated revenues of approximately $2.3 billion. Through its America West Vacations division, AWA also 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, Mexico and Costa Rica. General
information about us can be found at www.americawest.com/aboutawa under the investor
relations link. Our annual reports 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 Securities and Exchange Commission or SEC. Restatement of Previously Reported Amounts Derivative Instruments In
February 2005, management undertook a review of AWAs accounting
for its fuel hedging transactions. As a result of this review,
management concluded that AWAs fuel hedging transactions did
not qualify for hedge accounting under U.S. generally accepted
accounting principles and that the Company's financial statements for
prior periods required restatement to reflect the fair value of fuel
hedging contracts in the balance sheets and statements of stockholders
equity and comprehensive income of Holdings and AWA. See Note 2,
Restatement of Previously Reported Amounts and
Note 16, Quarterly Financial Data (Unaudited)
in Holdings and Note 2, Restatement of Previously
Reported Amounts and Note 15, Quarterly
Financial Data (Unaudited) in AWAs consolidated financial
statements for the financial impact of the restatements. The Company concluded
that these accounting errors were the result of deficiencies in its internal
control over financial reporting, from the lack of effective reviews of
hedge transaction documentation and of quarterly mark-to-market accounting
entries on open fuel hedging contracts by personnel at an appropriate level. Developments in 2004 During 2004, extremely high jet fuel prices and excess capacity throughout the domestic air
system began to negatively impact the low cost segment of the airline industry. As a result,
several low cost carriers that had previously operated profitably, including AWA, experienced
declining earnings. AWA reported a net loss of $85.3 million for 2004. In 2004, the Company reported a net loss of $89.0 million compared to net income of $57.4
million in 2003. See Item 7  Managements Discussion and Analysis of Financial Condition and
Results of Operations for further discussion of the 2004 financial performance. 2




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##### Table of Contents



Airline Operations Our operations and business strategy have traditionally been focused around our Phoenix and
Las Vegas based route-network (supplemented by regional airline alliances and strategic
relationships with other carriers), our low cost structure and our emphasis on customer service. Our Route Network We operate our route system through a hub-and-spoke network centered in our Phoenix and Las
Vegas hubs. As of December 31, 2004, we were the leading airline serving Phoenix based on 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 a regional alliance with Mesa
Airlines or Mesa, and code-sharing arrangements with other carriers. See Regional Airline
Allianceand Alliances with Other Airlinesbelow. In addition to our operations through our
hubs, we initiated point-to-point service in certain transcontinental markets in October 2003.
With continued high jet fuel prices and substantial competitive reaction to our transcontinental
service, which resulted in increased capacity and decreased fares, we scaled back our
transcontinental flying in late 2004. Non-stop services from New York Citys John F. Kennedy
International (JFK) and Logan International Airport (BOS) airports to San Francisco International
Airport (SFO) were suspended in November 2004. We also suspended service between BOS and Los
Angeles International Airport (LAX) and LAX and Washington Dulles International Airport in early
2005. Service between LAX and JFK remains in place with once daily scheduled service. We expect
to increase our LAX to JFK service to twice-daily for the summer peak period from June through the
Labor Day weekend, 2005. Separately, we commenced limited international point-to-point flying on the west coast. In
June 2004, we commenced daily services from LAX to Vancouver and Edmonton, Canada as well as
Mazatlan and Puerto Vallarta, Mexico. In October 2004, flights from San Diego to Cabo San Lucas
and Puerto Vallarta were also added. All of the flights to Mexico are flown by Mesa on our behalf.
In addition, we commenced non-stop flights from San Diego to Vancouver in March 2005. Cost Control We remain 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. See Item 7 
Managements Discussion and Analysis of Financial Condition and Results of Operationsfor further
discussion of the 2004 financial performance. Revised Pricing Structure In addition to the comprehensive changes made to our pricing structure in March 2002, we
changed our pricing structure in February 2004 to make flying first class more affordable for both
business and leisure travelers. This new first class fare structure features nonrefundable first
class fares that are up to 70% lower than the industrys traditional first class fares. Although
some airlines also have initiated pricing changes, industry competitive reaction still is unclear
at this time but there is potential for negative revenue impact on the industry and AWA. As other
airlines continue to make changes to their pricing structures, we will continue to evaluate the
best solution for AWA. See Item 7  Managements Discussion and Analysis of Financial Condition
and Results of Operationsfor further discussion of the revised pricing structure. Customer Service Continued emphasis on customer service is essential to growing our business and leisure
traffic. Therefore, we are committed to building a successful airline by taking care of our
customers. During 2004, we improved and expanded upon a series of customer service and reliability
initiatives. These initiatives make it easier and more convenient for customers to travel on AWA.  
    Our Buy on Board meal program was expanded to all departure segments with a flight
duration of 3 1/2 hours or greater.
    Our day of departure first class upgrade program also was expanded in 2004 to allow for
purchase up to 24 hours prior to departure on americawest.com and through our reservation
centers. This program provides a simple and affordable way to upgrade to first class. 3




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##### Table of Contents




    Our Web Check-in product was modified in 2004 to allow customers to self check-in and
obtain a boarding pass 36 hours prior to departure. This was later modified to 24 hours
prior to departure to meet objectives set forth in a Transportation Security Administration
or TSA, security directive to all carriers. In December 2004, Web check-in represented
almost 7% of all passenger check-ins.
    Throughout 2004, we significantly expanded the availability of self-service check-in
kiosks across our system (218 units deployed in 43 of our airport facilities). In December
2004, self-service check-in represented nearly 50% of all boarding passes in stations with
kiosks.
    Over the year we expanded the number of interline e-ticket agreements with other
carriers from three (Continental, United and American Airlines) to five (now including
Delta and Hawaiian). In early 2005, we added Northwest Airlines to our interline e-ticket
agreement list of carriers. These agreements make travel easier for customers who need to
utilize multiple airlines in their itinerary.
    We were the first airline to introduce an alternative payment method called Bill Me
Later®, making it easier for customers to budget for their travel plans. Customers who
make purchases online at americawest.com with Bill Me Later®,have at least 90 days to pay
the balance in full with no interest.
    Customers now can give the gift of travel with an America West Gift Card. Gift cards in
$50, $100 or $250 denominations are available for purchase online at americawest.com or by
calling our reservation center. Gift cards also can be purchased in $50 and $100
denominations at many grocery, convenience and drug stores.
    In addition to the initiatives mentioned above, we emphasize improving our handling of
customer re-accommodations during irregular operations (flight cancellations and delays).
Although our goal is to operate every flight and depart on time, there are circumstances
such as weather and Air Traffic Control or ATC, delays that cause disruption to planned
flight activity. During 2004, we initiated several new programs and improved automation to
speed the process of re-accommodating customers to alternative flight arrangements during
these circumstances. Regional Airline Alliance We have a regional airline alliance agreement with Mesa. 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, Canada and northern Mexico operating regional jets and
large turboprop aircraft. Through this arrangement with Mesa, we offered America West Express
service to an additional 33 destinations as of December 31, 2004. In 2004, we entered 16 86-seat CRJ-900 regional jets into America West Express service.
Additionally, we completed a reconfiguration program that converted the CRJ-900 aircraft from a
dual class 80-seat configuration to a single class, 86-seat configuration. At December 31, 2004,
the America West Express fleet operated by Mesa included 49 aircraft comprised of 25 CRJ-900s, 18
50-seat CRJ-200s and six 37-seat Dash 8 turboprop aircraft. 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. 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, Los Angeles,
Dallas, Boston and New York 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 or Northwest, and EVA Airways or EVA, provide
connecting service on AWA from those airlines Pacific routes to Las Vegas and Phoenix. The
frequent flyer agreement with Northwest also provides for AWA FlightFund members to earn and redeem
credit on Northwests transpacific flights. In addition, AWA lounge members have access to
Northwests WorldClub lounges in the United States and EVAs lounge in Taipei, Taiwan. 4




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AWAs alliance agreement with Virgin Atlantic Airways or Virgin, allows Virgin to code share
on flights operated by AWA connecting to and from Virgins Las Vegas, San Francisco and Los Angeles
services. The agreement also allows AWA FlightFund members to earn credit for travel on Virgin and
for frequent flyer benefits earned by AWA customers to be redeemed for travel on Virgins system. Relationships with ALIA/Royal Jordanian Airlines or Royal Jordanian, and Hawaiian Airlines
or Hawaiian, allow each carrier to code share flights operated by the other carrier. AWAs
alliance with Royal Jordanian offers connecting service from Royal Jordanians Chicago, Detroit and
New York services. The agreement also allows AWA FlightFund members to earn credit for travel on
Royal Jordanian and for frequent flyer benefits earned by AWA customers to be redeemed for travel
on Royal Jordanians system. In addition, AWA lounge members have access to Royal Jordanians VIP
Clubs in Amman and Aqaba, Jordan. AWAs agreement with Hawaiian offers connecting service to and
from Hawaiians nonstop 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 agreement with Big Sky Airlines or Big Sky, allows AWA to code share on Big
Skys services from Spokane, Washington, Boise, Idaho, and Billings, Montana to Big Skys
destinations in Montana, North Dakota and Washington State. AWA FlightFund members can earn and
redeem credit for travel on Big Sky. Airline Marketing In 2004, we launched the airline industrys first gift card program. Gift cards have proven
highly successful in the traditional retailer environment where they account for an increasing
share of consumer purchases, particularly around the holiday season. We partnered with
intermediary companies to launch gift cards at several large retailers, including Staples, Rite
Aid, 7-Eleven and others, and cards are due to be available at approximately 10,000 stores
nationwide by the first quarter of 2005. Gift cards also are available for purchase at
americawest.com and currently may be redeemed by calling AWA reservations. It is anticipated that
online redemption will be available during 2005. Airline Competition The airline industry and most of the markets we serve are highly competitive. We compete on
the basis of pricing, scheduling (frequency and flight times), on-time performance, type of
equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the
automation of travel agent reservation systems, on-board products and other services. We compete
with all of the major full service airlines on medium and long haul routes to, from and through our
hubs and in our transcontinental markets and with a number of carriers for short haul flights at
our Phoenix and Las Vegas hubs. In addition, we compete with a growing number of low cost carriers at our Phoenix and Las
Vegas hubs and across our route system. The low cost carrier sector is growing and for the 12
months ended December 31, 2004, low cost carrier capacity (as measured by available seat miles)
represented 23.6% of all domestic mainline service, an increase of 1.1 points from the 12 months
ended December 31, 2003, when low cost carrier marketshare accounted for 22.5% of all domestic
mainline service. We compete with other low cost carriers primarily on the basis of pricing.
However, we believe our full service amenities (for example, first class seating, an award winning
frequent flyer program and assigned seating) provide us with a competitive advantage against other
low cost carriers without such amenities. Price competition occurs on a market-by-market basis through price discounts, changes in
pricing structures, fare matching, target promotions and frequent flyer initiatives. Most airlines
will quickly match price reductions in a particular market and 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 ability
to compete on the basis of price is limited by our fixed costs and depends on our ability to
maintain low operating costs. Our principal competitor, Southwest Airlines, and certain other low
cost carriers have lower operating cost structures than we do. In addition, the consolidation of
existing carriers, the entry of additional carriers including new low cost carriers, the creation
of low fare airline divisions by several major airlines and the revision of traditional pricing
structures by our competitors in many of our markets (as well as increased services by established
carriers) has resulted in increased pressure on our pricing. 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. 5




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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 credit 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. AWA must purchase space on other airlines to accommodate FlightFund redemption travel on
those airlines. In 2004, the FlightFund program added new partnerships with Ameritrade, NetBank, Awards for
Mortgage and Real Estate and Royal Jordanian 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. Transportation-related revenue from the sale of mileage
credits is deferred and recognized when transportation is provided. Non-revenue FlightFund travel
accounted for 1.5%, 2.1% and 2.7% of total revenue passenger miles for the years ended December 31,
2004, 2003 and 2002, respectively. We do not believe that non-revenue FlightFund travel results in
any significant displacement of revenue passengers. America West Vacations As of January 1, 2004, The Leisure Company merged into AWA and continued to operate as the
America West Vacations or AWV, division of AWA. AWV sells individual and group travel packages
including air transportation on AWA, America West Express and Hawaiian Airlines, hotel
accommodations, car rentals and other travel products directly to consumers and through retail
travel agencies in the United States, Canada, Mexico and Costa Rica. AWV is one of the largest tour packagers to Las Vegas in the United States, contracting for
volume blocks of rooms with 31 Las Vegas hotels and resorts in 2004. AWV is focused on high-volume leisure travel products that have traditionally provided high
profit margins. AWV negotiated several strategic partnerships with hotels, Internet travel sites
and media companies to capitalize on the continued growth in online travel sales. AWV 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 2004, approximately 55% of AWVs total bookings were made
electronically compared to 43% in 2003. AWV competes in a fragmented travel industry, which is highly competitive, price sensitive and
has relatively low barriers to entry. AWV competes for customers with other wholesale travel
companies, consolidators and E-travel companies through national mass media, preferred supplier
agreements and Internet distribution agreements. During 2004, AWV operated co-branded websites for 15 partner companies, including Costco
Travel, BestFares.com, Vegas.com, MandalayBay.com, and Aladdin.com. These co-branded sites allow
AWV to gain a retail presence via distribution channels such as Costco wholesale warehouses and
other company websites where AWA and AWV may not otherwise be a part of the consumers
consideration set. AWV intends to continue to add new co-branded websites as opportunities present
themselves. The Airlines Fleet AWA began the year 2004 with 139 aircraft. In 2004, AWA retired seven 737-200 aircraft
(returned five leased aircraft; parked one leased aircraft; sold one owned aircraft) and took
delivery of one new A319 aircraft and five new A320 aircraft for a net total of 138 aircraft by the
end of 2004 with an average age of 10.7 years. AWAs fleet at the end of 2004 and as currently
planned for the end of 2005 is described in the table below: 6




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Aircraft
    
    Approx.
    
    
    Qty as of 12/31
    
    
    Average Age as of 12/31Types
    
    No. Seats
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005737-200
    
    
    113
    
    
    
    1
    
    
    
    
    
    
    
    22.6
    
    
    
    N/A
    1737-300
    
    
    132
    
    
    
    37
    
    
    
    37
    
    
    
    16.9
    
    
    
    17.9757-200
    
    
    190
    
    
    
    13
    
    
    
    13
    
    
    
    18.2
    
    
    
    19.2A319
    
    
    124
    
    
    
    33
    
    
    
    37
    
    
    
    4.2
    
    
    
    4.7A320
    
    
    150
    
    
    
    54
    
    
    
    61
    
    
    
    8.5
    
    
    
    8.5Totals
    
    
    
    
    
    
    138
    
    
    
    148
    
    
    
    10.7
    
    
    
    10.8
   1
    
    The last 737-200 aircraft was retired in January 2005 In August 2004, AWA amended its aircraft purchase contract with AVSA S.A.R.L., an
affiliate of Airbus Industrie or AVSA, to acquire 22 Airbus A320 family aircraft (thirteen A320s
and nine A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft,
it is anticipated that 18 will be purchased directly from the manufacturer and four have been
leased under noncancelable leases from various lessors for aircraft to be delivered in 2005. In
the context of this incremental order, AWA also secured extensive flexibility from Airbus with
respect to its existing A318 order, allowing AWA to better react to market conditions by enabling
it to amend its 15 A318 delivery positions to A319s and A320s, if it so desires, or to take no
additional aircraft under certain conditions. The following table illustrates AWAs committed orders, scheduled lease expirations, and
lessor call and put options as of December 31, 2004. 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Firm orders remaining (EOY)
    
    
    13
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Lessor put options
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Lease terminations:Scheduled expirations
    
    
    8
    
    
    
    9
    
    
    
    21
    
    
    
    15
    
    
    
    5Lessor call options
    
    
    9
    
    
    
    7
    
    
    
    7
    
    
    
    1
    
    
    
    
 In January 2005, AWA retired its one remaining 737-200 aircraft. While this is the only
forecasted 2005 retirement, AWA has the ability to return five additional leased Boeing 737-300
aircraft and one leased Airbus A320, and retire five owned Boeing 737-300 aircraft, if market
conditions necessitate such a response. In February 2005, AWA renewed the lease on one Airbus A320
for an additional three years. These eleven aircraft exclude the exercise of two lessor put
options on two aircraft that could require AWA to renew the leases for approximately 15 months
beyond the current natural lease expiration date. In 2004, one put option on a Boeing 737-300
aircraft was exercised resulting in a lease extension of 33 months. No call options were exercised
in 2004. Assuming the exercise of all put options, as of December 31, 2004, 52 aircraft have lease
expirations prior to the end of 2008. Aircraft Jet Fuel Jet fuel costs were our second-largest operating expense in 2004. Our average cost of jet
fuel over the past five years was as follows: Percent ofCost
    
    
    Average Cost
    
    
    OperatingYear
    
    (Millions)
    
    
    per Gallon
    
    
    Expenses2000
    
    $
    373
    
    
    $
    0.88
    
    
    
    15.8
    %2001
    
    $
    336
    
    
    $
    0.81
    
    
    
    13.6
    %2002
    
    $
    299
    
    
    $
    0.73
    
    
    
    13.6
    %2003
    
    $
    376
    
    
    $
    0.89
    
    
    
    16.8
    %2004
    
    $
    557
    
    
    $
    1.24
    
    
    
    23.4
    %
 In addition, the Company incurs fuel expense for our regional airline alliance with Mesa.
For the years ended December 31, 2004, 2003 and 2002, total fuel expense for the Mesa alliance was
$102.1 million, $61.2 million and $46.3 million, respectively. 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. 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. See Risk Factors Relating to
the Company and Industry Related Risks  Fluctuations in jet fuel costs could adversely affect our
operating expenses and results. 7




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##### Table of Contents



Employees and Labor Relations The Companys businesses are labor intensive with wages, salaries and benefits
representing approximately 28% of the Companys operating expenses during 2004. As of December 31, 2004, the Company employed 10,712 full-time and 2,576 part-time employees,
for a full-time equivalent of 11,893 employees. A large majority of the employees of the major airlines in the United States are represented
by labor unions. In addition, on August 18, 2004, the National Mediation Board certified the IBT
as the collective bargaining representative for the Companys passenger service employees, which
includes the Companys customer service agents, reservations agents and customer relations agents.
Negotiations are expected to begin in April 2005. As illustrated in the table below, the majority
of employees have selected union representation and/or negotiated collective bargaining agreements
with AWA. Although there are few remaining employee groups who could engage in organization
efforts, we cannot predict the outcome of any future efforts to organize those remaining 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 the
Company 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.
    
    
    
    Contract
    
    ContractGroup
    
    of Employees
    
    Union
    
    Effective
    
    AmendablePilots
    
    
    1,857
    
    
    Air Line Pilots Association
    
    December 2003
    
    December 2006Dispatchers
    
    
    38
    
    
    Transport Workers Union
    
    September 2004
    
    April 2008 (1)Mechanics and related personnel*
    
    
    844
    
    
    International Brotherhood of Teamsters
    
    October 1998
    
    October 2003* (2)Flight Attendants*
    
    
    2,580
    
    
    Association of Flight
Attendants

Communications Workers of America
    
    May 1999
    
    May 2004* (3)Fleet Service
    
    
    2,221
    
    
    Transport Workers Union
    
    June 2000
    
    June 2005Stock Clerks
    
    
    68
    
    
    International Brotherhood of Teamsters
    
    April 2003
    
    April 2008
   *
    
    In contract negotiations.(1)
    
    On September 10, 2004, the Companys dispatchers, represented by the Transport Workers
Union, voted to ratify a second contract, becoming amendable in April 2008.(2)
    
    Negotiations with the International Brotherhood of Teamsters  Airline Division or
IBT, on a second contract covering the Companys mechanics and related employees
commenced on October 9, 2003 and are ongoing.(3)
    
    Negotiations with the Association of Flight Attendants  Communications Workers of
America or AFA, on a second contract covering the Companys flight attendants commenced
on February 4, 2004 and are ongoing. 8




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##### Table of Contents



The Companys Facilities The Companys principal facilities include administrative office space located in Tempe and
Phoenix, Arizona; reservations centers and other call centers located in Tempe, Arizona and Reno,
Nevada; and airport and airport related facilities associated with the Airlines hubs in Phoenix
and Las Vegas. The following table describes the Companys principal properties: ApproximateInternal FloorPrincipal Properties
    
    Description
    

Area (sq. ft)
    
    Nature of OwnershipTempe, AZ Headquarters
    
    Nine story complex
housing headquarters
for Holdings and AWA
    
    
    225,000
    
    
    Lease expires April 2014Terminal 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 programLas Vegas McCarran
International Airport
    
    17 gates, ticket
counter space and
concourse areas
    
    
    115,000
    
    
    Lease expires June 2007Maintenance and technical
support facility at Phoenix
Sky Harbor International
Airport
    
    Four hangar bays,
hangar shops, office
space, warehouse and
commissary
facilities
    
    
    375,000
    
    
    Facilities and land
leased from the City of
Phoenix. Lease expires
September 2019Flight Training and Systems
Operations Control Center,
Phoenix, AZ
    
    Complex accommodates
training facilities,
systems operation
control and crew
scheduling functions
    
    
    164,000
    
    
    Facilities and land
leased from the City of
Phoenix. Lease expires
February 2031
 In addition, we have leased an aggregate of approximately 260,000 square feet of office
and warehouse space in Tempe and Phoenix. Space for ticket counters, gates and back offices has
been obtained at each of the other airports operated by AWA, 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 is provided by Mesa as part of AWAs ground handling arrangement. 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 Department
of Transportation or 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, 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 or FAA. Effective January 1, 2005, these taxes include a
domestic excise tax of 7.5%, a domestic segment tax of $3.20 and an international departure and
arrival tax of $14.10 (each way). 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. 9




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##### Table of Contents



Passenger Facility Charges During 1990, Congress enacted legislation to permit airport authorities, with prior approval
from the DOT, to impose passenger facility charges or 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 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 or ATSA. This law enhances aviation security measures and federalizes many aspects of civil
aviation security. The ATSA established a new Transportation Security Administration, now within
the Department of Homeland Security. Under the ATSA, substantially 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 required 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 resulted 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 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. In 2004 and 2003, the Companys cost of compliance with
the security requirements of the ATSA was approximately $14.4 million and $13.2 million,
respectively. The estimated cost to the Company of compliance with the security requirements of
the ATSA for 2005 is approximately $17.0 million under current law. Under the proposed White House
budget released February 7, 2005, this ticket tax for security fees would increase from $2.50 per
leg to $5.50, with a cap of $8.00 per one-way trip with multiple legs and $16.00 for a round trip.
This budget proposal is subject to approval of Congress. 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. The Company is subject to various other federal, state and local laws and regulations related
to occupational health and safety, including Occupational Health and Safety Administration and Food
and Drug Administration regulations. 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 recently
enacted Vision 100-Century of Aviation Reauthorization Act or Vision 100, the President may
continue the insurance program until March 30, 2008. Currently the program has been extended
through August 31, 2005. Should the federal insurance program terminate, competitive pressures
could limit AWA and other airlines ability to pass these additional costs on 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 at
Washington D.C.s Ronald Reagan National Airport, which are 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
addition, the FAA may impose restrictions at any airport to manage excessive congestion and air
safety. In 2004, certain air carriers, at the request of the FAA, voluntarily agreed to reduce
flights at Chicago OHare International Airport and other operators, including AWA, agreed not to
increase operations there during certain hours. In the future takeoff and landing time
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 High Density Airports contain
provisions 10




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##### Table of Contents



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 and reversion to the FAA for reassignment through a lottery arrangement. AWA currently utilizes five slots at Kennedy Airport and eight slots at National Airport
during the restricted periods. AWA exceeds the requisite 80% use rate for these slots. Perimeter Rule at Washington D.C.s Ronald Reagan National Airport There is a federal prohibition on flights exceeding 1,250 miles operating to or from National
Airport. This perimeter rule generally prevents AWA from flying nonstop to and from National
Airport and its principal hubs of Phoenix and Las Vegas. In 2000, Congress passed legislation that
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 to National Airport round trips
and one daily Las Vegas to National Airport round trip. Vision 100, among other things, authorized
the DOT to grant 12 additional slots exempted from the perimeter rule. AWA was authorized two
additional slots to operate an additional daily round trip between Phoenix and National Airport
which the Company began flying on June 1, 2004. 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 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
suspension or revocation for cause. In addition, a combination of FAA and Occupational Safety and
Health Administration or OSHA, regulations on both federal and state levels apply to all of AWAs
ground-based operations and to in-flight cabin attendants. AWA also is 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 or ADs, in 1990 mandating changes to older
aircraft maintenance programs. These ADs were issued to ensure that the oldest portion of the
nations aircraft fleet remains airworthy and to 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. The FAA may in the future issue
additional ADs requiring additional maintenance or modifications to various aircraft types operated
by AWA. 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 management and disposal
activities. While the Company strives to comply with environmental laws and regulations, it has
incurred and will 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. 11




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##### Table of Contents



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 that 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 scope 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 increasingly place more restrictions and
limitations on activities that may affect the environment and we expect that the costs of
compliance will continue to increase. Other We are also subject to the jurisdiction of the Federal Communications Commission with respect
to the use of radio facilities and the United States Postal Service with respect to carriage of
United States mail. Risk Factors Relating to the Company and Industry Related Risks We caution the reader that these risk factors may not be exhaustive. We operate in a
continually changing business environment and new risk factors emerge from time to time.
Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new
risk factors on our business or the extent to which any factor or combination of factors may impact
our business. We have sustained, and may continue to sustain significant operating losses. For the year ended December 31, 2004, we incurred an operating loss of $43.8 million. In
addition, we incurred operating losses for the years ended December 31, 2001 and 2002 resulting
primarily from the decrease in revenue and passenger demand and the increase in operating costs
after the terrorist attacks of September 11, 2001. Recently, the operating losses resulted
primarily from a substantial increase in the cost of jet fuel and excess domestic industry capacity
resulting in lower revenue per available seat mile. We expect the threat of further terrorist
attacks and continued instability in oil producing regions to continue to negatively impact our
revenues and costs in the near-term. We may not be able to effectively counteract 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, decreases in demand for air travel or further increases in
jet fuel costs. The inability to sustain profitability may impair our ability to satisfy our
obligations as they become due, obtain future equity or debt financing, respond to competitive
developments and otherwise sustain or expand our business. Global instability, caused by events such as terrorism, has had and may in the future have a
material impact on the airline industry and, as a result, our financial condition, operations and
prospects. Over the past several years, global instability, caused by military action, terrorism, disease
outbreaks and natural disasters, has had a profound impact on the airline industry. The terrorist
attacks of September 11, 2001 resulted in a severe strain on our and the other airlines liquidity
as the government temporarily suspended all flights, passenger demand dropped precipitously and
financial institutions tried to reduce their exposure by restricting the industrys access to
capital. In addition, the terrorist attacks led to a decrease in the value of aircraft and
aircraft-related equipment and facilities and cost increases for enhanced security measures,
aviation insurance, airport rents and landing fees. Subsequent to the terrorist attacks, other
events, such as military action in Iraq and Afghanistan, general political and economic instability
in oil producing regions, and the Severe Acute Respiratory Syndrome or SARS, outbreak in Asia,
continued to adversely impact passenger demand and operating costs, especially jet fuel costs.
These kinds of events (including natural disasters such as the recent tsunamis in the Indian Ocean)
are likely to continue to impact the airline industry. Depending on the severity and geographical
impact of such events, they may have a substantial adverse impact on our passenger demand, our
costs, the value of our assets and our access to, and cost of capital. We cannot predict whether
we will have sufficient liquidity or access to capital to withstand the adverse impact of a
prolonged decrease in passenger demand or a substantial increase in costs caused by such global
events. 12




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##### Table of Contents



Increases in insurance costs or reductions in insurance coverage may adversely impact our
operations and financial results. The terrorist attacks of September 11, 2001 led to a significant increase in insurance
premiums and a decrease in the insurance coverage available to commercial airline carriers.
Accordingly, our insurance costs increased significantly and our ability to continue to obtain
insurance even at current prices remains uncertain. In addition, 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. If the Federal insurance program terminates, we would likely face a material increase in
the cost of war risk insurance. Because of competitive pressures in our industry, our ability to
pass additional insurance costs to passengers is limited. As a result, further increases in
insurance costs or reductions in available insurance coverage could harm our earnings. Our high level of fixed obligations limits our ability to fund general corporate requirements
and obtain additional financing, limits our flexibility in responding to competitive developments
and increases our vulnerability to adverse economic and industry conditions. We have a significant amount of fixed obligations, including debt, aircraft leases and
financings, aircraft purchase commitments, leases of airport and other facilities and other cash
obligations. As of December 31, 2004, we had approximately $786.3 million of outstanding debt, of
which $186.0 million was secured. In addition, we had $8.5 million of payments to satisfy capital
lease obligations and $3.2 billion of operating lease obligations through lease expiration dates
incurred primarily in connection with off-balance sheet aircraft financings. We also have
guaranteed costs associated with our regional alliance with Mesa and commitments to purchase
aircraft from Airbus. As a result of the substantial fixed costs associated with these
obligations:  
    A decrease in revenues results in a disproportionately greater percentage
decrease in earnings.
    We may not have sufficient liquidity to fund all of these fixed costs if our
revenues decline or costs increase.
    We may have to use our working capital to fund these fixed costs instead of
funding general corporate requirements, including capital expenditures.
    We may not have sufficient liquidity to respond to competitive developments and
adverse economic conditions. Our obligations also impair our ability to obtain additional financing, if needed, and our
flexibility in the conduct of our business. Our existing indebtedness is secured by substantially
all of our assets, leaving us with limited collateral for additional financing. Moreover, the
terms of the government guaranteed loan restrict our ability to incur additional indebtedness or
issue equity unless we use the proceeds of those transactions to repay the loan, require prepayment
if our employee compensation costs exceed a certain threshold, require us to maintain a minimum
cash balance of $100 million, and restrict our ability to take certain other actions, including
mergers and acquisitions, investments and asset sales. Our ability to pay the fixed costs associated with our contractual obligations depends on our
operating performance and cash flow, which in turn depend on general economic and political
conditions. A failure to pay our fixed costs or breach of the contractual obligations could result
in a variety of adverse consequences, including the acceleration of our indebtedness, the
withholding of credit card proceeds by the credit card servicers and the exercise of remedies by
our creditors and lessors. In such a situation, it is unlikely that we would be able to fulfill
our obligations under or repay the accelerated indebtedness, make required lease payments or
otherwise cover our fixed costs. Fluctuations in jet 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, supply interruptions, regional production patterns
and environmental concerns. Since jet fuel is the principal raw material consumed by our business,
accounting for 23% of our total operating expenses in 2004, 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, based on our current level of fuel consumption which includes our
Mesa alliance, we estimate that a one-cent per gallon increase in jet fuel prices will cause our
annual operating expense to increase by $5.7 million. 13




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##### Table of Contents



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 of the United States. Our hedging
program does not fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected jet fuel volumes for 2005. Hedging transactions are in place
with respect to approximately 45% and 2% of remaining projected 2005 and 2006 jet fuel
requirements, respectively. Furthermore, our ability to effectively hedge jet fuel prices is
limited because we purchase a substantially larger portion of our jet fuel requirements on the West
Coast of the United States compared to 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 continued instability in oil producing regions such as the Middle East,
Nigeria, Russia and Venezuela. 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 B3 and Caa2, respectively, Standard & Poors assessment of
AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC, and
Fitch Ratings assessment of AWAs long-term and senior unsecured debt rating at CCC. In addition,
Standard & Poors recently placed AWAs aircraft debt on CreditWatch with negative implications as
part of a broader review of aircraft-backed debt. Low credit ratings could cause our future
borrowing costs to increase, which would increase our interest expense and could affect our
earnings and our credit ratings could adversely affect our ability to obtain additional financing.
The rating agencies base their ratings on our financial performance and operations, our cash flow
and liquidity, the level of our indebtedness 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. In
addition, any downgrade of our credit ratings may indicate a decline in our business and in our
ability to satisfy our obligations under our indebtedness. 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. Negotiations with the IBT for a second collective bargaining
agreement covering the Airlines mechanics and related employees commenced on October 9, 2003 and
are ongoing. Additionally, negotiations with the AFA on a second contract covering the Companys
flight attendants commenced on February 4, 2004 and are ongoing. On August 18, 2004, the National
Mediation Board certified the IBT as the collective bargaining representative for the Companys
passenger service employees and reservations agents. Negotiations are expected to begin April
2005. We cannot predict the outcome of the negotiations with the IBT or AFA 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 we are required to repay a portion of the government guaranteed loan if our labor costs
exceed a certain threshold. 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. A substantial portion of our indebtedness 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 14




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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 new 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 ATSA, or otherwise by Congress, the Department of
Homeland Security or the FAA as a result of concern over continuing terrorist threats are expected
to continue to increase costs for us and the airline industry as a whole. Furthermore, 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. For example, the FAA from time to time may require us to retrofit our aircraft to meet
enhanced safety standards. Depending on the implementation of these laws, regulations and other
measures, our operating costs could increase significantly. We cannot predict which laws,
regulations and other measures 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. Interruptions or disruptions in service at one our hub airports could have a material adverse
impact on our operations. We operate primarily through our hubs in Phoenix and Las Vegas. A majority of our flights
either originate or fly into one of these hubs. A significant interruption or disruption in
service at one of our hubs could result in the cancellation or delay of a significant portion of
our flights and, as a result, could have a severe impact on our business, operations and financial
performance. 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, type of equipment, cabin configuration, amenities provided to passengers, frequent
flyer programs, the automation of travel agent reservation systems, on-board products and other
services. We compete with other low cost carriers primarily on the basis of pricing. Price
competition occurs on a market-by-market basis through price discounts, changes in pricing
structures, fare matching, target promotions and frequent flyer initiatives. Most airlines will
quickly match price reductions in a particular market and 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 ability to compete on
the basis of price is limited by our fixed costs and depends on our ability to maintain low
operating costs. Our principal competitor, Southwest Airlines, and certain other low cost carriers
have lower operating cost structures than we do. We also compete against the legacy carriers, many
of which offer more extensive routes, frequencies and customer loyalty, marketing and advertising
programs and have substantially greater resources than we do. We may be unable to compete
effectively against carriers with substantially greater resources or lower cost structures. Recent airline restructurings and bankruptcies could alter the competitive environment of the
airline industry to our detriment. The terrorist attacks of September 11, 2001, the continued military presence in Iraq and
Afghanistan, increased competition from low cost carriers and soft economic conditions have led to
the airline industrys significant losses since 2001. Largely as a result of these losses, ATA
Airlines, U.S. Airways, Aloha Airlines, Hawaiian Airlines and United Airlines filed for bankruptcy
protection. Because bankruptcy protection may allow for greater flexibility in reducing costs by
voiding contracts and renegotiating existing business obligations, current and future airline
bankruptcies could have a substantial impact on industry competition. Continued weakness in the
airline industry also may result in additional industry consolidation, greater reliance on industry
alliances and increased price competition among the existing airlines, each of which could
dramatically alter competitive environments in the markets we serve. 15




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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, infectious disease outbreaks, 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, we must repay a portion of the government guaranteed loan
if our labor costs exceed a certain threshold. 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, two stockholders collectively control more than 50% of the total voting power of
Holdings. These stockholders, TPG Partners, L.P. and TPG Parallel I, L.P, or collectively, the TPG
Stockholders, are 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 TPG Stockholders
will not try to influence Holdings business in a way that would favor their own personal interests
to the detriment of our interests and those of our other stockholders. We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft. If one of our aircraft were to crash or be involved in an accident, we could be exposed to
significant tort liability. There can be no assurance that the insurance we carry to cover damages
arising from any future accidents will be adequate. In the event that our insurance is not
adequate, we may be forced to bear substantial losses from an accident. Claims resulting from an
accident in excess of our insurance coverage would harm our business and results of operations.
Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any
accident involving an aircraft that we operate could create a public perception that our aircraft
are not safe or reliable, which could harm our reputation, result in air travelers being reluctant
to fly on our aircraft and harm our business. Our operations are often affected by factors beyond our control, including traffic congestion
at airports, weather conditions and increased security measures, any of which could harm our
financial condition and results of operations. Like other airlines, our operations are subject to delays caused by factors beyond our
control, including air traffic congestion at airports, adverse weather conditions and increased
security measures, such as those required to be implemented under the ATSA. During periods of fog,
snow, rain, storms or other adverse weather conditions, flights may be cancelled or significantly
delayed. Cancellations and delays frustrate passengers, reduce aircraft utilization and increase
costs, all of which in turn affect profitability. As a result, cancellations or delays could harm
our financial condition and results of operations. 16




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We rely heavily on automated systems to operate our business and any failure of these systems
could harm our business. We depend on automated systems to operate our business, including our computerized airline
reservation system, our telecommunication systems and our website. In 2004, approximately 96% of
our tickets were issued electronically. Our website and reservation system must be able to
accommodate a high volume of traffic and deliver important flight information. Substantial or
repeated website, reservations system or telecommunication systems failures could reduce the
attractiveness of our services and could cause our customers to purchase tickets from another
airline. Any disruption in these systems could result in the loss of important data, increase our
expenses and generally harm our business. Shares of our Class B common stock issuable upon exercise or conversion of outstanding
securities could adversely affect our stock price and dilute the ownership interests of existing
stockholders. Sales and potential sales of substantial amounts of our Class B common stock or securities
exercisable for or into our Class B common stock in the public market, or the perception that these
sales could occur, could adversely affect the market price of our Class B common stock. A
substantial number of additional shares of our Class B common stock are issuable upon the
conversion or exercise of outstanding securities. As of March 14, 2005, the outstanding shares of
our Class B common stock were subject to dilution by:  
    19,692,000 shares of Class B common stock that are issuable upon the exercise,
at a price of $3.00 per share, of certain warrants issued in connection with the government
guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise
of a warrant issued to the Air Transportation Stabilization Board, or ATSB; and
    9,615,245 shares of our Class B common stock that are issuable upon the
exercise of outstanding options. In addition, 859,117 shares of Class B common stock are issuable upon conversion of the
outstanding shares of Holdings Class A common stock held by the TPG Stockholders (but subject to
certain contractual restrictions on transfer), up to 8,095,842 shares of Holdings Class B common
stock are issuable upon the exchange of AWAs 7.25% senior exchangeable notes due 2023 (which
exchange may not occur until the trading price of Holdings Class B common stock reaches certain
thresholds, or other triggering events occur) and up to approximately 9,400,000 shares of Holdings
Class B common stock are issuable upon conversion of Holdings 7.5% convertible senior notes due
2009. Holdings has registered either the issuance or resale of all of these shares, meaning that
upon exercise, exchange or conversion, as applicable, such shares could be sold in the public
market at any time. The conversion or exercise of some or all of these notes, warrants and options will dilute the
ownership interests of existing stockholders and any sales in the public market of our 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, warrants and options
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. Provisions in our charter documents might deter acquisition bids for us. Holdings Certificate of Incorporation and Bylaws contain provisions that, among other things:  
    authorize Holdings board of directors to issue preferred stock ranking senior
to our Class B common stock without any action on the part of the stockholders;
    establish advance notice procedures for stockholder proposals, including
nominations of directors, to be considered at stockholders meetings;
    authorize Holdings board of directors to fill vacancies on the board resulting
from an increase in the authorized number of directors or any other cause; and
    restrict the ability of stockholders to call special meetings of stockholders. These provisions might make it more difficult for a third party to acquire us, even if doing
so would benefit the stockholders. 17




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Our stock price may continue to be volatile and could decline substantially. The stock market has, from time to time, experienced extreme price and volume fluctuations.
Many factors may cause the market price for the Class B common stock to decline including, among
others, the following:  
    our operating results failing to meet the expectations of securities analysts or investors in any quarter;
    downward revisions in securities analysts estimates;
    material announcements by us or our competitors;
    public sales of a substantial number of shares of our Class B common stock;
    governmental regulatory action; and
    adverse changes in general market conditions or economic trends. 
 ITEM 2. PROPERTIES For a description of the Companys properties, see Item 1 of Part I of this Annual Report on
Form 10-K. 
 ITEM 3. LEGAL PROCEEDINGS 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 Exchange Act in connection
with Holdings public disclosures regarding its business and prospects during 1997 and 1998. The
defendants deny the claims set forth in these lawsuits. A settlement of the lawsuits was reached
with the plaintiffs in November 2004 for $15 million. A fairness hearing was held on March 9, 2005
to allow class members to object to the settlement. No objections were filed and the Court entered
a final judgment. The lawsuit was fully insured, but AWA contributed $5.1 million to the
settlement due to the insolvency of one of its insurers. In addition, Holdings and its subsidiaries are parties to various legal proceedings, including
some purporting to be class action suits and some that demand large monetary damages or other
relief, which, if granted, would require significant expenditures. See Note 6, Commitments and
Contingencies  (e) Contingent Legal Obligations,in Holdings Notes to Consolidated Financial
Statements and Note 7, Commitments and Contingencies  (e) Contingent Legal Obligations,in AWAs
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 14, 2005. W. Douglas Parker, Age 43. 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 37. Executive Vice President  Sales and Marketing of 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 AWA. He was elected to his current
position in September 2001. 18




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Jeffrey D. McClelland, Age 45. Executive Vice President and Chief Operating Officer of AWA.
Mr. McClelland joined AWA as Senior Vice President  Operations in September 1999. He was elected
Executive Vice President  Operations in September 2001 and was elected 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. Joseph C. Beery, Age 42.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 Semiconductor. Hal M. Heule, Age 56. 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 61. 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
elected Vice President  Public Affairs of Holdings. He was elected to his current positions in
February 1999. Derek J. Kerr, Age 40.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 elected Senior Vice President  Financial Planning and Analysis. He was elected to his
current positions in September 2002. Anthony V. Mulé, Age 61. Senior Vice President  Customer Service of AWA. Mr. Mulé joined
AWA as Vice President  In-Flight Services in 1996. He was elected to his current position in
October 2000. Prior to joining AWA, Mr. Mulé held senior management positions at American
Airlines, Pan American Airways and SuperShuttle, International. James E. Walsh III, Age 57.Senior Vice President and General Counsel of AWA. Mr. Walsh
joined AWA as Senior Vice President and General Counsel in August 2004. Prior to joining AWA, Mr.
Walsh was Senior Vice President & General Counsel of Fairchild Dornier Corporation. Prior to
joining Fairchild in 1991, Mr. Walsh spent 12 years at American Airlines in various positions
including Vice President of Purchasing & Inventory Control and later Vice President of Law. Michael R. Carreon, Age 51. 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. Elise R. Eberwein, Age 39.Vice President  Corporate Communications of AWA. Ms. Eberwein
joined AWA in September 2003. Prior to joining AWA, Ms. Eberwein held various communication
positions for three other airlines, including Denver-based Frontier Airlines where she served as
Vice President, Communications from 2000 until she joined AWA. Kara L. Gin, Age 34.Vice President  Financial Planning and Analysis of AWA. Mrs. Gin
joined AWA as a Senior Analyst in Financial Planning & Analysis in June 1996. Prior positions held
at AWA include Manager of Financial Planning, Manager of Flight Profitability, Director of
Financial Planning and Senior Director of Distribution. She was elected to her current position in
May 2004. Thomas T. Weir, Age 49. 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. 19




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Holdings Class A common stock, par value $0.01 per share, is not publicly traded. Holdings
Class B common stock, par value $0.01 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 BCommon StockHigh
    
    
    LowYear Ended December 31, 2004First Quarter
    
    $
    13.6200
    
    
    $
    7.9200Second Quarter
    
    
    11.2400
    
    
    
    8.8400Third Quarter
    
    
    9.1400
    
    
    
    4.9300Fourth Quarter
    
    
    6.8600
    
    
    
    3.9100Year Ended December 31, 2003First Quarter
    
    $
    2.3300
    
    
    $
    1.6700Second Quarter
    
    
    6.9800
    
    
    
    1.9600Third Quarter
    
    
    11.0200
    
    
    
    6.6300Fourth Quarter
    
    
    16.0000
    
    
    
    9.5500
 As of December 31, 2004, there were two record holders of Class A common stock and
approximately 2,949 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. The terms of the government guaranteed
loan restrict the Companys ability to pay cash dividends or repurchases shares of its stock prior
to repayment of the loan in full. The following table set forth all purchases made by us or any affiliated purchases (as
defined in Rule 10b-18(a)(3) of the Exchange Act), of Class B common stock during each month within
the fourth quarter of 2004. No purchases were made pursuant to a publicly announced repurchase
plan or program. (d) Maximum Number(or Approximate(c) Total Number of
    
    
    Dollar Value) ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    be Purchased Under(a) Total Number of
    
    
    (b) Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased (1)
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsOctober 1, 2004  October 31, 2004
    
    
    120,700
    
    
    
    4.82
    
    
    
    
    
    
    
    November 1, 2004  November 30, 2004
    
    

    51,400
    
    
    
    4.91
    
    
    
    
    
    
    
    December 1, 2004  December 31, 2004
    
    
    8,000
    
    
    
    5.16
    
    
    
    
    
    
    
    
 (1) Amounts consist of shares of Class B common stock purchased on the open market by the
America West Holdings Corporation Future Care 401(k) Plan. 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. 20




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Selected Consolidated Financial Data of Holdings The selected consolidated financial 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, 2004, 2003, 2002, 2001 and 2000 are derived from the audited consolidated financial
statements of Holdings. The selected consolidated financial data should be read in conjunction
with the consolidated financial statements for the respective periods, the related notes and the
related reports of the Companys independent registered public accounting firms. Year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in thousands except per share amounts)Consolidated statements of operations data:Operating revenues
    
    $
    2,338,957
    
    
    $
    2,254,497
    
    
    $
    2,047,116
    
    
    $
    2,065,913
    
    
    $
    2,344,354Operating expenses (b)
    
    
    2,382,728
    
    
    
    2,232,362
    
    
    
    2,206,540
    
    
    
    2,476,594
    
    
    
    2,356,991Operating income (loss)
    
    
    (43,771
    )
    
    
    22,135
    
    
    
    (159,424
    )
    
    
    (410,681
    )
    
    
    (12,637
    )Income (loss) before income taxes (benefit)
and cumulative effect of change in
accounting principle (c)
    
    
    (88,993
    )
    
    
    57,534
    
    
    
    (214,757
    )
    
    
    (324,387
    )
    
    
    24,743Income taxes (benefit)
    
    
    30
    
    
    
    114
    
    
    
    (35,071
    )
    
    
    (74,536
    )
    
    
    17,064Income (loss) before cumulative effect of change in
accounting principle
    
    
    (89,023
    )
    
    
    57,420
    
    
    
    (179,686
    )
    
    
    (249,851
    )
    
    
    7,679Net income (loss)
    
    
    (89,023
    )
    
    
    57,420
    
    
    
    (387,909
    )
    
    
    (249,851
    )
    
    
    7,679Earnings (loss) per share before cumulative effect
of change in accounting principle:Basic
    
    
    (2.47
    )
    
    
    1.66
    
    
    
    (5.33
    )
    
    
    (7.42
    )
    
    
    0.22Diluted
    
    
    (2.47
    )
    
    
    1.26
    
    
    
    (5.33
    )
    
    
    (7.42
    )
    
    
    0.22Net income (loss) per share:Basic
    
    
    (2.47
    )
    
    
    1.66
    
    
    
    (11.50
    )
    
    
    (7.42
    )
    
    
    0.22Diluted (d)
    
    
    (2.47
    )
    
    
    1.26
    
    
    
    (11.50
    )
    
    
    (7.42
    )
    
    
    0.22Shares used for computation:Basic
    
    
    36,026
    
    
    
    34,551
    
    
    
    33,723
    
    
    
    33,670
    
    
    
    35,139Diluted (d)
    
    
    36,026
    
    
    
    56,113
    
    
    
    33,723
    
    
    
    33,670
    
    
    
    35,688Consolidated balance sheet data (at end of period):Total assets (a)
    
    $
    1,475,264
    
    
    $
    1,614,385
    
    
    $
    1,438,953
    
    
    $
    1,469,218
    
    
    $
    1,568,515Long-term debt, less current maturities
    
    
    635,129
    
    
    
    688,965
    
    
    
    700,983
    
    
    
    224,551
    
    
    
    145,578Total stockholders equity (a)
    
    
    36,447
    
    
    
    125,989
    
    
    
    68,178
    
    
    
    420,363
    
    
    
    667,073
   (a)
    
    The Company has restated its consolidated balance sheet and consolidated statement
of stockholders equity and comprehensive income as of and for the year ended December
31, 2003 to reflect the non-compliance with SFAS No. 133. See Note 2, Restatement of
Previously Reported Amountsin Notes to Consolidated Financial Statements.(b)
    
    The 2004 results include a $16.3 million net credit associated with the termination
of the rate per engine hour agreement with General Electric Engine Services for overhaul
maintenance services on V2500-A1 engines, a $0.6 million credit related to the revision
of the estimated costs associated with the sale and leaseback of certain aircraft
recorded in the first quarter of 2002 and a $0.4 million credit related to the revision
of estimated charges associated with the Columbus, Ohio hub (CMH) closure originally
recorded in the second quarter of 2003. These credits were partially offset by $1.9
million of net charges related to the return of certain Boeing 737-200 aircraft which
includes termination payments of $2.1 million, the write-down of leasehold improvements
and deferred rent of $2.8 million, offset by the net reversal of maintenance reserves of
$3.0 million. The 2003 period includes $16.0 million of charges resulting from the
elimination of AWAs hub operations in CMH ($11.1 million), the reduction-in-force of
certain management, professional and administrative employees ($2.3 million), the
impairment of certain owned Boeing 737-200 aircraft that have been grounded ($2.6
million) offset by a $1.1 million reduction of charges due to a revision of the
estimated costs related to the early termination of certain aircraft leases and a $0.5
million reduction related to the revision of estimated costs associated with the sale
and leaseback of certain aircraft. The 2002 period includes $19.0 million of charges
primarily related to the restructuring completed on January 18, 2002, resulting from the
events of September 11, 2001. The 2001 period includes $141.6 million of special
charges 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 11, Special Chargesin Holdings Notes to
Consolidated Financial Statements. The Company reclassified amounts related to settled
fuel hedge transactions and mark-to-market adjustments on open hedge instruments from
fuel expense to gain (loss) on derivative instruments, net. The amounts for the years
ended December 31, 2004 and 2003 were an addition to fuel expense of $30.5 million and
$10.7 million, respectively. For the years ended December 31, 2002 and 2001, the
amounts reduced fuel expense by $0.7 million and $7.2 million, respectively. 21




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(c)
    
    Nonoperating income (expense) in the 2004 period includes a $30.5 million net gain
on derivative instruments, which included mark-to-market changes and settled
transactions, and $1.3 million for the write-off of debt issue costs in connection with
the refinancing of the term loan. The 2003 period includes federal government
assistance of $81.3 million recognized as nonoperating income under the Emergency
Wartime Supplemental Appropriations Act and $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. The 2003, 2002 and 2001 periods include a $10.7
million net gain, $0.7 million net loss and $7.2 million net loss on derivative
instruments, respectively, including mark-to-market changes and settled transactions.
See Note 12, Nonoperating Income (Expenses)  Other, Netin Holdings Notes to
Consolidated Financial Statements.(d)
    
    The Company recalculated its diluted EPS for the year ended December 31, 2003 to
include the 7.25% notes under the if-converted methodology. The impact reduced
diluted EPS by $0.03 from $1.29 to $1.26. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Holdings primary business activity is ownership of the capital stock of AWA and, prior to
January 1, 2004, The Leisure Company. 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 consolidated financial statements for AWA presented in Item
8B. Restatement of Previously Reported Amounts Derivative Instruments In
February 2005, management undertook a review of AWAs accounting
for its fuel hedging transactions. As a result of this review,
management concluded that AWAs fuel hedging transactions did
not qualify for hedge accounting under U.S. generally accepted
accounting principles and that the Company's financial statements for
prior periods required restatement to reflect the fair value of fuel
hedging contracts in the balance sheets and statements of stockholders
equity and comprehensive income of Holdings and AWA. See Note 2,
Restatement of Previously Reported Amounts and
Note 16, Quarterly Financial Data (Unaudited)
in Holdings and Note 2, Restatement of Previously
Reported Amounts and Note 15, Quarterly
Financial Data (Unaudited) in AWAs consolidated financial
statements for the financial impact of the restatements. The Company concluded
that these accounting errors were the result of deficiencies in its internal
control over financial reporting, from the lack of effective reviews of
hedge transaction documentation and of quarterly mark-to-market accounting
entries on open fuel hedging contracts by personnel at an appropriate level. 2004 in Review Overview Over the past several years, the U.S. domestic airline industry has experienced an
unprecedented financial crisis caused by the combination of the terrorist attacks of September 11,
2001, soft economic conditions, increased competition and capacity and high fuel prices. In
response to these conditions, AWA had repositioned itself as a low cost carrier and was able to
operate profitably for 2003. During 2004, however, extremely high jet fuel prices and excessive
capacity throughout the domestic air system began to negatively impact all airlines including the
low cost segment of the airline industry as well and several low cost carriers that had previously
operated profitably, including AWA, experienced declining earnings. Despite difficult industry
conditions, AWA was able to complete two financial transactions in the third and fourth quarters of
2004 that brought additional capital into the company and extended debt maturities. During 2004, our constant commitment to lower costs remained a priority and we implemented the
following revenue and cost reduction initiatives: 22




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##### Table of Contents




    We increased point-to-point flying and utilization flying, (using an aircraft that would
ordinarily be parked at a gate for additional flights at minimal additional costs).
    We continued to aggressively manage yield during peak travel periods.
    We overhauled our first class fare structure much in the same way we did to our coach
fares in 2002. This initiative reduced first class fares by up to 70 percent in some
markets as compared to legacy carriers first class fares.
    We launched two new websites designed to increase revenues from travel agents and
corporate travel managers while lowering distribution costs. We also continued to position our airline as a low cost carrier with unique elements that
differentiate our service from other low cost carriers. For example, in 2004 we continued, and
intend to continue, to offer full service amenities that the major airlines offer, such as first
class seating, an award winning frequent flyer program, FlightFund, and assigned seating. We
believe that leisure and business customers will continue to value the service of low cost carriers
and that our full service amenities give us a competitive advantage over other low cost carriers. In spite of these initiatives and others designed to increase revenue and productivity and
reduce costs, we reported a net loss of $89.0 million in 2004 compared to net income of $57.4
million in 2003. The change in earnings was driven by a $181.1 million increase in fuel expense
primarily due to a 39.1% increase in the average price per gallon of fuel. The 2003 results also
included a nonoperating gain of $81.3 million related to federal government assistance recognized
under the Emergency Wartime Supplemental Appropriations Act. Capacity, as measured by available seat miles (ASMs), was up 8.1% as compared to 2003.
Passenger revenues were up 3.9% to $2.2 billion for 2004 over 2003. Passenger revenue per
available seat mile (RASM) fell 3.8% during 2004 to 7.29 cents versus 2003 primarily due to a 5.2%
decline in yield, a 7.9% increase in aircraft utilization and a 4.7% increase in average stage
length. Total operating expenses were $2.4 billion, an increase of 6.7% from 2003. The average fuel

price per gallon increased 39.1% to $1.24 during 2004. This, along with increased fuel burn due to
increased flying during 2004, resulted in a 48.1% increase in fuel expenses in 2004 over 2003. In
spite of the enormous increase in the cost of fuel, stringent cost controls enabled us to decrease
unit costs by 1.3% during 2004 to 7.89 cents. In spite of our diligent work to contain our costs, we believe revenues will continue to
reflect the excess capacity that exists across the domestic system and fuel prices will remain at,
or exceed, record highs. Given these conditions, we anticipate significant losses for full year
2005. As of December 31, 2004, Holdings unrestricted and restricted cash, cash equivalents,
short-term investments and investments in debt securities totaled $419.1 million. Although there
can be no assurances, we believe that this cash balance, coupled with our financing commitments and
cash flows from operating activities during 2005, will be adequate to fund our operating and
capital needs as well as enable us to remain compliant with our various debt agreements through at
least December 31, 2005. Cost Control We remain 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 2004, our
operating cost per available seat mile, or CASM, of 7.89 cents was the lowest 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. In light of the current industry environment, we continue to focus on minimizing capital
expenditures and prudent spending for discretionary expenses. 23




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##### Table of Contents



Revised Pricing Structure The revenue environment during 2004 remained challenging. As background, we restructured our
coach fares in March 2002 in an effort to maximize revenue and increase business traffic. We
eliminated our historic pricing structure and replaced it with a simplified structure, the primary
components of which included reduced business fares (typically 40-75% below the walkup prices on
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 nonstop markets
and Continental Airlines cancelled its long-standing code share and frequent flyer agreements with
us. As a result of these actions, our year-over-year domestic unit revenue performance during 2002
and 2003 was significantly better than the industry average, and the net effect on revenue of our
revised pricing structure was positive. In February 2004, we revised our first class pricing structure similar to the coach fare
restructuring initiated on our coach fares in early 2002 and as discussed above. The new first
class fare structure featured nonrefundable first class fares that are up to 70% lower than the
industrys traditional first class fares. We believe that the revised first class fare structure
will exploit our competitive advantages over both the major airlines, as their higher cost
structures may prevent them from reducing their first class fares to match ours in a profitable
manner, and the other low cost carriers, as many of them do not have first class cabins. In spite of these initiatives, during 2004, we experienced increased low cost carrier (LCC)
competition and increased legacy carrier competition, and the results of these two factors can be
seen in our unit revenue performance relative to the industry during 2004. Also, in January 2005,
Delta Airlines made significant changes to its domestic pricing structure. Refundable business
fares were reduced approximately 50  60% with none of the new fares exceeding a coach class cap of
$499. First class fares were capped at $599. Delta also relaxed many of the rules with regard to
leisure fares such as eliminating the Saturday night minimum stay requirement. While America West
still has lower business fares in most markets than those of Deltas, Deltas new pricing scheme
has resulted in a reduction in the number of markets and magnitude of pricing advantages previously
held by America West. In addition, long-term industry competitive reaction is unclear at this
time, and there is potential for negative revenue impact on the industry and America West.
However, given the adverse impacts to our revenues in 2004 from increased LCC competition and
increased legacy carrier response, we believe that the incremental effect of the Delta initiative
will be smaller than it would have been had the Delta fare initiative occurred earlier. Customer Service Continued emphasis on customer service is essential to growing our business and leisure
traffic. Therefore, we are committed to building a successful airline by taking care of our
customers. AWA reported the following operating statistics to the DOT for 2004, 2003, and 2002: Percent Change
    
    
    Percent Change2004
    
    
    2003
    
    
    2002
    
    
    2004  2003
    
    
    2004  2002On-time performance (a)
    
    
    75.7
    
    
    
    82.0
    
    
    
    82.9
    
    
    
    (7.7
    )
    
    
    (8.7
    )Completion factor (b)
    
    
    98.4
    
    
    
    99.0
    
    
    
    99.0
    
    
    
    (0.6
    )
    
    
    (0.6
    )Mishandled baggage (c)
    
    
    3.98
    
    
    
    3.30
    
    
    
    3.55
    
    
    
    20.6
    
    
    
    12.1Customer complaints (d)
    
    
    1.02
    
    
    
    0.84
    
    
    
    1.63
    
    
    
    21.4
    
    
    
    (37.4
    )
   (a)
    
    Percentage of reported flight operations arriving on time.(b)
    
    Percentage of scheduled flight operations completed.(c)
    
    Rate of mishandled baggage reports per 1,000 passengers.(d)
    
    Rate of customer complaints filed with the DOT per 100,000 passengers. 2004 proved to be a challenging year from an operations performance perspective. AWA
made a business decision to increase aircraft utilization approximately 10%, in order to increase
revenues and reduce unit costs. This increased utilization came through a combination of increased
night flying through the Las Vegas hub and the creation of flight opportunities during the day when
some aircraft previously sat on the ground for extended periods. Additionally, 2004 was a
difficult year from an Air Traffic Control or ATC perspective. The growth in FAA 24




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##### Table of Contents



reportable delays significantly outpaced the growth of domestic air traffic. For the year,
FAA reportable delays grew 41.1% year-over-year compared to a 4.5% growth in domestic air traffic.
AWAs utilization growth, coupled with the increased ATC delays, offset somewhat by operating
improvements, were the contributing factors resulting in the overall change in operating
performance. 2005 Outlook We continue to face considerable challenges in 2005, including competing with legacy carriers
that, through a variety of restructuring mechanisms, have reduced labor wages, extended debt
maturities and lowered their overall cost per available seat mile. These actions could cause AWAs
cost advantage to diminish. In addition, recent fare initiatives by the major carriers may also
cause a reduction in revenue per available seat mile. In 2004, we made loan repayments of
approximately $85.8 million on the government guaranteed loan and payments of approximately $168.5
million in respect to our off-balance sheet aircraft financing arrangements. In 2005, we will need
to make loan repayments of approximately $85.8 million on the government guaranteed loan, $41.3
million to redeem the 10 3/4 senior unsecured notes and payments of approximately $167.8 million in
respect to our off-balance sheet aircraft financing arrangements. 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, 2005. See Risk Factors Relating to the Company and Industry Related Risks
and Managements Discussion and Analysis of Financial Condition and Results of Operations 
Liquidity and Capital Resources. Results of Operations Summary of Holdings Financial Results Holdings recorded a consolidated net loss of $89.0 million in 2004, or diluted earnings per
share of $2.47. This compares to consolidated income of $57.4 million, or $1.26 per diluted share,
in 2003 and a consolidated loss before the cumulative effect of a change in accounting principle of
$179.7 million, or $5.33 per diluted share, in 2002. Including the cumulative effect of a change
in accounting principle related to the Companys adoption of Statement of Financial Accounting
Standards (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. The 2004 results include a $16.3 million net credit associated with the termination of the
rate per engine hour agreement with General Electric Engine Services for overhaul maintenance
services on V2500-A1 engines. This credit was partially offset by $1.9 million of net charges
related to the return of certain Boeing 737-200 aircraft which includes termination payments of
$2.1 million, the write-down of leasehold improvements and deferred rent of $2.8 million, offset by
the net reversal of maintenance reserves of $3.0 million. The 2004 results also include a $30.5 million net gain on derivative instruments, including
mark-to-market changes and settled transactions, a $6.1 million charge arising from the resolution
of pending litigation, a $4.6 million loss on the sale and leaseback of two new Airbus aircraft and
a $1.3 million charge for the write-off of debt issue costs in connection with the refinancing of
the term loan. The 2003 results include a nonoperating gain of $81.3 million related to the federal
government assistance received under the Emergency Wartime Supplemental Appropriations Act, a $10.8
million net gain on derivative instruments, including mark-to-market changes and settled
transactions, a $9.8 million nonoperating gain on sale of the Companys investment in Hotwire.com
and a $3.3 million nonoperating gain on sale of the Companys investment in National Leisure Group.
See Note 12, Nonoperating Income (Expenses)  Other, Netin Holdings Notes to Consolidated
Financial Statements. The 2003 results also include an operating gain of $4.4 million related to
the purchase and subsequent exchange of an A320 airframe and a $2.8 million operating gain related
to the settlement of disputed billings under the Companys frequent flyer program. These gains
were offset in part by $19.7 million of charges related to the execution of a new labor agreement
with the Air Line Pilots Association (ALPA) net charges of $14.4 million resulted from the
elimination of AWAs hub operations in Columbus, Ohio ($11.1 million), the reduction-in-force of
certain management, professional and administrative employees ($2.3 million) and the impairment of
certain owned Boeing 737-200 aircraft that have been grounded ($2.6 million), offset by a $1.1
million reduction due to a revision of the estimated costs related to the early termination of
certain aircraft leases and a $0.5 million reduction related to the revision of estimated costs
associated with the sale and leaseback of certain aircraft. See Note 11, Special Chargesin
Holdings Notes to Consolidated Financial Statements. 25




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##### Table of Contents



The 2002 results include charges of $19.0 million primarily related to the restructuring
completed on January 18, 2002 and an operating 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 in 2002. AWA
did not record an income tax benefit for the year ended December 31, 2004 as it currently expects
to continue to record a full valuation allowance on any future tax benefits until it has achieved
several quarters of consecutive profitable results coupled with an expectation of continued
profitability. Consolidated income tax expense for financial reporting purposes was $0.1 million
for 2003 on pretax income of $57.5 million. This compares to a consolidated income tax benefit for
financial reporting purposes of $35.1 million for the 2002 period on a consolidated loss before
income tax benefit and cumulative effect of a change in accounting principle of $214.8 million.
The benefit in 2002 is primarily due to additional carryback losses made available 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. 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, 2004, 2003 and 2002. AMERICA WEST AIRLINES, INC.
Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) 2004
    
    
    2003
    
    
    2002Operating revenues:Passenger
    
    $
    2,196,627
    
    
    $
    2,113,629
    
    
    $
    1,929,444Cargo
    
    
    28,233
    
    
    
    26,914
    
    
    
    27,574Other
    
    
    113,417
    
    
    
    113,274
    
    
    
    89,545Total operating revenues
    
    
    2,338,277
    
    
    
    2,253,817
    
    
    
    2,046,563Operating expenses:Salaries and related costs
    
    
    655,185
    
    
    
    658,042
    
    
    
    601,870Aircraft rents
    
    
    304,343
    
    
    
    297,518
    
    
    
    295,016Other rents and landing fees
    
    
    167,772
    
    
    
    154,598
    
    
    
    158,290Aircraft fuel
    
    
    557,098
    
    
    
    375,996
    
    
    
    299,284Agency commissions
    
    
    25,191
    
    
    
    34,457
    
    
    
    49,953Aircraft maintenance materials and repairs
    
    
    205,580
    
    
    
    223,266
    
    
    
    252,691Depreciation and amortization
    
    
    54,354
    
    
    
    66,865
    
    
    
    75,201Special charges (credits), net
    
    
    (15,432
    )
    
    
    14,370
    
    
    
    19,030Other
    
    
    423,890
    
    
    
    402,613
    
    
    
    451,444Total operating expenses
    
    
    2,377,981
    
    
    
    2,227,725
    
    
    
    2,202,779Operating income (loss)
    
    
    (39,704
    )
    
    
    26,092
    
    
    
    (156,216
    )Nonoperating income (expenses):Interest income
    
    
    14,169
    
    
    
    13,249
    
    
    
    17,551Interest expense, net
    
    
    (86,488
    )
    
    
    (86,743
    )
    
    
    (79,529
    )Federal government assistance
    
    
    
    
    
    
    81,255
    
    
    
    8,466Gain (loss) on disposition of property and equipment
    
    
    1,460
    
    
    
    151
    
    
    
    (1,852
    )Gain on sale of investment
    
    
    
    
    
    
    9,762
    
    
    
    Gain (loss) on derivative instruments, net
    
    
    23,782
    
    
    
    10,746
    
    
    
    (656
    )Other, net
    
    
    1,547
    
    
    
    6,888
    
    
    
    215Total nonoperating income (expenses), net
    
    
    (45,530
    )
    
    
    35,308
    
    
    
    (55,805
    )Income (loss) before income taxes (benefit) and
cumulative effect of change in accounting principle
    
    $
    (85,234
    )
    
    $
    61,400
    
    
    $
    (212,021
    )
 26




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##### Table of Contents



The table below sets forth selected operating data for AWA. Percent
    
    
    PercentYear Ended December 31,
    
    
    Change
    
    
    Change2004
    
    
    2003
    
    
    2002
    
    
    2004-2003
    
    
    2003-2002Aircraft (end of period)
    
    
    138
    
    
    
    139
    
    
    
    143
    
    
    
    (0.7
    )
    
    
    (2.8
    )Average daily aircraft utilization (hours) (a)
    
    
    10.9
    
    
    
    10.1
    
    
    
    9.6
    
    
    
    7.9
    
    
    
    5.2Available seat miles (in millions) (b)
    
    
    30,153
    
    
    
    27,888
    
    
    
    27,008
    
    
    
    8.1
    
    
    
    3.3Block hours (in thousands) (c)
    
    
    557
    
    
    
    519
    
    
    
    505
    
    
    
    7.3
    
    
    
    2.8Average stage length (miles) (d)
    
    
    1,052
    
    
    
    1,005
    
    
    
    949
    
    
    
    4.7
    
    
    
    5.9Average passenger journey (miles) (e)
    
    
    1,686
    
    
    
    1,564
    
    
    
    1,434
    
    
    
    7.8
    
    
    
    9.1Revenue passenger miles (in millions) (f)
    
    
    23,333
    
    
    
    21,295
    
    
    
    19,878
    
    
    
    9.6
    
    
    
    7.1Load factor (percent) (g)
    
    
    77.4
    
    
    
    76.4
    
    
    
    73.6
    
    
    1.0 pts
    
    2.8 ptsPassenger enplanements (in thousands) (h)
    
    
    21,132
    
    
    
    20,050
    
    
    
    19,454
    
    
    
    5.4
    
    
    
    3.1Yield per revenue passenger mile (cents) (i)
    
    
    9.41
    
    
    
    9.93
    
    
    
    9.71
    
    
    
    (5.2
    )
    
    
    2.3Revenue per available seat mile:Passenger (cents) (j)
    
    
    7.29
    
    
    
    7.58
    
    
    
    7.14
    
    
    
    (3.8
    )
    
    
    6.2Total (cents) (k)
    
    
    7.75
    
    
    
    8.08
    
    
    
    7.58
    
    
    
    (4.1
    )
    
    
    6.6Fuel consumption (gallons in millions)
    
    
    450
    
    
    
    423
    
    
    
    411
    
    
    
    6.4
    
    
    
    2.9Average fuel price (cents per gallon)
    
    
    123.7
    
    
    
    88.9
    
    
    
    73.0
    
    
    
    39.1
    
    
    
    21.8Full-time equivalent employees (end of period)
    
    
    11,893
    
    
    
    11,475
    
    
    
    12,111
    
    
    
    3.6
    
    
    
    (5.3
    )
   (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.(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
    
    
    PercentYear Ended December 31,
    
    
    Change
    
    
    Change2004
    
    
    2003
    
    
    2002
    
    
    2004-2003
    
    
    2003-2002(in cents)Salaries and related costs
    
    
    2.17
    
    
    
    2.36
    
    
    
    2.23
    
    
    
    (7.9
    )
    
    
    5.9Aircraft rents
    
    
    1.01
    
    
    
    1.07
    
    
    
    1.09
    
    
    
    (5.4
    )
    
    
    (2.3
    )Other rents and landing fees
    
    
    0.56
    
    
    
    0.55
    
    
    
    0.59
    
    
    
    0.4
    
    
    
    (5.4
    )Aircraft fuel
    
    
    1.85
    
    
    
    1.35
    
    
    
    1.11
    
    
    
    37.0
    
    
    
    21.7Agency commissions
    
    
    0.08
    
    
    
    0.12
    
    
    
    0.18
    
    
    
    (32.4
    )
    
    
    (33.2
    )Aircraft maintenance materials and repairs
    
    
    0.68
    
    
    
    0.80
    
    
    
    0.94
    
    
    
    (14.8
    )
    
    
    (14.4
    )Depreciation and amortization
    
    
    0.18
    
    
    
    0.24
    
    
    
    0.28
    
    
    
    (24.8
    )
    
    
    (13.9
    )Special charges (credits), net
    
    
    (0.05
    )
    
    
    0.06
    
    
    
    0.07
    
    
    
    
    
    
    
    (26.9
    )Other
    
    
    1.41
    
    
    
    1.44
    
    
    
    1.67
    
    
    
    (2.6
    )
    
    
    (13.6
    )7.89
    
    
    
    7.99
    
    
    
    8.16
    
    
    
    (1.3
    )
    
    
    (2.1
    )
 27




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2004 Compared with 2003 AWA realized an operating loss of $39.7 million in 2004 compared to operating income of $26.1
million in 2003. Loss before income taxes was $85.3 million in 2004 compared to income before
income taxes of $61.4 million for the comparable 2003 period. Total operating revenues for 2004 were $2.3 billion. Passenger revenues were $2.2 billion in
2004 compared to $2.1 billion in 2003. A 9.6% increase in RPMs exceeded an 8.1% increase in
capacity, as measured by ASMs, resulting in a 1.0 point increase in load factor to 77.4%. RASM
during 2004 decreased 3.8 percent to 7.29 cents, despite a 4.7 percent increase in average stage
length, while yields decreased 5.2 percent to 9.41 cents. Cargo revenues for 2004 increased $1.3
million (4.9%) due to higher mail volumes. Other revenues remained flat year of year. Operating expenses increased $150.3 million or 6.7% compared to the comparable 2003 period,
while ASMs increased 8.1% due to increases in average stage length of 4.7% and aircraft utilization
of 7.9%. CASM decreased 1.3% to 7.89 cents in 2004 from 7.99 cents in 2003 despite a 39.1%
increase in average fuel price per gallon. The 2004 period includes a $15.4 million reduction in
special charges versus a $14.4 million charge in 2003. Significant changes in the components of
operating expense per ASM are explained as follows:  
    Salaries and related costs per ASM decreased 7.9% due to increased productivity and
lower benefit costs. ASMs increased 8.1% and average full-time equivalent employees
(FTEs) decreased 2.2%. This increase in productivity was offset in part by a $26.5
million increase in pilot payroll expense principally as a result of the new labor
agreement with the Air Line Pilots Association (ALPA) effective December 30, 2003.
    Aircraft rent expense per ASM decreased 5.4% due to the 7.9% increase in aircraft
utilization.
    Other rents and landing fees expense per ASM remained flat year over year as increases
in airport rents ($6.6 million) and landing fees ($5.7 million) were offset by the 8.1%
increase in ASMs.
    Aircraft jet fuel expense per ASM increased 37.0% due primarily to a 39.1% increase in
the average price per gallon of fuel to 123.7 cents in 2004 from 88.9 cents in 2003.
    Agency commissions expense per ASM decreased 32.4% due to the reductions in various
travel agency incentive programs and lower override commissions.
    Aircraft maintenance materials and repair expense per ASM decreased 14.8% due to
decreases in capitalized maintenance amortization expense ($23.4 million), and aircraft
C-Check expense ($4.0 million). The decrease in capitalized maintenance amortization
expense is driven by changes in the estimated useful life on certain engines, effective
January 1, 2004, as a result of changes in aircraft utilization ($9.2 million), and on
certain aircraft engine overhaul costs, effective April 1, 2003, driven by a new
maintenance agreement that guarantees minimum cycles on engine overhauls ($2.3 million).
During 2004, the net decrease of fully amortized assets versus new asset amortization
totaled $6.6 million. These decreases were partially offset by increases in airframe
maintenance ($6.1 million) and engine overhaul ($3.7 million) expenses.
    Depreciation and amortization expense per ASM decreased 24.8% due to lower computer
hardware and software amortization ($6.1 million) as a result of AWAs cash conservation
program, which reduced capital expenditures and lower amortization expenses related to
aircraft leasehold improvements ($1.7 million). The change in the estimated useful life as
a result of changes in AWAs fleet plan discussed above contributed to the decrease in
depreciation for improvements on AWAs owned aircraft ($3.1 million), and for rotable and
repairable spare parts ($2.1 million). 28




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##### Table of Contents




    Other operating expenses per ASM decreased 2.6% to $1.41 from $1.44 primarily due to
decreases in catering costs ($6.3 million), bad debt expense ($2.6 million) and traffic
liability insurance ($1.8 million). These decreases were partially offset by increases in
aircraft jet fuel tax ($4.7 million), passenger traffic related expenses ($4.2 million),
reservation system booking fees ($4.1 million), legal fees ($3.6 million), computer credit
card discount fees ($3.5 million), airport guard services ($1.9 million) and ground
handling expenses ($1.6 million). As a result, other operating expenses increased by $21.4
million. In addition, the 2004 period also included a $5.1 million charge resulting from
the settlement of the shareholder lawsuit, a $4.6 million charge related to the sale and
leaseback transactions of two new aircraft, a $3.5 million gain resulting from the
settlement of a claim in bankruptcy for amounts earned under an executory contract, a $2.0
million gain resulting from the settlement of a lawsuit related to certain computer
hardware and software that had previously been written off, a $1.0 million charge related
to an arbitration settlement with Aeroxchange and a $1.0 million volume incentive earned
due to certain Affinity Card sales levels meeting certain contract thresholds. The
comparable 2003 period includes a $4.4 million gain related to the purchase and subsequent
exchange of an A320 airframe. AWA had net nonoperating expense of $45.5 million in 2004 compared to net nonoperating income
of $35.3 million in 2003. The 2003 period benefited from $81.3 million of federal government
assistance received under the Emergency Wartime Supplemental Appropriations Act. See Note 16,
Emergency Wartime Supplemental Appropriations Actin AWAs Notes to Consolidated Financial
Statements. In 2004, debt issue costs totaling $1.3 million were written off in connection with
the refinancing of the term loan. This was more than offset by a gain on the disposition of
property and equipment ($1.1 million) primarily due to the sale of two Boeing 737-200 aircraft.
Interest income increased $0.9 million or 6.9% due to higher average cash balances in the 2004
period. The changes in the fair value of the Companys derivative instruments and the net realized
gains for the settled hedge transactions was a $23.8 million credit in 2004 compared to a $10.7
million credit in the 2003 period. Interest expense remained flat year-over-year. The 2003 period
also includes a $9.8 million gain related to the sale of an investment in Hotwire.com. See Note
12, Nonoperating Income (Expenses)  Other, Netin AWAs Notes to Consolidated Financial
Statements. 2003 Compared with 2002 AWA recorded operating income of $26.1 million in 2003 compared to an operating loss of $156.2
million in 2002. Income before income taxes was $61.4 million in 2003 compared to a loss before
income taxes and the cumulative effect of a change in accounting principle of $212.0 million in
2002. Total operating revenues for 2003 were $2.3 billion. Passenger revenues were $2.1 billion in
2003 compared to $1.9 billion in 2002. A 7.1% increase in RPMs exceeded a 3.3% increase in
capacity, as measured by ASMs, resulting in a 2.8 point increase in load factor to 76.4%. RASM
during 2003 increased 6.2 percent to 7.58 cents, despite a 5.9 percent increase in average stage
length, while yields improved 2.3 percent to 9.93 cents. Cargo revenues for 2003 decreased $0.7
million (2.4%) due to lower freight and mail volumes. Other revenues, which consist primarily of
alcoholic beverage sales, contract service sales, service charges, America West Vacations net
revenues and Mesa codeshare agreement revenues, increased $23.7 million (26.5%) due to increased
net revenues from AWAs code sharing agreement with Mesa Airlines, higher excess baggage revenue
and higher ticket refund and reissue penalty fees for ticketing changes. Operating expenses, including special charges of $14.4 million and $19.0 million recognized in
2003 and 2002, respectively, (see Note 11, Special Chargesin AWAs Notes to Consolidated
Financial Statements) increased $24.9 million or 1.1%, while ASMs increased 3.3% in 2003 as
compared to 2002. As a result, CASM decreased 2.1% to 7.99 cents in 2003 from 8.16 cents in 2002.
Significant changes in the components of operating expense per ASM are explained as follows:  
    Salaries and related costs per ASM increased 5.9% primarily due to an increase in the
accrual for employee performance bonuses and AWArd Pay ($20.1 million), charges related to
the execution of a new labor agreement between AWA and ALPA ($19.7 million), higher
medical, disability and workers compensation insurance costs ($6.7 million), vacation
expense due to a change in the Companys vacation policy for certain administrative
employees in 2002 ($6.4 million) and DOT on-time performance bonuses ($2.3 million). These
increases were offset in part by a 4.5% decrease FTEs in 2003 as compared to 2002, driven
by the Companys decision to eliminate its Columbus hub operations and the
reduction-in-force of management, administrative and professional employees.
    Aircraft rent expense per ASM decreased 2.3% due to a reduction of rental rates as a
result of lease extensions that occurred in 2003. 29




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##### Table of Contents




    Other rents and landing fees expense per ASM decreased 5.4% primarily due to lower costs
for borrowed parts ($5.6 million) and other space rental ($1.3 million). This decrease was
offset in part by higher airport rent ($1.5 million) and landing fees ($1.4 million).
    Aircraft jet fuel expense per ASM increased 21.7% primarily due to a 21.8% increase in
the average price per gallon of fuel to 88.9 cents in 2003 from 73.0 cents in 2002.
    Agency commissions expense per ASM decreased 33.2% primarily due to the elimination of
base commissions for travel agency tickets issued in the United States, effective March 21,
2002, subsequent reductions in various travel agency incentive programs and lower override
commissions.
    Aircraft maintenance materials and repair expense per ASM decreased 14.4% primarily due
to lower aircraft C-Check ($10.1 million), airframe maintenance ($3.1 million), and engine
overhaul ($2.9 million) expenses and the 3.3% increase in ASMs. In addition, a change in
the estimated useful life of certain aircraft engine overhaul costs, effective April 1,
2003 and driven by a new maintenance agreement that guarantees minimum cycles on engine
overhauls, resulted in a $12.7 million reduction in capitalized maintenance amortization
expense (see Note 1, Summary of Significant Accounting Policies  (e) Aircraft Maintenance
and Repairsin AWAs Notes to Consolidated Financial Statements) offset by a $0.9 million
penalty for the return of two spare engines in 2003.
    Depreciation and amortization expense per ASM decreased 13.9% due primarily to reduced
capital expenditures as a result of the Companys cash conservation program and the 3.3%
increase in ASMs. Decreases in computer hardware, software and facility improvements ($4.5
million), aircraft leasehold improvement amortization ($2.9 million) and depreciation
expense for owned aircraft ($2.0 million) were offset in part by an increase in
depreciation expense for rotable aircraft parts ($0.9 million).
    Other operating expenses per ASM decreased 13.6% from 1.67 cents to 1.44 cents primarily
due to decreases in traffic liability insurance ($11.6 million), computer reservations
system booking fees ($7.7 million), security services ($6.0 million), FlightFund expense
($5.2 million), bad debt expense ($5.2 million) and the 3.3% increase in ASMs. These
decreases were offset in part by increased credit card fees ($6.2 million). In addition,
the 2003 period includes a $4.4 million gain related to the purchase and subsequent
exchange of an A320 airframe and a $2.8 million credit related to the settlement of
disputed billings under the Companys frequent flyer program. AWA had net nonoperating income of $35.3 million in 2003 compared to $55.8 million of net
nonoperating expenses in 2002. The 2003 period benefited from $81.3 million of federal government
assistance received under the Emergency Wartime Supplemental Appropriations Act. See Note 16,
Emergency Wartime Supplemental Appropriations Actin AWAs Notes to Consolidated Financial
Statements. Interest expense increased $7.2 million in 2003 due to higher average outstanding debt
while interest income decreased $4.3 million primarily due to lower interest rates in 2003 compared
to 2002. The 2003 period also includes a $9.8 million gain related to the sale of an investment in
Hotwire.com. See Note 12, Nonoperating Income (Expenses)  Other, Netin AWAs Notes to
Consolidated Financial Statements. The 2002 period included $8.5 million of federal government
assistance received under the Air Transportation Safety and System Stabilization Act and a $2.8
million charge related to the write-off of AWAs investment in an e-commerce entity. The changes
in the fair value of the Companys derivative instruments and the net realized gains and losses for
the settled hedge transactions was a $10.7 million credit in 2003 compared to $0.7 million expense
in the 2002 period. Liquidity and Capital Resources Sources and Uses of Cash At December 31, 2004, Holdings and AWAs total cash, cash equivalents, short-term
investments, investments in debt securities and restricted cash balances were $419.1 million and
$398.5 million, respectively. Net cash provided by operating activities for Holdings and AWA was
$20.8 million and $20.6 million, respectively, in 2004. This compares to net cash provided by
operating activities of $241.8 million and $226.1 million for Holdings and AWA, respectively, in
2003. The year-over-year decrease in net cash provided by operating activities of $221.0 million
and $205.4 million for Holdings and AWA, respectively, was primarily due to the loss in the 2004
period and the receipt of $81.3 million of refunded security fees from the Federal government in
2003. 30




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##### Table of Contents



In
2004, net cash used in investing activities was $16.1 million
for Holdings and $16.0 for AWA, respectively.
This compares to net cash used in investing activities of $491.6 million for both Holdings and AWA
in 2003. Principal investing activities during 2004 included purchases of property and equipment
totaling $219.4 million for both Holdings and AWA and net sales of short-term investments and
investments in debt securities totaling $205.3 million for both Holdings and AWA. The 2003 period
included purchases of property and equipment totaling $154.4 million for both Holdings and AWA and
net purchases of short-term investments totaling $269.4 million for both Holdings and AWA.
Restricted cash increased by $2.2 million during 2004 compared to an increase of $23.9 million
during 2003 primarily due to an increase in cash reserves required under an agreement for
processing the Companys Visa and MasterCard credit card transactions. The 2003 period also
included proceeds from the disposition of assets totaling $25.8 million. In 2004, net cash used in financing activities was $41.2 million and $42.3 million for
Holdings and AWA, respectively, consisting principally of $175.6 debt repayments including
principal repayments of $85.8 million for the government guaranteed loan. In addition, AWA entered
into a term loan financing with GECC resulting in proceeds of $110.6 million, approximately $77.0
million of which was used to pay off the balance of the term loan with Muzuho Corporate Bank, Ltd.
and certain other lenders. The 2004 period also includes $30.8 million of proceeds from the
issuance of senior secured discount notes, secured by the Companys leasehold interest in its
Phoenix maintenance facility and flight training center. This compares to net cash provided by
financing activities of $67.4 million and $65.0 million for Holdings and AWA, respectively, in
2003. The 2003 period included proceeds from the issuance of senior exchangeable notes totaling
$86.8 million and debt repayments of $16.8 million. Capital expenditures for 2004 were $219.4 million for Holdings and AWA. Capital expenditures
for 2003 were $154.4 million for Holdings and AWA. Included in these amounts are capital
expenditures for capitalized maintenance of approximately $139.2 million and $119.3 million for
both Holdings and AWA for 2004 and 2003, respectively. Off-Balance Sheet Arrangements The 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) covering the financing of 54 aircraft. 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. The trusts are also structured to
provide for certain credit enhancements, such as liquidity facilities to cover certain interest
payments, that reduce the risks to the purchasers of the trust certificates and, as a result,
reduce the cost of aircraft financing to AWA. 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 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. In
addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the
leased aircraft. 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. In
2004, AWA made $168.5 million in lease payments in respect of the leveraged lease financings under
the pass through trusts. Other Operating Leases In addition to the aircraft financed by the pass through trust certificates, AWA has
noncancelable operating leases covering 82 aircraft, of which four aircraft will be delivered in
2005, as well as leases for certain terminal space, ground facilities and computer and other
equipment. In 2004, AWA made $197.2 million in lease payments related to these operating leases.
See the Airlines fleet section in Item 1 for further discussion. 31




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##### Table of Contents



Special Facility 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 Emerging Issues Task Force (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, 2004, 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 $43.6 million. Commitments As of December 31, 2004, we had $786.3 million of long-term debt (including current
maturities). This amount consisted primarily of the $343.2 million government guaranteed loan, a
secured term loan financing with General Electric Capital Corporation (GECC), of which $110.6
million remains outstanding, $39.5 million principal amount of 10 3/4% senior unsecured notes, $112.3
million principal amount of 7.5% convertible senior notes (including interest through December 31,
2004 as a deemed loan added to the principal thereof) and $252.7 million issue price of 7.25%
senior exchangeable notes, of which $86.8 million was received at issuance. Government Guaranteed Loan In January 2002, AWA closed a $429 million loan supported by a $380 million guarantee provided
by the ATSB. Certain third-party counter-guarantors have fully and unconditionally guaranteed the
payment of an aggregate of $45 million of the outstanding principal amount under the government
guaranteed loan plus accrued and unpaid interest thereon. In addition, Holdings has fully and
unconditionally guaranteed the payment of all principal, premium, interest and other obligations
outstanding under the government guaranteed loan and has pledged the stock of AWA to secure its
obligations under such guarantee. Principal amounts under this loan become due in ten installments
of $42.9 million on each March 31 and September 30, commencing on March 31, 2004 and ending on
September 30, 2008. Principal amounts outstanding under the government guaranteed loan bear
interest at a rate per annum equal to LIBOR plus 40 basis points. Subject to certain exceptions, we are required to prepay the government guaranteed loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year; and
    insurance proceeds in excess of $2 million to the extent such proceeds are not used to
restore or replace the assets from which such proceeds are derived. In addition, we are required to prepay the government guaranteed loan upon a change in control
and we may be required to prepay portions of the loan if our employee compensation costs exceed a
certain threshold. We may, at our option, prepay the government guaranteed loan without premium or
penalty, subject to reimbursement of the lenders breakage costs in the case of prepayment of LIBOR
loans. The government guaranteed loan requires that AWA maintain a minimum cash balance of $100
million. In addition, the government loan contains customary affirmative covenants and the
following negative covenants: restrictions on liens, investments, restricted payments, fundamental
changes, asset sales and acquisitions, the creation of new subsidiaries, sale and leasebacks,
transactions with affiliates, the conduct of business, mergers or consolidations, issuances and
dispositions of capital stock of subsidiaries, and amendments to other indebtedness. The
government guaranteed loan contains customary events of default, including payment defaults,
cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults. 32




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##### Table of Contents



GECC Term Loan Financing On September 10, 2004, AWA entered into a term loan financing with GECC providing for loans in
an aggregate amount of $110.6 million. AWA used approximately $77.0 million of the proceeds from
this financing to repay in full its term loan with Mizuho Corporate Bank, Ltd. and certain other
lenders and to pay certain costs associated with this transaction. AWA used the remaining proceeds
for general corporate purposes. The new term loan financing consists of two secured term loan
facilities: a $75.6 million term loan facility secured primarily by spare parts, rotables and
appliances (the Spare Parts Facility); and a $35.0 million term loan facility secured primarily
by aircraft engines and parts installed in such engines (the Engine Facility). The facilities are cross-collateralized on a subordinated basis and the collateral securing
the facilities also secures on a subordinated basis certain of AWAs other existing debt and lease
obligations to GECC and its affiliates. The loans under the Spare Parts Facility are payable in full at maturity on September 10,
2010. The loans under the Engine Facility are payable in equal quarterly installments of $1.3
million beginning on March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8
million payable at maturity on September 10, 2010. The loans under each facility may be prepaid in
an amount not less than $5 million at any time after the 30th monthly anniversary of the
funding date under such facility. If AWA fails to maintain a certain ratio of rotables to loans
under the Spare Parts Facility, it may be required to pledge additional rotables or cash as
collateral, provide a letter of credit or prepay some or all of the loans under the Spare Parts
Facility. In addition, the loans under the Engine Facility are subject to mandatory prepayment
upon the occurrence of certain events of loss applicable to, or certain dispositions of, aircraft
engines securing the facility. Principal amounts outstanding under the loans bear interest at a rate per annum based on
three-month LIBOR plus a margin. Both facilities contain customary events of default, including
payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and
judgment defaults. Senior Secured Discount Notes Due 2009 On December 27, 2004, AWA raised additional capital by financing its Phoenix maintenance
facility and flight training center. The flight training center was previously unencumbered, and
the maintenance facility became unencumbered earlier this year when AWA refinanced its term loan.
Using its leasehold interests in these two facilities as collateral, AWA, through a wholly owned
subsidiary named FTCHP LLC, raised $30.8 million through the issuance of senior secured discount
notes. The notes were issued by FTCHP at a discount pursuant to the terms of a senior secured term
loan agreement among the Company, FTCHP, Heritage Bank, SSB, as administrative agent, Citibank,
N.A., as the initial lender, and the other lenders from time to time party thereto. Citibank, N.A.
subsequently assigned all of its interests in the notes to third party lenders. AWA has fully and unconditionally guaranteed the payment and performance of FTCHPs
obligations under the notes and the loan agreement. The notes require aggregate principal payments
of $36.0 million with principal payments of $1.5 million due on each of the first two anniversary
dates and the remaining principal amount due on the fifth anniversary date. The notes may be
prepaid in full at any time (subject to customary LIBOR breakage costs) and in partial amounts of
$1.5 million on the third and fourth anniversary dates. The unpaid principal amount of the notes
bears interest based on LIBOR plus a margin subject to adjustment based on a loan to collateral
value ratio. The loan agreement contains customary covenants applicable to loans of this type, including
obligations relating to the preservation of the collateral and restrictions on the activities of
FTCHP. In addition, the loan agreement contains events of default, including payment defaults,
cross-defaults to other debt of FTCHP, if any, breach of covenants, bankruptcy and insolvency
defaults and judgment defaults. In connection with this financing, AWA sold all of its leasehold interests in the maintenance
facility and flight training center to FTCHP and entered into subleases for the facilities with
FTCHP at lease rates expected to approximate the interest payments due under the notes. In
addition, AWA agreed to make future capital contributions to FTCHP in amounts sufficient to cover
principal payments and other amounts owing pursuant to the notes and the loan agreement. The proceeds from this financing, together with $10.5 million from operating cash flow, were
irrevocably deposited with the trustee for AWAs 10-3/4% senior unsecured notes due 2005 and
subsequently redeemed on January 26, 2005. 33




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##### Table of Contents



10 3/4% Senior Notes due 2005 In August 1995, AWA issued $75.0 million principal amount of 103/4% senior unsecured notes due
2005 of which $39.5 million remained outstanding at December 31, 2004. Interest on the 103/4% senior
unsecured notes is payable semiannually in arrears on March 1 and September 1 of each year. The
senior notes were subsequently redeemed on January 26, 2005. 7.5% Convertible Senior Notes due 2009 In connection with the closing of the government guaranteed loan and the related transactions,
Holdings issued $104.5 million of 7.5% convertible senior notes due 2009, of which approximately
$112.3 million remained outstanding at December 31, 2004 (including interest paid through December
31, 2004 as a deemed loan added to the principal thereof). These notes are convertible into shares
of class B common stock, at the option of the holders, at an initial conversion price of $12.00 per
share or a conversion ratio of approximately 83.333 shares per $1,000 principal amount of such
notes, subject to standard anti-dilution adjustments. Interest on the 7.5% convertible senior
notes is payable semiannually in arrears on June 1 and December 1 of each year. At Holdings
option, the first six interest payments were payable in the form of a deemed loan added to the
principal amount of these notes. The 7.5% convertible senior notes will mature on January 18, 2009
unless earlier converted or redeemed. The payment of principal, premium and interest on the 7.5%
convertible senior notes is fully and unconditionally guaranteed by AWA. Holdings may redeem 7.5% convertible senior notes, in whole or in part, at the following
redemption prices (expressed as percentages of the principal amount thereof), if redeemed during
the twelve-month period commencing on January 18 of the years set forth below, plus, in each case,
accrued and unpaid interest, if any, to the date of redemption: Year
    
    Redemption Price2005
    
    
    103.75
    %2006
    
    
    102.50
    %2007
    
    
    101.25
    %2008 and thereafter
    
    
    100.00
    %
 7.25% Senior Exchangeable Notes due 2023 In July and August of 2003, AWA completed a private placement of approximately $86.8 million
issue price of 7.25% Senior Exchangeable Notes due 2023. The notes bear cash interest until July
30, 2008. Thereafter, the notes will cease bearing cash interest and begin accruing original issue
discount daily at a rate of 7.25% per year until maturity. Each note was issued at a price of
$343.61 and is exchangeable for class B common stock of Holdings at an exchange ratio of 32.038
shares per $1,000 principal amount at maturity of the notes (subject to adjustment in certain
circumstances). This represents an equivalent conversion price of approximately $10.73 per share.
The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008,
will be $252,695,000. The notes are unconditionally guaranteed on a senior unsecured basis by
Holdings. Holders may exchange their notes for the shares of class B common stock of Holdings in any
fiscal quarter commencing after September 30, 2003, if, as of the last day of the preceding fiscal
quarter, the closing sale price of the class B common stock for at least 20 trading days in a
period of 30 consecutive trading days ending on the last trading day of such preceding fiscal
quarter is more than 110% of the accreted exchange price per share of Class B common stock on the
last day of such preceding fiscal quarter. If the foregoing condition is satisfied, then the notes
will be exchangeable at any time at the option of the holder through maturity. The accreted
exchange price per share as of any day will equal the issue price of a note plus accrued original
issue discount to that day divided by 32.038, subject to any adjustments to the exchange rate
through that day. On or before July 30, 2018, a holder also may exchange its notes for shares of the Class B
common stock at any time after a 10 consecutive trading-day period in which the average of the
trading prices for the notes for that 10 trading-day period was less than 103% of the average
exchange value for the notes during that period. Exchange value is equal to the product of the
closing sale price for the shares of Class B common stock on a given day multiplied by the then
current exchange rate, which is the number of shares of Class B common stock for which each note is
then exchangeable. In addition, the holders may exchange the notes if the notes have been called for redemption
or if certain specified corporate transactions have occurred. 34




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##### Table of Contents



Holders of the notes may require AWA to repurchase the notes at a price equal to the original
issue price plus accrued cash interest and original issue discount, if any, on July 30, 2008, 2013
and 2018. The purchase price of such notes may be paid in cash or class B common stock of
Holdings, subject to certain restrictions. In addition, each holder may require AWA to purchase
all or a portion of such holders notes upon the occurrence of certain change of control events
concerning AWA or Holdings. AWA may redeem the notes, in whole or in part, on or after July 30,
2008 at a price equal to the original issue price plus accrued cash interest and original issue
discount, if any. Other Indebtedness and Obligations In addition to the above described indebtedness, we had $39.5 million of secured equipment
notes and $45.8 million of other unsecured indebtedness, including $29.3 million of industrial
revenue bonds. The following table sets forth our cash obligations as of December 31, 2004. Beyond2005
    
    

2006
    
    

2007
    
    

2008
    
    

2009
    
    

2009
    

Total(in thousands)Long-term debt:Equipment notes  non-EETC (1)
    
    $
    8,305
    
    
    $
    8,305
    
    
    $
    7,772
    
    
    $
    15,082
    
    
    $
    
    
    
    $
    
    
    
    $
    39,464GECC term loan (2)
    
    
    
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    89,932
    
    
    
    110,5647.5% convertible senior notes due
2009(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,299
    
    
    
    
    
    
    
    112,2997.25% senior exchangeable notes
due 2023 (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,695
    
    
    
    252,695Government guaranteed loan (5)
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    
    
    
    
    
    
    
    
    343,200State loan (6)
    
    
    250
    
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75010 3/4% senior unsecured notes due 2005
    
    
    39,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,548Industrial development bonds (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    29,300
    
    
    
    29,300AVSA promissory notes (8)
    
    
    15,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,750Senior Secured Discount Notes (9)
    
    
    1,530
    
    
    
    1,529
    
    
    
    1,529
    
    
    
    1,530
    
    
    
    29,870
    
    
    
    
    
    
    
    35,988151,183
    
    
    
    101,042
    
    
    
    100,509
    
    
    
    107,570
    
    
    
    147,327
    
    
    
    371,927
    
    
    
    979,558Cash aircraft rental payments (10)
    
    
    343,554
    
    
    
    318,668
    
    
    
    300,247
    
    
    
    249,000
    
    
    
    223,894
    
    
    
    1,668,015
    
    
    
    3,103,378Lease payments on equipment and
facility operating leases (11)
    
    
    18,117
    
    
    
    16,744
    
    
    
    14,645
    
    
    
    15,017
    
    
    
    14,180
    
    
    
    51,919
    
    
    
    130,622Capital lease obligations
    
    
    4,659
    
    
    
    4,988
    
    
    
    1,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,420Special facility revenue bonds (12)
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,362
    
    
    
    1,362
    
    
    
    2,044
    
    
    
    36,106
    
    
    
    43,600Aircraft purchase commitments (13)
    
    
    272,820
    
    
    
    456,891
    
    
    
    47,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    777,408Engine maintenance commitments (14)
    
    
    12,000
    
    
    
    6,000
    
    
    
    3,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    22,000Total
    
    $
    803,696
    
    
    $
    905,696
    
    
    $
    469,233
    
    
    $
    373,949
    
    
    $
    387,445
    
    
    $
    2,127,967
    
    
    $
    5,067,986
  (1)
    Includes approximately $39.5 million of equipment notes with variable interest
rates of 2.88% to 3.37%, averaging 2.96% at December 31, 2004, installments due 2005 through
2008.(2)
    The amount consists of two the Spare Parts Facility and the Engine Facility with a
variable interest rate of 6.41% at December 31, 2004. See GECC Term Loan Financing
above.(3)
    Includes $90.7 million principal amount of 7.5% convertible senior notes, due
2009, and $21.6 million of interest paid in kind of issuance through December 31, 2004. For
financial reporting purposes, we initially recorded the convertible senior notes at their
fair market value on the date of issuance. As of December 31, 2004, the accreted balance of
the convertible senior notes in the accompanying consolidated balance sheet is approximately
$68.5 million.(4)
    Includes $252.7 million principal amount of 7.25% senior exchangeable notes due
July 2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal
amount at maturity. Thereafter, the notes will cease bearing cash interest and begin
accruing original issue discount at a rate of 7.25% until maturity. The aggregate amount
due at maturity, including accrued original issue discount from July 31, 2008, will be
$252.7 million.(5)
    Government guaranteed loan includes $343.2 million with a variable interest rate
of 2.38% at December 31, 2004 and ratable principal payments due 2005 through 2008.
Guarantee fees of approximately 8.0% of the outstanding guaranteed principal balance in 2005
through 2008 are payable to the U.S. Treasury Department and other loan participants.(6)
    Includes Arizona State loan of $0.8 million due December 2007 with a variable
interest rate of 5.97% at December 31, 2004. 35




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##### Table of Contents



(7)
    Includes $29.3 million of 6.3% industrial development bonds due April 2023.(8)
    Includes AVSA promissory notes of $15.8 million due 2005 with a variable interest
rate of 3.61% at December 31, 2004.(9)
    Includes $36.0 million of senior secured discount notes due 2009 with a variable
interest rate of 6.42% at December 31, 2004.(10)
    Includes non-cancelable operating leases for 136 aircraft with remaining terms
ranging from five months to approximately 19 years. Management estimates the debt
equivalent value of these operating leases approximates $1.9 billion using an interest rate
of 10%.(11)
    Includes leases for terminal space, ground facilities, the flight training center
and computer and other equipment under non-cancelable operating leases.(12)
    Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.(13)
    Includes commitments to purchase a total of 20 Airbus aircraft and seven spare
engines for delivery in 2005 through 2007.(14)
    Includes minimum commitments under AWAs rate per engine hour agreement with
General Electric Engine Services for overhaul maintenance services on CFM56-3B engines
through April 2008. Minimum monthly commitment amounts: for the period through and
including April 2006  $1.0 million, for the period May 2006 through and including April
2008  $250,000. These amounts reflect the termination agreement signed by AWA in late
December 2004 which eliminates the V2500-A1 engines from the program. We expect to fund these cash obligations from funds provided by operations 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, an economic
downturn or general global instability caused by military actions, terrorism, disease outbreaks and
natural disasters could reduce the demand for air travel, which would reduce the amount of cash
generated by operations. An increase in our costs, either due to an increase in borrowing costs
caused by a reduction in our credit rating or a general increase in interest rates or due to an
increase in the cost of fuel, maintenance, aircraft and aircraft engines and parts, 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 and we may be required to prepay portions of the term loan to the extent the
value of the collateral securing the term loan decreases. 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, the government guaranteed loan contains 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, 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, 2005. 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, or
make other restricted payments. Finally, our long-term debt agreements contain cross-default
provisions, which may be triggered by defaults by us under other agreements relating to
indebtedness. See Risk Factors Relating to the Company and Industry Related Risks  Our high
level of fixed obligations limits our ability to fund general corporate requirements and obtain
additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions.As of December 31, 2004,
Holdings and AWA were in compliance with the covenants in their long-term debt agreements. Our credit ratings are relatively low, with Moodys assessment of AWAs senior implied rating
and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poors assessment of
AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC and
Fitch Ratings assessment of AWAs long-term and unsecured debt rating at CCC. In addition,
Standard & Poors recently placed AWAs aircraft debt on CreditWatch with negative implications as
part of a broader review of aircraft-backed debt. Low credit ratings could cause our borrowing
costs to increase, which would increase our interest expense and could affect our net income and
our credit ratings could adversely affect our ability to obtain additional financing. The rating
agencies 36




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base their ratings on our financial performance and operations, our cash flow and liquidity,
the level of our indebtedness 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. In addition, any
downgrade of our credit ratings may indicate a decline in our business and in our ability to
satisfy our obligations under our indebtedness. See Risk Factors Relating to the Company 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 A large majority of the employees of the major airlines in the United States are represented
by labor unions. The majority of AWA employees have selected union representation and/or
negotiated collective bargaining agreements with AWA. Although there are few remaining employee
groups who could engage in organization efforts, we cannot predict the outcome of any future
efforts to organize those remaining 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 the Company 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. Income Taxes At December 31, 2004, the Company had net operating loss carryforwards (NOLs) and tax credit
carryforwards for federal income tax purposes of approximately $451.4 million and $1.1 million,
respectively. The NOLs expire during the years 2007 through 2024 while approximately $0.2 million
of the tax credit carryforwards will expire in 2005 and 2006. The Company also had capital loss
carryforwards for federal income tax purposes of approximately $1.4 million which expire in 2009.
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 NOLs and business tax
credit carryforwards may be restricted. 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%. Government Regulations On November 19, 2001, the President signed into law the ATSA. This law enhances aviation
security measures and federalizes many aspects of civil aviation security. The ATSA established a
new Transportation Security Administration, now within the Department of Homeland Security. Under
the ATSA, substantially 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 required 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 resulted 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 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. In 2004 and
2003, the Companys cost of compliance with the security requirements of the ATSA was approximately
$14.4 million and $13.2 million, respectively. The estimated cost to the Company of compliance
with the security requirements of the ATSA for 2005 is approximately $17.0 million under current
law. Under the proposed White House budget released February 7, 2005, this ticket tax for security
fees would increase from $2.50 per leg to $5.50 with a cap of $8.00 one-way trip with multiple legs
and $16.00 for a round trip. This budget proposal is subject to approval of Congress. As a result
of competitive pressure, AWA and other airlines may be unable to recover all of these additional
security costs from 37




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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
FAA. Included in the 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 increased to $3.00 in 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. 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 that 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 the Company 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 $13.4 million, $17.3 million and
$25.5 million and also received approximately $4.1 million, $5.0 million and $15.9 million in 2004
and 2003 and 2002, respectively, from Continental pursuant to these agreements. Texas Pacific Group agreed to reimburse the Company approximately $2.5 million for expenses
incurred by the Company on its behalf. As a result, the Company recorded this as a receivable as
of December 31, 2004. Subsequent to December 31, 2004, the Company received $1.3 million in such
reimbursement and expects to receive an additional $1.2 million in 2005. Application of 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 25 years. The estimated useful lives of our technical support
facility and flight training center in Phoenix, Arizona are 38




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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 AWAs fleet
plan could have a material impact on our reserve requirements.
    Deferred Tax Asset Valuation Allowance  The Company initially recorded a full
valuation allowance relating to its net deferred tax assets at December 31, 2001 and to tax
benefits generated in 2002. In recording that valuation allowance, we considered whether it
was more likely than not that all or a portion of the deferred tax assets will not be
realized, in accordance with SFAS No. 109, Accounting for Income Taxes.The Company was
in a cumulative loss position three out of four years between December 31, 2001 through
December 31, 2004, which weighed heavily in the overall determination that a valuation
allowance was needed. As of December 31, 2004, the Company had recorded a valuation
allowance of $129.0 million against its net deferred tax assets. The Company expects to
continue to record a full valuation allowance on any future tax benefits until we have
achieved several quarters of consecutive profitable results coupled with an expectation of
continued profitability. Recently Issued Accounting Pronouncements In November 2004, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on
EITF 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share,
which requires that issuers of convertible securities with contingent conversion features use the
if-converted method to calculate reported earnings per share (EPS) irrespective of the
contingent conversion trigger being met. As approved by the FASB, this change is effective for
years ending after December 15, 2004. The Company applied this methodology in the accompanying
consolidated statement of operations. The impact of using the if-converted method for the
Companys 7.25% Notes is antidilutive for the years ended December 31, 2004 and 2002. For the year
ended December 31, 2003, the inclusion of the 7.25% Notes reduced diluted EPS by $0.03 from $1.29
to $1.26. In November 2004, the FASB issued Revised Statement No. 123, Accounting for Share-Based
Payment(SFAS No. 123R). This statement requires the Company to recognize the grant-date fair
value of stock options in the Statement of Operations. In addition, the Company will be required
to calculate this compensation using the fair-value based method, versus the intrinsic value method
previously allowed under SFAS No. 123. This revision is effective for periods beginning after June
15, 2005. Accordingly, the Company will adopt this revised SFAS effective July 1, 2005. The
Company is currently evaluating how it will adopt SFAS No. 123R and has not determined the method
it will use to value granted stock options. The adoption of SFAS No. 123R is expected to have a
material effect on the Companys results of operations. See Note 1, Summary of Significant
Accounting Policies(m) Stock Optionsfor the Companys disclosure of the impact of the
compensation cost associated with stock options under SFAS No. 123. 39




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Sensitive Instruments (a) Commodity Price Risk Aircraft jet fuel costs accounted for approximately 23% of the Companys total operating
expenses during 2004. 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 2005 by approximately $5.7 million
which includes Mesa. 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, 2004, the Company had entered into costless collar transactions that
establish an upper and lower limit on heating oil futures prices and basis swap transactions that
establish the spread between heating oil and jet fuel. These transactions are in place with
respect to approximately 42% of projected 2005 fuel requirements, including 67% related to the
first quarter of 2005, 46% related to the second quarter, 36% related to the third quarter and 20%
for the fourth quarter. See Risk Factors Relating to the Company and Industry Related Risks -
Fluctuations in jet 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,
2004, the Company estimates that a 10% increase in heating oil futures prices would increase the
fair value of the costless collar transactions by approximately $7.5 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 $9.6 million. As of March 14, 2005, approximately 45% and 2% of AWAs remaining 2005 and 2006, respectively,
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, 2004, the Companys variable-rate long-term debt obligations of
approximately $545.7 million represented approximately 69.4% of its total long-term debt. If
interest rates increased 10% in 2004, 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, 2004 and 2003, and the related
consolidated statements of operations, cash flows and stockholders equity and comprehensive income
for each of the years in the three-year period ended December 31, 2004, together with the related
notes and the reports of KPMG LLP, and PricewaterhouseCoopers LLP, independent registered public
accounting firms, are set forth on the following pages. 40




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
America West Holdings Corporation: We have audited the accompanying consolidated balance sheets of America West Holdings Corporation
and subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of
operations, cash flows and stockholders equity and comprehensive income for the years then ended.
These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of America West Holdings Corporation and subsidiary as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for the years
then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of America West Holdings Corporations internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 11, 2005, expressed an unqualified opinion on
managements assessment of,and an adverse opinion on the effective operation of, internal control
over financial reporting. As discussed in Note 2 to the accompanying consolidated financial statements, the Company has
restated the consolidated balance sheet as of December 31, 2003 and the consolidated statement of
changes in stockholders equity and comprehensive income for the year then ended. As discussed in
Note 13 to the accompanying consolidated financial statements, the Company restated its dilutive
earnings per share for the year ended December 31, 2003 in connection with the adoption of Emerging
Issue Task Force 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 41




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
of America West Holdings Corporation: In our opinion, the accompanying consolidated statements of operations, of cash flows and of
stockholders equity and comprehensive income for the year ended December 31, 2002 present fairly,
in all material respects, the results of operations and cash flows of America West Holdings
Corporation and its subsidiaries for the year ended December 31, 2002, 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 audit. We conducted our audit of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. As discussed in Note 1(k) 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 42




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Balance Sheets
December 31, 2004 and 2003
(in thousands except share data) 2004
    
    
    2003(as restated-SeeNote 2)AssetsCurrent assets:Cash and cash equivalents
    
    $
    149,091
    
    
    $
    153,357Short-term investments
    
    
    126,651
    
    
    
    322,615Restricted cash
    
    
    41,264
    
    
    
    42,900Accounts receivable, less allowance for doubtful accounts of
$1,487 in 2004 and $5,807 in 2003
    
    
    108,837
    
    
    
    77,235Expendable spare parts and supplies, less allowance for obsolescence
of $14,759 in 2004 and $12,254 in 2003
    
    
    57,563
    
    
    
    58,575Prepaid expenses
    
    
    141,571
    
    
    
    129,368Total current assets
    
    
    624,977
    
    
    
    784,050Property and equipment:Flight equipment
    
    
    926,930
    
    
    
    858,395Other property and equipment
    
    
    290,897
    
    
    
    273,284Equipment purchase deposits
    
    
    63,450
    
    
    
    46,0501,281,277
    
    
    
    1,177,729Less accumulated depreciation and amortization
    
    
    624,742
    
    
    
    570,017656,535
    
    
    
    607,712Other assets:Investments in debt securities
    
    
    30,000
    
    
    
    40,740Restricted cash
    
    
    72,091
    
    
    
    69,876Other assets, net
    
    
    91,661
    
    
    
    112,007193,752
    
    
    
    222,623$
    1,475,264
    
    
    $
    1,614,385Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    151,183
    
    
    $
    103,899Current obligations under capital leases
    
    
    3,475
    
    
    
    3,442Accounts payable
    
    
    173,887
    
    
    
    210,288Air traffic liability
    
    
    194,718
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    42,699
    
    
    
    61,045Accrued taxes
    
    
    32,796
    
    
    
    36,846Other accrued liabilities
    
    
    65,958
    
    
    
    59,277Total current liabilities
    
    
    664,716
    
    
    
    649,283Long-term debt, less current maturities
    
    
    635,129
    
    
    
    688,965Capital leases, less current obligations
    
    
    5,061
    
    
    
    8,467Deferred credits and other liabilities
    
    
    133,911
    
    
    
    141,681Commitments and contingencies (see Note 6)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 859,117 shares at December 31, 2004 and 2003
    
    
    8
    
    
    
    8Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued
and outstanding 51,564,865 shares in 2004 and 51,239,200 shares in 2003
    
    
    516
    
    
    
    512Additional paid-in capital
    
    
    632,446
    
    
    
    631,269Accumulated deficit
    
    
    (288,617
    )
    
    
    (199,594
    )Less: Cost of Class B common stock in treasury, 16,437,575 shares in 2004 and
16,283,895 shares in 2003
    
    
    (307,906
    )
    
    
    (306,206
    )Total stockholders equity
    
    
    36,447
    
    
    
    125,989$
    1,475,264
    
    
    $
    1,614,385
 See accompanying notes to consolidated financial statements. 43




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AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands except per share data) 2004
    
    
    2003
    
    
    2002Operating revenues:Passenger
    
    $
    2,196,627
    
    
    $
    2,113,629
    
    
    $
    1,929,444Cargo
    
    
    28,233
    
    
    
    26,914
    
    
    
    27,574Other
    
    
    114,097
    
    
    
    113,954
    
    
    
    90,098Total operating revenues
    
    
    2,338,957
    
    
    
    2,254,497
    
    
    
    2,047,116Operating expenses:Salaries and related costs
    
    
    656,462
    
    
    
    660,299
    
    
    
    603,657Aircraft rents
    
    
    304,343
    
    
    
    297,518
    
    
    
    295,016Other rents and landing fees
    
    
    167,772
    
    
    
    154,598
    
    
    
    158,290Aircraft fuel
    
    
    557,098
    
    
    
    375,996
    
    
    
    299,284Agency commissions
    
    
    25,191
    
    
    
    34,457
    
    
    
    49,953Aircraft maintenance materials and repairs
    
    
    205,580
    
    
    
    223,266
    
    
    
    252,691Depreciation and amortization
    
    
    54,354
    
    
    
    66,865
    
    
    
    75,201Special charges (credits), net
    
    
    (15,432
    )
    
    
    14,370
    
    
    
    19,030Other
    
    
    427,360
    
    
    
    404,993
    
    
    
    453,418Total operating expenses
    
    
    2,382,728
    
    
    
    2,232,362
    
    
    
    2,206,540Operating income (loss)
    
    
    (43,771
    )
    
    
    22,135
    
    
    
    (159,424
    )Nonoperating income (expenses):Interest income
    
    
    7,597
    
    
    
    6,262
    
    
    
    10,549Interest expense, net
    
    
    (79,608
    )
    
    
    (79,665
    )
    
    
    (72,442
    )Federal government assistance
    
    
    
    
    
    
    81,255
    
    
    
    8,466Gain (loss) on disposition of property and equipment
    
    
    1,460
    
    
    
    151
    
    
    
    (1,852
    )Gain on sale of investments
    
    
    
    
    
    
    10,110
    
    
    
    Gain (loss) on derivative instruments, net
    
    
    23,782
    
    
    
    10,746
    
    
    
    (656
    )Other, net
    
    
    1,547
    
    
    
    6,540
    
    
    
    602Total nonoperating income (expenses), net
    
    
    (45,222
    )
    
    
    35,399
    
    
    
    (55,333
    )Income (loss) before income taxes (benefit) and cumulative effect
of change in accounting principle
    
    
    (88,993
    )
    
    
    57,534
    
    
    
    (214,757
    )Income tax expense (benefit)
    
    
    30
    
    
    
    114
    
    
    
    (35,071
    )Income (loss) before cumulative effect of change in
accounting principle
    
    
    (89,023
    )
    
    
    57,420
    
    
    
    (179,686
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (208,223
    )Net income (loss)
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    $
    (387,909
    )Basic earnings (loss) per share:Earnings (loss) before cumulative effect of change in
accounting principle
    
    $
    (2.47
    )
    
    $
    1.66
    
    
    $
    (5.33
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (6.17
    )Basic earnings (loss) per share
    
    $
    (2.47
    )
    
    $
    1.66
    
    
    $
    (11.50
    )Diluted earnings (loss) per share:Earnings (loss) before cumulative effect of change in
accounting principle
    
    $
    (2.47
    )
    
    $
    1.26
    
    
    $
    (5.33
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (6.17
    )Diluted earnings (loss) per share
    
    $
    (2.47
    )
    
    $
    1.26
    
    
    $
    (11.50
    )Shares used for computation:Basic
    
    
    36,026
    
    
    
    34,551
    
    
    
    33,723Diluted
    
    
    36,026
    
    
    
    56,113
    
    
    
    33,723
 See accompanying notes to consolidated financial statements. 44




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AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    
    (387,909
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    54,354
    
    
    
    66,865
    
    
    
    75,894Amortization of capitalized maintenance
    
    
    85,590
    
    
    
    105,076
    
    
    
    111,576Amortization of deferred credits
    
    
    (8,208
    )
    
    
    (10,970
    )
    
    
    (10,077
    )Amortization of deferred rent
    
    
    6,189
    
    
    
    9,514
    
    
    
    11,452Amortization of warrants
    
    
    7,155
    
    
    
    8,100
    
    
    
    7,708Amortization of debt issue costs and guarantee fees
    
    
    35,752
    
    
    
    35,977
    
    
    
    24,978Amortization of bond discount
    
    
    3,826
    
    
    
    3,366
    
    
    
    2,894Amortization of investment discount and premium, net
    
    
    1,435
    
    
    
    899
    
    
    
    Special charges, net
    
    
    (15,432
    )
    
    
    14,370
    
    
    
    19,055Gain on sale of investment
    
    
    
    
    
    
    (3,287
    )
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    208,223Other
    
    
    28,374
    
    
    
    7,770
    
    
    
    16,746Changes in operating assets and liabilities:Decrease (increase) in restricted cash
    
    
    1,636
    
    
    
    (42,900
    )
    
    
    Decrease (increase) in accounts receivable, net
    
    
    (13,337
    )
    
    
    (5,408
    )
    
    
    21,445Decrease (increase) in expendable spare parts and supplies, net
    
    
    1,012
    
    
    
    (2,681
    )
    
    
    (4,061
    )Increase in prepaid expenses
    
    
    (49,286
    )
    
    
    (45,932
    )
    
    
    (64,726
    )Decrease (increase) in other assets, net
    
    
    82
    
    
    
    183
    
    
    
    5,634Increase (decrease) in accounts payable
    
    
    (35,417
    )
    
    
    17,945
    
    
    
    (71,488
    )Increase (decrease) in air traffic liability
    
    
    20,232
    
    
    
    4,395
    
    
    
    (6,894
    )Increase (decrease) in accrued compensation and vacation benefits
    
    
    (18,347
    )
    
    
    19,796
    
    
    
    (3,050
    )Increase (decrease) in accrued taxes
    
    
    (4,050
    )
    
    
    1,687
    
    
    
    (24,647
    )Increase (decrease) in other accrued liabilities
    
    
    6,938
    
    
    
    (1,689
    )
    
    
    28,348Increase in other liabilities
    
    
    1,299
    
    
    
    1,294
    
    
    
    16,022Net cash provided by (used in) operating activities
    
    
    20,774
    
    
    
    241,790
    
    
    
    (22,877
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (219,383
    )
    
    
    (154,365
    )
    
    
    (157,202
    )Sale of property and equipment
    
    
    74
    
    
    
    
    
    
    
    Purchases of short-term investments
    
    
    (487,505
    )
    
    
    (633,711
    )
    
    
    (69,987
    )Sales of short-term investments
    
    
    707,774
    
    
    
    364,332
    
    
    
    45,249Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    (80,436
    )
    
    
    Sales of investments in debt securities
    
    
    20,000
    
    
    
    10,300
    
    
    
    Decrease (increase) in restricted cash
    
    
    (2,215
    )
    
    
    (23,908
    )
    
    
    Proceeds from sales of aircraft
    
    
    
    
    
    
    
    
    
    
    175,478Proceeds from sales of other property and equipment
    
    
    32,372
    
    
    
    25,826
    
    
    
    122Proceeds from sale of NLG investment
    
    
    
    
    
    
    348
    
    
    
    Net cash provided by (used in) investing activities
    
    
    16,117
    
    
    
    (491,614
    )
    
    
    (6,340
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    141,354
    
    
    
    86,828
    
    
    
    435,386Repayment of debt
    
    
    (175,640
    )
    
    
    (16,832
    )
    
    
    (192,596
    )Payment of debt issue costs
    
    
    (1,152
    )
    
    
    (3,236
    )
    
    
    (36,987
    )Other
    
    
    (5,719
    )
    
    
    671
    
    
    
    2,299Net cash provided by (used in) financing activities
    
    
    (41,157
    )
    
    
    67,431
    
    
    
    208,102Net increase (decrease) in cash and cash equivalents
    
    
    (4,266
    )
    
    
    (182,393
    )
    
    
    178,885Cash and cash equivalents at beginning of year
    
    
    153,357
    
    
    
    335,750
    
    
    
    156,865Cash and cash equivalents at end of year
    
    $
    149,091
    
    
    $
    153,357
    
    
    $
    335,750
 See accompanying notes to consolidated financial statements. 45




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Stockholders Equity and Comprehensive Income
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands except share data) ACCUMULATEDCLASS A
    
    
    CLASS B
    
    
    ADDITIONAL
    
    
    RETAINED
    
    
    OTHER
    
    
    CLASS BCOMMON
    
    
    COMMON
    
    
    PAID-IN
    
    
    EARNINGS/
    
    
    COMPREHENSIVE
    
    
    TREASURYSTOCK
    
    
    STOCK
    
    
    CAPITAL
    
    
    (DEFICIT)
    
    
    INCOME
    
    
    STOCK
    
    
    TOTALBalance at December 31, 2001
    
    $
    9
    
    
    $
    491
    
    
    $
    593,784
    
    
    $
    130,895
    
    
    $
    1,390
    
    
    $
    (306,206
    )
    
    $
    420,363Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (387,909
    )
    
    
    
    
    
    
    
    
    
    
    (387,909
    )Other comprehensive income (loss):Changes in the fair value of
derivative financial instruments,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    
    
    
    
    640Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (387,909
    )
    
    
    640
    
    
    
    
    
    
    
    (387,269
    )Issuance of warrants to purchase
Class B common stock
    
    
    
    
    
    
    
    
    
    
    35,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,384Cancellation 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
    )
    
    
    68,178Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,420
    
    
    
    
    
    
    
    
    
    
    
    57,420Correction of other comprehensive
income (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,030
    )
    
    
    
    
    
    
    (2,030
    )Conversion of 82,314 shares of Class
A
common stock to Class B common
stock
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 1,653,908 shares of
Class B
common stock pursuant to the
exercise of stock warrants
    
    
    
    
    
    
    17
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 451,525 shares of Class B
common stock pursuant to the
exercise of stock options
    
    
    
    
    
    
    3
    
    
    
    2,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,465Cancellation of 3,727 shares of
Class B
common stock issued as restricted
stock
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44
    )Balance at December 31, 2003, as
restated
    
    
    8
    
    
    
    512
    
    
    
    631,269
    
    
    
    (199,594
    )
    
    
    
    
    
    
    (306,206
    )
    
    
    125,989Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89,023
    )
    
    
    
    
    
    
    
    
    
    
    (89,023
    )Other comprehensive loss:Acquisition of 153,680 shares of
Class B treasury stock due to
default on loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,700
    )
    
    
    (1,700
    )Issuance of 151,321 shares of Class B
common stock pursuant to the
exercise of stock warrants
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Issuance of 174,344 shares of Class B
common stock pursuant to the
exercise of stock options
    
    
    
    
    
    
    2
    
    
    
    633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    635Accelerated vesting
    
    
    
    
    
    
    
    
    
    
    544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544Balance at December 31, 2004
    
    $
    8
    
    
    $
    516
    
    
    $
    632,446
    
    
    $
    (288,617
    )
    
    $
    
    
    
    $
    (307,906
    )
    
    $
    36,447
   (a)
    
    Correction of Other Comprehensive Income  See Note 2, Restatement of Previously
Reported Amounts See accompanying notes to consolidated financial statements. 46




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002 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 2004. Based on 2004 operating revenues and
available seat miles (ASMs), 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 2004, AWA
operated a fleet of 138 aircraft with an average fleet age of 10.7 years and served 63 destinations
in North America, including eight in Mexico, three in Canada and one in Costa Rica. Through
regional alliance and code share arrangements with other airlines, AWA served an additional 51
destinations in North America and the Middle East as of December 31, 2004. In 2004, AWA flew
approximately 21.1 million passengers and generated revenues of approximately $2.3 billion. Prior
to 2004, Holdings owned 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, Mexico and Costa Rica. As
of January 1, 2004, TLC has been merged into AWA and continues to operate as the America West
Vacations division of AWA. 1. Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of Holdings and its wholly owned
subsidiary AWA, which includes its wholly owned subsidiary Flight Training Center Hangar Plan. 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 that approximates
fair value. The Company reclassified investments in auction rate securities previously classified as cash
equivalents to short-term investments on the accompanying consolidated balance sheets. Investments
reclassified in 2004 and 2003 were $58.4 million and $249.7 million, respectively. (c) Expendable Spare Parts and Supplies Flight equipment expendable spare parts and supplies are valued at average cost. An allowance
for obsolescence is provided, over the estimated useful life of the related aircraft and engines,
for spare parts expected to be on hand at the date the aircraft are retired from service. (d) Property and Equipment Property and equipment are recorded at cost. Interest capitalized on advance payments for
aircraft acquisitions and on expenditures for aircraft improvements are part of these costs.
Interest capitalized for the years ended December 31, 2004, 2003 and 2002, was $2.2 million, $1.6
million and $3.0 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 30 years for the flight training facility. The
estimated useful lives of the Companys owned aircraft, jet engines, flight equipment and rotable
parts range from five to 25 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. 47




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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 deposits held by institutions that process credit card sales transactions. Current restricted
cash includes amounts set aside in an irrevocable trust for the redemption of the 10 3/4% senior
unsecured notes that was subsequently paid on January 26, 2005. (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. In the first quarter of 2004, the Company revised the estimated useful life for certain
aircraft and related spare parts inventory as a result of changes in AWAs fleet plan and for
capitalized maintenance on certain of its engines as a result of changes in aircraft utilization.
The net impact of this change in estimate decreased the net loss for 2004 by approximately $18.4
million or $0.51 per basic and diluted share. 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 also been recorded. These
estimates are based on historical costs and our assumptions regarding the renewal of aircraft
leases. (g) Derivative Instruments AWAs fuel hedging contracts do not qualify as cash flow hedges under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS
No. 133). See Note 2, Restatement of Previously Reported Amounts.Accordingly, the derivative
hedging instruments are recorded as an asset or liability on the balance sheet at fair value and
the changes in the fair values are recorded in Gain (Loss) on Derivative Instruments, Net in the
accompanying consolidated statements of operations. See Note 12, Nonoperating Income (Expenses) 
Other, Net. (h) Frequent Flyer Awards The Company maintains a frequent travel award program known as FlightFund that provides a
variety of awards to program members based on accumulated mileage. The estimated cost of providing
the free travel, using the incremental cost method as adjusted for estimated redemption rates, is
recognized as a liability and charged to operations as program members accumulate mileage. The Company also sells mileage credits to companies participating in its 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. (i) 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, 2004 and 2003, the unamortized balance of the deferred credit was $38.3 million and
$44.6 million, respectively. 48




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED In January 2002, AWA closed a $429 million loan supported by a $380 million government loan
guarantee. 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 and will be amortized over the remaining lives of the
applicable leases as a reduction in rent expense. At December 31, 2004 and 2003, the unamortized
balance of the deferred credit was approximately $4.2 million and $7.8 million, respectively. (j) 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. 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) Reorganization
Value in Excess of Amounts Applicable to Identifiable Assets
(ERV) In
June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 412, 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 affective 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. (l) Advertising Costs The Company expenses the costs of advertising as incurred. Advertising expense for the years
ended December 31, 2004, 2003 and 2002 was $8.3 million, $9.0 million and $10.6 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 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, 2004, the Company had two stock-based employee compensation plans, which are
described more fully in Note 9, 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 Share-Based Payment,the
Companys net income (loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below: 2004
    
    
    2003
    
    
    2002(in thousands except per share data)Net income (loss), as reported
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    $
    (387,909
    )Stock-based compensation
expense,
net of income taxes
    
    
    (5,874
    )
    
    
    (4,320
    )
    
    
    (3,709
    )Pro forma net income (loss)
    
    $
    (94,897
    )
    
    $
    53,100
    
    
    $
    (391,618
    )Earnings (loss) per share:Basic - as reported
    
    $
    (2.47
    )
    
    $
    1.66
    
    
    $
    (11.50
    )Basic - pro forma
    
    $
    (2.63
    )
    
    $
    1.54
    
    
    $
    (11.61
    )Diluted - as reported
    
    $
    (2.47
    )
    
    $
    1.26
    
    
    $
    (11.50
    )Diluted  pro forma
    
    $
    (2.63
    )
    
    $
    1.19
    
    
    $
    (11.61
    )
 49




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (o) New Accounting Standards In November 2004, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on
EITF 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share,
which requires that issuers of convertible securities with contingent conversion features use the
if-converted method to calculate reported earnings per share (EPS) irrespective of the
contingent conversion trigger being met. As approved by the FASB, this change is effective for
years ending after December 15, 2004. The Company applied this methodology in the accompanying
consolidated statement of operations. The impact of using the if-converted method for the
Companys 7.25% Notes is antidilutive for the years ended December 31, 2004 and 2002. For the year
ended December 31, 2003, the inclusion of the 7.25% Notes reduced diluted EPS by $0.03 from $1.29
to $1.26. In November 2004, the FASB issued Revised Statement No. 123, Accounting for Share-Based
Payment(SFAS No. 123R). This statement requires the Company to recognize the grant-date fair
value of stock options in the Statement of Operations. In addition, the Company will be required
to calculate this compensation using the fair-value based method, versus the intrinsic value method
previously allowed under SFAS No. 123. This revision is effective for periods beginning after June
15, 2005. Accordingly, the Company will adopt this revised SFAS effective July 1, 2005. The
Company is currently evaluating how it will adopt SFAS No. 123R and has not determined the method
it will use to value granted stock options. The adoption of SFAS No. 123R is expected to have a
material effect on the Companys results of operations. See Note 1, Summary of Significant
Accounting Policies(m) Stock Optionsfor the Companys disclosure of the impact of the
compensation cost associated with stock options under SFAS No. 123. (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. (q) Reclassifications The Company reclassified amounts related to settled fuel hedge transactions and mark-to-market
adjustments on open hedge instruments from Aircraft Fuelexpense to Gain (Loss) on Derivative
Instruments, Netin the accompanying consolidated statement of operations. In fiscal years 2004
and 2003, such amounts reduced fuel expense while in fiscal years 2002 and 2001, such amounts
increased fuel expense, as originally classified. The amounts reclassified are as follows: Fiscal Year
    
    Amounts Reclassified(in thousands)2004
    
    $
    30,5292003
    
    
    10,7462002
    
    
    (656
    )
 2. Restatement of Previously Reported Amounts Derivative Instruments In
February 2005, management undertook a review of the Companys
accounting for its fuel hedging transactions. As a result of this
review, management concluded that the Companys fuel hedging
transactions did not qualify for hedge accounting under U.S.
generally accepted accounting principles. Accordingly, management
concluded that the financial statements for prior periods required
restatement to reflect the fair value of fuel hedging contracts in
the balance sheets and statements of stockholders equity and
comprehensive income of Holdings and AWA. Specifically,
(i) Holdings has restated its balance sheet and statement of
stockholders equity and comprehensive income as of and for the
year ended December 31, 2003, and (ii) AWA has restated its
balance sheet and statement of stockholders equity and
comprehensive income as of and for the year ended December 31,
2003, and (iii) Holdings and AWA have restated their 2004 and
2003 interim financial results to correct the aforementioned
accounting errors. The unaudited interim results as originally
reported and as restated are presented in Note 16,
Quarterly Financial Data (Unaudited). The Company
restated its 2003 consolidated balance sheet to reduce the carrying
value of its derivative instruments asset by $12.5 million,
which served to record the asset at fair value of open contracts as
of December 31, 2003. The restatement also eliminated
$12.5 million in accumulated other comprehensive income,
$2.0 million of which was previously recorded in the 2003
beginning balance of accumulated other comprehensive income. The
restated amount of other assets is $112 million in the
accompanying 2003 consolidated balance sheet. The restatement
eliminates the balance in accumulated other comprehensive income in
the accompanying 2003 consolidated balance sheet and consolidated
statement of stockholders equity and comprehensive income. 50




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 3. Investments in Debt Securities Cash equivalents and short-term investments as of December 31 are classified as follows: 2004
    
    
    2003(in thousands)Cash and cash equivalents:Corporate notes
    
    $
    
    
    
    $
    4,206Cash and money market funds
    
    
    147,586
    
    
    
    147,647U.S. government securities
    
    
    1,505
    
    
    
    1,504Total cash and cash equivalents
    
    $
    149,091
    
    
    $
    153,357Short-term investments:Corporate notes
    
    $
    126,651
    
    
    $
    318,845U.S. government securities
    
    
    
    
    
    
    3,770Total short-term investments
    
    
    126,651
    
    
    
    322,615Total cash equivalents and short-term investments
    
    $
    275,742
    
    
    $
    475,972
 In addition, the Company had long-term investments in debt securities of $30.0 million
and $40.7 million as of December 31, 2004 and 2003, respectively. Long-term investments consist of
cash invested in certain debt securities with maturities greater than one year. The debt
securities are classified as held to maturity and are carried at amortized cost that approximates
fair value. 4. 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 In May 2000, Holdings completed the sale of a majority interest in The Leisure Company,
(TLC), currently operating as a division in AWA as America West Vacations, 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 was carried on the Companys
consolidated balance sheet at cost, which approximated $7.7 million at December 31, 2002. In the
fourth quarter of 2003, Holdings completed the sale of its 12% interest in National Leisure Group
to PAR Capital. PAR Capital owned $10.45 million face value of
the Companys 10 3/4% senior
unsecured notes. PAR Capital purchased the Companys investment in National Leisure Group in
exchange for the $10.45 million face value of the 10 3/4% notes plus $0.3 million in cash. This
resulted in a $3.3 million nonoperating gain. See Note 12, Nonoperating Income (Expenses) 
Other, Net. 51




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Long-term Debt At December 31, 2004 and 2003, the fair value of long-term debt was approximately $721.5
million and $845.6 million, respectively. The Companys variable rate long-term debt with a
carrying value of $545.7 million and $555.9 million at December 31, 2004 and 2003, 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. (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, 2004,
the Company had entered into costless collar and basis swap transactions hedging approximately 42%
of its projected 2005 fuel requirements. The fair value of the Companys financial derivative
instruments was a net asset of approximately $0.2 million and $2.7 million at December 31, 2004
and 2003, respectively. See Note 2, Restatement of Previously Reported Amounts. 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. 5. Long-Term Debt Long-term debt at December 31, 2004 and 2003 consists of the following: 2004
    
    
    2003(in thousands)SecuredEquipment notes payable, variable interest rates of 2.88% to 3.37%, averaging
2.96%, installments due 2005 through 2008
    
    $
    39,464
    
    
    $
    48,454GECC term loan, variable interest rate of 6.41%, quarterly installments beginning
2006 through 2010 (a)
    
    
    110,564
    
    
    
    Term loan, variable interest rate, paid off September 2004 (a)
    
    
    
    
    
    
    74,775Senior secured discount notes, variable interest rate of 6.42%, installments
due 2005 through 2009 (b)
    
    
    35,988
    
    
    
    186,016
    
    
    
    123,229UnsecuredGovernment guaranteed loan, variable interest rate of 2.38%, installments due
2005 through 2008 (c)
    
    
    343,200
    
    
    
    429,00010 3/4% senior unsecured notes, interest only payments until due in 2005 (d)
    
    
    39,548
    
    
    
    39,5487.5% convertible senior notes, interest only payments until due in 2009 (e)
    
    
    112,299
    
    
    
    104,3287.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter (f)
    
    
    252,695
    
    
    
    252,695Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
3.61%, installments due through 2005
    
    
    15,750
    
    
    
    5,250Industrial development bonds, fixed interest rate of 6.3% due 2023 (g)
    
    
    29,300
    
    
    
    29,300State loan, variable interest rate of 5.97%, installments due 2005 through 2007
    
    
    750
    
    
    
    1,500793,542
    
    
    
    861,621Total long-term debt
    
    
    979,558
    
    
    
    984,850Less: Unamortized discount on debt
    
    
    (193,246
    )
    
    
    (191,986
    )Current maturities
    
    
    (151,183
    )
    
    
    (103,899
    )$
    635,129
    
    
    $
    688,965
 52




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  (a)
    On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $110.6 million. AWA used
approximately $77.0 million of the proceeds from this financing to repay in full
its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to
pay certain costs associated with this transaction. AWA used the remaining
proceeds for general corporate purposes. The new term loan financing consists of
two secured term loan facilities: a $75.6 million term loan facility secured
primarily by spare parts, rotables and appliances (the Spare Parts Facility);
and a $35.0 million term loan facility secured primarily by aircraft engines and
parts installed in such engines (the Engine Facility).The facilities are cross-collateralized on a subordinated basis and the collateral
securing the facilities also secures on a subordinated basis certain of AWAs other
existing debt and lease obligations to GECC and its affiliates.The loans under the Spare Parts Facility are payable in full at maturity on
September 10, 2010. The loans under the Engine Facility are payable in equal
quarterly installments of $1.3 million beginning on March 10, 2006 through June 10,
2010 with the remaining loan amount of $11.8 million payable at maturity on
September 10, 2010. The loans under each facility may be prepaid in an amount not
less than $5 million at any time after the 30th monthly anniversary of the funding
date under such facility. If AWA fails to maintain a certain ratio of rotables to
loans under the Spare Parts Facility, it may be required to pledge additional
rotables or cash as collateral, provide a letter of credit or prepay some or all of
the loans under the Spare Parts Facility. In addition, the loans under the Engine
Facility are subject to mandatory prepayment upon the occurrence of certain events
of loss applicable to, or certain dispositions of, aircraft engines securing the
facility.Principal amounts outstanding under the loans bear interest at a rate per annum
based on three-month LIBOR plus a margin. Both facilities contain customary events
of default, including payment defaults, cross-defaults, breach of covenants,
bankruptcy and insolvency defaults and judgment defaults.(b)
    On December 27, 2004, AWA raised additional capital by financing its Phoenix
maintenance facility and flight training center. The flight training center was
previously unencumbered, and the maintenance facility became unencumbered earlier
this year when AWA refinanced its term loan. Using its leasehold interest these
two facilities as collateral, AWA, through a wholly owned subsidiary named FTCHP
LLC, raised $30.8 million through the issuance of a senior secured discount notes.
The notes were issued by FTCHP at a discount pursuant to the terms of a senior
secured term loan agreement among the Company, FTCHP, Heritage Bank, SSB, as
administrative agent, Citibank, N.A., as the initial lender, and the other lenders
from time to time party thereto. Citibank, N.A. subsequently assigned all of its
interests in the notes to third party lenders.AWA has fully and unconditionally guaranteed the payment and performance of FTCHPs
obligations under the notes and the loan agreement. The notes require aggregate
principal payments of $36 million with principal payments of $1.5 million due on
each of the first two anniversary dates and the remaining principal amount due on
the fifth anniversary date. The notes may be prepaid in full at any time (subject
to customary LIBOR breakage costs) and in partial amounts of $1.5 million on the
third and fourth anniversary dates. The unpaid principal amount of the notes bears
interest based on LIBOR plus a margin subject to adjustment based on a loan to
collateral value ratio.The loan agreement contains customary covenants applicable to loans of this type,
including obligations relating to the preservation of the collateral and
restrictions on the activities of FTCHP. In addition, the loan agreement contains
events of default, including payment defaults, cross-defaults to other debt of
FTCHP, if any, breach of covenants, bankruptcy and insolvency defaults and judgment
defaults.In connection with this financing, AWA sold all of its leasehold interests in the
maintenance facility and flight training center to FTCHP and entered into subleases
for the facilities with FTCHP at lease rates expected to approximate the interest
payments due under the notes. In addition, AWA agreed to make future capital
contributions to FTCHP in amounts sufficient to cover principal payments and other
amounts owing pursuant to the notes and the loan agreement.The proceeds from this financing, together with $10.5 million from operating cash
flow, were irrevocably deposited with the trustee for AWAs 10 3/4% senior
unsecured notes due 2005 and subsequently redeemed on January 26, 2005.(c)
    In January 2002, AWA closed a $429 million loan backed by a $380 million
federal loan guarantee provided by the Air Transportation Stabilization Board (the
ATSB). Certain third-party counter-guarantors have fully and unconditionally
guaranteed the payment of an aggregate of $45 million of the outstanding principal
amount under the government guaranteed loan plus accrued and unpaid interest
thereon. In addition, Holdings has fully and unconditionally guaranteed the
payment of all principal, premium, interest and other 53




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  obligations outstanding under the government guaranteed loan and has pledged the
stock of AWA to secure its obligations under such guarantee. Principal amounts
under this loan become due in ten installments of $42.9 million on each March 31
and September 30, commencing on March 31, 2004 and ending on September 30, 2008.
Principal amounts outstanding under the government guaranteed loan bear interest at
a rate per annum equal to LIBOR plus 40 basis points.Subject to certain exceptions, AWA is required to prepay the government guaranteed
loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year; and
    insurance proceeds in excess of $2 million to the extent such proceeds
are not used to restore or replace the assets from which such proceeds are
derived.  In addition, AWA is required to prepay the government guaranteed loan upon a change
in control and we may be required to prepay portions of the loan if our employee
compensation costs exceed a certain threshold. AWA may, at its option, prepay the
government guaranteed loan without premium or penalty, subject to reimbursement of
the lenders breakage costs in the case of prepayment of LIBOR loans.The government guaranteed loan requires that AWA maintain a minimum cash balance of
$100 million. In addition, the government loan contains customary affirmative
covenants and the following negative covenants: restrictions on liens, investments,
restricted payments, fundamental changes, asset sales and acquisitions, the
creation of new subsidiaries, sale and leasebacks, transactions with affiliates,
the conduct of business, mergers or consolidations, issuances and dispositions of
capital stock of subsidiaries, and amendments to other indebtedness. The
government guaranteed loan contains customary events of default, including payment
defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults
and judgment defaults.(d)
    In August 1995, AWA issued $75.0 million principal
amount of 10 3/4% senior
unsecured notes due 2005 of which $39.5 million remained outstanding at December
31, 2004. Interest on the 10 3/4% senior unsecured notes is payable semiannually in
arrears on March 1 and September 1 of each year. On December 27, 2004, AWA called
for the redemption on January 26, 2005 of all of the senior unsecured notes at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest through the redemption date. In addition, AWA irrevocably deposited the
$30.8 million raised through the maintenance facility and flight training center
financing, together with an additional $10.5 million from its operating cash flow,
with the trustee for the senior unsecured notes. The senior notes were
subsequently redeemed on January 26, 2005.(e)
    In connection with the closing of the government guaranteed loan and the
related transactions, Holdings issued $104.5 million of 7.5% convertible senior
notes due 2009, of which approximately $112.3 million remained outstanding at
December 31, 2004 (including $21.6 million of interest paid through December 31,
2004 as a deemed loan added to the initial principal thereof). Beginning January
18, 2005, these notes are convertible into shares of class B common stock, at the
option of the holders, at an initial conversion price of $12.00 per share or a
conversion ratio of approximately 83.333 shares per $1,000 principal amount of such
notes, subject to standard anti-dilution adjustments. Interest on the 7.5%
convertible senior notes is payable semiannually in arrears on June 1 and December
1 of each year. At Holdings option, the first six interest payments were payable
in the form of a deemed loan added to the principal amount of these notes. The
7.5% convertible senior notes will mature on January 18, 2009 unless earlier
converted or redeemed. The payment of principal, premium and interest on the 7.5%
convertible senior notes is fully and unconditionally guaranteed by AWA.Holdings may redeem some or all of the 7.5% convertible senior notes at any time
before January 18, 2005, at a redemption price equal to $1,000 per note to be
redeemed if (A) the closing price of the class B 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 the
mailing of the redemption notice, and (B) a shelf registration statement covering
resales of the notes and the class B 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 redemption date, unless
registration is no longer required. Holdings may redeem the 7.5% convertible
senior notes, in whole or in part, on or after January 18, 2005 at the following
redemption prices (expressed as percentages of the principal amount thereof), if
redeemed during the twelve-month period commencing on January 18 of the years set
forth below, plus, in each case, accrued and unpaid interest, if any, to the date
of redemption: 54




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Year
    
    Redemption Price2005
    
    
    103.75
    %2006
    
    
    102.50
    %2007
    
    
    101.25
    %2008 and thereafter
    
    
    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,
2004 is net of an unamortized discount of $22.2 million.(f)
    In July and August of 2003, AWA completed a private placement of
approximately $86.8 million issue price of 7.25% Senior Exchangeable Notes due
2023. The notes bear cash interest at 2.49% per year until July 30, 2008.
Thereafter, the notes will cease bearing cash interest and begin accruing original
issue discount daily at a rate of 7.25% per year until maturity. Each note was
issued at a price of $343.61 and is exchangeable for class B common stock of
Holdings at an exchange ratio of 32.038 shares per $1,000 principal amount at
maturity of the notes (subject to adjustment in certain circumstances). This
represents an equivalent conversion price of approximately $10.73 per share. The
aggregate amount due at maturity, including accrued original issue discount from
July 31, 2008, will be $252,695,000. The notes are unconditionally guaranteed on
a senior unsecured basis by Holdings.Holders may exchange their notes for the shares of class B common stock of Holdings
in any fiscal quarter commencing after September 30, 2003, if, as of the last day
of the preceding fiscal quarter, the closing sale price of the class B common stock
for at least 20 trading days in a period of 30 consecutive trading days ending on
the last trading day of such preceding fiscal quarter is more than 110% of the
accreted exchange price per share of Class B common stock on the last day of such
preceding fiscal quarter. If the foregoing condition is satisfied, then the notes
will be exchangeable at any time at the option of the holder through maturity. The
accreted exchange price per share as of any day will equal the issue price of a
note plus accrued original issue discount to that day divided by 32.038, subject to
any adjustments to the exchange rate through that day.On or before July 30, 2018, a holder also may exchange its notes for shares of the
Class B common stock at any time after a 10 consecutive trading-day period in which
the average of the trading prices for the notes for that 10 trading-day period was
less than 103% of the average exchange value for the notes during that period.
Exchange value is equal to the product of the closing sale price for the shares of
Class B common stock on a given day multiplied by the then current exchange rate,
which is the number of shares of Class B common stock for which each note is then
exchangeable.In addition, the holders may exchange the notes if the notes have been called for
redemption or if certain specified corporate transactions have occurred.Holders of the notes may require AWA to repurchase the notes at a price equal to
the original issue price plus accrued cash interest and original issue discount, if
any, on July 30, 2008, 2013 and 2018. The purchase price of such notes may be paid
in cash or class B common stock of Holdings, subject to certain restrictions. In
addition, each holder may require AWA to purchase all or a portion of such holders
notes upon the occurrence of certain change of control events concerning AWA or
Holdings. AWA may redeem the notes, in whole or in part, on or after July 30, 2008
at a price equal to the original issue price plus accrued cash interest and
original issue discount, if any.(g)
    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%
on April 1 or October 1, 2008; 101% on April 1 or October 1, 2009; and 100% on
April 1, 2010 and thereafter. Secured financings totaling $186.0 million are collateralized by assets, primarily
aircraft, engines, simulators, rotable aircraft parts and AWAs hangar facility, with a net book
value of $268.4 million at December 31, 2004. 55




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED At December 31, 2004, the estimated maturities of long-term debt are as follows: (in thousands)2005
    
    
    151,1832006
    
    
    101,0422007
    
    
    100,5092008
    
    
    107,5702009
    
    
    147,327Thereafter
    
    
    371,927$
    979,558
 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. 6. Commitments and Contingencies (a) Leases As of December 31, 2004, the Company had 136 aircraft under operating leases, including four
aircraft that will be delivered in 2005, with remaining terms ranging from five months to
approximately 19 years. In January 2002, in connection with the government guaranteed loan, AWA
restructured its aircraft lease commitments. Under the restructured lease agreements, annual rent
payments have been reduced for each of the next five years. 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 approximately nine years or call options pursuant to which the lessors could
require AWA to return the aircraft to the lessors upon receipt of six 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 supplemental rent payments. 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) covering the financing of 54 aircraft. 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. The trusts are also structured to
provide for certain credit enhancements, such as liquidity facilities to cover certain interest
payments, that reduce the risks to the purchasers of the trust certificates and, as a result,
reduce the cost of aircraft financings to AWA. 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 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. In
addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the
leased aircraft. 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. The
Company does not provide residual value guarantees under these lease arrangements. Each lease
contains a purchase option that allows the Company to purchase the aircraft at a fixed price, which
at the inception of the lease approximated the aircrafts expected fair market value at the option
date, near the end of the lease term. These leasing entities meet the criteria for variable
interest entities. However, they do not meet the consolidation criteria under FASB Interpretation
No. 46, Consolidation of Variable Interest Entities,because the Company is not the primary
beneficiary under these arrangements. 56




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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 $14.8 million which includes accumulated amortization of $2.1 million and
corresponding lease obligation of $8.5 million at December 31, 2004. In January 2004, one aircraft lessor exercised its put rights under the aircraft lease
agreement to extend the lease for one Boeing 737-300 aircraft for an additional 33 months. The Company also leases certain terminal space, ground facilities and computer and other
equipment under noncancelable operating leases. At December 31, 2004, 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
    
    
    OperatingYears Ending December 31,
    
    Leases
    
    
    Leases(in thousands)2005
    
    $
    4,659
    
    
    $
    361,6712006
    
    
    4,988
    
    
    
    335,4122007
    
    
    1,773
    
    
    
    314,8922008
    
    
    
    
    
    
    264,0172009
    
    
    
    
    
    
    238,074Thereafter
    
    
    
    
    
    
    1,719,934Total minimum lease payments
    
    
    11,420
    
    
    $
    3,234,000Less: Amounts of lease payments that represent interest
    
    
    (2,884
    )Present value of future minimum capital lease payments
    
    
    8,536Less: Current obligations under capital leases
    
    
    (3,475
    )Long-term capital lease obligations
    
    $
    5,061
 Rent expense (excluding landing fees) was approximately $421.1 million, $406.8 million
and $409.4 million for the years ended December 31, 2004, 2003 and 2002, respectively. Collectively, the operating lease agreements require security deposits with lessors of $24.0
million, which have been classified as Other Assets, Netin the accompanying consolidated balance
sheets, and bank letters of credit of $13.8 million. The letters of credit are collateralized by
$13.9 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, 2004, 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 $43.6 million. In addition, the Company is also the lessee under certain long-term leases at various
airports. At certain of these airports, municipalities have issued revenue bonds to improve
airport facilities that are leased by the Company and accounted for as operating leases. The
Company does not guarantee the underlying debt related to these operating leases. 57




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (c) Aircraft Acquisitions In August 2004, AWA amended its aircraft purchase contract with AVSA S.A.R.L., an affiliate of
Airbus Industrie or AVSA, to acquire 22 Airbus A320 family aircraft (thirteen A320s and nine
A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, it is
anticipated that 18 will be purchased directly from the manufacturer and four have been leased
under noncancelable leases from various lessors for aircraft to be delivered in 2005. In the
context of this incremental order, AWA also secured extensive flexibility from Airbus with respect
to its existing A318 order, allowing AWA to better react to market conditions by enabling it to
amend its 15 A318 delivery positions to A319s and A320s, if it so desires, or to take no additional
aircraft under certain conditions. The Company has an agreement with International Aero Engines or IAE, which provides for the
purchase by the Company of seven new V2500-A5 spare engines scheduled for delivery through 2007 for
use on certain of the Airbus A320 fleet. At December 31, 2004, the seven engines have an estimated
gross cost of $39 million. The following table reflects estimated net 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. (in thousands)2005
    
    $
    272,8202006
    
    
    456,8912007
    
    
    47,697$
    777,408
 (d) Sale-Leaseback Transactions In the fourth quarter of 2004, the Company completed two separate aircraft sale-leaseback
transactions on one Airbus A320 aircraft and one Airbus A319 aircraft resulting in a combined loss
of $4.6 million. This amount was recorded in Other Operating Expenses. In May 2004, the Company completed a sale-leaseback transaction on one V2500-A5 engine
resulting in a gain of $2.9 million which has been deferred and will be amortized over the lease
term of seven years. In July 2004, the Company completed a sale-leaseback transaction on one V2500-A5 engine
resulting in a gain of $0.8 million which has been deferred and will be amortized over the lease
term of seven years. As part of the restructuring completed on January 18, 2002, AWA committed to the sale and
leaseback of eight aircraft. The sales and leaseback of six of these aircraft were completed in
2002 and resulted in losses of approximately $3.8 million. The sale and leaseback of one aircraft
was completed in June 2003 and resulted in a loss of approximately $0.6 million. The sale and
leaseback of the final aircraft was completed in September 2003 and resulted in a loss of
approximately $0.7 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 11, Special
Charges. (e) Contingent Legal Obligations Holdings and its subsidiaries are parties to various legal proceedings, including some
purporting to be class action suits, and some that 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 additional exposure ranges from $0 to $25 million. In these instances, no
accrual has been recorded. 58




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (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. 7. Income Taxes The Company recorded income tax expense (benefit) as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Federal
    
    $
    
    
    
    $
    114
    
    
    $
    (35,071
    )State
    
    
    30
    
    
    
    
    
    
    
    Total current taxes
    
    
    30
    
    
    
    114
    
    
    
    (35,071
    )Deferred taxes
    
    
    
    
    
    
    
    
    
    
    Total income tax expense (benefit)
    
    $
    30
    
    
    $
    114
    
    
    $
    (35,071
    )
 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%. Income tax expense (benefit) differs from amounts computed at the federal statutory income tax
rate as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Income tax expense (benefit) at the federal
statutory income tax rate
    
    $
    (31,148
    )
    
    $
    20,137
    
    
    $
    (75,165
    )State income tax expense (benefit), net of
federal income tax expense (benefit)
    
    
    (3,196
    )
    
    
    2,383
    
    
    
    (8,024
    )State rate change
    
    
    
    
    
    
    (3,229
    )
    
    
    Change in valuation allowance
    
    
    32,492
    
    
    
    (17,334
    )
    
    
    38,137Expired tax credits
    
    
    
    
    
    
    
    
    
    
    7,987Other, net
    
    

    1,882
    
    
    
    (1,843
    )
    
    
    1,994Total
    
    $
    30
    
    
    $
    114
    
    
    $
    (35,071
    )
 As of December 31, 2004, the Company has available net operating loss carryforwards
(NOLs) and tax credit carryforwards for federal income tax purposes of approximately $451.4
million and $1.1 million, respectively. The NOLs expire during the years 2007 through 2024 while
approximately $0.2 million of the tax credit carryforwards will expire in 2005 and 2006. The
Company also had capital loss carryforwards for federal income tax purposes of approximately $1.4
million which expire in 2009. 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 NOLs and tax credit carryforwards may be restricted. In September 2003, Holdings filed its 2002 consolidated income tax return with the IRS, which
included a claim to carryback losses incurred in 2002 to the tax years 1999 and 2000. This
resulted in a refund of approximately $3.1 million, of which substantially all was received in the
fourth quarter of 2003. 59




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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: 2004
    
    
    2003(in thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    184,515
    
    
    $
    126,219Aircraft leases
    
    
    13,585
    
    
    
    17,347Vacation accrual
    
    
    13,407
    
    
    
    11,948Frequent flyer accrual
    
    
    6,592
    
    
    
    5,958Restructuring and other reserves
    
    
    3,626
    
    
    
    3,858Tax credit carryforwards
    
    
    1,112
    
    
    
    1,112Other
    
    
    3,144
    
    
    
    2,767Gross deferred tax assets
    
    
    225,981
    
    
    
    169,209Deferred tax liabilities:Accelerated depreciation and amortization
    
    
    (95,365
    )
    
    
    (70,534
    )Partnership losses
    
    
    (1,421
    )
    
    
    (1,420
    )Other
    
    
    (229
    )
    
    
    (781
    )Gross deferred tax liabilities
    
    
    (97,015
    )
    
    
    (72,735
    )Net deferred tax assets before valuation allowance
    
    
    128,966
    
    
    
    96,474Less valuation allowance
    
    
    (128,966
    )
    
    
    (96,474
    )Net deferred 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 three out of four years between December 31,
2001 through December 31, 2004, which weighed heavily in the overall determination that a valuation
allowance was needed. As of December 31, 2004, the Company had recorded a valuation allowance of
$129.0 million against its net deferred tax assets. The Company expects to continue to record a
full valuation allowance on any future tax benefits until we have achieved several quarters of
consecutive profitable results coupled with an expectation of continued profitability. As of
December 2004 and 2003, the valuation allowance totaled $129.0 million and $96.5 million,
respectively. 8. 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. 60




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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, Holdings 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,
Holdings repurchased approximately 16.5 million shares of Class B common stock and 7.4 million
warrants to purchase Class B common stock. Holdings has not repurchased any Class B common stock
during the last four fiscal years. Holdings stock repurchase program expired on December 31,
2002. The terms of the government guaranteed loan restricted the Companys ability to repurchase
shares of its stock prior to repayment of the loan in full. In March and April 2004, Holdings reacquired 153,680 shares of Class B common stock from a
former executive in payment for approximately $1.7 million of nonrecourse loans made by Holdings
between 1994 and 1997. 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. This amount has been recorded in the accompanying consolidated balance sheets, classified
as Other Assets, Net,and will be amortized over the life of the government guaranteed loan as an
increase to interest expense. In the first quarter of 2004, approximately 220,000 warrant were
exercised at $3 per share. In the third quarter of 2003, approximately 2.6 million warrants were
exercised at $3 per share. These warrant exercises were cashless transactions resulting in the
issuance of approximately 1.6 million shares of Holdings Class B common stock. 9. 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). A total of 8.0 million 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, 2004, approximately 2.5 million shares are available for
grant under the 2002 Incentive Plan. 61




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Stock option activity during the years indicated is as follows: WeightedNumber of
    
    
    Average1994 Plan
    
    Shares
    
    
    Exercise PriceBalance at December 31, 2001:
    
    
    5,288,886
    
    
    $
    15.74Granted
    
    
    986,987
    
    
    $
    3.79Exercised
    
    
    
    
    
    
    Canceled
    
    
    (362,267
    )
    
    $
    11.38Balance at December 31, 2002:
    
    
    5,913,606
    
    
    $
    14.01Granted
    
    
    
    
    
    
    Exercised
    
    
    (235,737
    )
    
    $
    6.09Canceled
    
    
    (1,088,089
    )
    
    $
    15.33Balance at December 31, 2003:
    
    
    4,589,780
    
    
    $
    14.10Granted
    
    
    
    
    
    
    Exercised
    
    
    (23,672
    )
    
    $
    3.80Canceled
    
    
    (506,046
    )
    
    $
    9.90Balance at December 31, 2004:
    
    
    4,060,062
    
    
    $
    14.69
 Number of
    
    
    Average2002 Plan
    
    Shares
    
    
    Exercise PriceBalance at December 31, 2002:
    
    
    2,021,963
    
    
    $
    5.00Granted
    
    
    1,780,600
    
    
    $
    3.68Exercised
    
    
    (215,788
    )
    
    $
    4.78Canceled
    
    
    (182,661
    )
    
    $
    4.77Balance at December 31, 2003:
    
    
    3,404,114
    
    
    $
    4.34Granted
    
    
    1,973,100
    
    
    $
    10.10Exercised
    
    
    (150,672
    )
    
    $
    3.63Canceled
    
    
    (138,513
    )
    
    $
    7.09Balance at December 31, 2004:
    
    
    5,088,029
    
    
    $
    6.52
 At December 31, 2004, options outstanding and exercisable by price range for both plans
are as follows: Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    Options
    
    
    AverageRange of
    
    Options
    
    
    Remaining
    
    
    Average
    
    
    Currently
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Price$1.93 to $3.80
    
    
    2,192,083
    
    
    
    7.82
    
    
    $
    2.98
    
    
    
    1,067,382
    
    
    $
    3.12$4.88 to $9.92
    
    
    1,846,703
    
    
    
    6.17
    
    
    $
    6.28
    
    
    
    1,049,239
    
    
    $
    6.02$10.13 to $10.75
    
    
    1,831,766
    
    
    
    8.90
    
    
    $
    10.54
    
    
    
    516,266
    
    
    $
    10.48$10.82 to $17.94
    
    
    1,845,964
    
    
    
    3.96
    
    
    $
    13.26
    
    
    
    1,831,298
    
    
    $
    13.26$18.06 to $29.19
    
    
    1,431,575
    
    
    
    3.80
    
    
    $
    21.58
    
    
    
    1,431,575
    

    
    $
    21.589,148,091
    
    
    
    6.30
    
    
    $
    10.14
    
    
    
    5,895,760
    
    
    $
    11.91
 There were 4,959,604 and 4,669,601 stock options exercisable as of December 31, 2003 and
December 31, 2002, respectively. The per share weighted-average fair value of stock options
granted during 2004, 2003 and 2002 was $4.50, $2.03 and $2.87, respectively, on the date of grant
using the Black-Scholes option pricing model with the following weighted-average assumptions: 2004
- expected dividend yield of 0.0%, risk-free interest rate of 3.4%, volatility of 54.0% and an
expected life of five years; 2003  expected dividend yield of 0.0%, risk-free interest rate of
2.8%, volatility of 70.4% and an expected life of five years; 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. There were no restricted stock grants in the last three fiscal years. The Company recognized
compensation expense of $0.1 million, $1.1 million and $0.7 million related to restricted stock
grants under the 1994 Incentive Plan in 2004, 2003 and 2002, respectively. At December 31, 2004,
135,342 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 563,000 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, 2004, 409,000 options were outstanding and exercisable at prices ranging from $1.93 to
$29.19 per share. There were no grants of Class B common stock to non-employee directors in 2004
or 2003. 62




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 10. 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 50% of their pretax earnings to a maximum of
$13,000 in 2004. The Companys matching contribution is determined annually by the Board of
Directors. The Companys contribution expense to the plan totaled $11.4 million, $8.7 million and
$8.7 million in 2004, 2003 and 2002, respectively. During the third quarter of 2004, the Company became aware that an insufficient number of
shares of its Class B common stock were registered for offer and sale through its 401(k) plan. In
response to this registration shortfall, the Company promptly filed a new registration statement on
Form S-8 on August 13, 2004, which registered an additional 4,500,000 shares of Class B common
stock to permit the continued offer and sale of such shares to participants through the 401(k)
plan. Because the 401(k) plan in the past has purchased and in the future expects to continue to
purchase shares of Class B common stock needed for allocation to participant accounts only in the
open market and not directly from the Company, the registration of these additional shares and
their purchase by the 401(k) plan will have no dilutive impact on the outstanding equity of the
Company. As a result of the registration shortfall, however, participants who acquired
unregistered shares through their 401(k) plan accounts after June 30, 2003, and prior to August 13,
2004, may be entitled to rescission rights or other remedies under the Securities Act of 1933, as
amended. The Company has notified affected existing and former plan participants of their
potential rescission rights, but cannot predict the extent to which any such rescission rights may
be exercised or the impact of any possible federal or state regulatory action pertaining to the
registration shortfall. The Company does not believe, however, that any consequences arising from
the registration shortfall will have a material adverse effect on its financial position or results
of operations. 11. Special Charges In the first quarter of 2004, the Company recorded a $0.6 million reduction in special charges
related to the revision of estimated costs associated with the sale and leaseback of certain
aircraft. In August 2004, the Company entered into definitive agreements with two lessors to return six
Boeing 737-200 aircraft. Three of these aircraft were returned to the lessors in the third
quarter, two were returned in the fourth quarter and one was returned in January 2005. In
addition, the Company continues negotiating with one lessor on the return of its remaining two
Boeing 737-200 aircraft, one of which was parked in March 2002. The other aircraft was removed
from service in January 2005. In connection with the return of the aircraft, the Company recorded
$1.9 million of special charges which include lease termination payment of $2.1 million, the
write-down of leasehold improvements and aircraft rent balance of $2.8 million, offset by the net
reversal of maintenance reserves of $3.0 million. In December 2004, the Company and General Electric (GE) mutually agreed to terminate the
V2500 A-1 power by hour (PBH) agreement effective January 1, 2005. This agreement was entered into
March 1998 with an original term of ten years. For terminating the agreement early, the Company
received a $20.0 million credit to be applied to amounts due for other engines under the 1998
agreement that is expected to be fully applied by December 31, 2005. The Company had capitalized
PBH payments for V2500 A-1 engines in excess of the unamortized cost of the overhauls performed by
GE of approximately $3.7 million. With the termination of this agreement, these payments were not
realizable and as a result, the Company wrote off this amount against the $20.0 million credit
referred to above resulting in a $16.3 million net gain. In February 2003, AWA announced the elimination of its hub operations in Columbus, Ohio. As a
result, 12 regional jets, all of which were operated by Chautauqua Airlines under the America West
Express banner, have been phased out of the fleet. In addition, the hub has been downsized from 49
daily departures to 15 destinations to four flights per day to Phoenix and Las Vegas. Service to
New York City La Guardia Airport was also eliminated because perimeter rules at the airport
prohibit flights beyond 1,500 miles, precluding service from AWAs hubs in Phoenix and Las Vegas.
In the first and second quarters of 2003, the Company recorded special charges of $1.0 million and
$9.6 million, respectively, related to the costs associated with the termination of certain
aircraft and facility contracts, employee transfer and severance expenses and the write-off of
leasehold improvements in Columbus, Ohio. In the first quarter of 2003, the Company recorded a $1.1 million reduction in special charges
related to the earlier-than-planned return of certain leased aircraft in 2001 and 2002, as all
payments related to these aircraft returns have been made. 63




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED In April 2003, as part of a cost reduction program, the Company implemented a plan to reduce
management, professional and administrative payroll costs which resulted in 179 fewer employees
within these workgroups. As a result, the Company recorded a special charge of $2.3 million
related to this reduction-in-force. In June 2003, the Company recorded an impairment loss of $2.6 million related to three owned
Boeing 737-200 aircraft that were grounded and subsequently sold. In the third quarter of 2003, the Company recorded an additional $0.5 million of special
charges associated with the elimination of our hub operations in Columbus, Ohio. These special
charges were offset by a $0.5 million reduction in special charges related to the revision of
estimated costs associated with the sale and leaseback of certain aircraft. In the first quarter of 2002, the Company recorded a 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(in thousands)Fleet restructuring costs
    
    $
    9,915Losses on sale-leaseback transactions
    
    
    6,328Professional fees
    
    
    4,745Write-off of computer system and security equipment
    
    
    3,411Severance
    
    
    656Revision of estimate for second quarter 2001 special charge
    
    
    (4,000
    )Total
    
    $
    21,055
 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. The following table presents the payments and other settlements made during 2002, 2003 and
2004 and the remaining special charge accruals as of December 31, 2004. ContractSale-
    
    
    Fleet
    
    
    Professional
    
    
    Reductions-
    
    
    Termination/Leaseback
    
    
    Restructuring
    
    
    Fees
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2001
    
    $
    
    
    
    $
    16,786
    
    
    $
    
    
    
    $
    83
    
    
    $
    
    
    
    $
    16,869Special charges
    
    
    6,328
    
    
    
    10,582
    
    
    
    1,489
    
    
    
    631
    
    
    
    
    
    
    
    19,030Reclassification of aircraft rent
due to restructuring
    
    
    
    
    
    
    4,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,696Payments
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,833Special charges
    
    
    (510
    )
    
    
    1,545
    
    
    
    
    
    
    
    2,701
    
    
    
    10,634
    
    
    
    14,370Payments
    
    
    
    
    
    
    (896
    )
    
    
    
    
    
    
    (2,344
    )
    
    
    (7,446
    )
    
    
    (10,686
    )Loss on sale-leasebacks
    
    
    (1,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,361
    )Write-off of leasehold improvements due
to Columbus hub closure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (539
    )
    
    
    (539
    )Impairment loss
    
    
    
    
    
    
    (2,617
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,617
    )Balance at December 31, 2003
    
    
    605
    
    
    
    1,389
    
    
    
    
    
    
    
    357
    
    
    
    2,649
    
    
    
    5,000Special charges
    
    
    (600
    )
    
    
    1,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,313Payments
    
    
    (5
    )
    
    
    (2,908
    )
    
    
    
    
    
    
    (292
    )
    
    
    (2,528
    )
    
    
    (5,733
    )Revision of estimate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Reversal of maintenance reserves
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Write-off of leasehold improvements,
engine overhauls and deferred rent
    
    
    
    
    
    
    (2,751
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,751
    )Balance at December 31, 2004
    
    $
    
    
    
    $
    643
    
    
    $
    
    
    
    $
    
    
    
    $
    121
    
    
    $
    764
 64




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED The Company expects to make payments related to these special charges through the fourth
quarter of 2005. 12. Nonoperating Income (Expenses)  Other, Net In connection with the term loan refinancing with GECC, the Company wrote off $1.3 million of
debt issue costs associated to the term loan with Mizuho in 2004. This amount was recorded in
nonoperating expenses. The changes in the fair value of the Companys derivative instruments and the net realized
gains and losses for the settled hedge transactions was a $30.5 million credit in 2004, $10.7
million credit in 2003 and $0.6 million expense in 2002. In April 2003, the Senate and House of Representatives of the United States of America passed,
and the President signed, the Emergency Wartime Supplemental Appropriations Act to provide certain
aviation-related assistance. $2.3 billion of the appropriation was for grants by the TSA to U.S.
air carriers based on the proportional share each carrier had paid or collected as of the date of
enactment of the legislation for passenger security and air carrier security fees. In May 2003,
AWA received approximately $81.3 million representing its proportional share of passenger security
and air carrier security fees paid or collected as of April 2003, which has been classified as
Federal Government Assistancein the accompanying consolidated statements of operations. See
Note 17, Emergency Wartime Supplemental Appropriations Act. In the fourth quarter of 2003, IAC/InterActiveCorp completed its acquisition of Hotwire.com, a
discount travel website. Hotwire was founded by the Texas Pacific Group, American Airlines,
Continental Airlines, Northwest Airlines, United Airlines, US Airways and AWA in October 2000. AWA
had an ownership interest of approximately 1.5% in Hotwire.com with a carrying value of
approximately $0.03 million. Upon closing of the transaction, AWA received cash of $9.8 million.
Accordingly, AWA recognized a nonoperating gain of $9.8 million in the fourth quarter of 2003. In the fourth quarter of 2003, Holdings completed the sale of its 12% interest in National
Leisure Group to PAR Capital. The investment in National Leisure Group was carried on the
Companys consolidated balance sheet at cost, which approximated $7.7 million. PAR Capital owned
$10.45 million face value of the Companys 10 3/4% senior unsecured notes. PAR Capital purchased the
Companys investment in National Leisure Group in exchange for the $10.45 million face value of the
10 3/4% notes plus $0.3 million in cash. This resulted in a $3.3 million nonoperating gain. See
Note 4, Financial Instruments and Risk Management  (a) Fair Value of Financial Instruments 
Investments in Equity Securities. 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 loss of $2.8 million. 65




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 13. Earnings (Loss) Per Share Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands of dollars except per share data)BASIC EARNINGS (LOSS) PER SHAREIncome (loss) before cumulative effect of change in accounting principle
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    $
    (179,686
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (208,223
    )Net income (loss)
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    $
    (387,909
    )Weighted average common shares outstanding
    
    
    36,026,478
    
    
    
    34,550,979
    
    
    
    33,723,252Basic earnings (loss) per share:Earnings (loss) before cumulative effect of change in accounting principle
    
    $
    (2.47
    )
    
    $
    1.66
    
    
    $
    (5.33
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (6.17
    )Net earnings (loss)
    
    $
    (2.47
    )
    
    $
    1.66
    
    
    $
    (11.50
    )DILUTED EARNINGS (LOSS) PER SHAREIncome (loss) before cumulative effect of change in accounting principle
    
    $
    (89,023
    )
    
    $
    57,420
    
    
    $
    (179,686
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (208,223
    )Net income (loss)
    
    
    (89,023
    )
    
    
    57,420
    
    
    
    (387,909
    )Interest expense on 7.5% convertible senior notes
    
    
    
    
    
    
    10,664
    
    
    
    Interest expense on 7.25% senior exchangeable notes
    
    
    
    
    
    
    2,881
    
    
    
    Income (loss) for purposes of computing diluted net income (loss) per share
    
    $
    (89,023
    )
    
    $
    70,965
    
    
    $
    (387,909
    )Share computation:Weighted average common shares outstanding
    
    
    36,026,478
    
    
    
    34,550,979
    
    
    
    33,723,252Assumed exercise of stock options and warrants
    
    
    
    
    
    
    9,966,128
    
    
    
    Assumed conversion of 7.5% convertible senior notes
    
    
    
    
    
    
    8,157,839
    
    
    
    Assumed conversion of 7.25% senior exchangeable notes
    
    
    
    
    
    
    3,437,960
    
    
    
    Weighted average common shares outstanding as adjusted
    
    
    36,026,478
    
    
    
    56,112,906
    
    
    
    33,723,252Diluted earnings (loss) per share:Earnings (loss) before cumulative effect of change in accounting principle
    
    $
    (2.47
    )
    
    $
    1.26
    
    
    $
    (5.33
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (6.17
    )Net earnings (loss)
    
    $
    (2.47
    )
    
    $
    1.26
    
    
    $
    (11.50
    )
 For the year ended December 31, 2004, 5,248,891 stock options and 7,352,988 warrants
issued in conjunction with the government guaranteed loan and related transactions are not included
in the computation of diluted EPS because the option and warrant exercise prices were greater than
the average market price of common stock for the period. In addition, 8,095,842 shares issuable
upon conversion of the 7.25% senior exchangeable notes due 2023 and 8,694,000 issuable upon
conversion of the 7.5% convertible senior notes are not included in the computation of diluted EPS
because of the antidilutive effect on EPS. For the year ended December 31, 2003, 5,256,111 stock options and 11,410,318 warrants issued
in conjunction with the government guaranteed loan and related transactions are not included in the
computation of diluted EPS because the option and warrant exercise prices were greater than the
average market price of common stock for the period. In November 2004, the Emerging Issues Task
Force (EITF) of the FASB reached a consensus on EITF 04-08, The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share,which requires that issuers of convertible
securities with contingent conversion features use the if-converted method to calculate reported
earnings per share (EPS) irrespective of the contingent conversion trigger being met. As
approved by the FASB, this change is effective for years ending after December 15, 2004. The
Company applied this methodology in the accompanying consolidated statement of operations. The
impact of using the if-converted method for the Companys 7.25% Notes is antidilutive for the
years ended December 31, 2004 and 2002. For the year ended December 31, 2003, the inclusion of the
7.25% Notes reduced diluted EPS by $0.03 from $1.29 to $1.26. 66




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED For the year ended December 31, 2002, 22,074 stock options and 2,794,399 warrants issued in
conjunction with the government guaranteed loan and related transactions are not included in the
computation of diluted EPS because of the antidilutive effect on EPS. In addition, 7,292,706 stock
options and 19,742,601 warrants are not included in the computation of diluted EPS because the
option and warrant exercise prices were greater than the average market price of common stock for
the period. The shares issuable upon conversion of the 7.5% convertible senior notes are not
included in the computation of diluted EPS because of the antidilutive effect on EPS. 14. 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 31,2004
    
    
    2003
    
    
    2002(in thousands)Non-cash transactions:Reclassification of investments in debt securities to short-term
    
    $
    25,730
    
    
    $
    29,058
    
    
    $
    Issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    67,902Cancellation of convertible notes
    
    
    
    
    
    
    (660
    )
    
    
    (8,279
    )Cancellation of 10.75% senior unsecured notes related to sale
of NLG investment
    
    
    
    
    
    
    (10,370
    )
    
    
    Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    35,383Exercise of warrants
    
    
    (2
    )
    
    
    (17
    )
    
    
    Equipment acquired through capital leases
    
    
    
    
    
    
    
    
    
    
    17,753Equipment acquired with issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    64,163Notes payable issued for equipment purchase deposits
    
    
    17,500
    
    
    
    5,250
    
    
    
    10,500Notes payable canceled under the aircraft
purchase agreement
    
    
    (7,000
    )
    
    
    (7,000
    )
    
    
    (10,500
    )Payment in kind notes issued, net of returns
    
    
    9,033
    
    
    
    8,972
    
    
    
    7,756Acquisition of shares due to loan default
    
    
    1,700
    
    
    
    
    
    
    
    Cash transactions:Interest paid, net of amounts capitalized
    
    
    23,841
    
    
    
    17,201
    
    
    
    25,942Income taxes paid (refunded)
    
    
    1,118
    
    
    
    (3,605
    )
    
    
    (63,353
    )
 15. Related Party Transactions As part of AWAs reorganization in 1994, Continental Airlines and AWA entered into an alliance
agreement that 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. AWA paid
Continental approximately $13.4 million, $17.3 million and $25.5 million and also received
approximately $4.1 million, $5.0 million and $15.9 million in 2004, 2003 and 2002, respectively,
from Continental pursuant to these agreements. Texas Pacific Group agreed to reimburse the Company approximately $2.5 million for expenses
incurred by the Company on its behalf. As a result, the Company recorded this as a receivable as
of December 31, 2004. Subsequent to December 31, 2004, the Company received $1.3 million in such
reimbursement and expects to receive an additional $1.2 million in 2005. 16. Quarterly Financial Data (Unaudited) The 2004 and 2003 unaudited quarterly financial data has been restated to reflect the
accounting for fuel hedging derivative instruments pursuant to managements determination that the
Company did not qualify for hedge accounting under SFAS No. 133. In addition, the restated amounts
also reflect corrections to properly reflect the fair value of open derivative instruments at each
quarter end. See Note 2, Restatement of Previously Reported Amounts. 67




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Summarized quarterly financial data for 2004 and 2003 follows (in thousands of dollars except
per share amounts): 1st Quarter
    
    
    2nd Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2004Operating revenues
    
    $
    576,544
    
    
    $
    576,544
    
    
    $
    605,074
    
    
    $
    605,074Operating income
    
    
    14,685
    (1)
    
    
    17,828
    
    
    
    16,330
    (3)
    
    
    20,848Nonoperating expenses, net
    
    
    (16,248
    )(1) (2)
    
    
    (16,652
    )
    
    
    (5,669
    )(3) (4)
    
    
    (15,154
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (1,563
    )(2)
    
    
    1,176
    
    
    
    10,661
    (4)
    
    
    5,694Net income (loss) per share:Basic
    
    
    (0.04
    )
    
    
    0.03
    
    
    
    0.30
    
    
    
    0.16Diluted
    
    
    (0.03
    )
    
    
    0.02
    
    
    
    0.20
    
    
    
    0.11
 3rd Quarter
    
    
    4th Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2004Operating revenues
    
    $
    578,623
    
    
    $
    578,623
    
    
    $
    578,716
    
    
    $
    578,716Operating loss
    
    
    (36,038
    )(5)
    
    
    (28,237
    )
    
    
    (38,748
    )(7)
    
    
    (23,681
    )Nonoperating income (expenses), net
    
    
    7,373
    (5) (6)
    
    
    (18,830
    )
    
    
    (30,678
    )(7) (8)
    
    
    (26,001
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    30Net loss
    
    
    (28,665
    )(6)
    
    
    (47,067
    )
    
    
    (69,456
    )(8)
    
    
    (49,712
    )Net loss per share:Basic
    
    
    (0.79
    )
    
    
    (1.30
    )
    
    
    (1.92
    )
    
    
    (1.38
    )Diluted
    
    
    (0.79
    )
    
    
    (1.30
    )
    
    
    (1.92
    )
    
    
    (1.38
    )
 1st Quarter
    
    
    2nd Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2003Operating revenues
    
    $
    523,233
    
    
    $
    523,233
    
    
    $
    575,771
    
    
    $
    575,771Operating income (loss)
    
    
    (56,376
    )(9)
    
    
    (46,140
    )
    
    
    16,447
    (11)
    
    
    16,305Nonoperating income (expenses), net
    
    
    (7,045
    )(9) (10)
    
    
    (15,878
    )
    
    
    62,425
    (11) (12)
    
    
    63,379Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (63,421
    )(10)
    
    
    (62,018
    )
    
    
    78,872
    (12)
    
    
    79,684Net income (loss) per share:Basic
    
    
    (1.88
    )
    
    
    (1.84
    )
    
    
    2.34
    
    
    
    2.36Diluted
    
    
    (1.88
    )
    
    
    (1.84
    )
    
    
    2.00
    
    
    
    2.02
 3rd Quarter
    
    
    4th Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2003Operating revenues
    
    $
    592,302
    
    
    $
    592,302
    
    
    $
    563,191
    
    
    $
    563,191Operating income
    
    
    50,268
    (13)
    
    
    50,135
    
    
    
    11,796
    (15)
    
    
    12,581Nonoperating expenses, net
    
    
    (18,678
    )(13) (14)
    
    
    (17,193
    )
    
    
    (1,303
    )(15) (16)
    
    
    (5,655
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    (114
    )Net income
    
    
    31,590
    (14)
    
    
    32,942
    
    
    
    10,379
    (16)
    
    
    6,812Net income per share:Basic
    
    
    0.90
    
    
    
    0.94
    
    
    
    0.29
    
    
    
    0.19Diluted
    
    
    0.53
    
    
    
    0.60
    
    
    
    0.19
    
    
    
    0.13
   (1)
    Reflects reclassification of $3.1 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(2)
    Reflects the restatement of $2.7 million net expense to eliminate
hedge accounting for the period presented.(3)
    Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(4)
    Reflects the restatement of $5.0 million net credit to eliminate
hedge accounting for the period presented.(5)
    Reflects reclassification of $7.8 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net. 68




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  (6)
    Reflects the restatement of $18.4 million net credit to eliminate
hedge accounting for the period presented.(7)
    Reflects reclassification of $15.0 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative
Instruments, Net. Note, an additional $7.6 million of
losses on derivative instruments was recorded directly to Gain
(Loss) on Derivative Instruments, Net.(8)
    Reflects the restatement of $19.7 million net expense to eliminate
hedge accounting for the period presented.(9)
    Reflects reclassification of $10.2 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(10)
    Reflects the restatement of $1.4 million net expense to eliminate
hedge accounting for the period presented.(11)
    Reflects reclassification of $0.2 million net expense from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(12)
    Reflects the restatement of $0.8 million net expense to eliminate
hedge accounting for the period presented.(13)
    Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(14)
    Reflects the restatement of $1.4 million net expense to eliminate
hedge accounting for the period presented.(15)
    Reflects reclassification of $0.8 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(16)
    Reflects the restatement of $3.6 million net credit to eliminate
hedge accounting for the period presented. Earnings per share are computed independently for each of the quarters presented.
Therefore, the sum of the quarterly earnings per share in 2004 and 2003 does not equal the total
computed for the year. 17. Emergency Wartime Supplemental Appropriations Act In April 2003, the Senate and House of Representatives of the United States of America passed,
and the President signed, the Emergency Wartime Supplemental Appropriations Act to provide certain
aviation-related assistance. The bill included the following key provisions:  
    $2.3 billion of the appropriation was for grants by the Transportation Security
Administration (TSA) to U.S. air carriers based on the proportional share each carrier
had paid or collected as of the date of enactment of the legislation for passenger security
and air carrier security fees. In May 2003, the Company received approximately $81.3
million representing its proportional share of passenger security and air carrier security
fees paid or collected as of April 2003. The Company recorded this amount as nonoperating
income in the accompanying consolidated statements of operations. See Note 12,
Nonoperating Income (Expenses)  Other, Net.
    The TSA would not impose passenger security fees during the period beginning June 1,
2003 and ending September 30, 2003.
    $100 million of the appropriation would be available to compensate air carriers for the
direct costs associated with the strengthening of flight deck doors and locks on aircraft.
AWA received approximately $4.6 million in 2003 as reimbursement for the costs of
reinforcing flight deck doors and locks.
    Aviation war risk insurance provided by the federal government is extended until August
2005. 69




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AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  
    Certain airlines that received the aviation-related assistance, principally those
airlines with trans-Pacific or trans-Atlantic flights, agreed to limit the total cash
compensation for certain executive officers during the 12-month period beginning April 1,
2003 to an amount equal to the annual salary paid to that officer during the air carriers
fiscal year 2002. Any violation of this agreement would have required the carrier to repay
to the government the amount reimbursed for airline security fees. Since AWA does not
operate trans-Pacific or trans-Atlantic flights, AWA was not subject to this provision. 18. 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
consolidated statements of operations. 70




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##### Table of Contents



ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
AMERICA WEST AIRLINES, INC. (AWA)
 Consolidated balance sheets of AWA as of December 31, 2004 and 2003, and the related
consolidated statements of operations, cash flows and stockholders equity and comprehensive income
for each of the years in the three-year period ended December 31, 2004, together with the related
notes and the reports of KPMG LLP, and PricewaterhouseCoopers LLP, independent registered public
accounting firms, are set forth on the following pages. 71




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and StockholderAmerica West Airlines, Inc.: We
have audited the accompanying consolidated balance sheets of America
West Airlines, Inc. and subsidiary as of
December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows and
stockholders equity and comprehensive income for the years then ended. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of America West Airlines,
Inc. and subsidiary as of December 31, 2004
and 2003, and the results of their operations and their cash flows for the years then ended, in
conformity with U.S. generally accepted accounting principles. As discussed in Note 2 to the accompanying consolidated financial statements, the Company has
restated the consolidated balance sheet as of December 31, 2003 and the consolidated statement of
changes in stockholders equity and comprehensive income for the year then ended. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 72




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholder
of America West Airlines, Inc.: In our opinion, the accompanying consolidated statements of operations, of cash flows and of
stockholders equity and comprehensive income for the year ended December 31, 2002 present fairly,
in all material respects, the results of operations and cash flows of America West Airlines, Inc.
(a wholly-owned subsidiary of America West Holdings Corporation) for the year ended December 31,
2002, 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 audit. We conducted our audit
of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. As discussed in Note 1(k) 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, except for the effects of the
reorganization transaction described in Note 1(a)
as to which the date is August 2, 2004 73




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AMERICA WEST AIRLINES, INC.
Consolidated Balance Sheets
December 31, 2004 and 2003
(in thousands except share data) 2004
    
    
    2003(as restated -See Note 2)AssetsCurrent assets:Cash and cash equivalents
    
    $
    128,497
    
    
    $
    134,150Short-term investments
    
    
    126,651
    
    
    
    322,615Restricted cash
    
    
    41,264
    
    
    
    42,900Accounts receivable, less allowance for doubtful accounts of
$1,487 in 2004 and $5,806 in 2003
    
    
    108,837
    
    
    
    77,235Expendable spare parts and supplies, less allowance for obsolescence
of $14,759 in 2004 and $12,254 in 2003
    
    
    57,563
    
    
    
    58,575Prepaid expenses
    
    
    141,571
    
    
    
    129,291Total current assets
    
    
    604,383
    
    
    
    764,766Property and equipment:Flight equipment
    
    
    926,930
    
    
    
    858,395Other property and equipment
    
    
    289,279
    
    
    
    271,593Equipment purchase deposits
    
    
    63,450
    
    
    
    46,0501,279,659
    
    
    
    1,176,038Less accumulated depreciation and amortization
    
    
    624,193
    
    
    
    569,468655,466
    
    
    
    606,570Other assets:Investments in debt securities
    
    
    30,000
    
    
    
    40,740Restricted cash
    
    
    72,091
    
    
    
    69,876Advances to parent company, net (see Note 5)
    
    
    258,777
    
    
    
    254,792Other assets, net
    
    
    90,270
    
    
    
    110,198451,138
    
    
    
    475,606$
    1,710,987
    
    
    $
    1,846,942Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    151,183
    
    
    $
    103,899Current obligations under capital leases
    
    
    3,475
    
    
    
    3,442Accounts payable
    
    
    173,196
    
    
    
    209,373Payable to affiliate, net
    
    
    
    
    
    
    1,926Air traffic liability
    
    
    194,718
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    42,699
    
    
    
    61,045Accrued taxes
    
    
    20,651
    
    
    
    24,117Other accrued liabilities
    
    
    65,958
    
    
    
    59,277Total current liabilities
    
    
    651,880
    
    
    
    637,565Long-term debt, less current maturities
    
    
    635,129
    
    
    
    688,965Capital leases, less current obligations
    
    
    5,061
    
    
    
    8,467Deferred credits and other liabilities
    
    
    132,103
    
    
    
    139,873Commitments and contingencies (see Note 7)Stockholders equity:Class B common stock, $.01 par value. Authorized 1,000 shares; issued and
outstanding 1,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,114
    
    
    
    555,115Accumulated deficit
    
    
    (268,300
    )
    
    
    (183,043
    )Total stockholders equity
    
    
    286,814
    
    
    
    372,072$
    1,710,987
    
    
    $
    1,846,942
 See accompanying notes to
consolidated financial statements. 74




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AMERICA WEST AIRLINES, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) 2004
    
    
    2003
    
    
    2002Operating revenues:Passenger
    
    $
    2,196,627
    
    
    $
    2,113,629
    
    
    $
    1,929,444Cargo
    
    
    28,233
    
    
    
    26,914
    
    
    
    27,574Other
    
    
    113,417
    
    
    
    113,274
    
    
    
    89,545Total operating revenues
    
    
    2,338,277
    
    
    
    2,253,817
    
    
    
    2,046,563Operating expenses:Salaries and related costs
    
    
    655,185
    
    
    
    658,042
    
    
    
    601,870Aircraft rents
    
    
    304,343
    
    
    
    297,518
    
    
    
    295,016Other rents and landing fees
    
    
    167,772
    
    
    
    154,598
    
    
    
    158,290Aircraft fuel
    
    
    557,098
    
    
    
    375,996
    
    
    
    299,284Agency commissions
    
    
    25,191
    
    
    
    34,457
    
    
    
    49,953Aircraft maintenance materials and repairs
    
    
    205,580
    
    
    
    223,266
    
    
    
    252,691Depreciation and amortization
    
    
    54,354
    
    
    
    66,865
    
    
    
    75,201Special charges (credits), net
    
    
    (15,432
    )
    
    
    14,370
    
    
    
    19,030Other
    
    
    423,890
    
    
    
    402,613
    
    
    
    451,444Total operating expenses
    
    
    2,377,981
    
    
    
    2,227,725
    
    
    
    2,202,779Operating income (loss)
    
    
    (39,704
    )
    
    
    26,092
    
    
    
    (156,216
    )Nonoperating income (expenses):Interest income
    
    
    14,169
    
    
    
    13,249
    
    
    
    17,551Interest expense, net
    
    
    (86,488
    )
    
    
    (86,743
    )
    
    
    (79,529
    )Federal government assistance
    
    
    
    
    
    
    81,255
    
    
    
    8,466Gain (loss) on disposition of property and equipment
    
    
    1,460
    
    
    
    151
    
    
    
    (1,852
    )Gain on sale of investments
    
    
    
    
    
    
    9,762
    
    
    
    Gain (loss) on derivative instruments, net
    
    
    23,782
    
    
    
    10,746
    
    
    
    (656
    )Other, net
    
    
    1,547
    
    
    
    6,888
    
    
    
    215Total nonoperating income (expenses), net
    
    
    (45,530
    )
    
    
    35,308
    
    
    
    (55,805
    )Income (loss) before income taxes (benefit) and cumulative effect of
change in accounting principle
    
    
    (85,234
    )
    
    
    61,400
    
    
    
    (212,021
    )Income tax expense (benefit)
    
    
    23
    
    
    
    114
    
    
    
    (30,544
    )Income (loss) before cumulative effect of change in accounting principle
    
    
    (85,257
    )
    
    
    61,286
    
    
    
    (181,477
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (208,223
    )Net income (loss)
    
    $
    (85,257
    )
    
    $
    61,286
    
    
    $
    (389,700
    )
 See accompanying notes to
consolidated financial statements. 75




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AMERICA WEST AIRLINES, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) 2004
    
    

    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    (85,257
    )
    
    $
    61,286
    
    
    $
    (389,700
    )Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    208,223Depreciation and amortization
    
    
    54,354
    
    
    
    66,865
    
    
    
    75,894Amortization of capitalized maintenance
    
    
    85,590
    
    
    
    105,076
    
    
    
    111,576Amortization of deferred credits
    
    
    (8,208
    )
    
    
    (10,970
    )
    
    
    (10,077
    )Amortization of deferred rent
    
    
    6,189
    
    
    
    9,514
    
    
    
    11,452Amortization of warrants
    
    
    7,155
    
    
    
    8,100
    
    
    
    7,708Amortization of debt issue costs and guarantee fees
    
    
    35,752
    
    
    
    35,977
    
    
    
    24,978Amortization of bond discount
    
    
    3,826
    
    
    
    3,366
    
    
    
    2,894Amortization of investment discount and premium, net
    
    
    1,435
    
    
    
    899
    
    
    
    Gain on sale of investments
    
    
    
    
    
    
    (3,287
    )
    
    
    Special charges, net
    
    
    (15,432
    )
    
    
    14,370
    
    
    
    19,055Other
    
    
    28,311
    
    
    
    6,714
    
    
    
    15,801Changes in operating assets and liabilities:Decrease (increase) in restricted cash
    
    
    1,636
    
    
    
    (42,900
    )
    
    
    Decrease (increase) in accounts receivable, net
    
    
    (13,337
    )
    
    
    4,365
    
    
    
    60,009Decrease (increase) in expendable spare parts and supplies, net
    
    
    1,012
    
    
    
    (2,681
    )
    
    
    (4,061
    )Increase in prepaid expenses
    
    
    (49,286
    )
    
    
    (45,932
    )
    
    
    (64,350
    )Decrease (increase) in other assets, net
    
    
    (2,635
    )
    
    
    (254
    )
    
    
    5,319Increase (decrease) in accounts payable
    
    
    (37,120
    )
    
    
    9,385
    
    
    
    (61,525
    )Increase (decrease) in air traffic liability
    
    
    20,232
    
    
    
    4,395
    
    
    
    (6,894
    )Increase (decrease) in accrued compensation and vacation benefits
    
    
    (18,347
    )
    
    
    19,796
    
    
    
    (3,050
    )Decrease in accrued taxes
    
    
    (3,465
    )
    
    
    (17,614
    )
    
    
    (68,909
    )Increase (decrease) in other accrued liabilities
    
    
    6,938
    
    
    
    (1,689
    )
    
    
    28,348Increase in other liabilities
    
    
    1,299
    
    
    
    1,294
    
    
    
    16,022Net cash provided by (used in) operating activities
    
    
    20,642
    
    
    
    226,075
    
    
    
    (21,287
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (219,383
    )
    
    
    (154,365
    )
    
    
    (157,202
    )Purchases of short-term investments
    
    
    (487,505
    )
    
    
    (633,711
    )
    
    
    (69,987
    )Sales of short-term investments
    
    
    707,774
    
    
    
    364,332
    
    
    
    45,249Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    (80,436
    )
    
    
    Sales of investments in debt securities
    
    
    20,000
    
    
    
    10,300
    
    
    
    Increase in restricted cash
    
    
    (2,215
    )
    
    
    (23,908
    )
    
    
    Proceeds from sales of aircraft
    
    
    
    
    
    
    
    
    
    
    175,478Proceeds from sales of other property and equipment
    
    
    32,372
    
    
    
    25,826
    
    
    
    122Proceeds from sale of NLG investment
    
    
    
    
    
    
    348
    
    
    
    Net cash provided by (used in) investing activities
    
    
    16,043
    
    
    
    (491,614
    )
    
    
    (6,340
    )Cash flows from financing activitiesProceeds from issuance of debt
    
    
    141,354
    
    
    
    86,828
    
    
    
    435,386Repayment of debt
    
    
    (175,640
    )
    
    
    (16,832
    )
    
    
    (192,596
    )Payment of debt issue costs
    
    
    (1,152
    )
    
    
    (3,236
    )
    
    
    (36,987
    )Other
    
    
    (6,900
    )
    
    
    (1,750
    )
    
    
    2,600Net cash provided by (used in) financing activities
    
    
    (42,338
    )
    
    
    65,010
    
    
    
    208,403Net increase (decrease) in cash and cash equivalents
    
    
    (5,653
    )
    
    
    (200,529
    )
    
    
    180,776Cash and cash equivalents at beginning of year
    
    
    134,150
    
    
    $
    334,679
    
    
    
    153,903Cash and cash equivalents at end of year
    
    $
    128,497
    
    
    $
    134,150
    
    
    $
    334,679
 See accompanying notes to
consolidated financial statements. 76




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AMERICA WEST AIRLINES, INC.
Consolidated Statements of Stockholders Equity and Comprehensive Income
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands except share data) ACCUMULATEDADDITIONAL
    
    
    RETAINED
    
    
    OTHERPAID-IN
    
    
    EARNINGS/
    
    
    COMPREHENSIVECAPITAL
    
    
    (DEFICIT)
    
    
    INCOME
    
    
    TOTALBalance at December 31, 2001
    
    $
    519,748
    
    
    $
    145,371
    
    
    $
    1,390
    
    
    $
    666,509Net loss
    
    
    
    
    
    
    (389,700
    )
    
    
    
    
    
    
    (389,700
    )Other comprehensive income:Changes in the fair value of derivative
financial instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    640Total comprehensive income (loss)
    
    
    
    
    
    
    (389,700
    )
    
    
    640
    
    
    
    (389,060
    )Non-cash capital contribution
    
    
    35,384
    
    
    
    
    
    
    
    
    
    
    
    35,384Balance at December 31, 2002
    
    
    555,132
    
    
    
    (244,329
    )
    
    
    2,030
    
    
    
    312,833Net income
    
    
    
    
    
    
    61,286
    
    
    
    
    
    
    
    61,286Correction of other comprehensive income (a)
    
    
    
    
    
    
    
    
    
    
    (2,030
    )
    
    
    (2,030
    )Exercise of warrants
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (17
    )Balance at December 31, 2003, as restated
    
    $
    555,115
    
    
    $
    (183,043
    )
    
    $
    
    
    
    $
    372,072Net loss
    
    
    
    
    
    
    (85,257
    )
    
    
    
    
    
    
    (85,257
    )Exercise of warrants
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Balance at December 31, 2004
    
    $
    555,114
    
    
    $
    (268,300
    )
    
    $
    
    
    
    $
    286,814
   (a)
    
    Correction of Other Comprehensive Income  See Note 2, Restatement of Previously
Reported Amounts. See accompanying notes to
consolidated financial statements. 77




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002 America West Airlines, Inc. (AWA or the Airline) is a wholly owned subsidiary of America
West Holdings Corporation (Holdings or the Company). AWA accounted for most of the Companys
revenues and expenses in 2004. Based on 2004 operating revenues and available seat miles (ASMs),
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 2004, AWA operated a fleet of 138 aircraft
with an average fleet age of 10.7 years and served 63 destinations in North America, including
eight in Mexico, three in Canada and one in Costa Rica. Through regional alliance and code share
arrangements with other airlines, AWA served an additional 51 destinations in North America and the
Middle East. In 2004, AWA flew approximately 21.1 million passengers and generated revenues of
approximately $2.3 billion. 1. Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of America West Airlines and its
wholly owned subsidiary Flight Training Center Hangar Plan (FTCHP). All significant intercompany
balances and transactions have been eliminated in consolidation. Certain reclassifications have
been made to prior years consolidated financial statements to conform to the current years
presentation. The Leisure Company (TLC), previously a wholly owned subsidiary of Holdings, was merged into
AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA.
This transaction was accounted for as a reorganization of entities under common control. The 2003
and 2002 consolidated financial statements are presented on a comparable basis with the 2004
consolidated financial statements, as if the reorganization had occurred January 1, 2002. All
intercompany transactions between AWA and TLC have been eliminated. (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 that approximates
fair value. AWA reclassified investments in auction rate securities previously classified as cash
equivalents to short-term investments on the accompanying consolidated balance sheets. Investments
reclassified in 2004 and 2003 were $58.4 million and $249.7 million, respectively. (c) Expendable Spare Parts and Supplies Flight equipment expendable spare parts and supplies are valued at average cost. An allowance
for obsolescence is provided, over the estimated useful life of the related aircraft and engines,
for spare parts expected to be on hand at the date the aircraft are retired from service. (d) Property and Equipment Property and equipment are recorded at cost. Interest capitalized on advance payments for
aircraft acquisitions and on expenditures for aircraft improvements are part of these costs.
Interest capitalized for the years ended December 31, 2004, 2003 and 2002 was $2.2 million, $1.6
million and $3.0 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 AWAs ground property and equipment range from three to 12
years for owned property and equipment and up to 30 years for the flight training facility. The
estimated useful lives of AWAs owned aircraft, jet engines, flight equipment and rotable parts
range from five to 25 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. 78




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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. (e) Restricted Cash Restricted cash includes cash deposits securing certain letters of credit and surety bonds and
cash deposits held by institutions that process credit card sales transactions. Current restricted
cash includes amounts set aside in an irrevocable trust for the redemption of the 10 3/4% senior
unsecured notes which was subsequently paid on January 26, 2005. (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. In the first quarter of 2004, the Company revised the estimated useful life for certain
aircraft and related spare parts inventory as a result of changes in AWAs fleet plan and for
capitalized maintenance on certain of its engines as a result of changes in aircraft utilization.
The net impact of this change in estimate decreased the net loss for 2004 by approximately $18.4
million. 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 also been recorded. These
estimates are based on historical costs and our assumptions regarding the renewal of aircraft
leases. (g) Derivative Instruments AWAs fuel hedging contracts do not qualify as cash flow hedges under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS
No. 133). See Note 2, Restatement of Previously Reported Amounts.Accordingly, the derivative
hedging instruments are recorded as an asset or liability on the balance sheet at fair value and
the changes in the fair values are recorded in Gain (Loss) on Derivative Instruments, Net in the
accompanying consolidated statements of operations. See Note 12, Nonoperating Income (Expenses) 
Other, Net. (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. AWA also sells mileage credits to companies participating in its 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. (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, 2004 and 2003, the unamortized balance of the deferred credit was $38.3 million and $44.6
million, respectively. 79




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED In January 2002, AWA closed a $429 million loan supported by a $380 million government loan
guarantee. 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 and will be amortized over the remaining lives of the
applicable leases as a reduction in rent expense. At December 31, 2004 and 2003, the unamortized
balance of the deferred credit was approximately $4.2 million and $7.8 million, respectively. (j) Passenger Revenue Passenger revenue is recognized when transportation is provided. Ticket sales for
transportation which has not yet been provided are recorded as air traffic liability. Passenger
traffic commissions and related fees are expensed when the related revenue is recognized.
Passenger traffic commissions and related fees not yet recognized are included as a prepaid
expense. 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 AWA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) 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
$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. (l) Advertising Costs AWA expenses the costs of advertising as incurred. Advertising expense for the years ended
December 31, 2004, 2003 and 2002 was $8.3 million, $5.8 million and $6.5 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 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 Certain of AWAs employees are eligible to participate in the stock option plans of Holdings.
Holdings 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 Holdings condensed consolidated financial statements. Had Holdings determined
compensation cost based on the fair value at the grant date for its stock options under SFAS No.
123, Accounting for Share-Based Payments,and allocated the compensation expense to AWA for its
employees participating in the stock option plans, AWAs net income (loss) would have been reduced
to the pro forma amounts indicated below: 2004
    
    
    2003
    
    
    2002(in thousands)Net income (loss), as reported
    
    $
    (85,257
    )
    
    $
    61,286
    
    
    $
    (389,700
    )Stock-based compensation expense
    
    
    (5,874
    )
    
    
    (4,320
    )
    
    
    (3,709
    )Pro forma net income (loss)
    
    $
    (91,131
    )
    
    $
    56,966
    
    
    $
    (393,409
    )
 80




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (o) New Accounting Standards In November 2004, the FASB issued Revised Statement No. 123, Accounting for Share-Based
Payment(SFAS No. 123R). This statement requires AWA to recognize the grant-date fair value of
stock options in the Statement of Operations. In addition, AWA will be required to calculate this
compensation using the fair-value based method, versus the intrinsic value method previously
allowed under SFAS No. 123. This revision is effective for periods beginning after June 15, 2005.
Accordingly, AWA will adopt this revised SFAS effective July 1, 2005. AWA is currently evaluating
how it will adopt SFAS No. 123R and has not determined the method it will use to value granted
stock options. The adoption of SFAS No. 123R is expected to have a material effect on AWAs
results of operations. See Note 1, Summary of Significant Accounting Policies(m) Stock
Optionsfor AWAs disclosure of the impact of the compensation cost associated with stock options
under SFAS No. 123. (p) 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
consolidated financial statements in conformity with accounting principles generally accepted in
the United States. Actual results could differ from those estimates. (q) Reclassifications Certain reclassifications have been made to the prior years consolidated financial statements
to conform to the current years presentation. AWA reclassified amounts related to settled fuel hedge transactions and mark-to-market
adjustments on open hedge instruments from Aircraft Fuelexpense to Gain (Loss) on Derivative
Instruments, Netin the accompanying consolidated statement of operations. In fiscal years 2004
and 2003, such amounts reduced fuel expense while in fiscal years 2002 and 2001, such amounts
increased fuel expense, as originally classified. The amounts reclassified are as follows: Fiscal Year
    
    Amounts Reclassified(in thousands)2004
    
    $
    30,5292003
    
    
    10,7462002
    
    
    (656
    )
 2. Restatement of Previously Reported Amounts Derivative Instruments In February 2005, management
undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that
AWAs hedging transactions did not qualify for hedge accounting
under U.S. generally accepted accounting principles. Accordingly,
management concluded that the financial statements for prior periods
required restatement to reflect the fair value of fuel hedging
contracts in the balance sheets and statements of stockholders equity
and comprehensive income of Holdings and AWA. Specifically,
(i) AWA has restated its balance sheet and statement of
stockholders equity and comprehensive income as of and for the
year ended December 31, 2003, and (ii) AWA has restated its
2004 and 2003 interim financial results to correct the aforementioned
accounting errors. The unaudited interim results as originally
reported and as restated are presented in Note 15,
Quarterly Financial Data (Unaudited). AWA restated
its 2003 consolidated balance sheet to reduce the carrying value of
its derivative instruments asset by $12.5 million, which served
to record the asset at fair value of open contracts as of
December 31, 2003. The restatement also eliminated
$12.5 million in accumulated other comprehensive income,
$2.0 million of which was previously recorded in the 2003
beginning balance of accumulated other comprehensive income. The
restated amount of other assets is $110.2 million in the
accompanying 2003 consolidated balance sheet. The restatement
eliminates the balance in accumulated other comprehensive income in
the accompanying 2003 consolidated balance sheet and consolidated
statement of stockholders equity and comprehensive income. 81




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 3. Investments in Debt Securities Cash equivalents and short-term investments as of December 31 are classified as follows: 2004
    
    
    2003(in thousands)Cash and cash equivalents:Corporate notes
    
    $
    
    
    
    $
    4,205Cash and money market funds
    
    
    126,992
    
    
    
    128,441U.S. government securities
    
    
    1,505
    
    
    
    1,504Total cash and cash equivalents
    
    $
    128,497
    
    
    $
    134,150Short-term investments:Corporate notes
    
    $
    126,651
    
    
    $
    318,845U.S. government securities
    
    
    
    
    
    
    3,770Total short-term investments
    
    
    126,651
    
    
    
    322,615Total cash equivalents and short-term investments
    
    $
    255,148
    
    
    $
    456,765
 In addition, AWA had long-term investments in debt securities of $30.0 million and $40.7
million as of December 31, 2004 and 2003, respectively. Long-term investments consist of cash
invested in certain debt securities with maturities greater than one year. The debt securities are
classified as held to maturity and are carried at amortized cost that approximates fair value. 4. 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. Long-term Debt At December 31, 2004 and 2003, the fair value of long-term debt was approximately $721.5
million and $845.6 million, respectively. AWAs variable rate long-term debt with a carrying value
of $545.7 million and $555.9 million at December 31, 2004 and 2003, 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 AWA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, AWA may enter into certain hedging transactions with approved
counterparties for a period generally not exceeding 12 months. As of December 31, 2004, AWA had
entered into costless collar and basis swap transactions hedging approximately 42% of its projected
2005 fuel requirements. The fair value of AWAs financial derivative instruments was a net asset
of approximately $0.2 million and $2.7 million at December 31, 2004 and 2003, respectively. See
Note 2, Restatement of Previously Reported Amounts. 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. 82




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 5. Advances to Parent Company and Affiliate In January 2002, AWA closed a $429 million loan supported by a $380 million government loan
guarantee. 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. AWAs net advances to Holdings were approximately $258.8 million and $213.1 million at
December 31, 2004 and 2003, respectively. 6. Long-Term Debt Long-term debt at December 31, 2004 and 2003 consists of the following: 2004
    
    
    2003(in thousands)SecuredEquipment notes payable, variable interest rates of 2.88% to 3.37%, averaging
2.96%, installments due 2005 through 2008
    
    $
    39,464
    
    
    $
    48,454GECC term loan, variable interest rate of 6.41%, quarterly installments beginning
2006 through 2010 (a)
    
    
    110,564
    
    
    
    Term loan, variable interest rate, paid off September 2004 (a)
    
    
    
    
    
    
    74,775Senior secured discount notes, variable interest rate of 6.42%, installments due
2005 through 2009 (b)
    
    
    35,988
    
    
    
    186,016
    
    
    
    123,229UnsecuredGovernment guaranteed loan, variable interest rate of 2.38%, installments due
2005 through 2008 (c)
    
    
    343,200
    
    
    
    429,00010 3/4% senior unsecured notes, interest only payments until due in 2005 (d)
    
    
    39,548
    
    
    
    39,5487.5% convertible senior notes, interest only payments until due in 2009 (e)
    
    
    112,299
    
    
    
    104,3287.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter (f)
    
    
    252,695
    
    
    
    252,695Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
3.61%, installments due through 2005
    
    
    15,750
    
    
    
    5,250Industrial development bonds, fixed interest rate of 6.3% due 2023 (g)
    
    
    29,300
    
    
    
    29,300State loan, variable interest rate of 5.97%, installments due 2005 through 2007
    
    
    750
    
    
    
    1,500793,542
    
    
    
    861,621Total long-term debt
    
    
    979,558
    
    
    
    984,850Less: Unamortized discount on debt
    
    
    (193,246
    )
    
    
    (191,986
    )Current maturities
    
    
    (151,183
    )
    
    
    (103,899
    )$
    635,129
    
    
    $
    688,965
   (a)
    
    On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $110.6 million. AWA used
approximately $77.0 million of the proceeds from this financing to repay in full
its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to
pay certain costs associated with this transaction. AWA used the remaining
proceeds for general corporate purposes. The new term loan financing consists of
two secured term loan facilities: a $75.6 million term loan facility secured
primarily by spare parts, rotables and appliances (the Spare Parts Facility);
and a $35.0 million term loan facility secured primarily by aircraft engines and
parts installed in such engines (the Engine Facility).The facilities are cross-collateralized on a subordinated basis and the collateral
securing the facilities also secures on a subordinated basis certain of AWAs other
existing debt and lease obligations to GECC and its affiliates.The loans under the Spare Parts Facility are payable in full at maturity on
September 10, 2010. The loans under the Engine Facility are payable in equal
quarterly installments of $1.3 million beginning on March 10, 2006 through June 10,
2010 with the remaining loan amount of $11.8 million payable at maturity on
September 10, 2010. The loans under each facility may be prepaid in an amount not
less than $5 million at any time after the 30th monthly anniversary of the funding
date under such facility. If AWA fails to maintain a certain ratio of rotables to
loans under the Spare Parts Facility, it may be required to pledge additional
rotables or cash as collateral, provide a letter of credit or prepay some or all of
the loans under the Spare Parts Facility. In addition, the loans under the Engine
Facility are subject to mandatory prepayment upon the occurrence of certain events
of loss applicable to, or certain dispositions of, aircraft engines securing the
facility. 83




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  Principal amounts outstanding under the loans bear interest at a rate per annum
based on three-month LIBOR plus a margin. Both facilities contain customary events
of default, including payment defaults, cross-defaults, breach of covenants,
bankruptcy and insolvency defaults and judgment defaults.(b)
    On December 27, 2004, AWA raised additional capital by financing its Phoenix
maintenance facility and flight training center. The flight training center was
previously unencumbered, and the maintenance facility became unencumbered earlier
this year when AWA refinanced its term loan. Using its leasehold interest in
these two facilities as collateral, AWA, through a wholly owned subsidiary named
FTCHP LLC, raised $30.8 million through the issuance of senior secured discount
notes. The notes were issued by FTCHP at a discount pursuant to the terms of a
senior secured term loan agreement among AWA, FTCHP, Heritage Bank, SSB, as
administrative agent, Citibank, N.A., as the initial lender, and the other lenders
from time to time party thereto. Citibank, N.A. subsequently assigned all of its
interests in the notes to third party lenders.AWA has fully and unconditionally guaranteed the payment and performance of FTCHPs
obligations under the notes and the loan agreement. The notes require aggregate
principal payments of $36 million with principal payments of $1.5 million due on
each of the first two anniversary dates and the remaining principal amount due on
the fifth anniversary date. The notes may be prepaid in full at any time (subject
to customary LIBOR breakage costs) and in partial amounts of $1.5 million on the
third and fourth anniversary dates. The unpaid principal amount of the notes bears
interest based on LIBOR plus a margin subject to adjustment based on a loan to
collateral value ratio.The loan agreement contains customary covenants applicable to loans of this type,
including obligations relating to the preservation of the collateral and
restrictions on the activities of FTCHP. In addition, the loan agreement contains
events of default, including payment defaults, cross-defaults to other debt of
FTCHP, if any, breach of covenants, bankruptcy and insolvency defaults and judgment
defaults.In connection with this financing, AWA sold all of its leasehold interests in the
maintenance facility and flight training center to FTCHP and entered into subleases
for the facilities with FTCHP at lease rates expected to approximate the interest
payments due under the notes. In addition, AWA agreed to make future capital
contributions to FTCHP in amounts sufficient to cover principal payments and other
amounts owing pursuant to the notes and the loan agreement.The proceeds from this financing, together with $10.5 million from operating cash
flow, were irrevocably deposited with the trustee for AWAs 10 3/4% senior
unsecured notes due 2005 and subsequently redeemed on January 26, 2005.(c)
    In January 2002, AWA closed a $429 million loan backed by a $380 million
federal loan guarantee provided by the Air Transportation Stabilization Board (the
ATSB). Certain third-party counter-guarantors have fully and unconditionally
guaranteed the payment of an aggregate of $45 million of the outstanding principal
amount under the government guaranteed loan plus accrued and unpaid interest
thereon. In addition, Holdings has fully and unconditionally guaranteed the
payment of all principal, premium, interest and other obligations outstanding
under the government guaranteed loan and has pledged the stock of AWA to secure
its obligations under such guarantee. Principal amounts under this loan become
due in ten installments of $42.9 million on each March 31 and September 30,
commencing on March 31, 2004 and ending on September 30, 2008. Principal amounts
outstanding under the government guaranteed loan bear interest at a rate per annum
equal to LIBOR plus 40 basis points.Subject to certain exceptions, AWA is required to prepay the government guaranteed
loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year; and
    insurance proceeds in excess of $2 million to the extent such proceeds are
not used to restore or replace the assets from which such proceeds are
derived.  In addition, AWA is required to prepay the government guaranteed loan upon a change
in control and we may be required to prepay portions of the loan if our employee
compensation costs exceed a certain threshold. AWA may, at its option, prepay the
government guaranteed loan without premium or penalty, subject to reimbursement of
the lenders breakage costs in the case of prepayment of LIBOR loans.The government guaranteed loan requires that AWA maintain a minimum cash balance of
$100 million. In addition, the government loan contains customary affirmative
covenants and the following negative covenants: restrictions on liens, investments,
restricted payments, fundamental changes, asset sales and acquisitions, the
creation of new subsidiaries, sale and leasebacks, transactions with affiliates,
the conduct of business, mergers or consolidations, issuances and dispositions of
capital stock of subsidiaries, and 84




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  amendments to other indebtedness. The government guaranteed loan contains
customary events of default, including payment defaults, cross-defaults, breach of
covenants, bankruptcy and insolvency defaults and judgment defaults.(d)
    In August 1995, AWA issued $75.0 million principal
amount of 10 3/4% senior
unsecured notes due 2005 of which $39.5 million remained outstanding at December
31, 2004. Interest on the 10 3/4% senior unsecured notes is payable semiannually in
arrears on March 1 and September 1 of each year. On December 27, 2004, AWA called
for the redemption on January 26, 2005 of all of the senior unsecured notes at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest through the redemption date. In addition, AWA irrevocably deposited the
$30.8 million raised through the maintenance facility and flight training center
financing, together with an additional $10.5 million from its operating cash flow,
with the trustee for the senior unsecured notes. The senior notes were
subsequently redeemed on January 26, 2005.(e)
    In connection with the closing of the government guaranteed loan and the
related transactions, Holdings issued $104.5 million of 7.5% convertible senior
notes due 2009, of which approximately $112.3 million remained outstanding at
December 31, 2004 (including $21.6 million of interest paid through December 31,
2004 as a deemed loan added to the initial principal thereof). Beginning January
18, 2005, these notes are convertible into shares of class B common stock, at the
option of the holders, at an initial conversion price of $12.00 per share or a
conversion ratio of approximately 83.333 shares per $1,000 principal amount of
such notes, subject to standard anti-dilution adjustments. Interest on the 7.5%
convertible senior notes is payable semiannually in arrears on June 1 and December
1 of each year. At Holdings option, the first six interest payments were payable
in the form of a deemed loan added to the principal amount of these notes. The
7.5% convertible senior notes will mature on January 18, 2009 unless earlier
converted or redeemed. The payment of principal, premium and interest on the 7.5%
convertible senior notes is fully and unconditionally guaranteed by AWA.Holdings may redeem some or all of the 7.5% convertible senior notes at any time
before January 18, 2005, at a redemption price equal to $1,000 per note to be
redeemed if (A) the closing price of the class B 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 the
mailing of the redemption notice, and (B) a shelf registration statement covering
resales of the notes and the class B 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 redemption date, unless
registration is no longer required. Holdings may redeem the 7.5% convertible
senior notes, in whole or in part, on or after January 18, 2005 at the following
redemption prices (expressed as percentages of the principal amount thereof), if
redeemed during the twelve-month period commencing on January 18 of the years set
forth below, plus, in each case, accrued and unpaid interest, if any, to the date
of redemption: Year
    Redemption Price2005
    
    
    103.75
    %2006
    
    
    102.50
    %2007
    
    
    101.25
    %2008 and thereafter
    
    
    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, 2004
is net of an unamortized discount of $22.2 million.(f)
    In July and August of 2003, AWA completed a private placement of approximately
$86.8 million issue price of 7.25% Senior Exchangeable Notes due 2023. The notes
bear cash interest at 2.49% per year until July 30, 2008. Thereafter, the notes
will cease bearing cash interest and begin accruing original issue discount daily
at a rate of 7.25% per year until maturity. Each note was issued at a price of
$343.61 and is exchangeable for class B common stock of Holdings at an exchange
ratio of 32.038 shares per $1,000 principal amount at maturity of the notes
(subject to adjustment in certain circumstances). This represents an equivalent
conversion price of approximately $10.73 per share. The aggregate amount due at
maturity, including accrued original issue discount from July 31, 2008, will be
$252,695,000. The notes are unconditionally guaranteed on a senior unsecured
basis by Holdings.Holders may exchange their notes for the shares of class B common stock of Holdings
in any fiscal quarter commencing after September 30, 2003, if, as of the last day
of the preceding fiscal quarter, the closing sale price of the class B common stock
for at least 20 trading days in a period of 30 consecutive trading days ending on
the last trading day of such preceding fiscal quarter is more than 110% of the
accreted exchange price per share of Class B common stock on the last day of such
preceding fiscal quarter. If the foregoing condition is satisfied, then the notes
will be exchangeable at any time at the option of the holder through maturity. The
accreted exchange price per share as of any day will equal the issue price of a
note plus accrued original issue discount to that day divided by 32.038, subject to
any adjustments to the exchange rate through that day. 85




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED  On or before July 30, 2018, a holder also may exchange its notes for shares of the
Class B common stock at any time after a 10 consecutive trading-day period in which
the average of the trading prices for the notes for that 10 trading-day period was
less than 103% of the average exchange value for the notes during that period.
Exchange value is equal to the product of the closing sale price for the shares of
Class B common stock on a given day multiplied by the then current exchange rate,
which is the number of shares of Class B common stock for which each note is then
exchangeable.In addition, the holders may exchange the notes if the notes have been called for
redemption or if certain specified corporate transactions have occurred.Holders of the notes may require AWA to repurchase the notes at a price equal to
the original issue price plus accrued cash interest and original issue discount, if
any, on July 30, 2008, 2013 and 2018. The purchase price of such notes may be paid
in cash or class B common stock of Holdings, subject to certain restrictions. In
addition, each holder may require AWA to purchase all or a portion of such holders
notes upon the occurrence of certain change of control events concerning AWA or
Holdings. AWA may redeem the notes, in whole or in part, on or after July 30, 2008
at a price equal to the original issue price plus accrued cash interest and
original issue discount, if any.(g)
    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%
on April 1 or October 1, 2008; 101% on April 1 or October 1, 2009; and 100% on
April 1, 2010 and thereafter. Secured financings totaling $186.0 million are collateralized by assets, primarily
aircraft, engines, simulators, rotable aircraft parts and AWAs hangar facility, with a net book
value of $268.4 million at December 31, 2004. At December 31, 2004, the estimated maturities of long-term debt are as follows: (in thousands)2005
    
    
    151,1832006
    
    
    101,0422007
    
    
    100,5092008
    
    
    107,5702009
    
    
    147,327Thereafter
    
    
    371,927$
    979,558
 Certain of AWA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
AWA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. 7. Commitments and Contingencies (a) Leases As of December 31, 2004, AWA had 136 aircraft under operating leases, including four aircraft
that will be delivered in 2005, with remaining terms ranging from five months to approximately 19
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. Under the
restructured lease agreements, annual rent payments have been reduced for each of the next five
years. 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 approximately nine years or call
options pursuant to which the lessors could require AWA to return the aircraft to the lessors upon
receipt of six to nine months written notice. AWA 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 supplemental rent payments. 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) covering the financing of 54 aircraft. 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, 86




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED these trusts allow AWA 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. The trusts are also
structured to provide for certain credit enhancements, such as liquidity facilities to cover
certain interest payments, that reduce the risks to the purchasers of the trust certificates and,
as a result, reduce the cost of aircraft financings to AWA. 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 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. In
addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the
leased aircraft. 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
does not provide residual value guarantees under these lease arrangements. Each lease contains a
purchase option that allows AWA to purchase the aircraft at a fixed price, which at the inception
of the lease approximated the aircrafts expected fair market value at the option date, near the
end of the lease term. These leasing entities meet the criteria for variable interest entities.
However, they do not meet the consolidation criteria under FASB Interpretation No. 46,
Consolidation of Variable Interest Entities,because AWA is not the primary beneficiary under
these arrangements. 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 $14.8 million which includes accumulated amortization of $2.1 million and
corresponding lease obligation of $8.5 million at December 31, 2004. In January 2004, one aircraft lessor exercised its put rights under the aircraft lease
agreement to extend the lease for one Boeing 737-300 aircraft for an additional 33 months. AWA also leases certain terminal space, ground facilities and computer and other equipment
under noncancelable operating leases. At December 31, 2004, 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
    
    
    OperatingYears Ending December 31,
    
    Leases
    
    
    Leases(in thousands)2005
    
    
    4,659
    
    
    
    361,6712006
    
    
    4,988
    
    
    
    335,4122007
    
    
    1,773
    
    
    
    314,8922008
    
    
    
    
    
    
    264,0172009
    
    
    
    
    
    
    238,074Thereafter
    
    
    
    
    
    
    1,719,934Total minimum lease payments
    
    
    11,420
    
    
    $
    3,234,000Less: Amounts of lease payments that represent interest
    
    
    (2,884
    )Present value of future minimum capital lease payments
    
    
    8,536Less: Current obligations under capital leases
    
    
    (3,475
    )Long-term capital lease obligations
    
    $
    5,061
 Rent expense (excluding landing fees) was approximately $421.1 million, $406.8 million
and $409.4 million for the years ended December 31, 2004, 2003 and 200, respectively. Collectively, the operating lease agreements require security deposits with lessors of $24.0
million, which have been classified as Other Assets, Netin the accompanying balance sheets, and
bank letters of credit of $13.8 million. The letters of credit are collateralized by $13.9 million
of restricted cash. 87




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (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,
AWA 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, 2004, the outstanding
principal amount of the bonds was $21.8 million. AWA estimates its remaining payments to cover the
principal and interest of these bonds will be approximately $43.6 million. In addition, AWA is also the lessee under certain long-term leases at various airports. At
certain of these airports, municipalities have issued revenue bonds to improve airport facilities
that are leased by AWA and accounted for as operating leases. AWA does not guarantee the
underlying debt related to these operating leases. (c) Aircraft Acquisitions In August 2004, AWA amended its aircraft purchase contract with AVSA S.A.R.L., an affiliate of
Airbus Industrie or AVSA, to acquire 22 Airbus A320 family aircraft (thirteen A320s and nine
A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, it is
anticipated that 18 will be purchased directly from the manufacturer and four have been leased
under noncancelable leases from various lessors for aircraft to be delivered in 2005. AWA has
negotiated lease agreements for the four leased aircraft. In the context of this incremental
order, AWA also secured extensive flexibility from Airbus with respect to its existing A318 order,
allowing AWA to better react to market conditions by enabling it to amend its 15 A318 delivery
positions to A319s and A320s, if it so desires, or to take no additional aircraft under certain
conditions. AWA has an agreement with International Aero Engines (IAE) which provides for the purchase
by AWA of seven new V2500-A5 spare engines scheduled for delivery through 2007 for use on certain
of the Airbus A320 fleet. At December 31, 2004, the seven engines have an estimated gross cost of
$39 million. The following table reflects estimated net 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. (in thousands)2005
    
    $
    272,8202006
    
    
    456,8912007
    
    
    47,697$
    777,408
 (d) Sale-Leaseback Transactions In the fourth quarter of 2004, AWA completed two separate aircraft sale-leaseback transactions
on one Airbus A320 aircraft and one Airbus A319 aircraft resulting in a combined loss of $4.6
million. This amount was recorded in Other Operating Expenses. In May 2004, AWA completed a sale-leaseback transaction on one V2500-A5 engine resulting in a
gain of $2.9 million which has been deferred and will be amortized over the lease term of seven
years. In July 2004, AWA completed a sale-leaseback transaction on one V2500-A5 engine resulting in a
gain of $0.8 million which has been deferred and will be amortized over the lease term of seven
years. 88




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED As part of the restructuring completed on January 18, 2002, AWA committed to the sale and
leaseback of eight aircraft. The sales and leaseback of six of these aircraft were completed in
2002 and resulted in losses of approximately $3.8 million. The sale and leaseback of one aircraft
was completed in June 2003 and resulted in a loss of approximately $0.6 million. The sale and
leaseback of the final aircraft was completed in September 2003 and resulted in a loss of
approximately $0.7 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 11, Special Charges. (e) Contingent Legal Obligations Holdings and its subsidiaries are parties to various legal proceedings, including some
purporting to be class action suits, and some that 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, AWA 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 additional exposure ranges from $0 to $25 million. In these instances, no
accrual has been recorded. (f) General Guarantees and Indemnifications AWA 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 AWA 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 AWA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, AWA typically indemnifies
such parties for any environmental liability that arises out of or relates to AWAs use of the
leased premises. AWA 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. 8. 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 31,2004
    
    
    2003
    
    
    2002(in thousands)Current taxes:Federal
    
    $
    
    
    
    $
    114
    
    
    $
    (30,544
    )State
    
    
    23
    
    
    
    
    
    
    
    Total current taxes
    
    
    23
    
    
    
    114
    
    
    
    (30,544
    )Deferred taxes
    
    
    
    
    
    
    
    
    
    
    Total income tax expense (benefit)
    
    $
    23
    
    
    $
    114
    
    
    $
    (30,544
    )
 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%. 89




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Income tax expense (benefit) differs from amounts computed at the federal statutory income tax
rate as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Income tax expense (benefit) at the federal
statutory income tax rate
    
    $
    (29,832
    )
    
    $
    21,490
    
    
    $
    (74,207
    )State income tax expense (benefit), net of
federal income tax expense (benefit)
    
    
    (3,057
    )
    
    
    2,532
    
    
    
    (7,920
    )State rate change
    
    
    
    
    
    
    (3,229
    )
    
    
    Change in valuation allowance
    
    
    31,036
    
    
    
    (17,532
    )
    
    
    44,461Expired tax credits
    
    
    
    
    
    
    
    
    
    
    7,988Other, net
    
    
    1,876
    
    
    
    (3,147
    )
    
    
    (866
    )Total
    
    $
    23
    
    
    $
    114
    
    
    $
    (30,544
    )
 As of December 31, 2004, AWA has available net operating loss carryforwards (NOLs) and
tax credit carryforwards for federal income tax purposes of approximately $447.6 million and $1.1
million, respectively. The NOLs expire during the years 2007 through 2024 while approximately $0.2
million of the tax credit carryforwards will expire in 2005 and 2006. AWA also had capital loss
carryforwards for federal income tax purposes of approximately $1.4 million which expire in 2009.
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 NOLs and tax credit carryforwards may be
restricted. In September 2003, Holdings filed its 2002 consolidated income tax return with the IRS, which
included a claim to carryback losses incurred in 2002 to the tax years 1999 and 2000. This
resulted in a refund of approximately $3.1 million, of which substantially all was received in the
fourth quarter of 2003. 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: 2004
    
    
    2003(in thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    183,058
    
    
    $
    126,220Aircraft leases
    
    
    13,585
    
    
    
    17,347Vacation accrual
    
    
    13,407
    
    
    
    11,948Frequent flyer accrual
    
    
    6,592
    
    
    
    5,958Restructuring and other reserves
    
    
    3,626
    
    
    
    3,858Tax credit carryforwards
    
    
    1,112
    
    
    
    1,112Other
    
    
    3,144
    
    
    
    2,740Gross deferred tax assets
    
    
    224,524
    
    
    
    169,183Deferred tax liabilities:Accelerated depreciation and amortization
    
    
    (95,365
    )
    
    
    (70,534
    )Partnership losses
    
    
    (1,421
    )
    
    
    (1,420
    )Other
    
    
    (254
    )
    
    
    (781
    )Gross deferred tax liabilities
    
    
    (97,040
    )
    
    
    (72,735
    )Net deferred tax assets before valuation allowance
    
    
    127,484
    
    
    
    96,448Less valuation allowance
    
    
    (127,484
    )
    
    
    (96,448
    )Net deferred 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 AWAs performance, the market environment in which AWA 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 90




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED not needed when there is negative evidence such as cumulative losses in recent years.
Therefore, cumulative losses weigh heavily in the overall assessment. AWA was in a cumulative loss position three out of four years between December 31, 2001
through December 31, 2004, which weighed heavily in the overall determination that a valuation
allowance was needed. As of December 31, 2004, AWA had recorded a valuation allowance of $127.5
million against its net deferred tax assets. AWA expects to continue to record a full valuation
allowance on any future tax benefits until we have achieved several quarters of consecutive
profitable results coupled with an expectation of continued profitability. As of December 2004 and
2003, the valuation allowance totaled $127.5 million and $96.4 million, respectively. 9. 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 AWA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 consolidated
statements of stockholders equity and comprehensive income and classified as Other Assets, Net
in the accompanying consolidate balance sheets. The warrants will be amortized over the life of
the government guaranteed loan as an increase to interest expense. In the first quarter of 2004,
approximately 220,000 warrants were exercised at $3 per share. In the third quarter of 2003,
approximately 2.6 million warrants were exercised at $3 per share. These warrant exercises were
cashless transactions resulting in the issuance of approximately 1.6 million shares of Holdings
Class B common stock. 10. Employee Benefit Plan Holdings has a 401(k) defined contribution plan, covering essentially all employees of AWA.
Participants may contribute from 1 to 50% of their pretax earnings to a maximum of $13,000 in 2004.
AWAs matching contribution is determined annually by the Board of Directors. AWAs contribution
expense to the plan totaled $11.4 million, $8.6 million and $8.6 million in 2004, 2003 and 2002,
respectively. During the third quarter of 2004, Holdings became aware that an insufficient number of shares
of its Class B common stock were registered for offer and sale through its 401(k) plan. In
response to this registration shortfall, Holdings promptly filed a new registration statement on
Form S-8 on August 13, 2004, which registered an additional 4,500,000 shares of Class B common
stock to permit the continued offer and sale of such shares to participants through the 401(k)
plan. Because the 401(k) plan in the past has purchased and in the future expects to continue to
purchase shares of Class B common stock needed for allocation to participant accounts only in the
open market and not directly from Holdings, the registration of these additional shares and their
purchase by the 401(k) plan will have no dilutive impact on the outstanding equity of Holdings. As
a result of the registration shortfall, however, participants who acquired unregistered shares
through their 401(k) plan accounts after June 30, 2003, and prior to August 13, 2004, may be
entitled to rescission rights or other remedies under the Securities Act of 1933, as amended.
Holdings has notified affected existing and former plan participants of their potential rescission
rights, but cannot predict the extent to which any such rescission rights may be exercised or the
impact of any possible federal or state regulatory action pertaining to the registration shortfall.
Holdings does not believe, however, that any consequences arising from the registration shortfall
will have a material adverse effect on its financial position or results of operations. 91




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 11. Special Charges In the first quarter of 2004, AWA recorded a $0.6 million reduction in special charges related
to the revision of estimated costs associated with the sale and leaseback of certain aircraft. In August 2004, AWA entered into definitive agreements with two lessors to return six Boeing
737-200 aircraft. Three of these aircraft were returned to the lessors in the third quarter, two
were returned in the fourth quarter and one was returned in January 2005. In addition, AWA
continues negotiating with one lessor on the return of its remaining two Boeing 737-200 aircraft,
one of which was parked in March 2002. The other aircraft was removed from service in January
2005. In connection with the return of the aircraft, AWA recorded $1.9 million of special charges
which include lease termination payments of $2.1 million, the write-down of leasehold improvements
and aircraft rent balances of $2.8 million, offset by the net reversal of maintenance reserves of
$3.0 million. In December 2004, AWA and General Electric (GE) mutually agreed to terminate the V2500 A-1
power by hour (PBH) agreement effective January 1, 2005. This agreement was entered into March
1998 with an original term of ten years. For terminating the agreement early, AWA received a $20.0
million credit to be applied to amounts due for other engines under the 1998 agreement that is
expected to be fully applied by December 31, 2005. AWA had capitalized PBH payments for V2500 A-1
engines in excess of the unamortized cost of the overhauls performed by GE of approximately $3.7
million. With the termination of this agreement, these payments were not realizable and as a
result, AWA wrote off this amount against the $20.0 million credit referred to above resulting in a
$16.3 million net gain. In February 2003, AWA announced the elimination of its hub operations in Columbus, Ohio. As a
result, 12 regional jets, all of which were operated by Chautauqua Airlines under the America West
Express banner, have been phased out of the fleet. In addition, the hub has been downsized from 49
daily departures to 15 destinations to four flights per day to Phoenix and Las Vegas. Service to
New York City La Guardia Airport was also eliminated because perimeter rules at the airport
prohibit flights beyond 1,500 miles, precluding service from AWAs hubs in Phoenix and Las Vegas.
In the first and second quarters of 2003, AWA recorded special charges of $1.0 million and $9.6
million, respectively, related to the costs associated with the termination of certain aircraft and
facility contracts, employee transfer and severance expenses and the write-off of leasehold
improvements in Columbus, Ohio. In the first quarter of 2003, AWA recorded a $1.1 million reduction in special charges related
to the earlier-than-planned return of certain leased aircraft in 2001 and 2002, as all payments
related to these aircraft returns have been made. In April 2003, as part of a cost reduction program, AWA implemented a plan to reduce
management, professional and administrative payroll costs which resulted in 161 fewer employees
within these workgroups. As a result, AWA recorded a special charge of $1.8 million related to
this reduction-in-force. In June 2003, AWA recorded an impairment loss of $2.6 million related to three owned Boeing
737-200 aircraft that were grounded and subsequently sold. In the third quarter of 2003, AWA recorded an additional $0.5 million of special charges
associated with the elimination of our hub operations in Columbus, Ohio. These special charges
were offset by a $0.5 million reduction in special charges related to the revision of estimated
costs associated with the sale and leaseback of certain aircraft. In the first quarter of 2002, AWA recorded a 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(in thousands)Fleet restructuring costs
    
    $
    9,915Losses on sale-leaseback transactions
    
    
    6,328Professional fees
    
    
    4,745Write-off of computer system and security equipment
    
    
    3,411Severance
    
    
    631Revision of estimate for second quarter 2001 special charge
    
    
    (4,000
    )Total
    
    $
    21,030
 92




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED 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. The following table presents the payments and other settlements made during 2002, 2003 and
2004 and the remaining special charge accruals as of December 31, 2004. ContractSale-
    
    
    Fleet
    
    
    Professional
    
    
    Reductions-
    
    
    Termination/Leaseback
    
    
    Restructuring
    
    
    Fees
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2001
    
    $
    
    
    
    $
    16,786
    
    
    $
    
    
    
    $
    83
    
    
    $
    
    
    
    $
    16,869Special charges
    
    
    6,328
    
    
    
    10,582
    
    
    
    1,489
    
    
    
    631
    
    
    
    
    
    
    
    19,030Reclassification of aircraft rent
due to restructuring
    
    
    
    
    
    
    4,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,696Payments
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,833Special charges
    
    
    (510
    )
    
    
    1,545
    
    
    
    
    
    
    
    2,310
    
    
    
    10,634
    
    
    
    13,979Payments
    
    
    
    
    
    
    (896
    )
    
    
    
    
    
    
    (2,003
    )
    
    
    (7,446
    )
    
    
    (10,345
    )Loss on sale-leasebacks
    
    
    (1,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,361
    )Write-off of leasehold improvements due
to Columbus hub closure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (539
    )
    
    
    (539
    )Impairment loss
    
    
    
    
    
    
    (2,617
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,617
    )Balance at December 31, 2003
    
    
    605
    
    
    
    1,389
    
    
    
    
    
    
    
    307
    
    
    
    2,649
    
    
    
    4,950Special charges
    
    
    (600
    )
    
    
    1,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,313Payments
    
    
    (5
    )
    
    
    (2,908
    )
    
    
    
    
    
    
    (242
    )
    
    
    (2,528
    )
    
    
    (5,683
    )Revision of estimate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Reversal of maintenance reserves
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Write-off of leasehold improvements,
engine overhauls and deferred rent
    
    
    
    
    
    
    (2,751
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,751
    )Balance at December 31, 2003
    
    $
    
    
    
    $
    643
    
    
    $
    
    
    
    $
    
    
    
    $
    121
    
    
    $
    764
 AWA expects to make payments related to these special charges through the fourth quarter
of 2005. 12. Nonoperating Income (Expenses)  Other, Net In connection with the term loan refinancing with GECC, AWA wrote off $1.3 million of debt
issue costs associated to the term loan with Mizuho in 2004. This amount was recorded in
nonoperating expenses. The changes in the fair value of AWAs derivative instruments and the net realized gains and
losses for the settled hedge transactions was a $30.5 million credit in 2004, $10.7 million credit
in 2003 and $0.6 million expense in 2002. In April 2003, the Senate and House of Representatives of the United States of America passed,
and the President signed, the Emergency Wartime Supplemental Appropriations Act to provide certain
aviation-related assistance. $2.3 billion of the appropriation was for grants by the TSA to U.S.
air carriers based on the proportional share each carrier had paid or collected as of the date of
enactment of the legislation for passenger security and air carrier security fees. In May 2003,
AWA received approximately $81.3 million representing its proportional share of passenger security
and air carrier security fees paid or collected as of April 2003, which has been classified as
Federal Government Assistancein the accompanying statements of operations. See Note 16,
Emergency Wartime Supplemental Appropriations Act. 93




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED In the fourth quarter of 2003, IAC/InterActiveCorp completed its acquisition of Hotwire.com, a
discount travel website. Hotwire was founded by the Texas Pacific Group, American Airlines,
Continental Airlines, Northwest Airlines, United Airlines, US Airways and AWA in October 2000. AWA
had an ownership interest of approximately 1.5% in Hotwire.com with a carrying value of
approximately $0.03 million. Upon closing of the transaction, AWA received cash of $9.8 million.
Accordingly, AWA recognized a nonoperating gain of $9.8 million in the fourth quarter of 2003. 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 loss of $2.8 million. 13. 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 31,2004
    
    
    2003
    
    
    2002(in thousands)Non-cash transactions:Reclassification of investments in debt securities to short-term
investments
    
    $
    25,730
    
    
    $
    29,058
    
    
    $
    Reclassification of advances to parent company, net
    
    
    
    
    
    
    
    
    
    
    265,810Issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    67,902Cancellation of convertible notes
    
    
    
    
    
    
    (660
    )
    
    
    (8,280
    )Cancellation of 10.75% senior unsecured notes related to sale
of NLG investment
    
    
    
    
    
    
    (10,370
    )
    
    
    Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    35,383Exercise of warrants
    
    
    (2
    )
    
    
    (17
    )
    
    
    Equipment acquired through capital leases
    
    
    
    
    
    
    
    
    
    
    17,753Equipment acquired with issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    64,163Notes payable issued for equipment purchase deposits
    
    
    17,500
    
    
    
    5,250
    
    
    
    10,500Notes payable canceled under the aircraft purchase agreement
    
    
    (7,000
    )
    
    
    (7,000
    )
    
    
    (10,500
    )Payment in kind notes issued, net of returns
    
    
    9,033
    
    
    
    8,972
    
    
    
    7,756Cash transactions:Interest paid, net of amounts capitalized
    
    
    23,841
    
    
    
    17,201
    
    
    
    25,942Income taxes paid (refunded)
    
    
    367
    
    
    
    (2,493
    )
    
    
    (63,503
    )
 14. Related Party Transactions As part of our reorganization in 1994, Continental Airlines and AWA entered into an alliance
agreement that 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. AWA paid
Continental approximately $13.4 million, $17.3 million and $25.5 million and also received
approximately $4.1 million, $5.0 million and $15.9 million in 2004, 2003 and 2002, respectively,
from Continental pursuant to these agreements. 94




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED Texas Pacific Group agreed to reimburse AWA approximately $2.5 million for expenses incurred
by AWA on its behalf. As a result, AWA recorded this as a receivable as of December 31, 2004.
Subsequent to December 31, 2004, AWA received $1.3 million in such reimbursement and expects to
receive an additional $1.2 million in 2005. 15. Quarterly Financial Data (Unaudited) The 2004 and 2003 unaudited quarterly financial data has been restated to reflect the
accounting for fuel hedging derivative instruments pursuant to managements determination that AWA
did not qualify for hedge accounting under SFAS No. 133. In addition, the restated amounts also
reflect corrections to properly reflect the fair value of open derivative instruments at each
quarter end. See Note 2, Restatement of Previously Reported Amounts. Summarized quarterly financial data for 2004 and 2003 follows (in thousands of dollars): 1st Quarter
    
    
    2nd Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2004Operating revenues
    
    $
    576,374
    
    
    $
    576,374
    
    
    $
    604,904
    
    
    $
    604,904Operating income
    
    
    15,481
    (1)
    
    
    18,624
    
    
    
    17,266
    (3)
    
    
    21,784Nonoperating expenses, net
    
    
    (16,275
    )(1)(2)
    
    
    (16,679
    )
    
    
    (5,741
    )(3)(4)
    
    
    (15,226
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    (794
    )(2)
    
    
    1,945
    
    
    
    11,525
    (4)
    
    
    6,558
 3rd Quarter
    
    
    4th Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2004Operating revenues
    
    $
    578,453
    
    
    $
    578,453
    
    
    $
    578,546
    
    
    $
    578,546Operating loss
    
    
    (35,069
    )(5)
    
    
    (27,268
    )
    
    
    (37,382
    )(7)
    
    
    (22,315
    )Nonoperating income (expenses), net
    
    
    7,307
    (5)(6)
    
    
    (18,896
    )
    
    
    (30,821
    )(7)(8)
    
    
    (26,144
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )Net loss
    
    
    (27,762
    )(6)
    
    
    (46,164
    )
    
    
    (68,226
    )(8)
    
    
    (48,482
    )
 1st Quarter
    
    
    2nd Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2003Operating revenues
    
    $
    523,063
    
    
    $
    523,063
    
    
    $
    575,601
    
    
    $
    575,601Operating income (loss)
    
    
    (55,356
    )(9)
    
    
    (45,120
    )
    
    
    17,457
    (11)
    
    
    17,315Nonoperating income (expenses), net
    
    
    (7,066
    )(9)(10)
    
    
    (15,899
    )
    
    
    62,403
    (11)(12)
    
    
    63,357Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (62,422
    )(10)
    
    
    (61,019
    )
    
    
    79,860
    (12)
    
    
    80,672
 3rd Quarter
    
    
    4th Quarter(as previously
    
    
    
    
    
    
    (as previously(as restated)
    
    
    reported)
    
    
    (as restated)
    
    
    reported)2003Operating revenues
    
    $
    592,132
    
    
    $
    592,132
    
    
    $
    563,021
    
    
    $
    563,021Operating income
    
    
    51,170
    (13)
    
    
    51,037
    
    
    
    12,821
    (15)
    
    
    13,606Nonoperating expenses, net
    
    
    (18,702
    )(13)(14)
    
    
    (17,217
    )
    
    
    (1,327
    )(15)(16)
    
    
    (5,679
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    (114
    )Net income
    
    
    32,468
    (14)
    
    
    33,820
    
    
    
    11,380
    (16)
    
    
    7,813
   (1) Reflects reclassification of $3.1 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(2) Reflects the restatement of $2.7 million net expense to eliminate
hedge accounting for the period presented.(3) Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(4) Reflects the restatement of $5.0 million net credit to eliminate hedge
accounting for the period presented.(5) Reflects reclassification of $7.8 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(6) Reflects the restatement of $18.4 million net credit to eliminate
hedge accounting for the period presented. 95




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AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED (7) Reflects reclassification of $15.0 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative
Instruments, Net. Note, an additional $7.6 million of
losses on derivative instruments was recorded directly to Gain (Loss) on Derivative
Instruments, Net.(8) Reflects the restatement of $19.7 million net expense to eliminate
hedge accounting for the period presented.(9) Reflects reclassification of $10.2 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(10) Reflects the restatement of $1.4 million net expense to eliminate
hedge accounting for the period presented.(11) Reflects reclassification of $0.2 million net expense from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(12) Reflects the restatement of $0.8 million net expense to eliminate
hedge accounting for the period presented.(13) Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(14) Reflects the restatement of $1.4 million net expense to eliminate
hedge accounting for the period presented.(15) Reflects reclassification of $0.8 million net credit from Aircraft
Fuelexpense to Gain (Loss) on Derivative Instruments, Net.(16) Reflects the restatement of $3.6 million net credit to eliminate
hedge accounting for the period presented. 16. Emergency Wartime Supplemental Appropriations Act In April 2003, the Senate and House of Representatives of the United States of America
passed, and the President signed, the Emergency Wartime Supplemental Appropriations Act to provide
certain aviation-related assistance. The bill included the following key provisions:  
    $2.3 billion of the appropriation was for grants by the TSA to U.S. air carriers based
on the proportional share each carrier had paid or collected as of the date of enactment of
the legislation for passenger security and air carrier security fees. In May 2003, AWA
received approximately $81.3 million representing its proportional share of passenger
security and air carrier security fees paid or collected as of April 2003. AWA recorded
this amount as nonoperating income in the accompanying statements of operations. See Note
12, Nonoperating Income (Expenses)  Other, Net.
    The TSA would not impose passenger security fees during the period beginning June 1,
2003 and ending September 30, 2003.
    $100 million of the appropriation would be available to compensate air carriers for the
direct costs associated with the strengthening of flight deck doors and locks on aircraft.
AWA received approximately $4.6 million in 2003 as reimbursement for the costs of
reinforcing flight deck doors and locks.
    Aviation war risk insurance provided by the federal government is extended until August
2005.
    Certain airlines that received the aviation-related assistance, principally those
airlines with trans-Pacific or trans-Atlantic flights, agreed to limit the total cash
compensation for certain executive officers during the 12-month period beginning April 1,
2003 to an amount equal to the annual salary paid to that officer during the air carriers
fiscal year 2002. Any violation of this agreement would have required the carrier to repay
to the government the amount reimbursed for airline security fees. Since AWA does not
operate trans-Pacific or trans-Atlantic flights, AWA was not subject to this provision. 17. 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. 96




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Holdings Audit Committee has selected and retained KPMG LLP as the Companys independent
registered public accounting firm for the fiscal year ended December 31, 2004. PricewaterhouseCoopers LLP served as the Companys and AWAs independent registered public
accounting firm for the fiscal years ended December 31, 2002 and 2001. On August 21, 2003, the
Company dismissed PricewaterhouseCoopers LLP as the Companys and AWAs independent registered
public accounting firm. The Company appointed KPMG as independent registered public accounting
firm for the Company and AWA on August 21, 2003. The decision to change independent auditors was
approved by the Companys Audit Committee. The audit reports of PricewaterhouseCoopers LLP on Holdings and AWAs consolidated balance
sheets as of December 31, 2001 and 2002 and the related statements of operations, cash flows and
stockholders equity for each of such years did not contain an adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the fiscal years ended December 31, 2001 and 2002 and through
August 21, 2003, there were no disagreements between Holdings or AWA and PricewaterhouseCoopers LLP
as to any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the subject matter of the
disagreement in its reports on the financial statements for such periods within the meaning of Item
304(a)(1)(iv) of Regulation S-K. During the fiscal years ended December 31, 2001 and 2002 and through August 21, 2003, there
were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). Holdings and AWA did not consult with KPMG LLP prior to its engagement regarding the
application of accounting principles to a specified transaction, either completed or proposed, the
type of audit opinion that might be rendered on the financial statements of Holdings or AWA or any
matter that was either the subject of a disagreement or a reportable event within the meaning of
Item 304(a)(1) of Regulation S-K. 
 ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Companys internal control system was designed to provide reasonable assurance to the
Companys management and board of directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Our Chief
Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures
were not effective at the reasonable assurance level as of the end of the period covered by this
report since they resulted in a need to restate our financial statements as described below. (b) Managements Report on Internal Control over Financial Reporting. Managements Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining effective internal control over
Holdings financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Management assessed the effectiveness of Holdings internal control over financial reporting as of
December 31, 2004. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control 
Integrated Framework. Based on this assessment, management has concluded that as of December 31,
2004, the Company did not maintain effective internal control over financial reporting, due to a
material weakness associated with the accounting for AWAs fuel hedging program, as described
below. 97




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In
February 2005, management undertook a review of AWAs accounting
for its fuel hedging transactions. As a result of this review,
management concluded that AWAs fuel hedging transactions did
not qualify for hedge accounting under U.S. generally accepted
accounting principles and that the Companys financial
statements for prior periods required restatement to reflect the
fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of
Holdings and AWA. See Note 2, Restatement of Previously
Reported Amounts and Note 16, Quarterly Financial
Data (Unaudited) in Holdings and Note 2,
Restatement of Previously Reported Amounts and
Note 15, Quarterly Financial Data (Unaudited)
in AWAs consolidated financial statements for the financial
impact of the restatements. The Company concluded that these
accounting errors were the result of deficiencies in its internal
control over financial reporting, from the lack of effective
reviews of hedge transaction documentation and of quarterly
mark-to-market accounting entries on open fuel hedging contracts by
personnel at an appropriate level. The Companys independent registered public accounting firm, KPMG LLP, have audited and issued
their report on managements assessment of Holdings effectiveness of internal control over
financial reporting as of December 31, 2004. The report of KPMG LLP appears in (d) below. (c) Changes in Internal Controls. There were no changes, in our internal controls over financial reporting during the period
covered by this report that materially affected, or were reasonably likely to materially affect,
our internal controls over financial reporting. However, prior to the filing of this report, we
have implemented changes to our internal controls to correct the material weakness identified, as
described above. Specifically, we have corrected this material weakness by implementing a review process that verifies the quarterly
mark-to-market adjustment on open derivative positions. In addition, the Company will utilize the
mark-to-market method of accounting for its derivative instruments going forward until such time it
is able to implement processes and controls necessary to ensure that appropriate hedge
documentation is obtained at hedge inception. At that time, the Company will evaluate whether it
will re-apply hedge accounting. (d) Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
America West Holdings Corporation: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting (Item 9A(b)), that America West Holdings Corporation (Holdings or
the Company) and its subsidiary America West Airlines,
Inc. (AWA) did not maintain effective internal control over financial
reporting as of December
31, 2004, because of the effect of the material weakness identified
in managements assessment associated with the Companys
accounting for fuel hedging transactions, based
on criteria established in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, 98




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accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the companys assets that
could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements
will not be prevented or detected. The following material weakness
has been identified and included in managements assessment: As
of December 31, 2004, the Company did not maintain
effective internal control over financial reporting due to a material
weakness associated with its accounting for AWAs fuel hedging
transactions. Management concluded that AWAs fuel hedging
transactions did not qualify for hedge accounting under U.S.
generally accepted accounting principles and that the Companys
financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance
sheets and statements of stockholders equity and comprehensive income
of Holdings and AWA. These accounting
errors resulted from the lack of effective reviews of hedge
transaction documentation and of quarterly mark-to-market accounting
entries on open fuel hedging contracts by personnel at an appropriate
level. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company as of December 31, 2004 and
2003, and the related consolidated statements of operations, cash flows and stockholders equity
and comprehensive income, for the years then ended. The
aforementioned material weakness was considered in
determining the nature, timing, and extent of audit tests applied in our audit of the Companys
2004 consolidated financial statements, and this report does not affect our report dated March 11,
2005, which expressed an unqualified opinion on the Companys consolidated financial statements. In our opinion, managements assessment that the Company did not maintain effective internal
control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on criteria established in Internal Control  Integrated Frameworkissued by COSO.
Also, in our opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control  Integrated Frameworkissued by COSO. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 99




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ITEM 9B. OTHER INFORMATION On March 10, 2005, the Compensation Committee of Holdings Board of Directors approved grants
of stock options to executive officers of Holdings and AWA as set forth in the table below. All of
the options have an exercise price equal to $5.13, the fair market value of Holdings common stock
on the date of grant, and will vest in equal thirds on each of March 10, 2006, 2007 and 2008. Number of SharesName
    
    Position
    
    Underlying Stock OptionsW. Douglas Parker
    
    Chairman, President and Chief Executive Officer of Holdings and AWA
    
    
    250,000J. Scott Kirby
    
    Executive Vice President  Sales and Marketing of AWA
    
    
    100,000Jeffrey D. McClelland
    
    Executive Vice President and Chief Operating Officer of AWA
    
    
    100,000Joseph C. Beery
    
    Senior Vice President and Chief Information Officer of AWA
    
    
    30,000Hal M. Heule
    
    Senior Vice President  Technical Operations of AWA
    
    
    30,000C.A. Howlett
    
    Senior Vice President  Public Affairs of Holdings and AWA
    
    
    30,000Derek J. Kerr
    
    Senior Vice President and Chief Financial Officer of Holdings and AWA
    
    
    35,000Anthony Mule
    
    Senior Vice President  Customer Service of AWA
    
    
    30,000James E. Walsh III
    
    Senior Vice President and General Counsel of AWA
    
    
    30,000Michael R. Carreon
    
    Vice President and Controller of AWA
    
    
    22,000Elise R. Eberwein
    
    Vice President  Corporate Communications of AWA
    
    
    23,000Kara L. Gin
    
    Vice President  Financial Planning and Analysis of AWA
    
    
    22,000Thomas T. Weir
    
    Vice President and Treasurer of AWA
    
    
    22,000
 100




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PART III 
 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information respecting continuing directors and nominees of the Company will be set forth
under the caption Proposal I: Election of Directorsin Holdings Proxy Statement relating to its
2005 Annual Meeting of Stockholders (the Proxy Statement) and is incorporated by reference into
this Annual Report on Form 10-K. Information respecting compliance with Section 16(a) of the Exchange Act will be set forth
under the caption Section16(a)Beneficial Ownership Reporting Compliancein the Proxy Statement
and is incorporated by reference into this Annual Report on Form 10-K. We have adopted a Code of Business Conduct and Ethics, or the Code, within the meaning of
Item 406(b) of Regulation S-K. The Code applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, and persons performing similar
functions. The Code, our Corporate Governance Guidelines and the charters of our Board committees
are publicly available on our website at www.americawest.com. Printed copies of the Code, our
Corporate Governance Guidelines and the charters of our Board committees are available at no charge
to any stockholder upon request to the Companys Corporate Secretary at America West Holdings
Corporation, 111 West Rio Salado Parkway, Tempe, Arizona 85281. If we make substantive amendments
to the Code or grant any waiver, including any implicit waiver, to our principal executive officer,
principal financial offer, principal accounting officer or controller, and persons performing
similar functions, we will disclose the nature of such amendment or waiver on our website or in a
Current Report on Form 8-K in accordance with applicable rules and regulations. Other information required by Item 10 will be set forth under an appropriate caption in the
Proxy Statement and incorporated by reference into this Annual Report on Form 10-K. The Proxy Statement will be filed with the SEC in accordance with Rule 14a-6(c) promulgated
under 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 the Company is set forth at
Part I of this Annual Report on Form 10-K. 
 ITEM 11.  EXECUTIVE COMPENSATION Information concerning executive compensation will be set forth under the captions Report of
the Compensation and Human Resources Committee of the Board of Directors on Executive
Compensation,Executive Compensationand Employment Agreementsin the Proxy Statement and is
incorporated by reference into this Annual Report on Form 10-K. 
 ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS Information concerning security ownership of certain beneficial owners and management will be
set forth under the captions Security Ownership of Certain Beneficial Owners and Managementand
Equity Compensation Plan Informationin the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K. 
 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 Annual Report on Form 10-K. 
 ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning principal accountant fees and services will be set forth under the
captions Independent Registered Public Accounting Firms Fees, Audit Committee Disclosure and
Policy on Audit Committee Pre-Approval in the Proxy Statement and is incorporated by reference
into this Annual Report on Form 10-K. 101




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PART IV 
 ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The following financial statements and the Reports of Independent Registered Public Accounting
Firms are filed in Part II, Items 8A and 8B of this report on the pages indicated: America West Holdings Corporation Report of Independent Registered Public Accounting Firm  page 41. Report of Independent Registered Public Accounting Firm  page 42. Consolidated Balance Sheets  December 31, 2004 and 2003  page 43. Consolidated Statements of Operations Years ended December 31, 2004, 2003 and 2002  page 44. Consolidated Statements of Cash FlowsYears ended December 31, 2004, 2003 and 2002  page 45. Consolidated Statements of Stockholders Equity and Comprehensive Income  Years ended December
31, 2003, 2002 and 2001  page 46. Notes to Consolidated Financial Statements  page 47. America West Airlines, Inc. Report of Independent Registered Public Accounting Firm  page 72. Report of Independent Registered Public Accounting Firm  page 73. Consolidated Balance Sheets  December 31, 2004 and 2003  page 74. Consolidated Statements of Operations  Years ended December 31, 2004, 2003 and 2002  page 75. Consolidated Statements of Cash Flows  Years ended December 31, 2003, 2002 and 2001  page 76. Consolidated Statements of Stockholders Equity and Comprehensive Income  Years ended December
31, 2003, 2002 and 2001  page 77. Notes to Consolidated Financial Statements  page 78. (a)(2) Financial Statement Schedules America West Holdings Corporation Report of Independent Registered Public Accounting Firm on Financial Statement Schedule  page
112. Report of Independent Registered Public Accounting Firm on Financial Statement Schedule  page
113. Schedule II: Valuation and Qualifying Accounts  page 114. America West Airlines, Inc. Report of Independent Registered Public Accounting Firm on Financial Statement Schedule  page
115. Report of Independent Registered Public Accounting Firm on Financial Statement Schedule  page
116. Schedule II: Valuation and Qualifying Accounts  page 117. 102




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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. (c) Exhibits ExhibitNumber
    
    Title2.2
    
    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*
    
    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 and incorporated by reference to Exhibit 3.1
of Holdings Registration Statement on Form 8-B dated January 13, 1997. Holdings
Certificate of Incorporation was subsequently amended by a Certificate of Amendment,
filed with the Delaware Secretary of State on May 24, 2004 and incorporated herein by
reference to Exhibit 3.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 (File No. 001-12649).3.4*
    
    Bylaws of Holdings.4.1
    
    Indenture, dated as of July 30, 2003, between America West Airlines, Inc. and U.S.
Bank National Association, as trustee and not in its individual capacity, for America
West Airlines, Inc. Senior Exchangeable Notes due 2023  Incorporated by reference to
Exhibit 4.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.4.2
    
    Form of America West Airlines, Inc. Senior Exchangeable Note due 2023  Incorporated
by reference to Exhibit 4.2 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.4.3
    
    Registration Rights Agreement, dated as of July 30, 2003, with respect to shares of
Class B Common Stock underlying the America West Airlines, Inc. Senior Exchangeable
Notes due 2023  Incorporated by reference to Exhibit 4.3 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.4.4
    
    Guarantee and Exchange Agreement, dated as of July 30, 2003, between America West
Holdings Corporation and U.S. Bank, National Association, as exchange agent and
trustee and not in its individual capacity, for America West Airlines Inc. Senior
Exchangeable Notes due 2023  Incorporated by reference to Exhibit 4.4 to Holdings
and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.4.5
    
    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, 1997.4.6
    
    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).4.7
    
    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.
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ExhibitNumber
    
    Title4.8
    
    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).4.9
    
    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).4.10
    
    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).4.11
    
    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).4.12
    
    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).4.13
    
    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).4.14
    
    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).4.16
    
    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).4.17
    
    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).4.18
    
    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).4.19
    
    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).
 104




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ExhibitNumber
    
    Title4.20
    
    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).4.21
    
    Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002, issued to
the Air Transportation Stabilization Board and certain warrant recipients 
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).4.22
    
    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).4.23
    
    Warrant Registration Rights Agreement between America West Holdings Corporation and
certain warrant recipients  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).10.1
    
    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).10.2
    
    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
quarter ended September 30, 1990 (File No. 000-12337).10.3
    
    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).10.4
    
    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).10.5
    
    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).10.6
    
    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).10.7
    
    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).10.8(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).10.9(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).
 105




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##### Table of Contents



ExhibitNumber
    
    Title10.10(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).10.11(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
Holdings and AWAs Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 000-12337).10.12(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).10.13(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).10.14(1)
    
    Amendment No. 7, dated July 30, 2004, to the A319/A320 Purchase Agreement dated
September 12, 1997, between AVSA, S.A.R.L. and AWA and Letter Agreement Nos. 2  8 
Incorporated by reference to Exhibit 10.15 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.15(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 Holdings and AWAs Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 000-12337).10.16(1)
    
    Side Letter No. 15, dated May 26, 2004, to the Amended and Restated V2500 Support
Contract, dated October 7, 1998, between AWA and IAE International Aero Engines AG 
Incorporated by reference to Exhibit 10.16 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.18
    
    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, 1994.10.19
    
    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).10.20(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).10.21(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).10.22(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).
 106




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ExhibitNumber
    
    Title10.23
    
    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).10.24
    
    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.  Incorporated by reference to Exhibit 10.56 of Holdings and AWAs
Annual Report on Form 10-K for the year ended December 31, 2002.10.25
    
    Third Amendment to Code Share and Revenue Sharing Agreement dated as of January 29,
2003 among AWA, Mesa Airlines, Inc. and Freedom Airlines, Inc.  Incorporated by
reference to Exhibit 10.1 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.10.26(1)
    
    Fourth Amendment to Code Share and Revenue Sharing Agreement and Release dated as of
September 5, 2003 among AWA, Mesa Airlines, Inc., Air Midwest, Inc. and Freedom

Airlines, Inc.  Incorporated by reference to Exhibit 10.2 to Holdings and AWAs
Amendment No. 1 to Quarterly Report on Form 10-Q for the quarter ended September 30,
2003.10.27
    
    Loan Agreement [Engines], dated as of September 3, 2004, among AWA, GECC, as
administrative agent, original Series A lender and original Series B lender, Wells
Fargo Bank Northwest, National Association (Wells Fargo), as security trustee and
the lenders from time to time party thereto  Incorporated by reference to Exhibit
10.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 001-12649).10.28
    
    Engine Mortgage and Security Agreement, dated as of September 3, 2004, between AWA
and Wells Fargo  Incorporated by reference to Exhibit 10.2 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.29
    
    Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of AWA 
Incorporated by reference to Exhibit 10.3 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.30
    
    Subordinated Engine Mortgage and Security Agreement, dated as of September 3, 2004,
between AWA and Wells Fargo  Incorporated by reference to Exhibit 10.4 to Holdings
and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
(File No. 001-12649).10.31
    
    Subordinated Mortgage and Security Agreement Supplement No. 1, dated September 10,
2004, of AWA  Incorporated by reference to Exhibit 10.5 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.32
    
    Security Trustee Agreement [Engines], dated as of September 3, 2004, among Wells
Fargo, as security trustee and the beneficiaries named therein  Incorporated by
reference to Exhibit 10.6 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.33
    
    Payment and Indemnity Agreement [Engines], dated as of September 3, 2004, among AWA,
certain beneficiaries listed on Schedule 1 and Wells Fargo  Incorporated by
reference to Exhibit 10.7 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.34
    
    Restructure Letter Agreement [Engines], dated as of September 3, 2004, among AWA and
GECC  Incorporated by reference to Exhibit 10.8 to Holdings and AWAs Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).
 107




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##### Table of Contents



ExhibitNumber
    
    Title10.35
    
    Loan Agreement [Spare Parts], dated as of September 3, 2004, among AWA, GECC, as
administrative agent, original Series A lender and original Series B lender, Wells
Fargo, as security trustee and the lenders from time to time party thereto 
Incorporated by reference to Exhibit 10.9 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.36
    
    Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004, between
AWA and Wells Fargo  Incorporated by reference to Exhibit 10.10 to Holdings and
AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File
No. 001-12649).10.37
    
    Subordinated Spare Parts Mortgage and Security Agreement, dated as of September 3,
2004, between AWA and Wells Fargo  Incorporated by reference to Exhibit 10.11 to
Holdings and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30,
2004 (File No. 001-12649).10.38
    
    Security Trustee Agreement [Spare Parts], dated as of September 3, 2004, among Wells
Fargo, as security trustee and the beneficiaries named therein  Incorporated by
reference to Exhibit 10.12 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.39
    
    Payment and Indemnity Agreement [Spare Parts], dated as of September 3, 2004, among
AWA, certain beneficiaries listed on Schedule 1 and Wells Fargo  Incorporated by
reference to Exhibit 10.13 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.40
    
    Restructure Letter Agreement [Spare Parts], dated as of September 3, 2004, among AWA
and GECC  Incorporated by reference to Exhibit 10.14 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.41*
    
    $30,790,000 Senior Secured Term Loan Agreement, dated December 23, 2004, among FTCHP
LLC, as Borrower, America West Airlines, Inc., as Guarantor, Heritage Bank, SSB, as
Administrative Agent and Citibank, N.A. (and other lenders named therein) as Lenders.10.42*
    
    Senior Secured Discount Note, dated December 23, 2004, issued by FTCHP LLC.10.43*
    
    Unconditional Guaranty Agreement, dated December 23, 2004, by America West Airlines,
Inc. in favor of Citibank, N.A.10.44+
    
    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).10.45+
    
    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).10.46+
    
    Performance-based Award Plan  Incorporated by reference to Exhibit 10.57 to
Holdings and AWAs quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(File No. 001-12649).10.47*+
    
    Form of Offer Letter for officers.10.48*+
    
    Form of Change of Control and Severance Benefit Agreement for Vice Presidents.10.49*+
    
    Form of Change of Control and Severance Benefit Agreement for Senior Vice Presidents.10.50*+
    
    Summary of Officer Benefits.10.51*+
    
    Summary of Director Compensation and Benefits.10.52+
    
    Form of Letter Agreement for Directors Travel  Incorporated by reference to Exhibit
10.32 to Holdings and AWAs Annual Report on Form 10-K for the period ended December
31, 2003.
 108




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ExhibitNumber
    
    Title10.53*+
    
    Employment Agreement, dated February 24, 2004, by and among America West Holdings
Corporation, America West Airlines, Inc. and W. Douglas Parker.21.1*
    
    Subsidiaries of Holdings.23.1*
    
    Consent of KPMG LLP.23.2*
    
    Consent of PricewaterhouseCoopers 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.31.1*
    
    Certification of Holdings Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Holdings Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.3*
    
    Certification of AWAs Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.4*
    
    Certification of AWAs Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Holdings Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of AWAs Chief Executive Officer and Chief Financial Officer 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. 109




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##### Table of Contents



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 CORPORATIONDate: March 14, 2005
    By:
    /s/ W. Douglas ParkerW. 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 Derek J. Kerr 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, 2004, 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 14, 2005. SIGNATURE
    

TITLE/s/ W. Douglas Parker
    
    Chairman, President and Chief Executive OfficerW. Douglas Parker
    
    (Principal Executive Officer)/s/ Derek J. Kerr
    
    Senior Vice PresidentDerek J. Kerr
    
    (Principal Financial and Accounting Officer)/s/ Herbert M. Baum
    
    DirectorHerbert M. Baum/s/ John L. Goolsby
    
    DirectorJohn L. Goolsby/s/ Matthew J. Hart
    
    DirectorMathew J. Hart/s/ Walter T. Klenz
    
    DirectorWalter T. Klenz/s/ Richard C. Kraemer
    
    DirectorRichard C. Kraemer/s/ Robert J. Miller
    
    DirectorRobert J. Miller/s/ Denise M. OLeary
    
    DirectorDenise M. OLeary/s/ Richard P. Schifter
    
    DirectorRichard P. Schifter/s/ John F. Tierney
    
    DirectorJohn F. Tierney/s/ J. Steven Whisler
    
    DirectorJ. Steven Whisler
 110




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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 14, 2005
    By:
    /s/ W. Douglas ParkerW. 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 Derek J. Kerr 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,
2004, 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 14, 2005. SIGNATURE
    

TITLE/s/ W. Douglas Parker
    
    Chairman, President and Chief Executive OfficerW. Douglas Parker
    
    (Principal Executive Officer)/s/ Derek J. Kerr
    
    Senior Vice PresidentDerek J. Kerr
    
    (Principal Financial and Accounting Officer)/s/ Herbert M. Baum
    
    DirectorHerbert M. Baum/s/ John L. Goolsby
    
    DirectorJohn L. Goolsby/s/ Matthew J. Hart
    
    DirectorMathew J. Hart/s/ Walter T. Klenz
    
    DirectorWalter T. Klenz/s/ Richard C. Kraemer
    
    DirectorRichard C. Kraemer/s/ Robert J. Miller
    
    DirectorRobert J. Miller/s/ Denise M. OLeary
    
    DirectorDenise M. OLeary/s/ Richard P. Schifter
    
    DirectorRichard P. Schifter/s/ John F. Tierney
    
    DirectorJohn F. Tierney/s/ J. Steven Whisler
    
    DirectorJ. Steven Whisler
 111




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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Stockholders
America West Holdings Corporation: The audits referred to in our report dated March 11, 2005 included the related consolidated
financial statement schedule for the years ended December 31, 2004 and 2003, included herein. The
consolidated financial statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated financial statement schedule based on
our audits. In our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. As discussed in Note 2 to the accompanying consolidated financial statements, the Company has
restated the consolidated balance sheet as of December 31, 2003 and the consolidated statement of
changes in stockholders equity and comprehensive income for the year then ended. As discussed in
Note 13 to the accompanying consolidated financial statements, the Company restated its dilutive
earnings per share for the year ended December 31, 2003 in connection with the adoption of Emerging
Issue Task Force 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 112




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors
of America West Holdings Corporation: Our audit of the consolidated financial statements of America West Holdings Corporation referred to
in our report dated March 24, 2003 appearing in this Annual Report on Form 10-K also included an
audit of the 2002 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 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. PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003 113




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AMERICA WEST HOLDINGS CORPORATION
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) Balance at
    
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    
    
    
    
    
    
    
    
    
    at EndDescription
    
    of Period
    
    
    Additions
    
    
    Deductions
    
    
    of PeriodAllowance for doubtful receivables:Year ended December 31, 2004
    
    $
    5,807
    
    
    $
    1,110
    
    
    $
    5,430
    
    
    $
    1,487Year ended December 31, 2003
    
    $
    6,767
    
    
    $
    1,450
    
    
    $
    2,410
    
    
    $
    5,807Year ended December 31, 2002
    
    $
    3,216
    
    
    $
    6,755
    
    
    $
    3,204
    
    
    $
    6,767Allowance for obsolescence:Year ended December 31, 2004
    
    $
    12,254
    
    
    $
    2,882
    
    
    $
    377
    
    
    $
    14,759Year ended December 31, 2003
    
    $
    9,261
    
    
    $
    3,450
    
    
    $
    457
    
    
    $
    12,254Year ended December 31, 2002
    
    $
    7,249
    
    
    $
    3,029
    
    
    $
    1,017
    
    
    $
    9,261Valuation allowance on deferred tax asset, net:Year ended December 31, 2004
    
    $
    96,474
    
    
    $
    56,772
    
    
    $
    24,280
    
    
    $
    128,966Year ended December 31, 2003
    
    $
    78,787
    
    
    $
    38,379
    
    
    $
    20,692
    
    
    $
    96,474Year ended December 31, 2002
    
    $
    40,650
    
    
    $
    46,124
    
    
    $
    7,987
    
    
    $
    78,787Leased aircraft return provision:Year ended December 31, 2004
    
    $
    26,872
    
    
    $
    6,645
    
    
    $
    1,558
    
    
    $
    31,959Year ended December 31, 2003
    
    $
    22,441
    
    
    $
    9,000
    
    
    $
    4,569
    
    
    $
    26,872Year ended December 31, 2002
    
    $
    11,277
    
    
    $
    17,636
    
    
    $
    6,472
    
    
    $
    22,441
 114




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Report
of Independent Registered Public Accounting Firm on Financial
Statement Schedule The Board of Directors and Stockholder
America West Airlines, Inc.: The audits referred to in our report dated March 11, 2005 included the related consolidated
financial statement schedule for the years ended December 31, 2004 and 2003, included herein. The
consolidated financial statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated financial statement schedule based on
our audits. In our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. As discussed in Note 2 to the accompanying consolidated financial statements, the Company has
restated the consolidated balance sheet as of December 31, 2003 and the consolidated statement of
changes in stockholders equity and comprehensive income for the year then ended. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 115




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors
of America West Airlines, Inc.: Our audit of the consolidated financial statements of America West Airlines, Inc. referred to in
our report dated March 24, 2003, except for the effects of the reorganization transaction described
in Note 1(a) as to which the date is August 2, 2004, appearing in this Annual Report on Form 10-K also
included an audit of the 2002 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 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. PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003, except for the effects of the
reorganization transaction described in Note 1(a)
as to which the date is August 2, 2004 116




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AMERICA WEST AIRLINES, INC.
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) Balance at
    
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    
    
    
    
    
    
    
    
    
    at EndDescription
    
    Of Period
    
    
    Additions
    
    
    Deductions
    
    
    of PeriodAllowance for doubtful receivables:Year ended December 31, 2004
    
    $
    5,807
    
    
    $
    1,110
    
    
    $
    5,430
    
    
    $
    1,487Year ended December 31, 2003
    
    $
    6,767
    
    
    $
    1,450
    
    
    $
    2,410
    
    
    $
    5,807Year ended December 31, 2002
    
    $
    3,216
    
    
    $
    6,755
    
    
    $
    3,204
    
    
    $
    6,767Allowance for obsolescence:Year ended December 31, 2004
    
    $
    12,254
    
    
    $
    2,882
    
    
    $
    377
    
    
    $
    14,759Year ended December 31, 2003
    
    $
    9,261
    
    
    $
    3,450
    
    
    $
    457
    
    
    $
    12,254Year ended December 31, 2002
    
    $
    7,249
    
    
    $
    3,029
    
    
    $
    1,017
    
    
    $
    9,261Valuation allowance on deferred tax asset, net:Year ended December 31, 2004
    
    $
    96,448
    
    
    $
    55,343
    
    
    $
    24,305
    
    
    $
    127,484Year ended December 31, 2003
    
    $
    78,602
    
    
    $
    39,481
    
    
    $
    21,635
    
    
    $
    96,448Year ended December 31, 2002
    
    $
    34,140
    
    
    $
    52,587
    
    
    $
    8,125
    
    
    $
    78,602Leased aircraft return provision:Year ended December 31, 2004
    
    $
    26,872
    
    
    $
    6,645
    
    
    $
    1,558
    
    
    $
    31,959Year ended December 31, 2003
    
    $
    22,441
    
    
    $
    9,000
    
    
    $
    4,569
    
    
    $
    26,872Year ended December 31, 2002
    
    $
    11,277
    
    
    $
    17,636
    
    
    $
    6,472
    
    
    $
    22,441
 117




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Title2.2
    
    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*
    
    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 and incorporated by reference to Exhibit 3.1
of Holdings Registration Statement on Form 8-B dated January 13, 1997. Holdings
Certificate of Incorporation was subsequently amended by a Certificate of Amendment,
filed with the Delaware Secretary of State on May 24, 2004 and incorporated herein by
reference to Exhibit 3.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004 (File No. 001-12649).3.4*
    
    Bylaws of Holdings.4.1
    
    Indenture, dated as of July 30, 2003, between America West Airlines, Inc. and U.S.
Bank National Association, as trustee and not in its individual capacity, for America
West Airlines, Inc. Senior Exchangeable Notes due 2023  Incorporated by reference to
Exhibit 4.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.4.2
    
    Form of America West Airlines, Inc. Senior Exchangeable Note due 2023  Incorporated
by reference to Exhibit 4.2 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.4.3
    
    Registration Rights Agreement, dated as of July 30, 2003, with respect to shares of
Class B Common Stock underlying the America West Airlines, Inc. Senior Exchangeable
Notes due 2023  Incorporated by reference to Exhibit 4.3 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.4.4
    
    Guarantee and Exchange Agreement, dated as of July 30, 2003, between America West
Holdings Corporation and U.S. Bank, National Association, as exchange agent and
trustee and not in its individual capacity, for America West Airlines Inc. Senior
Exchangeable Notes due 2023  Incorporated by reference to Exhibit 4.4 to Holdings
and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.4.5
    
    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, 1997.4.6
    
    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).4.7
    
    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,
1997.4.8
    
    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).
 118




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##### Table of Contents



ExhibitNumber
    
    Title4.9
    
    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).4.10
    
    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).4.11
    
    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).4.12
    
    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).4.13
    
    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).4.14
    
    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).4.15
    
    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).4.16
    
    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).4.17
    
    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).
 119




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##### Table of Contents



ExhibitNumber
    
    Title4.18
    
    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).4.19
    
    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).4.20
    
    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).4.21
    
    Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002, issued to
the Air Transportation Stabilization Board and certain warrant recipients 
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).4.22
    
    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).4.23
    
    Warrant Registration Rights Agreement between America West Holdings Corporation and
certain warrant recipients  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).10.1
    
    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).10.2
    
    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
quarter ended September 30, 1990 (File No. 000-12337).10.3
    
    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).10.4
    
    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).10.5
    
    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).10.6
    
    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).10.7
    
    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).
 120




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##### Table of Contents



ExhibitNumber
    
    Title10.8(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).10.9(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).10.10(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).10.11(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
Holdings and AWAs Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 000-12337).10.12(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).10.13(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).10.14(1)
    
    Amendment No. 7, dated July 30, 2004, to the A319/A320 Purchase Agreement dated
September 12, 1997, between AVSA, S.A.R.L. and AWA and Letter Agreement Nos. 2  8 
Incorporated by reference to Exhibit 10.15 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.15(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 Holdings and AWAs Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 000-12337).10.16(1)
    
    Side Letter No. 15, dated May 26, 2004, to the Amended and Restated V2500 Support
Contract, dated October 7, 1998, between AWA and IAE International Aero Engines AG 
Incorporated by reference to Exhibit 10.16 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.17
    
    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).10.18
    
    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, 1994.10.19
    
    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).10.20(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).
 121




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##### Table of Contents



ExhibitNumber
    
    Title10.21(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).10.22(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).10.23
    
    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).10.24
    
    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.  Incorporated by reference to Exhibit 10.56 of Holdings and AWAs
Annual Report on Form 10-K for the year ended December 31, 2002.10.25
    
    Third Amendment to Code Share and Revenue Sharing Agreement dated as of January 29,
2003 among AWA, Mesa Airlines, Inc. and Freedom Airlines, Inc.  Incorporated by
reference to Exhibit 10.1 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.10.26(1)
    
    Fourth Amendment to Code Share and Revenue Sharing Agreement and Release dated as of
September 5, 2003 among AWA, Mesa Airlines, Inc., Air Midwest, Inc. and Freedom
Airlines, Inc.  Incorporated by reference to Exhibit 10.2 to Holdings and AWAs
Amendment No. 1 to Quarterly Report on Form 10-Q for the quarter ended September 30,
2003.10.27
    
    Loan Agreement [Engines], dated as of September 3, 2004, among AWA, GECC, as
administrative agent, original Series A lender and original Series B lender, Wells
Fargo Bank Northwest, National Association (Wells Fargo), as security trustee and
the lenders from time to time party thereto Incorporated by reference to Exhibit
10.1 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 001-12649).10.28
    
    Engine Mortgage and Security Agreement, dated as of September 3, 2004, between AWA
and Wells Fargo  Incorporated by reference to Exhibit 10.2 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.29
    
    Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of AWA -
Incorporated by reference to Exhibit 10.3 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.30
    
    Subordinated Engine Mortgage and Security Agreement, dated as of September 3, 2004,
between AWA and Wells Fargo  Incorporated by reference to Exhibit 10.4 to Holdings
and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
(File No. 001-12649).10.31
    
    Subordinated Mortgage and Security Agreement Supplement No. 1, dated September 10,
2004, of AWA  Incorporated by reference to Exhibit 10.5 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.32
    
    Security Trustee Agreement [Engines], dated as of September 3, 2004, among Wells
Fargo, as security trustee and the beneficiaries named therein  Incorporated by
reference to Exhibit 10.6 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).
 122




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##### Table of Contents



ExhibitNumber
    
    Title10.33
    
    Payment and Indemnity Agreement [Engines], dated as of September 3, 2004, among AWA,
certain beneficiaries listed on Schedule 1 and Wells Fargo  Incorporated by
reference to Exhibit 10.7 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.34
    
    Restructure Letter Agreement [Engines], dated as of September 3, 2004, among AWA and
GECC  Incorporated by reference to Exhibit 10.8 to Holdings and AWAs Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.35
    
    Loan Agreement [Spare Parts], dated as of September 3, 2004, among AWA, GECC, as
administrative agent, original Series A lender and original Series B lender, Wells
Fargo, as security trustee and the lenders from time to time party thereto 
Incorporated by reference to Exhibit 10.9 to Holdings and AWAs Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 001-12649).10.36
    
    Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004, between
AWA and Wells Fargo  Incorporated by reference to Exhibit 10.10 to Holdings and
AWAs Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File
No. 001-12649).10.37
    
    Subordinated Spare Parts Mortgage and Security Agreement, dated as of September 3,
2004, between AWA and Wells Fargo  Incorporated by reference to Exhibit 10.11 to
Holdings and AWAs Quarterly Report on Form 10-Q for the quarter ended September 30,
2004 (File No. 001-12649).10.38
    
    Security Trustee Agreement [Spare Parts], dated as of September 3, 2004, among Wells
Fargo, as security trustee and the beneficiaries named therein  Incorporated by
reference to Exhibit 10.12 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.39
    
    Payment and Indemnity Agreement [Spare Parts], dated as of September 3, 2004, among
AWA, certain beneficiaries listed on Schedule 1 and Wells Fargo  Incorporated by
reference to Exhibit 10.13 to Holdings and AWAs Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004 (File No. 001-12649).10.40
    
    Restructure Letter Agreement [Spare Parts], dated as of September 3, 2004, among AWA
and GECC  Incorporated by reference to Exhibit 10.14 to Holdings and AWAs
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.
001-12649).10.41*
    
    $30,790,000 Senior Secured Term Loan Agreement, dated December 23, 2004, among FTCHP
LLC, as Borrower, America West Airlines, Inc., as Guarantor, Heritage Bank, SSB, as
Administrative Agent and Citibank, N.A. (and other lenders named therein) as Lenders.10.42*
    
    Senior Secured Discount Note, dated December 23, 2004, issued by FTCHP LLC.10.43*
    
    Unconditional Guaranty Agreement, dated December 23, 2004, by America West Airlines,
Inc. in favor of Citibank, N.A.10.44+
    
    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).10.45+
    
    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).10.46+
    
    Performance-based Award Plan  Incorporated by reference to Exhibit 10.57 to
Holdings and AWAs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(File No. 001-12649).10.47*+
    
    Form of Offer Letter for officers.10.48*+
    
    Form of Change of Control and Severance Benefit Agreement for Vice Presidents.
 123




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##### Table of Contents



ExhibitNumber
    
    Title10.49*+
    
    Form of Change of Control and Severance Benefit Agreement for Senior Vice Presidents.10.50*+
    
    Summary of Officer Benefits.10.51*+
    
    Summary of Director Compensation and Benefits.10.52+
    
    Form of Letter Agreement for Directors Travel  Incorporated by reference to Exhibit
10.32 to Holdings and AWAs Annual Report on Form 10-K for the period ended December
31, 2003.10.53*+
    
    Employment Agreement, dated February 24, 2004, by and among America West Holdings
Corporation, America West Airlines, Inc. and W. Douglas Parker.21.1*
    
    Subsidiaries of Holdings.23.1*
    
    Consent of KPMG LLP.23.2*
    
    Consent of PricewaterhouseCoopers 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.31.1*
    
    Certification of Holdings Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Holdings Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended.31.3*
    
    Certification of AWAs Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.4*
    
    Certification of AWAs Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Holdings Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of AWAs Chief Executive Officer and Chief Financial Officer 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. 124