##### 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, 2003

OR

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

COMMISSION FILE NUMBER 1-12649

AMERICA WEST HOLDINGS CORPORATION


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


|                                              |  |                                          
|--------------------------------------------- |  | -----------------------------------------
|DELAWARE                                      |  | 86-0847214                               
|(STATE OR OTHER JURISDICTION OF INCORPORATION |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)     
|OR ORGANIZATION)                              |  |                                          
|                                              |  |                                          
|111 WEST RIO SALADO PARKWAY                   |  | (480) 693-0800                           
|TEMPE, ARIZONA 85281                          |  | (REGISTRANTS TELEPHONE NUMBER, INCLUDING
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)      |  | AREA CODE)                               

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

|                                     |  |                                           
|------------------------------------ |  | ------------------------------------------
|TITLE OF EACH CLASS                  |  | NAME OF EACH EXCHANGE ON WHICH REGISTERED:
|CLASS B COMMON STOCK, $.01 PAR VALUE |  | 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 INCORPORATION |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)                
|OR ORGANIZATION)                              |  |                                                     
|                                              |  |                                                     
|4000 E. SKY HARBOR BOULEVARD                  |  | (480) 693-0800                                      
|PHOENIX, ARIZONA 85034-3899                   |  | (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)      |  |                                                     

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

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

Indicate by check mark whether each of the registrants: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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 this Form 10-K
or any amendment to this Form 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 þ No o

     
America West Airlines   Yes o No þ





---



##### Table of Contents



As of June 30, 2003, there were 32,821,588 shares of America West Holdings
Corporation Class B common stock, $.01 par value issued and outstanding. As of
such date, based on the closing sales price as quoted by the New York Stock
Exchange, 32,628,512 shares of Class B common stock, having an aggregate market
value of approximately $221,873,882 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, 2003, all outstanding
equity securities of America West Airlines, Inc. were owned by America West
Holdings Corporation.

As of February 27, 2004, there were 859,117 shares of America West
Holdings Corporation Class A common stock and 34,957,056 shares of America West
Holdings Corporation Class B common stock outstanding. As of February 27,
2004, 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 2004 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, 2003, are
incorporated by reference into Part III of this Form 10-K.





---

TABLE OF CONTENTS



|                  |                                                                                                       |  |  |  |  |  |  | 
|----------------- | ----------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I           
|                  | ITEM 1. BUSINESS                                                                                     
|                  | ITEM 2. PROPERTIES                                                                                   
|                  | ITEM 3. LEGAL PROCEEDINGS                                                                            
|                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                          
|PART II          
|                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                        
|                  | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                         
|                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS        
|                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  
|                  | ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST HOLDINGS CORPORATION
|                  | ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST AIRLINES, INC                    
|                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE         
|                  | ITEM 9A. CONTROLS AND PROCEDURES                                                                     
|PART III         
|                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS                                         
|                  | ITEM 11. EXECUTIVE COMPENSATION                                                                      
|                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                              
|                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                              
|                  | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                      
|PART IV          
|                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                            
|SIGNATURES       
|INDEX TO EXHIBITS
|EX-10.32         
|EX-21.1          
|EX-23.1          
|EX-23.2          
|EX-31.1          
|EX-31.2          
|EX-31.3          
|EX-31.4          
|EXZ-32.1         
|EX-32.2          



---



##### Table of Contents



TABLE OF CONTENTS

|                                                                                                      |  |      |     | 
|----------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                      |  | PAGE
|                                                                                                      |  |     
|PART I                                                                                                |  |      |     | 
|Item 1. Business                                                                                      |  |      | 2   | 
|Item 2. Properties                                                                                    |  |      | 19  | 
|Item 3. Legal Proceedings                                                                             |  |      | 19  | 
|Item 4. Submission of Matters to a Vote of Security Holders                                           |  |      | 20  | 
|PART II                                                                                               |  |      |     | 
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters                         |  |      | 21  | 
|Item 6. Selected Consolidated Financial Data                                                          |  |      | 22  | 
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations         |  |      | 23  | 
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                   |  |      | 41  | 
|Item 8A.
Consolidated Financial Statements and Supplementary Data  America West Holdings Corporation |  |      | 42  | 
|Item 8B. Financial Statements and Supplementary Data  America West Airlines, Inc.                    |  |      | 73  | 
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          |  |      | 101 | 
|Item 9A. Controls and Procedures                                                                      |  |      | 101 | 
|PART III                                                                                              |  |      |     | 
|Item 10. Directors and Executive Officers of the Registrants                                          |  |      | 102 | 
|Item 11. Executive Compensation                                                                       |  |      | 102 | 
|Item 12. Security Ownership of Certain Beneficial Owners and Management                               |  |      | 102 | 
|Item 13. Certain Relationships and Related Transactions                                               |  |      | 102 | 
|Item 14. Principal Accountant Fees and Services                                                       |  |      | 102 | 
|PART IV                                                                                               |  |      |     | 
|Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                             |  |      | 103 | 





---



##### Table of Contents



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

Note Concerning Forward-Looking Information

This report contains various forward-looking statements 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, project, expect and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected or expected. Among the key factors that may
have a direct bearing on the Companys or AWAs results are:



| |  |  | economic conditions;                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the impact of global instability, including the continuing impact
of the continued military presence in Iraq and Afghanistan and the
terrorist attacks of September 11, 2001, and the potential impact of
any future hostilities, terrorist attacks, infectious disease
outbreaks, such as severe acute respiratory syndrome, and government
responses thereto, or other global events;
|
| |  |  | limitations on the Companys or AWAs ability to obtain additional
financing due to high levels of debt and the financial and other
covenants in its debt instruments;                                                                                                                                                                                                                 
|
| |  |  | 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 such risks see Business - Risk Factors
Relating to America West and Industry Related Risksincluded in Item 1 of this
report. Any forward-looking statements speak only as of the date of this
report.

1



---



##### Table of Contents






PART I




ITEM 1. BUSINESS

Holdings is a holding company that owns all of the stock of AWA. AWA
accounted for most of the Companys revenues and expenses in 2003. Based on
2003 operating revenues and available seat miles (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. In
2003, AWA also began point-to-point service in major transcontinental markets.
In addition to being a low cost carrier, AWA also offers full-service amenities
similar to the legacy carriers, including a robust frequent flyer program and
first class seating. At the end of 2003, AWA operated a fleet of 139 aircraft
with an average fleet age of 10.7 years and served 62 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 52 destinations in North America as of December 31, 2003.
In 2003, AWA flew approximately 20.1 million passengers and generated revenues
of approximately $2.2 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 and Mexico. As of January
1, 2004, The Leisure Company (TLC) has been merged into AWA and will continue
to operate as the America West Vacations division of AWA. See Note 18,
Subsequent Event - Merger of America West Vacations Subsidiary into AWAin
Notes to Financial Statements of AWA.

General information about us can be found at www.americawest.com/aboutawa
under the public/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 (SEC).

Overview

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. Although
the demand for air travel improved during 2003 as compared to 2002, the airline
industry, as a whole, continued to suffer losses in 2003 as a result of reduced
demand for air travel, coupled with an increase in costs resulting from
enhanced security measures, aviation-related insurance and higher jet fuel
prices. In response to these difficult industry conditions, we completed a
financial restructuring in 2002 that included a $429 million loan supported by
a $380 million government loan guarantee, introduced a business-friendly
pricing structure and lowered our cost structure.

In 2003, we continued to focus on lowering our cost structure and
providing outstanding customer service. We also began positioning our airline
as a low cost carrier; unlike most other low cost carriers, we continued, and
will continue, to offer many of the full service amenities, such as first class
seating, an award winning frequent flyer program, FlightFund, and assigned
seating, that the major airlines offer. We believe that leisure and business
customers will continue to prefer to travel on low cost carriers and that our
full service amenities give us a competitive advantage over other low cost
carriers. During 2003, we benefited from the following:



| |  |  | More rational capacity in the markets served by AWA as a result of
industry capacity declines over the past year;            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aggressive yield management during the peak summer travel period;                                                            
|
| |  |  | Continued favorable customer response and growth in business
traffic as a result of our business-friendly fare structure; and
|
| |  |  | Continued strong operational performance.                                                                                    

As a result, we reported dramatically improved financial results for 2003.
Our reported net income was $57.4 million in 2003 compared to a loss before
the cumulative effect of a change in accounting principle of $179.7 million in
2002.

2



---



##### Table of Contents



In addition, our liquidity improved due to the improvement in operating
cash flow, the receipt of $81.3 million from the federal government for
reimbursement of security fees and through the private placements in July and
August of 2003 of approximately $86.8 million issue price of senior
exchangeable notes. AWA ended 2003 with the highest cash balances in Company
history. Finally, after extensive negotiations, we signed a three-year
agreement with the Air Line Pilots Association (ALPA) on December 30, 2003.

While we are optimistic that recent operational and financial improvements
will continue, we continue to face considerable challenges in 2004, including
continued cost pressures and managing the transition to being a low cost
carrier. We will also need to make loan repayments of approximately $85.8
million on the government guaranteed loan and payments of approximately $188.0
million in respect of our off-balance sheet aircraft financing vehicles. See
Risk Factors Relating to America West and Industry Related Risksand
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

Airline Operations

Our operations and business strategy have traditionally been focused
around our Phoenix, Arizona and Las Vegas, Nevada based route-network
(supplemented by regional airline alliances and strategic relationships with
other carriers), our low cost structure and our emphasis on customer service.
During 2003, we continued to optimize our schedule in our hubs to maximize
profitability. Additionally, we announced and started new point-to-point
service from Los Angeles to both Boston and New York and from San Francisco to
New York. We also announced San Francisco to Boston nonstop service beginning
in March 2004.

Our Route Network

We operate our route system through a hub-and-spoke network centered
around our hubs in Phoenix, Arizona and Las Vegas, Nevada. As of December 31,
2003, we were the leading airline serving Phoenix based on available seat
miles, or ASMs, and takeoffs and landings and ranked second in Las Vegas based
on the same measures. Our operations have focused on the Phoenix and Las Vegas
markets and expanding our reach beyond those markets through strategic
relationships with other carriers, including a regional alliance with Mesa
Airlines (Mesa) and code-sharing arrangements with other
carriers. See 
Regional Airline Alliance and  Alliances with Other Airlines below. In
October 2003, we initiated our first non-stop transcontinental service between
Los Angeles International Airport and both New York Citys John F. Kennedy
International Airport (JFK) and Boston Logan International Airport
(Boston). In December 2003, we initiated non-stop service between San
Francisco International Airport (San Francisco) and JFK. As part of our 2004
growth plan, we will initiate new non-stop service between San Francisco and
Boston. We expect to be in a position to continue the prudent growth of the
Airline and its Phoenix and Las Vegas centered networks as the economic
environment improves.

Cost Control

We are committed to maintaining a low cost structure, which we believe
offers a significant competitive advantage over other major hub-and-spoke
airlines in the United States. In 2003, our operating cost per available seat
mile, or CASM, of 7.86 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. See Managements Discussion
and Analysis of Financial Condition and Results of Operations  2003 in Review
 Cost Control.

In light of the current industry environment, we continue to focus on
minimizing capital expenditures and prudent spending for discretionary
expenses.

Revised Pricing Structure

In an effort to maximize revenue and increase business traffic, we
eliminated our historic pricing structure in March 2002 and replaced it with a
simplified structure, the primary components of which include reduced business
fares (typically 40-75% below the walkup prices on 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.
Despite these actions, we believe our year-over-year domestic unit revenue
performance has been significantly better than the industry average since the
new structure was introduced and the net effect on revenue of our revised
pricing structure has been significantly positive.

3



---



##### Table of Contents



In February 2004, we announced another change in our pricing structure 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. 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.

Customer Service

We believe that an 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 2003, we continued
to build on the customer service and reliability initiatives that we first
implemented in 2000. Largely as a result of our continued focus on providing
safe, reliable and convenient customer service, we continued to see positive
trends in our key operating statistics as reported to the U.S. Department of Transportation
(DOT). See Managements Discussion and Analysis of Financial Condition and
Results of Operations  2003 in Review  Customer Service.

In 2003, we continued to find ways to provide customers with choices and
make it easier to travel:



| |  |  | After extensive testing in 2003, our Buy on Board meal program
was rolled out on long-haul flights during the first quarter of 2004.                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our day of departure first class upgrade program provided a simple
and affordable way to upgrade to first class just prior to departure.                                                                                                    
|
| |  |  | We introduced our Low Fare Finder application on our website,
making it easy for customers with flexible travel plans to get the best
fare available.                                                                                     
|
| |  |  | We expanded the availability of self-service kiosks across our
system and, in November 2003, opened a new state-of-the-art automation
center for check-in at Phoenix Sky Harbor International Airport with 28
fully-integrated kiosks.      
|
| |  |  | Working with Arizona State Universitys School of Engineering, we
created a sophisticated group boarding protocol using back to front and
outside-in logic to board passengers faster and in a manner which is
more convenient to customers.

Regional Airline Alliance

We have a regional alliance agreement with Mesa Airlines. Mesa, operating
as America West Express, provides regional feeder service to and from our
Phoenix and Las Vegas hubs to destinations in the western United States and
northern Mexico flying principally regional jets and large turboprop aircraft.
Through this arrangement with Mesa, we offered America West Express service to
an additional 31 destinations as of December 31, 2003.

In 2003, we restructured our agreement with Mesa. The amendment adjusted
the firm number and mix of regional jets, reduced the firm number of Dash-8
turboprops, restructured Beech 1900 codeshare flying, created a new model for
Mesa-handled station costs and settled outstanding disputed amounts associated
with the previous codeshare arrangement. Designed to defer further growth of
the regional fleet until 2004, the amendment accelerated five return rights on
CRJ-200s to June 2003, eliminated the 15 firm CRJ-700 aircraft entirely by
March 2004 and increased from 25 to 38 the firm number of CRJ-900 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.

4



---



##### Table of Contents



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

Relationships with Northwest Airlines (Northwest) and EVA Airways
provide connecting service on AWA from those airlines pacific routes to Las
Vegas and Phoenix. The frequent flyer agreement with Northwest also provides
for 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.

AWAs alliance agreements with Hawaiian Airlines (Hawaiian) and Big Sky
Airlines (Big Sky) allow AWA to code share on flights operated by those
carriers. 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 with Big Sky offers connecting service in Denver,
Colorado; Spokane, Washington; Boise, Idaho and Billings, Montana to Big Skys
destinations in Montana and Washington state. AWA FlightFund members can earn
and redeem credit for travel on Big Sky.

Airline Competition and Marketing

The airline industry is highly competitive and volatile. Airlines 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 airlines on medium and long haul routes to, from and through our hubs and
in our new transcontinental markets and with a number of carriers for short
haul flights at our Phoenix and Las Vegas hubs.

We also 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, 2003, low
cost carrier capacity (as
measured by available seat miles) represented 25% of all domestic mainline
service, an increase of 3 points from the 12 months ended December 31, 2002,
when low cost carrier marketshare accounted for approximately 22% of all domestic mainline
service.

Our low cost structure allows us to compete with other major full service
carriers based on price. In addition to our low cost structure, our full
service amenities (for example, first class seating, an award winning frequent
flyer program and assigned seating) allow us to compete with other low cost
carriers. However, many of the low cost carriers have lower cost structures
than we do. The consolidation of existing carriers and the entry of additional
carriers, including new low cost carriers and the recent trend of low fare
airline-within-an-airline strategies several major airlines have undertaken, in
many of our markets (as well as increased services by established carriers)
could negatively impact our results of operations. In addition, certain
airlines have in the past engaged in retaliatory activities, including deep
pricing discounts in certain markets and termination of alliance agreements, in
response to changes in our pricing structure. For additional discussion of
industry competition and related government regulation, see Risk Factors
Relating to America West and Industry Related Risks - The airline industry and
the markets we serve are highly competitive and we may be unable to compete
effectively against carriers with substantially greater resources or lower cost
structures and, generally,  Government Regulations.

Most tickets for travel on AWA are sold by travel agents. Airlines often
pay override commissions in connection with special revenue programs, competing
not only with respect to the price of tickets sold but also with respect to the
amount of commissions paid. Our Agency AWArds commission program for travel
agents offers agencies the opportunity to earn commission payments in exchange
for booking more of their business on AWA. We believe that this commission
structure is competitive with the commission programs of the other major
airlines in the United States.

Most tickets sold by travel agents are sold through computer reservations
systems (CRS). Travel agents reliance on those CRSs have, from time to
time, significantly increased the cost of making reservations, which costs are
born by airlines that subscribe to the CRSs, including AWA. We have sought to
reduce these costs through several initiatives. First, our electronic or
paperless ticketing program responds to customer needs and reduces distribution
costs for tickets booked directly through the Airlines reservation system and
through travel agencies. During 2003, approximately 94% of the Airlines
tickets were processed electronically, up from 86% during 2002. Second, we
provide the ability for our customers to book tickets directly through the
Internet using the Airlines web site located at www.americawest.com, thus
avoiding the more expensive CRSs. Bookings through americawest.com

5



---



##### Table of Contents



were approximately 20% of total 2003 bookings, up from 15% in 2002.

On December 31, 2003, the DOT issued a decision to terminate the existing
regulations that restricted preferential scheduling displays and other CRS
practices that place AWA and other similarly situated users at a competitive
disadvantage to airlines controlling the systems. In its decision,
the DOT found that the regulations were no longer justified since no
CRS is now owned by a U.S. airline. As a result, the mandatory
participation rule, under which an airline that owns or controls a CRS is
required to purchase the same level of service from other CRSs that it
purchases from the CRS it owns or controls, and the rule against discriminatory
booking fees, which requires that all carriers pay the same fee for the same
level of service, are rescinded as of January 31, 2004. The rule prohibiting
CRSs from using preferential CRS displays to favor one or more particular
carrier over another will be rescinded as of July 31, 2004. At this point it
is not possible to predict how this will affect AWAs distribution costs, but
such costs could rise significantly and, given the highly competitive nature of
the industry, AWA may not be able to pass these costs on to its customers.

Frequent Flyer Program

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

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

We account for the FlightFund program under the incremental cost method
whereby travel awards are valued at the incremental cost of carrying one
passenger based on expected redemptions. Those incremental costs are based on
expectations of expenses to be incurred on a per passenger basis and include
fuel, liability insurance, food, beverages, supplies and ticketing costs that
are accrued as FlightFund members accumulate mileage credits. No profit or
overhead margin is included in the accrual for those incremental costs.
Transportation-related revenue from the sale of mileage credits is deferred and
recognized when transportation is provided. Non-revenue FlightFund travel
accounted for 2.1%, 2.7% and 2.6% of total revenue passenger miles for the
years ended December 31, 2003, 2002 and 2001, respectively. We do not believe
that non-revenue FlightFund travel results in any significant displacement of
revenue passengers.

The Airlines Fleet

At December 31, 2003, AWA operated a fleet of 139 aircraft having an
average age of 10.7 years. In 2003, AWA parked and sold two owned 737-200
aircraft, returned to lessor two 737-300 aircraft, returned two A320 aircraft
and took delivery of two A320 aircraft. Additionally, one 737-200 aircraft was
parked and sold in the first quarter of 2004.

In 2004, we plan to take delivery of one new A319 aircraft and two new
A320 aircraft, lease three additional A320 aircraft and retire all eight
737-200 aircraft which would result in a fleet of 137 aircraft at the end of
2004, having an average age of 10.7 years. Despite the slight decline in
aircraft throughout the year, we expect our mainline capacity (as measured by
available seat miles) to increase 8-10% in 2004 due to increased utilization,
larger aircraft and the timing of the deliveries and retirements. Depending on
market conditions, AWA may add additional aircraft in late 2004 to support 2005
growth.

AWAs fleet at the end of 2003 and as currently planned at the end of 2004
is described in the table below:

|         |        |           |     |      |  |      |              |      |                          |      |    |     |  |  |      |      |  |  |      |      | 
|-------- | ------ | --------- | --- | ---- |  | ---- | ------------ | ---- | ------------------------ | ---- | -- | --- |  |  | ---- | ---- |  |  | ---- | ---- | 
|         |        |           |     |      |  |      | Number 12/31 |      | Average Age (Yrs.) 12/31
|Aircraft |        | Approx.   |     |      |  |     
|Types    |        | No. Seats |     | 2003 |  | 2004 |              | 2003 |                          | 2004
|         |        |           |     |      |  |      |              |      |                          |     
|B737-200 |        |           | 113 |      |  |      | 8            |      |                          |      | 0  |     |  |  | 22.1 |      |  |  | n/a  |     
|B737-300 |        |           | 132 |      |  |      | 37           |      |                          |      | 37 |     |  |  | 15.9 |      |  |  | 16.9 |     
|B757-200 |        |           | 190 |      |  |      | 13           |      |                          |      | 13 |     |  |  | 17.2 |      |  |  | 18.2 |     
|A319-100 |        |           | 124 |      |  |      | 32           |      |                          |      | 33 |     |  |  | 3.3  |      |  |  | 4.2  |     
|A320-200 |        |           | 150 |      |  |      | 49           |      |                          |      | 54 |     |  |  | 7.8  |      |  |  | 8.5  |     
|         |        |           |     |      |  |      |              |      |                          |      |    |     |  |  |      |      |  |  |      |     
|         | Totals |           |     |      |  |      |              | 139  |                          |      |    | 137 |  |  |      | 10.7 |  |  |      | 10.7 | 
|         |        |           |     |      |  |      |              |      |                          |      |    |     |  |  |      |      |  |  |      |     

6



---



##### Table of Contents



As of December 31, 2003, AWA had firm commitments to purchase or acquire
by operating lease a total of 15 Airbus A318-100, one Airbus A319-100 and three
Airbus A320-200 aircraft for delivery in 2004 through 2007. AWA also has 17
options and 25 purchase rights to acquire aircraft in the A320 family of
aircraft (A318s, A319s, A320s and A321s) for delivery in 2005 through 2008.

We expect that expirations of aircraft operating leases scheduled to occur
over the next several years will allow AWA the flexibility to manage the growth
of its fleet size and related financial obligations in response to unfavorable
economic conditions. Certain of these leases contain put options pursuant to
which the lessors could require AWA to renew the leases for periods ranging
from eight months to 8.7 years or call options pursuant to which the lessors
could require AWA to return the aircraft to the lessors upon receipt of four to
nine months written notice. In 2003, AWA renewed the leases for three aircraft
as a result of the exercise of put options by the aircraft lessors. No call
options were exercised in 2003. Assuming the exercise of the put options, as
of December 31, 2003, leases for 57 of AWAs aircraft should be terminated by
the end of 2008.

The following table illustrates AWAs committed orders, scheduled lease
expirations and lessor put and call options for the years 2004-2008:

|                                         |                             |  |      |     |      |  |      |    |      |  |      |    |  |  |   |    |  |  |   |    | 
|---------------------------------------- | --------------------------- |  | ---- | --- | ---- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- |  |  | - | -- | 
|                                         |                             |  | 2004 |     | 2005 |  | 2006 |    | 2007 |  | 2008
|                                         |                             |  |      |     |      |  |      |    |      |  |     
|Firm orders (A318-100/A319-100/A320-200) |                             |  | 2    |     |      |  | 2    |    |      |  | 7    |    |  |  | 8 |    |  |  | 0 |   
|Lessor put options                       |                             |  | 4    | (a) |      |  | 2    |    |      |  | 4    |    |  |  | 0 |    |  |  | 0 |   
|Lease terminations:                      |                             |  |      |     |      |  |      |    |      |  |      |    |  |  |   |    |  |  |   |   
|                                         | Scheduled lease expirations |  |      | 7   |      |  |      | 13 |      |  |      | 16 |  |  |   | 10 |  |  |   | 11 | 
|                                         | Lessor call options         |  |      | 9   | (b)  |  |      | 1  | (c)  |  |      | 0  |  |  |   | 0  |  |  |   | 0  | 



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

For further details on AWAs commitments to acquire aircraft, financing
strategies and capital requirements for aircraft, see Managements Discussion
and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resourcesand Risk Factors Relating to America West and Industry
Related Risks - Our high level of indebtedness and fixed costs 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.

Aircraft Fuel

Fuel costs were our second-largest operating expense in 2004. Our average
cost of fuel, net of hedging gains (losses), over the past five years was as
follows:

|     |  |            |     |              |  |           |      |  |  |            |      |  
|---- |  | ---------- | --- | ------------ |  | --------- | ---- |  |  | ---------- | ---- | -
|     |  |            |     |              |  |           |      |  |  | Percent of
|     |  | Cost       |     | Average Cost |  | Operating
|Year |  | (Millions) |     | per Gallon   |  | Expenses 
|     |  |            |     |              |  |          
|1999 |  | $          | 220 |              |  | $         | 0.53 |  |  |            | 11.0 | %
|2000 |  | $          | 373 |              |  | $         | 0.88 |  |  |            | 15.8 | %
|2001 |  | $          | 343 |              |  | $         | 0.83 |  |  |            | 13.8 | %
|2002 |  | $          | 300 |              |  | $         | 0.73 |  |  |            | 13.6 | %
|2003 |  | $          | 365 |              |  | $         | 0.86 |  |  |            | 16.4 | %

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 America West and Industry Related Risks  Fluctuations in fuel
costs could adversely affect our operating expenses and results.

7



---



##### Table of Contents



The Leisure Company

As of January 1, 2004, TLC has been merged into AWA and will continue to
operate as the America West Vacations division of AWA. See Note 18,
Subsequent Event  Merger of America West Vacations Subsidiary into AWAin
Notes to Financial Statements of AWA. TLC sells individual and group travel
packages including air transportation on AWA and Hawaiian Airlines, hotel
accommodations, car rentals and other travel products directly to consumers and
through retail travel agencies in the United States, Canada and Mexico. TLCs
travel packages are sold under the America West Vacations brand. TLC is one of
the largest tour packagers to Las Vegas in the United States, contracting for
volume blocks of rooms with 31 Las Vegas hotels and resorts in 2003.

TLC remains focused on high-volume leisure travel products which have
traditionally provided high profit margins. TLC has negotiated several
strategic partnerships with hotels, Internet travel sites and media companies
to capitalize on the continued growth in online travel sales. TLC sells
vacation packages and hotel rooms through its call center, via the Internet and
its websites, AmericaWestVacations.com, AWVTravelAgents.com and AWVCruise.com,
through global distribution systems Sabre TourGuide and WorldSpan Tour Source
and through third-party websites on a co-branded or private-label basis. In
2003, approximately 54% of total bookings were made electronically compared to
49% in 2002.

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

Employees and Labor Relations

The Companys businesses are labor intensive with wages, salaries and
benefits representing approximately 29% of the Companys operating expenses
during 2003.

As of December 31, 2003, the Company employed 10,561 full-time and 2,408
part-time employees, for a full-time equivalent of 11,475 employees. As of
December 31, 2003, AWA employed 10,382 full-time and 2,396 part-time employees,
for a full-time equivalent of 11,326 employees.

In 2003, the Companys front-line non-union employees received a 3% pay
increase. All other non-union employees are compensated on a
pay-for-performance basis under which salaries and wages are determined, in
part, by performance evaluations by an employees management team. The Company
awards a bonus, referred to as AWArd Pay, to eligible, non-executive, non-union
employees provided the Company achieves certain annually established targets.
AWArd Pay bonuses could range from 5% of base pay if those targets are met to
25% of base pay if those targets are significantly exceeded. Based on the
Companys profit for the year ended December 31, 2003, 7.5% bonuses were paid
to eligible Company employees in early 2004, the first payments under the
program since 1999.

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

8



---



##### Table of Contents



|                                |  |              |       |       |  |                                                                    |  |               |  |              
|------------------------------- |  | ------------ | ----- | ----- |  | ------------------------------------------------------------------ |  | ------------- |  | -------------
|Employee                        |  | Approx. No.  |       |       |  | Contract                                                           |  | Contract     
|Group                           |  | of Employees |       | Union |  | Effective                                                          |  | Amendable    
|                                |  |              |       |       |  |                                                                    |  |              
|Pilots                          |  |              | 1,700 |       |  | Air Line Pilots Association                                        |  | December 2003 |  | December 2006
|                                |  |              |       |       |  |                                                                    |  |               |  |              
|Dispatchers                     |  |              | 40    |       |  | Transportation Workers Union                                       |  | March 1998    |  | March 2003*  
|                                |  |              |       |       |  |                                                                    |  |               |  |              
|Mechanics and
related personnel |  |              | 800   |       |  | International Brotherhood of
Teamsters                             |  | October 1998  |  | October 2003*
|                                |  |              |       |       |  |                                                                    |  |               |  |              
|Flight Attendants               |  |              | 2,400 |       |  | Association of Flight AttendantsCommunications Workers of America |  | May 1999      |  | May 2004*    
|                                |  |              |       |       |  |                                                                    |  |               |  |              
|Fleet Service                   |  |              | 2,200 |       |  | Transportation Workers Union                                       |  | June 2000     |  | June 2005    
|                                |  |              |       |       |  |                                                                    |  |               |  |              
|Stock Clerks                    |  |              | 60    |       |  | International Brotherhood of
Teamsters                             |  | April 2003    |  | April 2008   

*     In contract negotiations.

A tentative agreement with ALPA was reached on December 12, 2003. On
December 30, 2003, 771 of AWAs pilots voted for ratification and 679 voted
against. The agreement was signed on December 30, 2003.

On January 13, 2003, negotiations commenced with the Transportation
Workers Union (TWU) on a second contract covering the Companys dispatchers.
On September 17, 2003, TWU filed a petition for mediation with the National
Mediation Board (NMB). Mediated discussions began on October 15, 2003 and a
tentative agreement for a new four-year contract was announced on February 20,
2004. The tentative agreement is subject to ratification by TWU membership,
and that process will begin around March 26, 2004.

Negotiations with the International Brotherhood of Teamsters  Airline
Division (IBT) on a second contract covering the Companys mechanics and
related employees commenced on October 9, 2003 and will continue into 2004.

Negotiations with the Association of Flight Attendants  Communications
Workers of America (AFA) on a second contract covering the Companys flight
attendants commenced on February 4, 2004 and will continue in 2004.

On April 4, 2003, the Company signed a five-year agreement with the IBT
covering the Companys 54 stock clerks.

The Companys Facilities

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

9



---



##### Table of Contents



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

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

Government Regulations

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

DOT Oversight

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

FAA Funding

In 1997, new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration (FAA). Included in
the 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.

10



---



##### 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 (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 (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 will result in increased costs for air carriers and may result in
delays and disruptions to air travel. Under the ATSA, funding for the new
federal security system is to be provided by a $2.50 per enplanement ticket
tax, not to exceed $5.00 per one-way trip, and by imposing additional direct
fees on air carriers. Pursuant to the ATSA, air carriers began collecting the
new ticket tax from passengers on February 1, 2002 and have been required to
make additional payments to the Transportation Security Administration. In
2003, the Companys cost of compliance with the security requirements of the
ATSA was approximately $13.2 million. The estimated cost to the Company of
compliance with the security requirements of the ATSA for 2004 is approximately
$15.3 million. As a result of competitive pressure, AWA and other airlines may
be unable to recover all of these additional security costs from passengers
through increased fares. In addition, we cannot forecast what new security and
safety requirements may be imposed in the future or the costs or financial
impact of complying with any such requirements.

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 (Vision 100), this insurance
program may continue until March 30, 2008. Should the federal insurance
program terminate, as a result of competitive pressures AWA and other airlines
would be limited in their ability to pass these additional costs 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 the
future these takeoff and landing time slot restrictions and other restrictions
on the use of various airports and their facilities may result in further
curtailment of services by, and increased operating costs for, individual
airlines, including AWA, particularly in light of the increase in the number of
airlines operating at such airports. In general, the FAA rules relating to
allocated slots at the High Density Airports contain provisions requiring the
relinquishment of slots for non-use and permit carriers, under certain
circumstances, to sell, lease or trade their slots to other carriers. All
slots must be used on 80% of the dates during each two-month reporting period.
Failure to satisfy the 80% use rate will result in loss of the slot which would
revert to the FAA and be reassigned through a lottery arrangement.

11



---



##### Table of Contents



AWA currently utilizes five slots at Kennedy Airport and 6 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
from or to 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 which authorized the DOT
to grant exceptions to the 1,250 mile perimeter rule for up to 12 slots per
day. AWA was authorized six of these slots to operate two daily Phoenix -
National Airport round trips and one daily Las Vegas - National Airport round
trip. Vision 100, among other things, authorized the DOT to grant 12
additional beyond perimeter slot exemptions. America West submitted its
application on January 9, 2004 requesting four Phoenix - National Airport slots
and two Las Vegas - National Airport slots. AWA also formally applied for four
Los Angeles - National Airport, four San Francisco - National Airport and two
Phoenix - National Airport slots should the DOT choose to dismiss the
statutory criterion of providing air transportation with domestic network
benefits beyond the 1,250 mile perimeter, one of the four criteria
required to be met for a perimeter rule exemption. The DOT must issue its decision
selecting the carriers and routes that will receive the new slot exemptions at
National Airport on or before April 9, 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,
Boeing 737-200s and Airbus A319s and A320s all comply with the current noise
abatement requirements of the airports listed above.

Aircraft Maintenance and Operations

AWA is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations and to impose civil
penalties for violations of the United States Transportation Code or FAA
regulations. To ensure compliance with its regulations, the FAA conducts
regular safety audits and requires AWA to obtain operating, airworthiness and
other certificates, which are subject to suspension or revocation for cause.
In addition, a combination of FAA and Occupational Safety and Health
Administration (OSHA) regulations on both federal and state levels apply to
all of AWAs ground-based operations and to in-flight cabin attendants.

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

Aging Aircraft Maintenance

The FAA issued several Airworthiness Directives (ADs) in 1990 mandating
changes to the older aircraft maintenance programs. These ADs were issued to
ensure that the oldest portion of the nations aircraft fleet remains airworthy
and 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.

Environmental Matters

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

The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a hazardous substance into the
environment. These

12



---



##### Table of Contents



persons include the owner or operator of a facility and persons that
disposed or arranged for the disposal of hazardous substances. Many airports
in the United States, including Phoenix Sky Harbor International Airport, are
the subject of Superfund investigations or state implemented groundwater
investigations. AWA occupies facilities at some of these affected airports and
is a member of a fuel handling consortium which has experienced a fuel leak
into ground water at Phoenix Sky Harbor International Airport. AWA does not
believe that its operations have been included within the 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 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 America West 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 cause actual
results to differ materially from those projected in any forward-looking
statement. In light of these risks, uncertainties and assumptions, the
forward-looking events described in this annual report on Form 10-K might not
occur.

In the recent past, we sustained significant operating losses and we may
sustain significant losses in the future.

For the years ended December 31, 2002 and 2001, we incurred operating
losses of $160.1 million and $417.9 million, respectively. Although we
reported net income of $57.4 for the year ended December 31, 2003, there can be
no assurance that we will be able to maintain or grow this level of net income.
Since the terrorist attacks of September 11, 2001, we have experienced an
increase in costs related to enhanced security measures, aviation insurance and
airport rents and landing fees. We expect the threat of further terrorist
attacks and continued instability in the Middle East 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, further decreases in demand for air travel or
substantial increases in fuel costs. The inability to sustain profitability
may hinder our ability to satisfy our obligations as they become due, obtain
future equity or debt financing or to do so on economical terms and to sustain
or expand our business.

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

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



| |  |  | our ability to maintain our low cost structure and adequate cash balances;                       
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | general economic conditions and the extent to which the current soft economic conditions improve;
|
| |  |  | competition in the airline industry;                                                             
|
| |  |  | our ability to manage fuel and labor costs; and                                                  

13



---



##### Table of Contents





| |  |  | the other risks discussed in this report.
| | - |  | -----------------------------------------

Moreover, continued global instability (including fuel price
fluctuations), soft economic conditions, future terrorist attacks and
infectious disease outbreaks, such as severe acute respiratory syndrome, could
further reduce demand for air travel, increase our fuel, insurance and other
costs and generally impact our liquidity or financial condition. Our ability
to obtain additional financing to absorb the impact of these type of events is
limited by the constraints imposed by our existing indebtedness, reductions in
the value of our aircraft (as a result of the terrorist attacks) and our
relatively low credit ratings.

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

The terrorist attacks of September 11, 2001 resulted in staggering losses
to the insurance industry. These losses led to a significant increase in our
insurance premiums and could lead to future increases in our insurance
premiums. These increases have and could continue to negatively impact our
financial results. In addition, the resulting general instability in the
insurance industry could adversely affect some of our existing insurance
carriers or our ability to obtain future insurance coverage. To the extent
that our existing insurance carriers are unable or unwilling to provide us with
insurance coverage, our insurance costs could further increase.

Moreover, since September 11, 2001, AWA and other airlines have been
unable to obtain third party war risk (terrorism) insurance at reasonable rates
from the commercial insurance market and have been obtaining this insurance
through a special program administered by the Federal Aviation Administration,
or FAA. This program has been extended by Vision 100 to a new termination date
of March 30, 2008. If the Federal insurance program terminates, we would
likely face a material increase in the cost of terrorism insurance, but because
of competitive pressures in our industry, our ability to pass this additional
cost to passengers would be limited.

Our high level of indebtedness and fixed costs 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 indebtedness. In addition, we have
incurred significant capitalized and operating lease obligations in connection
with the financing of aircraft and the lease of airport and other facilities.
As of December 31, 2003, we had approximately $792.9 million of indebtedness
outstanding, of which $123.2 million was secured by certain aircraft,
substantially all of our spare engines and rotable aircraft parts inventory,
and a maintenance facility. In addition, we had $16.2 million of capital lease
obligations and $3.4 billion of operating lease obligations through the lease
expiration dates incurred primarily in connection with off-balance sheet
aircraft financings. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources 
Off-Balance Sheet Arrangements.We also have guaranteed costs associated with
our regional alliance with Mesa Airlines. Due to our high fixed costs,
including aircraft lease obligations and debt service, a decrease in revenues
results in a disproportionately greater percentage decrease in earnings. In
addition, as a result of our significant indebtedness and fixed costs:



| |  |  | our ability to satisfy our debt and lease obligations may be
impaired;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we have only a limited ability to obtain additional financing, if
needed. Our existing indebtedness is secured by a substantial portion
of our assets, leaving us with limited assets to use to obtain
additional financing. In addition, the terms of both the $429 million
government guaranteed loan and the $74.8 million term loan restrict our
and AWAs ability to incur additional indebtedness or issue equity
unless we use the proceeds of those transactions to prepay or redeem
certain of our existing indebtedness;                                                                                                                                                                                                                                                                              
|
| |  |  | our ability to fund general corporate requirements, including
capital expenditures, may be impaired. We have substantial obligations
to pay principal and interest on our indebtedness and other recurring
fixed costs. Further, we may be required to prepay portions of the
government guaranteed loan if our employee compensation costs exceed a
certain threshold. Accordingly, we may have to use our working capital
to fund such payments and costs instead of funding general corporate
requirements. In addition, because under the terms of certain of AWAs
indebtedness it must maintain a minimum cash balance of $100 million,
we cannot use all of our available cash to fund operations, capital
expenditures and cash obligations without violating this minimum cash
balance requirement; and

14



---



##### Table of Contents





| |  |  | our ability to respond to competitive developments and adverse
economic conditions may be limited. Without the ability to obtain
additional financing and with substantial fixed costs, we may not be
able to fund the capital expenditures, including the purchase of new
aircraft, required to keep us competitive or to withstand prolonged
adverse economic conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Moreover, our flexibility is limited because many of the agreements
governing our indebtedness, including the indenture governing the
103⁄4%
senior notes due 2005 and the agreements governing the government guaranteed
loan and the term loan, contain negative covenants that restrict our ability to
take certain actions. As a result of these restrictive covenants and the
minimum cash balance requirement discussed above, we may be limited in how we
conduct our business and may be unable to raise additional debt or equity
financing to operate during general economic or business downturns, to compete
effectively or to take advantage of new business opportunities. This may affect
our ability to generate revenues and make profits. Without sufficient revenues,
we may not be able to pay interest and principal on outstanding indebtedness.
A breach of these covenants or a failure to make any required payments under
our indebtedness or certain of our aircraft leases could result in the
acceleration of a substantial portion of our indebtedness. In the event of a
breach of these covenants, a failure to make required payments or an
acceleration of our indebtedness, it is likely that credit card companies would
begin to withhold proceeds due to us from the sale of our tickets and our
lessors may attempt to exercise remedies under their respective leases. In
such a situation, it is unlikely we would be able to fulfill our obligations
under or otherwise repay the accelerated indebtedness or make required lease
payments.

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

The price and supply of jet fuel are unpredictable and fluctuate based on
events outside our control, including geopolitical developments, regional
production patterns and environmental concerns. Since fuel is the principal
raw material consumed by our business, accounting for 16% of our total
operating expenses in 2003, 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, we estimate that a one-cent per gallon increase in jet fuel prices
will cause our annual operating expense to increase by $4.4 million.

We have implemented a fuel-hedging program to manage the risk and effect
of fluctuating jet fuel prices on our business. Our hedging program is
intended to offset increases in jet fuel costs by using derivative instruments
keyed to the future price of heating oil, which is highly correlated to the
price of jet fuel delivered on the East Coast. Our hedging program does not
fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected fuel volumes for 2004. Hedging
transactions are in place with respect to approximately 11% of projected 2004
fuel requirements. Furthermore, our ability to effectively hedge fuel prices
is limited because we purchase a substantially larger portion of our jet fuel
requirements on the West Coast than our large competitors and West Coast fuel
prices are less correlated to heating oil prices and other viable petroleum
derivatives than East Coast fuel prices and, therefore, more difficult to
hedge. The effectiveness of our fuel-hedging program may also be negatively
impacted by continued instability in the Middle East and terrorist activity.

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 Caa1 and Caa3,
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. Low
credit ratings could cause our future borrowing costs to increase, which would
increase our interest expense and could affect our net income. In addition,
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.

15



---



##### Table of Contents



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. On January 13, 2003,
negotiations commenced with the TWU on a second contract covering the Companys
dispatchers. On September 17, 2003, TWU filed a petition for mediation with
the National Mediation Board. Mediated discussions began on October 15, 2003
and a tentative agreement for a new four-year contract was announced on
February 20, 2004. The tentative agreement is subject to ratification by TWU
membership, and that process will begin around March 26, 2004. Negotiations
with the IBT for a second collective bargaining agreement covering the
Airlines mechanics and related employees commenced on October 9, 2003 and will
continue during 2004. Additionally, negotiations with the AFA on a second
contract covering the Companys flight attendants commenced on February 4, 2004
and will continue during 2004.

We cannot predict the outcome of the negotiations with TWU, 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.

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

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

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

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. 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

16



---



##### Table of Contents



in our pricing structure. In addition, the elimination of federal
regulations that are intended to diminish the use of preferential scheduling
displays and other CRS practices may place us at a competitive disadvantage to
airlines controlling the CRS systems. Our principal competitor is Southwest
Airlines, which has a lower operating cost structure than we do. We also
compete against other existing carriers, many of which offer more extensive
routes, frequencies and customer loyalty, marketing and advertising programs
than we do and with new carriers which typically have low operating cost
structures. We may be unable to compete effectively against carriers with
substantially greater resources or lower cost structures. The entry of
additional new carriers in our markets, the consolidation of existing carriers
or increased competition from existing carriers, could adversely affect our
operating results.

The terrorist attacks of September 11, 2001, the continued military
presence in Iraq and Afghanistan, and the current soft economic conditions have
led to the airline industrys significant losses since 2001. Largely as a
result of these losses, both U.S. Airways 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 may also 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.

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 (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.

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

17



---



##### Table of Contents



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.

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 2003, approximately 94% 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 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 the class B common stock. A substantial number of
additional shares of class B common stock are issuable upon the conversion or
exercise of outstanding securities. As of February 27, 2004, the outstanding
shares of class B common stock were subject to dilution by:



| |  |  | 19,912,000 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 ATSB; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 9,513,744 shares of 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 will be
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 will be
issuable after January 18, 2005 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 the class B common stock issuable upon such
conversion or exercise could adversely affect prevailing market prices of the
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 the class B
common stock.

Provisions in our charter documents might deter acquisition bids for us.

Holdings Certificate of Incorporation and Restated Bylaws contain
provisions that, among other things:



| |  |  | authorize Holdings board of directors to issue preferred stock
ranking senior to the class B common stock without any action on the
part of the stockholders;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### Table of Contents





| |  |  | 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.

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 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 the 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 Report on Form 10-K.




ITEM 3. LEGAL PROCEEDINGS

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

In addition, Holdings and its subsidiaries are parties to various legal
proceedings, including some purporting to be class action suits and some which
demand large monetary damages or other relief, which, if granted, would require
significant expenditures. See Note 6, Commitments and Contingencies  (e)
Contingent Legal Obligations,in Notes to Consolidated Financial Statements.

19



---



##### Table of Contents






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 February 27, 2004.

W. Douglas Parker, Age 42. 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 36. Executive Vice President - Sales and Marketing of
Holdings and AWA. Mr. Kirby joined AWA as Senior Director  Schedules and
Planning in October 1995. In October 1997, Mr. Kirby was elected to the
position of Vice President - Planning and in May 1998, he was elected to the
position of Vice President - Revenue Management. In January 2000, he was
elected to the positions of Senior Vice President - E-Business and Technology
of Holdings and AWA. He was elected to his current positions in September
2001.

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

Joseph C. Beery, Age 41.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 55. 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 60. Senior Vice President  Public Affairs of AWA and
Holdings. Mr. Howlett joined AWA as Vice President  Public Affairs in January
1995. On January 1, 1997, he was appointed Vice President  Public Affairs of
Holdings. He was elected to his current positions in February 1999.

Derek J. Kerr, Age 39.Senior Vice President and Chief Financial Officer
of AWA and Holdings. Mr. Kerr joined AWA as Senior Director  Financial
Planning in April 1996. He was elected to the position of Vice President 
Financial Planning and Analysis in May 1998. In February 2002, Mr. Kerr was
promoted to Senior Vice President  Financial Planning and Analysis. He was
elected to his current positions in September 2002.

Anthony Mulé, Age 60. Senior Vice President  Customer Service of AWA.
Mr. Muléjoined AWA as Vice President  In-Flight Services in 1996. He was
elected to his current position in October 2000.

Michael R. Carreon, Age 50. 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.

Thomas T. Weir, Age 48. Vice President and Treasurer of AWA. Mr. Weir
joined AWA in February 2000. From 1988 until 2000, Mr. Weir held various sales
finance positions at Airbus Industrie of North America, Inc., most recently as
Sales Finance Director.

John R. Wilson, Age 39.Vice President  Financial Planning and Analysis
of AWA. Mr. Wilson joined AWA in June 1997 as Senior Director  Financial
Analysis. In October 2000, he was elected to the position of Vice President 
Operations Finance and became Vice President  Operations Planning and Analysis
in November 2001. He was elected to his current position in November 2002.

20



---



##### Table of Contents






PART II




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

The Class A common stock of Holdings, par value $0.01 per share is not
publicly traded. The 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 B     
|                             |  | Common Stock
|                             |  |             
|                             |  | High         |         | Low
|                             |  |              |         |    
|Year Ended December 31, 2003 |  |              |         |     |  |   |        | 
|First Quarter                |  | $            | 2.3300  |     |  | $ | 1.6700 | 
|Second Quarter               |  |              | 6.9800  |     |  |   | 1.9600 | 
|Third Quarter                |  |              | 11.0200 |     |  |   | 6.6300 | 
|Fourth Quarter               |  |              | 16.0000 |     |  |   | 9.5500 | 
|Year Ended December 31, 2002 |  |              |         |     |  |   |        | 
|First Quarter                |  | $            | 6.4500  |     |  | $ | 3.1500 | 
|Second Quarter               |  |              | 5.5100  |     |  |   | 2.4600 | 
|Third Quarter                |  |              | 2.8200  |     |  |   | 1.2000 | 
|Fourth Quarter               |  |              | 2.6500  |     |  |   | 0.9000 | 

As of December 31, 2003, there were two record holders of Class A common
stock and approximately 2,892 record holders of Class B common stock.

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

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 three fiscal years. Holdings stock repurchase program
expired on December 31, 2002. Under the terms of the government guaranteed
loan, Holdings is prohibited from repurchasing any additional shares of its
stock prior to repayment of the loan in full.

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

21



---



##### Table of Contents






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, 2003, 2002, 2001, 2000
and 1999 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 independent auditors.

|                                                                                                        |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |        |  | 
|------------------------------------------------------------------------------------------------------- | ------- | - | --------- | --------------------------------------- |  | ---- | --------- | ------ | - | ---- | --------- | ------ | - | - | --------- | ------ |  | - | --------- | ------ |  | 
|                                                                                                        |         |   |           | Year ended December 31,                
|                                                                                                        |         |   |           |                                        
|                                                                                                        |         |   |           | 2003                                    |  | 2002 |           | 2001   |   | 2000 |           | 1999  
|                                                                                                        |         |   |           |                                         |  |      |           |        |   |      |           |       
|                                                                                                        |         |   |           | (in thousands except per share amounts)
|Consolidated statements of operations data:                                                             |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |       
|Operating revenues                                                                                      |         | $ | 2,254,497 |                                         |  | $    | 2,047,116 |        |   | $    | 2,065,913 |        |   | $ | 2,344,354 |        |  | $ | 2,210,884 |       
|Operating expenses (a)                                                                                  |         |   | 2,221,616 |                                         |  |      | 2,207,196 |        |   |      | 2,483,784 |        |   |   | 2,356,991 |        |  |   | 2,006,333 |       
|Operating income (loss)                                                                                 |         |   | 32,881    |                                         |  |      | (160,080  | )      |   |      | (417,871  | )      |   |   | (12,637   | )      |  |   | 204,551   |       
|Income (loss) before income taxes (benefit)
and cumulative effect of change in
accounting principle (b) |         |   | 57,534    |                                         |  |      | (214,757  | )      |   |      | (324,387  | )      |   |   | 24,743    |        |  |   | 206,150   |       
|Income taxes (benefit)                                                                                  |         |   | 114       |                                         |  |      | (35,071   | )      |   |      | (74,536   | )      |   |   | 17,064    |        |  |   | 86,761    |       
|Income (loss) before cumulative effect of change in
accounting principle                                |         |   | 57,420    |                                         |  |      | (179,686  | )      |   |      | (249,851  | )      |   |   | 7,679     |        |  |   | 119,389   |       
|Net income (loss)                                                                                       |         |   | 57,420    |                                         |  |      | (387,909  | )      |   |      | (249,851  | )      |   |   | 7,679     |        |  |   | 119,389   |       
|Earnings (loss) per share before cumulative effect
of change in accounting principle:                   |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |       
|                                                                                                        | Basic   |   |           | 1.66                                    |  |      |           | (5.33  | ) |      |           | (7.42  | ) |   |           | 0.22   |  |   |           | 3.17   | 
|                                                                                                        | Diluted |   |           | 1.29                                    |  |      |           | (5.33  | ) |      |           | (7.42  | ) |   |           | 0.22   |  |   |           | 3.03   | 
|Net income (loss) per share:                                                                            |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |       
|                                                                                                        | Basic   |   |           | 1.66                                    |  |      |           | (11.50 | ) |      |           | (7.42  | ) |   |           | 0.22   |  |   |           | 3.17   | 
|                                                                                                        | Diluted |   |           | 1.29                                    |  |      |           | (11.50 | ) |      |           | (7.42  | ) |   |           | 0.22   |  |   |           | 3.03   | 
|Shares used for computation:                                                                            |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |       
|                                                                                                        | Basic   |   |           | 34,551                                  |  |      |           | 33,723 |   |      |           | 33,670 |   |   |           | 35,139 |  |   |           | 37,679 | 
|                                                                                                        | Diluted |   |           | 52,675                                  |  |      |           | 33,723 |   |      |           | 33,670 |   |   |           | 35,688 |  |   |           | 39,432 | 
|Consolidated balance sheet data (at end of period):                                                     |         |   |           |                                         |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |       
|Total assets                                                                                            |         | $ | 1,626,912 |                                         |  | $    | 1,438,953 |        |   | $    | 1,469,218 |        |   | $ | 1,568,515 |        |  | $ | 1,507,154 |       
|Long-term debt, less current maturities                                                                 |         |   | 688,965   |                                         |  |      | 700,983   |        |   |      | 224,550   |        |   |   | 145,578   |        |  |   | 155,168   |       
|Total stockholders equity                                                                              |         |   | 138,516   |                                         |  |      | 68,178    |        |   |      | 420,363   |        |   |   | 667,073   |        |  |   | 714,169   |       



| | (a) |  | Includes $16.0 million of special charges in 2003 resulting
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), the
impairment of certain owned Boeing 737-200 aircraft that have been
grounded ($2.6 million) offset by a $1.1 million reduction of
special 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 special 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 12, Special Chargesin Notes to Consolidated Financial
Statements.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Includes federal government assistance of $81.3 million
recognized in 2003 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. See Note 13, Nonoperating Income (Expenses) -
Other, Netin Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

22



---



##### Table of Contents



Selected Financial Data of AWA

The selected financial data presented below under the captions Statements
of Operations Dataand Balance Sheet Dataas of and for the years ended
December 31, 2003, 2002, 2001, 2000 and 1999 are derived from the audited
financial statements of AWA. The selected financial data should be read in
conjunction with the financial statements for the respective periods, the
related notes and the related reports of independent auditors.

|                                                                                                       |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           | 
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | 
|                                                                                                       |  | Year ended December 31,
|                                                                                                       |  |                        
|                                                                                                       |  | 2003                    |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                                                                                                       |  |                         |           |      |  |      |           |      |  |     
|                                                                                                       |  | (in thousands)         
|Statements of operations data:                                                                         |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           | 
|Operating revenues                                                                                     |  | $                       | 2,215,360 |      |  | $    | 2,011,290 |      |  | $    | 2,020,963 |   |  | $ | 2,290,871 |   |  | $ | 2,146,955 | 
|Operating expenses (a)                                                                                 |  |                         | 2,191,487 |      |  |      | 2,175,440 |      |  |      | 2,444,360 |   |  |   | 2,303,609 |   |  |   | 1,949,054 | 
|Operating income (loss)                                                                                |  |                         | 23,873    |      |  |      | (164,150  | )    |  |      | (423,397  | ) |  |   | (12,738   | ) |  |   | 197,901   | 
|Income (loss) before income taxes (benefit)
and
cumulative effect of change in
accounting principle(b) |  |                         | 44,866    |      |  |      | (219,559  | )    |  |      | (326,223  | ) |  |   | 15,141    |   |  |   | 200,974   | 
|Income taxes (benefit)                                                                                 |  |                         | 114       |      |  |      | (30,484   | )    |  |      | (83,108   | ) |  |   | 15,670    |   |  |   | 84,352    | 
|Income (loss) before cumulative effect of
change in accounting principle                               |  |                         | 44,752    |      |  |      | (189,075  | )    |  |      | (243,115  | ) |  |   | (529      | ) |  |   | 116,622   | 
|Net income (loss)                                                                                      |  |                         | 44,752    |      |  |      | (377,024  | )    |  |      | (243,115  | ) |  |   | (529      | ) |  |   | 116,622   | 
|Balance sheet data (at end of period):                                                                 |  |                         |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           | 
|Total assets                                                                                           |  | $                       | 1,836,374 |      |  | $    | 1,645,015 |      |  | $    | 1,695,544 |   |  | $ | 1,785,473 |   |  | $ | 1,663,495 | 
|Long-term debt, less current maturities                                                                |  |                         | 688,965   |      |  |      | 700,983   |      |  |      | 224,551   |   |  |   | 145,578   |   |  |   | 155,168   | 
|Total stockholders equity                                                                             |  |                         | 354,448   |      |  |      | 299,215   |      |  |      | 640,215   |   |  |   | 881,940   |   |  |   | 882,469   | 



| | (a) |  | Includes $15.6 million of special charges in 2003 resulting
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 ($1.9 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
special 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 special 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 12, Special Chargesin Notes to Financial Statements.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Includes federal government assistance of $81.3 million
recognized in 2003 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. See Note 13, Nonoperating Income (Expenses) -
Other, Netin Notes to Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               




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, TLC. Managements Discussion and Analysis
of Financial Condition and Results of Operations presented below relates to the
consolidated financial statements of Holdings presented in Item 8A and the
financial statements for AWA presented in Item 8B.

2003 in Review

Overview

Since September 11, 2001, the U.S. domestic airline industry has
experienced an unprecedented financial crisis caused by the combination of the
terrorist attacks of September 11, 2001 and soft economic conditions. Although
the demand for air travel improved during 2003 as compared to 2002, the airline
industry, as a whole, continued to suffer losses as a result of reduced demand
for air travel coupled with an increase in costs resulting from enhanced
security measures, aviation-related insurance and higher jet fuel prices. In
response to these difficult industry conditions, we completed a financial
restructuring in 2002 that included a $429 million loan supported by a $380
million government loan guarantee, introduced a business-friendly pricing
structure and lowered our cost structure.

23



---



##### Table of Contents



In 2003, we continued to focus on lowering our cost structure and
providing outstanding customer service. We also began positioning our airline
as a low cost carrier; unlike most other low cost carriers, we continued, and
will continue, to offer many of the full service amenities, such as first class
seating, an award winning frequent flyer program, FlightFund, and assigned
seating, that the major airlines offer. We believe that leisure and business
customers will continue to prefer to travel on low cost carriers and that our
full service amenities give us a competitive advantage over other low cost
carriers. During 2003, we benefited from the following:



| |  |  | More rational capacity in the markets served by AWA as a result of
industry capacity declines over the past year;            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aggressive yield management during the peak summer travel period;                                                            
|
| |  |  | Continued favorable customer response and growth in business
traffic as a result of our business-friendly fare structure; and
|
| |  |  | Continued strong operational performance.                                                                                    

As a result, we reported dramatically improved financial results for 2003.
Our reported net income was $57.4 million in 2003 compared to a loss before
the cumulative effect of a change in accounting principle of $179.7 million in
2002.

In addition, our liquidity improved due to the improvement in operating
cash flow, the receipt of $81.3 million from the federal government for
reimbursement of security fees and through the private placements in July and
August of 2003 of approximately $86.8 million issue price of senior
exchangeable notes. AWA ended 2003 with the highest cash balances in Company
history. Finally, after extensive negotiations, we signed a three-year
agreement with the Air Line Pilots Association (ALPA) on December 30, 2003.

Cost Control

We are committed to maintaining a low cost structure, which we believe
offers a significant competitive advantage over other major hub-and-spoke
airlines in the United States. In 2003, we maintained the lowest operating
cost per available seat mile, or CASM, of all the other major hub-and-spoke
airlines in the United States and remained competitive with the major
point-to-point airline, Southwest Airlines. Our CASM was 7.86 cents in 2003,
which included approximately $19.7 million, or 0.07 cents per available seat
mile, of charges associated with the execution of a new labor agreement with
ALPA and $14.0 million, or 0.05 cents per available seat mile, of net charges
associated with the elimination of our hub operations in Columbus, Ohio, the
reduction-in-force of certain management, professional and administrative
employees and the impairment of certain owned Boeing 737-200 aircraft that have
been grounded. As a result of an increase in total available seat miles of
3.3% and decreases in distribution and maintenance materials costs and
continued management focus on cost control, CASM for 2003 decreased by 2.4%, or
0.19 cents per available seat mile, as compared to 2002.

In light of the current industry environment, we continue to focus on
minimizing capital expenditures and prudent spending for discretionary
expenses.

Revised Pricing Structure

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

In February 2004, we announced another change in our pricing structure 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. We believe that the revised first class fare structure will
exploit our competitive advantages over both the major airlines, as their
higher cost

24



---



##### Table of Contents



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.

Customer Service

We believe that an 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 2003, we continued
to build on the customer service and reliability initiatives that we first
implemented in 2000. Largely as a result of our continued focus on providing
safe, reliable and convenient customer service, we continued to see positive
trends in our key statistics.

AWA reported the following operating statistics to the U.S. Department of
Transportation (DOT) for 2003, 2002 and 2001:

|                        |  |      |      |      |  |      |      |             |  |             |      |  |  |                |       |                |  |  |       |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ----------- |  | ----------- | ---- |  |  | -------------- | ----- | -------------- |  |  | ----- | -
|                        |  |      |      |      |  |      |      |             |  |             |      |  |  | Percent Change |       | Percent Change
|                        |  | 2003 |      | 2002 |  | 2001 |      | 2003 - 2002 |  | 2003 - 2001
|                        |  |      |      |      |  |      |      |             |  |            
|On-time performance (a) |  |      | 82.0 |      |  |      | 82.9 |             |  |             | 74.8 |  |  |                | (1.1  | )              |  |  | 9.6   |  
|Completion factor (b)   |  |      | 99.0 |      |  |      | 99.0 |             |  |             | 97.0 |  |  |                |      |                |  |  | 2.1   |  
|Mishandled baggage (c)  |  |      | 3.28 |      |  |      | 3.55 |             |  |             | 4.22 |  |  |                | (7.6  | )              |  |  | (22.3 | )
|Customer complaints (d) |  |      | 0.87 |      |  |      | 1.63 |             |  |             | 3.72 |  |  |                | (46.6 | )              |  |  | (76.6 | )



| | (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.

The positive operating trends reflected in the above table resulted in AWA
being ranked in the top three major airlines for either on-time performance or
customer complaints for June, July, August, September and December 2003 as
reported in the DOT Air Travel Consumer Report. As a result, AWA employees
received a $50 bonus payment for meeting established operating goals for each
of the five months. For June and July 2003, AWA ranked in the top three major
airlines in all operating statistics.

2004 Outlook

In 2004, we plan to build on our success in 2003 in repositioning the
Airline as a low cost carrier, increasing our liquidity and stabilizing our
labor costs. During 2004, we plan to increase capacity by 8 - 10% through
higher utilization and the addition of five A320 aircraft and one A319
aircraft, offset in part by the retirement of all eight 737-200 aircraft from
our fleet. We also expect to focus on reducing our CASM, excluding fuel, using
our competitive advantages to position ourselves as a premier low cost carrier
and strengthening our balance sheet. The challenges we face in 2004, however,
continue to be considerable, including:



| |  |  | uncertain economic conditions and instability generated by
terrorism and military action in Iraq and Afghanistan;                                                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increased competition from other established low cost carriers and
from the low cost carriers recently launched by United and Delta;                                                                                                                     
|
| |  |  | increased expenses due to the recently signed pilots agreement,
high fuel costs, increased healthcare costs and scheduled engine
overhauls; and                                                                                                          
|
| |  |  | significant debt repayment obligations, including loan repayments
of approximately $85.8 million on the government guaranteed loan, and
payments of approximately $188.0 million in respect of our off-balance
sheet aircraft financing vehicles in 2004.

Despite these challenges, we expect to report a profit for the full year
in 2004. Although there can be no assurances, we believe that cash flow from
operating activities coupled with existing cash balances and financing
commitments will be adequate to fund our operating and capital needs as well as
enable us to maintain compliance

25



---



##### Table of Contents



with our various debt agreements through at least December 31, 2004.
However, our operating and financial performance in 2004 continues to be
subject to significant risks and uncertainties, including our ability to meet
the challenges set forth above, and the risks discussed under Business - Risk
Factors Relating to America West and Industry Related Risksabove.

Results of Operations

Summary of Holdings Financial Results

Holdings recorded consolidated net income of $57.4 million in 2003, or
diluted earnings per share of $1.29. This compares to 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 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 $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 13, Nonoperating Income (Expenses) - Other,
Netin 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 ALPA
and net special charges of $14.4 million. The special charges 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 12, Special Chargesin Notes to Consolidated
Financial Statements.

The 2002 results include special charges of $19.0 million primarily
related to the restructuring completed on January 18, 2002 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. 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.

In 2001, the Company recognized a consolidated net loss of $249.9 million
and income tax benefit of $74.5 million. Diluted loss per share for 2001 was
$7.42.

26



---



##### Table of Contents



AWA

The following discussion provides an analysis of AWAs results of
operations and reasons for material changes therein for the years ended
December 31, 2003, 2002 and 2001.

AMERICA WEST AIRLINES, INC.
Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |           |           |  
|------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | ------ | --------- | --------- | ---- | -------- | --------- | --------- | - | -------- | --------- | --------- | -
|                                |                                                                                            |                                                                                                     |        | 2003      |           | 2002 |          | 2001     
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |          
|Operating revenues:             |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                | Passenger                                                                                  |                                                                                                     | $      | 2,113,629 |           |      | $        | 1,929,444 |           |   | $        | 1,941,877 |          
|                                | Cargo                                                                                      |                                                                                                     |        | 26,914    |           |      |          | 27,574    |           |   |          | 33,824    |          
|                                | Other                                                                                      |                                                                                                     |        | 74,817    |           |      |          | 54,272    |           |   |          | 45,262    |          
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                |                                                                                            | Total operating revenues                                                                            |        |           | 2,215,360 |      |          |           | 2,011,290 |   |          |           | 2,020,963 |  
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|Operating expenses:             |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                | Salaries and related costs                                                                 |                                                                                                     |        | 651,506   |           |      |          | 594,858   |           |   |          | 601,986   |          
|                                | Aircraft rents                                                                             |                                                                                                     |        | 297,518   |           |      |          | 295,016   |           |   |          | 355,517   |          
|                                | Other rents and landing fees                                                               |                                                                                                     |        | 154,598   |           |      |          | 158,290   |           |   |          | 140,372   |          
|                                | Aircraft fuel                                                                              |                                                                                                     |        | 365,250   |           |      |          | 299,940   |           |   |          | 343,224   |          
|                                | Agency commissions                                                                         |                                                                                                     |        | 23,676    |           |      |          | 38,896    |           |   |          | 75,085    |          
|                                | Aircraft maintenance materials and repairs                                                 |                                                                                                     |        | 223,266   |           |      |          | 252,691   |           |   |          | 257,939   |          
|                                | Depreciation and amortization                                                              |                                                                                                     |        | 66,195    |           |      |          | 73,898    |           |   |          | 63,178    |          
|                                | Amortization of reorganization value in excess of
amounts allocable to identifiable assets |                                                                                                     |        |          |           |      |          |          |           |   |          | 19,896    |          
|                                | Special charges                                                                            |                                                                                                     |        | 13,979    |           |      |          | 19,030    |           |   |          | 141,638   |          
|                                | Other                                                                                      |                                                                                                     |        | 395,499   |           |      |          | 442,821   |           |   |          | 445,525   |          
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                |                                                                                            | Total operating expenses                                                                            |        |           | 2,191,487 |      |          |           | 2,175,440 |   |          |           | 2,444,360 |  
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|Operating income (loss)         |                                                                                            |                                                                                                     | 23,873 |           |           |      | (164,150 | )         |           |   | (423,397 | )        
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|Nonoperating income (expenses): |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                | Interest income                                                                            |                                                                                                     |        | 12,967    |           |      |          | 17,220    |           |   |          | 22,654    |          
|                                | Interest expense, net                                                                      |                                                                                                     |        | (86,743   | )         |      |          | (79,475   | )         |   |          | (33,789   | )        
|                                | Federal government assistance                                                              |                                                                                                     |        | 81,255    |           |      |          | 8,466     |           |   |          | 108,246   |          
|                                | Gain (loss) on disposition of property and equipment                                       |                                                                                                     |        | 151       |           |      |          | (1,835    | )         |   |          | (3,000    | )        
|                                | Gain on sale of investment                                                                 |                                                                                                     |        | 9,762     |           |      |          |          |           |   |          |          |          
|                                | Other, net                                                                                 |                                                                                                     |        | 3,601     |           |      |          | 215       |           |   |          | 3,063     |          
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                |                                                                                            | Total nonoperating income (expenses), net                                                           |        |           | 20,993    |      |          |           | (55,409   | ) |          |           | 97,174    |  
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |          
|                                |                                                                                            | Income (loss) before income taxes (benefit) and
cumulative effect of change in accounting principle |        | $         | 44,866    |      |          | $         | (219,559  | ) |          | $         | (326,223  | )
|                                |                                                                                            |                                                                                                     |        |           |           |      |          |           |           |   |          |           |          

The table below sets forth selected operating data for AWA.

|                                               |                       |  |                         |      |         |  |         |      |           |  |           |      |  |  |      |     |  |  |       |      |  
|---------------------------------------------- | --------------------- |  | ----------------------- | ---- | ------- |  | ------- | ---- | --------- |  | --------- | ---- |  |  | ---- | --- |  |  | ----- | ---- | -
|                                               |                       |  | Year Ended December 31, |      | Percent |  | Percent
|                                               |                       |  |                         |      | Change  |  | Change 
|                                               |                       |  | 2003                    |      | 2002    |  | 2001    |      | 2003-2002 |  | 2002-2001
|                                               |                       |  |                         |      |         |  |         |      |           |  |          
|Aircraft (end of period)                       |                       |  | 139                     |      |         |  | 143     |      |           |  | 146       |      |  |  | (2.8 | )   |  |  | (2.0  | )   
|Average daily aircraft utilization (hours) (a) |                       |  | 10.1                    |      |         |  | 9.6     |      |           |  | 9.7       |      |  |  | 5.2  |     |  |  | (1.0  | )   
|Available seat miles (in millions) (b)         |                       |  | 27,888                  |      |         |  | 27,008  |      |           |  | 26,539    |      |  |  | 3.3  |     |  |  | 1.8   |     
|Block hours (in thousands) (c)                 |                       |  | 519                     |      |         |  | 505     |      |           |  | 508       |      |  |  | 2.8  |     |  |  | (0.6  | )   
|Average stage length (miles) (d)               |                       |  | 1,005                   |      |         |  | 949     |      |           |  | 894       |      |  |  | 5.9  |     |  |  | 6.2   |     
|Average passenger journey (miles) (e)          |                       |  | 1,564                   |      |         |  | 1,434   |      |           |  | 1,325     |      |  |  | 9.1  |     |  |  | 8.2   |     
|Revenue passenger miles (in millions) (f)      |                       |  | 21,295                  |      |         |  | 19,878  |      |           |  | 19,074    |      |  |  | 7.1  |     |  |  | 4.2   |     
|Load factor (percent) (g)                      |                       |  | 76.4                    |      |         |  | 73.6    |      |           |  | 71.9      |      |  |  | 2.8  | pts |  |  | 1.7   | pts 
|Passenger enplanements (in thousands) (h)      |                       |  | 20,050                  |      |         |  | 19,454  |      |           |  | 19,576    |      |  |  | 3.1  |     |  |  | (0.6  | )   
|Yield per revenue passenger mile (cents) (i)   |                       |  | 9.93                    |      |         |  | 9.71    |      |           |  | 10.18     |      |  |  | 2.3  |     |  |  | (4.6  | )   
|Revenue per available seat mile:               |                       |  |                         |      |         |  |         |      |           |  |           |      |  |  |      |     |  |  |       |     
|                                               | Passenger (cents) (j) |  |                         | 7.58 |         |  |         | 7.14 |           |  |           | 7.32 |  |  |      | 6.2 |  |  |       | (2.5 | )
|                                               | Total (cents) (k)     |  |                         | 7.94 |         |  |         | 7.45 |           |  |           | 7.61 |  |  |      | 6.6 |  |  |       | (2.1 | )
|Fuel consumption (gallons in millions)         |                       |  | 423                     |      |         |  | 411     |      |           |  | 414       |      |  |  | 2.9  |     |  |  | (0.7  | )   
|Average fuel price (cents per gallon)          |                       |  | 86.4                    |      |         |  | 73.1    |      |           |  | 83.0      |      |  |  | 18.2 |     |  |  | (11.9 | )   
|Full-time equivalent employees (end of period) |                       |  | 11,326                  |      |         |  | 11,908  |      |           |  | 11,316    |      |  |  | (4.9 | )   |  |  | 5.2   |     



| | (a) |  | Average daily aircraft utilization
 The average number of block
hours per day for all aircraft in service.
| | --- |  | -----------------------------------------------------------------------------------------------------------

27



---



##### Table of Contents





| | (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.

|                                                                                           |  |                         |      |         |  |            |      |           |  |           |      |  |  |  |       |   |  |  |        |  
|------------------------------------------------------------------------------------------ |  | ----------------------- | ---- | ------- |  | ---------- | ---- | --------- |  | --------- | ---- |  |  |  | ----- | - |  |  | ------ | -
|                                                                                           |  | Year Ended December 31, |      | Percent |  | Percent   
|                                                                                           |  |                         |      | Change  |  | Change    
|                                                                                           |  | 2003                    |      | 2002    |  | 2001       |      | 2003-2002 |  | 2002-2001
|                                                                                           |  |                         |      |         |  |            |      |           |  |          
|                                                                                           |  |                         |      |         |  | (in cents) |      |           |  |           |      |  |  |  |       |  
|Salaries and related costs                                                                 |  |                         | 2.34 |         |  |            | 2.20 |           |  |           | 2.27 |  |  |  | 6.1   |   |  |  | (2.9   | )
|Aircraft rents                                                                             |  |                         | 1.07 |         |  |            | 1.09 |           |  |           | 1.34 |  |  |  | (2.3  | ) |  |  | (18.5  | )
|Other rents and landing fees                                                               |  |                         | 0.55 |         |  |            | 0.59 |           |  |           | 0.53 |  |  |  | (5.4  | ) |  |  | 10.8   |  
|Aircraft fuel                                                                              |  |                         | 1.31 |         |  |            | 1.11 |           |  |           | 1.29 |  |  |  | 17.9  |   |  |  | (14.1  | )
|Agency commissions                                                                         |  |                         | 0.08 |         |  |            | 0.14 |           |  |           | 0.28 |  |  |  | (41.1 | ) |  |  | (49.1  | )
|Aircraft maintenance materials and repairs                                                 |  |                         | 0.80 |         |  |            | 0.94 |           |  |           | 0.97 |  |  |  | (14.4 | ) |  |  | (3.7   | )
|Depreciation and amortization                                                              |  |                         | 0.24 |         |  |            | 0.27 |           |  |           | 0.24 |  |  |  | (13.3 | ) |  |  | 14.9   |  
|Amortization of reorganization value in excess of
amounts allocable to identifiable assets |  |                         |     |         |  |            |     |           |  |           | 0.08 |  |  |  |      |   |  |  | (100.0 | )
|Special charges                                                                            |  |                         | 0.05 |         |  |            | 0.07 |           |  |           | 0.53 |  |  |  | (28.9 | ) |  |  | (86.8  | )
|Other                                                                                      |  |                         | 1.42 |         |  |            | 1.64 |           |  |           | 1.68 |  |  |  | (13.5 | ) |  |  | (2.3   | )
|                                                                                           |  |                         |      |         |  |            |      |           |  |           |      |  |  |  |       |   |  |  |        |  
|                                                                                           |  |                         | 7.86 |         |  |            | 8.05 |           |  |           | 9.21 |  |  |  | (2.4  | ) |  |  | (12.6  | )
|                                                                                           |  |                         |      |         |  |            |      |           |  |           |      |  |  |  |       |   |  |  |        |  

2003 Compared with 2002

AWA recorded operating income of $23.9 million in 2003 compared to an
operating loss of $164.2 million in 2002. Income before income taxes was $44.9
million in 2003 compared to a loss before income taxes and the cumulative
effect of a change in accounting principle of $219.6 million in 2002.

Total operating revenues for 2003 were $2.2 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 and Mesa Airlines net revenues, increased $20.5 million
(37.9%) 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 $14.0 million and $19.0
million recognized in 2003 and 2002, respectively, (see Note 12, Special
Chargesin Notes to Financial Statements) increased $16.0 million or 1.0%,
while ASMs increased 3.3% in 2003 as compared to 2002. As a result, CASM
decreased 2.4% to 7.86 cents in 2003 from 8.05 cents in 2002. Significant
changes in the components of operating expense per ASM are explained as
follows:

28



---



##### Table of Contents





| |  |  | Salaries and related costs per ASM increased 6.1% 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 ($6.2 million) and DOT on-time
performance bonuses ($2.3 million). These increases were offset in part
by a 4.9% decrease in full-time equivalent employees (FTE) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Other rents and landing fees expense per ASM decreased 5.4% due
primarily 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 fuel expense per ASM increased 17.9% due primarily to an
18.2% increase in the average price per gallon of fuel to 86.4 cents in
2003 from 73.1 cents in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | Agency commissions expense per ASM decreased 41.1% due primarily 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% due primarily 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 Notes to 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 13.3% 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 ($3.8 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 13.5% to 1.42 cents from
1.64 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 ($6.0
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 $21.0 million in 2003 compared to $55.4
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 2, Emergency Wartime
Supplemental Appropriations Actin Notes to Financial Statements. Interest
expense increased $7.3 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 13,
Nonoperating Income (Expenses) - Other, Netin Notes to 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.

29



---



##### Table of Contents



2002 Compared with 2001

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

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

Operating expenses, including special charges of $19.0 million and $141.6
million recognized in 2002 and 2001, respectively, decreased $268.9 million or
11.0%, while ASMs increased 1.8% in 2002 as compared to 2001. As a result,
CASM decreased 12.6% to 8.05 cents in 2002 from 9.21 cents in 2001.
Significant changes in the components of operating expense per ASM are
explained as follows:



| |  |  | Salaries and related costs per ASM decreased 2.9% due primarily to
lower average FTEs in 2002 as compared to 2001 despite a 1.8% increase
in ASMs. A 3.9% decrease in the average number of FTEs was offset in
part by a 2.9% increase in average salaries and related costs per FTE as
a result of higher medical, disability and workers compensation
insurance costs ($16.9 million).                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Aircraft rent expense per ASM decreased 18.5% due primarily to the
reduction of rental rates negotiated with AWAs aircraft lessors as part
of the financial restructuring that was completed in January 2002.                                                                                                                                                                                                                                                                                       
|
| |  |  | Other rents and landing fees expense per ASM increased 10.8% due
primarily to higher airport rents ($7.9 million), landing fees ($5.2
million) and costs for borrowed parts ($3.6 million). A $2.5 million
increase in flight simulator rents, primarily as a result of the sale
and leaseback of three previously owned flight simulators in the third
quarter of 2001, also contributed to the increase. These increases were
offset in part by a decrease in aircraft engine rents ($1.5 million).
|
| |  |  | Aircraft fuel expense per ASM decreased 14.1% due primarily to an
11.9% decrease in the average price per gallon of fuel to 73.1 cents in
2002 from 83.0 cents in 2001.                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Agency commissions expense per ASM decreased 49.1% due primarily to
the elimination of base commissions for travel agency tickets issued in
the United States, effective March 21, 2002.                                                                                                                                                                                                                                                                                                             

30



---



##### Table of Contents





| |  |  | Aircraft maintenance materials and repair expense per ASM decreased
3.7% due primarily to lower aircraft C-Check ($12.7 million), engine
overhaul ($4.1 million), airframe maintenance ($3.0 million) and
engineering order ($1.3 million) expenses. These decreases were offset
in part by a $12.8 million increase in the accrual for the estimated
costs of maintenance required to be performed upon the return of leased
aircraft and a $3.4 million increase in capitalized maintenance
amortization expense.                                                                                                                                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Depreciation and amortization expense per ASM increased 14.9% due
primarily to higher amortization expense related to computer hardware,
software and facility improvements ($8.5 million) and aircraft leasehold
improvements ($2.3 million). An increase in depreciation expense
related to rotable aircraft parts ($1.7 million) also contributed to the
increase. These increases were offset in part by a decrease in airframe
depreciation expense ($2.3 million).                                                                                                                                                                                                                                                               
|
| |  |  | Upon adoption of SFAS No. 142, Goodwill and Other Intangible
Assets,the Company wrote off its balance of reorganization value in
excess of amounts allocable to identifiable assets, effective January 1,
2002, resulting in a $19.9 million decrease in amortization expense in
2002 when compared to 2001. The impairment loss of $187.9 million was
recorded as the cumulative effect of a change in accounting principle.                                                                                                                                                                                                                                                                                                        
|
| |  |  | Other operating expenses per ASM decreased 2.3% to 1.64 cents from
1.68 cents primarily due to decreases in interrupted trip and baggage
claim expenses ($12.0 million), professional, technical and legal fees
($10.7 million), catering ($13.3 million), advertising ($5.4 million),
overnight and on-call maintenance expenses ($3.6 million), computer
reservations system book fees ($3.0 million) and furnished
accommodations ($2.4 million). These decreases were offset in part by
higher traffic liability insurance expense ($31.2 million), the
settlement in 2001 of a lawsuit related to an air-to-ground
telecommunication system that was previously written off ($11.0 million)
and an insurance claim ($8.8 million).

AWA had net nonoperating expenses of $55.4 million in 2002 compared to net
nonoperating income of $97.2 million in 2001. The 2002 period included $8.5
million of federal government assistance received under the Air Transportation
Safety and System Stabilization Act compared to $108.2 million of federal
government assistance recognized in 2001. Net interest expense increased $45.7
million in 2002 due to higher average outstanding debt as a result of the
government guaranteed loan, while interest income decreased $5.4 million.
Higher average cash balances were offset by lower escrow balances from the
2001-1 Pass Through Trust Certificates and lower interest rates in 2002
compared to 2001.

Liquidity and Capital Resources

Sources and Uses of Cash

At December 31, 2003, Holdings and AWAs total cash, cash equivalents,
short-term investments, investments in debt securities and restricted cash
balances were a record $629.5 million and $620.2 million, respectively. Net
cash provided by operating activities for Holdings and AWA was $241.8 million
and $243.2 million, respectively, in 2003. This compares to net cash used in
operating activities of $22.9 million and $24.3 million for Holdings and AWA,
respectively, in 2002. The year-over-year increase in net cash provided by
operating activities of $264.7 million and $267.5 million for Holdings and AWA,
respectively, was due to the improvement in earnings, placement of $42.9
million of cash proceeds from the Senior Exchangeable Notes Offering in a cash
collateral account to secure the scheduled principal and interest payments on
certain indebtedness (see Commitments - 7.25% Senior Exchangeable Notes Dues
2023below), the receipt of $81.3 million in connection with the Emergency
Wartime Supplemental Appropriations Act in 2003 (see Note 2, Emergency Wartime
Supplemental Appropriations Actin Notes to Consolidated Financial
Statements), the payment in 2002 of amounts due vendors and aircraft lessors
that had been subject to the Companys cash conservation program prior to the
closing of the government guaranteed loan in January 2002 and the payment in
2002 of $58.1 million of transportation taxes to the Internal Revenue Service
that had been deferred from 2001, as allowed under the Air Transportation
Safety and System Stabilization Act.

In 2003, net cash used in investing activities was $241.9 million and
$241.0 million for Holdings and AWA, respectively. This compares to net cash
used in investing activities of $6.3 million and
$6.0 million for Holdings and AWA, respectively, in 2002. Principal investing
activities during 2003 included purchases of property and equipment totaling
$154.4 million for Holdings and $153.1 million for AWA, including $12.0 million
related to the purchase of an A320 airframe that was used to replace an
airframe that was damaged in an accident in August 2002, and net purchases of
short-term investments and investments in debt securities totaling $89.8
million for both Holdings and AWA. Restricted cash increased by $23.9 million
during 2003 primarily due to

31



---



##### Table of Contents



an increase in cash reserves required under an agreement executed in May
2003 for the processing of our Visa and MasterCard credit card transactions.
The 2003 period also included proceeds from the disposition of assets totaling
$25.8 million, including $12.6 million of insurance proceeds and $3.6 million
of scrap proceeds, both associated with the replaced A320 airframe discussed
above, and $6.9 million related to the sale and leaseback of 29 jet bridges at
Phoenix Sky Harbor International Airport. The 2002 period included purchases
of property and equipment totaling $157.2 million for Holdings and $156.9
million for AWA, including $76.6 million related to the purchase of two new
A320 aircraft, and net purchases of short-term investments totaling $24.7
million for both Holdings and AWA. In addition, the Company received $175.5
million of proceeds from the sale and leaseback of the two A320 aircraft
discussed above and one A319 aircraft and two additional A320 aircraft that had
been purchased in the fourth quarter of 2001.

In 2003, net cash provided by financing activities was $67.4 million and
$65.0 million for Holdings and AWA, respectively. The 2003 period includes
$86.8 million from the issuance of the Senior Exchangeable Notes discussed
above, debt repayments of $16.8 million and payments of debt issue costs
totaling $3.2 million for both Holdings and AWA. This compares to net cash
provided by financing activities of $208.1 million and $208.4 million for
Holdings and AWA, respectively, in 2002. The 2002 period included proceeds
from the issuance of debt totaling $435.4 million, primarily related to the
government guaranteed loan, payments of debt issue costs totaling
$37.0 million
and debt repayments of $192.6 million, primarily related to the sale and
leaseback of the five aircraft discussed above.

Capital expenditures for 2003 were $154.4 million and $153.1 million for
Holdings and AWA, respectively. Capital expenditures for 2002 were $157.2
million and $156.9 million for Holdings and AWA, respectively. Included in
these amounts are capital expenditures for capitalized maintenance of
approximately $119.3 million and $118.7 million for both Holdings and AWA for
2003 and 2002, respectively.

In April 2003, we implemented a plan to reduce management, professional
and administrative payroll costs which resulted in fewer employees within these
workgroups. See Note 12, Special Chargesin Notes to Consolidated Financial
Statements. In addition, our business partners and vendors were asked to
reduce their fees in order to further reduce costs.

In April 2003, we executed an agreement with a third party vendor for the
processing of our Visa and MasterCard credit card transactions. Upon
implementation of the agreement in May 2003, we were required to establish net
additional cash reserves of $25.0 million as collateral for the transactions
processed. This amount was funded from credit card receipts over a 30-day
period and recorded as restricted cash. Under certain circumstances, including
a change in our financial position, the amount of the cash reserve requirement
could increase or decrease.

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. See Note 13, Nonoperating Income
(Expenses) - Other, Netin Notes to Consolidated Financial Statements.

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

32



---



##### Table of Contents



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 2003, AWA made $185.0 million
in lease payments in respect of the leveraged lease financings under the pass
through trusts.

AWAs 2001-1 Pass Through Trusts provided for the financing of nine Airbus
A319 aircraft and five Airbus A320 aircraft, all of which were delivered in
2001 and 2002.

Other Operating Leases

In addition to the aircraft financed by the pass through trust
certificates, AWA has noncancelable operating leases covering 78 aircraft, as
well as leases for certain terminal space, ground facilities and computer and
other equipment. In 2003, AWA made $156.6 million in lease payments related to
these operating leases.

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, 2003, 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 $42.9 million.

Commitments

As of December 31, 2003, we had $792.9 million of long-term debt
(including current maturities). This amount consisted primarily of the $429
million government guaranteed loan, a $74.8 million secured term loan with a
group of financial institutions (including interest through December 31, 2003
as a deemed loan added to the principal thereof), $39.5 million principal
amount of 10 3/4% senior unsecured notes, $104.5 million principal amount of
7.5% convertible senior notes (including interest through December 31, 2003 as
a deemed loan added to the principal thereof) and $86.8 million issue price of
7.25% senior exchangeable notes.

Government Guaranteed Loan

In January 2002, AWA closed a $429 million loan supported by a $380
million 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.

33



---



##### Table of Contents



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 to the extent such proceeds are not applied to redeem AWAs
103⁄4% senior notes due 2005; 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.

Term Loan

In connection with the closing of the government guaranteed loan and the
related transactions, AWA converted its existing revolving credit facility into
a term loan with the Mizuho Corporate Bank, Ltd., as successor by merger to the
Industrial Bank of Japan, Limited, and certain other lenders. As of December
31, 2003, $74.8 million remains outstanding under the term loan (including
interest paid through December 31, 2003 as a deemed loan added to the initial
principal thereof.) Principal amounts under the term loan become due in two
installments of $30 million on December 31, 2005 and December 31, 2006 with the
remaining amounts becoming due and payable in full on December 31, 2007.
Principal amounts outstanding under the term loan bear interest at a rate per
annum equal to, at our option, either the Base Rate or the Eurodollar Rate
(which is based on LIBOR), in each case plus an applicable margin. The
applicable margin adjusts based on the length of time the term loan has been
outstanding. The term Base Rate has a meaning customary and appropriate for
financings of this type. In addition, principal amounts outstanding under the
term loan bear interest in kind at a rate of 2% through December 31, 2004.

The prepayment requirements and covenants of the term loan are
substantially similar to those of the government guaranteed loan. We may, at
our option, prepay the term loan without premium or penalty, subject to
reimbursement of the lenders breakage costs in the case of prepayment of loans
bearing the Eurodollar Rate. The term loan is secured by a first priority
perfected security interest in certain of our spare engines, rotable aircraft
parts inventory and a maintenance facility. We may be required to prepay
portions of the loan if the fair market value of the collateral, as determined
by independent appraisers, decreases. The term loan contains customary events
of default, including payment defaults, cross-defaults, breach of covenants,
bankruptcy and insolvency defaults and judgment defaults.

103⁄4% Senior Notes due 2005

In August 1995, AWA issued $75.0 million principal amount of 103⁄4%
senior notes due 2005 of which $39.5 million remained outstanding at December
31, 2003. Interest on the 103⁄4% senior notes is payable semiannually in
arrears on March 1 and September 1 of each year.

We may redeem the 103⁄4% senior notes, in whole or in part, at any time
after September 1, 2003 at a redemption price of 100%.

If AWA undergoes a change of control, it may be required to repurchase the
103⁄4% senior notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. If AWA
sells certain assets, it may be required to use the net cash proceeds to
repurchase the 103⁄4% senior notes at 100% of the principal amount, plus
accrued and unpaid interest, to the date of purchase.

34



---



##### Table of Contents



The indenture governing the 103⁄4% senior notes contains certain
covenants that, among other things, limit our ability to pay dividends or make
distributions to our stockholders, repurchase or redeem capital stock, make
investments or other restricted payments, enter into transactions with our
stockholders and affiliates, sell assets (including the stock of our
subsidiaries) and merge or consolidate with other companies. The indenture
governing the 103⁄4% senior notes also contains customary events of default,
including payment defaults, cross-defaults, breach of covenants, bankruptcy and
insolvency defaults and judgment defaults.

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 $104.3 million remained outstanding at
December 31, 2003 (including interest paid through December 31, 2003 as a
deemed loan added to the 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
may be paid 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 Price
|                    |  |                 
|2005                |  |                  | 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

35



---



##### Table of Contents



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.

In connection with the offering AWA placed $42.9 million of the net
proceeds in a cash collateral account to secure the scheduled principal and
interest payments on certain of its indebtedness through September 30, 2004.
This amount has been recorded as restricted cash in the accompanying
consolidated balance sheet.

Other Indebtedness and Obligations

In addition to the above described indebtedness, we had $48.5 million of
secured equipment notes and $36.1 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,
2003.

|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |         |  |   |           |         | 
|-------------------------------------------------------------- | -------------------------------------------- | - | -------------- | ------ | ---- | - | ------- | ------ | ---- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | - | --------- | ------- |  | - | --------- | ------- | 
|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   | Beyond    |         |  |   |          
|                                                               |                                              |   | 2004           |        | 2005 |   | 2006    |        | 2007 |   | 2008    |        | 2008 |   | Total  
|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |        
|                                                               |                                              |   | (In thousands)
|Long-term debt:                                                |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |         |  |   |           |        
|                                                               | Equipment notes  non-EETC (1)               |   | $              | 8,989  |      |   | $       | 8,305  |      |   | $       | 8,305  |      |   | $       | 7,772  |  |   | $       | 15,083 |  |   | $         |        |  |   | $         | 48,454  | 
|                                                               | Term loan (2)                                |   |                | 3,110  |      |   |         | 30,000 |      |   |         | 30,000 |      |   |         | 11,665 |  |   |         |       |  |   |           |        |  |   |           | 74,775  | 
|                                                               | 7.5%
convertible senior notes due
2009(3)    |   |                |       |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           | 104,328 |  |   |           | 104,328 | 
|                                                               | 7.25% senior exchangeable notes
due 2023 (4) |   |                |       |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           | 252,695 |  |   |           | 252,695 | 
|                                                               | Government guaranteed loan (5)               |   |                | 85,800 |      |   |         | 85,800 |      |   |         | 85,800 |      |   |         | 85,800 |  |   |         | 85,800 |  |   |           |        |  |   |           | 429,000 | 
|                                                               | State loan (6)                               |   |                | 750    |      |   |         | 250    |      |   |         | 250    |      |   |         | 250    |  |   |         |       |  |   |           |        |  |   |           | 1,500   | 
|                                                               | 103⁄4% senior unsecured notes due 2005         |   |                |       |      |   |         | 39,548 |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           |        |  |   |           | 39,548  | 
|                                                               | Industrial development bonds (7)             |   |                |       |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           | 29,300  |  |   |           | 29,300  | 
|                                                               | AVSA promissory notes (8)                    |   |                | 5,250  |      |   |         |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |           |        |  |   |           | 5,250   | 
|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |         |  |   |           |         | 
|                                                               |                                              |   | 103,899        |        |      |   | 163,903 |        |      |   | 124,355 |        |      |   | 105,487 |        |  |   | 100,883 |        |  |   | 386,323   |         |  |   | 984,850   |        
|Cash aircraft rental payments (9)                              |                                              |   | 326,681        |        |      |   | 309,225 |        |      |   | 283,658 |        |      |   | 267,680 |        |  |   | 221,583 |        |  |   | 1,832,744 |         |  |   | 3,241,571 |        
|Lease payments on equipment and
facility operating leases (10) |                                              |   | 23,534         |        |      |   | 21,963  |        |      |   | 20,440  |        |      |   | 18,366  |        |  |   | 15,534  |        |  |   | 63,738    |         |  |   | 163,575   |        
|Capital lease obligations                                      |                                              |   | 4,689          |        |      |   | 4,744   |        |      |   | 4,988   |        |      |   | 1,773   |        |  |   |        |        |  |   |          |         |  |   | 16,194    |        
|Special facility revenue bonds (11)                            |                                              |   | 1,363          |        |      |   | 1,363   |        |      |   | 1,363   |        |      |   | 1,362   |        |  |   | 1,362   |        |  |   | 36,106    |         |  |   | 42,919    |        
|Aircraft purchase commitments (12)                             |                                              |   | 91,266         |        |      |   | 84,780  |        |      |   | 223,362 |        |      |   | 263,941 |        |  |   |        |        |  |   |          |         |  |   | 663,349   |        
|Engine maintenance commitments (13)                            |                                              |   | 26,000         |        |      |   | 24,000  |        |      |   | 12,000  |        |      |   | 6,000   |        |  |   | 2,000   |        |  |   |          |         |  |   | 70,000    |        
|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |         |  |   |           |        
|Total                                                          |                                              | $ | 577,432        |        |      | $ | 609,978 |        |      | $ | 670,166 |        |      | $ | 664,609 |        |  | $ | 341,362 |        |  | $ | 2,318,911 |         |  | $ | 5,182,458 |        
|                                                               |                                              |   |                |        |      |   |         |        |      |   |         |        |      |   |         |        |  |   |         |        |  |   |           |         |  |   |           |         | 



| | (1) |  | Includes approximately $48.5 million of equipment notes with variable
interest rates of 2.13% to 2.63%, averaging 2.21%, installments due 2004
through 2008.                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Includes a $71.7 million secured term loan maturing at year-end 2007 with
a variable interest rate of 3.44% and $3.1 million of interest paid in
kind through December 31, 2003 at a fixed rate of 2%. Excludes $1.5
million of interest payable in kind through December 2004.                                                                                                                                                                                                                                      
|
| | (3) |  | Includes $90.7 million principal amount of 7.5% convertible senior notes,
due 2009, and $13.6 million of interest paid in kind through December 31,
2003. Excludes $8.0 million of interest payable in kind through December
2004. For financial reporting purposes, we recorded the convertible
senior notes at their fair market value on the date of issuance. As of
December 31, 2003, the balance of the convertible senior notes in the
accompanying consolidated balance sheet is approximately $64.9 million.

36



---



##### Table of Contents





| | (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 $429.0 million with a variable
interest rate of 1.5% at December 31, 2003 and ratable principal payments
due 2004 through 2008. Guarantee fees of approximately 8.0% of the
outstanding guaranteed principal balance in 2004 through 2008 are payable
to the U.S. Treasury Department and other loan participants.                                                                                                         
|
| | (6)  |  | Includes Arizona State loan of $1.5 million due December 2007 with a
variable interest rate of 4.71% at December 31, 2003.                                                                                                                                                                                                                                                                                                                                     
|
| | (7)  |  | Includes $29.3 million of 6.3% industrial development bonds due April
2023.                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (8)  |  | Includes AVSA promissory notes of $5.3 million due 2004 with a variable
interest rate of 2.41% at December 31, 2003.                                                                                                                                                                                                                                                                                                                                           
|
| | (9)  |  | Includes non-cancelable operating leases for 132 aircraft with remaining
terms ranging from seven months to approximately 21 years. Management
estimates the debt equivalent value of these operating leases approximates
$2 billion using an interest rate of 10%.                                                                                                                                                                                            
|
| | (10) |  | Includes leases for terminal space, ground facilities, the flight
training center and computer and other equipment under non-cancelable
operating leases.                                                                                                                                                                                                                                                                                                      
|
| | (11) |  | Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (12) |  | Includes commitments to purchase a total of 19 Airbus aircraft and four
spare engines for delivery in 2004 through 2007.                                                                                                                                                                                                                                                                                                                                       
|
| | (13) |  | Includes minimum commitments under AWAs rate per engine hour agreement
with General Electric Engine Services for overhaul maintenance services on
V2500-A1 and CFM56-3B engines through April 2008. Minimum monthly
commitment amounts: for the period through and including April 2004 - $2.5
million, for the period from May 2004 through and including April 2006 -
$2.0 million, for the period May 2006 through and including April 2008 -
$500,000.    

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, a further economic downturn or
other events, including future hostilities and terrorist attacks or infectious
disease outbreaks, such as Severe Acute Respiratory Syndrome, 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, certain of our long-term debt agreements contain a $100 million
minimum cash balance requirement. As a result, we cannot use all of our
available cash to fund operations, capital expenditures and cash obligations
without violating this requirement.

Although there can be no assurances, we believe that cash flow from
operating activities and proceeds from the issuance of the senior exchangeable
note, coupled with existing cash balances, will be adequate to fund our
operating and capital needs as well as enable us to maintain compliance with
our various debt agreements through at least December 31, 2004.

Financial Covenants and Credit Rating

In addition to the minimum cash balance requirements, our long-term debt
agreements contain various negative covenants that restrict our actions,
including our ability to pay dividends, together with any other restricted
payments. Moreover, under the terms of the government guaranteed loan, we are
prohibited from paying cash dividends prior to repayment of the loan in full.
Finally, our long-term debt agreements contain cross-default provisions, which
may be triggered by defaults by us under other agreements relating to
indebtedness. See Risk Factors Relating to America West and Industry Related
Risks - Our high level of indebtedness and fixed costs 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,
2003, Holdings and AWA were in compliance with the covenants in their long-term
debt agreements.

37



---



##### Table of Contents



Our credit ratings are relatively low, with Moodys assessment of AWAs
senior implied rating and senior unsecured debt rating at Caa1 and Caa3,
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. Low
credit ratings could cause our borrowing costs to increase, which would
increase our interest expense and could affect our net income. In addition,
our credit ratings could adversely affect 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. See Risk Factors Relating to America West and Industry Related
Risks - Because of our relatively low credit ratings, our borrowing costs may
be high and our ability to incur additional debt may be impaired.

Other Information

Labor Relations

A tentative agreement with ALPA was reached on December 12, 2003. On
December 30, 2003, 771 of AWAs pilots voted for ratification and 679 voted
against. The agreement was signed on December 30, 2003.

On January 13, 2003, negotiations commenced with the Transportation
Workers Union (TWU) on a second contract covering the Companys dispatchers.
On September 17, 2003, TWU filed a petition for mediation with the National
Mediation Board (NMB). Mediated discussions began on October 15, 2003 and a
tentative agreement for a new four-year contract was announced on February 20,
2004. The tentative agreement is subject to ratification by TWU membership,
and that process will begin around March 26, 2004.

Negotiations with the International Brotherhood of Teamsters - Airline
Division (IBT) on a second contract covering the Companys mechanics and
related employees commenced on October 9, 2003 and will continue into 2004.

Negotiations with the Association of Flight Attendants - Communications
Workers of America (AFA) on a second contract covering the Companys flight
attendants commenced on February 4, 2004 and will continue in 2004.

On April 4, 2003, the Company signed a five-year agreement with the IBT
covering the Companys 54 stock clerks.

Income Taxes

At December 31, 2003, the Company had net operating loss carryforwards
(NOLs) and tax credit carryforwards for federal income tax purposes of
approximately $303.6 million and $1.2 million, respectively. The NOLs expire
during the years 2007 through 2017 while the tax credit carryforwards expire
during the years 2004 through 2006. However, such carryforwards are not
available to offset federal (and in certain circumstances, state) alternative
minimum taxable income. Further, as a result of a statutory ownership change
(as defined for purposes of Section 382 of the Internal Revenue Code) that
occurred as a result of the Companys reorganization in 1994, the Companys
ability to utilize its 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% for the year ended December
31, 2001.

Government Regulations

On November 19, 2001, the President signed into law the Aviation and
Transportation Security Act (the ATSA). This law enhances aviation security
measures and federalizes many aspects of civil aviation security. 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

38



---



##### Table of Contents



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 will result in increased costs for air carriers and
may result in delays and disruptions to air travel. Under the ATSA, funding
for the new federal security system is to be provided by a $2.50 per
enplanement ticket tax, not to exceed $5.00 per one-way trip, and by imposing
additional direct fees on air carriers. Pursuant to the ATSA, air carriers
began collecting the new ticket tax from passengers on February 1, 2002 and
have been required to make additional payments to the Transportation Security
Administration. In 2003, the Companys cost of compliance with the security
requirements of the ATSA were approximately $13.2 million. The estimated cost
to the Company of compliance with the security requirements of the ATSA for
2004 is approximately $15.3 million. As a result of competitive pressure, AWA
and other airlines may be unable to recover all of these additional security
costs from passengers through increased fares. In addition, we cannot forecast
what new security and safety requirements may be imposed in the future or the
costs or financial impact of complying with any such requirements.

In 1997, new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration (FAA). Included in
the 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 which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks  - The stockholders who effectively control the voting
power of Holdings could take actions that would favor their own personal
interests to the detriment of our interests.AWA paid Continental
approximately $17.3 million, $25.5 million and $30.1 million and also received
approximately $5.0 million, $15.9 million and $22.0 million in 2003, 2002 and
2001, respectively, from Continental pursuant to these agreements.

AWA provided air transportation and certain administrative services to The
Leisure Company (TLC), a wholly-owned subsidiary of Holdings formed on
January 1, 1998. As of January 1, 2004, TLC has been merged into AWA. See Note
18, Subsequent Event  Merger of America West Vacations Subsidiary into AWA
in Notes to Financial Statements of AWA. Prior to the merger, the cost of air
transportation and administrative services were negotiated on an arms length
basis. AWA had net air transportation sales to TLC of $52.0 million, $44.5
million and $60.2 million, respectively, in 2003, 2002 and 2001 and also
received $1.3 million in each of those years under the services agreement. TLC
continues to operate as the America West Vacations division of AWA.

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

39



---



##### Table of Contents



results under different assumptions and conditions.



| |  |  | Passenger Revenue  Passenger revenue is recognized when
transportation is provided. Ticket sales for transportation that has
not yet been provided are recorded as air traffic liability. Passenger
traffic commissions and related fees are expensed when the related
revenue is recognized. Passenger traffic commissions and related fees
not yet recognized are included as a prepaid expense. Due to complex
pricing structures, refund and exchange policies, and interline
agreements with other airlines, certain amounts are recognized in
revenue using estimates regarding both the timing of the revenue
recognition and the amount of revenue to be recognized. These estimates
are generally based on the statistical analysis of our historical data.
Any adjustments resulting from periodic evaluations of the estimated air
traffic liability are included in results of operations during the
period in which the evaluations are completed.                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounting For Long-Lived Assets  Owned property and equipment are
recorded at cost and depreciated to residual values over the estimated
useful lives using the straight-line method. Leasehold improvements
relating to flight equipment and other property on operating leases are
amortized over the life of the lease, or the life of the asset,
whichever is shorter. Interest on advance payments for aircraft
acquisitions and on expenditures for aircraft improvements is
capitalized and added to the cost of the asset. The estimated useful
lives of our owned aircraft, jet engines, flight equipment and rotable
parts range from five to 30 years. The estimated useful lives of our
technical support facility and flight training center in Phoenix,
Arizona are 22 years and 30 years, respectively. The estimated useful
lives of our ground property and equipment range from three to 12 years.
We test for impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired
as defined by SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets.An impairment loss is recognized if the carrying
amount of the asset is not recoverable from its undiscounted cash flows
and is measured as the difference between the carrying amount and fair
value of the asset.
|
| |  |  | Frequent Flyer Accounting  We maintain a frequent travel award
program known as FlightFund that provides a variety of awards to
program members based on accumulated mileage. The estimated cost of
providing the free travel is recognized as a liability and charged to
operations as program members accumulate mileage. Travel awards are
valued at the incremental cost of carrying one passenger, based on
expected redemptions. Incremental costs are based on expectations of
expenses to be incurred on a per passenger basis and include fuel,
liability insurance, food, beverages, supplies and ticketing costs. We
also sell mileage credits to companies participating in our FlightFund
program, such as hotels, car rental agencies and credit card companies.
Transportation-related revenue from the sale of mileage credits is
deferred and recognized when transportation is provided. A change to
the estimated cost per mile, minimum award level, percentage of revenue
to be deferred or deferred recognition period could have a significant
impact on our revenues or mileage liability accrual in the year of the
change as well as future years.                                                                                                                                                                                                       
|
| |  |  | Long-Term Maintenance Reserve  We record an accrual for the
estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft upon their return to the lessors. These
estimates are based on historical costs and our assumptions regarding
the renewal of aircraft leases. A significant change to 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 for the
three years ended December 31, 2002, which weighed heavily in the
overall determination that a valuation allowance was needed. As of
December 31, 2003, the Company had recorded a valuation allowance of
$61.5 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 January 2003, the FASB issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities.FIN No. 46 requires that
companies that control another entity through interests other than voting
interests should consolidate the controlled entity. FIN No. 46 is effective
for variable interest entities created after January 31, 2003 and to any
variable interest entities in which the company obtains an interest after that
date. FIN No. 46 was originally effective for the quarter ending September 30,
2003 for variable interest entities in which the company

40



---



##### Table of Contents



held a variable interest that it acquired before February 1, 2003.
However, in October 2003, the FASB deferred the effective date for
implementation of FIN No. 46 until December 31, 2003. As discussed in
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Off-Balance Sheet
Arrangements 
The Pass Through Trusts,the Company is the lessee in a series of leveraged
lease financings covering 54 leased aircraft. 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. 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. Based upon its analysis,
which considered the structure of the respective arrangements and related
expected cash flows, the Company currently believes it is not the primary
beneficiary, as defined by FIN No. 46, under these arrangements. Accordingly,
the Company adopted FIN No. 46 effective December 31, 2003 with no material
impact on its financial condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities.SFAS No. 149 amends and
clarifies certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 was effective for certain
contracts entered into or modified by the company after June 30, 2003. The
Company adopted SFAS No. 149 effective July 1, 2003 with no material impact on
its financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS No. 150 specifies that freestanding financial instruments within its scope
constitute obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. Such freestanding financial instruments include
mandatorily redeemable financial instruments, obligations to repurchase the
issuers equity shares by transferring assets and certain obligations to issue
a variable number of shares. SFAS No. 150 was effective immediately for all
financial instruments entered into or modified after May 31, 2003. For all
other instruments, SFAS No. 150 was effective at the beginning of the third
quarter of 2003. The Company adopted SFAS No. 150 effective July 1, 2003 with
no material impact on its financial condition or results of operations.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

(a) Commodity Price Risk

Aircraft fuel costs accounted for approximately 16% of the Companys total
operating expenses during 2003. 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 2004 by approximately $4.4 million. Accordingly, a
substantial change in the price of jet fuel would have a significant impact on
the Companys results of operations.

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

As of December 31, 2003, the Company had entered into costless collar
transactions which establish an upper and lower limit on heating oil futures
prices. These transactions are in place with respect to approximately 11% of
projected 2004 fuel requirements, including 39% related to the first quarter of
2004. See Risk Factors Relating to America West and Industry Related Risks -
Fluctuations in fuel costs could adversely affect our operating expenses and
results.

The use of such hedging transactions in the Companys fuel hedging program
could result in the Company not fully benefiting from certain declines in
heating oil futures prices. At December 31, 2003, the Company estimates that a
10% increase in heating oil futures prices would increase the fair value of the
costless collar transactions by approximately $3.7 million. The Company
estimates that a 10% decrease in heating oil futures prices would decrease the
fair value of the costless collar transactions by approximately $1.2 million.

As of February 27, 2004, approximately 11% of AWAs 2004 projected fuel
requirements are hedged.

41



---



##### Table of Contents



(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, 2003, the Companys
variable-rate long-term debt obligations of approximately $555.9 million
represented approximately 70% 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, 2003 and 2002,
and the related consolidated statements of operations, cash flows and
stockholders equity and comprehensive income (loss) for each of the years in
the three-year period ended December 31, 2003, together with the related notes
and the reports of KPMG LLP, independent auditors, and PricewaterhouseCoopers
LLP, independent accountants, are set forth on the following pages.

42



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
America West Holdings Corporation:

We have audited the accompanying consolidated balance sheet of America West
Holdings Corporation and subsidiaries as of December 31, 2003 and the related
consolidated statements of operations, cash flows and stockholders equity and
comprehensive income (loss) for the year 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 audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of America West
Holdings Corporation and subsidiaries as of December 31, 2003 and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.

KPMG LLP
Phoenix, Arizona
January 21, 2004

43



---



##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

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

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

As 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

44



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands except share data)

|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |          |         |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | -------- | ------- | ------- | --------- | -------- | ------- | ------- | 
|                                           |                                                                                                                                                                       |                           |                            |          | 2003    |         | 2002     
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |          
|Assets                                     |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|Current assets:                            |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           | Cash and cash equivalents                                                                                                                                             |                           | $                          | 403,082  |         |         | $         | 335,750  |        
|                                           | Short-term investments                                                                                                                                                |                           |                            | 72,890   |         |         |           | 24,738   |        
|                                           | Restricted cash                                                                                                                                                       |                           |                            | 42,900   |         |         |           |         |        
|                                           | Accounts receivable, less allowance for doubtful accounts of
$5,807 in 2003 and $6,767 in 2002                                                                        |                           |                            | 77,235   |         |         |           | 82,197   |        
|                                           | Expendable spare parts and supplies, less allowance for obsolescence
of $12,254 in 2003 and $9,261 in 2002                                                            |                           |                            | 58,575   |         |         |           | 55,894   |        
|                                           | Prepaid expenses                                                                                                                                                      |                           |                            | 129,368  |         |         |           | 110,337  |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       |                           | Total current assets       |          |         | 784,050 |           |          |         | 608,916 | 
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|Property and equipment:                    |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           | Flight equipment                                                                                                                                                      |                           |                            | 858,395  |         |         |           | 880,446  |        
|                                           | Other property and equipment                                                                                                                                          |                           |                            | 273,284  |         |         |           | 274,329  |        
|                                           | Equipment purchase deposits                                                                                                                                           |                           |                            | 46,050   |         |         |           | 46,050   |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       |                           | 1,177,729                  |          |         |         | 1,200,825 |         
|                                           | Less accumulated depreciation and amortization                                                                                                                        |                           |                            | 570,017  |         |         |           | 551,065  |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       |                           | 607,712                    |          |         |         | 649,760   |         
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|Other assets:                              |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           | Investments in debt securities                                                                                                                                        |                           |                            | 40,740   |         |         |           |         |        
|                                           | Restricted cash                                                                                                                                                       |                           |                            | 69,876   |         |         |           | 45,968   |        
|                                           | Other assets, net                                                                                                                                                     |                           |                            | 124,534  |         |         |           | 134,309  |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       |                           | 235,150                    |          |         |         | 180,277   |         
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       | $                         | 1,626,912                  |          |         | $       | 1,438,953 |         
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |          |        
|Liabilities and Stockholders Equity       |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|Current liabilities:                       |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           | Current maturities of long-term debt                                                                                                                                  |                           | $                          | 103,899  |         |         | $         | 19,116   |        
|                                           | Current obligations under capital leases                                                                                                                              |                           |                            | 3,442    |         |         |           | 3,122    |        
|                                           | Accounts payable                                                                                                                                                      |                           |                            | 210,288  |         |         |           | 183,304  |        
|                                           | Air traffic liability                                                                                                                                                 |                           |                            | 192,408  |         |         |           | 192,450  |        
|                                           | Accrued compensation and vacation benefits                                                                                                                            |                           |                            | 61,045   |         |         |           | 39,076   |        
|                                           | Accrued taxes                                                                                                                                                         |                           |                            | 36,846   |         |         |           | 35,159   |        
|                                           | Other accrued liabilities                                                                                                                                             |                           |                            | 41,355   |         |         |           | 38,607   |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       | Total current liabilities |                            |          | 649,283 |         |           |          | 510,834 |        
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|Long-term debt, less current maturities    |                                                                                                                                                                       |                           | 688,965                    |          |         |         | 700,983   |         
|Capital leases, less current obligations   |                                                                                                                                                                       |                           | 8,467                      |          |         |         | 11,999    |         
|Deferred credits and other liabilities     |                                                                                                                                                                       |                           | 141,681                    |          |         |         | 146,959   |         
|Commitments 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, 2003 and 941,431 shares
at December 31, 2002 |                           |                            | 8        |         |         |           | 9        |        
|                                           | Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued
and outstanding 51,239,200 shares in 2003 and 49,055,180 shares in 2002                   |                           |                            | 512      |         |         |           | 491      |        
|                                           | Additional paid-in capital                                                                                                                                            |                           |                            | 631,269  |         |         |           | 628,868  |        
|                                           | Accumulated deficit                                                                                                                                                   |                           |                            | (199,594 | )       |         |           | (257,014 | )      
|                                           | Accumulated other comprehensive income                                                                                                                                |                           |                            | 12,527   |         |         |           | 2,030    |        
|                                           | Less: Cost of Class B common stock in treasury, 16,283,895 shares in 2003
and 2002                                                                                    |                           |                            | (306,206 | )       |         |           | (306,206 | )      
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       |                           | Total stockholders equity |          |         | 138,516 |           |          |         | 68,178  | 
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |         
|                                           |                                                                                                                                                                       | $                         | 1,626,912                  |          |         | $       | 1,438,953 |         
|                                           |                                                                                                                                                                       |                           |                            |          |         |         |           |          |        

See accompanying notes to consolidated financial statements.

45



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands except per share data)

|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |           |  
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------ | --------- | --------- | ---- | -------- | --------- | --------- | - | -------- | --------- | --------- | -
|                                                                                                    |                                                                                            |                                                                            |        | 2003      |           | 2002 |          | 2001     
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |          
|Operating revenues:                                                                                 |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    | Passenger                                                                                  |                                                                            | $      | 2,113,629 |           |      | $        | 1,929,444 |           |   | $        | 1,941,877 |          
|                                                                                                    | Cargo                                                                                      |                                                                            |        | 26,914    |           |      |          | 27,574    |           |   |          | 33,824    |          
|                                                                                                    | Other                                                                                      |                                                                            |        | 113,954   |           |      |          | 90,098    |           |   |          | 90,212    |          
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Total operating revenues                                                   |        |           | 2,254,497 |      |          |           | 2,047,116 |   |          |           | 2,065,913 |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|Operating expenses:                                                                                 |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    | Salaries and related costs                                                                 |                                                                            |        | 653,763   |           |      |          | 596,645   |           |   |          | 603,819   |          
|                                                                                                    | Aircraft rents                                                                             |                                                                            |        | 297,518   |           |      |          | 295,016   |           |   |          | 355,517   |          
|                                                                                                    | Other rents and landing fees                                                               |                                                                            |        | 154,598   |           |      |          | 158,290   |           |   |          | 140,372   |          
|                                                                                                    | Aircraft fuel                                                                              |                                                                            |        | 365,250   |           |      |          | 299,940   |           |   |          | 343,224   |          
|                                                                                                    | Agency commissions                                                                         |                                                                            |        | 23,676    |           |      |          | 38,896    |           |   |          | 75,085    |          
|                                                                                                    | Aircraft maintenance materials and repairs                                                 |                                                                            |        | 223,266   |           |      |          | 252,691   |           |   |          | 257,939   |          
|                                                                                                    | Depreciation and amortization                                                              |                                                                            |        | 66,195    |           |      |          | 73,898    |           |   |          | 63,178    |          
|                                                                                                    | Amortization of reorganization value in excess of amounts
allocable to identifiable assets |                                                                            |        |          |           |      |          |          |           |   |          | 19,896    |          
|                                                                                                    | Special charges                                                                            |                                                                            |        | 14,370    |           |      |          | 19,030    |           |   |          | 141,638   |          
|                                                                                                    | Other                                                                                      |                                                                            |        | 422,980   |           |      |          | 472,790   |           |   |          | 483,116   |          
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Total operating expenses                                                   |        |           | 2,221,616 |      |          |           | 2,207,196 |   |          |           | 2,483,784 |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|Operating income (loss)                                                                             |                                                                                            |                                                                            | 32,881 |           |           |      | (160,080 | )         |           |   | (417,871 | )        
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|Nonoperating income (expenses):                                                                     |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    | Interest income                                                                            |                                                                            |        | 6,321     |           |      |          | 10,549    |           |   |          | 14,785    |          
|                                                                                                    | Interest expense, net                                                                      |                                                                            |        | (79,724   | )         |      |          | (72,442   | )         |   |          | (26,349   | )        
|                                                                                                    | Federal government assistance                                                              |                                                                            |        | 81,255    |           |      |          | 8,466     |           |   |          | 108,246   |          
|                                                                                                    | Gain (loss) on disposition of property and equipment                                       |                                                                            |        | 151       |           |      |          | (1,852    | )         |   |          | (3,000    | )        
|                                                                                                    | Gain on sale of investments                                                                |                                                                            |        | 10,110    |           |      |          |          |           |   |          |          |          
|                                                                                                    | Other, net                                                                                 |                                                                            |        | 6,540     |           |      |          | 602       |           |   |          | (198      | )        
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Total nonoperating income (expenses), net                                  |        |           | 24,653    |      |          |           | (54,677   | ) |          |           | 93,484    |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|Income (loss) before income taxes (benefit) and cumulative effect
of change in accounting principle |                                                                                            |                                                                            | 57,534 |           |           |      | (214,757 | )         |           |   | (324,387 | )        
|Income taxes (benefit)                                                                              |                                                                                            |                                                                            | 114    |           |           |      | (35,071  | )         |           |   | (74,536  | )        
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|Income (loss) before cumulative effect of change in
accounting principle                            |                                                                                            |                                                                            | 57,420 |           |           |      | (179,686 | )         |           |   | (249,851 | )        
|Cumulative effect of change in accounting principle                                                 |                                                                                            |                                                                            |       |           |           |      | (208,223 | )         |           |   |         |          
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|Net income (loss)                                                                                   |                                                                                            | $                                                                          | 57,420 |           |           | $    | (387,909 | )         |           | $ | (249,851 | )        
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|Basic earnings (loss) per share:                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Earnings (loss) before cumulative effect of change in
accounting principle |        | $         | 1.66      |      |          | $         | (5.33     | ) |          | $         | (7.42     | )
|                                                                                                    |                                                                                            | Cumulative effect of change in accounting principle                        |        |           |          |      |          |           | (6.17     | ) |          |           |          |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|                                                                                                    |                                                                                            | Basic earnings (loss) per share                                            |        | $         | 1.66      |      |          | $         | (11.50    | ) |          | $         | (7.42     | )
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|Diluted earnings (loss) per share:                                                                  |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Earnings (loss) before cumulative effect of change in
accounting principle |        | $         | 1.29      |      |          | $         | (5.33     | ) |          | $         | (7.42     | )
|                                                                                                    |                                                                                            | Cumulative effect of change in accounting principle                        |        |           |          |      |          |           | (6.17     | ) |          |           |          |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|                                                                                                    |                                                                                            | Diluted earnings (loss) per share                                          |        | $         | 1.29      |      |          | $         | (11.50    | ) |          | $         | (7.42     | )
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |           |          
|Shares used for computation:                                                                        |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Basic                                                                      |        |           | 34,551    |      |          |           | 33,723    |   |          |           | 33,670    |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          
|                                                                                                    |                                                                                            | Diluted                                                                    |        |           | 52,675    |      |          |           | 33,723    |   |          |           | 33,670    |  
|                                                                                                    |                                                                                            |                                                                            |        |           |           |      |          |           |           |   |          |          

See accompanying notes to consolidated financial statements.

46



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |          |          |          |  
|------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | -------- | -------- | ------- | -------- | -------- | ------- | ------- | -------- | -------- | -------- | -
|                                      |                                                                                                    |                   |                                                                   |                                                     |        | 2003     |          | 2002    |          | 2001    
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |         
|Cash flows from operating activities: |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      |                                                                                                    | Net income (loss) |                                                                   | $                                                   | 57,420 |          |          |         | (387,909 | )        |         | $       | (249,851 | )       
|                                      | Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |         
|                                      |                                                                                                    |                   | Depreciation and amortization                                     |                                                     |        | 66,865   |          |         |          | 75,894   |         |         |          | 64,573   |         
|                                      |                                                                                                    |                   | Amortization of capitalized maintenance                           |                                                     |        | 105,076  |          |         |          | 111,576  |         |         |          | 116,809  |         
|                                      |                                                                                                    |                   | Amortization of deferred credits                                  |                                                     |        | (10,970  | )        |         |          | (10,077  | )       |         |          | (6,928   | )       
|                                      |                                                                                                    |                   | Amortization of deferred rent                                     |                                                     |        | 9,514    |          |         |          | 11,452   |         |         |          |         |         
|                                      |                                                                                                    |                   | Amortization of warrants                                          |                                                     |        | 8,100    |          |         |          | 7,708    |         |         |          |         |         
|                                      |                                                                                                    |                   | Amortization of debt issue costs and guarantee fees               |                                                     |        | 35,977   |          |         |          | 24,978   |         |         |          | 1,631    |         
|                                      |                                                                                                    |                   | Amortization of bond discount                                     |                                                     |        | 3,366    |          |         |          | 2,894    |         |         |          |         |         
|                                      |                                                                                                    |                   | Amortization of investment discount and premium, net              |                                                     |        | 899      |          |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Amortization of excess reorganization value                       |                                                     |        |         |          |         |          |         |         |         |          | 21,497   |         
|                                      |                                                                                                    |                   | Special charges, net                                              |                                                     |        | 14,370   |          |         |          | 19,055   |         |         |          | 77,604   |         
|                                      |                                                                                                    |                   | Gain on sale of investment                                        |                                                     |        | (3,287   | )        |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Loss on sale of subsidiaries                                      |                                                     |        |         |          |         |          |         |         |         |          | 2,257    |         
|                                      |                                                                                                    |                   | Cumulative effect of change in accounting principle               |                                                     |        |         |          |         |          | 208,223  |         |         |          |         |         
|                                      |                                                                                                    |                   | Other                                                             |                                                     |        | 2,297    |          |         |          | 16,746   |         |         |          | 5,218    |         
|                                      | Changes in operating assets and liabilities:                                                       |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |         
|                                      |                                                                                                    |                   | Increase in restricted cash                                       |                                                     |        | (42,900  | )        |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Decrease (increase) in accounts receivable, net                   |                                                     |        | (2,120   | )        |         |          | 21,445   |         |         |          | 43,516   |         
|                                      |                                                                                                    |                   | Increase in expendable spare parts and supplies, net              |                                                     |        | (2,681   | )        |         |          | (4,061   | )       |         |          | (9,990   | )       
|                                      |                                                                                                    |                   | Increase in prepaid expenses                                      |                                                     |        | (45,932  | )        |         |          | (64,726  | )       |         |          | (5,279   | )       
|                                      |                                                                                                    |                   | Decrease (increase) in other assets, net                          |                                                     |        | (15,632  | )        |         |          | 5,634    |         |         |          | 42,744   |         
|                                      |                                                                                                    |                   | Increase (decrease) in accounts payable                           |                                                     |        | 17,945   |          |         |          | (71,488  | )       |         |          | 73,178   |         
|                                      |                                                                                                    |                   | Increase (decrease) in air traffic liability                      |                                                     |        | (42      | )        |         |          | 4,734    |         |         |          | (21,154  | )       
|                                      |                                                                                                    |                   | Increase (decrease) in accrued compensation and vacation benefits |                                                     |        | 19,796   |          |         |          | (3,050   | )       |         |          | 5,373    |         
|                                      |                                                                                                    |                   | Increase (decrease) in accrued taxes                              |                                                     |        | 1,687    |          |         |          | (24,647  | )       |         |          | 23       |         
|                                      |                                                                                                    |                   | Increase (decrease) in other accrued liabilities                  |                                                     |        | 2,748    |          |         |          | 16,720   |         |         |          | (6,345   | )       
|                                      |                                                                                                    |                   | Increase (decrease) in other liabilities                          |                                                     |        | 19,294   |          |         |          | 16,022   |         |         |          | (2,512   | )       
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      |                                                                                                    |                   |                                                                   | Net cash provided by (used in) operating activities |        |          | 241,790  |         |          |          | (22,877 | )       |          |          | 152,364  |  
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      | Cash flows from investing activities:                                                              |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |         
|                                      |                                                                                                    |                   | Purchases of property and equipment                               |                                                     |        | (154,365 | )        |         |          | (157,202 | )       |         |          | (633,246 | )       
|                                      |                                                                                                    |                   | Purchases of short-term investments                               |                                                     |        | (61,722  | )        |         |          | (69,987  | )       |         |          | (45,863  | )       
|                                      |                                                                                                    |                   | Sales of short-term investments                                   |                                                     |        | 42,068   |          |         |          | 45,249   |         |         |          | 96,549   |         
|                                      |                                                                                                    |                   | Purchases of investments in debt securities                       |                                                     |        | (80,436  | )        |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Sales of investments in debt securities                           |                                                     |        | 10,300   |          |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Decrease (increase) in restricted cash                            |                                                     |        | (23,908  | )        |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Proceeds from sales of aircraft                                   |                                                     |        |         |          |         |          | 175,478  |         |         |          | 332,800  |         
|                                      |                                                                                                    |                   | Proceeds from sales of other property and equipment               |                                                     |        | 25,826   |          |         |          | 122      |         |         |          | 28,900   |         
|                                      |                                                                                                    |                   | Proceeds from sale of NLG investment                              |                                                     |        | 348      |          |         |          |         |         |         |          |         |         
|                                      |                                                                                                    |                   | Equipment purchase deposits and other                             |                                                     |        |         |          |         |          |         |         |         |          | 14,900   |         
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |          |         
|                                      |                                                                                                    |                   |                                                                   | Net cash provided by (used in) investing activities |        |          | (241,889 | )       |          |          | (6,340  | )       |          |          | (205,960 | )
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      | Cash flows from financing activities:                                                              |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |         
|                                      |                                                                                                    |                   | Proceeds from issuance of debt                                    |                                                     |        | 86,828   |          |         |          | 435,386  |         |         |          | 423,422  |         
|                                      |                                                                                                    |                   | Repayment of debt                                                 |                                                     |        | (16,832  | )        |         |          | (192,596 | )       |         |          | (357,723 | )       
|                                      |                                                                                                    |                   | Payment of debt issue costs                                       |                                                     |        | (3,236   | )        |         |          | (36,987  | )       |         |          |         |         
|                                      |                                                                                                    |                   | Other                                                             |                                                     |        | 671      |          |         |          | 2,299    |         |         |          | 624      |         
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      |                                                                                                    |                   |                                                                   | Net cash provided by financing activities           |        |          | 67,431   |         |          |          | 208,102 |         |          |          | 66,323   |  
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      | Net increase in cash and cash equivalents                                                          |                   |                                                                   | 67,332                                              |        |          |          | 178,885 |          |          |         | 12,727  |         
|                                      | Cash and cash equivalents at beginning of year                                                     |                   |                                                                   | 335,750                                             |        |          |          | 156,865 |          |          |         | 144,138 |         
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |        
|                                      | Cash and cash equivalents at end of year                                                           |                   | $                                                                 | 403,082                                             |        |          | $        | 335,750 |          |          | $       | 156,865 |         
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |          |         
|                                      | Cash, cash equivalents, short-term investments and investments
in debt securities at end of year   |                   | $                                                                 | 516,712                                             |        |          | $        | 360,488 |          |          | $       | 156,865 |         
|                                      |                                                                                                    |                   |                                                                   |                                                     |        |          |          |         |          |          |         |         |          |         

See accompanying notes to consolidated financial statements.

47



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands except share data)

|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |        |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | - | -- | ------- |  | ------- | --- | ---------- |  | --------- | ------- | ------------- |  | -------- | -------- | ----- |  | - | ------ | ----------- |  | - | -------- | - |  | - | -------- | ------ |  | 
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        | ACCUMULATED |  |   |          |   |  |   |          |       
|                                                                                                                                                           |                                                                                   |   |    | CLASS A |  | CLASS B |     | ADDITIONAL |  | RETAINED  |         | OTHER         |  | CLASS B  |          |       |  |  
|                                                                                                                                                           |                                                                                   |   |    | COMMON  |  | COMMON  |     | PAID-IN    |  | EARNINGS/ |         | COMPREHENSIVE |  | TREASURY |          |       |  |  
|                                                                                                                                                           |                                                                                   |   |    | STOCK   |  | STOCK   |     | CAPITAL    |  | (DEFICIT) |         | INCOME        |  | STOCK    |          | TOTAL
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |      
|Balance at December 31, 2000                                                                                                                               |                                                                                   | $ | 9  |         |  | $       | 490 |            |  | $         | 594,177 |               |  | $        | 380,746  |       |  | $ | (1,108 | )           |  | $ | (307,241 | ) |  | $ | 667,073  |       
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Net
loss                                                                                                                                                   |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | (249,851 | )     |  |   |       |             |  |   |         |   |  |   | (249,851 | )     
|Other comprehensive income (loss):                                                                                                                         |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|                                                                                                                                                           | Changes in the fair value of
derivative financial instruments,
net of tax         |   |    |        |  |         |     |           |  |           |         |              |  |          |          |      |  |   |        | 1,390       |  |   |          |  |  |   |          | 1,390  | 
|                                                                                                                                                           | Adjustment to unrealized gain (loss)
on available-for-sale securities,
net of tax |   |    |        |  |         |     |           |  |           |         |              |  |          |          |      |  |   |        | 1,108       |  |   |          |  |  |   |          | 1,108  | 
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Total comprehensive income (loss)                                                                                                                          |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | (249,851 | )     |  |   | 2,498  |             |  |   |         |   |  |   | (247,353 | )     
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Issuance of 93,334 shares of Class B
common stock pursuant to the
exercise of stock options including
tax benefit from the exercise of
stock options of $8 |                                                                                   |   |   |         |  |         | 1   |            |  |           | 948     |               |  |          |         |       |  |   |       |             |  |   |         |   |  |   | 949      |       
|Cancellation of 14,244 shares of
Class B common stock issued
as restricted stock                                                                           |                                                                                   |   |   |         |  |         |    |            |  |           | (410    | )             |  |          |         |       |  |   |       |             |  |   |         |   |  |   | (410     | )     
|Issuance of 50,000 shares of Class B
treasury stock                                                                                                        |                                                                                   |   |   |         |  |         |    |            |  |           | (606    | )             |  |          |         |       |  |   |       |             |  |   | 1,035    |   |  |   | 429      |       
|Other                                                                                                                                                      |                                                                                   |   |   |         |  |         |    |            |  |           | (325    | )             |  |          |         |       |  |   |       |             |  |   |         |   |  |   | (325     | )     
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Balance at December 31, 2001                                                                                                                               |                                                                                   |   | 9  |         |  |         | 491 |            |  |           | 593,784 |               |  |          | 130,895  |       |  |   | 1,390  |             |  |   | (306,206 | ) |  |   | 420,363  |       
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Net loss                                                                                                                                                   |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | (387,909 | )     |  |   |       |             |  |   |         |   |  |   | (387,909 | )     
|Other comprehensive income (loss):                                                                                                                         |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|                                                                                                                                                           | Changes in the fair value of
derivative financial instruments,
net of tax         |   |    |        |  |         |     |           |  |           |         |              |  |          |          |      |  |   |        | 640         |  |   |          |  |  |   |          | 640    | 
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Total comprehensive income (loss)                                                                                                                          |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | (387,909 | )     |  |   | 640    |             |  |   |         |   |  |   | (387,269 | )     
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Issuance of warrants to purchase
Class B common stock                                                                                                      |                                                                                   |   |   |         |  |         |    |            |  |           | 35,384  |               |  |          |         |       |  |   |       |             |  |   |         |   |  |   | 35,384   |       
|Cancellation of 15,166 shares of
Class B common stock issued as
restricted stock                                                                           |                                                                                   |   |   |         |  |         |    |            |  |           | (300    | )             |  |          |         |       |  |   |       |             |  |   |         |   |  |   | (300     | )     
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Balance at December 31, 2002                                                                                                                               |                                                                                   |   | 9  |         |  |         | 491 |            |  |           | 628,868 |               |  |          | (257,014 | )     |  |   | 2,030  |             |  |   | (306,206 | ) |  |   | 68,178   |       
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Net income                                                                                                                                                 |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | 57,420   |       |  |   |       |             |  |   |         |   |  |   | 57,420   |       
|Other comprehensive income:                                                                                                                                |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|                                                                                                                                                           | Changes in the fair value of
derivative financial instruments,
net of tax         |   |    |        |  |         |     |           |  |           |         |              |  |          |          |      |  |   |        | 10,497      |  |   |          |  |  |   |          | 10,497 | 
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Total comprehensive income                                                                                                                                 |                                                                                   |   |   |         |  |         |    |            |  |           |        |               |  |          | 57,420   |       |  |   | 10,497 |             |  |   |         |   |  |   | 67,917   |       
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|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   |               |  |          |         |       |  |   |       |             |  |   |         |   |  |   | 2,465    |       
|Cancellation of 3,727 shares of Class
B
common stock issued as restricted
stock                                                                            |                                                                                   |   |   |         |  |         |    |            |  |           | (44     | )             |  |          |         |       |  |   |       |             |  |   |         |   |  |   | (44      | )     
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       
|Balance at December 31, 2003                                                                                                                               |                                                                                   | $ | 8  |         |  | $       | 512 |            |  | $         | 631,269 |               |  | $        | (199,594 | )     |  | $ | 12,527 |             |  |   | (306,206 | ) |  | $ | 138,516  |       
|                                                                                                                                                           |                                                                                   |   |    |         |  |         |     |            |  |           |         |               |  |          |          |       |  |   |        |             |  |   |          |   |  |   |          |       

See accompanying notes to consolidated financial statements

48



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001

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 2003. Based on 2003 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 2003, AWA operated a fleet of 139 aircraft with an average fleet age of
10.7 years and served 62 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 52
destinations in North America as of December 31, 2003. In 2003, AWA flew
approximately 20.1 million passengers and generated revenues of approximately
$2.2 billion. In addition, 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 and Mexico.
As of January 1, 2004, TLC has been merged into AWA and will continue to
operate as the America West Vacations division of AWA. See Note 19,
Subsequent Event  Merger of America West Vacations Subsidiary into AWA.

1. Summary of Significant Accounting Policies

(a)  Basis of Presentation

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

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

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

(c)  Expendable Spare Parts and Supplies

Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on
hand at the date the aircraft are retired from service.

(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, 2003, 2002 and 2001, was $1.6 million, $3.0 million and $12.5
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 30 years. Leasehold improvements relating to flight equipment and
other property on operating leases are amortized over the life of the lease or
the life of the asset, whichever is shorter.

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

49



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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, cash held by institutions that process credit card sales
transactions and cash held in escrow for the first principal payment on the
government guaranteed loan.

(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 April 2003, the Company revised the estimated useful life for
capitalized maintenance on certain of its engines driven by a new maintenance
agreement that guarantees minimum cycles on engine overhauls. The net impact
of this change in estimate increased net income for 2003 by $12.7 million.
This change increased basic and diluted income per share by $0.37 and $0.24,
respectively, for the year ended December 31, 2003.

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

(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, 2003 and 2002, the unamortized
balance of the deferred credit was $44.6 million and $52.4 million,
respectively.

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

50



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

expense. At December 31, 2003, the unamortized balance of the deferred
credit was approximately $7.8 million.

(j)  Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. 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 Allocable to Identifiable Assets (ERV)

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 142, Goodwill and Other Intangible Assets.SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. SFAS No. 142 does not permit the amortization of goodwill as
required by Accounting Principles Board (APB) Opinion No. 17, Intangible
Assets.Rather, goodwill is subject to a periodic impairment test, using a
two-step process. The first step is to identify a potential impairment. The
second step of the goodwill impairment test measures the amount of the
impairment loss, using a fair value-based approach. Under SFAS No. 142, ERV is
reported as goodwill and accounted for in the same manner as goodwill. SFAS
No. 142 was effective for fiscal years beginning after December 15, 2001. Upon
adoption of this statement on January 1, 2002, the Company recorded an
impairment loss of $208.2 million, which was supported by an independent
valuation of the Company. The impairment loss was recorded as the cumulative
effect of a change in accounting principle. Prior to adoption of SFAS No. 142,
ERV was amortized on a straight line basis over 20 years.

The following table presents reported net income (loss) and earnings
(loss) per share exclusive of ERV amortization expense for the years ended
December 31, 2003, 2002 and 2001.

|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|---------------------------------- |  | --------------------------------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                   |  | For the Year Ended December 31,        
|                                   |  |                                        
|                                   |  | (In thousands except per share amounts)
|                                   |  | 2003                                    |        | 2002 |  | 2001
|                                   |  |                                         |        |      |  |     
|Reported net income (loss)         |  | $                                       | 57,420 |      |  | $    | (387,909 | ) |  | $ | (249,851 | )
|ERV
amortization (1)               |  |                                         |       |      |  |      |         |   |  |   | 21,497   |  
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Adjusted net income (loss)         |  | $                                       | 57,420 |      |  | $    | (387,909 | ) |  | $ | (228,354 | )
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Basic earnings (loss) per share:   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Reported net income (loss)         |  | $                                       | 1.66   |      |  | $    | (11.50   | ) |  | $ | (7.42    | )
|ERV amortization (1)               |  |                                         |       |      |  |      |         |   |  |   | 0.64     |  
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Adjusted net income (loss)         |  | $                                       | 1.66   |      |  | $    | (11.50   | ) |  | $ | (6.78    | )
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Diluted earnings (loss) per share: |  |                                         |        |      |  |      |          |   |  |   |          |  
|Reported net income (loss)         |  | $                                       | 1.29   |      |  | $    | (11.50   | ) |  | $ | (7.42    | )
|ERV amortization (1)               |  |                                         |       |      |  |      |         |   |  |   | 0.64     |  
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  
|Adjusted net income (loss)         |  | $                                       | 1.29   |      |  | $    | (11.50   | ) |  | $ | (6.78    | )
|                                   |  |                                         |        |      |  |      |          |   |  |   |          |  



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

(l)  Advertising Costs

The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 2003, 2002 and 2001 was $9.0 million,
$10.6 million and $13.8 million, respectively.

51



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(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, 2003, 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 Stock-Based Compensation,the Companys net income (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts indicated
below:

|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|----------------------------------------------------- |  | ------------------------------------ | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                      |  | 2003                                 |        | 2002 |  | 2001
|                                                      |  |                                      |        |      |  |     
|                                                      |  | (In thousands except per share data)
|Net income (loss), as reported                        |  | $                                    | 57,420 |      |  | $    | (387,909 | ) |  | $ | (249,851 | )
|Stock-based compensation
expense,
net of income taxes |  |                                      | (4,320 | )    |  |      | (3,709   | ) |  |   | (4,173   | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|Pro forma net income (loss)                           |  | $                                    | 53,100 |      |  | $    | (391,618 | ) |  | $ | (254,024 | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|Earnings (loss) per share:                            |  |                                      |        |      |  |      |          |   |  |   |          |  
|Basic - as reported                                   |  | $                                    | 1.66   |      |  | $    | (11.50   | ) |  | $ | (7.42    | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|Basic - pro forma                                     |  | $                                    | 1.54   |      |  | $    | (11.61   | ) |  | $ | (7.54    | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|Diluted - as reported                                 |  | $                                    | 1.29   |      |  | $    | (11.50   | ) |  | $ | (7.42    | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  
|Diluted - pro forma                                   |  | $                                    | 1.01   |      |  | $    | (11.61   | ) |  | $ | (7.54    | )
|                                                      |  |                                      |        |      |  |      |          |   |  |   |          |  

(o)  New Accounting Standards

In January 2003, the FASB issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities.FIN No. 46 requires that
companies that control another entity through interests other than voting
interests should consolidate the controlled entity. FIN No. 46 is effective
for variable interest entities created after January 31, 2003 and to any
variable interest entities in which the company obtains an interest after that
date. FIN No. 46 was originally effective for the quarter ending September 30,
2003 for variable interest entities in which the company held a variable
interest that it acquired before February 1, 2003. However, in October 2003,
the FASB deferred the effective date for implementation of FIN No. 46 until
December 31, 2003. As discussed in Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital
Resources  Off-Balance Sheet Arrangements  The Pass Through Trusts,the
Company is the lessee in a series of leveraged lease financings covering 54
leased aircraft. 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. 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. Based upon its analysis, which considered the structure of
the respective arrangements and related expected cash flows, the Company
currently believes it is not the primary beneficiary, as defined by FIN No. 46,
under these arrangements. Accordingly, the Company adopted FIN No. 46 effective
December 31, 2003 with no material impact on its financial condition or results
of operations.

52



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities.SFAS No. 149 amends and
clarifies certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 was effective for certain
contracts entered into or modified by the company after June 30, 2003. The
Company adopted SFAS No. 149 effective July 1, 2003 with no material impact on
its financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS No. 150 specifies that freestanding financial instruments within its scope
constitute obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. Such freestanding financial instruments include
mandatorily redeemable financial instruments, obligations to repurchase the
issuers equity shares by transferring assets and certain obligations to issue
a variable number of shares. SFAS No. 150 was effective immediately for all
financial instruments entered into or modified after May 31, 2003. For all
other instruments, SFAS No. 150 was effective at the beginning of the third
quarter of 2003. The Company adopted SFAS No. 150 effective July 1, 2003 with
no material impact on its financial condition or results of operations.

(p)  Use of Estimates

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

2. 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
13, 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 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | 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.                                       

53



---



##### Table of Contents



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:

|                                                  |                                 |   |                |         |      |   |         |         | 
|------------------------------------------------- | ------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                                                  |                                 |   | 2003           |         | 2002
|                                                  |                                 |   |                |         |     
|                                                  |                                 |   | (in thousands)
|Cash and cash equivalents:                        |                                 |   |                |         |      |   |         |        
|Corporate notes                                   |                                 | $ | 253,931        |         |      | $ | 184,012 |        
|Cash and money market funds                       |                                 |   | 147,647        |         |      |   | 151,738 |        
|U.S. government securities                        |                                 |   | 1,504          |         |      |   |        |        
|                                                  |                                 |   |                |         |      |   |         |        
|                                                  | Total cash and cash equivalents |   | $              | 403,082 |      |   | $       | 335,750 | 
|                                                  |                                 |   |                |         |      |   |         |        
|Short-term investments:                           |                                 |   |                |         |      |   |         |        
|Corporate notes                                   |                                 | $ | 69,120         |         |      | $ | 24,738  |        
|U.S. government securities                        |                                 |   | 3,770          |         |      |   |        |        
|                                                  |                                 |   |                |         |      |   |         |        
|                                                  | Total short-term investments    |   |                | 72,890  |      |   |         | 24,738  | 
|                                                  |                                 |   |                |         |      |   |         |        
|Total cash equivalents and short-term investments |                                 | $ | 475,972        |         |      | $ | 360,488 |        
|                                                  |                                 |   |                |         |      |   |         |        

In addition, the Company had long-term investments in debt securities of
$40.7 million as of December 31, 2003. 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 which 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 TLCs
retail operations, National Leisure Group and The Vacation Store, to Softbank
Capital Partners and General Catalyst LLC. TLC received $52 million in cash
and retained a 12% passive ownership interest in the restructured venture. In
response to additional capital calls, TLC invested an additional $1.2 million
in National Leisure Group during 2001. The investment 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 13, Nonoperating Income (Expenses)  Other, Netin Notes to Consolidated
Financial Statements.

Warrants

The Company is the holder of warrants in a number of on-line ventures that
are not public. The fair value of these warrants is not readily determinable.
Accordingly, the investments are carried at cost, which was not material at
December 31, 2003 or 2002.

Long-term Debt

At December 31, 2003 and 2002, the fair value of long-term debt was
approximately $845.6 million and $657.9 million, respectively. The Companys
variable rate long-term debt with a carrying value of $555.9 million and $570.4
million at December 31, 2003 and 2002, 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.

54



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(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, 2003, the Company had entered into costless
collar transactions hedging approximately 11% of its projected 2004 fuel
requirements. The fair value of the Companys financial derivative instruments
was a net asset of approximately $21.2 million and $3.6 million at December 31,
2003 and 2002, respectively.

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

(c)  Concentration of Credit Risk

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

5. Long-Term Debt

Long-term debt at December 31, 2003 and 2002 consists of the following:

|                                                                                                                                               |                    |   |                |          |      |   |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | - | -------------- | -------- | ---- | - | ------- | ------- | -
|                                                                                                                                               |                    |   | 2003           |          | 2002
|                                                                                                                                               |                    |   |                |          |     
|                                                                                                                                               |                    |   | (in thousands)
|Secured                                                                                                                                        |                    |   |                |          |      |   |         |        
|Equipment notes payable, variable interest rates of 2.13% to 2.63%, averaging
2.21%, installments due 2004 through 2008                        |                    | $ | 48,454         |          |      | $ | 58,126  |        
|Term loan, variable interest rate of 3.44%, installments due 2005 through 2007 (a)                                                             |                    |   | 74,775         |          |      |   | 74,758  |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    |   | 123,229        |          |      |   | 132,884 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|Unsecured                                                                                                                                      |                    |   |                |          |      |   |         |        
|Government guaranteed loan, variable interest rate of 1.50% installments due
2004 through 2008 (b)                                             |                    |   | 429,000        |          |      |   | 429,000 |        
|10
3⁄4% senior unsecured notes, interest only payments until due in 2005 (c)                                                                     |                    |   | 39,548         |          |      |   | 49,998  |        
|7.5% convertible senior notes, interest only payments until due in 2009 (d)                                                                    |                    |   | 104,328        |          |      |   | 97,894  |        
|7.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter (e) |                    |   | 252,695        |          |      |   |        |        
|Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
2.41%, installments due through 2004                                 |                    |   | 5,250          |          |      |   | 7,000   |        
|Industrial development bonds, fixed interest rate of 6.3% due 2023 (f)                                                                         |                    |   | 29,300         |          |      |   | 29,300  |        
|State loan, variable interest rate of 4.71%, installments due 2004 through 2007                                                                |                    |   | 1,500          |          |      |   | 1,500   |        
|Promissory note, fixed interest rate of 10%, due in 2003                                                                                       |                    |   |               |          |      |   | 2,443   |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    |   | 861,621        |          |      |   | 617,135 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|Total long-term debt                                                                                                                           |                    |   | 984,850        |          |      |   | 750,019 |        
|Less: Unamortized discount on debt                                                                                                             |                    |   | (191,986       | )        |      |   | (29,920 | )      
|                                                                                                                                               | Current maturities |   |                | (103,899 | )    |   |         | (19,116 | )
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    | $ | 688,965        |          |      | $ | 700,983 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        



| | (a) |  | In connection with the closing of the government guaranteed loan
and the related transactions, AWA converted its existing revolving
credit facility into a term loan with the Mizuho Corporate Bank, Ltd.,
as successor by merger to the Industrial Bank of Japan, Limited, and
certain other lenders. Principal amounts under the term loan become
due in two installments of $30 million on December 31, 2005 and
December 31, 2006 with the remaining amounts becoming due and payable
in full on December 31, 2007. Principal amounts outstanding under the
term loan bear interest at a rate per annum equal to, at AWAs option,
either the Base Rate or the Eurodollar Rate (which is based on LIBOR),
in each case plus an applicable margin. The applicable margin adjusts
based on the length of time the term loan has been outstanding. The
term Base Rate has a meaning customary and appropriate for
financings of this type. In addition, principal amounts outstanding
under the term loan bear interest in kind at a rate of 2% through
December 31, 2004. The balance at December 31, 2003 includes $3.1
million of interest paid in kind through December 31, 2003.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



| |     |  | The prepayment requirements and covenants of the term loan are
substantially similar to those of the government guaranteed loan. AWA
may, at its option, prepay the term loan without premium or penalty,
subject to reimbursement of the lenders breakage costs in the case of
prepayment of loans bearing the Eurodollar Rate. In October 2003, AWA
made a repayment of approximately $1.5 million as a result of the
removal of three aircraft and two engines from the collateral base for
the loan. The term loan is secured by a first priority perfected
security interest in certain of AWAs spare engines, rotable aircraft
parts inventory and a maintenance facility. We may be required to
prepay portions of the loan if the fair market value of the collateral,
as determined by independent appraisers, decreases. The term loan
contains customary events of default, including payment defaults,
cross-defaults, breach of covenants, bankruptcy and insolvency defaults
and judgment defaults.     
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | 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 to the extent such proceeds are not applied
to redeem AWAs 10 3⁄4% senior notes due 2005; 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.
|
| | (c) |  | 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, 2003. Interest on the 10 3⁄4%
senior notes is payable semiannually in arrears on March 1 and
September 1 of each year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | AWA may redeem the 10 3⁄4% senior notes, in whole or in part, at any
time after September 1, 2003 at a redemption price of 100%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | If AWA undergoes a change of control, it may be required to repurchase
the 10 3⁄4% senior notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. If AWA sells certain assets, it may be required to use
the net cash proceeds to repurchase the 10 3⁄4% senior notes at 100%
of the principal amount, plus accrued and unpaid interest, to the date
of purchase.                                                                                                                                                                                                                                                                                                                               
|
| |     |  | The indenture governing the 10 3⁄4% senior notes contains certain
covenants that, among other things, limit the Companys ability to pay
dividends or make distributions to stockholders, repurchase or redeem
capital stock, make investments or other restricted payments, enter
into transactions with stockholders and affiliates, sell assets
(including the stock of the Companys subsidiaries) and merge or
consolidate with other companies. The indenture governing the 10 3⁄4%
senior notes also contains customary events of default, including
payment defaults, cross-defaults, breach of covenants, bankruptcy and
insolvency defaults and judgment defaults.                                                                                                 

56



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



| | (d) |  | 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 $104.3
million remained outstanding at December 31, 2003 (including $13.6
million of interest paid through December 31, 2003 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 may
be paid 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 Price
|                    |  |                 
|2005                |  |                  | 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, 2003 is net of an unamortized discount of $25.9
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

57



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



| |     |  | 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.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (f) |  | 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 $123.2 million are collateralized by assets,
primarily aircraft, engines, simulators, rotable aircraft parts and AWAs
hangar facility, with a net book value of $292.9 million at December 31, 2003.

At December 31, 2003, the estimated maturities of long-term debt are as
follows:

|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (in thousands)
|2004       |  |                | 103,899 | 
|2005       |  |                | 163,903 | 
|2006       |  |                | 124,355 | 
|2007       |  |                | 105,487 | 
|2008       |  |                | 100,883 | 
|Thereafter |  |                | 386,323 | 
|           |  |                |         | 
|           |  | $              | 984,850 | 

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. See Risk Factors Relating to America
West and Industry Related Risks - Our high level of indebtedness and fixed
costs 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.

6. Commitments and Contingencies

(a)  Leases

As of December 31, 2003, the Company had 132 aircraft under operating
leases with remaining terms ranging from seven months to approximately 21
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 8.7 years or
call options pursuant to which the lessors could require AWA to return the
aircraft to the lessors upon receipt of four to nine months written notice.
The Company also has options to purchase certain of the aircraft at fair market
values at the end of the lease terms. Certain of the agreements require
security deposits, minimum return provisions and maintenance reserve payments.

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,

58



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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s 2001-1 Pass Through Trusts provided for the financing of nine Airbus
A319 aircraft and five Airbus A320 aircraft, all of which were delivered in
2001 and 2002.

As a result of the rent restructuring associated with the government
guaranteed loan, one aircraft lease was amended to include a bargain purchase
option. As a result, this lease has been classified as a capital lease in
accordance with SFAS No. 13, Accounting for Leases,as amended, with an asset
value of $16.0 million and corresponding lease obligation of $11.6 million at
December 31, 2003.

In April 2003, 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 18 months.

In July 2003, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 24 months. Upon exercising this right, the lessor agreed to
relinquish its interest in approximately $1.0 million face value of 7.5%
convertible senior notes it received as compensation for certain concessions
granted under the restructuring completed on January 18, 2002.

In November 2003, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 42 months.

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

At December 31, 2003, the scheduled future minimum cash rental payments
under capital leases and noncancelable operating leases with initial terms of
more than one year are as follows:

|                                                        |  |                |        |           |  |   |           | 
|------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | --------- | 
|                                                        |  | Capital        |        | Operating
|Years Ending December 31,                               |  | Leases         |        | Leases   
|                                                        |  |                |        |          
|                                                        |  | (in thousands)
|2004                                                    |  | $              | 4,689  |           |  | $ | 350,215   | 
|2005                                                    |  |                | 4,744  |           |  |   | 331,188   | 
|2006                                                    |  |                | 4,988  |           |  |   | 304,097   | 
|2007                                                    |  |                | 1,773  |           |  |   | 286,046   | 
|2008                                                    |  |                |       |           |  |   | 237,117   | 
|Thereafter                                              |  |                |       |           |  |   | 1,896,483 | 
|                                                        |  |                |        |           |  |   |           | 
|Total minimum lease payments                            |  |                | 16,194 |           |  | $ | 3,405,146 | 
|                                                        |  |                |        |           |  |   |           | 
|Less: Amounts of lease payments that represent interest |  |                | (4,285 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Present value of future minimum capital lease payments  |  |                | 11,909 |           |  |   |           | 
|Less: Current obligations under capital leases          |  |                | (3,442 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Long-term capital lease obligations                     |  | $              | 8,467  |           |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 

Rent expense (excluding landing fees) was approximately $407 million, $409
million and $457 million for the years ended December 31, 2003, 2002 and 2001,
respectively.

59



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Collectively, the operating lease agreements require security deposits
with lessors of $21.3 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, 2003, 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 $42.9 million.

(c)  Aircraft Acquisitions

In January 2002, upon closing of the $429 million loan supported by a $380
million government loan guarantee, AWA restructured its aircraft purchase
commitment to AVSA S.A.R.L., an affiliate of Airbus Industrie (AVSA). As a
result, 17 new Airbus aircraft previously scheduled for delivery in 2003 and
2004 were deferred by a total of 505 aircraft-months to 2004 through 2007. At
December 31, 2003, AWA had firm commitments to AVSA for a total of 15 Airbus
A318-100, one Airbus A319-100 and three Airbus A320-200 aircraft with delivery
through 2007 at a cost of approximately $719 million. The agreement with AVSA
also includes options to purchase an additional 17 A320 family aircraft during
2006 through 2008 and purchase rights for an additional 25 aircraft in the A320
family of aircraft for delivery in 2005 to 2008.

The Company has an agreement with International Aero Engines (IAE) which
provides for the purchase by the Company of four new V2500-A5 spare engines
scheduled for delivery through 2004 for use on certain of the A320 fleet. At
December 31, 2003, the four engines have an estimated aggregate cost of $19
million.

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

|     |  |                |         | 
|---- |  | -------------- | ------- | 
|     |  | (in thousands)
|2004 |  | $              | 91,266  | 
|2005 |  |                | 84,780  | 
|2006 |  |                | 223,362 | 
|2007 |  |                | 263,941 | 
|     |  |                |         | 
|     |  | $              | 663,349 | 
|     |  |                |         | 

60



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(d)  Sale-Leaseback Transactions

As part of the restructuring completed on January 18, 2002, AWA committed
to the sale and leaseback of eight aircraft. The 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 12, 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 which demand large
monetary damages or other relief, which, if granted, would require significant
expenditures. In certain cases where it is probable that the outcome will
result in monetary damages, the Company has reviewed available information and
determined that the best estimate of losses to be incurred related to these
cases is $2 million, which has been accrued. For those cases where a loss is
possible, or cases where a range of loss is probable but no amount within the
range is a better estimate than any other amount, the estimated amount of
exposure ranges from $0 to $25 million. In these instances, no accrual has
been recorded.

(f)  General Guarantees and Indemnifications

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

7. Income Taxes

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

|                                   |                     |   |                         |     |      |   |         |         |   |   |         |         |  
|---------------------------------- | ------------------- | - | ----------------------- | --- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                   |                     |   | Year Ended December 31,
|                                   |                     |   |                        
|                                   |                     |   | 2003                    |     | 2002 |   | 2001   
|                                   |                     |   |                         |     |      |   |        
|                                   |                     |   | (in thousands)         
|Federal                            |                     | $ | 114                     |     |      | $ | (35,071 | )       |   | $ | (33,991 | )      
|State                              |                     |   |                        |     |      |   |        |         |   |   |        |        
|                                   |                     |   |                         |     |      |   |         |         |   |   |         |        
|                                   | Total current taxes |   |                         | 114 |      |   |         | (35,071 | ) |   |         | (33,991 | )
|Deferred taxes                     |                     |   |                        |     |      |   |        |         |   |   | (40,545 | )      
|                                   |                     |   |                         |     |      |   |         |         |   |   |         |        
|Total income tax expense (benefit) |                     | $ | 114                     |     |      | $ | (35,071 | )       |   | $ | (74,536 | )      
|                                   |                     |   |                         |     |      |   |         |         |   |   |         |        

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

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

61



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |         |  
|------------------------------------------------------------------------------- | ----- | - | ----------------------- | --- | ---- | - | ------- | ------- | - | - | -------- | ------- | -
|                                                                                |       |   | Year Ended December 31,
|                                                                                |       |   |                        
|                                                                                |       |   | 2003                    |     | 2002 |   | 2001   
|                                                                                |       |   |                         |     |      |   |        
|                                                                                |       |   | (in thousands)         
|Income tax expense (benefit) at the federal
statutory income tax rate           |       | $ | 20,137                  |     |      | $ | (75,165 | )       |   | $ | (113,535 | )      
|State income tax expense (benefit), net of
federal income tax expense (benefit) |       |   | 2,383                   |     |      |   | (8,024  | )       |   |   | (8,925   | )      
|Nondeductible write-off of ERV in connection
with asset impairment charges      |       |   |                        |     |      |   |        |         |   |   | 22,421   |        
|Nondeductible amortization of ERV                                               |       |   |                        |     |      |   |        |         |   |   | 7,523    |        
|State rate change                                                               |       |   | (3,229                  | )   |      |   |        |         |   |   |         |        
|Change in valuation allowance                                                   |       |   | (17,334                 | )   |      |   | 38,137  |         |   |   | 13,522   |        
|Expired tax credits                                                             |       |   |                        |     |      |   | 7,987   |         |   |   | 409      |        
|Other, net                                                                      |       |   | (1,843                  | )   |      |   | 1,994   |         |   |   | 4,049    |        
|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |        
|                                                                                | Total |   | $                       | 114 |      |   | $       | (35,071 | ) |   | $        | (74,536 | )
|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |        

As of December 31, 2003, the Company has available net operating loss
carryforwards (NOLs) and tax credit carryforwards for federal income tax
purposes of approximately $303.6 million and $1.2 million, respectively. The
NOLs expire during the years 2007 through 2017 while approximately $0.3 million
of the tax credit carryforwards expire during the years 2004 through 2006.
However, such carryforwards are not available to offset federal (and in certain
circumstances, state) alternative minimum taxable income. Further, as a result
of a statutory ownership change (as defined for purposes of Section 382 of
the Internal Revenue Code) that occurred as a result of the Companys
reorganization in 1994, the Companys ability to utilize its 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 the Companys deferred tax assets and liabilities are
a result of the temporary differences related to the items described as
follows:

|                                |                                                                                |                     |                           |                                    |         |                |          |          |         |         |          |  
|------------------------------- | ------------------------------------------------------------------------------ | ------------------- | ------------------------- | ---------------------------------- | ------- | -------------- | -------- | -------- | ------- | ------- | -------- | -
|                                |                                                                                |                     |                           |                                    |         | 2003           |          | 2002    
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     |                           |                                    |         | (in thousands)
|Deferred income tax liabilities |                                                                                |                     |                           |                                    |         |                |          |         
|                                | Property and equipment, principally depreciation and
fresh start differences |                     | $                         | (104,988                           | )       |                | $        | (112,213 | )      
|                                |                                                                                |                     |                           |                                    |         |                |          |          |        
|                                |                                                                                |                     |                           | Total deferred tax liability       |         |                | (104,988 | )        |         |         | (112,213 | )
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|Deferred tax assets             |                                                                                |                     |                           |                                    |         |                |          |         
|                                | Aircraft leases                                                                |                     |                           | 18,711                             |         |                |          | 18,634   |        
|                                | Frequent flyer accrual                                                         |                     |                           | 5,958                              |         |                |          | 6,240    |        
|                                | Vacation pay accrual                                                           |                     |                           | 12,242                             |         |                |          |         |        
|                                | Net operating loss carryforwards                                               |                     |                           | 126,882                            |         |                |          | 160,248  |        
|                                | Tax credit carryforwards                                                       |                     |                           | 1,163                              |         |                |          | 1,874    |        
|                                | Other                                                                          |                     |                           | 1,486                              |         |                |          | 4,004    |        
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     | Total deferred tax assets |                                    |         | 166,442        |          |          |         | 191,000 |         
|                                |                                                                                | Valuation allowance |                           |                                    | (61,454 | )              |          |          | (78,787 | )      
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     | 104,988                   |                                    |         |                | 112,213  |         
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     |                           | Net deferred tax asset (liability) |         | $              |         |          |         | $       |         |  
|                                |                                                                                |                     |                           |                                    |         |                |          |          |        

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

62



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

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.

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 three fiscal years. Holdings stock repurchase program
expired on December 31, 2002. Under the terms of the government guaranteed
loan, Holdings is prohibited from repurchasing any additional shares of its
stock prior to repayment of the loan in full.

Warrants

As compensation for various elements of the Companys financial
restructuring completed in January 2002, Holdings issued a warrant to purchase
18.8 million shares of its Class B common stock to the federal government and
additional warrants to purchase 3.8 million shares of its Class B common stock
to other loan participants, in each case at an exercise price of $3 per share
and a term of ten years. For accounting purposes, the warrants were valued at
$35.4 million, or $1.57 per share, using the Black-Scholes pricing model with
the following assumptions: expected dividend yield of 0.0%, risk-free interest
rate of 4.8%, volatility of 44.9% and an expected life of ten years. 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 third
quarter of 2003, approximately 2.6 million warrants were exercised at $3 per
share. The warrant exercises were cashless transactions resulting in the
issuance of approximately 1.6 million shares of Holdings Class B common stock.

63



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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), subject to stockholder
approval. 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, 2003, approximately 4.4 million shares are available for grant
under the 2002 Incentive Plan.

Stock option activity during the years indicated is as follows:

|                              |           |        |           |                |         |   |          |       | 
|----------------------------- | --------- | ------ | --------- | -------------- | ------- | - | -------- | ----- | 
|                              |           |        |           |                |         |   | Weighted
|                              |           |        | Number of |                | Average
|1994 Plan                     |           | Shares |           | Exercise Price
|                              |           |        |           |               
|Balance at December 31, 2000: |           |        | 5,902,471 |                |         | $ | 15.90    |      
|                              | Granted   |        |           | 257,000        |         |   | $        | 11.30 | 
|                              | Exercised |        |           | (93,334        | )       |   | $        | 10.17 | 
|                              | Canceled  |        |           | (777,251       | )       |   | $        | 16.16 | 
|                              |           |        |           |                |         |   |          |      
|Balance at December 31, 2001: |           |        | 5,288,886 |                |         | $ | 15.74    |      
|                              | Granted   |        |           | 986,987        |         |   | $        | 3.79  | 
|                              | Exercised |        |           |               |         |   |          |      | 
|                              | Canceled  |        |           | (362,267       | )       |   | $        | 11.38 | 
|                              |           |        |           |                |         |   |          |      
|Balance at December 31, 2002: |           |        | 5,913,606 |                |         | $ | 14.01    |      
|                              | Granted   |        |           |               |         |   |          |      | 
|                              | Exercised |        |           | (235,737       | )       |   | $        | 6.09  | 
|                              | Canceled  |        |           | (1,088,089     | )       |   | $        | 15.33 | 
|                              |           |        |           |                |         |   |          |      
|Balance at December 31, 2003: |           |        | 4,589,780 |                |         | $ | 14.10    |      
|                              |           |        |           |                |         |   |          |      

|                              |           |        |           |                |         |   |          |      | 
|----------------------------- | --------- | ------ | --------- | -------------- | ------- | - | -------- | ---- | 
|                              |           |        |           |                |         |   | Weighted
|                              |           |        | Number of |                | Average
|2002 Plan                     |           | Shares |           | Exercise Price
|                              |           |        |           |               
|Balance at December 31, 2001: |           |        |          |                |         | $ |         |     
|                              | Granted   |        |           | 2,092,963      |         |   | $        | 5.01 | 
|                              | Exercised |        |           |               |         |   |          |     | 
|                              | Canceled  |        |           | (71,000        | )       |   | $        | 5.36 | 
|                              |           |        |           |                |         |   |          |     
|Balance at December 31, 2002: |           |        | 2,021,963 |                |         | $ | 5.00     |     
|                              | Granted   |        |           | 1,780,600      |         |   | $        | 3.68 | 
|                              | Exercised |        |           | (215,788       | )       |   | $        | 4.78 | 
|                              | Canceled  |        |           | (182,661       | )       |   | $        | 4.77 | 
|                              |           |        |           |                |         |   |          |     
|Balance at December 31, 2003: |           |        | 3,404,114 |                |         | $ | 4.34     |     
|                              |           |        |           |                |         |   |          |     

64



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

At December 31, 2003, options outstanding and exercisable by price range
are as follows:

|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 
|---------------- |  | ----------- | --------- | ---------------- |  | -------------- | ---- | ----------- |  | -------- | ----- | ------- |  |  | --------- | -------- |  | - | ----- | 
|                 |  |             |           |                  |  | Weighted       |      |             |  |          |       |         |  |  |           | Weighted
|                 |  |             |           |                  |  | Average        |      | Weighted    |  | Options  |       | Average
|Range of         |  | Options     |           | Remaining        |  | Average        |      | Currently   |  | Exercise
|Exercise Prices  |  | Outstanding |           | Contractual Life |  | Exercise Price |      | Exercisable |  | Price   
|                 |  |             |           |                  |  |                |      |             |  |         
|$1.93 to $3.66   |  |             | 1,721,228 |                  |  |                | 9.13 |             |  | $        | 2.66  |         |  |  | 146,406   |          |  | $ | 2.83  | 
|$3.77 to $5.55   |  |             | 2,107,145 |                  |  |                | 7.94 |             |  | $        | 5.00  |         |  |  | 724,339   |          |  | $ | 4.95  | 
|$8.00 to $12.00  |  |             | 1,739,096 |                  |  |                | 4.95 |             |  | $        | 10.42 |         |  |  | 1,672,434 |          |  | $ | 10.42 | 
|$12.88 to $20.50 |  |             | 1,763,425 |                  |  |                | 5.01 |             |  | $        | 17.26 |         |  |  | 1,753,425 |          |  | $ | 17.27 | 
|$20.63 to $29.19 |  |             | 663,000   |                  |  |                | 3.78 |             |  | $        | 23.88 |         |  |  | 663,000   |          |  | $ | 23.88 | 
|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 
|                 |  |             | 7,993,894 |                  |  |                | 6.55 |             |  | $        | 9.94  |         |  |  | 4,959,604 |          |  | $ | 13.62 | 
|                 |  |             |           |                  |  |                |      |             |  |          |       |         |  |  |           |          |  |   |       | 

There were 4,669,601 and 4,027,196 stock options exercisable as of
December 31, 2002 and December 31, 2001, respectively. The per share
weighted-average fair value of stock options granted during 2003, 2002 and 2001
was $2.03, $2.87 and $3.92, respectively, on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 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; 2001 - expected dividend yield of 0.0%,
risk-free interest rate of 4.8%, volatility of 44.9% and an expected life of
four years.

There were no restricted stock grants in the last three fiscal years. The
Company recognized compensation expense of $1.1 million, $0.7 million and $0.8
million related to restricted stock grants under the 1994 Incentive Plan in
2003, 2002 and 2001, respectively. At December 31, 2003, 127,342 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 463,000 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, 2003, 336,000 options were outstanding and exercisable at prices ranging
from $1.93 to $29.19 per share. On December 31, 2001, non-employee directors
were also granted Class B common stock pursuant to the 1994 Plan totaling 9,750
shares. There were no grants of Class B common stock to non-employee directors
in 2003 or 2002.

10. Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes unrealized gains and losses on
available-for-sale securities and changes in the fair value of derivative
financial instruments that qualify for hedge accounting. For the year ended
December 31, 2003, the Company recorded total comprehensive income of $67.9
million compared to a total comprehensive loss of $387.3 million and $247.4
million for the years ended December 31, 2002 and 2001, respectively. The
difference between net income (loss) and comprehensive income (loss) for the
years ended December 31, 2003, 2002 and 2001 is detailed in the following
table:

|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |        |  
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | ------ | ---- | - | -------- | ----- | - | - | -------- | ------ | -
|                            |                                                                                                                                                             |   | Year Ended December 31,
|                            |                                                                                                                                                             |   |                        
|                            |                                                                                                                                                             |   | 2003                    |        | 2002 |   | 2001    
|                            |                                                                                                                                                             |   |                         |        |      |   |         
|                            |                                                                                                                                                             |   | (in thousands)         
|Net income (loss)           |                                                                                                                                                             | $ | 57,420                  |        |      | $ | (387,909 | )     |   | $ | (249,851 | )     
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       
|                            | Unrealized gains (losses) on derivative instruments, net of
deferred taxes of $1,190 in 2001                                                                |   |                         | 20,206 |      |   |          | 1,178 |   |   |          | (3,146 | )
|                            | Reclassification adjustment to net income (loss) of previously
reported
unrealized losses (gains) on derivative instruments, net of taxes
of $1,715 in 2001 |   |                         | (9,709 | )    |   |          | (538  | ) |   |          | 4,536  |  
|                            | Unrealized losses on marketable equity securities, net of
deferred taxes of $121 in 2001                                                                    |   |                         |       |      |   |          |      |   |   |          | (199   | )
|                            | Realized losses on marketable equity securities, net of taxes
of $795 in 2001                                                                               |   |                         |       |      |   |          |      |   |   |          | 1,307  |  
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       
|                            | Total other comprehensive income                                                                                                                            |   |                         | 10,497 |      |   |          | 640   |   |   |          | 2,498  |  
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       
|Comprehensive income (loss) |                                                                                                                                                             | $ | 67,917                  |        |      | $ | (387,269 | )     |   | $ | (247,353 | )     
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       

65



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

11. Employee Benefit Plan

The Company has a 401(k) defined contribution plan, covering essentially
all employees of the Company. Participants may contribute from 1 to 15% of
their pretax earnings to a maximum of $12,000 in 2003. The Companys matching
contribution is determined annually by the Board of Directors. The Companys
contribution expense to the plan totaled $8.7 million, $8.7 million and $8.1
million in 2003, 2002 and 2001, respectively.

12. Special Charges

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.

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:

66



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Of 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.

In April 2001, Holdings implemented a cost reduction plan to respond to a
softening economy. The plan included a slowing of the Airlines growth through
the return of seven older 737-300 leased aircraft to the lessors in the second
half of 2001 and January 2002 and significant reductions in overhead due in
part to select reductions-in-force of management, administrative and clerical
personnel, reducing headcount by 140. The Company recorded a charge of $35.7
million in the second quarter of 2001 related to the earlier-than-planned
aircraft returns and reductions-in-force.

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

The following table presents the payments and other settlements made
during 2001, 2002 and 2003 and the remaining special charge accruals as of
December 31, 2003.

|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  
|--------------------------------------------------------------- |  | -------------- | ------ | ------------- |  | ------------ | -------- | ----------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | -------- | ------ | - |  | - | -------- | -
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  | Contract |        |   |  |  
|                                                                |  | Sale-          |        | Fleet         |  | Professional |          | Reductions- |  | Termination/ |        |       |  |  
|                                                                |  | Leaseback      |        | Restructuring |  | Fees         |          | in-force    |  | Other Costs  |        | Total
|                                                                |  |                |        |               |  |              |          |             |  |              |        |      
|                                                                |  | (in thousands)
|Balance at December 31, 2000                                    |  | $              |       |               |  | $            |         |             |  | $            |       |       |  | $ |       |   |  |          |        |   |  | $ |         |  
|Special charges                                                 |  |                |       |               |  |              | 140,516  |             |  |              |       |       |  |   | 1,149  |   |  |          |        |   |  |   | 141,665  |  
|Payments                                                        |  |                |       |               |  |              | (8,440   | )           |  |              |       |       |  |   | (1,066 | ) |  |          |        |   |  |   | (9,506   | )
|Impairment loss                                                 |  |                |       |               |  |              | (115,290 | )           |  |              |       |       |  |   |       |   |  |          |        |   |  |   | (115,290 | )
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  
|Balance at December 31, 2001                                    |  | $              |       |               |  | $            | 16,786   |             |  | $            |       |       |  | $ | 83     |   |  | $        |       |   |  | $ | 16,869   |  
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  
|Special charges                                                 |  |                | 6,328  |               |  |              | 10,582   |             |  |              | 1,489  |       |  |   | 631    |   |  |          |       |   |  |   | 19,030   |  
|Reclassification of aircraft rent
due to restructuring          |  |                |       |               |  |              | 4,696    |             |  |              |       |       |  |   |       |   |  |          |       |   |  |   | 4,696    |  
|Payments                                                        |  |                |       |               |  |              | (14,516  | )           |  |              | (1,489 | )     |  |   | (714   | ) |  |          |       |   |  |   | (16,719  | )
|Issuance of convertible notes                                   |  |                |       |               |  |              | (5,000   | )           |  |              |       |       |  |   |       |   |  |          |       |   |  |   | (5,000   | )
|Forfeiture of security deposits                                 |  |                |       |               |  |              | (2,289   | )           |  |              |       |       |  |   |       |   |  |          |       |   |  |   | (2,289   | )
|Loss on sale-leasebacks                                         |  |                | (3,852 | )             |  |              |         |             |  |              |       |       |  |   |       |   |  |          |       |   |  |   | (3,852   | )
|Reclassification of capitalized
maintenance
for parked aircraft |  |                |       |               |  |              | (902     | )           |  |              |       |       |  |   |       |   |  |          |       |   |  |   | (902     | )
|Revision of estimate                                            |  |                |       |               |  |              | (6,000   | )           |  |              |       |       |  |   |       |   |  |          |       |   |  |   | (6,000   | )
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  
|Balance at December 31, 2002                                    |  |                | 2,476  |               |  |              | 3,357    |             |  |              |       |       |  |   |       |   |  |          |       |   |  |   | 5,833    |  
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  
|Special charges                                                 |  |                | (510   | )             |  |              | 1,545    |             |  |              |       |       |  |   | 2,701  |   |  |          | 10,634 |   |  |   | 14,370   |  
|Payments                                                        |  |                |       |               |  |              | (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  |   |  | $ | 5,000    |  
|                                                                |  |                |        |               |  |              |          |             |  |              |        |       |  |   |        |   |  |          |        |   |  |   |          |  

67



---



##### 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.

13. Nonoperating Income (Expenses) - Other, Net

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 2, 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.

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

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

68



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

14. Earnings (Loss) Per Share

|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |        | 
|--------------------------------------------------------------------------- | ------------------------------------------------------ | - | ----------------------------------------------- | ------ | ---- | - | -------- | ------ |  | - | -------- | ------ | 
|                                                                            |                                                        |   | Year Ended December 31,                        
|                                                                            |                                                        |   |                                                
|                                                                            |                                                        |   | 2003                                            |        | 2002 |   | 2001    
|                                                                            |                                                        |   |                                                 |        |      |   |         
|                                                                            |                                                        |   | (in thousands of dollars except per share data)
|BASIC EARNINGS (LOSS) PER SHARE                                             |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Income (loss) before cumulative effect of change in accounting principle    |                                                        | $ | 57,420                                          |        |      | $ | (179,686 | )      |  | $ | (249,851 | )     
|Cumulative effect of change in accounting principle                         |                                                        |   |                                                |        |      |   | (208,223 | )      |  |   |         |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Net income (loss)                                                           |                                                        | $ | 57,420                                          |        |      | $ | (387,909 | )      |  | $ | (249,851 | )     
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Weighted average common shares outstanding                                  |                                                        |   | 34,551                                          |        |      |   | 33,723   |        |  |   | 33,670   |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Basic earnings (loss) per share:                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Earnings (loss) before cumulative effect of change in accounting principle  |                                                        | $ | 1.66                                            |        |      | $ | (5.33    | )      |  | $ | (7.42    | )     
|Cumulative effect of change in accounting principle                         |                                                        |   |                                                |        |      |   | (6.17    | )      |  |   |         |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Net earnings (loss)                                                         |                                                        | $ | 1.66                                            |        |      | $ | (11.50   | )      |  | $ | (7.42    | )     
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|DILUTED EARNINGS (LOSS) PER SHARE                                           |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Income (loss) before cumulative effect of change in accounting principle    |                                                        | $ | 57,420                                          |        |      | $ | (179,686 | )      |  | $ | (249,851 | )     
|Cumulative effect of change in accounting principle                         |                                                        |   |                                                |        |      |   | (208,223 | )      |  |   |         |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Net income (loss)                                                           |                                                        |   | 57,420                                          |        |      |   | (387,909 | )      |  |   | (249,851 | )     
|Interest expense on 7.5% convertible senior notes                           |                                                        |   | 10,664                                          |        |      |   |         |        |  |   |         |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Income (loss) for purposes of computing diluted net income (loss) per share |                                                        | $ | 68,084                                          |        |      | $ | (387,909 | )      |  | $ | (249,851 | )     
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Share computation:                                                          |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|                                                                            | Weighted average common shares outstanding             |   |                                                 | 34,551 |      |   |          | 33,723 |  |   |          | 33,670 | 
|                                                                            | Assumed exercise of stock options and warrants         |   |                                                 | 9,966  |      |   |          |       |  |   |          |       | 
|                                                                            | Assumed conversion of 7.5% convertible senior notes    |   |                                                 | 8,158  |      |   |          |       |  |   |          |       | 
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|                                                                            | Weighted average common shares outstanding as adjusted |   |                                                 | 52,675 |      |   |          | 33,723 |  |   |          | 33,670 | 
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Diluted earnings (loss) per share:                                          |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Earnings
(loss) before cumulative effect of change in accounting principle  |                                                        | $ | 1.29                                            |        |      | $ | (5.33    | )      |  | $ | (7.42    | )     
|Cumulative effect of change in accounting principle                         |                                                        |   |                                                |        |      |   | (6.17    | )      |  |   |         |       
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       
|Net earnings (loss)                                                         |                                                        | $ | 1.29                                            |        |      | $ | (11.50   | )      |  | $ | (7.42    | )     
|                                                                            |                                                        |   |                                                 |        |      |   |          |        |  |   |          |       

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 addition, 8,095,842 shares
issuable upon conversion of the 7.25% senior exchangeable notes due 2023 are
not included in the computation of diluted EPS because the conditions for
conversion have not been met.

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.

For the year ended December 31, 2001, 68,677 stock options are not
included in the computation of diluted EPS because of the antidilutive effect
on EPS. In addition, 5,062,194 stock options are not included in the
computation of diluted EPS because the option exercise prices were greater than
the average market price of common stock for the period.

69



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

15. 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,
|                       |                                                                                 |                                              |   |                        
|                       |                                                                                 |                                              |   | 2003                    |        | 2002 |   | 2001   
|                       |                                                                                 |                                              |   |                         |        |      |   |        
|                       |                                                                                 |                                              |   | (in thousands)         
|Non-cash transactions: |                                                                                 |                                              |   |                         |        |      |   |         |         |   |   |        
|                       | Reclassification of investments in debt securities to short-term                |                                              | $ | 29,058                  |        |      | $ |        |         |   | $ |        |       
|                       | Issuance of convertible notes                                                   |                                              |   |                        |        |      |   | 67,902  |         |   |   |        |       
|                       | Cancellation of convertible notes                                               |                                              |   | (660                    | )      |      |   | (8,279  | )       |   |   |        |       
|                       | Cancellation of 10.75% senior unsecured notes related to sale
of NLG investment |                                              |   | (10,370                 | )      |      |   |        |         |   |   |        |       
|                       | Issuance of warrants                                                            |                                              |   |                        |        |      |   | 35,383  |         |   |   |        |       
|                       | Exercise of warrants                                                            |                                              |   | (17                     | )      |      |   |        |         |   |   |        |       
|                       | Equipment acquired through capital leases                                       |                                              |   |                        |        |      |   | 17,753  |         |   |   |        |       
|                       | Equipment acquired with issuance of notes payable                               |                                              |   |                        |        |      |   | 64,163  |         |   |   |        |       
|                       | Notes payable issued for equipment purchase deposits                            |                                              |   | 5,250                   |        |      |   | 10,500  |         |   |   | 10,500  |       
|                       | Notes payable canceled under the aircraft
purchase agreement                    |                                              |   | (7,000                  | )      |      |   | (10,500 | )       |   |   | (38,500 | )     
|                       |                                                                                 | Payment in kind notes issued, net of returns |   |                         | 8,972  |      |   |         | 7,756   |   |   |         |       |  
|Cash transactions:     |                                                                                 |                                              |   |                         |        |      |   |         |         |   |   |        
|                       |                                                                                 | Interest paid, net of amounts capitalized    |   |                         | 17,201 |      |   |         | 25,942  |   |   |         | 24,242 |  
|                       |                                                                                 | Income taxes paid (refunded)                 |   |                         | (3,605 | )    |   |         | (63,353 | ) |   |         | (8,588 | )

16. Related Party Transactions

As part of AWAs reorganization in 1994, Continental Airlines and AWA
entered into an alliance agreement which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks - The stockholders who effectively control the voting
power of Holdings could take actions that would favor their own personal
interests to the detriment of our interests.AWA paid Continental
approximately $17.3 million, $25.5 million and $30.1 million and also received
approximately $5.0 million, $15.9 million and $22.0 million in 2003, 2002 and
2001, respectively, from Continental pursuant to these agreements.

70



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

17. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2003 and 2002 follows (in
thousands of dollars except per share amounts):

|                                    |         |   |             |       |             |   |             |      |             |   |         |      |  |   |         |      | 
|----------------------------------- | ------- | - | ----------- | ----- | ----------- | - | ----------- | ---- | ----------- | - | ------- | ---- |  | - | ------- | ---- | 
|                                    |         |   | 1st Quarter |       | 2nd Quarter |   | 3rd Quarter |      | 4th Quarter
|                                    |         |   |             |       |             |   |             |      |            
|2003                                |         |   |             |       |             |   |             |      |             |   |         |      |  |   |         |     
|Operating revenues                  |         | $ | 523,233     |       |             | $ | 575,771     |      |             | $ | 592,302 |      |  | $ | 563,191 |     
|Operating income (loss)             |         |   | (46,140     | )     |             |   | 16,305      |      |             |   | 50,135  |      |  |   | 12,581  |     
|Nonoperating income (expenses), net |         |   | (15,878     | )     |             |   | 63,379      |      |             |   | (17,193 | )    |  |   | (5,655  | )   
|Income taxes                        |         |   |            |       |             |   |            |      |             |   |        |      |  |   | 114     |     
|Net income (loss)                   |         |   | (62,018     | )(1)  |             |   | 79,684      | (2)  |             |   | 32,942  |      |  |   | 6,812   | (3) 
|Net income (loss) per share:        |         |   |             |       |             |   |             |      |             |   |         |      |  |   |         |     
|                                    | Basic   |   |             | (1.84 | )           |   |             | 2.36 |             |   |         | 0.94 |  |   |         | 0.19 | 
|                                    | Diluted |   |             | (1.84 | )           |   |             | 2.02 |             |   |         | 0.60 |  |   |         | 0.13 | 

|                                                                           |         |   |             |       |             |   |             |       |             |   |         |       |   |   |         |       |  
|-------------------------------------------------------------------------- | ------- | - | ----------- | ----- | ----------- | - | ----------- | ----- | ----------- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                           |         |   | 1st Quarter |       | 2nd Quarter |   | 3rd Quarter |       | 4th Quarter
|                                                                           |         |   |             |       |             |   |             |       |            
|2002                                                                       |         |   |             |       |             |   |             |       |             |   |         |       |   |   |         |      
|Operating revenues                                                         |         | $ | 460,291     |       |             | $ | 544,146     |       |             | $ | 520,351 |       |   | $ | 522,328 |      
|Operating income (loss)                                                    |         |   | (83,466     | )     |             |   | 1,421       |       |             |   | (40,167 | )     |   |   | (37,868 | )    
|Nonoperating expenses, net                                                 |         |   | (16,842     | )     |             |   | (14,276     | )     |             |   | (9,415  | )     |   |   | (14,144 | )    
|Income tax benefit                                                         |         |   | 35,071      |       |             |   |            |       |             |   |        |       |   |   |        |      
|Loss before cumulative effect of change
in accounting principle            |         |   | (65,237     | )(4)  |             |   | (12,855     | )(5)  |             |   | (49,582 | )(6)  |   |   | (52,012 | )(7) 
|Net loss                                                                   |         |   | (273,460    | )     |             |   | (12,855     | )     |             |   | (49,582 | )     |   |   | (52,012 | )    
|Loss per share before cumulative effect
of change in accounting principle: |         |   |             |       |             |   |             |       |             |   |         |       |   |   |         |      
|                                                                           | Basic   |   |             | (1.93 | )           |   |             | (0.38 | )           |   |         | (1.47 | ) |   |         | (1.54 | )
|                                                                           | Diluted |   |             | (1.93 | )           |   |             | (0.38 | )           |   |         | (1.47 | ) |   |         | (1.54 | )
|Net loss per share:                                                        |         |   |             |       |             |   |             |       |             |   |         |       |   |   |         |      
|                                                                           | Basic   |   |             | (8.10 | )           |   |             | (0.38 | )           |   |         | (1.47 | ) |   |         | (1.54 | )
|                                                                           | Diluted |   |             | (8.10 | )           |   |             | (0.38 | )           |   |         | (1.47 | ) |   |         | (1.54 | )

71



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



| | (1) |  | Includes a $4.4 million gain related to the purchase
and subsequent exchange of an A320 airframe, a $1.1 million
gain due to a revision of the estimated costs related to the
early termination of certain aircraft leases and a $1.0
million charge resulting from the elimination of AWAs hub
operations in Columbus, Ohio.                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Includes a gain of $81.3 million related to the
reimbursement of security fees received from the federal
government under the Emergency Wartime Supplemental
Appropriations Act, $9.6 million of charges resulting from
the elimination of AWAs hub operations in Columbus, Ohio, a
$2.3 million charge related to the reduction-in-force of
certain management, professional and administrative employees
and a $2.6 million charge related to the impairment of
certain owned Boeing 737-200 aircraft that have been
grounded.
|
| | (3) |  | Includes $19.7 million of charges related to the
execution of a new labor agreement between AWA and ALPA, a
$9.8 million gain on sale of an investment in Hotwire.com, a
$3.3 million gain on sale of an investment in National
Leisure Group and a $2.8 million gain related to the
settlement of disputed billings under the Companys frequent
flyer program.                                                                                                                                                                 
|
| | (4) |  | Includes a $21.1 million charge primarily related to
the restructuring completed on January 18, 2002, resulting
from the events of September 11, 2001, and a charge of $2.8
million related to the write down to net realizable value of
an investment in an e-commerce entity that was carried at
cost.                                                                                                                                                                                                                         
|
| | (5) |  | Includes a $2.3 million gain related to additional
federal grant proceeds received under the Air Transportation
Safety and System Stabilization Act to offset losses
resulting from the September 11, 2001 terrorist attacks.                                                                                                                                                                                                                                                                                                    
|
| | (6) |  | Includes a $6.2 million gain related to additional
federal grant proceeds received under the Air Transportation
Safety and System Stabilization Act and 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.                                                                                                                                                                                                                        
|
| | (7) |  | Includes a $4.9 million credit related to a change in
the Companys vacation policy for certain administrative
employees.                                                                                                                                                                                                                                                                                                                                                                                                        

Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share in 2003 and
2002 does not equal the total computed for the year.

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 statements of operations.

19. Subsequent Event

Merger of America West Vacations Subsidiary into AWA

As of January 1, 2004, the Company has merged TLC into AWA. As a result
of the merger, TLC, which is one of the nations largest tour operators, ceased
to exist as a separate legal entity and instead became a division of AWA. This
merger was intended to save costs and streamline operations for the Company and
did not change any operating procedures.

72



---



##### Table of Contents






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

Balance sheets of AWA as of December 31, 2003 and 2002, and the related
statements of operations, cash flows and stockholders equity and comprehensive
income (loss) for each of the years in the three-year period ended December 31,
2003, together with the related notes and the reports of KPMG LLP, independent
auditors, and PricewaterhouseCoopers LLP, independent accountants, are set
forth on the following pages.

73



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

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

We have audited the accompanying balance sheet of America West Airlines, Inc.
as of December 31, 2003, and the related statements of operations, cash flows
and stockholders equity and comprehensive income (loss) for the year then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America West Airlines, Inc. as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally
accepted in the United States of America.

KPMG LLP
Phoenix, Arizona
January 21, 2004

74



---



##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

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

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

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

PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

75



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
Balance Sheets
December 31, 2003 and 2002
(in thousands except share data)

|                                           |                                                                                                            |                           |                            |          |         |         |           |          |         |         | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | -------- | ------- | ------- | --------- | -------- | ------- | ------- | 
|                                           |                                                                                                            |                           |                            |          | 2003    |         | 2002     
|                                           |                                                                                                            |                           |                            |          |         |         |          
|Assets                                     |                                                                                                            |                           |                            |          |         |         |           |         
|Current assets:                            |                                                                                                            |                           |                            |          |         |         |           |         
|                                           | Cash and cash equivalents                                                                                  |                           | $                          | 393,835  |         |         | $         | 326,612  |        
|                                           | Short-term investments                                                                                     |                           |                            | 72,890   |         |         |           | 24,738   |        
|                                           | Restricted cash                                                                                            |                           |                            | 42,900   |         |         |           |         |        
|                                           | Accounts receivable, less allowance for doubtful accounts of
$4,632 in 2003 and $5,354 in 2002             |                           |                            | 72,248   |         |         |           | 72,667   |        
|                                           | Expendable spare parts and supplies, less allowance for obsolescence
of $12,254 in 2003 and $9,261 in 2002 |                           |                            | 58,575   |         |         |           | 55,894   |        
|                                           | Prepaid expenses                                                                                           |                           |                            | 128,238  |         |         |           | 106,069  |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            | Total current assets      |                            |          | 768,686 |         |           |          | 585,980 |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|Property and equipment:                    |                                                                                                            |                           |                            |          |         |         |           |         
|                                           | Flight equipment                                                                                           |                           |                            | 858,395  |         |         |           | 880,446  |        
|                                           | Other property and equipment                                                                               |                           |                            | 263,907  |         |         |           | 266,060  |        
|                                           | Equipment purchase deposits                                                                                |                           |                            | 46,050   |         |         |           | 46,050   |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            |                           | 1,168,352                  |          |         |         | 1,192,556 |         
|                                           | Less accumulated depreciation and amortization                                                             |                           |                            | 563,213  |         |         |           | 544,821  |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            |                           | 605,139                    |          |         |         | 647,735   |         
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|Other assets:                              |                                                                                                            |                           |                            |          |         |         |           |         
|                                           | Investments in debt securities                                                                             |                           |                            | 40,740   |         |         |           |         |        
|                                           | Restricted cash                                                                                            |                           |                            | 69,876   |         |         |           | 45,968   |        
|                                           | Advances to parent company, net (see Note 5)                                                               |                           |                            | 213,078  |         |         |           | 223,695  |        
|                                           | Other assets, net                                                                                          |                           |                            | 138,854  |         |         |           | 141,637  |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            |                           | 462,548                    |          |         |         | 411,300   |         
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            | $                         | 1,836,373                  |          |         | $       | 1,645,015 |         
|                                           |                                                                                                            |                           |                            |          |         |         |           |          |        
|Liabilities and Stockholders Equity       |                                                                                                            |                           |                            |          |         |         |           |         
|                                           | Current liabilities:                                                                                       |                           |                            |          |         |         |           |          |        
|                                           | Current maturities of long-term debt                                                                       |                           | $                          | 103,899  |         |         | $         | 19,116   |        
|                                           | Current obligations under capital leases                                                                   |                           |                            | 3,442    |         |         |           | 3,122    |        
|                                           | Accounts payable                                                                                           |                           |                            | 203,146  |         |         |           | 176,903  |        
|                                           | Payable to affiliate, net                                                                                  |                           |                            | 27,231   |         |         |           | 12,175   |        
|                                           | Air traffic liability                                                                                      |                           |                            | 174,486  |         |         |           | 170,091  |        
|                                           | Accrued compensation and vacation benefits                                                                 |                           |                            | 60,847   |         |         |           | 39,007   |        
|                                           | Accrued taxes                                                                                              |                           |                            | 30,516   |         |         |           | 28,809   |        
|                                           | Other accrued liabilities                                                                                  |                           |                            | 41,060   |         |         |           | 38,450   |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            | Total current liabilities |                            |          | 644,627 |         |           |          | 487,673 |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|Long-term debt, less current maturities    |                                                                                                            |                           | 688,965                    |          |         |         | 700,983   |         
|Capital leases, less current obligations   |                                                                                                            |                           | 8,467                      |          |         |         | 11,999    |         
|Deferred credits and other liabilities     |                                                                                                            |                           | 139,867                    |          |         |         | 145,145   |         
|Commitments 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                                                                                 |                           |                            | 555,115  |         |         |           | 555,132  |        
|                                           | Accumulated deficit                                                                                        |                           |                            | (213,195 | )       |         |           | (257,947 | )      
|                                           | Accumulated other comprehensive income                                                                     |                           |                            | 12,527   |         |         |           | 2,030    |        
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            |                           | Total stockholders equity |          |         | 354,447 |           |          |         | 299,215 | 
|                                           |                                                                                                            |                           |                            |          |         |         |           |         
|                                           |                                                                                                            | $                         | 1,836,373                  |          |         | $       | 1,645,015 |         
|                                           |                                                                                                            |                           |                            |          |         |         |           |          |        

See accompanying notes to financial statements.

76



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |           |        |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------ | --------- | ------ | --------- | -------- | --------- | ------- | --------- | -------- | --------- | ------ | --------- | 
|                                                                                                    |                                                                                            |                                           |                          |           | 2003   |           | 2002     |           | 2001   
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |        
|Operating revenues:                                                                                 |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    | Passenger                                                                                  |                                           | $                        | 2,113,629 |        |           | $        | 1,929,444 |         |           | $        | 1,941,877 |       
|                                                                                                    | Cargo                                                                                      |                                           |                          | 26,914    |        |           |          | 27,574    |         |           |          | 33,824    |       
|                                                                                                    | Other                                                                                      |                                           |                          | 74,817    |        |           |          | 54,272    |         |           |          | 45,262    |       
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    |                                                                                            |                                           | Total operating revenues |           |        | 2,215,360 |          |           |         | 2,011,290 |          |           |        | 2,020,963 | 
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|Operating expenses:                                                                                 |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    | Salaries and related costs                                                                 |                                           |                          | 651,506   |        |           |          | 594,858   |         |           |          | 601,986   |       
|                                                                                                    | Aircraft rents                                                                             |                                           |                          | 297,518   |        |           |          | 295,016   |         |           |          | 355,517   |       
|                                                                                                    | Other rents and landing fees                                                               |                                           |                          | 154,598   |        |           |          | 158,290   |         |           |          | 140,372   |       
|                                                                                                    | Aircraft fuel                                                                              |                                           |                          | 365,250   |        |           |          | 299,940   |         |           |          | 343,224   |       
|                                                                                                    | Agency commissions                                                                         |                                           |                          | 23,676    |        |           |          | 38,896    |         |           |          | 75,085    |       
|                                                                                                    | Aircraft maintenance materials and repairs                                                 |                                           |                          | 223,266   |        |           |          | 252,691   |         |           |          | 257,939   |       
|                                                                                                    | Depreciation and amortization                                                              |                                           |                          | 66,195    |        |           |          | 73,898    |         |           |          | 63,178    |       
|                                                                                                    | Amortization of reorganization value in excess of amounts allocable
to identifiable assets |                                           |                          |          |        |           |          |          |         |           |          | 19,896    |       
|                                                                                                    | Special charges, net                                                                       |                                           |                          | 13,979    |        |           |          | 19,030    |         |           |          | 141,638   |       
|                                                                                                    | Other                                                                                      |                                           |                          | 395,499   |        |           |          | 442,821   |         |           |          | 445,525   |       
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    |                                                                                            |                                           | Total operating expenses |           |        | 2,191,487 |          |           |         | 2,175,440 |          |           |        | 2,444,360 | 
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|Operating income (loss)                                                                             |                                                                                            |                                           | 23,873                   |           |        |           | (164,150 | )         |         |           | (423,397 | )        
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|Nonoperating income (expenses):                                                                     |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    | Interest income                                                                            |                                           |                          | 12,967    |        |           |          | 17,220    |         |           |          | 22,654    |       
|                                                                                                    | Interest expense, net                                                                      |                                           |                          | (86,743   | )      |           |          | (79,475   | )       |           |          | (33,789   | )     
|                                                                                                    | Federal government assistance                                                              |                                           |                          | 81,255    |        |           |          | 8,466     |         |           |          | 108,246   |       
|                                                                                                    | Gain (loss) on disposition of property and equipment                                       |                                           |                          | 151       |        |           |          | (1,835    | )       |           |          | (3,000    | )     
|                                                                                                    | Gain on sale of investments                                                                |                                           |                          | 9,762     |        |           |          |          |         |           |          |          |       
|                                                                                                    | Other, net                                                                                 |                                           |                          | 3,601     |        |           |          | 215       |         |           |          | 3,063     |       
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|                                                                                                    |                                                                                            | Total nonoperating income (expenses), net |                          |           | 20,993 |           |          |           | (55,409 | )         |          |           | 97,174 |          
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|Income (loss) before income taxes (benefit) and cumulative effect of
change in accounting principle |                                                                                            |                                           | 44,866                   |           |        |           | (219,559 | )         |         |           | (326,223 | )        
|Income taxes (benefit)                                                                              |                                                                                            |                                           | 114                      |           |        |           | (30,484  | )         |         |           | (83,108  | )        
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |          
|Income (loss) before cumulative effect of change in accounting principle                            |                                                                                            |                                           | 44,752                   |           |        |           | (189,075 | )         |         |           | (243,115 | )        
|Cumulative effect of change in accounting principle                                                 |                                                                                            |                                           |                         |           |        |           | (187,949 | )         |         |           |         |          
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |           |       
|Net income (loss)                                                                                   |                                                                                            | $                                         | 44,752                   |           |        | $         | (377,024 | )         |         | $         | (243,115 | )        
|                                                                                                    |                                                                                            |                                           |                          |           |        |           |          |           |         |           |          |           |       

See accompanying notes to financial statements.

77



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |          |         |          |  
|------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------- | ------- | -------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | -------- | -
|                                                                                                 |                                                                                                    |                                                      |                                                     |          | 2003    |          | 2002    |          | 2001   
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |        
|Cash flows from operating activities:                                                            |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 | Net income (loss)                                                                                  |                                                      | $                                                   | 44,752   |         |          | $       | (377,024 | )       |         | $       | (243,115 | )      
|                                                                                                 | Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities: |                                                      |                                                     |          |         |          |         |          |         |         |         |          |        
|                                                                                                 |                                                                                                    | Cumulative effect of change in accounting principle  |                                                     |          |        |          |         |          | 187,949 |         |         |          |        |         
|                                                                                                 |                                                                                                    | Depreciation and amortization                        |                                                     |          | 66,195  |          |         |          | 74,591  |         |         |          | 63,178  |         
|                                                                                                 |                                                                                                    | Amortization of capitalized maintenance              |                                                     |          | 105,076 |          |         |          | 111,576 |         |         |          | 116,809 |         
|                                                                                                 |                                                                                                    | Amortization of deferred credits                     |                                                     |          | (10,970 | )        |         |          | (10,077 | )       |         |          | (6,928  | )       
|                                                                                                 |                                                                                                    | Amortization of deferred rent                        |                                                     |          | 9,514   |          |         |          | 11,452  |         |         |          |        |         
|                                                                                                 |                                                                                                    | Amortization of warrants                             |                                                     |          | 8,100   |          |         |          | 7,708   |         |         |          |        |         
|                                                                                                 |                                                                                                    | Amortization of debt issue costs and guarantee fees  |                                                     |          | 35,977  |          |         |          | 24,978  |         |         |          | 1,631   |         
|                                                                                                 |                                                                                                    | Amortization of bond discount                        |                                                     |          | 3,366   |          |         |          | 2,894   |         |         |          |        |         
|                                                                                                 |                                                                                                    | Amortization of investment discount and premium, net |                                                     |          | 899     |          |         |          |        |         |         |          |        |         
|                                                                                                 |                                                                                                    | Amortization of excess reorganization value          |                                                     |          |        |          |         |          |        |         |         |          | 19,896  |         
|                                                                                                 |                                                                                                    | Special charges, net                                 |                                                     |          | 13,979  |          |         |          | 19,030  |         |         |          | 77,577  |         
|                                                                                                 |                                                                                                    | Other                                                |                                                     |          | 1,241   |          |         |          | 15,784  |         |         |          | 3,437   |         
|Changes in operating assets and liabilities:                                                     |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 | Increase in restricted cash                                                                        |                                                      |                                                     | (42,900  | )       |          |         |         |         |         |         |         |        
|                                                                                                 | Decrease in accounts receivable, net                                                               |                                                      |                                                     | 649      |         |          |         | 67,059   |         |         |         | 34,700   |        
|                                                                                                 | Increase in expendable spare parts and supplies, net                                               |                                                      |                                                     | (2,681   | )       |          |         | (4,061   | )       |         |         | (9,990   | )      
|                                                                                                 | Increase in prepaid expenses                                                                       |                                                      |                                                     | (46,493  | )       |          |         | (64,130  | )       |         |         | (6,204   | )      
|                                                                                                 | Decrease (increase) in other assets, net                                                           |                                                      |                                                     | (23,795  | )       |          |         | 1,127    |         |         |         | 43,294   |        
|                                                                                                 | Increase (decrease) in accounts payable                                                            |                                                      |                                                     | 32,259   |         |          |         | (56,393  | )       |         |         | 72,645   |        
|                                                                                                 | Increase (decrease) in air traffic liability                                                       |                                                      |                                                     | 4,395    |         |          |         | (6,894   | )       |         |         | (6,546   | )      
|                                                                                                 | Increase (decrease) in accrued compensation and vacation benefits                                  |                                                      |                                                     | 20,058   |         |          |         | (2,536   | )       |         |         | 5,062    |        
|                                                                                                 | Increase (decrease) in accrued taxes                                                               |                                                      |                                                     | 1,707    |         |          |         | (60,140  | )       |         |         | (8,544   | )      
|                                                                                                 | Increase (decrease) in other accrued liabilities                                                   |                                                      |                                                     | 2,610    |         |          |         | 16,809   |         |         |         | (6,459   | )      
|                                                                                                 | Increase (decrease) in other liabilities                                                           |                                                      |                                                     | 19,294   |         |          |         | 16,022   |         |         |         | (2,512   | )      
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 |                                                                                                    |                                                      | Net cash provided by (used in) operating activities |          |         | 243,232  |         |          |         | (24,276 | )       |          |         | 147,931  |  
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|Cash flows from investing activities:                                                            |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 | Purchases of property and equipment                                                                |                                                      |                                                     | (153,147 | )       |          |         | (156,896 | )       |         |         | (632,746 | )      
|                                                                                                 | Purchases of short-term investments                                                                |                                                      |                                                     | (61,722  | )       |          |         | (69,987  | )       |         |         | (45,863  | )      
|                                                                                                 | Sales of short-term investments                                                                    |                                                      |                                                     | 42,068   |         |          |         | 45,249   |         |         |         | 96,549   |        
|                                                                                                 | Purchases of investments in debt securities                                                        |                                                      |                                                     | (80,436  | )       |          |         |         |         |         |         |         |        
|                                                                                                 | Sales of investments in debt securities                                                            |                                                      |                                                     | 10,300   |         |          |         |         |         |         |         |         |        
|                                                                                                 | Increase (decrease) in restricted cash                                                             |                                                      |                                                     | (23,908  | )       |          |         |         |         |         |         |         |        
|                                                                                                 | Proceeds from sales of aircraft                                                                    |                                                      |                                                     |         |         |          |         | 175,478  |         |         |         | 332,800  |        
|                                                                                                 | Proceeds from sales of other property and equipment                                                |                                                      |                                                     | 25,826   |         |          |         | 121      |         |         |         | 28,900   |        
|                                                                                                 | Equipment purchase deposits and other                                                              |                                                      |                                                     |         |         |          |         |         |         |         |         | 16,100   |        
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |          |        
|                                                                                                 |                                                                                                    |                                                      | Net cash used in investing activities               |          |         | (241,019 | )       |          |         | (6,035  | )       |          |         | (204,260 | )
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|Cash flows from financing activities
Proceeds from issuance of debt                              |                                                                                                    |                                                      | 86,828                                              |          |         |          | 435,386 |          |         |         | 423,422 |         
|                                                                                                 | Repayment of debt                                                                                  |                                                      |                                                     | (16,832  | )       |          |         | (192,596 | )       |         |         | (357,723 | )      
|                                                                                                 | Payment of debt issue costs                                                                        |                                                      |                                                     | (3,236   | )       |          |         | (36,987  | )       |         |         |         |        
|                                                                                                 | Other                                                                                              |                                                      |                                                     | (1,750   | )       |          |         | 2,600    |         |         |         |         |        
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 |                                                                                                    |                                                      | Net cash provided by financing activities           |          |         | 65,010   |         |          |         | 208,403 |         |          |         | 65,699   |  
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|                                                                                                 |                                                                                                    |                                                      | Net increase in cash and cash equivalents           |          |         | 67,223   |         |          |         | 178,092 |         |          |         | 9,370    |  
|Cash and cash equivalents at beginning of year                                                   |                                                                                                    |                                                      | 326,612                                             |          |         |          | 148,520 |          |         |         | 139,150 |         
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |         
|Cash and cash equivalents at end of year                                                         |                                                                                                    | $                                                    | 393,835                                             |          |         | $        | 326,612 |          |         | $       | 148,520 |         
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |          |        
|Cash, cash equivalents, short-term investments and investments in
debt securities at end of year |                                                                                                    | $                                                    | 507,465                                             |          |         | $        | 351,350 |          |         | $       | 148,520 |         
|                                                                                                 |                                                                                                    |                                                      |                                                     |          |         |          |         |          |         |         |         |          |        

See accompanying notes to financial statements.

78



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
Statements of Stockholders Equity and Comprehensive Income (Loss)
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands except share data)

|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |        |       | 
|--------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------- | ---------- | - | --------- | -------- | ------------- | - | ----- | ------ | ----------- | ----- | - | -------- | ------ | ----- | 
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        | ACCUMULATED |       |   |          |       
|                                  |                                                                           |                                                                           |         | ADDITIONAL |   | RETAINED  |          | OTHER         |   |       |        |            
|                                  |                                                                           |                                                                           |         | PAID-IN    |   | EARNINGS/ |          | COMPREHENSIVE |   |       |        |            
|                                  |                                                                           |                                                                           |         | CAPITAL    |   | (DEFICIT) |          | INCOME        |   | TOTAL
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |      
|Balance at December 31, 2000      |                                                                           | $                                                                         | 519,748 |            |   | $         | 362,192  |               |   | $     |       |             |       | $ | 881,940  |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Net
loss                          |                                                                           |                                                                           |        |            |   |           | (243,115 | )             |   |       |       |             |       |   | (243,115 | )     
|Other comprehensive income:       |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|                                  |                                                                           | Changes in the fair value of derivative
financial instruments, net of tax |         |            |  |           |          |               |  |       |        |             | 1,390 |   |          |        | 1,390 | 
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Total
comprehensive income (loss) |                                                                           |                                                                           |        |            |   |           | (243,115 | )             |   |       | 1,390  |             |       |   | (241,725 | )     
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Balance at December 31, 2001      |                                                                           |                                                                           | 519,748 |            |   |           | 119,077  |               |   |       | 1,390  |             |       |   | 640,215  |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Net loss                          |                                                                           |                                                                           |        |            |   |           | (377,024 | )             |   |       |       |             |       |   | (377,024 | )     
|Other comprehensive income:       |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|                                  | Changes in the fair value of derivative
financial instruments, net of tax |                                                                           |         |           |   |           |          |              |   |       |        | 640         |       |   |          | 640    |      
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Total comprehensive income (loss) |                                                                           |                                                                           |        |            |   |           | (377,024 | )             |   |       | 640    |             |       |   | (376,384 | )     
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Non-cash capital contribution     |                                                                           |                                                                           | 35,384  |            |   |           |         |               |   |       |       |             |       |   | 35,384   |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Balance at December 31, 2002      |                                                                           |                                                                           | 555,132 |            |   |           | (257,947 | )             |   |       | 2,030  |             |       |   | 299,215  |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Net income                        |                                                                           |                                                                           |        |            |   |           | 44,752   |               |   |       |       |             |       |   | 44,752   |       
|Other comprehensive income:       |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|                                  | Changes in the fair value of derivative
financial instruments, net of tax |                                                                           |         |           |   |           |          |              |   |       |        | 10,497      |       |   |          | 10,497 |      
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Total comprehensive income        |                                                                           |                                                                           |        |            |   |           | 44,752   |               |   |       | 10,497 |             |       |   | 55,249   |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Exercise of warrants              |                                                                           |                                                                           | (17     | )          |   |           |         |               |   |       |       |             |       |   | (17      | )     
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       
|Balance at December 31, 2003      |                                                                           | $                                                                         | 555,115 |            |   | $         | (213,195 | )             |   | $     | 12,527 |             |       | $ | 354,447  |       
|                                  |                                                                           |                                                                           |         |            |   |           |          |               |   |       |        |             |       |   |          |       

See accompanying notes to financial statements.

79



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001

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 2003. Based on 2003 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 2003, AWA operated a fleet of 139 aircraft with an average fleet age of
10.7 years and served 62 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 52
destinations in North America as of December 31, 2003. In 2003, AWA flew
approximately 20.1 million passengers and generated revenues of approximately
$2.2 billion.

1. Summary of Significant Accounting Policies

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

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

(b)  Expendable Spare Parts and Supplies

Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on
hand at the date the aircraft are retired from service.

(c)  Property and Equipment

Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized for the years ended
December 31, 2003, 2002 and 2001 was $ 1.6 million, $3.0 million and $12.5
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 30
years. Leasehold improvements relating to flight equipment and other property
on operating leases are amortized over the life of the lease or the life of the
asset, whichever is shorter.

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

(d)  Restricted Cash

Restricted cash includes cash deposits securing certain letters of credit
and surety bonds, cash held by institutions that process credit card sales
transactions and cash held in escrow for the first principal payment on the
government guaranteed loan.

(e)  Aircraft Maintenance and Repairs

Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense.

80



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS CONTINUED

In April 2003, AWA revised the estimated useful life for capitalized
maintenance on certain of its engines driven by a new maintenance agreement
that guarantees minimum cycles on engine overhauls. The net impact of this
change in estimate increased net income for 2003 by $12.7 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.

(f)  Derivative Instruments

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

(g)  Frequent Flyer Awards

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

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.

(h)  Deferred Credit-Operating Leases

Rents for operating leases were adjusted to fair market value when AWA
emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a
deferred credit in the accompanying balance sheets. The deferred credit will
be increased through charges to interest expense and decreased on a
straight-line basis as a reduction in rent expense over the applicable lease
periods. At December 31, 2003 and 2002, the unamortized balance of the
deferred credit was $44.6 million and $52.4 million, respectively.

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 balance sheet and will be amortized over the
remaining lives of the applicable leases as a reduction in rent expense. At
December 31, 2003, the unamortized balance of the deferred credit was
approximately $7.8 million.

(i)  Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense. 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.

81



---



##### Table of Contents



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

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

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets.SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS No. 142 does not
permit the amortization of goodwill as required by APB Opinion No. 17,
Intangible Assets.Rather, goodwill is subject to a periodic impairment
test, using a two-step process. The first step is to identify a potential
impairment. The second step of the goodwill impairment test measures the
amount of the impairment loss, using a fair value-based approach. Under SFAS
No. 142, ERV is reported as goodwill and accounted for in the same manner as
goodwill. SFAS No. 142 was effective for fiscal years beginning after December
15, 2001. Upon adoption of this statement on January 1, 2002, AWA recorded an
impairment loss of $187.9 million, which was supported by an independent
valuation of the Company. The impairment loss was recorded as the cumulative
effect of a change in accounting principle. Prior to adoption of SFAS No. 142,
ERV was amortized on a straight line basis over 20 years.

The following table presents reported net income (loss) exclusive of ERV
amortization expense for the years ended December 31, 2003, 2002 and 2001.

|                           |  |                                 |        |      |  |      |          |   |  |   |          |  
|-------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                           |  | For the Year Ended December 31,
|                           |  |                                
|                           |  | 2003                            |        | 2002 |  | 2001
|                           |  |                                 |        |      |  |     
|Reported net income (loss) |  | $                               | 44,752 |      |  | $    | (377,024 | ) |  | $ | (243,115 | )
|ERV
amortization (1)       |  |                                 |       |      |  |      |         |   |  |   | 19,896   |  
|                           |  |                                 |        |      |  |      |          |   |  |   |          |  
|Adjusted net income (loss) |  | $                               | 44,752 |      |  | $    | (377,024 | ) |  | $ | (223,219 | )
|                           |  |                                 |        |      |  |      |          |   |  |   |          |  



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

(k)  Advertising Costs

AWA expenses the costs of advertising as incurred. Advertising expense
for the years ended December 31, 2003, 2002 and 2001 was $5.8 million, $6.5
million and $10.1 million, respectively.

(l)  Income Taxes

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

(m)  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 Stock-Based Compensation,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:

|                                 |  |                |        |      |  |      |          |   |  |   |          |  
|-------------------------------- |  | -------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                 |  | 2003           |        | 2002 |  | 2001
|                                 |  |                |        |      |  |     
|                                 |  | (in thousands)
|Net income (loss), as reported   |  | $              | 44,752 |      |  | $    | (377,024 | ) |  | $ | (243,115 | )
|Stock-based compensation expense |  |                | (4,320 | )    |  |      | (3,709   | ) |  |   | (4,173   | )
|                                 |  |                |        |      |  |      |          |   |  |   |          |  
|Pro forma net income (loss)      |  | $              | 40,432 |      |  | $    | (380,733 | ) |  | $ | (247,288 | )
|                                 |  |                |        |      |  |      |          |   |  |   |          |  

82



---



##### Table of Contents



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

(n)  New Accounting Standards

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities.FIN No. 46 requires that companies that control another
entity through interests other than voting interests should consolidate the
controlled entity. FIN No. 46 is effective for variable interest entities
created after January 31, 2003 and to any variable interest entities in which
the company obtains an interest after that date. FIN No. 46 was originally
effective for the quarter ending September 30, 2003 for variable interest
entities in which the company held a variable interest that it acquired before
February 1, 2003. However, in October 2003, the FASB deferred the effective
date for implementation of FIN No. 46 until December 31, 2003. As discussed in
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Off-Balance Sheet Arrangements 
The Pass Through Trusts,AWA is the lessee in a series of leveraged lease
financings covering 54 leased aircraft. 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. 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.
Based upon its analysis, which considered the structure of the respective
arrangements and related expected cash flows, AWA currently believes it is not
the primary beneficiary, as defined by FIN No. 46, under these arrangements.
Accordingly, AWA adopted FIN No. 46 effective December 31, 2003 with no
material impact on its financial condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities.SFAS No. 149 amends and
clarifies certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 was effective for certain
contracts entered into or modified by AWA after June 30, 2003. AWA adopted
SFAS No. 149 effective July 1, 2003 with no material impact on its financial
condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS No. 150 specifies that freestanding financial instruments within its scope
constitute obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. Such freestanding financial instruments include
mandatorily redeemable financial instruments, obligations to repurchase the
issuers equity shares by transferring assets and certain obligations to issue
a variable number of shares. SFAS No. 150 was effective immediately for all
financial instruments entered into or modified after May 31, 2003. For all
other instruments, SFAS No. 150 was effective at the beginning of the third
quarter of 2003. AWA adopted SFAS No. 150 effective July 1, 2003 with no
material impact on its financial condition or results of operations.

(o)  Use of Estimates

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

(p)  Reclassification

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

2. 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:

83



---



##### Table of Contents



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



| |  |  | $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 13, 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 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | 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.

3. Investments in Debt Securities

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

|                                                  |                                 |   |                |         |      |   |         |         | 
|------------------------------------------------- | ------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                                                  |                                 |   | 2003           |         | 2002
|                                                  |                                 |   |                |         |     
|                                                  |                                 |   | (in thousands)
|Cash and cash equivalents:                        |                                 |   |                |         |      |   |         |        
|Corporate notes                                   |                                 | $ | 253,931        |         |      | $ | 184,012 |        
|Cash and money market funds                       |                                 |   | 138,401        |         |      |   | 142,600 |        
|U.S. government securities                        |                                 |   | 1,503          |         |      |   |        |        
|                                                  |                                 |   |                |         |      |   |         |        
|                                                  | Total cash and cash equivalents |   | $              | 393,835 |      |   | $       | 326,612 | 
|                                                  |                                 |   |                |         |      |   |         |        
|Short-term investments:                           |                                 |   |                |         |      |   |         |        
|Corporate notes                                   |                                 | $ | 69,120         |         |      | $ | 24,738  |        
|U.S. government securities                        |                                 |   | 3,770          |         |      |   |        |        
|                                                  | Total short-term investments    |   |                | 72,890  |      |   |         | 24,738  | 
|                                                  |                                 |   |                |         |      |   |         |        
|Total cash equivalents and short-term investments |                                 | $ | 466,725        |         |      | $ | 351,350 |        
|                                                  |                                 |   |                |         |      |   |         |        

In addition, AWA had long-term investments in debt securities of $40.7
million as of December 31, 2003. 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 which 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.

Warrants

AWA is the holder of warrants in a number of on-line ventures that are not
public. The fair value of these warrants is not readily determinable.
Accordingly, the investments are carried at cost, which was not material at
December 31, 2003 or 2002.

84



---



##### Table of Contents



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

Long-term Debt

At December 31, 2003 and 2002, the fair value of long-term debt was
approximately $845.6 million and $657.9 million, respectively. AWAs variable
rate long-term debt with a carrying value of $555.9 million and $570.4 million
at December 31, 2003 and 2002, 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, 2003, AWA had entered into costless collar
transactions hedging approximately 11% of its projected 2004 fuel requirements.
The fair value of AWAs financial derivative instruments was a net asset of
approximately $21.2 million and $3.6 million at December 31, 2003 and 2002,
respectively.

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

(c)  Concentration of Credit Risk

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

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 $213.1 million and
$223.7 million at December 31, 2003 and 2002, respectively. The decrease in
2003 was due to the sale of the Companys investment in National Leisure Group
in exchange for approximately $10.5 million face value of AWAs 10 3/4%
senior unsecured notes. See Note 4, Financial Instruments and Risk Management
 (a) Fair Value of Financial Instruments  Investments in Equity Securities
in Notes to Consolidated Financial Statements of Holdings.

As of December 31, 2003, AWA had a net payable of $27.2 million due
principally to TLC. This payable, which is primarily related to credit card
receipts collected by AWA for vacation packages sold by TLC, was classified in
AWAs balance sheet as a current liability. As of January 1, 2004, TLC has
been merged into AWA. See Note 18, Subsequent Event  Merger of America West
Vacations Subsidiary into AWA.

85



---



##### Table of Contents



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

6. Long-Term Debt

Long-term debt at December 31, 2003 and 2002 consists of the following:

|                                                                                                                                               |                    |   |                |          |      |   |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | - | -------------- | -------- | ---- | - | ------- | ------- | -
|                                                                                                                                               |                    |   | 2003           |          | 2002
|                                                                                                                                               |                    |   |                |          |     
|                                                                                                                                               |                    |   | (in thousands)
|Secured                                                                                                                                        |                    |   |                |          |      |   |         |        
|Equipment notes payable, variable interest rates of 2.13% to 2.63%, averaging
2.21%, installments due 2004 through 2008                        |                    | $ | 48,454         |          |      | $ | 58,126  |        
|Term loan, variable interest rate of 3.44%, installments due 2005 through 2007 (a)                                                             |                    |   | 74,775         |          |      |   | 74,758  |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    |   | 123,229        |          |      |   | 132,884 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|Unsecured                                                                                                                                      |                    |   |                |          |      |   |         |        
|Government guaranteed loan, variable interest rate of 1.50% installments due
2004 through 2008 (b)                                             |                    |   | 429,000        |          |      |   | 429,000 |        
|10 3/4% senior unsecured notes, interest only payments until due in 2005 (c)                                                                   |                    |   | 39,548         |          |      |   | 49,998  |        
|7.5% convertible senior notes, interest only payments until due in 2009 (d)                                                                    |                    |   | 104,328        |          |      |   | 97,894  |        
|7.25% senior exchangeable notes, due 2023 with cash interest at 2.49%
payable through 2008 and original issue discount of 7.25% thereafter (e) |                    |   | 252,695        |          |      |   |        |        
|Equipment notes payable, interest rates of 90-day LIBOR +1.25%, averaging
2.41%, installments due through 2004                                 |                    |   | 5,250          |          |      |   | 7,000   |        
|Industrial development bonds, fixed interest rate of 6.3% due 2023 (f)                                                                         |                    |   | 29,300         |          |      |   | 29,300  |        
|State loan, variable interest rate of 4.71%, installments due 2004 through 2007                                                                |                    |   | 1,500          |          |      |   | 1,500   |        
|Promissory note, fixed interest rate of 10%, due in 2003                                                                                       |                    |   |               |          |      |   | 2,443   |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    |   | 861,621        |          |      |   | 617,135 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|Total long-term debt                                                                                                                           |                    |   | 984,850        |          |      |   | 750,019 |        
|Less: Unamortized discount on debt                                                                                                             |                    |   | (191,986       | )        |      |   | (29,920 | )      
|                                                                                                                                               | Current maturities |   |                | (103,899 | )    |   |         | (19,116 | )
|                                                                                                                                               |                    |   |                |          |      |   |         |        
|                                                                                                                                               |                    | $ | 688,965        |          |      | $ | 700,983 |        
|                                                                                                                                               |                    |   |                |          |      |   |         |        



| | (a) |  | In connection with the closing of the government guaranteed loan
and the related transactions, AWA converted its existing revolving
credit facility into a term loan with the Mizuho Corporate Bank, Ltd.,
as successor by merger to the Industrial Bank of Japan, Limited, and
certain other lenders. Principal amounts under the term loan become
due in two installments of $30 million on December 31, 2005 and
December 31, 2006 with the remaining amounts becoming due and payable
in full on December 31, 2007. Principal amounts outstanding under the
term loan bear interest at a rate per annum equal to, at AWAs option,
either the Base Rate or the Eurodollar Rate (which is based on LIBOR),
in each case plus an applicable margin. The applicable margin adjusts
based on the length of time the term loan has been outstanding. The
term Base Rate has a meaning customary and appropriate for
financings of this type. In addition, principal amounts outstanding
under the term loan bear interest in kind at a rate of 2% through
December 31, 2004. The balance at December 31, 2003 includes $3.1
million of interest paid in kind through December 31, 2003.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The prepayment requirements and covenants of the term loan are
substantially similar to those of the government guaranteed loan. AWA
may, at its option, prepay the term loan without premium or penalty,
subject to reimbursement of the lenders breakage costs in the case of
prepayment of loans bearing the Eurodollar Rate. In October 2003, AWA
made a repayment of approximately $1.5 million as a result of the
removal of three aircraft and two engines from the collateral base for
the loan. The term loan is secured by a first priority perfected
security interest in certain of AWAs spare engines, rotable aircraft
parts inventory and a maintenance facility. We may be required to
prepay portions of the loan if the fair market value of the collateral,
as determined by independent appraisers, decreases. The term loan
contains customary events of default, including payment defaults,
cross-defaults, breach of covenants, bankruptcy and insolvency defaults
and judgment defaults.                                                                                                                                                                     
|
| | (b) |  | 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;
| | - |  | -------------------------------------------------------------------------------------------------

86



---



##### Table of Contents



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



| |  |  | proceeds from asset sales in excess of $20 million in
any fiscal year to the extent such proceeds are not applied to
redeem AWAs 103/4% senior notes due 2005; 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (c) |  | 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, 2003. Interest on the 103/4%
senior notes is payable semiannually in arrears on March 1 and
September 1 of each year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | AWA may redeem the 103/4% senior notes, in whole or in part, at any
time after September 1, 2003 at a redemption price of 100%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | If AWA undergoes a change of control, it may be required to repurchase
the 103/4% senior notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. If AWA sells certain assets, it may be required to use the
net cash proceeds to repurchase the 103/4% senior notes at 100% of the
principal amount, plus accrued and unpaid interest, to the date of
purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | The indenture governing the 103/4% senior notes contains certain
covenants that, among other things, limit the Companys ability to pay
dividends or make distributions to stockholders, repurchase or redeem
capital stock, make investments or other restricted payments, enter into
transactions with stockholders and affiliates, sell assets (including
the stock of the Companys subsidiaries) and merge or consolidate with
other companies. The indenture governing the 103/4% senior notes also
contains customary events of default, including payment defaults,
cross-defaults, breach of covenants, bankruptcy and insolvency defaults
and judgment defaults.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (d) |  | 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 $104.3
million remained outstanding at December 31, 2003 (including $13.6
million of interest paid through December 31, 2003 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 may
be paid 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 Price
|                    |  |                 
|2005                |  |                  | 103.75 | %
|2006                |  |                  | 102.50 | %
|2007                |  |                  | 101.25 | %
|2008 and thereafter |  |                  | 100.00 | %

87



---



##### Table of Contents



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



| |     |  | 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, 2003 is net of an unamortized discount of $25.9
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | 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.                                                                                                                                                                                                
|
| | (f) |  | 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 $123.2 million are collateralized by assets,
primarily aircraft, engines, simulators, rotable aircraft parts and AWAs
hangar facility, with a net book value of $292.9 million at December 31, 2003.

At December 31, 2003, the estimated maturities of long-term debt are as
follows:

|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (in thousands)
|2004       |  |                | 103,899 | 
|2005       |  |                | 163,903 | 
|2006       |  |                | 124,355 | 
|2007       |  |                | 105,487 | 
|2008       |  |                | 100,883 | 
|Thereafter |  |                | 386,323 | 
|           |  |                |         | 
|           |  | $              | 984,850 | 
|           |  |                |         | 

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. See Risk Factors Relating to America
West and Industry Related Risks - Our high level of indebtedness and fixed
costs limits our ability to fund general corporate requirements and obtain
additional financing, limits our flexibility in responding to competitive
developments and

88



---



##### Table of Contents



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

increases our vulnerability to adverse economic and industry conditions.

7. Commitments and Contingencies

(a)  Leases

As of December 31, 2003, the Company had 132 aircraft under operating
leases with remaining terms ranging from seven months to approximately 21
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 8.7 years or
call options pursuant to which the lessors could require AWA to return the
aircraft to the lessors upon receipt of four to nine months written notice.
The Company also has options to purchase certain of the aircraft at fair market
values at the end of the lease terms. Certain of the agreements require
security deposits, minimum return provisions and maintenance reserve payments.

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 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s 2001-1 Pass Through Trusts provided for the financing of nine Airbus
A319 aircraft and five Airbus A320 aircraft, all of which were delivered in
2001 and 2002.

As a result of the rent restructuring associated with the government
guaranteed loan, one aircraft lease was amended to include a bargain purchase
option. As a result, this lease has been classified as a capital lease in
accordance with SFAS No. 13, Accounting for Leases,as amended, with an asset
value of $16.0 million and corresponding lease obligation of $11.6 million at
December 31, 2003.

In April 2003, 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 18 months.

In July 2003, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 24 months. Upon exercising this right, the lessor agreed to
relinquish its interest in approximately $1.0 million face value of 7.5%
convertible senior notes it received as compensation for certain concessions
granted under the restructuring completed on January 18, 2002.

In November 2003, one aircraft lessor exercised its put right under its
aircraft lease agreement to extend the lease for one Boeing 737-300 aircraft
for an additional 42 months.

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

89



---



##### Table of Contents



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

At December 31, 2003, the scheduled future minimum cash rental payments
under capital leases and noncancelable operating leases with initial terms of
more than one year are as follows:

|                                                        |  |                |        |           |  |   |           | 
|------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | --------- | 
|                                                        |  | Capital        |        | Operating
|Years Ending December 31,                               |  | Leases         |        | Leases   
|                                                        |  |                |        |          
|                                                        |  | (in thousands)
|2004                                                    |  | $              | 4,689  |           |  | $ | 349,670   | 
|2005                                                    |  |                | 4,744  |           |  |   | 330,638   | 
|2006                                                    |  |                | 4,988  |           |  |   | 303,544   | 
|2007                                                    |  |                | 1,773  |           |  |   | 285,487   | 
|2008                                                    |  |                |       |           |  |   | 236,556   | 
|Thereafter                                              |  |                |       |           |  |   | 1,895,601 | 
|                                                        |  |                |        |           |  |   |           | 
|Total minimum lease payments                            |  |                | 16,194 |           |  | $ | 3,401,496 | 
|                                                        |  |                |        |           |  |   |           | 
|Less: Amounts of lease payments that represent interest |  |                | (4,285 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Present value of future minimum capital lease payments  |  |                | 11,909 |           |  |   |           | 
|Less: Current obligations under capital leases          |  |                | (3,442 | )         |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 
|Long-term capital lease obligations                     |  | $              | 8,467  |           |  |   |           | 
|                                                        |  |                |        |           |  |   |           | 

Rent expense (excluding landing fees) was approximately $407 million, $409
million and $457 million for the years ended December 31, 2003, 2002 and 2001,
respectively.

Collectively, the operating lease agreements require security deposits
with lessors of $21.3 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.

(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, 2003, 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 $42.9 million.

(c)  Aircraft Acquisitions

In January 2002, upon closing of the $429 million loan supported by a $380
million government loan guarantee, AWA restructured its aircraft purchase
commitment to AVSA. As a result, 17 new Airbus aircraft previously scheduled
for delivery in 2003 and 2004 were deferred by a total of 505 aircraft-months
to 2004 through 2007. At December 31, 2003, AWA had firm commitments to AVSA
for a total of 15 Airbus A318-100, one Airbus A319-100 and three Airbus
A320-200 aircraft with delivery through 2007 at a cost of approximately $719
million. The agreement with AVSA also includes options to purchase an
additional 17 A320 family aircraft during 2006 through 2008 and purchase rights
for an additional 25 aircraft in the A320 family of aircraft for delivery in
2005 to 2008.

AWA has an agreement with International Aero Engines (IAE) which
provides for the purchase by AWA of four new V2500-A5 spare engines scheduled
for delivery through 2004 for use on certain of the A320 fleet. At December
31, 2003, the four engines have an estimated aggregate cost of $19 million.

The following table reflects estimated cash payments under the
restructured aircraft purchase agreement with AVSA and the IAE engine contract.
Actual payments may vary due to inflation factor adjustments and changes in

90



---



##### Table of Contents



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

the delivery schedule of the equipment. The estimated cash payments
include progress payments that will be made in cash, as opposed to being
financed under an existing progress payment financing facility.

|     |  |                |         | 
|---- |  | -------------- | ------- | 
|     |  | (in thousands)
|2004 |  | $              | 91,266  | 
|2005 |  |                | 84,780  | 
|2006 |  |                | 223,362 | 
|2007 |  |                | 263,941 | 
|     |  |                |         | 
|     |  | $              | 663,349 | 
|     |  |                |         | 

(d)  Sale-Leaseback Transactions

As part of the restructuring completed on January 18, 2002, AWA committed
to the sale and leaseback of eight aircraft. The 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 12, 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 which demand large
monetary damages or other relief, which, if granted, would require significant
expenditures. In certain cases where it is probable that the outcome will
result in monetary damages, 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
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,
|                                   |         |                     |     |                        
|                                   |         |                     |     | 2003                    |     | 2002 |         | 2001   
|                                   |         |                     |     |                         |     |      |         |        
|                                   |         |                     |     | (in thousands)         
|Current taxes:                     |         |                     |     |                         |     |      |         |         |         |   |         |        
|                                   | Federal |                     | $   | 114                     |     |      | $       | (30,484 | )       |   | $       | (33,830 | )      
|                                   | State   |                     |     |                        |     |      |         |        |         |   |         |        |        
|                                   |         |                     |     |                         |     |      |         |         |         |   |         |        
|                                   |         | Total current taxes |     |                         | 114 |      |         |         | (30,484 | ) |         |         | (33,830 | )
|Deferred taxes                     |         |                     |    |                         |     |      |        |         |         |   | (49,278 | )      
|                                   |         |                     |     |                         |     |      |         |         |         |   |         |        
|Total income tax expense (benefit) |         | $                   | 114 |                         |     | $    | (30,484 | )       |         | $ | (83,108 | )      
|                                   |         |                     |     |                         |     |      |         |         |         |   |         |        

91



---



##### Table of Contents



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

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

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

|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |         |  
|------------------------------------------------------------------------------- | ----- | - | ----------------------- | --- | ---- | - | ------- | ------- | - | - | -------- | ------- | -
|                                                                                |       |   | Year Ended December 31,
|                                                                                |       |   |                        
|                                                                                |       |   | 2003                    |     | 2002 |   | 2001   
|                                                                                |       |   |                         |     |      |   |        
|                                                                                |       |   | (in thousands)         
|Income tax expense (benefit) at the federal
statutory income tax rate           |       | $ | 15,703                  |     |      | $ | (76,846 | )       |   | $ | (114,178 | )      
|State income tax expense (benefit), net of
federal income tax expense (benefit) |       |   | 1,896                   |     |      |   | (8,210  | )       |   |   | (9,059   | )      
|Nondeductible write-off of ERV in connection
with asset impairment charge       |       |   |                        |     |      |   |        |         |   |   | 22,421   |        
|Nondeductible amortization of ERV                                               |       |   |                        |     |      |   |        |         |   |   | 6,963    |        
|State rate change                                                               |       |   | (3,229                  | )   |      |   |        |         |   |   |         |        
|Change in valuation allowance                                                   |       |   | (18,276                 | )   |      |   | 44,600  |         |   |   | 6,259    |        
|Expired tax credits                                                             |       |   |                        |     |      |   | 7,987   |         |   |   | 409      |        
|Other, net                                                                      |       |   | 4,020                   |     |      |   | 1,985   |         |   |   | 4,077    |        
|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |        
|                                                                                | Total |   | $                       | 114 |      |   | $       | (30,484 | ) |   | $        | (83,108 | )
|                                                                                |       |   |                         |     |      |   |         |         |   |   |          |        

As of December 31, 2003, AWA has available net operating loss
carryforwards (NOLs) and tax credit carryforwards for federal income tax
purposes of approximately $303.6 million and $1.2 million, respectively. The
NOLs expire during the years 2007 through 2017 while approximately $0.3 million
of the tax credit carryforwards expire during the years 2004 through 2006.
However, such carryforwards are not available to offset federal (and in certain
circumstances, state) alternative minimum taxable income. Further, as a result
of a statutory ownership change (as defined for purposes of Section 382 of
the Internal Revenue Code) that occurred as a result of AWAs reorganization in
1994, AWAs ability to utilize its 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:

|                                |                                                                                |                     |                           |                                    |         |                |          |          |         |         |          |  
|------------------------------- | ------------------------------------------------------------------------------ | ------------------- | ------------------------- | ---------------------------------- | ------- | -------------- | -------- | -------- | ------- | ------- | -------- | -
|                                |                                                                                |                     |                           |                                    |         | 2003           |          | 2002    
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     |                           |                                    |         | (in thousands)
|Deferred income tax liabilities |                                                                                |                     |                           |                                    |         |                |          |         
|                                | Property and equipment, principally depreciation and fresh start
differences |                     | $                         | (105,264                           | )       |                | $        | (112,442 | )      
|                                |                                                                                |                     |                           | Total deferred tax liability       |         |                | (105,264 | )        |         |         | (112,442 | )
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|Deferred tax assets             |                                                                                |                     |                           |                                    |         |                |          |         
|                                | Aircraft leases                                                                |                     |                           | 18,711                             |         |                |          | 18,634   |        
|                                | Frequent flyer accrual                                                         |                     |                           | 5,958                              |         |                |          | 6,240    |        
|                                | Vacation pay accrual                                                           |                     |                           | 12,080                             |         |                |          |         |        
|                                | Net operating loss carryforwards                                               |                     |                           | 126,882                            |         |                |          | 160,248  |        
|                                | Tax credit carryforwards                                                       |                     |                           | 1,163                              |         |                |          | 1,874    |        
|                                | Other                                                                          |                     |                           | 181                                |         |                |          | 3,433    |        
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     | Total deferred tax assets |                                    |         | 164,975        |          |          |         | 190,429 |         
|                                |                                                                                | Valuation allowance |                           |                                    | (59,711 | )              |          |          | (77,987 | )      
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     | 105,264                   |                                    |         |                | 112,442  |         
|                                |                                                                                |                     |                           |                                    |         |                |          |         
|                                |                                                                                |                     |                           | Net deferred tax asset (liability) |         | $              |         |          |         | $       |         |  
|                                |                                                                                |                     |                           |                                    |         |                |          |         

92



---



##### Table of Contents



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

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.

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

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 the Companys financial
restructuring completed in January 2002, Holdings issued a warrant to
purchase 18.8 million shares of its Class B common stock to the federal
government and additional warrants to purchase 3.8 million shares of
its Class B common stock to other loan participants, in each case at an
exercise price of $3 per share and a term of ten years. For accounting
purposes, the warrants were valued at $35.4 million, or $1.57 per
share, using the Black-Scholes pricing model with the following
assumptions: expected dividend yield of 0.0%, risk-free interest rate
of 4.8%, volatility of 44.9% and an expected life of ten years. The
warrants were recorded by AWA as a non-cash capital contribution in the
accompanying statements of stockholders equity and comprehensive
income (loss) and classified as Other Assets, Netin the accompanying
balance sheets. The warrants will be amortized over the life of the
government guaranteed loan as an increase to interest expense. In the
third quarter of 2003, approximately 2.6 million warrants were
exercised at $3 per share. The warrant exercises were cashless
transactions resulting in the issuance of approximately 1.6 million
shares of Holdings Class B common stock.

10. Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes changes in the fair value of
derivative financial instruments that qualify for hedge accounting. For the
year ended December 31, 2003, AWA recorded total comprehensive income of $55.2
million compared to a total comprehensive loss of $376.4 million and $241.7
million for the years ended December 31, 2002 and 2001, respectively. The
difference between net income (loss) and comprehensive income (loss) for the
years ended December 31, 2003, 2002 and 2001 is detailed in the following
table:

|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |        |  
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | ------ | ---- | - | -------- | ----- | - | - | -------- | ------ | -
|                            |                                                                                                                                                             |   | Year ended December 31,
|                            |                                                                                                                                                             |   |                        
|                            |                                                                                                                                                             |   | 2003                    |        | 2002 |   | 2001    
|                            |                                                                                                                                                             |   |                         |        |      |   |         
|                            |                                                                                                                                                             |   | (in thousands)         
|Net income (loss)           |                                                                                                                                                             | $ | 44,752                  |        |      | $ | (377,024 | )     |   | $ | (243,115 | )     
|                            | Unrealized gains (losses) on derivative instruments, net of
deferred taxes of $1,190 in 2001                                                                |   |                         | 20,206 |      |   |          | 1,178 |   |   |          | (3,146 | )
|                            | Reclassification adjustment to net income (loss) of previously
reported unrealized losses (gains) on derivative instruments,
net of taxes of $1,715 in 2001 |   |                         | (9,709 | )    |   |          | (538  | ) |   |          | 4,536  |  
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       
|                            | Total other comprehensive income                                                                                                                            |   |                         | 10,497 |      |   |          | 640   |   |   |          | 1,390  |  
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       
|Comprehensive income (loss) |                                                                                                                                                             | $ | 55,249                  |        |      | $ | (376,384 | )     |   | $ | (241,725 | )     
|                            |                                                                                                                                                             |   |                         |        |      |   |          |       |   |   |          |       

93



---



##### Table of Contents



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

11. Employee Benefit Plan

The Company has a 401(k) defined contribution plan, covering
essentially all employees of AWA. Participants may contribute from 1 to
15% of their pretax earnings to a maximum of $12,000 in 2003. AWAs
matching contribution is determined annually by the Board of Directors.
AWAs contribution expense to the plan totaled $8.6 million, $8.6
million and $8.0 million in 2003, 2002 and 2001, respectively.

12. Special Charges

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                                   |       | $ | 9,915           |       
|Losses on sale-leaseback transactions                       |       |   | 6,328           |       
|Professional fees                                           |       |   | 4,745           |       
|Write-off of computer system and security equipment         |       |   | 3,411           |       
|Severance                                                   |       |   | 631             |       
|Revision of estimate for second quarter 2001 special charge |       |   | (4,000          | )     
|                                                            |       |   |                 |       
|                                                            | Total |   | $               | 21,030 | 
|                                                            |       |   |                 |       

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

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

In April 2001, AWA implemented a cost reduction plan to respond to a
softening economy. The plan included a slowing of the Airlines growth through
the return of seven older 737-300 leased aircraft to the lessors in the second
half of 2001 and January 2002 and significant reductions in overhead due in
part to select reductions-in-force of management, administrative and clerical
personnel, reducing headcount by 133. AWA recorded a charge of $35.7 million
in the second quarter of 2001 related to the earlier-than-planned aircraft
returns and reductions-in-force.

94



---



##### Table of Contents



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

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

The following table presents the payments and other settlements made
during 2001, 2002 and 2003 and the remaining special charge accruals as of
December 31, 2003.

|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  |          |        |   |  |   |          |  
|--------------------------------------------------------------- |  | -------------- | ------ | ------------------- |  | ----------------- | -------- | -------- |  | ----------- | ------ | ----- |  | ----------- | ------ | ------------ |  | -------- | ------ | - |  | - | -------- | -
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  | Contract |        |   |  |  
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  | Reductions- |        | Termination/ |  |          |        |  
|                                                                |  | Sale-Leaseback |        | Fleet Restructuring |  | Professional Fees |          | in-force |  | Other Costs |        | Total
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |      
|                                                                |  | (in thousands)
|Balance at December 31, 2000                                    |  | $              |       |                     |  | $                 |         |          |  | $           |       |       |  | $           |       |              |  | $        |       |   |  | $ |         |  
|Special charges                                                 |  |                |       |                     |  |                   | 140,516  |          |  |             |       |       |  |             | 1,122  |              |  |          |       |   |  |   | 141,638  |  
|Payments                                                        |  |                |       |                     |  |                   | (8,440   | )        |  |             |       |       |  |             | (1,039 | )            |  |          |       |   |  |   | (9,479   | )
|Impairment loss                                                 |  |                |       |                     |  |                   | (115,290 | )        |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (115,290 | )
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  |          |        |   |  |   |          |  
|Balance
at December 31, 2001                                    |  | $              |       |                     |  | $                 | 16,786   |          |  | $           |       |       |  | $           | 83     |              |  | $        |       |   |  | $ | 16,869   |  
|Special charges                                                 |  |                | 6,328  |                     |  |                   | 10,582   |          |  |             | 1,489  |       |  |             | 631    |              |  |          |       |   |  |   | 19,030   |  
|Reclassification of aircraft rent
due to restructuring          |  |                |       |                     |  |                   | 4,696    |          |  |             |       |       |  |             |       |              |  |          |       |   |  |   | 4,696    |  
|Payments                                                        |  |                |       |                     |  |                   | (14,516  | )        |  |             | (1,489 | )     |  |             | (714   | )            |  |          |       |   |  |   | (16,719  | )
|Issuance of convertible notes                                   |  |                |       |                     |  |                   | (5,000   | )        |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (5,000   | )
|Forfeiture of security deposits                                 |  |                |       |                     |  |                   | (2,289   | )        |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (2,289   | )
|Loss on sale-leasebacks                                         |  |                | (3,852 | )                   |  |                   |         |          |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (3,852   | )
|Reclassification of capitalized
maintenance
for parked aircraft |  |                |       |                     |  |                   | (902     | )        |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (902     | )
|Revision of estimate                                            |  |                |       |                     |  |                   | (6,000   | )        |  |             |       |       |  |             |       |              |  |          |       |   |  |   | (6,000   | )
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  |          |        |   |  |   |          |  
|Balance at December 31, 2002                                    |  |                | 2,476  |                     |  |                   | 3,357    |          |  |             |       |       |  |             |       |              |  |          |       |   |  |   | 5,833    |  
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  |          |        |   |  |   |          |  
|Special charges                                                 |  |                | (510   | )                   |  |                   | 1,545    |          |  |             |       |       |  |             | 2,310  |              |  |          | 10,634 |   |  |   | 13,979   |  
|Payments                                                        |  |                |       |                     |  |                   | (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  |   |  | $ | 4,950    |  
|                                                                |  |                |        |                     |  |                   |          |          |  |             |        |       |  |             |        |              |  |          |        |   |  |   |          |  

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

13.     Nonoperating
Income (Expenses) - Other, Net

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 2, 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.

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

95



---



##### Table of Contents



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

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.

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

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

14. 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,
|                       |                                                                                 |                                           |   |                        
|                       |                                                                                 |                                           |   | 2003                    |        | 2002 |   | 2001   
|                       |                                                                                 |                                           |   |                         |        |      |   |        
|                       |                                                                                 |                                           |   | (in thousands)         
|Non-cash transactions: |                                                                                 |                                           |   |                         |        |      |   |         |         |   |   |        
|                       | Reclassification of investments in debt securities to short-term
investments    |                                           | $ | 29,058                  |        |      | $ |        |         |   | $ |        |       
|                       | Reclassification of advances to parent company, net                             |                                           |   |                        |        |      |   | 223,695 |         |   |   |        |       
|                       | Issuance of convertible notes                                                   |                                           |   |                        |        |      |   | 67,902  |         |   |   |        |       
|                       | Cancellation of convertible notes                                               |                                           |   | (660                    | )      |      |   | (8,280  | )       |   |   |        |       
|                       | Cancellation of 10.75% senior unsecured notes related to sale
of NLG investment |                                           |   | (10,370                 | )      |      |   |        |         |   |   |        |       
|                       | Issuance of warrants                                                            |                                           |   |                        |        |      |   | 35,383  |         |   |   |        |       
|                       | Exercise of warrants                                                            |                                           |   | (17                     | )      |      |   |        |         |   |   |        |       
|                       | Equipment acquired through capital leases                                       |                                           |   |                        |        |      |   | 17,753  |         |   |   |        |       
|                       | Equipment acquired with issuance of notes payable                               |                                           |   |                        |        |      |   | 64,163  |         |   |   |        |       
|                       | Notes payable issued for equipment purchase deposits                            |                                           |   | 5,250                   |        |      |   | 10,500  |         |   |   | 10,500  |       
|                       | Notes payable canceled under the aircraft purchase agreement                    |                                           |   | (7,000                  | )      |      |   | (10,500 | )       |   |   | (38,500 | )     
|                       | Payment in kind notes issued, net of returns                                    |                                           |   | 8,972                   |        |      |   | 7,756   |         |   |   |        |       
|Cash transactions:     |                                                                                 |                                           |   |                         |        |      |   |         |         |   |   |        
|                       |                                                                                 | Interest paid, net of amounts capitalized |   |                         | 17,201 |      |   |         | 25,942  |   |   |         | 24,240 |  
|                       |                                                                                 | Income taxes refunded                     |   |                         | (3,605 | )    |   |         | (63,505 | ) |   |         | (255   | )

15. Related Party Transactions

As part of our reorganization in 1994, Continental Airlines and AWA
entered into an alliance agreement which included code sharing arrangements,
reciprocal frequent flyer programs and ground handling operations. In March
2002, AWA received notice from Continental of its intention to terminate the
code sharing and frequent flyer agreements between the two airlines, effective
April 26, 2002. Two of Continentals directors are managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc., effectively controls the
voting power of Holdings. See Risk Factors Relating to America West and
Industry Related Risks  The stockholders who effectively control the voting
power of Holdings could take actions that would favor their own personal
interests to the detriment of our interests.AWA paid Continental
approximately $17.3 million, $25.5 million and $30.1 million and also received
approximately $5.0 million, $15.9 million and $22.0 million in 2003, 2002 and
2001, respectively, from Continental pursuant to these agreements.

96



---



##### Table of Contents



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

AWA provided air transportation and certain administrative services to
The Leisure Company (TLC), a wholly-owned subsidiary of Holdings that was
formed on January 1, 1998. As of January 1, 2004, TLC has been merged into
AWA. See Note 18, Subsequent Event  Merger of America West Vacations
Subsidiary into AWA. Prior to the merger, the cost of air transportation and
administrative services were negotiated on an arms length basis. AWA had net
air transportation sales to TLC of $52.0 million, $44.5 million and $60.2
million, respectively, in 2003, 2002 and 2001, and also received $1.3 million
in each of those years under the services agreement. TLC continues to operate
as the America West Vacations division of AWA.

97



---



##### Table of Contents



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

16. Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2003 and 2002 follows (in
thousands of dollars):

|                                    |  |             |         |             |  |             |         |             |  |   |         |   |  |   |         |    
|----------------------------------- |  | ----------- | ------- | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | - |  | - | ------- | ---
|                                    |  | 1st Quarter |         | 2nd Quarter |  | 3rd Quarter |         | 4th Quarter
|                                    |  |             |         |             |  |             |         |            
|2003                                |  |             |         |             |  |             |         |             |  |   |         |   |  |   |         |    
|Operating revenues                  |  | $           | 514,405 |             |  | $           | 565,056 |             |  | $ | 581,612 |   |  | $ | 554,287 |    
|Operating income (loss)             |  |             | (46,747 | )           |  |             | 14,031  |             |  |   | 46,940  |   |  |   | 9,649   |    
|Nonoperating income (expenses), net |  |             | (15,964 | )           |  |             | 63,277  |             |  |   | (17,290 | ) |  |   | (9,030  | )  
|Income taxes                        |  |             |        |             |  |             |        |             |  |   |        |   |  |   | 114     |    
|Net income (loss)                   |  |             | (62,711 | )(1)        |  |             | 77,308  | (2)         |  |   | 29,650  |   |  |   | 505     | (3)

|                                                                |  |             |          |             |  |             |         |             |  |   |         |      |  |   |         |     
|--------------------------------------------------------------- |  | ----------- | -------- | ----------- |  | ----------- | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ----
|                                                                |  | 1st Quarter |          | 2nd Quarter |  | 3rd Quarter |         | 4th Quarter
|                                                                |  |             |          |             |  |             |         |            
|2002                                                            |  |             |          |             |  |             |         |             |  |   |         |      |  |   |         |     
|Operating revenues                                              |  | $           | 453,599  |             |  | $           | 533,144 |             |  | $ | 510,050 |      |  | $ | 514,497 |     
|Operating loss                                                  |  |             | (82,328  | )           |  |             | (1,055  | )           |  |   | (42,232 | )    |  |   | (38,535 | )   
|Nonoperating expenses, net                                      |  |             | (16,857  | )           |  |             | (14,407 | )           |  |   | (9,539  | )    |  |   | (14,606 | )   
|Income tax benefit                                              |  |             | 30,484   |             |  |             |        |             |  |   |        |      |  |   |        |     
|Loss before cumulative effect of
change in accounting principle |  |             | (68,701  | )(4)        |  |             | (15,462 | )(5)        |  |   | (51,771 | )(6) |  |   | (53,141 | )(7)
|Net loss                                                        |  |             | (256,650 | )           |  |             | (15,462 | )           |  |   | (51,771 | )    |  |   | (53,141 | )   

98



---



##### Table of Contents



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



| | (1) |  | Includes a $4.4 million gain related to the purchase and
subsequent exchange of an A320 airframe, a $1.1 million gain due
to a revision of the estimated costs related to the early
termination of certain aircraft leases and a $1.0 million charge
resulting from the elimination of AWAs hub operations in
Columbus, Ohio.                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Includes a gain of $81.3 million related to the reimbursement
of security fees received from the federal government under the
Emergency Wartime Supplemental Appropriations Act, $9.6 million
of charges resulting from the elimination of AWAs hub operations
in Columbus, Ohio, a $1.9 million charge related to the
reduction-in-force of certain management, professional and
administrative employees and a $2.6 million charge related to the
impairment of certain owned Boeing 737-200 aircraft that have
been grounded.
|
| | (3) |  | Includes $19.7 million of charges related to the execution of
a new labor agreement between AWA and ALPA, a $9.8 million gain
on sale of an investment in Hotwire.com and a $2.8 million gain
related to the settlement of disputed billings under the
Companys frequent flyer program.                                                                                                                                                                                                                                         
|
| | (4) |  | Includes a $21.0 million charge primarily related to the
restructuring completed on January 18, 2002, resulting from the
events of September 11, 2001, and a charge of $2.8 million
related to the write down to net realizable value of an
investment in an e-commerce entity that was carried at cost.                                                                                                                                                                                                                         
|
| | (5) |  | Includes a $2.3 million gain related to additional federal
grant proceeds received under the Air Transportation Safety and
System Stabilization Act to offset losses resulting from the
September 11, 2001 terrorist attacks.                                                                                                                                                                                                                                                                                                    
|
| | (6) |  | Includes a $6.2 million gain related to additional federal
grant proceeds received under the Air Transportation Safety and
System Stabilization Act and 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.                                                                                                                                                                                                                        
|
| | (7) |  | Includes a $4.8 million credit related to a change in the
Companys vacation policy for certain administrative employees.                                                                                                                                                                                                                                                                                                                                                                                                        

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.

18. Subsequent Event

Merger of America West Vacations Subsidiary into AWA

As of January 1, 2004, the Company has merged TLC into AWA. As a result
of the merger, TLC, which is one of the nations largest tour operators, ceased
to exist as a separate legal entity and instead became a division of AWA. This
merger was intended to save costs and streamline operations for the Company and
did not change any operating procedures.

The
supplemental condensed balance sheet information of AWA as of December 31, 2003 and 2002 and
supplemental statement of operations information for the years ended December 31, 2003, 2002 and
2001, after giving effect to the merger, are set forth below.

99



---



##### Table of Contents



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

America West Airlines, Inc.
Condensed Pro Forma Balance Sheets
(in thousands)

|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |         |         | 
|----------------------------------------------------- | ------------------------- | ------------------------- | --------- | ----------------- | ------- | ----------------- | --------- | ------- | ------- | --------- | --------- | ----------- | ------- | - | --------- | ------- | ------- | 
|                                                      |                           |                           |           | December 31, 2003 |         | December 31, 2002
|                                                      |                           |                           |           |                   |         |                  
|                                                      |                           |                           |           | Actual            |         | Pro Forma         |           | Actual  |         | Pro Forma
|                                                      |                           |                           |           |                   |         |                   |           |         |         |          
|                                                      |                           |                           |           |                   |         | (unaudited)       |           |         |         |           |           | (unaudited)
|Assets                                                |                           |                           |           |                   |         |                   |           |         |         |           |           |            
|Current assets:                                       |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Cash,
cash equivalents and short-term investments (a) |                           | $                         | 466,725   |                   |         | $                 | 456,765   |         |         | $         | 351,350   |             |         | $ | 359,417   |        
|Other current assets                                  |                           |                           | 301,961   |                   |         |                   | 308,002   |         |         |           | 234,630   |             |         |   | 244,547   |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|                                                      |                           | Total current assets      |           |                   | 768,686 |                   |           |         | 764,767 |           |           |             | 585,980 |   |           |         | 603,964 | 
|Property and equipments, net                          |                           |                           | 605,139   |                   |         |                   | 606,569   |         |         |           | 647,735   |             |         |   | 648,618   |        
|Advances
to affiliate (a)                             |                           |                           | 213,078   |                   |         |                   | 254,792   |         |         |           | 223,695   |             |         |   | 265,810   |        
|Other assets, net                                     |                           |                           | 249,470   |                   |         |                   | 233,341   |         |         |           | 187,605   |             |         |   | 179,551   |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Total assets                                          |                           | $                         | 1,836,373 |                   |         | $                 | 1,859,469 |         |         | $         | 1,645,015 |             |         | $ | 1,697,943 |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Liabilities and stockholders equity                  |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Current liabilities:                                  |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|                                                      | Payable
to affiliate (a)  |                           | $         | 27,231            |         |                   | $         | 1,926   |         |           | $         | 12,175      |         |   | $         | 10,588  |        
|                                                      | Other current liabilities |                           |           | 617,396           |         |                   |           | 635,638 |         |           |           | 475,498     |         |   |           | 516,389 |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|                                                      |                           | Total current liabilities |           |                   | 644,627 |                   |           |         | 637,564 |           |           |             | 487,673 |   |           |         | 526,977 | 
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Long-term obligations                                 |                           |                           | 697,432   |                   |         |                   | 697,432   |         |         |           | 712,982   |             |         |   | 712,982   |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Other long-term liabilities                           |                           |                           | 139,867   |                   |         |                   | 139,873   |         |         |           | 145,145   |             |         |   | 145,151   |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Stockholders equity                                  |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Capital stock, net of treasury shares                 |                           |                           | 555,115   |                   |         |                   | 555,115   |         |         |           | 555,132   |             |         |   | 555,132   |        
|Accumulated deficit                                   |                           |                           | (200,668  | )                 |         |                   | (170,515  | )       |         |           | (255,917  | )           |         |   | (242,299  | )      
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|                                                      |                           | Net stockholders equity  |           |                   | 354,447 |                   |           |         | 384,600 |           |           |             | 299,215 |   |           |         | 312,833 | 
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        
|Total liabilities and stockholders equity            |                           | $                         | 1,836,373 |                   |         | $                 | 1,859,469 |         |         | $         | 1,645,015 |             |         | $ | 1,697,943 |        
|                                                      |                           |                           |           |                   |         |                   |           |         |         |           |           |             |         |   |           |        



America West Airlines, Inc.
Condensed Pro Forma Statements of Operations
For the Years Ended
(in thousands)

|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  
|--------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ----------------- | --------- | --------- |  | ------ | --------- | ----------- |  | - | --------- | ----------- |  | - | --------- | - |  | - | --------- | -
|                                                                                                    |  | December 31, 2003 |           | December 31, 2002 |  | December 31, 2001
|                                                                                                    |  |                   |           |                   |  |                  
|                                                                                                    |  | Actual            |           | Pro Forma         |  | Actual            |           | Pro Forma |  | Actual |           | Pro Forma  
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |            
|                                                                                                    |  |                   |           |                   |  | (unaudited)       |           |           |  |        |           | (unaudited) |  |   |           | (unaudited)
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |            
|Total
operating revenues (b)                                                                        |  | $                 | 2,215,360 |                   |  | $                 | 2,253,817 |           |  | $      | 2,011,290 |             |  | $ | 2,046,563 |             |  | $ | 2,020,963 |   |  | $ | 2,065,488 |  
|Total
operating expenses (b)                                                                        |  |                   | 2,191,487 |                   |  |                   | 2,216,979 |           |  |        | 2,175,440 |             |  |   | 2,203,435 |             |  |   | 2,444,360 |   |  |   | 2,480,164 |  
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  
|Operating income (loss)                                                                             |  |                   | 23,873    |                   |  |                   | 36,838    |           |  |        | (164,150  | )           |  |   | (156,872  | )           |  |   | (423,397  | ) |  |   | (414,676  | )
|Nonoperating income (expenses), net                                                                 |  |                   | 20,993    |                   |  |                   | 24,562    |           |  |        | (55,409   | )           |  |   | (55,149   | )           |  |   | 97,174    |   |  |   | 94,362    |  
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  
|Income (loss) before income taxes
(benefit) and cumulative effect of
change in accounting principle |  |                   | 44,866    |                   |  |                   | 61,400    |           |  |        | (219,559  | )           |  |   | (212,021  | )           |  |   | (326,223  | ) |  |   | (320,314  | )
|Income
taxes (benefit) (c)                                                                          |  |                   | 114       |                   |  |                   | 114       |           |  |        | (30,484   | )           |  |   | (30,544   | )           |  |   | (83,108   | ) |  |   | (79,513   | )
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  
|Income (loss) before cumulative
effect
of change in accounting principle                            |  |                   | 44,752    |                   |  |                   | 61,286    |           |  |        | (189,075  | )           |  |   | (181,477  | )           |  |   | (243,115  | ) |  |   | (240,801  | )
|Cumulative effect of change in
accounting principle                                                 |  |                   |          |                   |  |                   |          |           |  |        | (187,949  | )           |  |   | (208,223  | )           |  |   |          |   |  |   |          |  
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  
|Net income (loss)                                                                                   |  | $                 | 44,752    |                   |  | $                 | 61,286    |           |  | $      | (377,024  | )           |  | $ | (389,700  | )           |  | $ | (243,115  | ) |  | $ | (240,801  | )
|                                                                                                    |  |                   |           |                   |  |                   |           |           |  |        |           |             |  |   |           |             |  |   |           |   |  |   |           |  







(a)
Pro forma cash, cash equivalents and short-term investments decreased by approximately $10 million
from the amount reported by AWA at December 31, 2003 as prior to the
effectiveness of the merger, AWA settled its inter-company obligation to
TLC for credit card receipts of approximately $25 million and TLC settled
its obligation to Holdings for inter-company taxes of approximately
$28
million. The settlement of inter-company taxes was accomplished using $17
million in cash (of which approximately $7 million was TLCs at December
31, 2003) and the remaining $11 million was reflected as a reduction in
advances to Holdings.




(b)
For the years ended December 31, 2003, 2002, and 2001, TLC paid rent in the
amount of $572,000, $572,000 and $580,000 to AWA for space it occupied in
certain AWA facilities. This rent was reflected in other revenues by AWA
and in operating expense by TLC. This adjustment eliminates
those amounts.




(c)
TLC reported income tax expense (benefit) of $6.4 million, ($0.1) million
and $3.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively. On a pro forma basis, tax expense (benefit) for the years
ended December 31, 2003 and 2002 was relatively unchanged as AWAs tax
benefits were utilized by TLC which correspondingly resulted in a decrease
in AWAs tax valuation allowance. TLCs tax expense recognized in 2001
directly reduced AWAs income tax benefit by $3.6
million.


100



---



##### Table of Contents






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 auditors for the fiscal year ended December 31, 2004.

PricewaterhouseCoopers LLP served as the Companys and AWAs independent
auditors 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
auditors. The Company appointed KPMG as independent auditors 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 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

An evaluation was performed under the supervision and with the
participation of Holdings and the Airlines management,
including our Chief Executive
Officer (the CEO) and Chief Financial Officer (the CFO), of the
effectiveness of the design and operation of our disclosure controls
and procedures (as defined in the rules promulgated under the Securities and
Exchange Act of 1934, as amended) as of December 31, 2003. Based on that
evaluation, our management, including the CEO and CFO, concluded that
our disclosure controls and procedures were effective as of December
31, 2003. There were no significant changes in our internal control
over financial reporting during the period covered by this report reasonably
likely to materially affect our internal control over financial reporting.

We believe that a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and our CEO and CFO have
concluded that these controls and procedures are effective at the reasonable
assurance level.

101



---



##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

Information respecting continuing directors and nominees of the Company is
set forth under the caption Proposal I: Election of Directorsin Holdings Proxy
Statement relating to its 2004 Annual Meeting of Stockholders and is
incorporated by reference into this Form 10-K Report.

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

We have adopted a Code of Business Conduct and Ethics (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 report on Form 8-K
in accordance with applicable rules and regulations.

Other
information required by Item 10 is set forth under an appropriate
caption in the Proxy Statement and incorporated by reference into this Form
10-K Report .

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




ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation required by Item 11 is 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 Form 10-K
Report.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management required by Item 12 is set forth under the 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 Form 10-K Report.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services required by
Item 14 is set forth under the captions Independent Auditors Fees, Audit
Committee Disclosure and Policy on Audit Committee Pre-Approval in the Proxy
Statement and is incorporated by reference into this Form 10-K Report.

102



---



##### Table of Contents






PART IV




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

(a)(1) Financial Statements

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

America West Holdings Corporation



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Independent Auditors Report - page 43.                                                                                                 
|
| | Report of Independent Accountants - page 44.                                                                                            
|
| | Consolidated Balance Sheets - December 31, 2003 and 2002 - page 45.                                                                     
|
| | Consolidated Statements of Operations -Years ended December 31, 2003,
2002 and 2001 - page 46.                                          
|
| | Consolidated Statements of Cash Flows-Years ended December 31, 2003,
2002 and 2001  - page 47.                                          
|
| | Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss)-Years ended December 31, 2003, 2002 and 2001  - page 48.
|
| | Notes to Consolidated Financial Statements - page 49.                                                                                   

America West Airlines, Inc.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Independent Auditors Report - page 74.                                                                                    
|
| | Report of Independent Accountants - page 75.                                                                               
|
| | Balance Sheets - December 31, 2003 and
2002 - page 76.                                                                     
|
| | Statements of Operations - Years ended December 31, 2003, 2002 and
2001  - page 77.                                        
|
| | Statements of Cash Flows - Years ended December 31, 2003, 2002 and
2001  - page 78.                                        
|
| | Statements of Stockholders Equity and Comprehensive Income
(Loss)-Years ended December 31, 2003, 2002 and 2001  - page 79.
|
| | Notes to Financial Statements - page 80.                                                                                   

(a)(2) Financial Statement Schedules

America West Holdings Corporation



| |                                                                              
| | -----------------------------------------------------------------------------
| | Independent Auditors Report on Schedule
- page 112.                         
|
| | Report of Independent Accountants on Financial Statement Schedule -
page 113.
|
| | Schedule II: Valuation and Qualifying
Accounts - page 114.                   

America West Airlines, Inc.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Independent Auditors Report on Schedule
- page 115.                         
|
| | Report of Independent Accountants on Financial Statement Schedule -
page 116.
|
| | Schedule II: Valuation and Qualifying
Accounts - page 117.                   

103



---



##### Table of Contents



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

(b)  Reports on Form 8-K



| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Holdings and AWA filed a report on Form 8-K dated October 2, 2003,
furnishing under Item 12 a press release dated October 2, 2003 announcing
certain traffic statistics for September 2003.                                                                         
|
| | Holdings and AWA filed a report on Form 8-K dated October 21, 2003,
furnishing under Item 12 a press release dated October 21, 2003
announcing the Companys results for the third quarter ended September
30, 2003.                                                
|
| | Holdings and AWA filed a report on Form 8-K dated November 4, 2003,
furnishing under Item 12 a press release dated November 4, 2003
announcing certain traffic statistics for October 2003.                                                                         
|
| | Holdings and AWA filed a report on Form 8-K dated December 2, 2003,
furnishing under Item 12 a press release dated December 2, 2003
announcing certain traffic statistics for November 2003.                                                                        
|
| | Holdings and AWA filed a report on Form 8-K dated December 30, 2003,
filing under Item 5 a press release dated December 30, 2003 announcing
that it had been informed by the Air Line Pilots Association that its
pilots have voted to ratify a three-year contract.

(c) Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|2.2     |  | Agreement and Plan of Merger, dated as of December 19, 1996, by and among
America West Holdings Corporation (Holdings), America West Airlines, Inc.
(AWA) and AWA Merger, Inc., with an effective date and time as of midnight
on December 31, 1996  Incorporated by reference to Exhibit 2.1 to Holdings
Registration Statement on Form 8-B dated January 13, 1997.
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|3.1     |  | Restated Certificate of Incorporation of AWA (included in Exhibit 2.2 above).                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|3.2     |  | Restated Bylaws of AWA  Incorporated by reference to Exhibit 3.2 to AWAs
Annual Report on Form 10-K for the quarter ended December 31, 2002.                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|3.3     |  | Certificate of Incorporation of Holdings (filed with the Secretary of State
of the State of Delaware on December 13, 1996)  Incorporated by reference to
Exhibit 3.1 of Holdings Registration Statement on Form 8-B dated January 13,
1997.                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|3.4     |  | Restated Bylaws of Holdings  Incorporated by reference to Exhibit 3.4 to
AWAs Annual Report on Form 10-K for the quarter ended December 31, 2002.                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.1     |  | Indenture for 10 3/4% Senior Unsecured Notes due 2005  Incorporated by
reference to Exhibit 4.1 to AWAs Registration Statement on Form S-4 dated
August 7, 1995 (File No. 33-61099).                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.2     |  | Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.3     |  | 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. 
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.4     |  | 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.                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                           
|4.5     |  | 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.                                          

104



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.6     |  | 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.                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.7     |  | Stock Option Agreement, dated as of December 31, 1996, between Holdings and
AWA  Incorporated by reference to Exhibit 4.5 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.8     |  | Registration Rights Agreement, dated as of August 25, 1994, among AWA, AmWest
Partners, L.P. and other holders  Incorporated by reference to Exhibit 4.6
to the AWAs Current Report on Form 8-K dated August 25, 1994 (File No.
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.9     |  | Assumption of Certain Obligations Under Registration Rights Agreement
executed by Holdings for the benefit of TPG Partners, L.P., TPG Parallel I,
L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc.,
Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund,
L.P.  Incorporated by reference to Exhibit 4.7 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.10    |  | Form of Pass Through Trust Agreement, dated as of November 26, 1996, between
AWA and Fleet National Bank, as Trustee  Incorporated by reference to
Exhibit 4.1 to AWAs Current Report on Form 8-K dated November 26, 1996 (File
No. 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.12    |  | Form of Pass Through Trust Agreement, dated as of June 17, 1997, between AWA
and Fleet National Bank, as Trustee  Incorporated by reference to Exhibit
4.5 to AWAs Registration Statement on Form S-3 dated June 4, 1997 (File No.
333-27351).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.13    |  | Forms of Pass Through Trust Agreements, dated as of October 6, 1998, between
AWA and Wilmington Trust Company, as Trustee  Incorporated by reference to
Exhibits 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on
Form S-4 dated March 25, 1999 (File No. 333-71615).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.14    |  | Pass Through Trust Agreements, dated as of September 21, 1999, between AWA
and Wilmington Trust Company, as Trustee, made with respect to the formation
of America West Airlines Pass Through Trusts, Series 1999-1G-S, 1999-1G-O,
1999-1C-S and 1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, the issuance of 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, the issuance of
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and 1999-1G-O, and
the issuance of 8.54% Exchange Pass Through Certificates, Series 1999-1C-S
and 1999-1C-O  Incorporated by reference to AWAs Quarterly Report on Form
10-Q for the period ended September 30, 1999 (File No. 000-12337).                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.15    |  | Insurance and Indemnity Agreement, dated as of September 21, 1999, among AWA,
Ambac Assurance Corporation as Policy Provider and Wilmington Trust Company
as Subordination Agent and Trustee under the Pass Through Trust 1999-1G-O 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated March 16, 2000 (File No. 333-93393).                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.16    |  | Pass Through Trust Agreement, dated as of July 7, 2000, between AWA, and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2000-1G-0, 2000-1G-S,
2000-1C-O and 2000-1C-S, the issuance of 8.057% Initial Pass Through
Certificates, Series 2000-1G-O and 2000-1G-S, the issuance of 9.244% Initial
Pass Through Certificates, Series 2000-1C-O and 2000-1C-S, the issuance of
8.057% Exchange Pass Through Certificates, Series 2000-1G-O and 2000-1G-S and
the issuance of 9.244% Exchange Pass Through Certificates, Series 2000-1C-O
and 2000-1C-S  Incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6
to AWAs Registration Statement on Form S-4 dated September 12, 2002 (File
No. 333-44930).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.17    |  | Insurance and Indemnity Agreement, dated as of July 7, 2000, among AWA, Ambac
Assurance Corporation as Policy Provider and Wilmington Trust company as
Subordination Agent and Trustee under the Pass Through Trust 2000-1G 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated September 12, 2002 (File No. 333-44930).                                                                                                                                                                                                                                                                                                                                                                                                                      

105



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.18    |  | Pass Through Trust Agreement, dated as of May 17, 2001, between AWA and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2001-1G-O, 2001-1G-S,
2001-1C-O, 2001-1C-S, 2001-1D-O and 2001-1D-S, the issuance of 7.10% Initial
Pass Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of
8.37% Initial Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, the
issuance of Six-Month LIBOR plus 3.20% Initial Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S, the issuance of 7.10% Exchange Pass
Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of 8.37%
Exchange Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, and the
issuance of Six-Month LIBOR plus 3.20% Exchange Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S  Incorporated by reference to Exhibits
4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on Form S-4
dated February 14, 2002 (File No. 333-69356).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.19    |  | Insurance and Indemnity Agreement (Series G), dated as of May 17, 2001, among
AWA, Ambac Assurance Corporation as Policy Provider and Wilmington Trust
company as Subordination Agent  Incorporated by reference to Exhibit 4.20 to
AWAs Registration Statement on Form S-4 dated February 14, 2002 (File No.
333-69356).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.20    |  | Indenture, dated as of January 18, 2002, between America West Holdings
Corporation and Wilmington Trust Company, as Trustee and not in its
individual capacity, for America West Holdings Corporation 7.5% Convertible
Senior Notes due 2009  Incorporated by reference to Exhibit 4.15 to
Holdings and AWAs Current Report on Form 8-K dated January 31, 2002 (File
Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.21    |  | Form of America West Holdings Corporation 7.5% Convertible Senior Notes due
2009  Incorporated by reference to Exhibit 4.16 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.22    |  | Registration Rights Agreement, dated January 18, 2002, with respect to shares
of Class B Common Stock underlying the America West Holdings Corporation 7.5%
Convertible Senior Notes due 2009  Incorporated by reference to Exhibit 4.17
to Holdings and AWAs Current Report on Form 8-K dated January 31, 2002
(File Nos. 001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.23    |  | Guaranty, dated as of January 18, 2002, by America West Airlines, Inc., in
favor of the Holders and the Trustee under the Indenture dated January 18,
2002  Incorporated by reference to Exhibit 4.18 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.24    |  | Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002,
issued to the Air Transportation Stabilization Board and the other warrant
recipients under the $429,000,000 Loan Agreement dated January 18, 2002 
Incorporated by reference to Exhibit 4.19 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.25    |  | Registration Rights Agreement, dated January 18, 2002, between America West
Holdings Corporation and the Air Transportation Stabilization Board with
respect to shares of Class B Common Stock underlying the Warrant to Purchase
Class B Common Stock  Incorporated by reference to Exhibit 4.20 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.26    |  | Warrant Registration Rights Agreement between America West Holdings
Corporation and the other warrant recipients under the $429,000,000 Loan
Agreement dated January 18, 2002, with respect to shares of Class B Common
Stock underlying their Warrants to Purchase Class B Common Stock 
Incorporated by reference to Exhibit 4.21 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1    |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

106



---



##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                  
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|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(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).                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|+10.5    |  | 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).                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.6(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).                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.7     |  | 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).                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.8     |  | 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).                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.9(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).                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.10    |  | 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).                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.11    |  | 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).                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.12(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).
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.13(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).                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|10.14(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).                                                       

107



---



##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.15    |  | 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).                                                                                                                                                                                                                                        
|        
|10.16    |  | 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.                                                                                                                                                                                                                                                                     
|        
|10.17    |  | 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).                                                                                                                                                                                                                                                                                        
|        
|10.18(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).                                                                                                                                                                                                                                                                                                    
|        
|10.19(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).                                                                                                                                                                                                                                                                                             
|        
|10.20    |  | Amendment No. 1, dated April 16, 2001, to Revolving Credit Agreement dated as
of December 10, 1999, among AWA and The Industrial Bank of Japan, Limited,
Citicorp USA, Inc., Salomon Smith Barney Inc. and Bankers Trust Company (the
Credit Agreement)  Incorporated by reference to Exhibit 10.47 to AWAs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No.
000-12337).                                                                                                                                              
|        
|10.21    |  | Amendment No. 2, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.48 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|        
|10.22    |  | Amendment No. 3, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.49 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).                                                                                                                                                                                                                                                                                                                                          
|        
|10.23(1) |  | Agreement (regarding restrictions on compensation), dated as of January 18,
2002, among America West Airlines, Inc., America West Holdings Corporation
and the Air Transportation Stabilization Board  Incorporated by reference to
Exhibit 10.50 to Holdings and AWAs Current Report on Form 8-K dated January
31, 2002 (File Nos. 001-12649 and 000-12337).                                                                                                                                                                                     
|        
|10.24(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).                                                                                                                                    
|        
|10.25    |  | Amended and Restated Term Loan Agreement, dated as of January 18, 2002, among
America West Airlines, Inc., the Lenders listed therein, The Industrial Bank
of Japan, Limited, as Arranger, Co- Lead Book Manager, Agent and Lender,
Citicorp USA, Inc., as Arranger and Syndication Agent, Salomon Smith Barney,
as Co-Lead Book Manager and Bankers Trust Company, as Documentation Agent 
Incorporated by reference to Exhibit 10.52 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).
|        
|10.26    |  | 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).                                                                                                         
|        
|10.27    |  | 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).                                                                                                                                                                                                                                                                                                                                                                                      

108



---



##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number   |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.28    |  | Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of May
28, 2002, among AWA, the lenders from time to time party thereto, Mizuho
Corporate Bank, Ltd., Citicorp USA, Inc., Salomon Smith Barney, Inc., and
Deutsche Bank Trust Company Americas  Incorporated by reference to Exhibit
10.55 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 (File Nos. 001-12649 and 000-12337).
|        
|10.29    |  | 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.                                                                                                               
|        
|10.30    |  | 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.                                                                                                                                                  
|        
|10.31(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 period quarter September 30, 2003.                                                                                             
|        
|+*10.32  |  | Form of Letter Agreement for Directors Travel.                                                                                                                                                                                                                                                                                                                                                                                                
|        
|*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



---



##### 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: February 27, 2004
    
    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, 2003, 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 February 27, 2004.

SIGNATURE
    
    TITLE/s/ W. Douglas ParkerW. Douglas Parker
    
    Chairman, President and Chief Executive Officer
(Principal Executive Officer)/s/ Derek J. KerrDerek J. Kerr
    
    Senior Vice President
(Principal Financial and Accounting Officer)/s/ Herbert M. BaumHerbert M. Baum
    
    Director/s/ John L. GoolsbyJohn L. Goolsby
    
    Director/s/ Walter T. KlenzWalter T. Klenz
    
    Director/s/ Richard C. KraemerRichard C. Kraemer
    
    Director/s/ Robert J. MillerRobert J. Miller
    
    Director/s/ Denise M. OLearyDenise M. OLeary
    
    Director/s/ Richard P. SchifterRichard P. Schifter
    
    Director/s/ John F. TierneyJohn F. Tierney
    
    Director/s/ J. Steven WhislerJ. Steven Whisler
    
    Director


110



---



##### 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 Airlines, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

AMERICA WEST AIRLINES, INC.Date: February 27, 2004
    
    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, 2003, 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 February 27, 2004.

SIGNATURE
    
    TITLE/s/ W. Douglas ParkerW. Douglas Parker
    
    Chairman, President and Chief Executive Officer
(Principal Executive Officer)/s/ Derek J. KerrDerek J. Kerr
    
    Senior Vice President
(Principal Financial Officer)/s/ Michael R. CarreonMichael R. Carreon
    
    Vice President and Controller
(Principal Accounting Officer)/s/ Herbert M. BaumHerbert M. Baum
    
    Director/s/ John L. GoolsbyJohn L. Goolsby
    
    Director/s/ Walter T. KlenzWalter T. Klenz
    
    Director/s/ Richard C. KraemerRichard C. Kraemer
    
    Director/s/ Robert J. MillerRobert J. Miller
    
    Director/s/ Denise M. OLearyDenise M. OLeary
    
    Director/s/ Richard P. SchifterRichard P. Schifter
    
    Director/s/ John F. TierneyJohn F. Tierney
    
    Director/s/ J. Steven WhislerJ. Steven Whisler
    
    Director


111



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT ON SCHEDULE

The Board of Directors and Stockholders
America West Holdings Corporation:

The audit referred to in our report dated January 21, 2004, included the
related consolidated financial statement schedule for the year ended December
31, 2003, included herein as listed in Item 15(a)(2). The consolidated
financial statement schedule is the responsibility of the Companys management.
Our responsibility is to express an opinion on the consolidated financial
statement schedule based on our audit. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



KPMG LLP
Phoenix, Arizona
January 21, 2004

112



---



##### Table of Contents



Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors
of America West Holdings Corporation:

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



PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

113



---



##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

Balance at
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    
    
    
    
    
    
    
    
    at EndDescription
    
    of Period
    
    Additions
    
    Deductions
    
    of PeriodAllowance for doubtful receivables:Year ended December 31, 2003
    
    $
    6,767
    
    
    $
    1,450
    
    
    $
    2,410
    
    
    $
    5,807Year ended December 31, 2002
    
    $
    3,216
    
    
    $
    6,755
    
    
    $
    3,204
    
    
    $
    6,767Year ended December 31, 2001
    
    $
    1,794
    
    
    $
    9,110
    
    
    $
    7,688
    
    
    $
    3,216Allowance for obsolescence:Year ended December 31, 2003
    
    $
    9,261
    
    
    $
    3,450
    
    
    $
    457
    
    
    $
    12,254Year ended December 31, 2002
    
    $
    7,249
    
    
    $
    3,029
    
    
    $
    1,017
    
    
    $
    9,261Year ended December 31, 2001
    
    $
    5,439
    
    
    $
    2,478
    
    
    $
    668
    
    
    $
    7,249Valuation allowance on deferred tax asset, net:Year ended December 31, 2003
    
    $
    78,787
    
    
    $
    3,359
    
    
    $
    20,692
    
    
    $
    61,454Year ended December 31, 2002
    
    $
    40,650
    
    
    $
    46,124
    
    
    $
    7,987
    
    
    $
    78,787Year ended December 31, 2001
    
    $
    27,128
    
    
    $
    13,931
    
    
    $
    409
    
    
    $
    40,650Leased aircraft return provision:Year ended December 31, 2003
    
    $
    22,441
    
    
    $
    9,000
    
    
    $
    4,569
    
    
    $
    26,872Year ended December 31, 2002
    
    $
    11,277
    
    
    $
    17,636
    
    
    $
    6,472
    
    
    $
    22,441Year ended December 31, 2001
    
    $
    12,590
    
    
    $
    1,788
    
    
    $
    3,101
    
    
    $
    11,277


114



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT ON SCHEDULE

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

The audit referred to in our report dated January 21, 2004, included the
related financial statement schedule for the year ended December 31, 2003,
included herein as listed in Item 15(a)(2). The financial statement schedule
is the responsibility of the Companys management. Our responsibility is to
express an opinion on the financial statement schedule based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



KPMG LLP
Phoenix, Arizona
January 21, 2004

115



---



##### Table of Contents



Report of Independent Accountants on
Financial Statement Schedule

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

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



PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 2003

116



---



##### Table of Contents



AMERICA WEST AIRLINES, INC.
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands)

Balance at
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    
    
    
    
    
    
    
    
    at EndDescription
    
    of Period
    
    Additions
    
    Deductions
    
    of PeriodAllowance for doubtful receivables:Year ended December 31, 2003
    
    $
    5,354
    
    
    $
    1,260
    
    
    $
    1,982
    
    
    $
    4,632Year ended December 31, 2002
    
    $
    1,945
    
    
    $
    6,456
    
    
    $
    3,047
    
    
    $
    5,354Year ended December 31, 2001
    
    $
    1,401
    
    
    $
    7,860
    
    
    $
    7,316
    
    
    $
    1,945Allowance for obsolescence:Year ended December 31, 2003
    
    $
    9,261
    
    
    $
    3,450
    
    
    $
    457
    
    
    $
    12,254Year ended December 31, 2002
    
    $
    7,249
    
    
    $
    3,029
    
    
    $
    1,017
    
    
    $
    9,261Year ended December 31, 2001
    
    $
    5,439
    
    
    $
    2,478
    
    
    $
    668
    
    
    $
    7,249Valuation allowance on deferred tax asset, net:Year ended December 31, 2003
    
    $
    77,987
    
    
    $
    3,359
    
    
    $
    21,635
    
    
    $
    59,711Year ended December 31, 2002
    
    $
    33,387
    
    
    $
    52,587
    
    
    $
    7,987
    
    
    $
    77,987Year ended December 31, 2001
    
    $
    27,128
    
    
    $
    6,668
    
    
    $
    409
    
    
    $
    33,387Leased aircraft return provision:Year ended December 31, 2003
    
    $
    22,441
    
    
    $
    9,000
    
    
    $
    4,569
    
    
    $
    26,872Year ended December 31, 2002
    
    $
    11,277
    
    
    $
    17,636
    
    
    $
    6,472
    
    
    $
    22,441Year ended December 31, 2001
    
    $
    12,590
    
    
    $
    1,788
    
    
    $
    3,101
    
    
    $
    11,277


117



---



##### 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
    
    Restated Bylaws of AWA  Incorporated by reference to Exhibit 3.2 to AWAs
Annual Report on Form 10-K for the quarter ended December 31, 2002.3.3
    
    Certificate of Incorporation of Holdings (filed with the Secretary of State
of the State of Delaware on December 13, 1996)  Incorporated by reference to
Exhibit 3.1 of Holdings Registration Statement on Form 8-B dated January 13,
1997.3.4
    
    Restated Bylaws of Holdings  Incorporated by reference to Exhibit 3.4 to
AWAs Annual Report on Form 10-K for the quarter ended December 31, 2002.4.1
    
    Indenture for 10 3/4% Senior Unsecured Notes due 2005  Incorporated by
reference to Exhibit 4.1 to AWAs Registration Statement on Form S-4 dated
August 7, 1995 (File No. 33-61099).4.2
    
    Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).4.3
    
    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, 2003.4.4
    
    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, 2003.4.5
    
    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, 2003.4.6
    
    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, 2003.4.7
    
    Stock Option Agreement, dated as of December 31, 1996, between Holdings and
AWA  Incorporated by reference to Exhibit 4.5 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.4.8
    
    Registration Rights Agreement, dated as of August 25, 1994, among AWA, AmWest
Partners, L.P. and other holders  Incorporated by reference to Exhibit 4.6
to the AWAs Current Report on Form 8-K dated August 25, 1994 (File No.
000-12337).4.9
    
    Assumption of Certain Obligations Under Registration Rights Agreement
executed by Holdings for the benefit of TPG Partners, L.P., TPG Parallel I,
L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Airlines, Inc.,
Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund,
L.P.  Incorporated by reference to Exhibit 4.7 to Holdings Registration
Statement on Form 8-B dated January 13, 1997.


118



---



##### Table of Contents



ExhibitNumber
    
    Title4.10
    
    Form of Pass Through Trust Agreement, dated as of November 26, 1996, between
AWA and Fleet National Bank, as Trustee  Incorporated by reference to
Exhibit 4.1 to AWAs Current Report on Form 8-K dated November 26, 1996 (File
No. 000-12337).4.12
    
    Form of Pass Through Trust Agreement, dated as of June 17, 1997, between AWA
and Fleet National Bank, as Trustee  Incorporated by reference to Exhibit
4.5 to AWAs Registration Statement on Form S-3 dated June 4, 1997 (File No.
333-27351).4.13
    
    Forms of Pass Through Trust Agreements, dated as of October 6, 1998, between
AWA and Wilmington Trust Company, as Trustee  Incorporated by reference to
Exhibits 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on
Form S-4 dated March 25, 1999 (File No. 333-71615).4.14
    
    Pass Through Trust Agreements, dated as of September 21, 1999, between AWA
and Wilmington Trust Company, as Trustee, made with respect to the formation
of America West Airlines Pass Through Trusts, Series 1999-1G-S, 1999-1G-O,
1999-1C-S and 1999-1C-O and the issuance of 7.93% Initial Pass Through
Certificates Series 1999-1G-S and 1999-1G-O, the issuance of 8.54% Initial
Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, the issuance of
7.93% Exchange Pass Through Certificates, Series 1999-1G-S and 1999-1G-O, and
the issuance of 8.54% Exchange Pass Through Certificates, Series 1999-1C-S
and 1999-1C-O  Incorporated by reference to AWAs Quarterly Report on Form
10-Q for the period ended September 30, 1999 (File No. 000-12337).4.15
    
    Insurance and Indemnity Agreement, dated as of September 21, 1999, among AWA,
Ambac Assurance Corporation as Policy Provider and Wilmington Trust Company
as Subordination Agent and Trustee under the Pass Through Trust 1999-1G-O 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated March 16, 2000 (File No. 333-93393).4.16
    
    Pass Through Trust Agreement, dated as of July 7, 2000, between AWA, and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2000-1G-0, 2000-1G-S,
2000-1C-O and 2000-1C-S, the issuance of 8.057% Initial Pass Through
Certificates, Series 2000-1G-O and 2000-1G-S, the issuance of 9.244% Initial
Pass Through Certificates, Series 2000-1C-O and 2000-1C-S, the issuance of
8.057% Exchange Pass Through Certificates, Series 2000-1G-O and 2000-1G-S and
the issuance of 9.244% Exchange Pass Through Certificates, Series 2000-1C-O
and 2000-1C-S  Incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6
to AWAs Registration Statement on Form S-4 dated September 12, 2002 (File
No. 333-44930).4.17
    
    Insurance and Indemnity Agreement, dated as of July 7, 2000, among AWA, Ambac
Assurance Corporation as Policy Provider and Wilmington Trust company as
Subordination Agent and Trustee under the Pass Through Trust 2000-1G 
Incorporated by reference to Exhibits 4.15 to AWAs Registration Statement on
Form S-4 dated September 12, 2002 (File No. 333-44930).4.18
    
    Pass Through Trust Agreement, dated as of May 17, 2001, between AWA and
Wilmington Trust Company, as Trustee, made with respect to the formation of
America West Airlines Pass Through Trust, Series 2001-1G-O, 2001-1G-S,
2001-1C-O, 2001-1C-S, 2001-1D-O and 2001-1D-S, the issuance of 7.10% Initial
Pass Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of
8.37% Initial Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, the
issuance of Six-Month LIBOR plus 3.20% Initial Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S, the issuance of 7.10% Exchange Pass
Through Certificates, Series 2001-1G-O and 2001-1G-S, the issuance of 8.37%
Exchange Pass Through Certificates, Series 2001-1C-O and 2001-1G-S, and the
issuance of Six-Month LIBOR plus 3.20% Exchange Pass Through Certificates,
Series 2001-1D-O and Series 2001-1D-S  Incorporated by reference to Exhibits
4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 to AWAs Registration Statement on Form S-4
dated February 14, 2002 (File No. 333-69356).4.19
    
    Insurance and Indemnity Agreement (Series G), dated as of May 17, 2001, among
AWA, Ambac Assurance Corporation as Policy Provider and Wilmington Trust
company as Subordination Agent  Incorporated by reference to Exhibit 4.20 to
AWAs Registration Statement on Form S-4 dated February 14, 2002 (File No.
333-69356).


119



---



##### Table of Contents



ExhibitNumber
    
    Title4.20
    
    
    Indenture, dated as of January 18, 2002, between America West Holdings
Corporation and Wilmington Trust Company, as Trustee and not in its
individual capacity, for America West Holdings Corporation 7.5% Convertible
Senior Notes due 2009  Incorporated by reference to Exhibit 4.15 to
Holdings and AWAs Current Report on Form 8-K dated January 31, 2002 (File
Nos. 001-12649 and 000-12337).4.21
    
    
    Form of America West Holdings Corporation 7.5% Convertible Senior Notes due
2009  Incorporated by reference to Exhibit 4.16 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).4.22
    
    
    Registration Rights Agreement, dated January 18, 2002, with respect to shares
of Class B Common Stock underlying the America West Holdings Corporation 7.5%
Convertible Senior Notes due 2009  Incorporated by reference to Exhibit 4.17
to Holdings and AWAs Current Report on Form 8-K dated January 31, 2002
(File Nos. 001-12649 and 000-12337).4.23
    
    
    Guaranty, dated as of January 18, 2002, by America West Airlines, Inc., in
favor of the Holders and the Trustee under the Indenture dated January 18,
2002  Incorporated by reference to Exhibit 4.18 to Holdings and AWAs
Current Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).4.24
    
    
    Form of Warrant to Purchase Class B Common Stock, dated January 18, 2002,
issued to the Air Transportation Stabilization Board and the other warrant
recipients under the $429,000,000 Loan Agreement dated January 18, 2002 
Incorporated by reference to Exhibit 4.19 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).4.25
    
    
    Registration Rights Agreement, dated January 18, 2002, between America West
Holdings Corporation and the Air Transportation Stabilization Board with
respect to shares of Class B Common Stock underlying the Warrant to Purchase
Class B Common Stock  Incorporated by reference to Exhibit 4.20 to Holdings
and AWAs Current Report on Form 8-K dated January 31, 2002 (File Nos.
001-12649 and 000-12337).4.26
    
    
    Warrant Registration Rights Agreement between America West Holdings
Corporation and the other warrant recipients under the $429,000,000 Loan
Agreement dated January 18, 2002, with respect to shares of Class B Common
Stock underlying their Warrants to Purchase Class B Common Stock 
Incorporated by reference to Exhibit 4.21 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).10.1
    
    
    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(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).+10.5
    
    
    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).


120



---



##### Table of Contents



ExhibitNumber
    
    Title10.6(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).10.7
    
    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).10.8
    
    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).10.9(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).10.10
    
    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).10.11
    
    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).10.12(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).10.13(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).10.14(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).10.15
    
    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).10.16
    
    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, 1994.10.17
    
    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).10.18(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).10.19(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).


121



---



##### Table of Contents



ExhibitNumber
    
    Title10.20
    
    Amendment No. 1, dated April 16, 2001, to Revolving Credit Agreement dated as
of December 10, 1999, among AWA and The Industrial Bank of Japan, Limited,
Citicorp USA, Inc., Salomon Smith Barney Inc. and Bankers Trust Company (the
Credit Agreement)  Incorporated by reference to Exhibit 10.47 to AWAs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No.
000-12337).10.21
    
    Amendment No. 2, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.48 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).10.22
    
    Amendment No. 3, dated July 31, 2001, to the Credit Agreement  Incorporated
by reference to Exhibit 10.49 to AWAs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No. 000-12337).10.23(1)
    
    Agreement (regarding restrictions on compensation), dated as of January 18,
2002, among America West Airlines, Inc., America West Holdings Corporation
and the Air Transportation Stabilization Board  Incorporated by reference to
Exhibit 10.50 to Holdings and AWAs Current Report on Form 8-K dated January
31, 2002 (File Nos. 001-12649 and 000-12337).10.24(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).10.25
    
    Amended and Restated Term Loan Agreement, dated as of January 18, 2002, among
America West Airlines, Inc., the Lenders listed therein, The Industrial Bank
of Japan, Limited, as Arranger, Co- Lead Book Manager, Agent and Lender,
Citicorp USA, Inc., as Arranger and Syndication Agent, Salomon Smith Barney,
as Co-Lead Book Manager and Bankers Trust Company, as Documentation Agent 
Incorporated by reference to Exhibit 10.52 to Holdings and AWAs Current
Report on Form 8-K dated January 31, 2002 (File Nos. 001-12649 and
000-12337).10.26
    
    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).10.27
    
    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).10.28
    
    Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of May
28, 2002, among AWA, the lenders from time to time party thereto, Mizuho
Corporate Bank, Ltd., Citicorp USA, Inc., Salomon Smith Barney, Inc., and
Deutsche Bank Trust Company Americas  Incorporated by reference to Exhibit
10.55 to Holdings and AWAs Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 (File Nos. 001-12649 and 000-12337).10.29
    
    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, 2002.10.30
    
    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.


122



---



##### Table of Contents



ExhibitNumber
    
    Title10.31(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 period quarter September 30, 2003.+*10.32
    
    Form of Letter Agreement for Directors Travel.*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.

123