##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q/A
  (Mark One)þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934For the quarterly period ended March 31, 2004oro
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period
from       to
 Commission file number
    
    1-12649
 AMERICA WEST HOLDINGS CORPORATION (Exact name of registrant as specified in its charter)
 DELAWARE
    
    86-0847214(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 111 WEST RIO SALADO PARKWAY, TEMPE, ARIZONA
    
    85281(Address of principal executive offices)
    
    (Zip Code)
 (480) 693-0800(Registrants telephone number, including area code)N/A(Former name, former address and former fiscal year, if changed since last report)
 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 or organization)
    
    (I.R.S. Employer Identification No.)
 4000 EAST SKY HARBOR BLVD, PHOENIX, ARIZONA
    
    85034(Address of principal executive offices)
    
    (Zip Code)
 (480) 693-0800(Registrants telephone number, including area code)N/A(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether each registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ Noo 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
    
    oAmerica West Airlines, Inc.
    
    Yes
    
    o
    
    No
    
    þ
 As of April 20, 2004, America West Holdings Corporation has 859,117 shares of Class A common stock

and 35,121,045 shares of Class B common stock outstanding. As of April 20, 2004, America West
Airlines, Inc. has 1,000 shares of Class B common stock outstanding, all of which are held by
America West Holdings Corporation.




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Explanatory Note In February 2005, management undertook a review of America West Airlines, Inc.s (AWA or the
Airline) accounting for its fuel hedging transactions. As a result of this review, management
concluded that AWAs fuel hedging transactions did not qualify for hedge accounting under U.S.
generally accepted accounting principles and that the financial statements of America West Holdings
Corporation (Holdings or the Company), AWAs parent corporation, and AWA for prior periods
required restatement to reflect the fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of Holdings and AWA. In addition, the
accompanying unaudited Condensed Consolidated Statements of Operations of Holdings and the
unaudited Condensed Statements of Operations of AWA for the three months ended March 31, 2004 and
2003 have also been restated to reflect the aforementioned accounting errors. The Company has also
reclassified all gains and losses from settled fuel hedges and the mark-to-market adjustments on
open fuel hedges from Aircraft Fuel to Realized And
Unrealized Gains On Fuel Hedging Instruments,
Net, on the Consolidated Statements of Operations for both Holdings and AWA. See Note 2,
Restatement of Previously Reported Amountsin the accompanying Condensed Consolidated Financial
Statements of Holdings (including the notes thereto), Note 2, Restatement of Previously Reported
Amountsin the accompanying condensed financial statements of AWA (including the notes thereto)
and Managements Discussion and Analysis of Financial Condition and Results of Operations for the
impact of the restatements and reclassifications. This amended Quarterly Report on Form 10-Q/A
amends and restates those items of the previously filed Form 10-Q for the three months ended March
31, 2004, which have been affected by the revisions. This amended Quarterly Report on Form 10-Q/A has not been updated except as required to
reflect the effects of the foregoing restatement. In order to preserve the nature and character of
the disclosures set forth in such items as originally filed, no attempt has been made in this
amendment to modify or update the disclosures in the original Quarterly Report on Form 10-Q except
for the foregoing restatement. As a result, this amended Quarterly Report on Form 10-Q/A contains
forward-looking information which has not been updated for events subsequent to the date of the
original filing, and all information contained in this amended Quarterly Report on Form 10-Q/A and
the original Quarterly Report on Form 10-Q is subject to updating and supplementing as provided in
the periodic reports that we have filed and will file with the Securities and Exchange Commission
after the original filing date of the Quarterly Report on Form 10-Q. 2




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TABLE OF CONTENTS  PART I - FINANCIAL INFORMATIONITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  AMERICA WEST HOLDINGS CORPORATIONITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INCITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESIGNATUREExhibit IndexEX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2    Table of Contents  
 PART I - FINANCIAL INFORMATION The Company is the holding company that owns all of the stock of AWA. AWA, the eighth
largest passenger airline and the second largest low cost carrier in the United States,
accounted for most of Holdings revenues and expenses in 2003. The Leisure Company (TLC),
previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and
continues to operate as the America West Vacations division of AWA. Through its America West
Vacations division, AWA also sells individual and group travel packages. This amended
Quarterly Report on Form 10-Q/A is filed by both Holdings and AWA and includes the financial
statements of each company in Item 1A and Item 1B, respectively. 
 ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  AMERICA WEST HOLDINGS CORPORATION. AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2004
    
    
    2003(as restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    321,222
    
    
    $
    403,076Short-term investments
    
    
    76,656
    
    
    
    72,890Restricted cash
    
    
    42,900
    
    
    
    42,900Accounts receivable, net
    
    
    94,777
    
    
    
    77,235Expendable spare parts and supplies, net
    
    
    57,495
    
    
    
    58,575Prepaid expenses
    
    
    189,552
    
    
    
    129,368Total current assets
    
    
    782,602
    
    
    
    784,044Property and equipment:Flight equipment
    
    
    856,718
    
    
    
    858,395Other property and equipment
    
    
    275,927
    
    
    
    273,284Equipment purchase deposits
    
    
    49,550
    
    
    
    46,0501,182,195
    
    
    
    1,177,729Less accumulated depreciation and amortization
    
    
    569,516
    
    
    
    570,017Net property and equipment
    
    
    612,679
    
    
    
    607,712Other assets:Investments in debt securities
    
    
    35,386
    
    
    
    40,740Restricted cash
    
    
    68,795
    
    
    
    69,876Other assets, net
    
    
    98,710
    
    
    
    112,007Total other assets
    
    
    202,891
    
    
    
    222,623$
    1,598,172
    
    
    $
    1,614,379
 See accompanying notes to condensed consolidated financial statements. 3




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2004
    
    
    2003(as restated)Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    107,094
    
    
    $
    103,899Current obligations under capital leases
    
    
    6,602
    
    
    
    3,442Accounts payable
    
    
    178,452
    
    
    
    210,288Air traffic liability
    
    
    218,792
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    45,897
    
    
    
    61,045Accrued taxes
    
    
    43,719
    
    
    
    36,846Other accrued liabilities
    
    
    81,150
    
    
    
    59,277Total current liabilities
    
    
    681,706
    
    
    
    649,283Long-term debt, less current maturities
    
    
    643,351
    
    
    
    688,965Capital leases, less current obligations
    
    
    5,141
    
    
    
    8,467Deferred credits and other liabilities
    
    
    143,967
    
    
    
    141,675Stockholders 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 March
31, 2004 and December 31, 2003
    
    
    8
    
    
    
    8Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 51,393,606 shares at March 31, 2004
and 51,239,200 shares at December 31, 2003
    
    
    514
    
    
    
    512Additional paid-in capital
    
    
    631,648
    
    
    
    631,269Accumulated deficit
    
    
    (201,157
    )
    
    
    (199,594
    )431,013
    
    
    
    432,195Less: Cost of Class B common stock in treasury, 16,364,550
shares at March 31, 2004 and 16,283,895 shares at December 31, 2003
    
    
    (307,006
    )
    
    

    (306,206
    )Total stockholders equity
    
    
    124,007
    
    
    
    125,989$
    1,598,172
    
    
    $
    1,614,379
 See accompanying notes to condensed consolidated financial statements. 4




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(unaudited) Three Months EndedMarch 31,2004
    
    
    2003(as restated)Operating revenues:Passenger
    
    $
    537,333
    
    
    $
    500,574Cargo
    
    
    6,903
    
    
    
    7,056Other
    
    
    32,308
    
    
    
    15,603Total operating revenues
    
    
    576,544
    
    
    
    523,233Operating expenses:Salaries and related costs
    
    
    166,275
    
    
    
    163,094Aircraft rents
    
    
    75,185
    
    
    
    75,154Other rents and landing fees
    
    
    41,241
    
    
    
    39,760Aircraft fuel
    
    
    114,212
    
    
    
    103,592Realized and
unrealized gains on fuel hedging instruments, net
    
    
    (404
    )
    
    
    (8,833
    )Agency commissions
    
    
    6,750
    
    
    
    8,824Aircraft maintenance materials and repairs
    
    
    50,054
    
    
    
    64,208Depreciation and amortization
    
    
    13,791
    
    
    
    17,663Other
    
    
    94,351
    
    
    
    107,314Total operating expenses
    
    
    561,455
    
    
    
    570,776Operating income (loss)
    
    
    15,089
    
    
    
    (47,543
    )Nonoperating income (expenses):Interest income
    
    
    1,518
    
    
    
    1,407Interest expense, net
    
    
    (19,752
    )
    
    
    (18,505
    )Other, net
    
    
    1,582
    
    
    
    1,220Total nonoperating expenses, net
    
    
    (16,652
    )
    
    
    (15,878
    )Loss before income taxes

    
    
    (1,563
    )
    
    
    (63,421
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (1,563
    )
    
    $
    (63,421
    )Loss per share:Basic
    
    $
    (0.04
    )
    
    $
    (1.88
    )Diluted
    
    $
    (0.04
    )
    
    $
    (1.88
    )Shares used for computation:Basic
    
    
    35,851
    
    
    
    33,713Diluted
    
    
    35,851
    
    
    
    33,713
 See accompanying notes to condensed consolidated financial statements. 5




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited) Three Months EndedMarch 31,2004
    
    
    2003Net cash used in operating activities
    
    $
    (1,425
    )
    
    $
    (21,767
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (36,979
    )
    
    
    (46,904
    )Purchases of short-term investments
    
    
    (26,166
    )
    
    
    Sales of short-term investments
    
    
    27,235
    
    
    
    24,738Purchases of investments in debt securities
    
    
    (15,000
    )
    
    
    Sales of investments in debt securities
    
    
    15,000
    
    
    
    Decrease in restricted cash
    
    
    1,081
    
    
    
    Proceeds from disposition of assets
    
    
    1,397
    
    
    
    23,643Net cash provided by (used in) investing activities
    
    
    (33,432
    )
    
    
    1,477Cash flows from financing activities:Repayment of debt
    
    
    (47,370
    )
    
    
    (5,791
    )Other
    
    
    373
    
    
    
    Net cash used in financing activities
    
    
    (46,997
    )
    
    
    (5,791
    )Net decrease in cash and cash equivalents
    
    
    (81,854
    )
    
    
    (26,081
    )Cash and cash equivalents at beginning of period
    
    
    403,076
    
    
    
    335,745Cash and cash equivalents at end of period
    
    $
    321,222
    
    
    $
    309,664Cash, cash equivalents, short-term investments and investments in debt securities at end of period
    
    $
    433,264
    
    
    $
    309,664Cash paid for:Interest, net of amounts capitalized
    
    $
    7,700
    
    
    $
    5,766Income taxes paid
    
    $
    1,374
    
    
    $
    59Non-cash investing and financing activities:Payment in kind notes issued, net of returns
    
    $
    379
    
    
    $
    374Exercise of warrants
    
    $
    2
    
    
    $
    Acquisition of shares due to loan default
    
    $
    800
    
    
    $
    Reclassification of investments in debt securities to short-term investments
    
    $
    5,344
    
    
    $
    Notes payable issued under the aircraft purchase agreement
    
    $
    3,500
    
    
    $
    
 See accompanying notes to condensed consolidated financial statements. 6




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004 1. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements include the accounts of Holdings
and its wholly owned subsidiary, AWA. TLC, previously a wholly owned subsidiary of Holdings,
was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations
division of AWA. These statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission and, in accordance with those rules and regulations,
certain information and footnotes required by generally accepted accounting principles have been
omitted. In the opinion of management, the condensed consolidated financial statements reflect
all adjustments, which are of a normal recurring nature, necessary for a fair presentation.
Certain prior year amounts have been reclassified to conform with current year presentation.
The accompanying condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2003. 2. RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS Fuel Hedging Instruments In February 2005, management undertook a review of the Companys accounting for its fuel
hedging transactions. As a result of this review, management concluded that the Companys fuel
hedging transactions did not qualify for hedge accounting under U.S. generally accepted
accounting principles. Accordingly, management concluded that the financial statements for
prior periods required restatement to reflect the fair value of fuel hedging contracts in the
balance sheets and statements of stockholders equity and comprehensive income of Holdings and
AWA. Specifically, (i) Holdings has restated its balance sheet and statement of stockholders
equity and comprehensive income as of and for the year ended December 31, 2003, and (ii) AWA has
restated its balance sheet and statement of stockholders equity and comprehensive income as of
and for the year ended December 31, 2003. The Company restated its 2003 consolidated balance
sheet to reduce the carrying value of its fuel hedging instruments asset by $12.5 million, which
served to record the asset at fair value of open contracts as of December 31, 2003. The
restatement also eliminated $12.5 million in accumulated other comprehensive income, $2.0
million of which was previously recorded in the 2003 beginning balance of accumulated other
comprehensive income. The restated amount of other assets is $112.0 million in the consolidated
balance sheet as of December 31, 2003. The restatement eliminates the balance in accumulated
other comprehensive income in the consolidated balance sheet as of December 31, 2003 and the
consolidated statement of stockholders equity and comprehensive income for the year ended
December 31, 2003. The unaudited Condensed Consolidated Statements of Operations for the three months ended
March 31, 2004 and 2003 have also been restated to reflect the accounting for fuel hedging
instruments pursuant to managements determination that the Company did not qualify for hedge
accounting under Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities(SFAS No. 133). In addition, the restated amounts also
reflect corrections to properly reflect the fair value of open fuel hedging instruments at each
quarter end. The Company has also reclassified all gains and losses from settled fuel hedges
and the mark-to-market adjustments on open fuel hedges from
Aircraft Fuel to Realized And
Unrealized Gains On Fuel Hedging Instruments, Net on the Condensed Consolidated Statements of
Operations. The Company restated its March 31, 2004 condensed consolidated balance sheet to
reduce the carrying value of its fuel hedging instruments asset by $14.8 million which served to
record the asset at fair value of open contracts as of March 31, 2004. The following summarizes
the changes related to the restatement and reclassifications as referenced above. 7




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004 Three Months Ended
    
    
    Three Months EndedMarch 31, 2004
    
    
    March 31, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands except per share data)Aircraft fuel
    
    $
    111,069
    
    
    $
    114,212
    (1)
    
    $
    93,356
    
    
    $
    103,592
    (3)Realized and unrealized
gains on fuel hedging instruments,
net
    
    
    
    
    
    
    (404
    )(1)(2)
    
    
    
    
    
    
    (8,833
    )(3)(4)Total operating expenses
    
    
    558,716
    
    
    
    561,455
    (2)
    
    
    569,373
    
    
    
    570,776
    (4)Operating income (loss)
    
    
    17,828
    
    
    
    15,089
    (2)
    
    
    (46,140
    )
    
    
    (47,543
    )(4)Net income (loss)
    
    $
    1,176
    
    
    $
    (1,563
    ) (2)
    
    $
    (62,018
    )
    
    $
    (63,421
    ) (4)Net income (loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (1.84
    )
    
    $
    (1.88
    )Diluted
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (1.84
    )
    
    $
    (1.88
    )
   (1)
    Reflects reclassification of $3.1 million net credit from Aircraft Fuel
expense to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(2)
    Reflects the restatement of $2.7 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized
and Unrealized Gains
on Fuel Hedging Instruments, Net.(3)
    Reflects reclassification of $10.2 million net credit from Aircraft Fuel
expense to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(4)
    Reflects the restatement of $1.4 million net expense to eliminate hedge
accounting for the period presented which is reflected in
Realized and Unrealized Gains
on Fuel Hedging Instruments, Net. 3. STOCK OPTIONS The Company accounts for its stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,and
related interpretations. As such, compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price. The Company
issues its stock options at a price equal to fair market value on the date of grant. Accordingly,
no compensation cost has been recognized for stock options in the accompanying condensed
consolidated financial statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation,the Companys net loss and loss per
share would have been increased to the pro forma amounts indicated below: Three Months EndedMarch 31,2004
    
    
    2003(in thousands except per share data)(as restated)Net loss, as reported
    
    $
    (1,563
    )
    
    $
    (63,421
    )Stock-based compensation expense
    
    
    (1,270
    )
    
    
    (1,204
    )Pro forma net loss
    
    $
    (2,833
    )
    
    $
    (64,625
    )Loss per share:Basic - as reported
    
    $
    (0.04
    )
    
    $
    (1.88
    )Basic - pro forma
    
    $
    (0.08
    )
    
    $
    (1.92
    )Diluted - as reported
    
    $
    (0.04
    )
    
    $
    (1.88
    )Diluted - pro forma
    
    $
    (0.08
    )
    
    $
    (1.92
    )
 8




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004 4. FLIGHT EQUIPMENT In January 2004, the Company entered into three separate operating leases for Airbus A320
aircraft, two with a lease term of five years and one with a lease term of seven years. These
aircraft are expected to be in service in June 2004. In February 2004, the Company sold one Boeing 737-200 aircraft recognizing a gain of
approximately $0.3 million. The Company recorded this amount in Nonoperating Income (Expenses) 
Other, Netin the accompanying condensed consolidated statements of operations. In the first quarter of 2004, the Company revised the estimated useful life for certain
aircraft and related spare parts inventory as a result of changes in AWAs fleet plan and for
capitalized maintenance on certain of its engines as a result of changes in aircraft utilization.
The net impact of this change in estimate was an increase in net income for the three months ended
March 31, 2004 of $4.0 million. As a result, basic and diluted income per share increased by $0.11
and $0.08, respectively, for the three months ended March 31, 2004. 5. SPECIAL CHARGES In the first quarter of 2004, the Company recorded a $0.6 million reduction in special charges
related to the revision of estimated costs associated with the sale and leaseback of certain
aircraft. This amount is included in Other Expensesin the accompanying condensed consolidated
statements of operations. 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 quarter of 2003, the Company recorded special charges of $1.0 million 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 also 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. The following table presents the payments and other settlements made during the three months
ended March 31, 2004 related to the special charge accruals: ContractReductions-
    
    
    Termination/Sale-Leaseback
    
    
    Fleet Restructuring
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2003
    
    $
    605
    
    
    $
    1,389
    
    
    $
    357
    
    
    $
    2,649
    
    
    $
    5,000Revision of estimate
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Payments
    
    
    (5
    )
    
    
    (180
    )
    
    
    (275
    )
    
    
    (515
    )
    
    
    (975
    )Balance at March 31, 2004
    
    $
    
    
    
    $
    1,209
    
    
    $
    82
    
    
    $
    2,134
    
    
    $
    3,425
 The Company expects to make payments related to these special charges through the fourth quarter of 2005. 9




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004 6. LOSS PER SHARE (EPS) The following table presents the computation of basic and diluted EPS. Three Months EndedMarch 31,2004
    
    
    2003(in thousands except per share data)(as restated)BASIC LOSS PER SHARELoss applicable to common stock
    
    $
    (1,563
    )
    
    $
    (63,421
    )Weighted average common shares outstanding
    
    
    35,851
    
    
    
    33,713Basic loss per share
    
    $
    (0.04
    )
    
    $
    (1.88
    )DILUTED LOSS PER SHARELoss applicable to common stock
    
    $
    (1,563
    )
    
    $
    (63,421
    )Share computation:Weighted average common shares outstanding
    
    
    35,851
    
    
    
    33,713Assumed exercise of stock options and warrants
    
    
    
    
    
    
    Weighted average common shares outstanding
for purposes of computing diluted net loss
per share
    
    
    35,851
    
    
    
    33,713Diluted loss per share
    
    $
    (0.04
    )
    
    $
    (1.88
    )
 For the three months ended March 31, 2004, 2,711,887 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. In addition, 2,568,086 incremental shares from the
assumed exercise of stock options and 14,400,403 warrants issued in conjunction with the government
guaranteed loan and related transactions are not included in the computation of diluted loss per
share because of the antidilutive effect on EPS. In addition, 8,694,000 incremental shares from
assumed conversion of the 7.5% convertible senior notes are not included in the computation of
diluted EPS because of the antidilutive effect on EPS. The shares issuable upon conversion of the
7.25% Senior Exchangeable Notes due 2023 were not included in the computation of diluted earnings
per share since the conditions for conversion have not been met. For the three months ended March 31, 2003, 22,537,000 warrants issued in conjunction with the
government guaranteed loan and related transactions and 7,768,466 stock options 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, 159 incremental shares from
assumed exercise of stock options are not included in the computation of diluted EPS because of the
antidilutive effect on EPS. 7. SEGMENT DISCLOSURES Holdings is one reportable operating segment. Accordingly, the segment reporting financial
data required by SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Informationis included in the accompanying condensed consolidated balance sheets and statements
of operations. 10




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##### Table of Contents



ITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INC. The unaudited condensed balance sheets of AWA, a wholly-owned subsidiary of Holdings, as of
March 31, 2004 and December 31, 2003, the condensed statements of operations for the three months
ended March 31, 2004 and 2003 and the condensed statements of cash flows for the three months ended
March 31, 2004 and 2003, together with the related notes, are set forth on the following pages.
TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and
continues to operate as the America West Vacations division of AWA. See Note 1, Basis of
Presentationand Note 7, Merger of TLC into AWAin Notes to Condensed Financial Statements. AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2004
    
    
    2003(as restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    301,988
    
    
    $
    383,869Short-term investments
    
    
    76,656
    
    
    
    72,890Restricted cash
    
    
    42,900
    
    
    
    42,900Accounts receivable, net
    
    
    94,777
    
    
    
    77,235Advances to parent company and affiliate, net
    
    
    385
    
    
    
    Expendable spare parts and supplies, net
    
    
    57,495
    
    
    
    58,575Prepaid expenses
    
    
    189,468
    
    
    
    129,294Total current assets
    
    
    763,669
    
    
    
    764,763Property and equipment:Flight equipment
    
    
    856,718
    
    
    
    858,395Other property and equipment
    
    
    274,235
    
    
    
    271,592Equipment purchase deposits
    
    
    49,550
    
    
    
    46,0501,180,503
    
    
    
    1,176,037Less accumulated depreciation and amortization
    
    
    568,967
    
    
    
    569,468Net property and equipment
    
    
    611,536
    
    
    
    606,569Other assets:Investments in debt securities
    
    
    35,386
    
    
    
    40,740Restricted cash
    
    
    68,795
    
    
    
    69,876Advances to parent company, net
    
    
    254,792
    
    
    
    254,792Other assets, net
    
    
    97,007
    
    
    
    110,198Total other assets
    
    
    455,980
    
    
    
    475,606$
    1,831,185
    
    
    $
    1,846,938
 See accompanying notes to condensed financial statements. 11




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2004
    
    
    2003(as restated)Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    107,094
    
    
    $
    103,899Current obligations under capital leases
    
    
    6,602
    
    
    
    3,442Accounts payable
    
    
    177,723
    
    
    
    209,372Payable to affiliate, net
    
    
    
    
    
    
    1,927Air traffic liability
    
    
    218,792
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    45,897
    
    
    
    61,045Accrued taxes
    
    
    31,998
    
    
    
    24,117Other accrued liabilities
    
    
    81,150
    
    
    
    59,278Total current liabilities
    
    
    669,256
    
    
    
    637,566Long-term debt, less current maturities
    
    
    643,351
    
    
    
    688,965Capital leases, less current maturities
    
    
    5,141
    
    
    
    8,467Deferred credits and other liabilities
    
    
    142,159
    
    
    
    139,867Stockholders equity:Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,114
    
    
    
    555,115Accumulated deficit
    
    
    (183,836
    )
    
    
    (183,042
    )Total stockholders equity
    
    
    371,278
    
    
    
    372,073$
    1,831,185
    
    
    $
    1,846,938
 See accompanying notes to condensed financial statements. 12




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands)
(unaudited) Three Months EndedMarch 31,2004
    
    
    2003(as restated)Operating revenues:Passenger
    
    $
    537,333
    
    
    $
    500,574Cargo
    
    
    6,903
    
    
    
    7,056Other
    
    
    32,138
    
    
    
    15,433Total operating revenues
    
    
    576,374
    
    
    
    523,063Operating expenses:Salaries and related costs
    
    
    165,929
    
    
    
    162,457Aircraft rents
    
    
    75,185
    
    
    
    75,154Other rents and landing fees
    
    
    41,241
    
    
    
    39,760Aircraft fuel
    
    
    114,212
    
    
    
    103,592Realized and unrealized gains on fuel hedging instruments, net
    
    
    (404
    )
    
    
    (8,833
    )Agency commissions
    
    
    6,750
    
    
    
    8,824Aircraft maintenance materials and repairs
    
    
    50,054
    
    
    
    64,208Depreciation and amortization
    
    
    13,791
    
    
    
    17,663Other
    
    
    93,731
    
    
    
    106,761Total operating expenses
    
    
    560,489
    
    
    
    569,586Operating income (loss)
    
    
    15,885
    
    
    
    (46,523
    )Nonoperating income (expenses):Interest income
    
    
    3,201
    
    
    
    3,122Interest expense, net
    
    
    (21,462
    )
    
    
    (20,241
    )Other, net
    
    
    1,582
    
    
    
    1,220Total nonoperating expenses, net
    
    
    (16,679
    )
    
    
    (15,899
    )Loss before income taxes
    
    
    (794
    )
    
    
    (62,422
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (794
    )
    
    $
    (62,422
    )
 See accompanying notes to condensed financial statements. 13




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Statements of Cash Flows
(in thousands)
(unaudited) Three Months EndedMarch 31,2004
    
    
    2003Net cash used in operating activities
    
    $
    (1,072
    )
    
    $
    (21,867
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (36,979
    )
    
    
    (46,904
    )Purchases of short-term investments
    
    
    (26,166
    )
    
    
    Sales of short-term investments
    
    
    27,235
    
    
    
    24,738Purchases of investments in debt securities
    
    
    (15,000
    )
    
    
    Sales of investments in debt securities
    
    
    15,000
    
    
    
    Decrease in restricted cash
    
    
    1,081
    
    
    
    Proceeds from disposition of assets
    
    
    1,397
    
    
    
    23,643Net cash provided by (used in) investing activities
    
    
    (33,432
    )
    
    
    1,477Cash flows from financing activities:Repayment of debt
    
    
    (47,370
    )
    
    
    (5,791
    )Other
    
    
    (7
    )
    
    
    Net cash used in financing activities
    
    
    (47,377
    )
    
    
    (5,791
    )Net decrease in cash and cash equivalents
    
    
    (81,881
    )
    
    
    (26,181
    )Cash and cash equivalents at beginning of period
    
    
    383,869
    
    
    
    334,674Cash and cash equivalents at end of period
    
    $
    301,988
    
    
    $
    308,493Cash, cash equivalents, short-term investments and investments in debt
securities at end of period
    
    $
    414,030
    
    
    $
    308,493Cash paid for:Interest, net of amounts capitalized
    
    $
    7,700
    
    
    $
    5,766Income taxes
    
    $
    325
    
    
    $
    29Non-cash investing and financing activities:Payment in kind notes issued, net of returns
    
    $
    379
    
    
    $
    374Reclassification of investments in debt securities to short-term investments
    
    $
    5,344
    
    
    $
    Notes payable issued under the aircraft purchase agreement
    
    $
    3,500
    
    
    $
    
 See accompanying notes to condensed financial statements. 14




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 1. BASIS OF PRESENTATION The unaudited condensed financial statements included herein have been prepared by AWA, a
wholly owned subsidiary of Holdings, pursuant to the rules and regulations of the Securities and
Exchange Commission and, in accordance with those rules and regulations, certain information and
footnotes required by generally accepted accounting principles have been omitted. TLC, previously
a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to
operate as the America West Vacations division of AWA. Accordingly, prior period amounts have been
adjusted to give effect to the merger as if it had occurred on January 1, 2003 and all intercompany
transactions between AWA and TLC have been eliminated. See Note 7, Merger of TLC into AWA.In
the opinion of management, the condensed financial statements reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation. Certain prior year amounts have been
reclassified to conform with current year presentation. The accompanying condensed financial
statements should be read in conjunction with the financial statements and related notes thereto
included in AWAs Annual Report on Form 10-K for the year ended December 31, 2003. 2. RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS Fuel Hedging Instruments In February 2005, management undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that AWAs hedging transactions did
not qualify for hedge accounting under U.S. generally accepted accounting principles. Accordingly,
management concluded that the financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance sheets and statements of
stockholders equity and comprehensive income of Holdings and AWA. Specifically, AWA has restated
its balance sheet and statement of stockholders equity and comprehensive income as of and for the
year ended December 31, 2003, and AWA restated its 2003 balance sheet to reduce the
carrying value of its fuel hedging instruments asset by $12.5 million, which served to record the
asset at fair value of open contracts as of December 31, 2003. The restatement also eliminated
$12.5 million in accumulated other comprehensive income, $2.0 million of which was previously
recorded in the 2003 beginning balance of accumulated other comprehensive income. The restated
amount of other assets is $110.2 million in the balance sheet as of December 31, 2003.
The restatement eliminates the balance in accumulated other comprehensive income in the
balance sheet as of December 31, 2003 and the statement of stockholders
equity and comprehensive income for the year ended December 31, 2003. The unaudited Condensed Statements of Operations for the three months ended March 31, 2004 and
2003 have also been restated to reflect the accounting for fuel hedging instruments pursuant to
managements determination that AWA did not qualify for hedge accounting under Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities(SFAS No. 133). In addition, the restated amounts also reflect corrections to
properly reflect the fair value of open fuel hedging instruments at each quarter end. AWA has also
reclassified all gains and losses from settled fuel hedges and the mark-to-market adjustments on
open fuel hedges from Aircraft Fuel to Realized And Unrealized Gains on Fuel Hedging Instruments,
Net on the Condensed Statements of Operations. AWA restated its March 31, 2004
condensed balance sheet to reduce the carrying value of its fuel hedging instruments asset by $14.8
million which served to record the asset at fair value of open contracts as of March 31, 2004. The
following summarizes the changes related to the restatement and reclassifications as referenced
above. 15




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 Three Months Ended
    
    
    Three Months EndedMarch 31, 2004
    
    
    March 31, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands)Aircraft fuel
    
    $
    111,069
    
    
    $
    114,212
    (1)
    
    $
    93,356
    
    
    $
    103,592
    (3)Realized and unrealized
gains on fuel hedging
instruments, net
    
    
    
    
    
    
    (404
    ) (1) (2)
    
    
    
    
    
    
    (8,833
    ) (3) (4)Total operating expenses
    
    
    557,750
    
    
    
    560,489
    (2)
    
    
    568,183
    
    
    
    569,586
    (4)Operating income (loss)
    
    
    18,624
    
    
    
    15,885
    (2)
    
    
    (45,120
    )
    
    
    (46,523
    ) (4)Net income (loss)
    
    $
    1,945
    
    
    $
    (794
    ) (2)
    
    $
    (61,019
    )
    
    $
    (62,422
    ) (4)
   (1)
    Reflects reclassification of $3.1 million net credit from Aircraft Fuelexpense
to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(2)
    Reflects the restatement of $2.7 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and Unrealized Gains on
Fuel Hedging Instruments, Net.(3)
    Reflects reclassification of $10.2 million net credit from Aircraft Fuel
expense to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(4)
    Reflects the restatement of $1.4 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and Unrealized Gains on
Fuel Hedging Instruments, Net. 3. ADVANCES TO PARENT COMPANY AND AFFILIATE As of March 31, 2004, AWA had net advances to Holdings of $254.8 million, which were
classified in Other Assetson AWAs condensed balance sheet due to certain restrictions related
to the timing of repayment under the government guaranteed loan, of which $386.1 million remains
outstanding, and the term loan, of which $75.2 million remains outstanding. AWA settled all
intercompany amounts due to TLC upon the completion of the merger of TLC on January 1, 2004. 4. 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. Holdings issues its stock options at a price equal to the fair
market value on the date of grant. 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 loss would have been increased to
the pro forma amounts indicated below: Three Months EndedMarch 31,2004
    
    
    2003(in thousands)(as restated)Net loss, as reported
    
    $
    (794
    )
    
    $
    (62,422
    )Stock-based compensation expense
    
    
    (1,270
    )
    
    
    (1,204
    )Pro forma net loss
    
    $
    (2,064
    )
    
    $
    (63,626
    )
 16




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 5. FLIGHT EQUIPMENT In January 2004, AWA entered into three separate operating leases for Airbus A320 aircraft,
two with a lease term of five years and one with a lease term of seven years. These aircraft are
expected to be in service in June 2004. In February 2004, AWA sold one Boeing 737-200 aircraft recognizing a gain of approximately
$0.3 million. AWA recorded this amount in Nonoperating Income (Expenses)  Other, Netin the
accompanying condensed statements of operations. In the first quarter of 2004, AWA revised the estimated useful life for certain aircraft and
related spare parts inventory as a result of changes in its fleet plan and for capitalized
maintenance on certain of its engines as a result of changes in aircraft utilization. The net
impact of this change in estimate was an increase in net income for the three months ended March
31, 2004 by $4.0 million. 6. SPECIAL CHARGES In the first quarter of 2004, AWA recorded a $0.6 million reduction in special charges related
to the revision of estimated costs associated with the sale and leaseback of certain aircraft.
This amount is included in Other Expensesin the accompanying condensed statements of operations. 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 quarter of 2003, AWA recorded special charges of $1.0 million 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 also 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. The following table presents the payments and other settlements made during the three months
ended March 31, 2004 related to the special charge accruals: ContractReductions-
    
    
    Termination/Sale-Leaseback
    
    
    Fleet Restructuring
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2003
    
    $
    605
    
    
    $
    1,389
    
    
    $
    307
    
    
    $
    2,649
    
    
    $
    4,950Revision of estimate
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Increase due to TLC merger
at 01/01/04
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Payments
    
    
    (5
    )
    
    
    (180
    )
    
    
    (275
    )
    
    
    (515
    )
    
    
    (975
    )Balance at March 31, 2004
    
    $
    
    
    
    $
    1,209
    
    
    $
    82
    
    
    $
    2,134
    
    
    $
    3,425
 AWA expects to make payments related to these special charges through the fourth quarter
of 2005. 7. MERGER OF TLC INTO AWA On January 1, 2004, TLC was merged 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 assets and liabilities of TLC have been
recorded at historical cost. 17




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 The Condensed Balance Sheet of AWA as of December 31, 2003 and Condensed Statement of
Operations for the three months ended March 31, 2003, after giving effect to the merger, are set
forth below. America West Airlines, Inc.
Condensed Balance Sheet
For the Year Ended December 31, 2003
(Unaudited)
(As Restated) AWA
    
    
    
    
    
    
    Eliminations/As Reported
    
    
    TLC
    
    
    Adjustments
    
    
    Combined(in thousands)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    393,835
    
    
    $
    7,040
    
    
    $
    (17,006

)(a)
    
    $
    383,869Short-term investments
    
    
    72,890
    
    
    
    
    
    
    
    
    
    
    
    72,890Restricted cash
    
    
    42,900
    
    
    
    
    
    
    
    
    
    
    
    42,900Accounts receivable, net
    
    
    72,248
    
    
    
    4,987
    
    
    
    
    
    
    
    77,235Advances to parent company and
affiliate, net
    
    
    
    
    
    
    16,598
    
    
    
    (16,598
    )(a)
    
    
    Expendable spare parts and supplies, net
    
    
    58,575
    
    
    
    
    
    
    
    
    
    
    
    58,575Prepaid expenses
    
    
    128,238
    
    
    
    3,546
    
    
    
    (2,490
    )(b)
    
    
    129,294Total current assets
    
    
    768,686
    
    
    
    32,171
    
    
    
    (36,094
    )
    
    
    764,763Property and equipment:Flight equipment
    
    
    858,395
    
    
    
    
    
    
    
    
    
    
    
    858,395Other property and equipment
    
    
    263,907
    
    
    
    7,685
    
    
    
    
    
    
    
    271,592Equipment purchase deposits
    
    
    46,050
    
    
    
    
    
    
    
    
    
    
    
    46,0501,168,352
    
    
    
    7,685
    
    
    
    
    
    
    
    1,176,037Less accumulated depreciation and
amortization
    
    
    563,213
    
    
    
    6,255
    
    
    
    
    
    
    
    569,468Net property and equipment
    
    
    605,139
    
    
    
    1,430
    
    
    
    
    
    
    
    606,569Other assets:Investments in debt securities
    
    
    40,740
    
    
    
    
    
    
    
    
    
    
    
    40,740Restricted cash
    
    
    69,876
    
    
    
    
    
    
    
    
    
    
    
    69,876Advances to parent company, net
    
    
    213,078
    
    
    
    52,732
    
    
    
    (11,018
    )(a)
    
    
    254,792Other assets, net
    
    
    126,327
    
    
    
    21
    
    
    
    (16,150
    )(c)
    
    
    110,198Total other assets
    
    
    450,021
    
    
    
    52,753
    
    
    
    (27,168
    )
    
    
    475,606$
    1,823,846
    
    
    $
    86,354
    
    
    $
    (63,262
    )
    
    $
    1,846,938
 18




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AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 America West Airlines, Inc.
Condensed Balance Sheet
For the Year Ended December 31, 2003
(Unaudited)
(As Restated) AWA
    
    
    
    
    
    
    Eliminations/As Reported
    
    
    TLC
    
    
    Adjustments
    
    
    Combined(in thousands)Liabilities and stockholders equityCurrent liabilities:Current maturities of long-term debt
    
    $
    103,899
    
    
    $
    
    
    
    $
    
    
    
    $
    103,899Current obligations under capital leases
    
    
    3,442
    
    
    
    
    
    
    
    
    
    
    
    3,442Accounts payable
    
    
    203,146
    
    
    
    6,226
    
    
    
    
    
    
    
    209,372Payable to affiliate, net
    
    
    27,231
    
    
    
    
    
    
    
    (25,304
    ) (a)
    
    
    1,927Air traffic liability
    
    
    174,486
    
    
    
    
    
    
    
    
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    60,847
    
    
    
    198
    
    
    
    
    
    
    
    61,045Accrued taxes
    
    
    30,516
    
    
    
    19,336
    
    
    
    (25,735
    ) (a)(d)
    
    
    24,117Other accrued liabilities
    
    
    41,060
    
    
    
    20,707
    
    
    
    (2,489
    )
(b)(c)
    
    
    59,278Total current liabilities
    
    
    644,627
    
    
    
    46,467
    
    
    
    (53,528
    )
    
    
    637,566Long-term debt, less current maturities
    
    
    688,965
    
    
    
    
    
    
    
    
    
    
    
    688,965Capital leases, less current obligations
    
    
    8,467
    
    
    
    
    
    
    
    
    
    
    
    8,467Deferred credits and other liabilities
    
    
    139,867
    
    
    
    6
    
    
    
    (6
    )
    
    
    139,867Stockholders equity:Preferred stock
    
    
    
    
    
    
    16,150
    
    
    
    (16,150
    ) (c)
    
    
    Class B common stock, $.01 par value.
Authorized 1,000 shares: issued and
outstanding 1,000 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,115
    
    
    
    1
    
    
    
    (1
    )
    
    
    555,115Retained earnings (deficit)
    
    
    (213,195
    )
    
    
    23,730
    
    
    
    6,423
    (d)
    
    
    (183,042
    )Total stockholders equity
    
    
    341,920
    
    
    
    39,881
    
    
    
    (9,728
    )
    
    
    372,073$
    1,823,846
    
    
    $
    86,354
    
    
    $
    (63,262
    )
    
    $
    1,846,938
   (a)
    
    Prior to the effectiveness of the merger, AWA settled its inter-company obligation to
TLC for credit card receipts of approximately $25 million. TLC settled its obligation to
Holdings for inter-company taxes of approximately $28 million, of which $8.7 million was
classified in advances to parent company and affiliate. 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)
    
    To eliminate approximately $2.5 million of airline tickets sold by AWA to TLC.(c)
    
    To reflect the cancellation of approximately $16 million in TLC preferred stock held
by AWA.(d)
    
    TLC reported income tax expense of $6.4 million for the year ended December 31, 2003
on a stand alone basis. On a pro forma basis, AWAs tax benefits were utilized by TLC,
which eliminated income tax expense and resulted in a corresponding decrease in AWAs tax
valuation allowance. As a result, pro forma accrued taxes and retained deficit decreased
by this amount. 19




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes to Condensed Financial Statements
March 31, 2004 America West Airlines, Inc.
Condensed Statement of Operations
For the Three Months Ended March 31, 2003
(Unaudited)
(As Restated) AWA
    
    
    
    
    
    
    Eliminations/As Reported
    
    
    TLC
    
    
    Adjustments
    
    
    Combined(in thousands)Operating revenues:Passenger
    
    $
    500,574
    
    
    $
    
    
    
    $
    
    
    
    $
    500,574Cargo
    
    
    7,056
    
    
    
    
    
    
    
    
    
    
    
    7,056Other
    
    
    6,775
    
    
    
    8,802
    
    
    
    (144
    ) (a)
    
    
    15,433Total operating revenues
    
    
    514,405
    
    
    
    8,802
    
    
    
    (144
    )
    
    
    523,063Operating expenses:Salaries and related costs
    
    
    160,496
    
    
    
    1,961
    
    
    
    
    
    
    
    162,457Aircraft rents
    
    
    75,154
    
    
    
    
    
    
    
    
    
    
    
    75,154Other rents and landing fees
    
    
    39,760
    
    
    
    144
    
    
    
    (144
    ) (a)
    
    
    39,760Aircraft fuel
    
    
    103,592
    
    
    
    
    
    
    
    
    
    
    
    103,592Realized and
unrealized gains on fuel
hedging instruments, net
    
    
    (8,833
    )
    
    
    
    
    
    
    
    
    
    
    (8,833
    )Agency commissions
    
    
    6,192
    
    
    
    2,632
    
    
    
    
    
    
    
    8,824Aircraft maintenance materials and repairs
    
    
    64,208
    
    
    
    
    
    
    
    
    
    
    
    64,208Depreciation and amortization
    
    
    17,474
    
    
    
    189
    
    
    
    
    
    
    
    17,663Other
    
    
    104,512
    
    
    
    2,249
    
    
    
    
    
    
    
    106,761Total operating expenses
    
    
    562,555
    
    
    
    7,175
    
    
    
    (144
    )
    
    
    569,586Operating income (loss)
    
    
    (48,150
    )
    
    
    1,627
    
    
    
    
    
    
    
    (46,523
    )Nonoperating income (expenses):Interest income
    
    
    3,057
    
    
    
    65
    
    
    
    
    
    
    
    3,122Interest expense, net
    
    
    (20,241
    )
    
    
    
    
    
    
    
    
    
    
    (20,241
    )Other, net
    
    
    1,220
    
    
    
    
    
    
    
    
    
    
    
    1,220Total nonoperating income (expenses),
net
    
    
    (15,964
    )
    
    
    65
    
    
    
    
    
    
    
    (15,899
    )Income (loss) before income taxes
    
    
    (64,114
    )
    
    
    1,692
    
    
    
    
    
    
    
    (62,422
    )Income taxes
    
    
    
    
    
    
    658
    
    
    
    (658
    )(b)
    
    
    Net income (loss)
    
    $
    (64,114
    )
    
    $
    1,034
    
    
    $
    658
    
    
    $
    (62,422
    )
   (a)
    
    TLC paid rent in the amount of $144,000 to AWA for space it occupied in certain AWA
facilities. This rent was reflected in other revenues by AWA and in operating expenses by
TLC. This adjustment eliminates those amounts.(b)
    
    TLC reported income tax expense of $0.7 million on a stand alone basis. On a pro forma
basis, AWAs tax benefits were utilized by TLC, which eliminated income tax expense and
resulted in a corresponding decrease in AWAs tax valuation allowance. 8. SEGMENT DISCLOSURES AWA is one reportable operating segment. Accordingly, the segment reporting financial data
required by SFAS No. 131, Disclosures About Segments of an Enterprise and Related Informationis
included in the accompanying condensed balance sheets and statements of operations. 20




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Holdings is the parent company of AWA. AWA is the eighth largest passenger airline and the
second largest low cost carrier in the United States operating through its hubs located in Phoenix,
Arizona and Las Vegas, Nevada. As of March 31, 2004, AWA served 62 destinations in North America,
including eight destinations in Mexico, three in Canada and one in Costa Rica. TLC, previously a
wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to
operate as the America West Vacations (AWV) division of AWA. See Note 7, Merger of TLC into AWA
in Notes to Condensed Financial Statements of AWA. AWV arranges and sells vacation packages
primarily to Las Vegas, Nevada that may include airfare, hotel accommodations and ground
transportation. Holdings primary business activity is ownership of all the capital stock of AWA. Restatement of Previously Reported Amounts In February 2005, management undertook a review of the Companys accounting for its fuel
hedging transactions. As a result of this review, management concluded that the Companys fuel
hedging transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles. Accordingly, management concluded that the financial statements for prior periods
required restatement to reflect the fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of Holdings and AWA. The 2004 and 2003 unaudited quarterly financial data has been restated to reflect the
accounting for fuel hedging instruments pursuant to managements determination that the Company did
not qualify for hedge accounting under Statement of Financial Accounting Standards (SFAS) No.
133. In addition, the restated amounts also reflect corrections to properly reflect the fair value
of open fuel hedging instruments at each quarter end. The Company has also reclassified all gains
and losses from settled fuel hedges and the mark-to-market adjustments on open fuel hedges from
Aircraft Fuel to Realized and Unrealized Gains on
Fuel Hedging Instruments, Net on the Condensed
Consolidated Statements of Operations. See Note 2, Restatement of Previously Reported Amounts.
The Company restated its March 31, 2004 consolidated balance sheet to reduce the carrying value of
its fuel hedging instruments asset by $14.8 million which served to record the asset at fair value
of open contracts as of March 31, 2004. The following summarizes the changes related to the
restatement as referenced above. Three Months Ended
    
    
    Three Months EndedMarch 31, 2004
    
    
    March 31, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands except per share data)America West Holdings CorporationAircraft fuel
    
    $
    111,069
    
    
    $
    114,212
    (1)
    
    $
    93,356
    
    
    $
    103,592
    (3)Realized and unrealized
gains on fuel hedging instruments,
net
    
    
    
    
    
    
    (404
    )(1)(2)
    
    
    
    
    
    
    (8,833
    ) (3)(4)Total operating expenses
    
    
    558,716
    
    
    
    561,455
    (2)
    
    
    569,373
    
    
    
    570,776
    (4)Operating income (loss)
    
    
    17,828
    
    
    
    15,089
    (2)
    
    
    (46,140
    )
    
    
    (47,543
    )(4)Net income (loss)
    
    $
    1,176
    
    
    $
    (1,563
    ) (2)
    
    $
    (62,018
    )
    
    $
    (63,421
    ) (4)Net income (loss) per share:Basic
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (1.84
    )
    
    $
    (1.88
    )Diluted
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (1.84
    )
    
    $
    (1.88
    )
   (1)
    Reflects reclassification of $3.1 million net credit from Aircraft Fuelexpense
to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(2)
    Reflects the restatement of $2.7 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and Unrealized Gains on
Fuel Hedging Instruments, Net.(3)
    Reflects reclassification of $10.2 million net credit from Aircraft Fuel
expense to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(4)
    Reflects the restatement of $1.4 million net expense to eliminate hedge
accounting for the period presented which is
reflected in Realized and Unrealized Gains on Fuel Hedging Instruments, Net. 21




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Three Months Ended
    
    
    Three Months EndedMarch 31, 2004
    
    
    March 31, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands except CASM and fuel price)America West Airlines, Inc.Aircraft fuel
    
    $
    111,069
    
    
    $
    114,212
    (1)
    
    $
    93,356
    
    
    $
    103,592
    (3)Realized and unrealized gains on fuel
hedging instruments, net
    
    
    
    
    
    
    (404
    )(1)(2)
    
    
    
    
    
    
    (8,833
    )(3)(4)Total operating expenses
    
    
    557,750
    
    
    
    560,489
    (2)
    
    
    568,183
    
    
    
    569,586
    (4)Operating income (loss)
    
    
    18,624
    
    
    
    15,885
    (2)
    
    
    (45,120
    )
    
    
    (46,523
    )(4)Net income (loss)
    
    $
    1,945
    
    
    $
    (794
    ) (2)
    
    $
    (61,019
    )
    
    $
    (62,422
    ) (4)Operating CASM (cents)
    
    
    7.59
    
    
    
    7.63
    
    
    
    8.29
    
    
    
    8.44Average fuel price (cents per gallon)
    
    
    102.4
    
    
    
    105.3
    
    
    
    90.0
    
    
    
    99.8
   (1)
    Reflects reclassification of $3.1 million net credit from Aircraft Fuelexpense
to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(2)
    Reflects the restatement of $2.7 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and Unrealized Gains on
Fuel Hedging Instruments, Net.(3)
    Reflects reclassification of $10.2 million net credit from Aircraft Fuel
expense to Realized and Unrealized Gains on Fuel Hedging Instruments, Net.(4)
    Reflects the restatement of $1.4 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and Unrealized Gains on
Fuel Hedging Instruments, Net. Overview In the first quarter of 2004, Holdings realized an operating profit of $15.1 million and a
pretax and a net loss of $1.6 million, or $0.04 per diluted share. During the first quarter, the
Company benefited from the following:  
    Aggressive yield management and continued favorable consumer response to our
business-friendly fare structure, which was implemented in March 2002. Passenger revenue
per available seat mile (RASM) of 7.31 cents for the first quarter of 2004 was flat when
compared to the 2003 first quarter, despite a 6.9% increase in average daily aircraft
utilization and a 5.2% increase in average stage length.
    Operating cost per available seat mile (CASM) decreased 8.3% to 7.62 cents, despite an
increase in the average fuel price per gallon of 5.5% from 99.8 cents in the first quarter
of 2003 to 105.3 cents per gallon in the first quarter of 2004. The primary drivers of
AWAs CASM improvement during the first quarter of 2004 were the increases in aircraft
utilization and stage length discussed above, as well as the Companys cost reduction plan
implemented in early 2003.
    Continued solid operational performance, despite a record first quarter load factor of
72.2%, which was an increase of 1.1 points from the same period last year. As of March 31, 2004, Holdings unrestricted and restricted cash, cash equivalents, short-term
investments and investments in debt securities totaled $545.0 million. Although there can be no
assurances, we believe that cash flow from operating activities, coupled with existing cash
balances and financing commitments, will be adequate to fund our operating and capital needs as
well as enable us to maintain compliance with our various debt agreements through at least December
31, 2004. 22




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Airline Operations Update AWA reported the following operating statistics to the U.S. Department of Transportation
(DOT) for the first quarters of 2004 and 2003: Percent Change2004
    
    
    2003
    
    
    2004  2003Jan
    
    
    Feb
    
    
    Mar
    
    
    Jan
    
    
    Feb
    
    
    Mar
    
    
    Jan
    
    
    Feb
    
    
    MarOn-time performance (a)
    
    
    76.3
    
    
    
    71.7
    
    
    
    74.8
    
    
    
    77.8
    
    
    
    72.2
    
    
    
    79.5
    
    
    
    (1.9
    )
    
    
    (0.7
    )
    
    
    (5.9
    )Completion factor (b)
    
    
    98.1
    
    
    
    98.2
    
    
    
    98.6
    
    
    
    97.6
    
    
    
    97.4
    
    
    
    98.8
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    (0.2
    )Mishandled baggage (c)
    
    
    3.96
    
    
    
    3.58
    
    
    
    3.50
    
    
    
    4.50
    
    
    
    4.31
    
    
    
    3.52
    
    
    
    (12.0
    )
    
    
    (16.9
    )
    
    
    (0.6
    )Customer complaints (d)
    
    
    1.23
    
    
    
    0.97
    
    
    
    1.28
    
    
    
    1.42
    
    
    
    1.25
    
    
    
    1.09
    
    
    
    (13.4
    )
    
    
    (22.4
    )
    
    
    17.4
   (a)
    
    Percentage of reported flight operations arriving on time.(b)
    
    Percentage of scheduled flight operations completed.(c)
    
    Rate of mishandled baggage reports per 1,000 passengers.(d)
    
    Rate of customer complaints filed with the DOT per 100,000 passengers. We continue to see positive trends in our key statistics with the exception of our
on-time performance. Runway construction in Phoenix and poor weather in Phoenix and Las Vegas hurt
our on-time performance in the first quarter. Summary of Holdings Financial Results Holdings recorded a consolidated net loss of $1.6 million in the first quarter of 2004, or
$0.04 per diluted share. This compares to a consolidated net loss of $63.4 million, or $1.88 per
diluted share, in the first quarter of 2003. The 2004 results include a $4.0 million reduction in
operating expenses related to a change in the estimated useful life for certain aircraft and
related spare parts inventory as a result of changes in AWAs fleet plan and for capitalized
maintenance on certain of its engines as a result of changes in aircraft utilization. See Note 4,
Flight Equipmentin Notes to Condensed Consolidated Financial Statements. The 2004 results also
include a $2.5 million credit to operating revenues related to the reduction of certain obligations
based upon a settlement with Mesa Airlines, a $2.0 million reduction in operating expenses
resulting from the settlement of a lawsuit related to certain computer hardware and software that
had previously been written off, a $1.7 million reduction in bad debt expense due to recovery of a
previously reserved debt and a $0.6 million reduction in special charges due to a revision of the
estimated costs related to certain aircraft sale-leaseback transactions. The 2003 results include an operating gain of $4.4 million related to the purchase and
subsequent exchange of an A320 airframe and an operating gain of $1.1 million due to a revision of
the estimated costs related to the early termination of certain aircraft leases. These gains were
offset in part by a special charge of $1.0 million resulting from the elimination of AWAs hub
operations in Columbus, Ohio. The
2003 results also include $8.8 million net gains associated with the
Company's fuel hedging transactions. Of this amount $9.2 million was
net realized gains on settled hedge transactions which was offset in
part by $0.4 million of losses resulting from mark-to-market
accounting for changes in the fair value of the Company's fuel
hedging instruments. The Company did not record income tax expense in the first quarter of 2004 as it currently
expects to use net operating losses generated in prior years to offset any profits expected to be
realized for the full year 2004. 23




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 RESULTS OF OPERATIONS The following discussion provides an analysis of AWAs results of operations for the first
quarter of 2004 and material changes compared to the first quarter of 2003. The table below sets forth selected operating data for AWA. Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2004
    
    
    2003
    
    
    2004-2003Aircraft (end of period)
    
    
    138
    
    
    
    142
    
    
    
    (2.8
    )Average daily aircraft utilization (hours) (a)
    
    
    10.8
    
    
    
    10.1
    
    
    
    6.9Available seat miles (in millions) (b)
    
    
    7,352
    
    
    
    6,852
    
    
    
    7.3Block hours (c)
    
    
    136,678
    
    
    
    130,104
    
    
    
    5.1Average stage length (miles) (d)
    
    
    1,037
    
    
    
    986
    
    
    
    5.2Average passenger journey (miles) (e)
    
    
    1,594
    
    
    
    1,434
    
    
    
    11.2Revenue passenger miles (in millions) (f)
    
    
    5,306
    
    
    
    4,872
    
    
    
    8.9Load factor (percent) (g)
    
    
    72.2
    
    
    
    71.1
    
    
    1.1
    ptsPassenger enplanements (in thousands) (h)
    
    
    4,897
    
    
    
    4,655
    
    
    
    5.2Yield per revenue passenger mile (cents) (i)
    
    
    10.13
    
    
    
    10.27
    
    
    
    (1.4
    )Revenue per available seat mile:Passenger (cents) (j)
    
    
    7.31
    
    
    
    7.31
    
    
    
    Total (cents) (k)
    
    
    7.84
    
    
    
    7.63
    
    
    
    2.8Fuel consumption (gallons in millions)
    
    
    108.5
    
    
    
    103.8
    
    
    
    4.5Average fuel price (cents per gallon) *
    
    
    105.3
    
    
    
    99.8
    
    
    
    5.5Average number of full-time equivalent employees
    
    
    11,827
    
    
    
    12,309
    
    
    
    (3.9
    )
   *
    
    As restated  (a)
    
    Average daily aircraft utilization  The average number of block hours per day
for all aircraft in service.(b)
    
    Available seat mile (ASM)  A basic measure of production. It is one seat
flown one 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 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. 24




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 The table below sets forth the major components of CASM for AWA. Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2004
    
    
    2003
    
    
    2004-2003(in cents)
    
    (as restated)Salaries and related costs
    
    
    2.27
    
    
    
    2.36
    
    
    
    (4.8
    )Aircraft rents
    
    
    1.02
    
    
    
    1.10
    
    
    
    (6.8
    )Other rents and landing fees
    
    
    0.56
    
    
    
    0.58
    
    
    
    (3.3
    )Aircraft fuel
    
    
    1.55
    
    
    
    1.51
    
    
    
    2.8Realized and
unrealized gains on fuel hedging instruments, net
    
    
    (0.01
    )
    
    
    (0.13
    )
    
    
    Agency commissions
    
    
    0.09
    
    
    
    0.13
    
    
    
    (28.7
    )Aircraft maintenance materials and repairs
    
    
    0.68
    
    
    
    0.94
    
    
    
    (27.4
    )Depreciation and amortization
    
    
    0.19
    
    
    
    0.26
    
    
    
    (27.2
    )Other
    
    
    1.27
    
    
    
    1.56
    
    
    
    (17.7
    )7.62
    
    
    
    8.31
    
    
    
    (8.3
    )
 Three Months Ended March 31, 2004 and 2003 For the first quarter of
2004, AWA realized operating income of $15.9 million compared to an
operating loss of $46.5 million in last years quarter
which includes $8.8 million net gains associated with the
Companys
fuel hedging transactions. Of this amount $0.4 million resulted from
mark-to-market accounting for changes in the fair value of the
Companys fuel hedging instruments and $9.2 million was net realized
gains on settled hedge transactions. Loss before income taxes for the first
quarter of 2004 was $0.8 million compared to a loss before income taxes of $62.4 million for the
comparable 2003 period. Total operating revenues for the first quarter of 2004 were $576.4 million. Passenger
revenues were $537.3 million for the first quarter of 2004, an increase of $36.8 million or 7.3%
from the comparable 2003 quarter. An 8.9% increase in RPMs was offset in part by a 7.3% increase
in ASMs, resulting in a 1.1 point increase in load factor, while yield decreased 1.4%. As a
result, RASM of 7.31 cents for the first quarter of 2004 was flat when compared to the first
quarter of 2003, despite a 6.9% increase in average daily aircraft utilization and a 5.1% increase
in average stage length. Cargo revenues were relatively flat quarter-over-quarter while other
revenues increased 108.2% to $32.1 million due primarily to increased flying for AWA by its
codeshare partner Mesa Airlines (Mesa) and a $2.5 million credit related to the reduction of
certain obligations based upon a settlement with Mesa. These increases were offset in part by
lower net revenues from the sale of America West Vacations packages due primarily to a decrease in
volume. Operating expenses in the first quarter of 2004 decreased $9.1 million or 1.6% as compared to
the first quarter of 2003. ASMs increased 7.3% primarily due to a 5.1% increase in average stage
length and a 6.9% increase in aircraft utilization offset in part by a reduction in aircraft from
142 at the end of March 2003 to 138 on March 31, 2004. As a result, CASM decreased 8.3% to 7.62
cents in the first quarter of 2004 from 8.31 cents for the first quarter of 2003. Significant
changes in the components of CASM are explained as follows:  
    Salaries and related costs per ASM decreased 4.8% primarily due to the 7.3% increase in
ASMs and a 3.9% decrease in average full-time equivalent employees (FTEs) which was offset
in part by a $5.0 million increase in pilot payroll expense as a result of the new labor
agreement with the Air Line Pilots Association (ALPA) effective December 30, 2003. The
decline in FTEs was due primarily to the reduction-in-force of certain management,
professional and administrative employees and the elimination of AWAs hub operations in
Columbus, Ohio in the second quarter of 2003.
    Aircraft rent expense per ASM decreased 6.8% due to the 7.3% increase in ASMs, which was
accomplished through higher utilization rather than additional aircraft.
    Other rents and landing fees expense per ASM decreased 3.3% mainly driven by the 7.3%
increase in ASMs in the first quarter of 2004 offset in part by increases in landing fees
($0.9 million) and airport rents ($0.7 million).
    Aircraft fuel expense per ASM increased 2.8% primarily due to a 5.5% increase in the
average price per gallon of fuel to 105.3 cents in the first quarter of 2004 from 99.8 cents
in the comparable 2003 quarter. 25




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  
    Agency commissions expense per ASM decreased 28.7% due to reductions in various travel
agency incentive programs and lower override commissions.
    Aircraft maintenance materials and repairs expense per ASM decreased 27.4% primarily due
to decreases in aircraft C-Check ($5.0 million) and capitalized maintenance amortization
($10.1 million) expenses. The decrease in capitalized maintenance amortization expense was
driven primarily by changes in the estimated useful life of certain aircraft engine overhaul
costs ($3.1 million), effective April 1, 2003, driven by a new maintenance agreement that
guarantees minimum cycles on engine overhauls and capitalized maintenance on certain engines
($2.7 million), effective January 1, 2004, as a result of changes in aircraft utilization.
The retirement of assets related to lease return aircraft and engines ($3.4 million) also
contributed to the decrease.
    Depreciation and amortization expense per ASM decreased 27.2% primarily due to the 7.3%
increase in ASMs,
lower amortization expense related to aircraft leasehold improvements ($1.5 million) and
computer hardware and software ($0.9 million) and reduced capital expenditures in 2003 and
2002 as a result of the Companys cash conservation program. A change in the estimated useful
life for rotable and repairable spare parts as a result of changes in AWAs fleet plan also
contributed to the decrease ($0.9 million).
    Other operating expenses per ASM decreased 18.3% due primarily to decreases in bad debt
expense ($2.8 million), property taxes ($2.7 million), catering costs ($2.2 million),
airport guard services ($1.9 million), ground handling services ($1.3 million) and the 7.3%
increase in ASMs. A gain of $2.0 million resulting from the settlement of a lawsuit related
to certain computer hardware and software that had previously been written off also
contributed to the decrease. AWA had net nonoperating expenses of $16.7 million in the first quarter of 2004 compared to
$16.0 million of net nonoperating expenses in the first quarter of 2003. Interest income remained
relatively flat while interest expense increased $1.2 million due to higher average outstanding
debt. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash At March 31, 2004, Holdings and AWAs total cash, cash equivalents, short-term investments,
investments in debt securities and restricted cash was $545.0 million and $525.7 million,
respectively. Net cash used in operating activities for Holdings and AWA was $1.4 million and $1.1
million, respectively, in the first three months of 2004 compared to $21.8 million and $21.9
million for Holdings and AWA, respectively, in the first three months of 2003. The year-over-year
decrease in net cash used in operating activities of $20.3 million and $20.8 million for Holdings
and AWA, respectively, was due to the improvement in earnings for the first quarter of 2004. In the first quarter of 2004, net cash used in investing activities was $33.4 million for
Holdings and AWA. This compares to net cash provided by investing activities of $1.5 million for
Holdings and AWA in the first quarter of 2003. Principal investing activities during the first
three months of 2004 included purchases of property and equipment totaling $37.0 million and net
sales of short-term investments and investments in debt securities totaling $1.1 million. The
first quarter of 2003 included purchases of property and equipment totaling $46.9 million,
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 sales of short-term investments
totaling $24.7 million. The 2003 period also included proceeds from the disposition of assets
totaling $23.6 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. In the first quarter of 2004, net cash used in financing activities by both Holdings and AWA
was $47.0 million, primarily debt repayments, including the first principal payment of $42.9
million for the government guaranteed loan. This compares to $5.8 million of debt repayments
during the comparable 2003 period. 26




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Capital expenditures for the first quarter of 2004 were approximately $37.0 million for
both Holdings and AWA as compared to capital expenditures of approximately $46.9 million for both
Holdings and AWA for the first quarter of 2003. Included in these amounts are capital expenditures
for capitalized maintenance of approximately $29.8 million and $25.4 million for both Holdings and
AWA for the first quarter of 2004 and 2003, respectively. Off-Balance Sheet Arrangements The Pass Through Trusts Since AWAs restructuring in 1994, AWA has set up 19 pass through trusts, which have issued
over $1.4 billion of pass through trust certificates (also known as Enhanced Equipment Trust
Certificates or EETC) covering the financing of 54 aircraft. These trusts are off-balance sheet
entities, the primary purpose of which is to finance the acquisition of aircraft. Rather than
finance each aircraft separately when such aircraft is purchased or delivered, these trusts allow
the Company to raise the financing for several aircraft at one time and place such funds in escrow
pending the purchase or delivery of the relevant aircraft. The trusts are also structured to
provide for certain credit enhancements, such as liquidity facilities to cover certain interest
payments, that reduce the risks to the purchasers of the trust certificates and, as a result,
reduce the cost of aircraft financing to AWA. Each trust covered a set amount of aircraft scheduled to be delivered within a specific period
of time. At the time of each covered aircraft financing, the relevant trust used the funds in
escrow to purchase equipment notes relating to the financed aircraft. The equipment notes were
issued, at AWAs election, either by AWA in connection with a mortgage financing of the aircraft or
by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the
case of a leveraged lease financing, the owner trust then leased the aircraft to AWA. In both
cases, the equipment notes are secured by a security interest in the aircraft. The pass through
trust certificates are not direct obligations of, nor guaranteed by, Holdings or AWA. However, in
the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of
AWA and in the case of leveraged lease financings, the leases are direct obligations of AWA. In
addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the
leased aircraft. All aircraft financed by these trusts are currently structured as leveraged lease
financings, which are not reflected as debt on the balance sheets of either AWA or Holdings in
accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation
of Variable Interest Entities(Fin 46). In the first quarter of 2004, AWA made $76.1 million in
lease payments in respect of the leveraged lease financings under the pass through trusts. Other Operating Leases In addition to the aircraft financed by the pass through trust certificates, AWA has
noncancelable operating leases covering 80 aircraft, as well as leases for certain terminal space,
ground facilities and computer and other equipment. In the first quarter of 2004, AWA made $52.5
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 the
Industrial Development Authority (IDA) of the City of Phoenix 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 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 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 March 31, 2004, the outstanding principal amount of the bonds was $21.8
million. The Company estimates its remaining payments to cover the principal and interest of these
bonds will be approximately $42.9 million. In accordance with Emerging Issues Task Force (EITF)
Issue No. 97- 27




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 10, The Effect of Lessee Involvement in Asset Construction,the Company accounts for this as
an operating lease. Commitments As of March 31, 2004, we had $750.4 million of long-term debt (including current maturities).
This amount consisted primarily of the government guaranteed loan, of which $386.1 million remains
outstanding, a secured term loan with a group of financial institutions, of which $75.2 million
remains outstanding (including interest through March 31, 2004 as a deemed loan added to the
principal thereof), $39.5 million principal amount of 10 3/4% senior unsecured notes, $104.3
million principal amount of 7.5% convertible senior notes (including interest through March 31,
2004 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. AWA made the first principal
payment of $42.9 million on March 31, 2004. In connection with the issuance of the 7.25% Senior
Exchangeable Notes in the third quarter of 2003, AWA placed $42.9 million of the net proceeds in a
cash collateral account to secure the second principal payment due on September 30, 2004. This
amount has been recorded as restricted cash in the accompanying condensed consolidated balance
sheet. See 7.25% Senior Exchangeable Notes Due 2023below. Principal amounts outstanding under
the government guaranteed loan bear interest at a rate per annum equal to LIBOR plus 40 basis
points. Subject to certain exceptions, we are required to prepay the government guaranteed loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after
January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year 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, 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, changes in
our fundamental business, asset sales and acquisitions, the creation of new subsidiaries,
sale-leaseback transactions, transactions with affiliates, continued existence, 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. 28




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 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 March 31, 2004, $75.2 million remains outstanding under the term loan (including
interest paid through March 31, 2004 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. 10 3/4% Senior Notes due 2005 In August 1995, AWA issued $75.0 million principal amount of 10 3/4% senior notes due 2005 of
which $39.5 million remained outstanding at March 31, 2004. Interest on the 10 3/4% senior notes
is payable semiannually in arrears on March 1 and September 1 of each year. We may redeem the 10 3/4% senior notes, in whole or in part, 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 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 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. 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 March 31, 2004 (including interest paid through March 31,
2004 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. 29




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Holdings may redeem some or all of the 7.5% convertible senior notes at any time before
January 18, 2005, at a redemption price equal to $1,000 per note to be redeemed if (A) the closing
price of the Class B common stock has exceeded 120% of the conversion price then in effect for at
least 20 trading days within a period of 30 consecutive
trading days ending on the trading day before the date of the mailing of the redemption
notice, and (B) a shelf registration statement covering resales of the notes and the Class B common
stock issuable upon conversion thereof is effective and available for use and is expected to remain
effective and available for use for the 30 days following the redemption date, unless registration
is no longer required. Holdings may redeem the 7.5% convertible senior notes, in whole or in part,
on or after January 18, 2005 at the following redemption prices (expressed as percentages of the
principal amount thereof), if redeemed during the twelve-month period commencing on January 18 of
the years set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of
redemption: Year
    
    Redemption Price2005
    
    103.75%2006
    
    102.50%2007
    
    101.25%2008 and thereafter
    
    100.00%
 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 at any
time, 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. 30




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 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 condensed consolidated balance sheet. Other Indebtedness and Obligations In addition to the above described indebtedness, we had $44.2 million of secured equipment
notes and $39.6 million of other unsecured indebtedness, including $29.3 million of industrial
revenue bonds. The following table sets forth our cash obligations as of March 31, 2004. 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Beyond 2008
    
    
    Total(In thousands)Long-term debt:Equipment notes  non-EETC (1)
    
    $
    4,685
    
    
    $
    8,305
    
    
    $
    8,305
    
    
    $
    7,772
    
    
    $
    15,083
    
    
    $
    
    
    
    $
    44,150Term loan (2)
    
    
    3,489
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    11,665
    
    
    
    
    
    
    
    
    
    
    
    75,1547.5% convertible senior notes due
2009(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,328
    
    
    
    104,3287.25% senior exchangeable notes
due 2023 (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,695
    
    
    
    252,695Government guaranteed loan (5)
    
    
    42,900
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    
    
    
    
    386,100State loan (6)
    
    
    750
    
    
    
    250
    
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    1,50010 3/4% senior unsecured notes due 2005
    
    
    
    
    
    
    39,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,548Industrial development bonds (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,300
    
    
    
    29,300AVSA promissory notes (8)
    
    
    5,250
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,75057,074
    
    
    
    167,403
    
    
    
    124,355
    
    
    
    105,487
    
    
    
    100,883
    
    
    
    386,323
    
    
    
    941,525Cash aircraft rental payments (9)
    
    
    209,397
    
    
    
    317,457
    
    
    
    291,890
    
    
    
    274,312
    
    
    
    227,895
    
    
    
    1,834,322
    
    
    
    3,155,273Lease payments on equipment and
facility operating leases (10)
    
    
    15,455
    
    
    
    19,498
    
    
    
    17,614
    
    
    
    15,540
    
    
    
    15,754
    
    
    
    62,864
    
    
    
    146,725Capital lease obligations
    
    
    4,425
    
    
    
    4,744
    
    
    
    4,988
    
    
    
    1,773
    
    
    
    
    
    
    
    
    
    
    
    15,930Special facility revenue bonds (11)
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,362
    
    
    
    1,362
    
    
    
    36,106
    
    
    
    42,919Aircraft purchase commitments (12)
    
    
    91,281
    
    
    
    84,780
    
    
    
    223,362
    
    
    
    263,941
    
    
    
    
    
    
    
    
    
    
    
    663,364Engine maintenance commitments (13)
    
    
    18,500
    
    
    
    24,000
    
    
    
    12,000
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    
    
    
    
    62,500Total
    
    $
    397,495
    
    
    $
    619,245
    
    
    $
    675,572
    
    
    $
    668,415
    
    
    $
    347,894
    
    
    $
    2,319,615
    
    
    $
    5,028,236
   (1)
    
    Includes approximately $44.2 million of equipment notes with variable interest rates
of 2.13% to 2.63%, averaging 2.24%, 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 3.37% and $3.5 million of interest paid in kind through March 31, 2004 at a
fixed rate of 2%. Excludes $1.1 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 March 31, 2004. For financial reporting
purposes, we recorded the convertible senior notes at their fair market value on the date of
issuance. As of March 31, 2004, the balance of the convertible senior notes in the
accompanying condensed consolidated balance sheet is approximately $65.7 million.(4)
    
    Includes $252.7 million principal amount of 7.25% senior exchangeable notes due July
2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal amount
at maturity. Thereafter, the notes will cease bearing cash interest and begin accruing
original issue discount at a rate of 7.25% until maturity. The aggregate amount due at
maturity, including accrued original issue discount from July 31, 2008, will be $252.7
million.(5)
    
    Government guaranteed loan includes $386.1 million with a variable interest rate of
1.6% at March 31, 2004 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 4.65% at March 31, 2004.(7)
    
    Includes $29.3 million of 6.3% industrial development bonds due April 2023.(8)
    
    Includes AVSA promissory notes of $8.8 million due 2004 with a variable interest
rate of 2.38% at March 31, 2004. 31




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  (9)
    
    Includes non-cancelable operating leases for 135 aircraft with remaining terms
ranging from four 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
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 March 31, 2004, Holdings and AWA were in
compliance with the covenants in their long-term debt agreements. In March 2004, Moodys raised its credit ratings on AWA to B3 from Caa1 for its senior implied
rating and to Caa2 from Caa3 for its senior unsecured debt rating. Standard & Poors currently
rates AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC
and Fitch Ratings rates AWAs long-term and senior unsecured debt rating at CCC. Our relatively
low credit ratings may impair our ability to incur additional indebtedness. The rating agencies
base their ratings on our financial performance and operations, our cash flow and liquidity, the
level of our debt and industry conditions in general. 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. 32




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Other Information Labor Relations 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. On
March 26, 2004, TWU informed the Company
that a majority of dispatchers voted against ratification of the tentative agreement. The
Company expects to resume negotiations with TWU under the guidance of the NMB. 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 in 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. 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. Continental terminated the code sharing and frequent flyer agreements between
the two airlines, effective April 26, 2002. Until March 12, 2004, two managing partners of Texas
Pacific Group, which, through TPG Advisors, Inc. effectively controls the voting power of Holdings,
were members of Continentals board of directors. In the first quarter of 2004, AWA paid
Continental approximately $2.4 million and also received approximately $1.4 million from
Continental pursuant to these agreements. In the first quarter of 2003, the amount paid to and
received from Continental pursuant to these agreements was $5.1 million and $1.7 million,
respectively. Application of Critical Accounting Policies The preparation of our consolidated financial statements in accordance with generally accepted
accounting principles requires that we make certain estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities at the date of our financial statements. We believe our estimates and
assumptions are reasonable; however, actual results could differ from those estimates. We have
identified the following critical accounting policies that require the use of significant judgments
and estimates relating to matters that are inherently uncertain and may result in materially
different results under different assumptions and conditions.  
    Passenger Revenue  Passenger revenue is recognized when transportation is
provided. Ticket sales for transportation that has not yet been provided are recorded as
air traffic liability. Passenger traffic commissions and related fees are expensed when the
related revenue is recognized. Passenger traffic commissions and related fees not yet
recognized are included as a prepaid expense. Due to complex pricing structures, refund and
exchange policies, and interline agreements with other airlines, certain amounts are
recognized in revenue using estimates regarding both the timing of the revenue recognition
and the amount of revenue to be recognized. These estimates are generally based on the
statistical analysis of our historical data. Any adjustments resulting from periodic
evaluations of the estimated air traffic liability are included in results of operations
during the period in which the evaluations are completed.
    Accounting For Long-Lived Assets  Owned property and equipment are recorded at
cost and depreciated to residual values over the estimated useful lives using the
straight-line method. Leasehold improvements relating to flight equipment and other
property on operating leases are amortized over the life of the lease, or the life of the
asset, whichever is shorter. Interest on advance payments for aircraft acquisitions and on
expenditures for aircraft improvements is capitalized and added to the cost of the asset.
The estimated useful lives of our owned aircraft, jet engines, flight equipment and rotable
parts range from five to 25 years. The estimated useful lives of our technical support
facility and flight training center in Phoenix, Arizona are 22 years and 30 years,
respectively. The estimated useful lives of our ground property and equipment range 33




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  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 March 31,
2004, 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. Forward-Looking Information This quarterly report on Form 10-Q contains various forward-looking statements within the
meaning of Section 21E of 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 AWAs or the Holdings 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; 34




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  
    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discussed below. Any forward-looking statements speak only as of the
date of this report. 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
quarterly report on Form 10-Q 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 million 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. In addition,
we have recently experienced a substantial increase in the cost of fuel. 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 further 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; 35




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  
    competition in the airline industry;
    our ability to manage fuel and labor costs; and
    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 March 31, 2004, we had approximately $750.4 million
of indebtedness outstanding, of which $119.3 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 $15.9 million of capital lease obligations and $3.3 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
government guaranteed loan and the 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; 36




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004  
    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
    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 10 3/4% 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 20% of
our total operating expenses in the first quarter of 2004 and 23% 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 fuel hedging instruments keyed to the future price of heating oil, which is highly
correlated to the price of jet fuel delivered on the East Coast of the United States. Our hedging
program does not fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected fuel volumes for 2004. Hedging transactions are in place with
respect to approximately 24% 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 of the United States than our large competitors and West
Coast fuel prices are less correlated to heating oil prices and other viable fuel hedging
instruments 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. 37




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Because of our relatively low credit ratings, our borrowing costs may be high and our ability
to incur additional debt may be impaired. Our credit ratings are relatively low, with Moodys assessment of AWAs senior implied rating
and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poors assessment of
AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC, and
Fitch Ratings assessment of AWAs long-term and senior unsecured debt rating at CCC. 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. 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 TWU on a
second contract covering the Companys dispatchers. On September 17, 2003, TWU filed a petition
for mediation with the NMB. Mediated discussions began on October 15, 2003 and a tentative
agreement for a new four-year contract was announced on February 20, 2004. On March 26, 2004, TWU
informed the Company that a majority of dispatchers voted against ratification of the tentative
agreement. The Company expects to resume negotiations with TWU under the guidance of the NMB.
Negotiations with 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 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. 38




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 Our operating costs could increase as a result of past, current or new regulations that impose
additional requirements and restrictions on airline operations. The airline industry is heavily regulated. Both federal and state governments from time to
time propose new laws and regulations that impose additional requirements and restrictions on
airline operations. Implementing these measures, such as aviation ticket taxes and passenger
safety measures, has increased operating costs for us and the airline industry as a whole. In
addition, new security measures imposed by the 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
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. 39




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 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 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. 40




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 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 April 20, 2004, the outstanding shares of Class B common
stock were subject to dilution by:  
    19,692,000 shares of Class B common stock that are issuable upon the exercise, at a
price of $3.00 per share, of certain warrants issued in connection with the government
guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise
of a warrant issued to the ATSB; and
    10,173,946 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;
    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. 41




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 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 4. CONTROLS AND PROCEDURES. The following has been amended to reflect the restatement of our financial statements for
current and prior periods as discussed further in the Explanatory Note, Note 2, Restatement of
Previously Reported Amountsof Holdings Notes to Condensed Consolidated Financial Statements
appearing in Item 1A and Note 2, Restatement of Previously Reported Amountsof AWAs Notes to
Condensed Financial Statements appearing in Item 1B. (a) Evaluation of disclosure controls and procedures. In connection with the preparation of the previously filed Quarterly Report on Form 10-Q for
the three months ended March 31, 2004, an evaluation was performed under the supervision and with
the participation of Holdings and AWAs management, including the 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 Exchange Act)
as of March 31, 2004. Based on that evaluation at that time, our management, including the CEO and
CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2004. However, in connection with the preparation of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004, our management, in consultation with the Audit Committee of Holdings
Board of Directors, identified a material weakness in our disclosure controls and procedures
associated with the accounting for AWAs fuel hedging program that resulted in a need to restate
our financial statements for interim and prior periods, as described below. In February 2005, management undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that AWAs fuel hedging
transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles and that the Companys financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance sheets and statements of
stockholders equity and comprehensive income of Holdings and AWA. The Company concluded that these
accounting errors were the result of deficiencies in its internal control over financial reporting,
from the lack of effective reviews of hedge transaction documentation and of quarterly
mark-to-market accounting entries on open fuel hedging contracts by personnel at an appropriate
level. In light of the material weakness described above, our management, including the CEO and CFO,
now believe that our disclosure controls and procedures were not effective as of March 31, 2004
since they resulted in a need to restate our financial statements, as described above. 42




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 (b) Changes in internal control over financial reporting. There were no significant changes in our internal control over financial reporting during the
three month period ended March 31, 2004 that materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting. However, prior to the filing of
this report, we have implemented changes to our internal controls to correct the material weakness
identified, as described above. Specifically, we have corrected this material weakness by
implementing a review process that verifies the quarterly mark-to-market adjustment on open fuel
hedging positions. In addition, the Company will utilize the mark-to-market method of accounting
for its fuel hedging instruments going forward until such time it is able to implement processes
and controls necessary to ensure that appropriate hedge documentation is obtained at hedge
inception. At that time, the Company will evaluate whether it will re-apply hedge accounting. (c) Limitation on the effectiveness of controls. 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 the CEO and CFO now believe that our disclosure controls and procedures were not
effective at the reasonable assurance level as of March 31, 2004 since they resulted in a need to
restate our financial statements for prior periods, as described above. However, with the changes
in our internal controls implemented prior to the filing of this report, the CEO and CFO now
believe that these controls and procedures are effective at the reasonable assurance level. 43




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2004 
 PART II - OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING31.1
    
    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.b. Reports on Form 8-KHoldings and AWA filed a report on Form 8-K dated January 5, 2004, furnishing under Item 12
a press release dated January 5, 2004 announcing certain traffic statistics for December
2003.Holdings and AWA filed a report on Form 8-K dated January 9, 2004, filing under Item 5 a
press release dated January 9, 2004 announcing that TLC had been merged into AWA.Holdings and AWA filed a report on Form 8-K dated January 22, 2004, filing under Item 5 a
press release dated January 22, 2004 announcing the Companys results for the fourth quarter
and full year ended December 31, 2003.Holdings and AWA filed a report on Form 8-K dated February 4, 2004, furnishing under Item 12
a press release dated February 4, 2004 announcing certain traffic statistics for January
2004.Holdings and AWA filed a report on Form 8-K dated March 3, 2004, furnishing under Item 12 a
press release dated March 3, 2004 announcing certain traffic statistics for February 2004.
 44




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AMERICA WEST HOLDINGS CORPORATION
March 31, 2004 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST HOLDINGS CORPORATIONBy
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 25, 2005 45




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AMERICA WEST AIRLINES, INC.
March 31, 2004 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST AIRLINES, INC.By
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 25, 2005 46




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Exhibit Index EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING31.1
    
    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.