##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One) þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2004
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For 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 No o 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 October 27, 2004, America West Holdings Corporation has 859,117 shares of
Class A common stock and 35,120,622 shares of Class B common stock outstanding.
As of October 27, 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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TABLE OF CONTENTS  PART I - FINANCIAL INFORMATIONITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - AMERICA WEST HOLDINGS CORPORATIONCondensed Consolidated Balance SheetsCondensed Consolidated Statements of OperationsCondensed Consolidated Statements of Cash FlowsNotes To Condensed Consolidated Financial StatementsITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INC.Condensed Balance SheetsCondensed Statements of OperationsCondensed Statements of Cash FlowsNotes To Condensed Financial StatementsITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II - OTHER INFORMATIONITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 6. EXHIBITSSIGNATUREExhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 10.8Exhibit 10.9Exhibit 10.10Exhibit 10.11Exhibit 10.12Exhibit 10.13Exhibit 10.14Exhibit 10.15Exhibit 10.16Exhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I - FINANCIAL INFORMATION America West Holdings Corporation (Holdings or the Company) is the
holding company that owns all of the stock of America West Airlines, Inc.
(AWA or the Airline). 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 combined Form 10-Q 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)
 September 30,
    
    December 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    303,694
    
    
    $
    403,082Short-term investments
    
    
    68,141
    
    
    
    72,890Restricted cash
    
    
    
    
    
    
    42,900Accounts receivable, net
    
    
    92,407
    
    
    
    77,235Expendable spare parts and supplies, net
    
    
    63,030
    
    
    
    58,575Prepaid expenses
    
    
    170,863
    
    
    
    129,368Total current assets
    
    
    698,135
    
    
    
    784,050Property and equipment:Flight equipment
    
    
    898,747
    
    
    
    858,395Other property and equipment
    
    
    285,293
    
    
    
    273,284Equipment purchase deposits
    
    
    53,050
    
    
    
    46,0501,237,090
    
    
    
    1,177,729Less accumulated depreciation and amortization
    
    
    601,539
    
    
    
    570,017Net property and equipment
    
    
    635,551
    
    
    
    607,712Other assets:Investments in debt securities
    
    
    45,000
    
    
    
    40,740Restricted cash
    
    
    71,312
    
    
    
    69,876Other assets, net
    
    
    127,599
    
    
    
    124,534Total other assets
    
    
    243,911
    
    
    
    235,150$
    1,577,597
    
    
    $
    1,626,912
 See accompanying notes to condensed consolidated financial statements. 2




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AMERICA WEST HOLDINGS CORPORATION Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited)
 September 30,
    
    December 31,2004
    
    2003Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    146,653
    
    
    $
    103,899Current obligations under capital leases
    
    
    3,552
    
    
    
    3,442Accounts payable
    
    
    177,996
    
    
    
    210,288Air traffic liability
    
    
    229,534
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    41,666
    
    
    
    61,045Accrued taxes
    
    

    41,020
    
    
    
    36,846Other accrued liabilities
    
    
    74,252
    
    
    
    59,277Total current liabilities
    
    
    714,673
    
    
    
    649,283Long-term debt, less current maturities
    
    
    601,470
    
    
    
    688,965Capital leases, less current obligations
    
    
    5,061
    
    
    
    8,467Deferred credits and other liabilities
    
    
    143,642
    
    
    
    141,681Stockholders 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
September 30, 2004 and December 31, 2003
    
    
    8
    
    
    
    8Class B
common stock, $.01 par value, Authorized 100,000,000
shares; issued and outstanding 51,558,197 shares at September 30, 2004
and 51,239,200 shares at December 31, 2003
    
    
    516
    
    
    
    512Additional paid-in capital
    
    
    632,423
    
    
    
    631,269Accumulated deficit
    
    
    (239,791
    )
    
    
    (199,594
    )Accumulated other comprehensive income
    
    
    27,501
    
    
    
    12,527420,657
    
    
    
    444,722Less: Cost of Class B common stock in treasury, 16,437,575 shares at
September 30, 2004 and 16,283,895 shares at December 31, 2003
    
    
    (307,906
    )
    
    
    (306,206
    )Total stockholders equity
    
    
    112,751
    
    
    
    138,516$
    1,577,597
    
    
    $
    1,626,912
 See accompanying notes to condensed consolidated financial statements. 3




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AMERICA WEST HOLDINGS CORPORATION Condensed Consolidated Statements of Operations
 (in thousands except per share data)
 (unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Operating revenues:Passenger
    
    $
    542,167
    
    
    $
    552,564
    
    
    $
    1,648,666
    
    
    $
    1,591,496Cargo
    
    
    6,290
    
    
    
    6,201
    
    
    
    20,010
    
    
    
    21,101Other
    
    
    30,166
    
    
    
    33,537
    
    
    
    91,565
    
    
    
    78,709Total operating revenues
    
    
    578,623
    
    
    
    592,302
    
    
    
    1,760,241
    
    
    
    1,691,306Operating expenses:Salaries and related costs
    
    
    165,164
    
    
    
    158,167
    
    
    
    493,416
    
    
    
    477,884Aircraft rents
    
    
    76,400
    
    
    
    74,417
    
    
    
    226,931
    
    
    
    221,862Other rents and landing fees
    
    
    43,322
    
    
    
    38,210
    
    
    
    126,574
    
    
    
    115,475Aircraft fuel
    
    
    136,297
    
    
    
    91,595
    
    
    
    375,825
    
    
    
    271,481Agency commissions
    
    
    6,302
    
    
    
    8,408
    
    
    
    19,305
    
    
    
    26,564Aircraft maintenance materials and repairs
    
    
    54,437
    
    
    
    50,854
    
    
    
    156,841
    
    
    
    173,572Depreciation and amortization
    
    
    13,296
    
    
    
    16,572
    
    
    
    39,674
    
    
    
    51,563Special charges
    
    
    1,629
    
    
    
    
    
    
    
    1,029
    
    
    
    14,370Other
    
    
    110,013
    
    
    
    103,944
    
    
    
    310,207
    
    
    
    318,235Total operating expenses
    
    
    606,860
    
    
    
    542,167
    
    
    
    1,749,802
    
    
    
    1,671,006Operating income (loss)
    
    
    (28,237
    )
    
    
    50,135
    
    
    
    10,439
    
    
    
    20,300Nonoperating income (expenses):Interest income
    
    
    2,053
    
    
    
    1,666
    
    
    
    5,350
    
    
    
    4,231Interest expense, net
    
    
    (19,931
    )
    
    
    (19,484
    )
    
    
    (58,920
    )
    
    
    (57,504
    )Federal government assistance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,255Other, net
    
    
    (952
    )
    
    
    625
    
    
    
    2,934
    
    
    
    2,326Total nonoperating income (expenses), net
    
    
    (18,830
    )
    
    
    (17,193
    )
    
    
    (50,636
    )
    
    
    30,308Income (loss) before income taxes
    
    
    (47,067
    )
    
    
    32,942
    
    
    
    (40,197
    )
    
    
    50,608Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (47,067
    )
    
    $
    32,942
    
    
    $
    (40,197
    )
    
    $
    50,608Earnings (loss) per share:Basic
    
    $
    (1.30
    )
    
    $
    0.94
    
    
    $
    (1.12
    )
    
    $
    1.48Diluted
    
    $
    (1.30
    )
    
    $
    0.60
    
    
    $
    (1.12
    )
    
    $
    1.18Shares used for computation:Basic
    
    
    36,111
    
    
    
    35,037
    
    
    
    35,989
    
    
    
    34,161Diluted
    
    
    36,111
    
    
    
    59,285
    
    
    
    35,989
    
    
    
    49,507
 See accompanying notes to condensed consolidated financial statements. 4




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AMERICA WEST HOLDINGS CORPORATION 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (unaudited)
 Nine Months EndedSeptember 30,2004
    
    2003Net cash provided by operating activities
    
    $
    89,912
    
    
    $
    159,350Cash flows from investing activities:Purchases of property and equipment
    
    
    (125,938
    )
    
    
    (119,196
    )Purchases of short-term investments
    
    
    (58,165
    )
    
    
    (51,186
    )Sales of short-term investments
    
    
    77,409
    
    
    
    35,739Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    (46,189
    )Sales of investments in debt securities
    
    
    15,000
    
    
    
    1,501Increase in restricted cash
    
    
    (1,436
    )
    
    
    (23,465
    )Proceeds from disposition of assets
    
    
    2,544
    
    
    
    24,283Net cash used in investing activities
    
    
    (125,586
    )
    
    
    (178,513
    )Cash flows from financing activities:Repayment of debt
    
    
    (174,280
    )
    
    
    (14,719
    )Proceeds from issuance of debt
    
    
    110,564
    
    
    
    86,828Payments of debt issue costs
    
    
    (1,156
    )
    
    
    (3,105
    )Other
    
    
    1,158
    
    
    
    725Net cash provided by (used in) financing activities
    
    
    (63,714
    )
    
    
    69,729Net increase (decrease) in cash and cash equivalents
    
    
    (99,388
    )
    
    
    50,566Cash and cash equivalents at beginning of period
    
    
    403,082
    
    
    
    335,750Cash and cash equivalents at end of period
    
    $
    303,694
    
    
    $
    386,316Cash, cash equivalents, short-term investments and investments in debt
securities at end of period
    
    $
    416,835
    
    
    $
    471,189Cash paid for:Interest, net of amounts capitalized
    
    $
    18,001
    
    
    $
    14,304Income taxes paid (refunded)
    
    $
    1,441
    
    
    $
    (438
    )Non-cash investing and financing activities:Payment in kind notes issued
    
    $
    4,974
    
    
    $
    4,813Exercise of warrants
    
    $
    (2
    )
    
    $
    (17
    )Acquisition of shares due to loan default
    
    $
    1,700
    
    
    $
    Reclassification of investments in debt securities to
short-term investments
    
    $
    15,730
    
    
    $
    Notes payable issued (cancelled) under the aircraft purchase
agreement
    
    $
    7,000
    
    
    $
    (7,000
    )Cancellation of convertible notes
    
    $
    
    
    
    $
    (660
    )
 See accompanying notes to condensed consolidated financial statements. 5




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AMERICA WEST HOLDINGS CORPORATION 
 Notes To Condensed Consolidated Financial Statements
 September 30, 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.
Accordingly, Holdings operates as one operating segment. 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 (Form 10-K) for
the year ended December 31, 2003. 2. 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
income (loss) and income (loss) per share would have been reduced (increased)
to the pro forma amounts indicated below: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in thousands except per share data)Net income (loss), as reported
    
    $
    (47,067
    )
    
    $
    32,942
    
    
    $
    (40,197
    )
    
    $
    50,608Stock-based compensation expense
    
    
    (1,824
    )
    
    
    (1,063
    )
    
    
    (4,740
    )
    
    
    (3,274
    )Pro forma net income (loss)
    
    $
    (48,891
    )
    
    $
    31,879
    
    
    $
    (44,937
    )
    
    $
    47,334Income (loss) per share:Basic - as reported
    
    $
    (1.30
    )
    
    $
    0.94
    
    
    $
    (1.12
    )
    
    $
    1.48Basic - pro forma
    
    $
    (1.35
    )
    
    $
    0.91
    
    
    $
    (1.25
    )
    
    $
    1.39Diluted - as reported
    
    $
    (1.30
    )
    
    $
    0.60
    
    
    $
    (1.12
    )
    
    $
    1.18Diluted - pro forma
    
    $
    (1.35
    )
    
    $
    0.54
    
    
    $
    (1.25
    )
    
    $
    0.96
 3. FLIGHT EQUIPMENT During the quarter, the Company entered into agreements with two aircraft
lessors for the return of six Boeing 737-200 aircraft. Three aircraft were
returned during the quarter and three are expected to be returned in the fourth
quarter. Negotiations continue for the return of the remaining two Boeing
737-200 aircraft. See Note 6 Special Charges. In August 2004, the Company amended its 1999 Airbus purchase contract. As
amended, the new agreement calls for the Company to acquire 22 Airbus A320
family aircraft (a mix of A320s and A319s), all powered by V2500 engines from
International Aero Engines. Of the 22 aircraft, it is anticipated that 18 will
be purchased directly from the manufacturer and four will be leased from
various lessors. The Company has negotiated lease agreements for the four
leased aircraft. In addition, the Company is exploring the possibility of
leasing one additional aircraft in lieu of purchasing such aircraft from the
manufacturer. In the context of this incremental order, the Company also
secured extensive flexibility from Airbus with respect to its existing A318
order, allowing the Company to better react to market conditions by enabling it
to amend its 15 A318 delivery positions to A319s and A320s, if it so desires,
or to no additional aircraft under certain conditions. 6




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004 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 and nine months
ended September 30, 2004 of $4.6 million and $13.8 million, respectively. As a
result, basic and diluted loss per share decreased by $0.13 and $0.13,
respectively, for the three months ended September 30, 2004, and increased by
$0.38 and $0.38, respectively, for the nine months ended September 30, 2004. 4. TERM LOAN REFINANCING On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $110.6 million. AWA used
approximately $77.0 million of the proceeds from this financing to repay in
full its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders
and to pay certain costs associated with this transaction. AWA intends to use
the remaining proceeds for general corporate purposes. The new term loan
financing consists of two secured term loan facilities: a $75.6 million term
loan facility secured primarily by spare parts, rotables and appliances (the
Spare Parts Facility); and a $35.0 million term loan facility secured
primarily by aircraft engines and parts installed in such engines (the Engine
Facility). The loans under the Spare Parts Facility are payable in full at maturity
on September 10, 2010. The loans under the Engine Facility are payable in
equal quarterly installments of $1.3 million beginning on March 10, 2006
through June 10, 2010 with the remaining loan amount of $11.8 million payable
at maturity on September 10, 2010. The loans under each facility may be
prepaid in an amount not less than $5 million at any time after the 30th
monthly anniversary of the funding date under such facility. If AWA fails to
maintain a certain ratio of rotables to loans under the Spare Parts Facility,
it may be required to pledge additional rotables or cash as collateral, provide
a letter of credit or prepay some or all of the loans under the Spare Parts
Facility. In addition, the loans under the Engine Facility are subject to
mandatory prepayment upon the occurrence of certain events of loss applicable
to, or certain dispositions of, aircraft engines securing the facility. Principal amounts outstanding under the loans bear interest at a rate per
annum based on three-month LIBOR plus margin. Both facilities contain
customary events of default, including payment defaults, cross-defaults, breach
of covenants, bankruptcy and insolvency defaults and judgment defaults. 5. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes changes in the fair value of
derivative financial instruments that qualify as cash flow hedges in accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities.For the three and nine months ended September 30, 2004, the
Company recorded total comprehensive loss of $34.6 million and $25.2 million,
respectively. For the three and nine months ended September 30, 2003, the
Company recorded total comprehensive income of $32.2 million and $58.6 million,
respectively. The difference between net income (loss) and comprehensive
income (loss) for the three and nine months ended September 30, 2004 and 2003
is detailed in the following table: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Net income (loss)
    
    $
    (47,067
    )
    
    $
    32,942
    
    
    $
    (40,197
    )
    
    $
    50,608Unrealized gains (losses) on derivative instruments
    
    
    18,402
    
    
    
    (793
    )
    
    
    26,102
    
    
    
    17,097Reclassification adjustment to net income (loss) of
previously reported unrealized gains (losses) on
derivative instruments
    
    
    (5,931
    )
    
    
    84
    
    
    
    (11,128
    )
    
    
    (9,126
    )Total other comprehensive income (loss)
    
    
    12,471
    
    
    
    (709
    )
    
    
    14,974
    
    
    
    7,971Comprehensive income (loss)
    
    $
    (34,596
    )
    
    $
    32,233
    
    
    $
    (25,223
    )
    
    $
    58,579
 7




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004 6. SPECIAL CHARGES In the first quarter of 2004, the Company recorded a $0.6 million
reduction in special charges related to the revision of estimated costs
associated with the sale and leaseback of certain aircraft. In August 2004, the Company entered into definitive agreements with two
lessors to return six Boeing 737-200 aircraft. Three of these aircraft were
returned to the lessors in the third quarter, with the other aircraft expected
to be returned in the fourth quarter. In addition, the Company is also
negotiating with one lessor on the return of its remaining two Boeing 737-200
aircraft, one of which was parked in March 2002. The other aircraft is
expected to be removed from service in January 2005. In connection with the
return of the three aircraft in the third quarter, the Company recorded $1.6
million of special charges which include lease termination payments of $2.1
million, the write-down of leasehold improvements and aircraft rent balances of
$1.7 million, offset by the reversal of maintenance reserves of $2.2 million.
The Company also expects to record special charges of approximately $2.2
million for the remaining aircraft. The following table presents the payments and other settlements made
during the nine months ended September 30, 2004 related to the special charge
accruals: Fleet
    
    
    
    
    
    ContractSale-
    
    Restructuring
    
    Reductions-
    
    Termination/Leaseback
    
    /Retirement
    
    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
    
    
    $
    3,425Revision of estimate
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Payments
    
    
    
    
    
    
    (195
    )
    
    
    (17
    )
    
    
    (506
    )
    
    
    (718
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    1,014
    
    
    $
    
    
    
    $
    1,628
    
    
    $
    2,642Special charges
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    1,629Payments
    
    
    
    
    
    
    (2,247
    )
    
    
    
    
    
    
    (506
    )
    
    
    (2,753
    )Reversal of maintenance reserves
    
    
    
    
    
    
    2,175
    
    
    
    
    
    
    
    
    
    
    
    2,175Write-down of leasehold improvements
and aircraft rent balances
    
    
    
    
    
    
    (1,739
    )
    
    
    
    
    
    
    
    
    
    
    (1,739
    )Balance at September 30, 2004
    
    $
    
    
    
    $
    832
    
    
    $
    
    
    
    $
    1,122
    
    
    $
    1,954
 The Company expects to make payments related to these special charges
through the fourth quarter of 2005. 8




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004 7. EARNINGS (LOSS) PER SHARE (EPS) The following table presents the computation of basic and diluted EPS. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in thousands of dollars except share data)BASIC EARNINGS (LOSS) PER SHAREIncome (loss) applicable to common stock
    
    $
    (47,067
    )
    
    $
    32,942
    
    
    $
    (40,197
    )
    
    $
    50,608Weighted average common shares outstanding
    
    
    36,111,372
    
    
    
    35,036,616
    
    
    
    35,989,379
    
    
    
    34,161,024Basic earnings (loss) per share
    
    $
    (1.30
    )
    
    $

    0.94
    
    
    $
    (1.12
    )
    
    $
    1.48DILUTED EARNINGS (LOSS) PER SHAREIncome (loss) applicable to common stock
    
    $
    (47,067
    )
    
    $
    35,622
    
    
    $
    (40,197
    )
    
    $
    58,487Interest expense on 7.5% convertible notes
    
    
    
    
    
    
    2,680
    
    
    
    
    
    
    
    7,879Income (loss) for purposes of computing diluted net
income (loss) per share
    
    $
    (47,067
    )
    
    $
    35,622
    
    
    $
    (40,197
    )
    
    $
    58,487Share computation:Weighted average common shares outstanding
    
    
    36,111,375
    
    
    
    35,036,616
    
    
    
    35,989,379
    
    
    
    34,161,024Assumed exercise of stock options and warrants
    
    
    
    
    
    
    15,784,790
    
    
    
    
    
    
    
    7,187,737Assumed conversion of 7.5% convertible senior notes
    
    
    
    
    
    
    8,463,758
    
    
    
    
    
    
    
    8,157,839Weighted average common shares outstanding for purposes
of computing diluted net income (loss) per share
    
    
    36,111,375
    
    
    
    59,285,164
    
    
    
    35,989,379
    
    
    
    49,506,600Diluted income (loss) per share
    
    $
    (1.30
    )
    
    $
    0.60
    
    
    $
    (1.12
    )
    
    $
    1.18
 For the three months ended September 30, 2004, 7,318,166 incremental
shares from assumed exercise of stock options and 10,540,875 warrants issued in
conjunction with the government guaranteed loan and related transactions are
not included in the computation of diluted earnings (loss) per share (EPS)
because of the antidilutive effect on EPS. Incremental shares of 9,020,000
from the 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. For the nine months ended September 30, 2004, 6,721,430 incremental shares
from the assumed exercise of stock options and 12,880,721 warrants issued in
conjunction with the government guaranteed loan and related transactions are
not included in the computation of diluted earnings (loss) per share (EPS)
because of the antidilutive effect on EPS. Incremental shares of 8,694,000
from the assumed conversion of the 7.5% convertibles 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 EPS for the three and
nine months ended September 30, 2004, since the conditions for conversion have
not been met. However, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) recently reached a consensus on
Issue 04-08, The Effect of Contingently Convertible Instruments on Diluted
Earnings Per Sharethat requires issuers of convertible securities with
contingent conversion features use the if-convertedmethod to calculate
reported EPS irrespective of the contingent conversion trigger being met. The
consensus has been ratified by the FASB and will be effective in the same
period as the FASBs proposed amendment to SFAS No. 128 or periods ending after
December 15, 2004. The Company does not believe the effect of including shares
issuable upon the assumed conversion of the 7.25% Senior Exchangeable Notes in
the diluted EPS calculations for prior periods will be significant. For the three months ended September 30, 2003, 4,453,537 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. 9




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004 For the nine months ended September 30, 2003, 6,200,354 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. 8. 401(k) PLAN SHARES During the third quarter of 2004, Holdings became aware that an
insufficient number of shares of its Class B common stock were registered for
offer and sale through its 401(k) plan. In response to this registration
shortfall, Holdings promptly filed a new registration statement on Form S-8 on
August 13, 2004, which registered an additional 4,500,000 shares of Holdings
Class B common stock to permit the continued offer and sale of such shares to
participants through the 401(k) plan. Because the 401(k) plan in the past has
purchased and in the future expects to continue to purchase shares of Holdings
Class B common stock needed for allocation to participant accounts only in the
open market and not directly from Holdings, the registration of these
additional shares and their purchase by the 401(k) plan will have no dilutive
impact on the outstanding equity of Holdings. As a result of the registration
shortfall, however, participants who acquired unregistered shares through their
401(k) plan accounts after June 30, 2003, and prior to August 13, 2004, may be
entitled to rescission rights or other remedies under the Securities Act of
1933, as amended. Holdings is notifying affected existing and former plan
participants of their potential rescission rights, but cannot predict the
extent to which any such rescission rights may be exercised or the impact of
any possible federal or state regulatory action pertaining to the registration
shortfall. Holdings does not believe, however, that any consequences arising
from the registration shortfall will have a material adverse effect on
Holdings financial position or results 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 September 30, 2004 and December 31, 2003, the condensed
statements of operations for the three and nine months ended September 30, 2004
and 2003 and the condensed statements of cash flows for the nine months ended
September 30, 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
8, Merger of TLC into AWAin Notes to Condensed Financial Statements. 
 AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited) September 30,
    
    December 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    283,330
    
    
    $
    383,875Short-term investments
    
    
    68,141
    
    
    
    72,890Restricted cash
    
    
    
    
    
    
    42,900Accounts receivable, net
    
    
    92,333
    
    
    
    77,235Expendable spare parts and supplies, net
    
    
    63,030
    
    
    
    58,575Prepaid expenses
    
    
    170,848
    
    
    
    129,291Total current assets
    
    
    677,682
    
    
    
    764,766Property and equipment:Flight equipment
    
    
    898,747
    
    
    
    858,395Other property and equipment
    
    
    283,602
    
    
    
    271,593Equipment purchase deposits
    
    
    53,050
    
    
    
    46,0501,235,399
    
    
    
    1,176,038Less accumulated depreciation and amortization
    
    
    600,990
    
    
    
    569,468Net property and equipment
    
    
    634,409
    
    
    
    606,570Other assets:Investments in debt securities
    
    
    45,000
    
    
    
    40,740Restricted cash
    
    
    71,312
    
    
    
    69,876Advances to parent company, net
    
    
    257,945
    
    
    
    254,792Other assets, net
    
    
    126,104
    
    
    
    122,725Total other assets
    
    
    500,361
    
    
    
    488,133$
    1,812,452
    
    
    $
    1,859,469
 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) September 30,
    
    December 31,2004
    
    2003Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    146,653
    
    
    $
    103,899Current obligations under capital leases
    
    
    3,552
    
    
    
    3,442Accounts payable
    
    
    177,278
    
    
    
    209,373Payable to affiliate, net
    
    
    
    
    
    
    1,926Air traffic liability
    
    
    229,534
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    41,666
    
    
    
    61,045Accrued taxes
    
    
    29,241
    
    
    
    24,117Other accrued liabilities
    
    
    74,252
    
    
    
    59,277Total current liabilities
    
    
    702,176
    
    
    
    637,565Long-term debt, less current maturities
    
    
    601,470
    
    
    
    688,965Capital leases, less current maturities
    
    
    5,061
    
    
    
    8,467Deferred credits and other liabilities
    
    
    141,834
    
    
    
    139,873Stockholders equity:Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,114
    
    
    
    555,115Accumulated deficit
    
    
    (220,704
    )
    
    
    (183,043
    )Accumulated other comprehensive income
    
    
    27,501
    
    
    
    12,527Total stockholders equity
    
    
    361,911
    
    
    
    384,599$
    1,812,452
    
    
    $
    1,859,469
 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 Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Operating revenues:Passenger
    
    $
    542,167
    
    
    $
    552,564
    
    
    $
    1,648,666
    
    
    $
    1,591,496Cargo
    
    
    6,290
    
    
    
    6,201
    
    
    
    20,010
    
    
    
    21,101Other
    
    
    29,996
    
    
    
    33,367
    
    
    
    91,055
    
    
    
    78,199Total operating revenues
    
    
    578,453
    
    
    
    592,132
    
    
    
    1,759,731
    
    
    
    1,690,796Operating expenses:Salaries and related costs
    
    
    164,861
    
    
    
    157,603
    
    
    
    492,407
    
    
    
    476,111Aircraft rents
    
    
    76,400
    
    
    
    74,417
    
    
    
    226,931
    
    
    
    221,862Other rents and landing fees
    
    
    43,322
    
    
    
    38,210
    
    
    
    126,574
    
    
    
    115,475Aircraft fuel
    
    
    136,297
    
    
    
    91,595
    
    
    
    375,825
    
    
    
    271,481Agency commissions
    
    
    6,302
    
    
    
    8,408
    
    
    
    19,305
    
    
    
    26,564Aircraft maintenance materials and repairs
    
    
    54,437
    
    
    
    50,854
    
    
    
    156,841
    
    
    
    173,572Depreciation and amortization
    
    
    13,296
    
    
    
    16,572
    
    
    
    39,674
    
    
    
    51,563Special charges, net
    
    
    1,629
    
    
    
    
    
    
    
    1,029
    
    
    
    14,370Other
    
    
    109,177
    
    
    
    103,436
    
    
    
    308,005
    
    
    
    316,566Total operating expenses
    
    
    605,721
    
    
    
    541,095
    
    
    
    1,746,591
    
    
    
    1,667,564Operating income (loss)
    
    
    (27,268
    )
    
    
    51,037
    
    
    
    13,140
    
    
    
    23,232Nonoperating income (expenses):Interest income
    
    
    3,717
    
    
    
    3,434
    
    
    
    10,336
    
    
    
    9,465Interest expense, net
    
    
    (21,661
    )
    
    
    (21,276
    )
    
    
    (64,071
    )
    
    
    (62,805
    )Federal government assistance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,255Other, net
    
    
    (952
    )
    
    
    625
    
    
    
    2,934
    
    
    
    2,326Total nonoperating income (expenses), net
    
    
    (18,896
    )
    
    
    (17,217
    )
    
    
    (50,801
    )
    
    
    30,241Income (loss) before income taxes
    
    
    (46,164
    )
    
    
    33,820
    
    
    
    (37,661
    )
    
    
    53,473Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (46,164
    )
    
    $
    33,820
    
    
    $
    (37,661
    )
    
    $
    53,473
 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) Nine Months EndedSeptember 30,2004
    
    2003Net cash provided by operating activities
    
    $
    89,913
    
    
    $
    159,068Cash flows from investing activities:Purchases of property and equipment
    
    
    (125,938
    )
    
    
    (119,196
    )Purchases of short-term investments
    
    
    (58,165
    )
    
    
    (51,186
    )Sales of short-term investments
    
    
    77,409
    
    
    
    35,739Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    (46,189
    )Sales of investments in debt securities
    
    
    15,000
    
    
    
    1,501Increase in restricted cash
    
    
    (1,436
    )
    
    
    (23,465
    )Proceeds from disposition of assets
    
    
    2,544
    
    
    
    24,283Net cash used in investing activities
    
    
    (125,586
    )
    
    
    (178,513
    )Cash flows from financing activities:Repayment of debt
    
    
    (174,280
    )
    
    
    (14,719
    )Proceeds from issuance of debt
    
    
    110,564
    
    
    
    86,828Payments of debt issue costs
    
    
    (1,156
    )
    
    
    (3,105
    )Net cash provided by (used in) financing activities
    
    
    (64,872
    )
    
    
    69,004Net increase (decrease) in cash and cash equivalents
    
    
    (100,545
    )
    
    
    49,559Cash and cash equivalents at beginning of period
    
    
    383,875
    
    
    
    334,679Cash and cash equivalents at end of period
    
    $
    283,330
    
    
    $
    384,238Cash, cash equivalents, short-term investments and investments in
debt securities at end of period
    
    $
    396,471
    
    
    $
    469,111Cash paid for:Interest, net of amounts capitalized
    
    $
    18,001
    
    
    $
    14,304Income taxes paid (refunded)
    
    $
    326
    
    
    $
    (558
    )Non-cash investing and financing activities:Payment in kind notes issued
    
    $
    4,974
    
    
    $
    4,813Reclassification of investments in debt securities to
short-term investments
    
    $
    15,730
    
    
    $
    Notes payable issued (cancelled) under the aircraft purchase
agreement
    
    $
    7,000
    
    
    $
    (7,000
    )Exercise of warrants
    
    $
    (2
    )
    
    $
    (17
    )Cancellation of convertible notes
    
    $
    
    
    
    $
    (660
    )
 See accompanying notes to condensed financial statements. 14




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 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 8, 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 current report on Form
8-K dated August 12, 2004. 2. ADVANCES TO PARENT COMPANY AND AFFILIATE As of September 30, 2004, AWA had net advances to Holdings of $257.9
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 $343.2 million remains outstanding. AWA
settled all intercompany amounts due to TLC upon the completion of the merger
of TLC on January 1, 2004. 3. 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 compensation expense to AWA for its employees participating in the
stock option plans, AWAs net income (loss) would have been reduced (increased)
to the pro forma amounts indicated below: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Net income (loss), as reported
    
    $
    (46,164
    )
    
    $
    33,820
    
    
    $
    (37,661
    )
    
    $
    53,473Stock-based compensation expense
    
    
    (1,824
    )
    
    
    (1,051
    )
    
    
    (4,740
    )
    
    
    (3,214
    )Pro forma net income (loss)
    
    $
    (47,988
    )
    
    $
    32,769
    
    
    $
    (42,401
    )
    
    $
    50,259
 4. FLIGHT EQUIPMENT During the quarter, AWA entered into agreements with two aircraft lessors
for the return of six Boeing 737-200 aircraft. Three aircraft were returned
during the quarter and three are expected to be returned in the fourth quarter.
Negotiations continue for the return of the remaining two Boeing 737-200
aircraft. See Note 7 Special Charges. In August 2004, AWA amended its 1999 Airbus purchase contract. As
amended, the new agreement calls for AWA to acquire 22 Airbus A320 family
aircraft (a mix of A320s and A319s), all powered by V2500 engines from
International Aero Engines. Of the 22 aircraft, it is anticipated that 18 will
be purchased directly from the manufacturer and four will be leased from
various lessors. AWA has negotiated lease agreements for the four leased
aircraft. In addition, AWA is exploring the possibility of leasing one
additional aircraft in lieu of purchasing such aircraft from the manufacturer.
In the context of this incremental order, AWA also secured extensive
flexibility from Airbus with respect to its existing A318 order, allowing AWA
to better react to market conditions by enabling it to amend its 15 A318
delivery positions to A319s and A320s, if it so desires, or to no additional
aircraft under certain conditions. 15




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004 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 and nine months ended
September 30, 2004 by $4.6 million and $13.8 million, respectively. 5. TERM LOAN REFINANCING On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $110.6 million. AWA used
approximately $77.0 million of the proceeds from this financing to repay in
full its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders
and to pay certain costs associated with this transaction. AWA intends to use
the remaining proceeds for general corporate purposes. The new term loan
financing consists of two secured term loan facilities: a $75.6 million term
loan facility secured primarily by spare parts, rotables and appliances (the
Spare Parts Facility); and a $35.0 million term loan facility secured
primarily by aircraft engines and parts installed in such engines (the Engine
Facility). The loans under the Spare Parts Facility are payable in full at maturity
on September 10, 2010. The loans under the Engine Facility are payable in
equal quarterly installments of $1.3 million beginning on March 10, 2006
through June 10, 2010 with the remaining loan amount of $11.8 million payable
at maturity on September 10, 2010. The loans under each facility may be
prepaid in an amount not less than $5 million at any time after the 30th
monthly anniversary of the funding date under such facility. If AWA fails to
maintain a certain ratio of rotables to loans under the Spare Parts Facility,
it may be required to pledge additional rotables or cash as collateral, provide
a letter of credit or prepay some or all of the loans under the Spare Parts
Facility. In addition, the loans under the Engine Facility are subject to
mandatory prepayment upon the occurrence of certain events of loss applicable
to, or certain dispositions of, an aircraft engine securing the facility. Principal amounts outstanding under the loans bear interest at a rate per
annum based on three-month LIBOR plus margin. Both facilities contain
customary events of default, including payment defaults, cross-defaults, breach
of covenants, bankruptcy and insolvency defaults and judgment defaults. 6. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes changes in the fair value of
derivative financial instruments that qualify for hedge accounting. For the
three and nine months ended September 30, 2004, AWA recorded total
comprehensive loss of $33.7 million and $22.7 million, respectively. For the
three and nine months ended September 30, 2003, AWA recorded total
comprehensive income of $33.1 million and $61.4 million, respectively. The
difference between net income (loss) and comprehensive income (loss) for the
three and nine months ended September 30, 2004 and 2003 is detailed in the
following table: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(in thousands)Net income (loss)
    
    $
    (46,164
    )
    
    $
    33,820
    
    
    $
    (37,661
    )
    
    $
    53,473Unrealized gains (losses) on derivative instruments
    
    
    18,402
    
    
    
    (793
    )
    
    
    26,102
    
    
    
    17,097Reclassification adjustment to net income (loss) of
previously reported unrealized gains (losses) on
derivative instruments
    
    
    (5,931
    )
    
    
    84
    
    
    
    (11,128
    )
    
    
    (9,126
    )Total other comprehensive income (loss)
    
    
    12,471
    
    
    
    (709
    )
    
    
    14,974
    
    
    
    7,971Comprehensive income (loss)
    
    $
    (33,693
    )
    
    $
    33,111
    
    
    $
    (22,687
    )
    
    $
    61,444
 16




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004 7. SPECIAL CHARGES In the first quarter of 2004, AWA recorded a $0.6 million reduction in
special charges related to the revision of estimated costs associated with the
sale and leaseback of certain aircraft. In August 2004, AWA entered into definitive agreements with two lessors to
return six Boeing 737-200 aircraft. Three of these aircraft were returned to
the lessors in the third quarter, with the other aircraft expected to be
returned in the fourth quarter. In addition, AWA is also negotiating with one
lessor on the return of its remaining two Boeing 737-200 aircraft, one of which
was parked in March 2002. The other aircraft is expected to be removed from
service in January 2005. In connection with the return of the three aircraft
in the third quarter, AWA recorded $1.6 million of special charges which
include lease termination payments of $2.1 million, the write-down of leasehold
improvements and aircraft rent balances of $1.7 million, offset by the reversal
of maintenance reserves of $2.2 million. AWA also expects to record special
charges of approximately $2.2 million for the remaining aircraft. The following table presents the payments and other settlements made
during the nine months ended September 30, 2004 related to the special charge
accruals: Fleet
    
    
    
    
    
    ContractSale-
    
    Restructuring
    
    Reductions-
    
    Termination/Leaseback
    
    /Retirement
    
    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
    
    
    $
    3,425Revision of estimate
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Payments
    
    
    
    
    
    
    (195
    )
    
    
    (17
    )
    
    
    (506
    )
    
    
    (718
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    1,014
    
    
    $
    
    
    
    $
    1,628
    
    
    $
    2,642Special charges
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    1,629Payments
    
    
    
    
    
    
    (2,247
    )
    
    
    
    
    
    
    (506
    )
    
    
    (2,753
    )Reversal of maintenance reserves
    
    
    
    
    
    
    2,175
    
    
    
    
    
    
    
    
    
    
    
    2,175Write-down of leasehold improvements
and aircraft rent balances
    
    
    
    
    
    
    (1,739
    )
    
    
    
    
    
    
    
    
    
    
    (1,739
    )Balance at September 30, 2004
    
    $
    
    
    
    $
    832
    
    
    $
    
    
    
    $
    1,122
    
    
    $
    1,954
 AWA expects to make payments related to these special charges through the
fourth quarter of 2005. 8. 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 AWA 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
September 30, 2004 The condensed statement of operations for the three and nine months ended
September 30, 2003, after giving effect to the merger, are set forth below. America West Airlines, Inc. Condensed Statement of Operations
 For the Three months ended September 30, 2003
 (unaudited)
 AWA
    
    
    
    
    
    Eliminations/As Reported
    
    TLC
    
    Adjustments
    
    Combined(in thousands)Operating revenues:Passenger
    
    $
    552,564
    
    
    $
    
    
    
    $
    
    
    
    $
    552,564Cargo
    
    
    6,201
    
    
    
    
    
    
    
    
    
    
    
    6,201Other
    
    
    22,847
    
    
    
    10,663
    
    
    
    (143
    )(a)
    
    
    33,367Total operating revenues
    
    
    581,612
    
    
    
    10,663
    
    
    
    (143
    )
    
    
    592,132Operating expenses:Salaries and related costs
    
    
    156,059
    
    
    
    1,544
    
    
    
    
    
    
    
    157,603Aircraft rents
    
    
    74,417
    
    
    
    
    
    
    
    
    
    
    
    74,417Other rents and landing fees
    
    
    38,210
    
    
    
    143
    
    
    
    (143
    )(a)
    
    
    38,210Aircraft fuel
    
    
    91,595
    
    
    
    
    
    
    
    
    
    
    
    91,595Agency commissions
    
    
    5,589
    
    
    
    2,819
    
    
    
    
    
    
    
    8,408Aircraft maintenance materials and repairs
    
    
    50,854
    
    
    
    
    
    
    
    
    
    
    
    50,854Depreciation and amortization
    
    
    16,407
    
    
    
    165
    
    
    
    
    
    
    
    16,572Special charges, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    101,541
    
    
    
    1,895
    
    
    
    
    
    
    
    103,436Total operating expenses
    
    
    534,672
    
    
    
    6,566
    
    
    
    (143
    )
    
    
    541,095Operating income
    
    
    46,940
    
    
    
    4,097
    
    
    
    
    
    
    
    51,037Nonoperating income (expenses):Interest income
    
    
    3,361
    
    
    
    73
    
    
    
    
    
    
    
    3,434Interest expense, net
    
    
    (21,276
    )
    
    
    
    
    
    
    
    
    
    
    (21,276
    )Federal government assistance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    625Total nonoperating income (expenses), net
    
    
    (17,290
    )
    
    
    73
    
    
    
    
    
    
    
    (17,217
    )Income before income taxes
    
    
    29,650
    
    
    
    4,170
    
    
    
    
    
    
    
    33,820Income taxes
    
    
    
    
    
    
    1,620
    
    
    
    (1,620
    )(b)
    
    
    Net income
    
    $
    29,650
    
    
    $
    2,550
    
    
    $
    1,620
    
    
    $
    33,820
  (a)
    
    TLC paid rent in the amount of $143,000 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 $1.6 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. 18




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004 America West Airlines, Inc.
Condensed Statement of Operations
For the Nine months ended September 30, 2003
(unaudited) AWA
    
    
    
    
    
    Eliminations/As Reported
    
    TLC
    
    Adjustments
    
    Combined(in thousands)Operating revenues:Passenger
    
    $
    1,591,496
    
    
    $
    
    
    
    $
    
    
    
    $
    1,591,496Cargo
    
    
    21,101
    
    
    
    
    
    
    
    
    
    
    
    21,101Other
    
    
    48,476
    
    
    
    30,152
    
    
    
    (429
    )(a)
    
    
    78,199Total operating revenues
    
    
    1,661,073
    
    
    
    30,152
    
    
    
    (429
    )
    
    
    1,690,796Operating expenses:Salaries and related costs
    
    
    470,992
    
    
    
    5,119
    
    
    
    
    
    
    
    476,111Aircraft rents
    
    
    221,862
    
    
    
    
    
    
    
    
    
    
    
    221,862Other rents and landing fees
    
    
    115,475
    
    
    
    429
    
    
    
    (429
    )(a)
    
    
    115,475Aircraft fuel
    
    
    271,481
    
    
    
    
    
    
    
    
    
    
    
    271,481Agency commissions
    
    
    18,072
    
    
    
    8,492
    
    
    
    
    
    
    
    26,564Aircraft maintenance materials and repairs
    
    
    173,572
    
    
    
    
    
    
    
    
    
    
    
    173,572Depreciation and amortization
    
    
    51,036
    
    
    
    527
    
    
    
    
    
    
    
    51,563Special charges, net
    
    
    13,979
    
    
    
    391
    
    
    
    
    
    
    
    14,370Other
    
    
    310,380
    
    
    
    6,186
    
    
    
    
    
    
    
    316,566Total operating expenses
    
    
    1,646,849
    
    
    
    21,144
    
    
    
    (429
    )
    
    
    1,667,564Operating income
    
    
    14,224
    
    
    
    9,008
    
    
    
    
    
    
    
    23,232Nonoperating income (expenses):Interest income
    
    
    9,247
    
    
    
    218
    
    
    
    
    
    
    
    9,465Interest expense, net
    
    
    (62,805
    )
    
    
    
    
    
    
    
    
    
    
    (62,805
    )Federal government assistance
    
    
    81,255
    
    
    
    
    
    
    
    
    
    
    
    81,255Other, net
    
    
    2,326
    
    
    
    
    
    
    
    
    
    
    
    2,326Total nonoperating income, net
    
    
    30,023
    
    
    
    218
    
    
    
    
    
    
    
    30,241Income before income taxes
    
    
    44,247
    
    
    
    9,226
    
    
    
    
    
    
    
    53,473Income taxes
    
    
    
    
    
    
    3,585
    
    
    
    (3,585
    )(b)
    
    
    Net income
    
    $
    44,247
    
    
    $
    5,641
    
    
    $
    3,585
    
    
    $
    53,473
  (a)
    
    TLC paid rent in the amount of $429,000 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 $3.6 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. 19




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004 9. 401(k) PLAN SHARES During the third quarter of 2004, Holdings became aware that an
insufficient number of shares of its Class B common stock were registered for offer and sale through its 401(k) plan.
In response to this registration shortfall, Holdings promptly filed a new
registration statement on Form S-8 on August 13, 2004, which registered an
additional 4,500,000 shares of Holdings Class B common stock to permit the
continued offer and sale of such shares to participants through the 401(k)
plan. Because the 401(k) plan in the past has purchased and in the future
expects to continue to purchase shares of Holdings Class B common stock needed
for allocation to participant accounts only in the open market and not directly
from Holdings, the registration of these additional shares and their purchase
by the 401(k) plan will have no dilutive impact on the outstanding equity of
Holdings. As a result of the registration shortfall, however, participants who
acquired unregistered shares through their 401(k) plan accounts after June 30,
2003, and prior to August 13, 2004, may be entitled to rescission rights or
other remedies under the Securities Act of 1933, as amended. Holdings is
notifying affected existing and former plan participants of their potential
rescission rights, but cannot predict the extent to which any such rescission
rights may be exercised or the impact of any possible federal or state
regulatory action pertaining to the registration shortfall. Holdings does not
believe, however, that any consequences arising from the registration shortfall
will have a material adverse effect on Holdings financial position or results
of operations. 20




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 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 September 30, 2004, AWA served 62 destinations in North America,
including eight destinations in Mexico, two 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 8, 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. Overview During the third quarter of 2004, the airline industry and AWA incurred
and continues to face an increase in costs resulting from record high jet fuel
prices. At the same time, AWAs passenger revenues were negatively impacted by
a weak revenue environment. Weak domestic yields are an industry wide problem
due to excess domestic capacity, limited pricing power and continued growth of
low cost carriers. For the third quarter, Holdings recorded an operating loss of $28.2
million and pretax and net loss of $47.1 million, or $1.30 per diluted share.
During the quarter:  
    
    Capacity as measured by available seat miles (ASMs), was up 8.3% as
compared to the 2003 third quarter, while passenger revenues were down
$10.4 million or 1.9% to $542.2 million. Passenger revenue per
available seat mile (RASM) decreased 9.3% to 7.09 cents versus the 2003
third quarter primarily due to an 11.2% decline in yield, a 7.9%
increase in aircraft utilization and a 6.1% increase in average stage
length.  
    
    Total operating expenses were $606.9 million, an increase of $64.7
million from the third quarter of 2003. The average fuel price per
gallon increased 39.5% from 84.6 cents in the third quarter of 2003 to
118.0 cents per gallon in the third quarter of 2004. As a result,
aircraft fuel expense for the quarter was $136.3 million, which
accounted for $44.7 million (69.1%) of the period-over-period increase
in operating expenses. Other operating expenses increased by only
4.4%, while the airline grew by 8.3%, driven by the Companys stringent
cost controls. We believe near term revenues will continue to be negatively impacted by
this weak yield environment and fuel prices will remain at record levels.
Given these conditions, Holdings anticipates it will report significant losses
for the fourth quarter and full year 2004. As of September 30, 2004, Holdings unrestricted and restricted cash, cash
equivalents, short-term investments and investments in debt securities totaled
$488.1 million. Although there can be no assurances, we believe that these
high cash balances, coupled with our financing commitments and cash flows from
operating activities 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, 2005. Airline Operations Update During the third quarter of 2004, average daily aircraft utilization
increased by 7.9% to 10.9 hours as the Company continued to grow the airline,
principally through lower cost utilization flying. This increase occurred
during the time when domestic air traffic volume increased 6.6% year-over-year
and the national air traffic system was already constrained. In addition, AWA
had three consecutive months of record passenger load factors, averaging 81.3%
during the same period. The increase in aircraft utilization, constrained air
space and carrying record load factors put pressure on our operations. As a
result, AWAs operating performance and completion factor were worse than the
third quarter of 2003. The Companys recent action to improve operating performance, which
included a modest reduction in planned growth and an increase in maintenance
stations, has had a positive impact on third quarter operating results. 21




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 Operating performance for the third quarter improved over the 2004 second
quarter as average on-time performance increased to 77.8% from 76.7% and
average completion factor increased to 98.7% from 98.4%. The Company expects
its fourth quarter 2004 operating results will continue to improve versus the
third quarter. AWA reported the following operating statistics to the U.S. Department of
Transportation (DOT) for the third quarters of 2004 and 2003: Percent Change2004
    
    2003
    
    2004 - 2003Jul
    
    Aug
    
    Sep
    
    Jul
    
    Aug
    
    Sep
    
    Jul
    
    Aug
    
    SepOn-time performance
(a)
    
    
    76.4
    
    
    
    74.9
    
    
    
    82.2
    
    
    
    82.0
    
    
    
    80.8
    
    
    
    86.4
    
    
    
    (5.6
    )
    
    
    (5.9
    )
    
    
    (4.2
    )Completion factor
(b)
    
    
    98.5
    
    
    
    98.8
    
    
    
    97.9
    (e)
    
    
    99.2
    
    
    
    99.3
    
    
    
    99.4
    
    
    
    (0.7
    )
    
    
    (0.5
    )
    
    
    (1.5
    )Mishandled baggage
(c)
    
    
    4.46
    
    
    
    4.76
    
    
    
    3.24
    
    
    
    3.44
    
    
    
    3.59
    
    
    
    2.40
    
    
    
    29.7
    
    
    
    32.6
    
    
    
    35.0Customer complaints
(d)
    
    
    0.82
    
    
    
    1.41
    
    
    
    1.30
    
    
    
    0.63
    
    
    
    0.75
    
    
    
    0.71
    
    
    
    30.2
    
    
    
    88.0
    
    
    
    83.1
  (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.  (e)
    
    Excluding the effects of the Los Angeles-area Federal Aviation
Administration radio outage that impacted operations on September 14 and
15 and the effects of hurricanes that affected operations for several
days during the month, completion factor would have been 98.8%. Summary of Holdings Financial Results Holdings recorded a consolidated net loss of $47.1 million, or $1.30 per
diluted share, in the third quarter of 2004. This compares to consolidated net
income of $32.9 million, or $0.60 per diluted share, in the third quarter of
2003. The 2004 period includes $1.6 million of special charges related to the
return of three Boeing 737-200 aircraft. This amount includes termination
payments of $2.1 million, the write-down of leasehold improvements and aircraft
rent balances of $1.7 million, offset by the reversal of maintenance reserves
of $2.2 million. See Note 6, Special Chargesin Notes to Condensed Financial
Statements. Holdings recorded a consolidated net loss of $40.2 million in the first
nine months of 2004, or $1.12 per diluted share. This compares to consolidated
net income of $50.6 million, or $1.18 per diluted share, in the first nine
months of 2003. The 2004 period includes $1.6 million of special charges as
discussed above. The 2003 period included the $81.3 million of federal
government assistance received under the Emergency Wartime Supplemental
Appropriations Act, an operating gain of $4.4 million related to the purchase
and subsequent exchange of an A320 airframe in the first quarter of 2003 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 special charges of $15.5 million resulting from the elimination of
AWAs hub operations in Columbus, Ohio ($11.1 million), the reduction-in-force
of certain management, professional and administrative employees ($2.3 million)
the impairment of certain owned Boeing 737-200 aircraft grounded in 2003 ($2.6
million) and a $0.5 million reduction related to the revision of estimated
costs associated with the sale and leaseback of certain aircraft. The Company did not record an income tax benefit in the third quarter or
income tax expense for the first six months of 2004 as it currently expects to
continue to record a full valuation allowance on any future tax benefits until
it has achieved several quarters of consecutive profitable results coupled with
an expectation of continued profitability. 22




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 RESULTS OF OPERATIONS The following discussion provides an analysis of AWAs results of
operations for the three and nine months ended September 30, 2004 and material
changes compared to the three and nine months ended September 30, 2003. The table below sets forth selected operating data for AWA. Three Months Ended
    
    Percent
    
    Nine Months Ended
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change2004
    
    2003
    
    2004-2003
    
    2004
    
    2003
    
    2004-2003Aircraft (end of period)
    
    
    139
    
    
    
    140
    
    
    
    (0.7
    )
    
    
    139
    
    
    
    140
    
    
    
    (0.7
    )Average daily aircraft utilization (hours) (a)
    
    
    10.9
    
    
    
    10.1
    
    
    
    7.9
    
    
    
    10.9
    
    
    
    10.1
    
    
    
    7.9Available seat miles (in millions) (b)
    
    
    7,646
    
    
    
    7,062
    
    
    
    8.3
    
    
    
    22,550
    
    
    
    20,887
    
    
    
    8.0Block hours (c)
    
    
    140,076
    
    
    
    129,830
    
    
    
    7.9
    
    
    
    415,956
    
    
    
    389,509
    
    
    
    6.8Average stage length (miles) (d)
    
    
    1,067
    
    
    
    1,006
    
    
    
    6.1
    
    
    
    1,054
    
    
    
    995
    
    
    
    5.9Average passenger journey (miles) (e)
    
    
    1,771
    
    
    
    1,593
    
    
    
    11.2
    
    
    
    1,688
    
    
    
    1,539
    
    
    
    9.7Revenue passenger miles (in millions) (f)
    
    
    6,227
    
    
    
    5,635
    
    
    
    10.5
    
    
    
    17,448
    
    
    
    16,009
    
    
    
    9.0Load factor (percent) (g)
    
    
    81.4
    
    
    
    79.8
    
    
    
    1.6
    pts
    
    
    77.4
    
    
    
    76.6
    
    
    
    0.8
    ptsPassenger enplanements (in thousands) (h)
    
    
    5,556
    
    
    
    5,322
    
    
    
    4.4
    
    
    
    15,796
    
    
    
    15,162
    
    
    
    4.2Yield per revenue passenger mile (cents) (i)
    
    
    8.71
    
    
    
    9.81
    
    
    
    (11.2
    )
    
    
    9.45
    
    
    
    9.94
    
    
    
    (4.9
    )Revenue per available seat mile:Passenger (cents) (j)
    
    
    7.09
    
    
    
    7.82
    
    
    
    (9.3
    )
    
    
    7.31
    
    
    
    7.62
    
    
    
    (4.1
    )Total (cents) (k)
    
    
    7.57
    
    
    
    8.39
    
    
    
    (9.8
    )
    
    
    7.80
    
    
    
    8.09
    
    
    
    (3.6
    )Fuel consumption (gallons in millions)
    
    
    115.5
    
    
    
    108.3
    
    
    
    6.7
    
    
    
    337.9
    
    
    
    317.9
    
    
    
    6.3Average fuel price (cents per gallon)
    
    
    118.0
    
    
    
    84.6
    
    
    
    39.5
    
    
    
    111.2
    
    
    
    85.4
    
    
    
    30.3Average number of full-time equivalent employees
    
    
    11,936
    
    
    
    11,347
    
    
    
    5.2
    
    
    
    11,924
    
    
    
    11,712
    
    
    
    1.8
  (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. 23




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 The table below sets forth the major components of operating cost per
available seat mile (CASM) for AWA. Three Months Ended
    
    Percent
    
    Nine Months Ended
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change2004
    
    2003
    
    2004-2003
    
    2004
    
    2003
    
    2004-2003(in cents)Salaries and related costs
    
    
    2.16
    
    
    
    2.23
    
    
    
    (3.4
    )
    
    
    2.18
    
    
    
    2.28
    
    
    
    (4.2
    )Aircraft rents
    
    
    1.00
    
    
    
    1.05
    
    
    
    (5.2
    )
    
    
    1.01
    
    
    
    1.06
    
    
    
    (5.3
    )Other rents and landing fees
    
    
    0.57
    
    
    
    0.54
    
    
    
    4.7
    
    
    
    0.56
    
    
    
    0.55
    
    
    
    1.5Aircraft fuel
    
    
    1.78
    
    
    
    1.30
    
    
    
    37.4
    
    
    
    1.67
    
    
    
    1.30
    
    
    
    28.2Agency commissions
    
    
    0.08
    
    
    
    0.12
    
    
    
    (30.8
    )
    
    
    0.09
    
    
    
    0.13
    
    
    
    (32.7
    )Aircraft maintenance materials and repairs
    
    
    0.71
    
    
    
    0.72
    
    
    
    (1.1
    )
    
    
    0.69
    
    
    
    0.83
    
    
    
    (16.3
    )Depreciation and amortization
    
    
    0.17
    
    
    
    0.24
    
    
    
    (25.9
    )
    
    
    0.17
    
    
    
    0.25
    
    
    
    (28.7
    )Special charges, net
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    0.06
    
    
    
    (93.4
    )Other
    
    
    1.43
    
    
    
    1.46
    
    
    
    (2.5
    )
    
    
    1.37
    
    
    
    1.52
    
    
    
    (9.9
    )7.92
    
    
    
    7.66
    
    
    
    3.4
    
    
    
    7.75
    
    
    
    7.98
    
    
    
    (3.0
    )
 Three months ended September 30, 2004 and 2003 For the third quarter of 2004, AWA realized an operating loss of $27.3
million compared to operating income of $51.0 million for the comparable 2003
quarter. Loss before income taxes for the third quarter of 2004 was $46.2
million compared to income before income taxes of $33.8 million for the
comparable 2003 period. Total operating revenues for the third quarter of 2004 were $578.5
million. Passenger revenues were $542.2 million, a decrease of $10.4 million
or 1.9% from the comparable 2003 quarter. A 10.5% increase in RPMs exceeded an
8.3% increase in ASMs, resulting in a 1.6 point increase in load factor, while
yield decreased 11.2%. As a result, RASM decreased 9.3% to 7.09 cents in the
third quarter 2004 compared to 7.82 cents in the 2003 quarter due to a weak
revenue environment. Weak domestic yields are an industry wide problem due to
excess domestic capacity, limited pricing power and continued growth of low
cost carriers. Cargo revenues ($6.3 million) were relatively flat
period-over-period. Other revenues decreased 10.1% from $33.4 million in the
third quarter of 2003 to $30.0 million in the third quarter of 2004 due
principally to lower net revenues from the sale of America West Vacations
packages as a result of lower volume. Net revenues from AWAs code sharing
arrangement with Mesa Airlines were flat when compared to the 2003 third
quarter as the increase in revenues associated with Mesas capacity growth was
substantially offset by higher fuel and aircraft operating costs. Operating expenses in the third quarter of 2004 increased $64.6 million or
11.9% compared to the 2003 quarter while ASMs increased 8.3% primarily due to
increases in average stage length of 6.1% and aircraft utilization of 7.9%.
CASM increased 3.4% to 7.92 cents in the third quarter of 2004 from 7.66 cents
for the comparable 2003 quarter despite a 39.5% increase in average fuel price
per gallon. Operating expenses in the third quarter of 2004 include special
charges of $1.6 million related to the return of three Boeing 737-200 aircraft.
Significant changes in the components of CASM are explained as follows:  
    
    Salaries and related costs per ASM decreased 3.4 % due to increased
productivity. ASMs increased 8.3% and average full-time equivalent
employees (FTEs) increased 5.2%. This increase in productivity was
offset in part by an $8.1 million increase in pilot payroll expense,
principally as a result of the new labor agreement with the Air Line
Pilots Association (ALPA) effective December 30, 2003.  
    
    Aircraft rent expense per ASM decreased 5.2% due to the increase in
aircraft utilization.  
    
    Other rents and landing fees expense per ASM increased 4.7% primarily
due to increases in airport rents ($2.9 million), landing fees ($1.2
million) and other space rentals ($0.6 million), which more than offset
the 8.3% increase in ASMs.  
    
    Aircraft fuel expense per ASM increased 37.4% primarily due to a
39.5% increase in the average price per gallon of fuel to 118.0 cents in
the third quarter of 2004 from 84.6 cents in the comparable 2003
quarter. Fuel expense was reduced by $7.8 million in the third quarter
of 2004 as a result of fuel hedging transactions in the quarter of which
$1.9 million was due to hedge ineffectiveness. No gains on fuel
hedging transactions were recognized for the comparable 2003 quarter. 24




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004  
    
    Agency commissions expense per ASM decreased 30.8% due to reductions
in various travel agency incentive programs and lower override
commissions.  
    
    Aircraft maintenance materials and repairs expense per ASM decreased
1.1% primarily due to a decrease in capitalized maintenance amortization
expense ($4.0 million), driven primarily by a change in the estimated
useful life on certain engines, effective January 1, 2004, as a result
of changes in aircraft utilization, and the 8.3% increase in ASMs. This
was partially offset by increases in aircraft C-check ($3.5 million) and
airframe maintenance ($3.3 million) expenses.  
    
    Depreciation and amortization expense per ASM decreased 25.9%
primarily due to lower computer hardware and software amortization ($2.5
million) as a result of the AWAs cash conservation program, which
reduced capital expenditures. The change in the estimated useful life
as a result of changes in AWAs fleet plan, effective January 1, 2004,
driven by changes in aircraft utilization contributed to the decrease in
depreciation expense for improvements on AWAs owned aircraft ($0.8
million) and for rotable and repairable spare parts ($0.5 million).  
    
    Other operating expenses per ASM decreased 2.5% primarily due to the
8.3% increase in ASMs, as a decrease in property taxes ($2.8 million)
was more than offset by increases in guard services ($2.6 million),
litigation fees ($1.9 million), aircraft fuel tax ($1.3 million), ground
handling ($1.2 million) and computer reservation system booking fees
($0.6 million). Net nonoperating expenses increased year over year by $1.7 million as debt
issue costs totaling $1.3 million were written off in connection with the
refinancing of the term loan in September 2004. See Note 4, Term Loan
Refinancing. Nine months ended September 30, 2004 and 2003 For the nine months ended September 30, 2004, AWA realized operating
income of $13.1 million compared to operating income of $23.2 million for the
comparable 2003 period. Loss before income taxes for the nine-month period in
2004 was $37.7 million compared to income before income taxes of $53.5 million
in 2003. Total operating revenues for the first nine months of 2004 were $1.8
billion. Passenger revenues were $1.6 billion, an increase of $57.2 million or
3.6% from the comparable 2003 period. A 9.0% increase in RPMs exceeded an 8.0%
increase in ASMs, resulting in a 0.8 point increase in load factor, while yield
decreased 4.9%. As a result, RASM decreased 4.1% to 7.31 cents in the first
nine months of 2004 from 7.62 cents in the comparable 2003 period due to the
overall increase in industry domestic capacity and competition. Cargo revenues
decreased 5.2% to $20.0 million due to lower mail rates and volumes. Other
revenues increased 16.4% to $91.1 million primarily due 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 for the first nine months of 2004 increased $79.0
million or 4.7% compared to the comparable 2003 period, while ASMs increased
8.0% due to increases in average stage length of 5.9% and aircraft utilization
of 7.9%. CASM decreased 3.0% to 7.75 cents for the first nine months of 2004
from 7.98 cents for the comparable 2003 period despite a 30.3% increase in
average fuel price per gallon. Operating expenses in the first nine months of
2004 included a $0.6 million reduction in special charges related to the
revision of estimated costs associated with the sale and leaseback of certain
aircraft and a $1.6 million charge related to the return of three Boeing
737-200 aircraft. The comparable 2003 period included special charges of $14.4
million. Significant changes in the components of CASM are explained as
follows:  
    
    Salaries and related costs per ASM decreased 4.2% due to increased
productivity. ASMs increased 8.0% and average FTEs increased 1.8%.
This increase in productivity was offset in part by a $20.6 million
increase in pilot payroll expense principally as a result of the new
labor agreement with ALPA effective December 30, 2003.  
    
    Aircraft rent expense per ASM decreased 5.3% due to the increase in
aircraft utilization. 25




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004  
    
    Other rents and landing fees expense per ASM increased 1.5% primarily
due to increases in airport rents ($6.6 million) and landing fees ($3.9
million), which more than offset the 8.0% increase in ASMs.  
    
    Aircraft fuel expense per ASM increased 28.2% due to a 30.3% increase
in the average price per gallon of fuel to 111.2 cents in the first nine
months of 2004 from 85.4 cents in the comparable 2003 period. Fuel
expense was reduced by $15.5 million in 2004 as a result of fuel hedging
transactions of which $4.4 million was due to hedge ineffectiveness.
Gains on fuel hedging transactions for the comparable 2003 period were
$10.0 million.  
    
    Agency commissions expense per ASM decreased 32.7% primarily due to
the reductions in various travel agency incentive programs and lower
override commissions.  
    
    Aircraft maintenance materials and repairs expense per ASM decreased
16.3% primarily due to decreases in capitalized maintenance amortization
expense ($21.8 million) and aircraft C-Check expense ($1.4 million).
The decrease in capitalized maintenance amortization expense is driven
by changes in the estimated useful life on certain engines, effective
January 1, 2004, as a result of changes in aircraft utilization ($6.3
million), and on certain aircraft engine overhaul costs, effective April
1, 2003, driven by a new maintenance agreement that guarantees minimum
cycles on engine overhauls ($2.3 million). During 2004, AWA also retired
fully depreciated assets related to the return of certain leased
aircraft and engines which reduced period-over-period capitalized
maintenance amortization expense ($3.3 million). These decreases were
partially offset by increases in airframe maintenance ($4.4 million) and
engine overhaul ($1.8 million) expenses.  
    
    Depreciation and amortization expense per ASM decreased 28.7%
primarily due to lower computer hardware and software amortization ($5.3
million) as a result of AWAs cash conservation program, which reduced
capital expenditures and lower amortization expense related to aircraft
leasehold improvements ($1.8 million). The change in the estimated
useful life as a result of changes in AWAs fleet plan discussed above
contributed to the decrease in depreciation for improvements on AWAs
owned aircraft ($2.7 million), and for rotable and repairable spare
parts ($2.4 million).  
    
    Other operating expenses per ASM decreased 9.9% primarily due to
decreases in Flight Fund expenses ($6.7 million), property taxes ($5.7
million), catering costs ($5.1 million), bad debt expense ($2.8
million), offset by increases in aircraft fuel tax ($2.9 million),
credit card discount fees ($2.7 million), computer reservation system
booking fees ($2.5 million), litigation fees ($1.9 million), and airport
guard services ($1.4 million). Contributing to the decrease in the 2004
period were a $3.5 million gain resulting from the settlement of a claim
in bankruptcy for amounts earned under an executory contract, a $2.0
million gain resulting from the settlement of a lawsuit related to
certain computer hardware and software that had previously been written
off and a $1.0 million volume incentive earned due to certain Affinity
Card sales levels meeting certain contract thresholds. The comparable
2003 period includes a $4.4 million gain related to the purchase and
subsequent exchange of an A320 airframe. AWA had net nonoperating expenses of $50.8 million in the first nine
months of 2004 compared to $30.2 million of net nonoperating income in the 2003
period, which benefited from $81.3 million of federal government assistance
received under the Emergency Wartime Supplemental Appropriations Act.In the
first nine months of 2004, debt issue costs totaling $1.3 million were written
off in connection with the refinancing of the term loan. This was more than
offset by a gain on the disposition of property and equipment ($2.1 million)
primarily due to the sale of one Boeing 737-200 aircraft. Interest income
increased $0.9 million or 9.2% due to higher average cash balances in the 2004
period. Interest expense increased $1.3 million or 2.0% due to higher average
interest rates on outstanding debt. 26




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash At September 30, 2004, Holdings and AWAs total cash, cash equivalents,
short-term investments, investments in debt securities and restricted cash were
$488.1 million and $467.8 million, respectively. Net cash provided by
operating activities for Holdings and AWA was $89.9 million in the first nine
months of 2004 compared to $159.3 million and $159.1 million for Holdings and
AWA, respectively, in the first nine months of 2003. The year-over-year
decrease in net cash provided by operating activities of $69.4 million and
$69.2 million for Holdings and AWA, respectively, was primarily due to
receiving $81.3 million of refunded security fees from the federal government
in the third quarter of 2003. In the first nine months of 2004, net cash used in investing activities
was $125.6 million for Holdings and AWA. This compares to net cash used in
investing activities of $178.5 million for Holdings and AWA in the first nine
months of 2003. Principal investing activities during the first nine months of
2004 included purchases of property and equipment totaling $125.9 million and
net purchases of short-term investments and investments in debt securities
totaling $0.8 million. The first nine months of 2003 included purchases of
property and equipment totaling $119.2 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 net purchases of short-term
investments totaling $60.1 million. The 2003 period also included proceeds
from the disposition of assets totaling $24.0 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 nine months of 2004, net cash used in financing activities by
Holdings and AWA was $63.7 million and $64.9 million, respectively, consisting
primarily of debt repayments, including principal payments of $85.8 million for
the government guaranteed loan. In addition, AWA refinanced the term loan
resulting in proceeds of $110.6 million, a portion of which was used to pay off
the balance of the term loan for approximately $77.0 million and to pay for
debt issue costs of $1.2 million. See Note 4, Term Loan Refinancingin Notes
to Condensed Consolidated Financial Statements and Commitments -GECC Term Loan
Financingbelow. The comparable 2003 period includes $86.8 million of
proceeds from the issuance of the Senior Exchangeable Notes, debt repayments of
$14.7 million and payments of debt issue costs totaling $3.1 million for both
Holdings and AWA. Capital expenditures for the first nine months of 2004 were approximately
$125.9 million for both Holdings and AWA as compared to capital expenditures of
approximately $119.2 million for both Holdings and AWA for the first nine
months of 2003. Included in these amounts are expenditures for capitalized
maintenance of approximately $96.0 million and $91.8 million for both Holdings
and AWA for the first nine months 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, all of which have been delivered. 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 allowed AWA to raise the
financing for several aircraft at one time and place such funds in escrow
pending the purchase or delivery of the relevant aircraft. The trusts also are
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 27




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 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 third quarter and the first nine months of 2004, AWA made $52.8
million and $154.2 million, respectively, in lease payments in respect of the
leveraged lease financings under the pass through trusts. Other Operating Leases In addition to the aircraft financed by the pass through trust
certificates, AWA has noncancelable operating leases covering 82 aircraft, as
well as leases for certain terminal space, ground facilities and computer and
other equipment. In the third quarter and first nine months of 2004, AWA made
$47.4 million and $146.1 million, respectively, in lease payments related to
these operating leases. During the quarter, the Company entered into
agreements with two aircraft lessors for the return of three Boeing 737-200
aircraft. Three aircraft were returned during the quarter and three are
committed to being returned in the fourth quarter. Negotiations continue for
the return of the remaining two Boeing 737-200 aircraft. 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 September 30, 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 $42.2 million. In
accordance with Emerging Issues Task Force (EITF) Issue No. 97-10, The
Effect of Lessee Involvement in Asset Construction, the Company accounts for
this as an operating lease. Commitments As of September 30, 2004, AWA had $748.1 million of long-term debt
(including current maturities). This amount consisted primarily of the
government guaranteed loan, of which $343.2 million remains outstanding, a
secured term loan financing with General Electric Capital Corporation (GECC),
of which $110.6 million remains outstanding, $39.5 million principal amount of
103⁄4% senior unsecured notes, $108.2 million principal amount of 7.5%
convertible senior notes (including interest through September 30, 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 28




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 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 two principal payments of $42.9 million each on
March 31, 2004 and September 30, 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 was previously
recorded as restricted cash in AWAs and Holdings consolidated balance sheets.
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
103⁄4% senior notes due 2005; and  
    
    insurance proceeds in excess of $2 million to the extent such
proceeds are not used to restore or replace the assets from which such
proceeds are derived. In addition, we are required to prepay the government guaranteed loan upon
a change in control and we may be required to prepay portions of the loan if
our employee compensation costs exceed a certain threshold. We may, at our
option, prepay the government guaranteed loan without premium or penalty,
subject to reimbursement of the lenders breakage costs in the case of
prepayment of LIBOR loans. The government guaranteed loan requires that AWA maintain a minimum cash
balance of $100 million. In addition, the government loan contains customary
affirmative covenants and the following negative covenants: restrictions on
liens, investments, restricted payments, 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. GECC Term Loan Financing On September 10, 2004, AWA entered into a term loan financing with GECC
providing for loans in an aggregate amount of $110.6 million. AWA used
approximately $77.0 million of the proceeds from this financing to repay in
full its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders
and to pay certain costs associated with this transaction. AWA intends to use
the remaining proceeds for general corporate purposes. The new term loan
financing consists of two secured term loan facilities: a $75.6 million term
loan facility secured primarily by spare parts, rotables and appliances (the
Spare Parts Facility); and a $35.0 million term loan facility secured
primarily by aircraft engines and parts installed in such engines (the Engine
Facility). The collateral securing the facilities is substantially the same
collateral that secured the Mizuho term loan, except that AWAs maintenance
hanger in Phoenix does not secure the facilities. The facilities are
cross-collateralized on a subordinated basis and the collateral securing the
facilities also secures on a subordinated basis certain of AWAs other existing
debt and lease obligations to GECC and its affiliates. The loans under the Spare Parts Facility are payable in full at maturity
on September 10, 2010. The loans under the Engine Facility are payable in
equal quarterly installments of $1.3 million beginning on March 10, 2006
through June 10, 2010 with the remaining loan amount of $11.8 million payable at
maturity on September 10, 2010. The loans under each facility may be prepaid
in an amount not less than $5 million at any time after the 30th monthly
anniversary of the funding date under such facility. If AWA fails to maintain
a certain ratio of rotables to loans under the Spare Parts Facility, it may be
required to pledge additional rotables or cash as collateral, provide a letter
of credit or prepay some or all of the loans under the Spare Parts Facility.
In addition, the loans under the Engine Facility are subject to mandatory
prepayment upon the occurrence of certain events of loss applicable to, or
certain dispositions of, aircraft engines securing the facility. 29




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 Principal amounts outstanding under the loans bear interest at a rate per
annum based on three-month LIBOR plus a margin. Both facilities contain
customary events of default, including payment defaults, cross-defaults, breach
of covenants, bankruptcy and insolvency defaults and judgment defaults. 103⁄4% Senior Notes due 2005 In August 1995, AWA issued $75.0 million principal amount of 103⁄4%
senior notes due 2005 of which $39.5 million remained outstanding at September
30, 2004. Interest on the 103⁄4% senior notes is payable semiannually in
arrears on March 1 and September 1 of each year. We may redeem the 103⁄4% senior notes, in whole or in part, at a
redemption price of 100%. If AWA undergoes a change of control, it may be
required to repurchase the 103⁄4% senior notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. If AWA sells certain assets, it may be required to use the
net cash proceeds to repurchase the 103⁄4% senior notes at 100% of the
principal amount, plus accrued and unpaid interest, to the date of purchase. The indenture governing the 103⁄4% senior notes contains certain
covenants that, among other things, limit our ability to pay dividends or make
distributions to our stockholders, repurchase or redeem capital stock, make
investments or other restricted payments, enter into transactions with our
stockholders and affiliates, sell assets (including the stock of our
subsidiaries) and merge or consolidate with other companies. The indenture
governing the 103⁄4% senior notes also contains customary events of default,
including payment defaults, cross-defaults, breach of covenants, bankruptcy and
insolvency defaults and judgment defaults. 7.5% Convertible Senior Notes due 2009 In connection with the closing of the government guaranteed loan and the
related transactions, Holdings issued $104.5 million of 7.5% convertible senior
notes due 2009, of which approximately $108.2 remained outstanding at September
30, 2004 (including interest paid through September 30, 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. 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
    %
 30




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 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. Other Indebtedness and Obligations In addition to the above described indebtedness, we had $40.0 million of
secured equipment notes and $43.0 million of other unsecured indebtedness,
including $29.3 million of industrial revenue bonds. 31




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 The following table sets forth our cash obligations as of September 30,
2004. Beyond2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008
    
    Total(in thousands)Long-term debt:Equipment notes - non-EETC (1)
    
    $
    533
    
    
    $
    8,305
    
    
    $
    8,305
    
    
    $
    7,772
    
    
    $
    15,083
    
    
    $
    
    
    
    $
    39,998GECC Term loan (2)
    
    
    
    
    
    
    
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    95,090
    
    
    
    110,5647.5% convertible senior notes due
2009(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,240
    
    
    
    108,2407.25% senior exchangeable notes
due 2023 (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,695
    
    
    
    252,695Government guaranteed loan (5)
    
    
    
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    
    
    
    
    343,200State loan (6)
    
    
    750
    
    
    
    250
    
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    1,500103⁄4% senior unsecured notes due 2005
    
    
    
    
    
    
    39,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,548Industrial development bonds (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,300
    
    
    
    29,300AVSA promissory notes (8)
    
    
    5,250
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,2506,533
    
    
    
    140,903
    
    
    
    99,513
    
    
    
    98,980
    
    
    
    106,041
    
    
    
    485,325
    
    
    
    937,295Cash aircraft rental payments (9)
    
    
    51,217
    
    
    
    331,599
    
    
    
    310,448
    
    
    
    292,312
    
    
    
    243,645
    
    
    
    1,858,444
    
    
    
    3,087,665Lease payments on equipment and
facility operating leases (10)
    
    
    4,859
    
    
    
    20,023
    
    
    
    18,166
    
    
    
    16,083
    
    
    
    16,279
    
    
    
    64,609
    
    
    
    140,019Capital lease obligations
    
    
    110
    
    
    
    4,659
    
    
    
    4,988
    
    
    
    1,773
    
    
    
    
    
    
    
    
    
    
    
    11,530Special facility revenue bonds (11)
    
    
    681
    
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,362
    
    
    
    1,362
    
    
    
    36,106
    
    
    
    42,237Aircraft purchase commitments (12)
    
    
    74,983
    
    
    
    274,203
    
    
    
    461,191
    
    
    
    13,636
    
    
    
    
    
    
    
    
    
    
    
    824,013Engine maintenance commitments (13)
    
    
    6,000
    
    
    
    24,000
    
    
    
    12,000
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    
    
    
    
    50,000Total
    
    $
    144,383
    
    
    $
    796,750
    
    
    $
    907,669
    
    
    $
    430,146
    
    
    $
    369,327
    
    
    $
    2,444,484
    
    
    $
    5,092,759
  (1)
    
    Includes approximately $40.0 million of equipment notes with variable
interest rates of 2.88% to 2.40%, averaging 2.80%, installments due 2004
through 2008.(2)
    
    The amount consists of two secured loan facilities with an interest rate
of 5.81% at September 30, 2004. A $75.6 million term loan facility
secured primarily by spare parts, rotables and appliances payable in full
at maturity on September 10, 2010. A $35.0 million term loan facility
secured primarily by aircraft engines and parts installed on such engines
payable in quarterly installments of $1.3 million beginning March 10, 2006
through June 10, 2010 with the remaining loan amount of $11.8 million
payable at maturity on September 10, 2010.(3)
    
    Includes $90.7 million principal amount of 7.5% convertible senior notes,
due 2009, and $17.5 million of interest paid in kind through September 30,
2004. For financial reporting purposes, we recorded the convertible
senior notes at their fair market value on the date of issuance. As of
September 30, 2004, the balance of the convertible senior notes in the
accompanying condensed consolidated balance sheet is approximately $67.6
million.(4)
    
    Includes $252.7 million principal amount of 7.25% senior exchangeable
notes due July 2023 with cash interest payable through July 2008 at a rate
of 2.49% on the principal amount at maturity. Thereafter, the notes will
cease bearing cash interest and begin accruing original issue discount at
a rate of 7.25% until maturity. The aggregate amount due at maturity,
including accrued original issue discount from July 31, 2008, will be
$252.7 million.(5)
    
    Government guaranteed loan includes $343.2 million with a variable
interest rate of 2.38% at September 30, 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 5.38% at September 30, 2004.(7)
    
    Includes $29.3 million of 6.3% industrial development bonds due April
2023.(8)
    
    Includes AVSA promissory notes of $12.2 million due through 2005 with a
variable interest rate of 2.97% at September 30, 2004.(9)
    
    Includes non-cancelable operating leases for 136 aircraft with remaining
terms ranging from five months to approximately 20 years. Management
estimates the debt equivalent value of these operating leases approximates
$1.9 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. 32




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004  (11)
    
    Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.(12)
    
    Includes commitments to purchase a total of 21 Airbus aircraft and seven
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 October 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 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, 2005. Financial Covenants and Credit Rating In addition to the minimum cash balance requirements, our long-term debt
agreements contain various negative covenants that restrict our actions,
including our ability to pay dividends, 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 September
30, 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. 33




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 Other Information Labor Relations On September 10, 2004, the Companys dispatchers, represented by the
Transport Workers Union (TWU), voted to ratify a second contract ending April
1, 2008. 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 are ongoing. 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 are ongoing. On August 18, 2004, the National Mediation Board (NMB) certified the IBT
as the collective bargaining representative for the Companys passenger service
employees. 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 third quarter of 2004, AWA paid Continental approximately
$3.8 million and received approximately $1.1 million from Continental pursuant
to these agreements. In the third quarter of 2003, the amount paid to and
received from Continental pursuant to these agreements was $4.2 million and
$1.1 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, 34




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##### Table of Contents



AMERICA WEST HOLDINGS
CORPORATION AND 
AMERICA WEST AIRLINES, INC.
September 30, 2004  Arizona are 22 years and 30 years, respectively. The estimated useful
lives of our ground property and equipment range from three to 12
years. We test for impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might
be impaired as defined by SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.An impairment loss is recognized if
the carrying amount of the asset is not recoverable from its
undiscounted cash flows and is measured as the difference between the
carrying amount and fair value of the asset.
    
    Frequent Flyer Accounting - We maintain a frequent travel award
program known as FlightFund that provides a variety of awards to
program members based on accumulated mileage. The estimated cost of
providing the free travel is recognized as a liability and charged to
operations as program members accumulate mileage. Travel awards are
valued at the incremental cost of carrying one passenger, based on
expected redemptions. Incremental costs are based on expectations of
expenses to be incurred on a per passenger basis and include fuel,
liability insurance, food, beverages, supplies and ticketing costs. We
also sell mileage credits to companies participating in our FlightFund
program, such as hotels, car rental agencies and credit card companies.
Transportation-related revenue from the sale of mileage credits is
deferred and recognized when transportation is provided. A change to the
estimated cost per mile, minimum award level, percentage of revenue to be
deferred or deferred recognition period could have a significant impact on
our revenues or mileage liability accrual in the year of the change as
well as future years.  
    
    Long-Term Maintenance Reserve - We record an accrual for the
estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft upon their return to the lessors. These
estimates are based on historical costs and our assumptions regarding
the renewal of aircraft leases. A significant change to AWAs fleet
plan could have a material impact on our reserve requirements.  
    
    Deferred Tax Asset Valuation Allowance  - The Company initially
recorded a full valuation allowance relating to its net deferred tax
assets at December 31, 2001 and to tax benefits generated in 2002. In
recording that valuation allowance, we considered whether it was more
likely than not that all or a portion of the deferred tax assets will
not be realized, in accordance with SFAS No. 109, Accounting for Income
Taxes.The Company was in a cumulative loss position for the three
years ended December 31, 2002, which weighed heavily in the overall
determination that a valuation allowance was needed. As of September
30, 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, expect, project and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. Among the key factors that may have a direct bearing on AWAs or
Holdings results are:  
    
    economic conditions;  
    
    the impact of global instability, including the continuing threat
of terrorism, the continued military presence in Iraq and Afghanistan
and the current instability in Nigeria, Russia, Venezuela and other oil
producing countries or regions, and the potential impact of any future
hostilities, terrorist attacks, infectious disease outbreaks, and
government responses thereto, or other global events; 35




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004  
    
    limitations on the Companys or AWAs ability to obtain additional
financing due to high levels of debt and the financial and other
covenants in its debt instruments;  
    
    changes in federal and state laws and regulations;  
    
    changes in prevailing interest rates and the availability 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. In addition, we recently have experienced a
substantial increase in the cost of fuel. We expect the threat of further
terrorist attacks and continued instability in the Middle East, Nigeria,
Russia, Venezuela and in other oil producing countries or regions, including
Russia and Nigeria, to continue to negatively impact our revenues and costs in
the near-term. We may not be able to effectively counteract increasing costs
through our cost reduction initiatives, customer service initiatives and
revised pricing structures. Moreover, our liquidity and borrowing options are
limited and we may not be able to survive a prolonged economic downturn,
decreases in demand for air travel or further increases in 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 or 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,
passenger demand dropped precipitously after the attacks and 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 36




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 operations, and the sufficiency of our
financial resources to absorb this impact, will depend on certain factors,
including, among others, the following:  
    
    our ability to maintain our low cost structure and adequate cash balances;  
    
    general economic conditions and the extent to which the current soft economic conditions improve;  
    
    competition in the airline industry;  
    
    our ability to manage fuel and labor costs; and  
    
    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 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 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 September 30, 2004, we had approximately $748.1 million of indebtedness
outstanding, of which $150.6 million was secured by certain aircraft and
substantially all of our spare engines and rotable aircraft parts inventory. In
addition, we had $11.5 million of capital lease obligations and $3.2 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: 37




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004  
    
    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 the government
guaranteed loan restricts our and AWAs ability to incur additional
indebtedness or issue equity unless we use the proceeds of those
transactions to prepay or redeem certain of our existing indebtedness;  
    
    our ability to fund general corporate requirements, including
capital expenditures, may be impaired. We have substantial obligations
to pay principal and interest on our indebtedness and other recurring
fixed costs.
Further, we may be required to prepay portions of the government
guaranteed loan if our employee compensation costs exceed a certain
threshold. Accordingly, we may have to use our working capital to fund
such payments and costs instead of funding general corporate requirements.
In addition, because the terms of certain of AWAs indebtedness require it
to 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 103⁄4%
senior notes due 2005 and the agreements governing the government guaranteed
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 capital through debt or equity
financings 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 21% of our total operating
expenses in the first nine months of 2004 and 16% of our total operating
expenses for the same period of 2003, price escalations or reductions in the
supply of jet fuel will increase our operating expenses and cause our operating
results and net income to decline. For example, based on our current level of
fuel consumption, we estimate that a one-cent per gallon increase in jet fuel
prices will cause our annual operating expense to increase by $4.4 million. We have implemented a fuel-hedging program to manage the risk and effect
of fluctuating jet fuel prices on our business. Our hedging program is intended
to offset increases in jet fuel costs by using derivative instruments keyed to
the future price of heating oil, which is highly correlated to the price of jet
fuel delivered on the East Coast 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 65% and 26% of
remaining projected 2004 and 2005 fuel requirements, respectively. 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 compared to our large competitors and West Coast fuel prices
are less correlated to heating oil prices and other viable petroleum
derivatives than East Coast fuel prices and, therefore, 38




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 more difficult to
hedge. The effectiveness of our fuel-hedging program may also be negatively
impacted by continued instability in the Middle East, Nigeria, Russia,
Venezuela and other oil producing countries or regions and terrorist activity. Because of our relatively low credit ratings, our borrowing costs may be
high and our ability to incur additional debt may be impaired. Our credit ratings are relatively low, with Moodys assessment of AWAs
senior implied rating and senior
unsecured debt rating at 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. Negotiations with the
IBT for a second collective bargaining agreement covering the Airlines
mechanics and related employees commenced on October 9, 2003 and are ongoing.
Additionally, negotiations with the AFA on a second contract covering the
Companys flight attendants commenced on February 4, 2004 and are ongoing. On
August 18, 2004, the National Mediation Board certified the IBT as the
collective bargaining representative for the Companys passenger service
employees. We cannot predict the outcome of the negotiations with the IBT or AFA or
any future negotiations relating to union representation or collective
bargaining agreements. Agreements reached in collective bargaining may increase
operating expenses and lower operating results and net income. This is
particularly significant because our current employee costs contribute
substantially to the low cost structure that we believe is one of our
competitive strengths and because we are required to repay a portion of the
government guaranteed loan if our labor costs exceed a certain threshold. In
addition, negotiations with unions could divert management attention and
disrupt operations, which may result in increased operating expenses and lower
net income. If we are unable to negotiate acceptable collective bargaining
agreements, we might have to address the threat of, or wait through cooling
off periods, which could be followed by union-initiated work actions,
including strikes. Depending on the nature of the threat or the type and
duration of any work action, these actions could disrupt our operations and, as
a result, have a significant adverse affect on our operating results. Fluctuations in interest rates could adversely affect our liquidity,
operating expenses and results. Our indebtedness under the government guaranteed loan and the GECC term
loans 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. 39




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 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 ATSA, or otherwise by Congress, the Department of Homeland
Security or the FAA as a result of concern over continuing terrorist threats
are expected to continue to increase costs for us and the airline industry as a
whole. Furthermore, certain governmental agencies, such as the DOT and the FAA, have
the authority to impose mandatory orders, such as Airworthiness Directives in
connection with our aircraft and civil penalties for violations of applicable
laws and regulations, each of which can result in material costs and adverse
publicity. For example, the FAA from time to time may require us to retrofit
our aircraft to meet enhanced safety standards. Depending on the implementation
of these laws, regulations and other measures, our operating costs could
increase significantly. We cannot predict which laws, regulations and other
measures will be adopted or what other action regulators might take.
Accordingly, we cannot guarantee that future legislative and regulatory acts
will not have a material impact on our operating results. 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 computer reservation
systems (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, increased competition from low cost carriers
and soft economic conditions have led to the airline industrys significant
losses since 2001. Largely as a result of these losses, 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 40




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 and our prior
results are not necessarily indicative of our future results. We depend on the expertise of our management team. If key individuals
leave unexpectedly, our business and operations could suffer. Many of our executive officers are key to the management of our business
and operations. Our future success depends on our ability to retain these
officers and other capable managers. Although we believe we could replace key
personnel given adequate prior notice, the unexpected departure of key
executive officers could cause substantial disruption to our business and
operations. In addition, we may not be able to retain and recruit talented
personnel without incurring substantial costs. Moreover, we must repay a portion of
the government guaranteed loan if our labor costs exceed a certain threshold.
As a result, our ability to spend additional amounts to retain and recruit
talented personnel is limited. The stockholders who effectively control the voting power of Holdings
could take actions that would favor their own personal interests to the
detriment of our interests. Currently, two stockholders collectively control more than 50% of the
total voting power of Holdings. These stockholders, TPG Partners, L.P. and TPG
Parallel I, L.P (collectively, the TPG Stockholders) are controlled by the
same company, TPG Advisors, Inc. Since TPG Advisors, Inc. is an investment
firm, its strategic objectives may be different than both the short-term or
long-term objectives of our board of directors and management. We cannot
guarantee that the TPG Stockholders will not try to influence Holdings
business in a way that would favor their own personal interests to the
detriment of our interests and those of our other stockholders. We are at risk of losses and adverse publicity stemming from any accident
involving any of our aircraft. If one of our aircraft were to crash or be involved in an accident, we
could be exposed to significant tort liability. There can be no assurance that
the insurance we carry to cover damages arising from any future accidents will
be adequate. In the event that our insurance is not adequate, we may be forced
to bear substantial losses from an accident. Claims resulting from an accident
in excess of our insurance coverage would harm our business and results of
operations. Accidents could also result in unforeseen mechanical and
maintenance costs. In addition, any accident involving an aircraft that we
operate could create a public perception that our aircraft are not safe or
reliable, which could harm our reputation, result in air travelers being
reluctant to fly on our aircraft and harm our business. Our operations are often affected by factors beyond our control, including
traffic congestion at airports, weather conditions and increased security
measures, any of which could harm our financial condition and results of
operations. Like other airlines, our operations are subject to delays caused by
factors beyond our control, including air traffic congestion at airports,
adverse weather conditions and increased security measures, such as those
required to be implemented under the ATSA. During periods of fog, snow, rain,
storms or other adverse weather conditions, flights may be cancelled or
significantly delayed. Cancellations and delays frustrate passengers, reduce
aircraft utilization and increase costs, all of which in turn affect
profitability. As a result, cancellations or delays could harm our financial
condition and results of operations. 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. For the first nine months of 2004, approximately 96% of our tickets
were issued electronically. Our website and reservation system must be able to
accommodate a high volume of traffic and deliver important flight information.
Substantial or repeated website, reservations system or telecommunication
systems failures could reduce the attractiveness of our services and could
cause our customers to purchase tickets from another airline. Any disruption in
these systems could result in the loss of important data, increase our expenses
and generally harm our business. 41




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 Shares of our Class B common stock issuable upon exercise or conversion of
outstanding securities could adversely affect our stock price and dilute the
ownership interests of existing stockholders. Sales and potential sales of substantial amounts of our Class B common
stock or securities exercisable for or into our Class B common stock in the
public market, or the perception that these sales could occur, could adversely
affect the market price of our Class B common stock. A substantial number of
additional shares of our Class B common stock are issuable upon the conversion
or exercise of outstanding securities. As of October 27, 2004, the outstanding
shares of our Class B common stock were subject to dilution by:  
    
    19,692,000 shares of Class B common stock that are issuable upon
the exercise, at a price of $3.00 per share, of certain warrants issued
in connection with the government guaranteed loan, including 18,754,000
shares of Class B common stock issuable upon exercise of a warrant
issued to the ATSB; and
    
    8,662,293 shares of our Class B common stock that are issuable upon
the exercise of outstanding options. In addition, 859,117 shares of Class B common stock are issuable upon
conversion of the outstanding shares of Holdings Class A common stock held by
the TPG Stockholders (but subject to certain contractual restrictions on
transfer), up to 8,095,842 shares of Holdings Class B common stock 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 our Class B common stock issuable upon such
conversion or exercise could adversely affect prevailing market prices of our
Class B common stock. In addition, the existence of the notes, warrants and
options may encourage short selling by market participants because conversion
or exercise of the notes or warrants could depress the price of our Class B
common stock. Provisions in our charter documents might deter acquisition bids for us. Holdings Certificate of Incorporation and Restated Bylaws contain
provisions that, among other things:  
    
    authorize Holdings board of directors to issue preferred stock
ranking senior to our Class B common stock without any action on the
part of the stockholders;  
    
    establish advance notice procedures for stockholder proposals,
including nominations of directors, to be considered at stockholders
meetings;  
    
    authorize Holdings board of directors to fill vacancies on the
board resulting from an increase in the authorized number of directors
or any other cause; and  
    
    restrict the ability of stockholders to call special meetings of
stockholders. These provisions might make it more difficult for a third party to acquire
us, even if doing so would benefit the stockholders. 42




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 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, among others, the following:  
    
    our operating results failing to meet the expectations of securities analysts or investors in any quarter;  
    
    downward revisions in securities analysts estimates;  
    
    material announcements by us or our competitors;  
    
    public sales of a substantial number of shares of our Class B common stock;  
    
    governmental regulatory action; and  
    
    adverse changes in general market conditions or economic trends. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market Risk Sensitive Instruments (a) Commodity Price Risk As of September 30, 2004, the Company had entered into basis swaps, the
price spread between Los Angeles spot jet fuel prices and NYMEX heating oil
futures, and costless collar transactions, which establish an upper and lower
limit on heating oil futures prices. These transactions are in place with
respect to approximately 62% of remaining projected 2004 fuel requirements.
Transactions are in place with respect to approximately 20% of the projected
requirements for 2005, including 51% related to the first quarter of 2005, 20%
related to the second quarter and approximately 10% for the third quarter. See
Risk Factors Relating to America West and Industry Related Risks -
Fluctuations in fuel costs could adversely affect our operating expenses and
results. The use of such hedging transactions in the Companys fuel hedging program
could result in the Company not fully benefiting from certain declines in
heating oil futures prices or certain declines in the differential between jet
fuel and heating oil futures prices. At September 30, 2004, the Company
estimates that a 10% increase in heating oil futures prices would increase the
fair value of the costless collar transactions by approximately $8.0 million
and $8.3 million for our 2004 and 2005 requirements, respectively. The Company
estimates that a 10% decrease in heating oil futures prices would decrease the
fair value of the costless collar transactions by approximately $7.9 million
and $6.5 million for our 2004 and 2005 requirements, respectively. As of October 27, 2004, approximately 65% and 26% of AWAs 2004 and 2005,
respectively, projected fuel requirements are hedged. (b) Interest Rate Risk The Companys exposure to interest rate risk relates primarily to its
variable rate long-term debt obligations. At September 30, 2004, the Companys
variable-rate long-term debt obligations of approximately $507.5 million
represented approximately 68% of its total long-term debt. If interest rates
increased 10% in 2004, the impact on the Companys results of operations would
not be material. 43




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 
 ITEM 4. CONTROLS AND PROCEDURES. 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 Securities and
Exchange Act of 1934, as amended) as of September 30, 2004. Based on that
evaluation, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective as of September 30, 2004.
There were no significant changes in our internal control over financial
reporting during the period covered by this report reasonably likely to
materially affect our internal control over financial reporting. We believe that a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and the CEO and CFO have
concluded that these controls and procedures are effective at the reasonable
assurance level. 44




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 
 PART II - OTHER INFORMATION 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table sets forth all purchases made by us or any affiliated
purchaser as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of
1934, as amended (the Exchange Act), of Holdings Class B common stock during
each month within the third quarter of 2004. No purchases were made pursuant
to a publicly announced repurchase plan or program. (d) Maximum Number(or Approximate(c) Total Number of
    
    Dollar Value) ofShares Purchased as
    
    Shares that May YetPart of Publicly
    
    be Purchased Under(a) Total Number of
    
    (b) Average Price
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased (1)
    
    Paid per Share
    
    Programs
    
    ProgramsJuly 1, 2004 - July 31, 2004
    
    
    49,000
    
    
    
    5.99
    
    
    
    
    
    
    
    August 1, 2004 - August 31, 2004
    
    
    119,900
    
    
    
    6.30
    
    
    
    
    
    
    
    September 1, 2004 - September
30, 2004
    
    
    102,100
    
    
    
    5.91
    
    
    
    
    
    
    
    
  (1)
    
    Amounts consist of shares of Holdings Class B common stock purchased
on the open market by the America West Holdings Corporation Future Care
401(k) Plan. 
 ITEM 6. EXHIBITS. a. Exhibits EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING10.1
    
    Loan Agreement [Engines], dated as of September 3, 2004, among AWA, GECC, as administrative
agent, original Series A lender and original Series B lender, Wells Fargo Bank Northwest,
National Association (Wells Fargo), as security trustee and the lenders from time to time
party thereto.10.2
    
    Engine Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and Wells
Fargo.10.3
    
    Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of AWA.10.4
    
    Subordinated Engine Mortgage and Security Agreement, dated as of September 3, 2004, between
AWA and Wells Fargo.10.5
    
    Subordinated Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of
AWA.10.6
    
    Security Trustee Agreement [Engines], dated as of September 3, 2004, among Wells Fargo, as
security trustee and the beneficiaries named therein.10.7
    
    Payment and Indemnity Agreement [Engines], dated as of September 3, 2004, among AWA, certain
beneficiaries listed on Schedule 1 and Wells Fargo.10.8
    
    Restructure Letter Agreement [Engines], dated as of September 3, 2004, among AWA and GECC.10.9
    
    Loan Agreement [Spare Parts], dated as of September 3, 2004, among AWA, GECC, as
administrative agent, original Series A lender and original Series B lender, Wells Fargo, as
security trustee and the lenders from time to time party thereto.10.10
    
    Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and
Wells Fargo.
 45




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004 EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING10.11
    
    Subordinated Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004,
between AWA and Wells Fargo.10.12
    
    Security Trustee Agreement [Spare Parts], dated as of September 3, 2004, among Wells Fargo,
as security trustee and the beneficiaries named therein.10.13
    
    Payment and Indemnity Agreement [Spare Parts], dated as of September 3, 2004, among AWA,
certain beneficiaries listed on Schedule 1 and Wells Fargo.10.14
    
    Restructure Letter Agreement [Spare Parts], dated as of September 3, 2004, among AWA and GECC.10.15(1)
    
    Amendment No. 7, dated
July 30, 2004, to the A319/A320 Purchase Agreement dated September 12, 1997, between AVSA, S.A.R.L. and AWA and Letter Agreement Nos. 2  8.10.16(1)
    
    Side Letter No. 15, dated May 26, 2004, to the Amended and Restated V2500 Support Contract,
dated October 7, 1998, between AWA and IAE International Aero Engines AG.31.1
    
    Certification of Holdings Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Holdings Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.3
    
    Certification of AWAs Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.31.4
    
    Certification of AWAs Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Holdings Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of AWAs Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(1) The Company has sought confidential treatment for portions of the
referenced exhibit.
 46




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
September 30, 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: October 27, 2004 47




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
September 30, 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: October 27, 2004 48