##### 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 endedMarch 31, 2005 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 April 25, 2005, America West Holdings Corporation has 859,117 shares of Class A common stock
and 35,316,871 shares of Class B common stock outstanding. As of April 25, 2005, 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 CORPORATIONITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INCITEM 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. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITSSIGNATURESIGNATUREExhibit IndexEX-10.1EX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2    Table of Contents  
 PART I  FINANCIAL INFORMATION America West Holding 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 2004. 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) March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    129,197
    
    
    $
    149,091Short-term investments
    
    
    104,513
    
    
    
    126,651Restricted cash
    
    
    
    
    
    
    41,264Accounts receivable, net
    
    
    156,037
    
    
    
    108,837Expendable spare parts and supplies, net
    
    
    55,643
    
    
    
    57,563Prepaid expenses
    
    
    208,811
    
    
    
    141,571Total current assets
    
    
    654,201
    
    
    
    624,977Property and equipment:Flight equipment
    
    
    914,853
    
    
    
    926,930Other property and equipment
    
    
    297,406
    
    
    
    290,897Equipment purchase deposits
    
    
    70,450
    
    
    
    63,4501,282,709
    
    
    
    1,281,277Less accumulated depreciation and amortization
    
    
    606,958
    
    
    
    624,742Net property and equipment
    
    
    675,751
    
    
    
    656,535Other assets:Investments in debt securities
    
    
    20,000
    
    
    
    30,000Restricted cash
    
    
    91,548
    
    
    
    72,091Other assets, net
    
    
    138,900
    
    
    
    91,661Total other assets
    
    
    250,448
    
    
    
    193,752$
    1,580,400
    
    
    $
    1,475,264
 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) March 31,
    
    
    December 31,2005
    
    
    2004Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    114,674
    
    
    $
    151,183Current obligations under capital leases
    
    
    3,291
    
    
    
    3,475Accounts payable
    
    
    184,840
    
    
    
    173,887Air traffic liability
    
    
    276,108
    
    
    
    194,718Accrued compensation and vacation benefits
    
    
    51,207
    
    
    
    42,699Accrued taxes
    
    
    48,759
    
    
    
    32,796Other accrued liabilities
    
    
    87,006
    
    
    
    65,958Total current liabilities
    
    
    765,885
    
    
    
    664,716Long-term debt, less current maturities
    
    
    588,589
    
    
    
    635,129Capital leases, less current obligations
    
    
    5,124
    
    
    
    5,061Deferred credits and other liabilities
    
    
    150,672
    
    
    
    133,911Stockholders equity:Preferred stock, $.01 par value. Authorized 48,800,000
shares; no shares issued
    
    
    
    
    
    
    Class A common stock, $.01 par value. Authorized
1,200,000 shares; issued and outstanding 859,117 shares at
March 31, 2005 and December 31, 2004
    
    
    8
    
    
    
    8Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 51,600,766 shares at March 31, 2005
and 51,564,865 shares at December 31, 2004
    
    
    516
    
    
    
    516Additional paid-in capital
    
    
    632,553
    
    
    
    632,446Accumulated deficit
    
    
    (255,041
    )
    
    
    (288,617
    )378,036
    
    
    
    344,353Less: Cost of Class B common stock in treasury, 16,437,575 shares
at March 31, 2005 and December 31, 2004
    
    
    (307,906
    )
    
    
    (307,906
    )Total stockholders equity
    
    
    70,130
    
    
    
    36,447$
    1,580,400
    
    
    $
    1,475,264
 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 EndedMarch 31,2005
    
    
    2004Operating revenues:Passenger
    
    $
    575,413
    
    
    $
    537,333Express
    
    
    103,356
    
    
    
    72,651Cargo
    
    
    8,644
    
    
    
    6,903Other
    
    
    35,399
    
    
    
    32,440Total operating revenues
    
    
    722,812
    
    
    
    649,327Operating expenses:Salaries and related costs
    
    
    175,148
    
    
    
    166,275Aircraft rents
    
    
    76,837
    
    
    
    75,185Other rents and landing fees
    
    
    41,539
    
    
    
    41,241Aircraft fuel
    
    
    151,863
    
    
    
    114,212Realized and
unrealized gains on fuel hedging instruments, net
    
    
    (60,483
    )
    
    
    (404
    )Agency commissions
    
    
    5,554
    
    
    
    6,750Aircraft maintenance materials and repairs
    
    
    47,988
    
    
    
    50,054Depreciation and amortization
    
    
    11,860
    
    
    
    13,791Special charges (credits), net
    
    
    811
    
    
    
    (600
    )Express expenses
    
    
    110,826
    
    
    
    73,302Other
    
    
    110,791
    
    
    
    94,432Total operating expenses
    
    
    672,734
    
    
    
    634,238Operating income
    
    
    50,078
    
    
    
    15,089Nonoperating income (expenses):Interest income
    
    
    1,899
    
    
    
    1,518Interest expense, net
    
    
    (18,979
    )
    
    
    (19,752
    )Other, net
    
    
    578
    
    
    
    1,582Total nonoperating expenses, net
    
    
    (16,502
    )
    
    
    (16,652
    )Income (loss) before income taxes
    
    
    33,576
    
    
    
    (1,563
    )Income taxes
    
    
    
    
    
    
    Net income (loss)
    
    $
    33,576
    
    
    $
    (1,563
    )Earnings (loss) per share:Basic
    
    $
    0.93
    
    
    $
    (0.04
    )Diluted
    
    $
    0.62
    
    
    $
    (0.04
    )Shares used for computation:Basic
    
    
    36,152
    
    
    
    35,851Diluted
    
    
    62,372
    
    
    
    35,851
 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) Three Months EndedMarch 31,2005
    
    
    2004Net cash provided by (used in) operating activities
    
    $
    113,929
    
    
    $
    (1,432
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (56,613
    )
    
    
    (36,979
    )Purchases of short-term investments
    
    
    (99,650
    )
    
    
    (164,565
    )Sales of short-term investments
    
    
    131,644
    
    
    
    172,710Purchases of investments in debt securities
    
    
    
    
    
    
    (15,000
    )Sales of investments in debt securities
    
    
    
    
    
    
    15,000Decrease (increase) in restricted cash
    
    
    (19,457
    )
    
    
    1,081Proceeds from disposition of assets
    
    
    584
    
    
    
    1,397Net cash used in investing activities
    
    
    (43,492
    )
    
    
    (26,356
    )Cash flows from financing activities:Repayment of debt
    
    
    (86,189
    )
    
    
    (47,370
    )Other
    
    
    (4,142
    )
    
    
    373Net cash used in financing activities
    
    
    (90,331
    )
    
    
    (46,997
    )Net decrease in cash and cash equivalents
    
    
    (19,894
    )
    
    
    (74,785
    )Cash and cash equivalents at beginning of period
    
    
    149,091
    
    
    
    153,357Cash and cash equivalents at end of period
    
    $
    129,197
    
    
    $
    78,572Cash paid for:Interest, net of amounts capitalized
    
    $
    4,727
    
    
    $
    7,700Income taxes paid
    
    $
    18
    
    
    $
    1,374Non-cash investing and financing activities:Reclassification of investments in debt securities to
short-term investments
    
    $
    10,000
    
    
    $
    5,344Notes payable issued under the aircraft purchase agreement
    
    $
    5,250
    
    
    $
    3,500Notes payable cancelled under the aircraft purchase agreement
    
    $
    (3,500
    )
    
    $
    Payment in kind notes issued, net of returns
    
    $
    
    
    
    $
    379Exercise of warrants
    
    $
    
    
    
    $
    2Acquisition of shares due to loan default
    
    $
    
    
    
    $
    800
 See accompanying notes to condensed consolidated financial statements. 5




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2005 1. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements include the accounts of Holdings and
its wholly owned subsidiary, AWA. These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in accordance with those rules and
regulations, certain information and footnotes required by generally accepted accounting principles
have been omitted. In the opinion of management, the condensed consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation.
The accompanying condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2004. The Company has a regional airline alliance agreement with Mesa Airlines (Mesa). Mesa,
operating as America West Express (Express), provides regional feeder service for AWA. Express
operations have grown substantially and, as of March 31, 2005, comprise approximately 12% of the
Companys total capacity as measured by available seat miles (ASMs). To improve the visibility
of Express operating results, effective with the first quarter of 2005, the Company has changed its
method of reporting for this agreement to the gross basis of presentation. Previously, AWA used
the net basis of presentation. Using the gross basis of presentation, the passenger revenues and operating expenses
associated with the Express agreement are reported gross (i.e.; as Operating Revenues  Express
and Operating Expenses  Express Expenses) in the Condensed Consolidated Statement of Operations.
Under the net basis of presentation, Express passenger revenues and the associated operating
expenses were netted and classified in Operating Revenues  Other.Prior period amounts have
been reclassified to be consistent with the first quarter 2005 presentation. These
reclassifications did not impact our operating income or net income (loss) for each period
presented. See Note 7, Change in Method of Reporting for America West Express Resultsfor
additional information about this agreement and the reclassifications related to the change in
presentation. Certain other prior year amounts have been reclassified to conform with current year
presentation. 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 decreased to the pro forma amounts indicated below: Three Months EndedMarch 31,2005
    
    
    2004(in thousands except per share data)Net income (loss), as reported
    
    $
    33,576
    
    
    $
    (1,563
    )Stock-based compensation expense
    
    
    (1,270
    )
    
    
    (1,270
    )Pro forma net income (loss)
    
    $
    32,306
    
    
    $
    (2,833
    )Income (loss) per share:Basic  as reported
    
    $
    0.93
    
    
    $
    (0.04
    )Basic  pro forma
    
    $
    0.89
    
    
    $
    (0.08
    )Diluted  as reported
    
    $
    0.62
    
    
    $
    (0.04
    )Diluted  pro forma
    
    $
    0.60
    
    
    $
    (0.08
    )
 6




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2005 3. FLIGHT EQUIPMENT In January 2005, the Company entered into an operating lease for one new Airbus A320 aircraft
with a lease term of 5 years. In March 2005, the Company completed a sale-leaseback transaction on one Airbus A320 aircraft
resulting in a loss of $3.7 million. This amount was recorded in Operating Expenses  Other.
The term of the leaseback is 12 years. During the first quarter of 2005, the Company returned one Boeing 737-200 aircraft to the
aircraft lessor in accordance with the renegotiated lease term. 4. SPECIAL CHARGES In the first quarter of 2005, the Company recorded $0.8 million in special charges, of which
$0.7 million is accrued at March 31, 2005. This is related to continued costs associated with the
retirement of the 737-200 fleet. The following table presents the payments and other settlements made during the three months
ended March 31, 2005 related to the special charge accruals: Contract Termination/Fleet Restructuring
    
    
    Other Costs
    
    
    TotalBalance at December 31, 2004
    
    $
    643
    
    
    $
    121
    
    
    $
    764Special charges
    
    
    690
    
    
    
    
    
    
    
    690Payments
    
    
    (305
    )
    
    
    (111
    )
    
    
    (416
    )Revision of estimate
    
    
    
    
    
    
    147
    
    
    
    147Balance at March 31, 2005
    
    $
    1,028
    
    
    $
    157
    
    
    $
    1,185
 The Company expects to make payments related to these special charges through the fourth
quarter of 2005. 5. INCOME (LOSS) PER SHARE The following table presents the computation of basic and diluted income (loss) per share
(EPS). Three Months EndedMarch 31,2005
    
    
    2004(in thousands except per share data)BASIC INCOME (LOSS) PER SHAREIncome (loss) applicable to common stock
    
    $
    33,576
    
    
    $
    (1,563
    )Weighted average common shares outstanding
    
    
    36,152
    
    
    
    35,851Basic income (loss) per share
    
    $
    0.93
    
    
    $
    (0.04
    )DILUTED INCOME (LOSS) PER SHAREIncome (loss) as reported
    
    $
    33,576
    
    
    $
    (1,563
    )Interest expense on 7.5% convertible senior notes
    
    
    3,133
    
    
    
    Interest expense on 7.25% senior exchangeable notes
    
    
    1,735
    
    
    
    Income (loss) for purposes of computing diluted net
income (loss) per share
    
    $
    38,444
    
    
    $
    (1,563
    )SHARE COMPUTATIONWeighted average common shares outstanding
    
    
    36,152
    
    
    
    35,851Assumed exercise of stock options and warrants
    
    
    8,766
    
    
    
    Assumed conversion of 7.5% convertible senior notes
    
    
    9,358
    
    
    
    Assumed conversion of 7.25% senior exchangeable notes
    
    
    8,096
    
    
    
    Weighted average common shares outstanding, as adjusted
    
    
    62,372
    
    
    
    35,851Diluted income (loss) per share
    
    $
    0.62
    
    
    $
    (0.04
    )
 7




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2005 For the three months ended March 31, 2005, 7,245,251 incremental shares from the assumed
exercise of stock options are not included in the computation of diluted EPS because the option
exercise prices were greater than the average market price of the
Companys Class B common stock for the period. For the three months ended March 31, 2004, 2,711,887 incremental shares from the assumed
exercise of stock options and 14,400,403 warrants issued in conjunction with the government
guaranteed loan and related transactions are not included in the computation of diluted EPS because
of the antidilutive effect on EPS. In addition, 8,694,000 and 8,095,842 incremental shares from
assumed conversion of the 7.5% convertible senior notes due 2009 and the 7.25% senior exchangeable
notes due 2023, respectively, are not included in the computation of diluted EPS because of the
antidilutive effect on EPS. 6. SEGMENT DISCLOSURES Holdings is one reportable operating segment. Accordingly, the segment reporting financial
data required by SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Informationis included in the accompanying condensed consolidated balance sheets and statements
of operations. 7. CHANGE IN METHOD OF REPORTING FOR AMERICA WEST EXPRESS RESULTS The Company has a regional airline alliance agreement (the Agreement) with Mesa that
commenced in February 2001. Pursuant to the Agreement, Mesa, using aircraft owned and operated by Mesa under the name
Express, provides feeder service to destinations in the western United States, Canada and northern
Mexico. As of March 31, 2005, the Express fleet included 49 aircraft comprised of 27 86-seat CRJ
900s, 16 50-seat CRJ 200s and six 37-seat Dash 8 turbo prop aircraft. Under the Agreement, Mesa is required to fly the routes and flights designated by AWA using
Mesas aircraft, flight crews and other related services. Mesa maintains and operates the
aircraft, employs, trains, manages and compensates personnel necessary to provide the flight
services and provides related passenger handling services for and on the flights. AWA is
responsible for establishing the routes, scheduling Express flights, pricing of the tickets,
marketing and selling the tickets, collecting all sales amounts, paying all costs of sales and
marketing and taking inventory risk on the inventory of seats for sale on Mesa. The ground
handling of aircraft is performed by either AWA or Mesa, depending upon the airport. AWA collects the revenue and income generated from the services provided by Mesa pursuant to
the Agreement. In return, AWA: (i) reimburses Mesa for actual non-controllable costs incurred by
Mesa such as fuel, insurance, taxes, fees and security; (ii) pays Mesa for actual controllable
non-maintenance costs, subject to a cap, such as aircraft lease expense and crew expense; (iii)
pays Mesa for controllable maintenance costs at fixed rates (subject to reimbursement of excess
costs if actual costs during term are less than fixed amount paid by AWA); (iv) reimburses Mesa
costs and expenses incurred at stations maintained and operated by Mesa; and (v) shares with Mesa a
percentage of the revenue allocated to the flight segments flown by Mesa on a pro rata basis. The agreement is anticipated to expire in June 2012. As discussed in Note 1, Basis of Presentation,the Company is reporting the passenger
revenues and operating expenses associated with the Agreement on a gross basis. Previously, these
revenues and expenses were reported net in Operating Revenues  Otherin our Condensed
Consolidated Statements of Operations. The following table presents the effect of this
reclassification for the three months ended March 31, 2004: 8




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2005 As Reported
    
    
    Adjustments
    
    
    As ReclassifiedOperating revenues:Passenger
    
    $
    537,333
    
    
    $
    
    
    
    $
    537,333Express
    
    
    
    
    
    
    72,651
    (1)
    
    
    72,651Cargo and other
    
    
    39,211
    
    
    
    132
    
    
    
    39,343Total operating revenues
    
    $
    576,544
    
    
    $
    72,783
    
    
    $
    649,327Operating expenses:Operating expenses
    
    $
    561,455
    
    
    $
    (519
    )
    
    $
    560,936Express expenses
    
    
    
    
    
    
    73,302
    (2)
    
    
    73,302Total operating expenses
    
    $
    561,455
    
    
    $
    72,783
    
    
    $
    634,238
  1.
    Reclassification of Express passenger revenues from Operating Revenues 
Other.2.
    Reclassification of $72.8 million and $0.5 million of Express operating
expenses from Operating Revenues  Otherand Operating Expenses  Other,
respectively. The operating margin that results from using the gross basis of presentation for Express
revenues and expenses does not include any beyond contribution passenger revenue generated by feed
into AWAs mainline operations from Express flights. Overall, the Mesa alliance agreement adds to
the total profitability of AWA. 9




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ITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INC. The unaudited condensed consolidated balance sheets of AWA, a wholly-owned subsidiary of
Holdings, as of March 31, 2005 and December 31, 2004, and the condensed consolidated statements of
operations and cash flows for the three months ended March 31, 2005 and 2004, together with the
related notes, are set forth on the following pages. AMERICA WEST AIRLINES, INC.
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    108,372
    
    
    $
    128,497Short-term investments
    
    
    104,513
    
    
    
    126,651Restricted cash
    
    
    
    
    
    
    41,264Accounts receivable, net
    
    
    156,037
    
    
    
    108,837Expendable spare parts and supplies, net
    
    
    55,643
    
    
    
    57,563Prepaid expenses
    
    
    208,775
    
    
    
    141,571Total current assets
    
    
    633,340
    
    
    
    604,383Property and equipment:Flight equipment
    
    
    914,853
    
    
    
    926,930Other property and equipment
    
    
    295,788
    
    
    
    289,279Equipment purchase deposits
    
    
    70,450
    
    
    
    63,4501,281,091
    
    
    
    1,279,659Less accumulated depreciation and amortization
    
    
    606,409
    
    
    
    624,193Net property and equipment
    
    
    674,682
    
    
    
    655,466Other assets:Investments in debt securities
    
    
    20,000
    
    
    
    30,000Restricted cash
    
    
    91,548
    
    
    
    72,091Advances to parent company, net
    
    
    259,362
    
    
    
    258,777Other assets, net
    
    
    137,613
    
    
    
    90,270Total other assets
    
    
    508,523
    
    
    
    451,138$
    1,816,545
    
    
    $
    1,710,987
 See accompanying notes to condensed consolidated financial statements. 10




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AMERICA WEST AIRLINES, INC.
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) March 31,
    
    
    December 31,2005
    
    
    2004Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    114,674
    
    
    $
    151,183Current obligations under capital leases
    
    
    3,291
    
    
    
    3,475Accounts payable
    
    
    183,943
    
    
    
    173,196Air traffic liability
    
    
    276,108
    
    
    
    194,718Accrued compensation and vacation benefits
    
    
    51,207
    
    
    
    42,699Accrued taxes
    
    
    36,608
    
    
    
    20,651Other accrued liabilities
    
    
    87,006
    
    
    
    65,958Total current liabilities
    
    
    752,837
    
    
    
    651,880Long-term debt, less current maturities
    
    
    588,589
    
    
    
    635,129Capital leases, less current maturities
    
    
    5,124
    
    
    
    5,061Deferred credits and other liabilities
    
    
    148,864
    
    
    
    132,103Stockholders equity:Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,114
    
    
    
    555,114Accumulated deficit
    
    
    (233,983
    )
    
    
    (268,300
    )Total stockholders equity
    
    
    321,131
    
    
    
    286,814$
    1,816,545
    
    
    $
    1,710,987
 See accompanying notes to condensed consolidated financial statements. 11




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AMERICA WEST AIRLINES, INC.
Condensed Consolidated Statements of Operations
(in thousands)
(unaudited) Three Months EndedMarch 31,2005
    
    
    2004Operating revenues:Passenger
    
    $
    575,413
    
    
    $
    537,333Express
    
    
    103,356
    
    
    
    72,651Cargo
    
    
    8,644
    
    
    
    6,903Other
    
    
    35,229
    
    
    
    32,270Total operating revenues
    
    
    722,642
    
    
    
    649,157Operating expenses:Salaries and related costs
    
    
    174,853
    
    
    
    165,929Aircraft rents
    
    
    76,837
    
    
    
    75,185Other rents and landing fees
    
    
    41,539
    
    
    
    41,241Aircraft fuel
    
    
    151,863
    
    
    
    114,212Realized and
unrealized gains on fuel hedging instruments, net
    
    
    (60,483
    )
    
    
    (404
    )Agency commissions
    
    
    5,554
    
    
    
    6,750Aircraft maintenance materials and repairs
    
    
    47,988
    
    
    
    50,054Depreciation and amortization
    
    
    11,860
    
    
    
    13,791Special charges (credits), net
    
    
    811
    
    
    
    (600
    )Express expenses
    
    
    110,826
    
    
    
    73,302Other
    
    
    110,049
    
    
    
    93,812Total operating expenses
    
    
    671,697
    
    
    
    633,272Operating income
    
    
    50,945
    
    
    
    15,885Nonoperating income (expenses):Interest income
    
    
    3,464
    
    
    
    3,201Interest expense, net
    
    
    (20,670
    )
    
    
    (21,462
    )Other, net
    
    
    578
    
    
    
    1,582Total nonoperating expenses, net
    
    
    (16,628
    )
    
    
    (16,679
    )Income (loss) before income taxes
    
    
    34,317
    
    
    
    (794
    )Income taxes
    
    
    
    
    
    
    Net income (loss)
    
    $
    34,317
    
    
    $
    (794
    )
 See accompanying notes to condensed consolidated financial statements. 12




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AMERICA WEST AIRLINES, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited) Three Months EndedMarch 31,2005
    
    
    2004Net cash provided by (used in) operating activities
    
    $
    113,806
    
    
    $
    (1,079
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (56,613
    )
    
    
    (36,979
    )Purchases of short-term investments
    
    
    (99,650
    )
    
    
    (164,565
    )Sales of short-term investments
    
    
    131,644
    
    
    
    172,710Purchases of investments in debt securities
    
    
    
    
    
    
    (15,000
    )Sales of investments in debt securities
    
    
    
    
    
    
    15,000Decrease (increase) in restricted cash
    
    
    (19,457
    )
    
    
    1,081Proceeds from disposition of assets
    
    
    584
    
    
    
    1,397Net cash used in investing activities
    
    
    (43,492
    )
    
    
    (26,356
    )Cash flows from financing activities:Repayment of debt
    
    
    (86,189
    )
    
    
    (47,370
    )Other
    
    
    (4,250
    )
    
    
    (7
    )Net cash used in financing activities
    
    
    (90,439
    )
    
    
    (47,377
    )Net decrease in cash and cash equivalents
    
    
    (20,125
    )
    
    
    (74,812
    )Cash and cash equivalents at beginning of period
    
    
    128,497
    
    
    
    134,150Cash and cash equivalents at end of period
    
    $
    108,372
    
    
    $
    59,338Cash paid for:Interest, net of amounts capitalized
    
    $
    4,727
    
    
    $
    7,700Income taxes paid (refunded)
    
    $
    (17
    )
    
    $
    325Non-cash investing and financing activities:Reclassification of investments in debt securities to
short-term investments
    
    $
    10,000
    
    
    $
    5,344Notes payable issued under the aircraft purchase agreement
    
    $
    5,250
    
    
    $
    3,500Notes payable cancelled under the aircraft purchase agreement
    
    $
    (3,500
    )
    
    $
    Payment in kind notes issued, net of returns
    
    $
    
    
    
    $
    379
 See accompanying notes to condensed consolidated financial statements. 13




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AMERICA WEST AIRLINES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2005 1. BASIS OF PRESENTATION The unaudited condensed consolidated 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.
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. The
accompanying condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in AWAs Annual Report on Form
10-K for the year ended December 31, 2004. AWA has a regional airline alliance agreement with Mesa Airlines (Mesa). Mesa, operating as
America West Express (Express), provides regional feeder service for AWA. Express operations
have grown substantially and, as of March 31, 2005, comprise approximately 12% of AWAs total
capacity as measured by available seat miles (ASMs). To improve the visibility of Express
operating results, effective with the first quarter of 2005, AWA has changed its method of
reporting for this agreement to the gross basis of presentation. Previously, AWA used the net
basis of presentation. Using the gross basis of presentation, the passenger revenues and operating expenses
associated with the Express agreement are reported gross (i.e.; as Operating Revenues  Express
and Operating Expenses  Express Expenses) in the Condensed Consolidated Statement of Operations.
Under the net basis of presentation, Express passenger revenues and the associated operating
expenses were netted and classified in Operating Revenues  Other.Prior period amounts have
been reclassified to be consistent with the first quarter 2005 presentation. These
reclassifications did not impact our operating income or net income (loss) for each period
presented. See Note 7, Change in Method of Reporting for America West Express Resultsfor
additional information about this agreement and the reclassifications related to the change in
presentation. Certain other prior year amounts have been reclassified to conform with current year
presentation. 2. ADVANCES TO PARENT COMPANY AND AFFILIATE As of March 31, 2005, AWA had net advances to Holdings of $259.4 million, which were
classified in Other Assetson AWAs condensed consolidated balance sheet due to certain
restrictions related to the timing of repayment under the government guaranteed loan, of which
$300.3 million remains outstanding. 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 the compensation expense to AWA for
its employees participating in the stock option plans, AWAs net income (loss) would have been
decreased to the pro forma amounts indicated below: Three Months EndedMarch 31,2005
    
    
    2004(in thousands)Net income (loss), as reported
    
    $
    34,317
    
    
    $
    (794
    )Stock-based compensation expense
    
    
    (1,270
    )
    
    
    (1,270
    )Pro forma net income (loss)
    
    $
    33,047
    
    
    $
    (2,064
    )
 14




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AMERICA WEST AIRLINES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2005 4. FLIGHT EQUIPMENT In January 2005, AWA entered into an operating lease for one new Airbus A320 aircraft with a
lease term of 5 years. In March 2005, AWA completed a sale-leaseback transaction on one Airbus A320 aircraft
resulting in a loss of $3.7 million. This amount was recorded in Operating Expenses 
Other.The term of the leaseback is 12 years. During the first quarter of 2005, AWA returned one Boeing 737-200 aircraft with the aircraft
lessor in accordance with the renegotiated lease term. 5. SPECIAL CHARGES In the first quarter of 2005, AWA recorded $0.8 million in special charges of which $0.7
million is accrued at March 31, 2005. This is related to continued costs associated with the
retirement of the 737-200 fleet. The following table presents the payments and other settlements made during the three months
ended March 31, 2005 related to the special charge accruals: Fleet
    
    
    Contract Termination/Restructuring
    
    
    Other Costs
    
    
    TotalBalance at December 31, 2004
    
    $
    643
    
    
    $
    121
    
    
    $
    764Special charges
    
    
    690
    
    
    
    
    
    
    
    690Payments
    
    
    (305
    )
    
    
    (111
    )
    
    
    (416
    )Revision of estimate
    
    
    
    
    
    
    147
    
    
    
    147Balance at March 31, 2005
    
    $
    1,028
    
    
    $
    157
    
    
    $
    1,185
 AWA expects to make payments related to these special charges through the fourth quarter
of 2005. 6. SEGMENT DISCLOSURES AWA is one reportable operating segment. Accordingly, the segment reporting financial data
required by SFAS No. 131, Disclosures About Segments of an Enterprise and Related Informationis
included in the accompanying condensed balance sheets and statements of operations. 7. CHANGE IN METHOD OF REPORTING FOR AMERICA WEST EXPRESS RESULTS The Company has a regional airline alliance agreement (the Agreement) with Mesa that commenced in
February 2001. Pursuant to the Agreement, Mesa, using aircraft owned and operated by Mesa under the name
Express, provides feeder service to destinations in the western United States, Canada and northern
Mexico. As of March 31, 2005, the Express fleet included 49 aircraft comprised of 27 86-seat CRJ
900s, 16 50-seat CRJ 200s and six 37-seat Dash 8 turbo prop aircraft. Under the Agreement, Mesa is required to fly the routes and flights designated by AWA using
Mesas aircraft, flight crews and other related services. Mesa maintains and operates the
aircraft, employs, trains, manages and compensates personnel necessary to provide the flight
services and provides related passenger handling services for and on the flights. AWA is
responsible for establishing the routes, scheduling Express flights, pricing of the tickets,
marketing and selling the tickets, collecting all sales amounts, paying all costs of sales and
marketing and taking inventory risk on the inventory of seats for sale on Mesa. The ground
handling of aircraft is performed by either AWA or Mesa, depending upon the airport. 15




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AMERICA WEST AIRLINES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2005 AWA collects the revenue and income generated from the services provided by Mesa pursuant to
the Agreement. In return, AWA: (i) reimburses Mesa for actual non-controllable costs incurred by
Mesa such as fuel, insurance, taxes, fees and security; (ii) pays Mesa for actual controllable
non-maintenance costs, subject to a cap, such as aircraft lease expense and crew expense; (iii)
pays Mesa for controllable maintenance costs at fixed rates (subject to reimbursement of excess
costs if actual costs during term are less than fixed amount paid by AWA); (iv) reimburses Mesa
costs and expenses incurred at stations maintained and operated by Mesa; and (v) shares with Mesa a
percentage of the revenue allocated to the flight segments flown by Mesa on a pro rata basis. The Agreement is anticipated to expire in June 2012. As discussed in Note 1, Basis of Presentation,AWA is reporting the passenger revenues and
operating expenses associated with the Agreement on a gross basis. Previously, these revenues and
expenses were reported net in Operating Revenues  Otherin our Condensed Consolidated Statements
of Operations. The following table presents the effect of this reclassification for the three
months ended March 31, 2004: As Reported
    
    
    Adjustments
    
    
    As ReclassifiedOperating revenues:Passenger
    
    $
    537,333
    
    
    $
    
    
    
    $
    537,333Express
    
    
    
    
    
    
    72,651
    (1)
    
    
    72,651Cargo and other
    
    
    39,041
    
    
    
    132
    
    
    
    39,173Total operating revenues
    
    $
    576,374
    
    
    $
    72,783
    
    
    $
    649,157Operating expenses:Operating expenses
    
    $
    560,489
    
    
    $
    (519
    )
    
    $
    559,970Express expenses
    
    
    
    
    
    
    73,302
    (2)
    
    
    73,302Total operating expenses
    
    $
    560,489
    
    
    $
    72,783
    
    
    $
    633,272
  1.
    Reclassification of Express passenger revenues from Operating Revenues  Other.2.
    Reclassification of $72.8 million and $0.5 million of Express operating expenses from
Operating Revenues  Otherand Operating Expenses  Other,respectively. The operating margin that results from using the gross basis of presentation for Express
revenues and expenses does not include any beyond contribution passenger revenue generated by feed
into AWAs mainline operations from Express flights. Overall, the Mesa alliance agreement adds to
the total profitability of AWA.   16




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION ANDAMERICA WEST AIRLINES, INC.

March 31, 2005 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. Holdings is the parent company of AWA. AWA is the eighth largest passenger airline and the
second largest low cost carrier in the United States operating through its hubs located in Phoenix,
Arizona and Las Vegas, Nevada. As of March 31, 2005, AWA served 63 destinations in North America,
including eight destinations in Mexico, three in Canada and one in Costa Rica. Through its America
West Vacations (AWV) division, AWA also 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 first quarter of 2005, our improved revenue performance substantially offset the
impact of record high jet fuel prices as follows:  
    Passenger revenues were $575.4 million for the quarter, an increase of $38.1 million
from the first quarter of 2004. Passenger revenue per available seat mile (RASM) was
7.88 cents for the first quarter of 2005, an increase of 7.8% versus the 2004 first
quarter, driven by a 5.5 point increase in load factor with no deterioration in yield. The
Companys strong unit revenue improvement was due to more aggressive yield management in
the 2005 first quarter and more balanced capacity in the markets served by AWA. Reductions
in late 2004 of the Companys transcontinental flying, which yields were negatively
impacted by competitive responses, also contributed to improved period-over-period RASM and
yield performance.
    The airline industry and AWA incurred and continue to face an increase in costs
resulting from record high jet fuel prices. The average price per
gallon of fuel increased 34.6% from 105.3 cents in the first quarter of 2004 to 141.7 cents
per gallon in the first quarter of 2005. As a result, aircraft fuel expense for the
quarter was $151.9 million, an increase of $37.7 million,
or 33.0% from the first quarter of 2004. Holdings realized a pretax and net profit of $33.6 million, or $0.62 per diluted share, for
the first quarter of 2005. During the first quarter we benefited from a $60.5 million gain
associated with the Companys fuel hedging transactions. Of this amount, $11.6 million was net
realized gains on settled hedge transactions. The remaining $48.9 million was unrealized gains
resulting from the application of mark-to-market accounting for changes in the fair value of the
Companys fuel hedging instruments. The Company is required to use mark-to-market accounting as
its fuel hedging instruments do not meet the requirements for hedge accounting as established by
Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities.If these instruments had qualified for hedge accounting treatment, any
unrealized gains or losses, including the $48.9 million discussed above, would be deferred in other
comprehensive income, a subset of stockholders equity until the jet fuel is purchased and the
underlying fuel hedging instrument is settled. Given the market volatility of jet fuel, the fair
value of these fuel hedging instruments is expected to change until settled. As of March 31, 2005, Holdings unrestricted and restricted cash, cash equivalents, short-term
investments, and investments in debt securities totaled $345.3 million, of which $253.7 million was
unrestricted. Although there can be no assurances, we believe that cash flows from operating
activities, combined with these cash balances and our financing commitments, will be adequate to
fund our operating and capital needs as well as enable us to maintain compliance with our various
debt agreements through at least December 31, 2005. 17




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AMERICA WEST HOLDINGS CORPORATION ANDAMERICA WEST AIRLINES, INC.

March 31, 2005 Airline Operations Update AWA reported the following operating statistics to the U.S. Department of Transportation
(DOT) for aircraft operated by AWA (mainline) for the first quarter of 2005 and 2004: Percent Change2005
    
    
    2004
    
    
    2005  2004Jan
    
    
    Feb
    
    
    Mar
    
    
    Jan
    
    
    Feb
    
    
    Mar
    
    
    Jan
    
    
    Feb
    
    
    MarOn-time performance
(a)
    
    
    71.9
    
    
    
    76.3
    
    
    
    81.8
    
    
    
    76.3
    
    
    
    71.7
    
    
    
    74.8
    
    
    
    (5.9
    )
    
    
    6.4
    
    
    
    9.3Completion factor (b)
    
    
    97.2
    
    
    
    98.5
    
    
    
    99.0
    
    
    
    98.1
    
    
    
    98.2
    
    
    
    98.6
    
    
    
    (0.9
    )
    
    
    0.3
    
    
    
    0.4Mishandled baggage (c)
    
    
    5.89
    
    
    
    4.51
    
    
    
    3.83
    
    
    
    3.96
    
    
    
    3.58
    
    
    
    3.50
    
    
    
    48.7
    
    
    
    26.0
    
    
    
    9.4Customer complaints
(d)
    
    
    2.15
    
    
    
    1.85
    
    
    
    1.24
    
    
    
    1.23
    
    
    
    0.97
    
    
    
    1.17
    
    
    
    74.8
    
    
    
    90.7
    
    
    
    6.3
   (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. All measures showed marked improvement throughout the quarter and the key reliability
measures, on-time performance and completion factor, were much improved versus 2004. Summary of Holdings Financial Results Holdings recorded consolidated net income of $33.6 million in the first quarter of 2005, or
$0.62 per diluted share. This compares to a consolidated net loss of $1.6 million, or $0.04 per
diluted share, in the first quarter of 2004. The 2005 results
include $60.5 million net gains
associated with the Companys fuel hedging transactions. Of this amount, $48.9 million resulted
from mark-to-market accounting for changes in the fair value of the Companys fuel hedging
instruments and $11.6 million was net realized gains on settled hedge transactions. The 2005
quarter also includes $0.8 million of special charges related to the write-down of deferred
aircraft rent payments associated with the return of one Boeing 737-200 aircraft and a $3.7 million
loss on the sale and leaseback of one new Airbus A320 aircraft acquired during the period. The
2004 results include $0.4 million net gains associated with the Companys fuel hedging
transactions. Of this amount $2.9 million was net realized gains on settled hedge transactions,
which was offset in part by $2.5 million of losses resulting from mark-to-market accounting for
changes in the fair value of the Companys fuel hedging instruments. The 2004 quarter also
included a $2.5 million credit to other operating revenues related to the reduction of certain
obligations based upon a settlement with Mesa Airlines, a $2.0 million reduction in operating
expenses resulting from the settlement of a lawsuit related to certain computer hardware and
software that previously had been written off, a $1.7 million reduction in bad debt expense due to
a recovery of a previously reserved debt and a $0.6 million reduction in special charges due to a
revision of the estimated costs related to certain aircraft sale-leaseback transactions. The Company did not record income tax expense in the first quarter as it currently expects to
realize a loss for the full year 2005. The Company did not record an income tax benefit in the
first quarter of 2004 as it continued to record a full valuation allowance on any future tax
benefits until it achieves several quarters of profitable results coupled with an expectation of
continued profitability. 18




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION ANDAMERICA WEST AIRLINES, INC.

March 31, 2005 RESULTS OF OPERATIONS The following discussion provides an analysis of AWAs results of operations for the first
quarter of 2005 and material changes compared to the first quarter of 2004. The table below sets forth selected mainline operating data for AWA. Three Months EndedMarch 31,
    
    
    Percent Change2005
    
    
    2004
    
    
    2005-2004Revenue passenger miles (in millions) (a)
    
    
    5,671
    
    
    
    5,306
    
    
    
    6.9Available seat miles (in millions) (b)
    
    
    7,301
    
    
    
    7,352
    
    
    
    (0.7
    )Passenger load factor (percent) (c)
    
    
    77.7
    
    
    
    72.2
    
    
    5.5 ptsYield per revenue passenger mile (cents) (d)
    
    
    10.15
    
    
    
    10.13
    
    
    
    0.2Passenger revenue per available seat mile (cents) (e)
    
    
    7.88
    
    
    
    7.31
    
    
    
    7.8Total revenue per available seat mile (cents) (f)
    
    
    8.48
    
    
    
    7.84
    
    
    
    8.2Passenger enplanements (in thousands) (g)
    
    
    5,172
    
    
    
    4,897
    
    
    
    5.6Aircraft (end of period)
    
    
    138
    
    
    
    138
    
    
    
    Average daily aircraft utilization (hours) (h)
    
    
    11.0
    
    
    
    10.8
    
    
    
    1.9Block hours (i)
    
    
    136,497
    
    
    
    136,678
    
    
    
    (0.1
    )Average stage length (miles) (j)
    
    
    1,022
    
    
    
    1,037
    
    
    
    (1.4
    )Average passenger journey (miles) (k)
    
    
    1,624
    
    
    
    1,594
    
    
    
    1.9Fuel consumption (gallons in millions)
    
    
    107.2
    
    
    
    108.5
    
    
    
    (1.2
    )Average fuel price (cents per gallon)
    
    
    141.7
    
    
    
    105.3
    
    
    
    34.6Average number of full-time equivalent employees
    
    
    12,154
    
    
    
    11,827
    
    
    
    2.8
   (a)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. It is one
passenger flown one mile.(b)
    
    Available seat mile (ASM)  A basic measure of production. It is one seat
flown one mile.(c)
    
    Load factor  The percentage of available seats that are filled with revenue
passengers.(d)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by
revenue passenger miles and expressed in cents per mile.(e)
    
    Passenger revenue per available seat mile (RASM)  Total passenger revenues
divided by total available seat miles.(f)
    
    Total revenue per available seat mile  Total operating revenues divided by total
available seat miles.(g)
    
    Passenger enplanements  The number of passengers on board an aircraft including
local, connecting and through passengers.(h)
    
    Average daily aircraft utilization  The average number of block hours per day
for all aircraft in service.(i)
    
    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.(j)
    
    Average stage length  The average of the distances flown on each segment of
every route.(k)
    
    Average passenger journey  The average one-way trip measured in miles for one
passenger origination. 19




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION ANDAMERICA WEST AIRLINES, INC.

March 31, 2005 Three Months Ended March 31, 2005 and 2004 For the first quarter of 2005, AWA realized operating income of $50.9 million as compared to
$15.9 million in last years quarter. Operating income in the 2005 period includes a $60.5 million
net gain associated with the Companys fuel hedging transactions. Of this amount $48.9 million
resulted from mark-to-market accounting for changes in the fair value of the Companys fuel hedging
instruments and $11.6 million was net realized gains on settled hedge transactions. The 2004
period includes a $0.4 million net gain associated with the Companys fuel hedging transactions.
Of this amount $2.9 million was net realized gains on settled hedge transactions, which was offset
in part by $2.5 million of losses resulting from mark-to-market accounting for changes in the fair
value of the Companys fuel hedging instruments. Income before income taxes for the first quarter
of 2005 was $34.3 million as compared to a loss before income taxes of $0.8 million for the
comparable 2004 period. Total operating revenues for the first quarter of 2005 were $722.6 million. Passenger
revenues were $575.4 million for the first quarter of 2005, an increase of $38.1 million from the
comparable 2004 quarter. RPMs increased 6.9% as ASMs decreased 0.7%, resulting in a 5.5 point
increase in load factor to 77.7%. This increase in load factor was achieved with no deterioration
in yield, which was relatively flat period-over-period. As a result, RASM increased 7.8% to 7.88
cents in the first quarter 2005 from 7.31 cents in the 2004 quarter. The Companys strong unit
revenue improvement was driven by more aggressive yield management in the 2005 first quarter and
more balanced capacity in the markets served by AWA. Reductions in late 2004 of the Companys
transcontinental flying, which yields were negatively impacted by competitive responses, also
contributed to improved period-over-period RASM and yield performance. Express revenues were $103.4 million for the first quarter of 2005, an increase of $30.7
million from the comparable 2004 quarter due to increased flying by Mesa Airlines under its
alliance agreement with AWA. Cargo revenues increased 25.2% in the first quarter of 2005 to $8.6 million due to increased
mail volume. Other revenues increased 9.2% to $35.2 million in the first quarter of 2005 from
$32.3 million in the first quarter of 2004 due principally to an increase in ticket change and
service fees. The table below sets forth the mainline and Express operating expenses for AWA. Three Months EndedMarch 31,2005
    
    
    2004Operating expenses:Salaries and related costs
    
    $
    174,853
    
    
    $
    165,929Aircraft rents
    
    
    76,837
    
    
    
    75,185Other rents and landing fees
    
    
    41,539
    
    
    
    41,241Aircraft fuel
    
    
    151,863
    
    
    
    114,212Realized and unrealized gains on fuel hedging instruments, net
    
    
    (60,483
    )
    
    
    (404
    )Agency commissions
    
    
    5,554
    
    
    
    6,750Aircraft maintenance materials and repairs
    
    
    47,988
    
    
    
    50,054Depreciation and amortization
    
    
    11,860
    
    
    
    13,791Special charges (credits), net
    
    
    811
    
    
    
    (600
    )Other
    
    
    110,049
    
    
    
    93,812Total mainline operating expenses
    
    
    560,871
    
    
    
    559,970Express expenses
    
    
    110,826
    
    
    
    73,302Total operating expenses
    
    $
    671,697
    
    
    $
    633,272
 Total operating expenses in the first quarter of 2005 were $671.7 million, an increase of
$38.4 million or 6.1%, compared to the 2004 quarter. Mainline operating expenses were $560.9
million in the first quarter of 2005, an increase of $0.9 million from the first quarter of 2004,
while ASMs decreased 0.7%. Mainline CASM increased 0.9% to 7.68 cents in the first quarter of 2005
from 7.61 cents for the comparable 2004 period. The increase in CASM
was driven by the decline in capacity which was not met with a
commensurate reduction in costs and a 34.6% increase in the average
fuel price per gallon offset by a $60.5 million gain associated with the fuel hedging transaction
discussed above. 20




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 The table below sets forth the major components of mainline CASM for AWA. Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2005
    
    
    2004
    
    
    2005-2004(in cents)Salaries and related costs
    
    
    2.39
    
    
    
    2.27
    
    
    
    6.1Aircraft rents
    
    
    1.05
    
    
    
    1.02
    
    
    
    2.9Other rents and landing fees
    
    
    0.57
    
    
    
    0.56
    
    
    
    1.4Aircraft fuel
    
    
    2.08
    
    
    
    1.55
    
    
    
    33.9Realized and unrealized gains on fuel hedging instruments, net
    
    
    (0.83
    )
    
    
    (0.01
    )
    
    
    Agency commissions
    
    
    0.08
    
    
    
    0.09
    
    
    
    (17.1
    )Aircraft maintenance materials and repairs
    
    
    0.66
    
    
    
    0.68
    
    
    
    (3.5
    )Depreciation and amortization
    
    
    0.16
    
    
    
    0.19
    
    
    
    (13.4
    )Special charges
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    Other
    
    
    1.51
    
    
    
    1.27
    
    
    
    18.17.68
    
    
    
    7.61
    
    
    
    0.9
 Significant changes in the components of mainline CASM are explained as follows:  
    Salaries and related costs per ASM increased 6.1% primarily due to an increase in benefit
related expenses ($7.8 million) including defined contribution plan payments which our
pilots became eligible for on January 1, 2005 ($3.2 million), self-funded disability
requirements ($2.1 million) and workers compensation claim coverage ($1.1 million).
    Aircraft rent expense per ASM increased 2.9% due to mix as previously owned and leased
Boeing 737-200 aircraft were retired or returned to aircraft lessors and replaced with
leased Airbus A320 and A319 aircraft at higher monthly lease rates.
    Aircraft fuel expense per ASM increased 33.9% primarily due to a 34.6% increase in the
average price per gallon of fuel to 141.7 cents in the first quarter of 2005 from 105.3
cents in the comparable 2004 quarter.
    Agency commissions expense per ASM decreased 17.1% due to the continued shift in bookings
to lower cost distribution channels and continued reductions in travel agency incentive
programs.
    Aircraft maintenance materials and repairs expense per ASM decreased 3.5% primarily due
to decreases in aircraft C-Check ($1.3 million), airframe maintenance ($1.2 million), and
other maintenance related expenses ($1.2 million), which was offset in part by an increase
in capitalized maintenance amortization ($1.6 million). The decrease in other maintenance
related expenses resulted from a reduction in the rates charged for the repair of certain
rotable equipment under a power-by-the-hour agreement.
    Depreciation and amortization expense per ASM decreased 13.4% primarily due to lower
amortization expense related to computer hardware and software ($1.1 million) as a result of
AWAs cash conservation program, which reduced capital expenditures. Aircraft depreciation
expense was lower by $0.8 million in the 2005 first quarter due primarily to the retirement
of the Companys Boeing 737-200 fleet during 2004.
    Other operating expenses per ASM increased 18.1% due primarily to a $3.7 million loss
related to an aircraft sale-leaseback transaction in the first quarter of 2005 and increases
in property taxes ($2.1 million), airport guard services ($2.0 million), credit card fees
($1.0 million), crew per diem ($1.3 million) and ground handling services ($1.6 million). The first quarter of 2004 included 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 $1.7 million reduction in bad debt expense due to a recovery
of a previously reserved debt. Express expenses increased 51.2% in the first quarter of 2005 to $110.8 million due to higher
fuel and aircraft operating expenses. 21




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 AWA had net nonoperating expenses of $16.6 million in the first quarter of 2005 compared to
$16.7 million in the first quarter of 2004 as interest income and interest expense remained
relatively flat. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash At of March 31, 2005, Holdings and AWAs total cash, cash equivalents, short-term investments,
investments in debt securities and restricted cash were $345.3 million and $324.4 million,
respectively. Net cash provided by operating activities for Holdings and AWA was $113.9 million
and $113.8 million, respectively, for the first three months of 2005. This compares to net cash
used by operating activities for Holdings and AWA of $1.4 million and $1.1 million, respectively,
for the first three months of 2004. The year-over-year increase in net cash provided by operating
activities of $115.4 million and $114.9 million for Holdings and AWA, respectively, was primarily
due to the net earnings in the 2005 period and the period-over-period change in air traffic
liability which grew by 41.8% in the 2005 period as compared to 25.4% in the 2004 period. In the first three months of 2005, net cash used in investing activities was $43.5 million for
Holdings and AWA. This compares to net cash used in investing activities of $26.4 million for
Holdings and AWA in the first three months of 2004. Principal investing activities during the
first three months of 2005 included purchases of property and equipment totaling $56.6 million,
offset in part by net sales of short-term investments totaling $32.0 million. Restricted cash
increased by $19.5 million during the 2005 period due to an increase in reserves required under an
agreement for processing the Companys Visa and MasterCard credit card transactions. The first
quarter of 2004 included purchases of property and equipment totaling $37.0 million, offset in part
by net sales of short-term investments totaling $8.1 million. In the first quarter of 2005, net cash used in financing activities by Holdings and AWA was
$90.3 million and $90.4 million, respectively. Principal financing activities in 2005 included a
$42.9 million payment for the government guaranteed loan and redemption of $39.5 million of the
Companys remaining outstanding 10.75% Senior Secured Notes which was included in current
restricted cash at December 31, 2004. This compares to $47.4 million of debt repayments during the
comparable 2004 period, including the first principal payment of $42.9 million for the government
guaranteed loan. Capital expenditures for the first quarter of 2005 were approximately $56.6 million for both
Holdings and AWA as compared to capital expenditures of approximately $37.0 million for both
Holdings and AWA for the first quarter of 2004. Included in these amounts are capital expenditures
for capitalized maintenance of approximately $45.8 million and $29.8 million for both Holdings and
AWA for the first quarter of 2005 and 2004, respectively. Off-Balance Sheet Arrangements The Pass Through Trusts Since AWAs restructuring in 1994, AWA has set up 19 pass through trusts, which have issued
over $1.4 billion of pass through trust certificates (also known as Enhanced Equipment Trust
Certificates or EETC) covering the financing of 54 aircraft. These trusts are off-balance sheet
entities, the primary purpose of which is to finance the acquisition of aircraft. Rather than
finance each aircraft separately when such aircraft is purchased or delivered, these trusts allow
the Company to raise the financing for several aircraft at one time and place such funds in escrow
pending the purchase or delivery of the relevant aircraft. The trusts 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 equipment notes are secured by a security interest in the aircraft. The pass through
trust certificates are not direct 22




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 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
the first quarter of 2005, AWA made $77.2 million in lease payments in respect of the leveraged
lease financings under the pass through trusts. Other Operating Leases In addition to the aircraft financed by the pass through trust certificates, AWA has
noncancelable operating leases covering 82 aircraft, of which three aircraft will be delivered in
2005, as well as leases for certain terminal space, ground facilities and computer and other
equipment. In the first quarter of 2005, AWA made $60.0 million in lease payments related to these
operating leases. Special Facility Revenue Bonds In June 1999, Series 1999 special facility revenue bonds (new bonds) were issued by a
municipality to fund the retirement of the Series 1994A bonds (old bonds) and the construction of
a new concourse with 14 gates at Terminal 4 in Phoenix Sky Harbor International Airport in support
of AWAs strategic growth plan. The new bonds are due June 2019 with interest accruing at 6.25%
per annum payable semiannually on June 1 and December 1, commencing on December 1, 1999. The new
bonds are subject to optional redemption prior to the maturity date on or after June 1, 2009 in
whole or in part, on any interest payment date at the following redemption prices: 101% on June 1
or December 1, 2009; 100.5% on June 1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.
In accordance with Emerging Issues Task Force (EITF) Issue No. 97-10, The Effect of Lessee
Involvement in Asset Construction,the Company accounts for this as an operating lease. In connection with these bonds, AWA entered into an Amended and Restated Airport Use
Agreement, pursuant to which AWA agreed to make sufficient payments to the Industrial Development
Authority (IDA) to cover the principal and interest of the bonds and to indemnify the IDA for any
claims arising out of the issuance and sale of the bonds and the use and occupancy of the
concourses financed by these bonds and the old bonds. At March 31, 2005, the outstanding principal
amount of the bonds was $21.8 million. The Company estimates its remaining payments to cover the
principal and interest of these bonds will be approximately $43.6 million. Commitments As of March 31, 2005, we had $703.3 million of long-term debt (including current maturities).
This amount consisted primarily of the $300.3 million government guaranteed loan, a secured term
loan financing with General Electric Capital Corporation (GECC), of which $110.6 million remains
outstanding, $36.0 million principal amount of senior secured discount notes, $112.3 million
principal amount of 7.5% convertible senior notes (including interest through December 31, 2004 as
a deemed loan added to the principal thereof) and $252.7 million issue price of 7.25% senior
exchangeable notes, of which $86.8 million was received at issuance. Government Guaranteed Loan In January 2002, AWA closed a $429 million loan supported by a $380 million guarantee provided
by the Air Transportation Stabilization Board (ATSB). Certain third-party counter-guarantors
have fully and unconditionally guaranteed the payment of an aggregate of $45 million of the
original principal amount under the government guaranteed loan plus accrued and unpaid interest
thereon. In addition, Holdings has fully and unconditionally guaranteed the payment of all
principal, premium, interest and other obligations outstanding under the government guaranteed loan
and has pledged the stock of AWA to secure its obligations under such guarantee. Principal amounts under this loan become due in ten installments of $42.9 million on each March 31 and September
30, which began on March 31, 2004 and end on September 30, 2008. The Company has made the first
three of these payments as scheduled. Principal amounts outstanding under the government
guaranteed loan bear interest at a rate per annum equal to LIBOR plus 40 basis points. We also pay
guarantees fees of approximately 8% of the outstanding guaranteed principal balance in 2005 through
2008 to the U.S. Treasury Department and other loan participants. 23




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Subject to certain exceptions, we are required to prepay the government guaranteed loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year; and
    insurance proceeds in excess of $2 million to the extent such proceeds are not used to
restore or replace the assets from which such proceeds are derived. In addition, we are required to prepay the government guaranteed loan upon a change in control
and we may be required to prepay portions of the loan if our employee compensation costs exceed a
certain threshold. We may, at our option, prepay the government guaranteed loan without premium or
penalty, subject to reimbursement of the lenders breakage costs in the case of prepayment of LIBOR
loans. The government guaranteed loan requires that AWA maintain a minimum cash balance of $100
million. In addition, the government loan contains customary affirmative covenants and the
following negative covenants: restrictions on liens, investments, restricted payments, fundamental
changes, asset sales and acquisitions, the creation of new subsidiaries, sale and leasebacks,
transactions with affiliates, the conduct of business, mergers or consolidations, issuances and
dispositions of capital stock of subsidiaries, and amendments to other indebtedness. The
government guaranteed loan contains customary events of default, including payment defaults,
cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults. GECC Term Loan Financing In September 2004, AWA entered into a term loan financing with GECC providing for loans in an
aggregate amount of $110.6 million. The term loan financing consists of two secured term loan
facilities: a $75.6 million term loan facility secured primarily by spare parts, rotables and
appliances (the Spare Parts Facility); and a $35.0 million term loan facility secured primarily
by aircraft engines and parts installed in such engines (the Engine Facility). The facilities are cross-collateralized on a subordinated basis and the collateral securing
the facilities also secures on a subordinated basis certain of AWAs other existing debt and lease
obligations to GECC and its affiliates. The loans under the Spare Parts Facility are payable in full at maturity on September 10,
2010. The loans under the Engine Facility are payable in equal quarterly installments of $1.3
million beginning on March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8
million payable at maturity on September 10, 2010. The loans under each facility may be prepaid in
an amount not less than $5 million at any time after the 30th monthly anniversary of the
funding date under such facility. If AWA fails to maintain a certain ratio of rotables to loans
under the Spare Parts Facility, it may be required to pledge additional rotables or cash as
collateral, provide a letter of credit or prepay some or all of the loans under the Spare Parts
Facility. In addition, the loans under the Engine Facility are subject to mandatory prepayment
upon the occurrence of certain events of loss applicable to, or certain dispositions of, aircraft
engines securing the facility. Principal amounts outstanding under the loans bear interest at a rate per annum based on
three-month LIBOR plus a margin. Both facilities contain customary events of default, including
payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and
judgment defaults. Senior Secured Discount Notes Due 2009 In December 2004, AWA raised additional capital by financing its Phoenix maintenance facility
and flight training center. Using its leasehold interests in these two facilities as collateral, AWA,
through a wholly owned subsidiary named FTCHP LLC, raised $30.8 million through the issuance of senior secured discount notes.
The notes were issued by FTCHP at a discount pursuant to the terms of a senior secured term loan
agreement among the Company, FTCHP, Heritage Bank, SSB, as administrative agent, Citibank, N.A., as
the initial lender, and the other lenders from time to time party thereto. Citibank, N.A.
subsequently assigned all of its interests in the notes to third party lenders. 24




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 AWA has fully and unconditionally guaranteed the payment and performance of FTCHPs
obligations under the notes and the loan agreement. The notes require aggregate principal payments
of $36.0 million with principal payments of $1.5 million due on December 27, 2005 and 2006 and the
remaining principal amount due on December 27, 2009. The notes may be prepaid in full at any time
(subject to customary LIBOR breakage costs) and in partial amounts of $1.5 million on December 27,
2007 and 2008. The unpaid principal amount of the notes bears interest based on LIBOR plus a
margin subject to adjustment based on a loan to collateral value ratio. The loan agreement contains customary covenants applicable to loans of this type, including
obligations relating to the preservation of the collateral and restrictions on the activities of
FTCHP. In addition, the loan agreement contains events of default, including payment defaults,
cross-defaults to other debt of FTCHP, if any, breach of covenants, bankruptcy and insolvency
defaults and judgment defaults. In connection with this financing, AWA sold all of its leasehold interests in the maintenance
facility and flight training center to FTCHP and entered into subleases for the facilities with
FTCHP at lease rates expected to approximate the interest payments due under the notes. In
addition, AWA agreed to make future capital contributions to FTCHP in amounts sufficient to cover
principal payments and other amounts owing pursuant to the notes and the loan agreement. The proceeds from this financing, together with $10.5 million from operating cash flow, were
irrevocably deposited with the trustee for AWAs 10 3/4% senior unsecured notes due 2005 and
subsequently redeemed on January 26, 2005. 10 3/4% Senior Notes due 2005 AWA
had $39.5 million principal amount of 10 3/4% senior unsecured notes due
2005 outstanding at December 31, 2004. As
discussed above, the senior notes were subsequently redeemed in January 2005. 7.5% Convertible Senior Notes due 2009 In connection with the closing of the government guaranteed loan and the related transactions,
Holdings issued $104.5 million of 7.5% convertible senior notes due 2009, of which approximately
$112.3 million remained outstanding at March 31, 2005 (including interest paid through December 31,
2004 as a deemed loan added to the principal thereof). These notes are convertible into shares of
class B common stock, at the option of the holders, at an initial conversion price of $12.00 per
share or a conversion ratio of approximately 83.333 shares per $1,000 principal amount of such
notes, subject to standard anti-dilution adjustments. Interest on the 7.5% convertible senior
notes is payable semiannually in arrears on June 1 and December 1 of each year. At Holdings
option, the first six interest payments were payable in the form of a deemed loan added to the
principal amount of these notes. The 7.5% convertible senior notes will mature on January 18, 2009
unless earlier converted or redeemed. The payment of principal, premium and interest on the 7.5%
convertible senior notes is fully and unconditionally guaranteed by AWA. Holdings may redeem 7.5% convertible senior notes, in whole or in part, at the following
redemption prices (expressed as percentages of the principal amount thereof), if redeemed during
the twelve-month period commencing on January 18 of the years set forth below, plus, in each case,
accrued and unpaid interest, if any, to the date of redemption: Year
    
    Redemption Price2005
    
    
    103.75
    %2006
    
    
    102.50
    %2007
    
    
    101.25
    %2008 and thereafter
    
    
    100.00
    %
 25




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 7.25% Senior Exchangeable Notes due 2023 In July and August of 2003, AWA completed a private placement of approximately $86.8 million
issue price of 7.25% Senior Exchangeable Notes due 2023. The notes bear cash interest until July
30, 2008. Thereafter, the notes will cease bearing cash interest and begin accruing original issue
discount daily at a rate of 7.25% per year until maturity. Each note was issued at a price of
$343.61 and is exchangeable for class B common stock of Holdings at an exchange ratio of 32.038
shares per $1,000 principal amount at maturity of the notes (subject to adjustment in certain
circumstances). This represents an equivalent conversion price of approximately $10.73 per share.
The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008,
will be $252,695,000. The notes are unconditionally guaranteed on a senior unsecured basis by
Holdings. Holders may exchange their notes for the shares of class B common stock of Holdings in any
fiscal quarter commencing after September 30, 2003, if, as of the last day of the preceding fiscal
quarter, the closing sale price of the class B common stock for at least 20 trading days in a
period of 30 consecutive trading days ending on the last trading day of such preceding fiscal
quarter is more than 110% of the accreted exchange price per share of Class B common stock on the
last day of such preceding fiscal quarter. If the foregoing condition is satisfied, then the notes
will be exchangeable at any time at the option of the holder through maturity. The accreted
exchange price per share as of any day will equal the issue price of a note plus accrued original
issue discount to that day divided by 32.038, subject to any adjustments to the exchange rate
through that day. On or before July 30, 2018, a holder also may exchange its notes for shares of the Class B
common stock at any time after a 10 consecutive trading-day period in which the average of the
trading prices for the notes for that 10 trading-day period was less than 103% of the average
exchange value for the notes during that period. Exchange value is equal to the product of the
closing sale price for the shares of Class B common stock on a given day multiplied by the then
current exchange rate, which is the number of shares of Class B common stock for which each note is
then exchangeable. In addition, the holders may exchange the notes if the notes have been called for redemption
or if certain specified corporate transactions have occurred. 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. 26




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Other Indebtedness and Obligations In addition to the above described indebtedness, we had $35.8 million of secured equipment
notes and $47.6 million of other unsecured indebtedness, including $29.3 million of industrial
revenue bonds. The following table sets forth our cash obligations as of March 31, 2005. 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Beyond 2009
    
    
    Total(in thousands)Long-term debt:Equipment notes  non-EETC (1)
    
    $
    4,686
    
    
    $
    8,305
    
    
    $
    7,772
    
    
    $
    15,082
    
    
    $
    
    
    
    $
    
    
    
    $
    35,845GECC term loan (2)
    
    
    
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    5,158
    
    
    
    89,932
    
    
    
    110,5647.5% convertible senior notes due
2009(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,299
    
    
    
    
    
    
    
    112,2997.25% senior exchangeable notes
due 2023 (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,695
    
    
    
    252,695Government guaranteed loan (5)
    
    
    42,900
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    
    
    
    
    
    
    
    
    300,300State loan (6)
    
    
    250
    
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Industrial development bonds (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,300
    
    
    
    29,300AVSA promissory notes (8)
    
    
    12,250
    
    
    
    5,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,500Senior Secured Discount Notes (9)
    
    
    1,530
    
    
    
    1,529
    
    
    
    1,529
    
    
    
    1,530
    
    
    
    29,870
    
    
    
    
    
    
    
    35,98861,616
    
    
    
    106,292
    
    
    
    100,509
    
    
    
    107,570
    
    
    
    147,327
    
    
    
    371,927
    
    
    
    895,241Cash aircraft rental payments (10)
    
    
    217,666
    
    
    
    323,908
    
    
    
    305,809
    
    
    
    255,340
    
    
    
    229,736
    
    
    
    1,703,734
    
    
    
    3,036,193Lease payments on equipment and
facility operating leases (11)
    
    
    16,191
    
    
    
    19,213
    
    
    
    17,099
    
    
    
    16,782
    
    
    
    15,214
    
    
    
    53,087
    
    
    
    137,586Capital lease obligations
    
    
    4,464
    
    
    
    4,988
    
    
    
    1,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,225Special facility revenue bonds (12)
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,362
    
    
    
    1,362
    
    
    
    2,044
    
    
    
    36,106
    
    
    
    43,600Aircraft purchase commitments (13)
    
    
    223,480
    
    
    
    464,792
    
    
    
    47,719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    735,991Engine maintenance commitments (14)
    
    
    9,000
    
    
    
    6,000
    
    
    
    3,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    19,000Total
    
    $
    533,780
    
    
    $
    926,556
    
    
    $
    477,271
    
    
    $
    382,054
    
    
    $
    394,321
    
    
    $
    2,164,854
    
    
    $
    4,878,836
   (1)
    Includes approximately $35.8 million of equipment notes with variable interest
rates of 3.94% to 4.34%, averaging 4.00% at March 31, 2005, installments due 2005 through
2008.(2)
    The amount consists of the Spare Parts Facility and the Engine Facility with a
variable interest rate of 6.92% at March 31, 2005. See GECC Term Loan Financingabove.(3)
    Includes $90.7 million principal amount of 7.5% convertible senior notes, due
2009, and $21.6 million of interest paid in kind of issuance through December 31, 2004. For
financial reporting purposes, we initially recorded the convertible senior notes at their
fair market value on the date of issuance. As of March 31, 2005, the accreted balance of
the convertible senior notes in the accompanying consolidated balance sheet is approximately
$69.5 million.(4)
    Includes $252.7 million principal amount of 7.25% senior exchangeable notes due
July 2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal
amount at maturity. Thereafter, the notes will cease bearing cash interest and begin
accruing original issue discount at a rate of 7.25% until maturity. The aggregate amount
due at maturity, including accrued original issue discount from July 31, 2008, will be
$252.7 million.(5)
    Government guaranteed loan includes $300.3 million with a variable interest rate
of 2.96% at March 31, 2005 and ratable principal payments due 2005 through 2008. Guarantee
fees of approximately 8.0% of the outstanding guaranteed principal balance in 2005 through
2008 are payable to the U.S. Treasury Department and other loan participants.(6)
    Includes Arizona State loan of $0.8 million due December 2007 with a variable
interest rate of 7.55% at March 31, 2005.(7)
    Includes $29.3 million of 6.3% industrial development bonds due April 2023.(8)
    Includes AVSA promissory notes of $17.5 million due 2005 with a variable interest
rate of 4.05% at March 31, 2005.(9)
    Includes $36.0 million of senior secured discount notes due 2009 with a variable
interest rate of 6.44% at March 31, 2005. 27




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005  (10)
    Includes non-cancelable operating leases for 136 aircraft with remaining terms
ranging from three months to approximately 19 years. Management estimates the debt
equivalent value of these operating leases approximates $1.9 billion using an interest rate
of 10%.(11)
    Includes leases for terminal space, ground facilities, the flight training center
and computer and other equipment under non-cancelable operating leases.(12)
    Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.(13)
    Includes commitments to purchase a total of 19 Airbus aircraft and seven spare
engines for delivery in 2005 through 2007.(14)
    Includes minimum commitments under AWAs rate per engine hour agreement with
General Electric Engine Services for overhaul maintenance services on CFM56-3B engines
through April 2008. Minimum monthly commitment amounts: for the period through and
including April 2006  $1.0 million, for the period May 2006 through and including April
2008  $250,000. We expect to fund these cash obligations from funds provided by operations and future
financings, if necessary. The cash available to us from these sources, however, may not be
sufficient to cover these cash obligations because economic factors outside our control may reduce
the amount of cash generated by operations or increase our costs. For instance, an economic
downturn or general global instability caused by military actions, terrorism, disease outbreaks and
natural disasters could reduce the demand for air travel, which would reduce the amount of cash
generated by operations. An increase in our costs, either due to an increase in borrowing costs
caused by a reduction in our credit rating or a general increase in interest rates or due to an
increase in the cost of fuel, maintenance, aircraft and aircraft engines and parts, could decrease
the amount of cash available to cover the cash obligations. In addition, we may be required to
prepay portions of the government guaranteed loan if our employee compensation costs exceed a
certain threshold and we may be required to prepay portions of the term loan to the extent the
value of the collateral securing the term loan decreases. In any of these cases, our liquidity may
be adversely affected and we may not have sufficient cash to prepay the government loan and meet
our other obligations. Moreover, the government guaranteed loan contains a $100 million minimum
cash balance requirement. As a result, we cannot use all of our available cash to fund operations,
capital expenditures and cash obligations without violating this requirement. Although there can be no assurances, management believes that cash flow from operating
activities, coupled with existing cash balances and financing commitments, will be adequate to fund
the Companys operating and capital needs as well as enable it to maintain compliance with its
various debt agreements at least through December 31, 2005. Financial Covenants and Credit Rating In addition to the minimum cash balance requirements, our long-term debt agreements contain
various negative covenants that restrict our actions, including our ability to pay dividends, or
make other restricted payments. Finally, our long-term debt agreements contain cross-default
provisions, which may be triggered by defaults by us under other agreements relating to
indebtedness. See Risk Factors Relating to the Company and Industry Related Risks  Our high
level of fixed obligations limits our ability to fund general corporate requirements and obtain
additional financing, limits our flexibility in responding to competitive developments and
increases our vulnerability to adverse economic and industry conditions.As of March 31, 2005,
Holdings and AWA were in compliance with the covenants in their long-term debt agreements. Our credit ratings, like most airlines, are relatively low, with Moodys assessment of AWAs
senior implied rating and senior unsecured debt rating at B3 and Caa2, respectively, Standard &
Poors assessment of AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured
rating at CCC and Fitch Ratings assessment of AWAs long-term and unsecured debt rating at CCC.
In addition, Standard & Poors recently placed AWAs aircraft debt on CreditWatch with negative
implications as part of a broader review of aircraft-backed debt. Low credit ratings could cause
our borrowing costs to increase, which would increase our interest expense and could affect our net
income and our credit ratings could adversely affect our ability to obtain additional financing.
The rating agencies 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 28




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 equity or debt securities. In addition, any downgrade of our
credit ratings may indicate a decline in our business and in our ability to satisfy our obligations
under our indebtedness. See Risk Factors Relating to the Company and Industry Related Risks -
Because of our relatively low credit ratings, our borrowing costs may be high and our ability to
incur additional debt may be impaired. Other Information Labor Relations A large majority of the employees of the major airlines in the United States are represented
by labor unions. The majority of AWA employees have selected union representation and have
negotiated or are in the process of negotiating collective bargaining agreements with AWA.
Although there are few remaining employee groups who could engage in organization efforts, we
cannot predict the outcome of any future efforts to organize those remaining employees or the terms
of any future labor agreements or the effect, if any, on the Companys or AWAs operations or
financial performance. For more discussion, see Risk Factors Relating to the Company and Industry
Related Risks  Negotiations with labor unions could divert management attention and disrupt
operations and new collective bargaining agreements or amendments to existing collective bargaining
agreements could increase our labor costs and operating expenses. Related Party Transactions Texas Pacific Group agreed to reimburse the Company approximately $2.5 million for expenses
incurred by the Company on its behalf. As a result, the Company recorded this as a receivable as
of December 31, 2004. Subsequent to December 31, 2004, the Company received $2.4 million in such
reimbursement and an additional $0.1 million in 2005. Application of Critical Accounting Policies The preparation of our consolidated financial statements in accordance with generally accepted
accounting principles requires that we make certain estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities at the date of our financial statements. We believe our estimates and
assumptions are reasonable; however, actual results could differ from those estimates. We have
identified the following critical accounting policies that require the use of significant judgments
and estimates relating to matters that are inherently uncertain and may result in materially
different results under different assumptions and conditions.  
    Passenger Revenue  Passenger revenue is recognized when transportation is
provided. Ticket sales for transportation that has not yet been provided are recorded as
air traffic liability. Passenger traffic commissions and related fees are expensed when the
related revenue is recognized. Passenger traffic commissions and related fees not yet
recognized are included as a prepaid expense. Due to complex pricing structures, refund and
exchange policies, and interline agreements with other airlines, certain amounts are
recognized in revenue using estimates regarding both the timing of the revenue recognition
and the amount of revenue to be recognized. These estimates are generally based on the
statistical analysis of our historical data. Any adjustments resulting from periodic
evaluations of the estimated air traffic liability are included in results of operations
during the period in which the evaluations are completed.
    Accounting For Long-Lived Assets Owned property and equipment are recorded at
cost and depreciated to residual values over the estimated useful lives using the
straight-line method. Leasehold improvements relating to flight equipment and other
property on operating leases are amortized over the life of the lease, or the life of the
asset, whichever is shorter. Interest on advance payments for aircraft acquisitions and on
expenditures for aircraft improvements is capitalized and added to the cost of the asset.
The estimated useful lives of our owned aircraft, jet engines, flight equipment and rotable
parts range from five to 25 years. The estimated useful lives of our technical support
facility and flight training center in Phoenix, Arizona are 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 29




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005  Impairment or Disposal of Long-Lived Assets.An impairment
loss is recognized if the carrying amount of the asset is not recoverable from its
undiscounted cash flows and is measured as the difference between the carrying amount and
fair value of the asset.
    Frequent Flyer Accounting  We maintain a frequent travel award program known as
FlightFund that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel is recognized as a liability and
charged to operations as program members accumulate mileage. Travel awards are valued at
the incremental cost of carrying one passenger, based on expected redemptions. Incremental
costs are based on expectations of expenses to be incurred on a per passenger basis and
include fuel, liability insurance, food, beverages, supplies and ticketing costs. We also
sell mileage credits to companies participating in our FlightFund program, such as hotels,
car rental agencies and credit card companies. Transportation-related revenue from the sale
of mileage credits is deferred and recognized when transportation is provided. A change to
the estimated cost per mile, minimum award level, percentage of revenue to be deferred or
deferred recognition period could have a significant impact on our revenues or mileage
liability accrual in the year of the change as well as future years.
    Long-Term Maintenance Reserve  We record an accrual for the estimated cost of
scheduled airframe and engine overhauls required to be performed on leased aircraft upon
their return to the lessors. These estimates are based on historical costs and our
assumptions regarding the renewal of aircraft leases. A significant change to AWAs fleet
plan could have a material impact on our reserve requirements.
    Deferred Tax Asset Valuation Allowance  The Company initially recorded a full
valuation allowance relating to its net deferred tax assets at December 31, 2001 and to tax
benefits generated in 2002. In recording that valuation allowance, we considered whether it
was more likely than not that all or a portion of the deferred tax assets will not be
realized, in accordance with SFAS No. 109, Accounting for Income Taxes.The Company was
in a cumulative loss position three out of four years between December 31, 2001 through
December 31, 2004, which weighed heavily in the overall determination that a valuation
allowance was needed. As of March 31, 2005, the Company had recorded a valuation allowance
of $115.3 million against its net deferred tax assets. The Company expects to continue to
record a full valuation allowance on any future tax benefits until we have achieved several
quarters of consecutive profitable results coupled with an expectation of continued
profitability. Recently Issued Accounting Pronouncements In November 2004, the FASB issued Revised Statement No. 123, Accounting for Share-Based
Payment(SFAS No. 123R). This statement requires the Company to recognize the grant-date fair
value of stock options in its Statement of Operations. In addition, the Company will be required
to calculate this compensation using the fair-value based method, versus the intrinsic value method
previously allowed under SFAS No. 123. As issued, this revision was effective for interim periods
beginning after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission amended
the compliance date for SFAS No. 123R to the beginning of the next fiscal year that begins after
June 15, 2005. Accordingly, the Company will adopt this revised SFAS effective January 1, 2006.
The Company is currently evaluating how it will adopt SFAS No. 123R and has not determined the
method it will use to value granted stock options. The adoption of SFAS No. 123R is expected to
have a material effect on the Companys results of operations. Forward-Looking Information This quarterly report on Form 10-Q contains various forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).
These statements are based on managements beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words anticipate, estimate,
expect, project and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on our results are: 30




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005  
    general economic conditions;
    the impact of global instability caused by military actions, terrorism, disease
outbreaks and natural disasters;
    limitations on our flexibility in responding to industry conditions due to high fixed
costs and restrictions imposed by our debt instruments;
    changes in federal and state laws and regulations;
    changes in prevailing interest rates and the availability of and terms of financing to fund our business;
    the ability to attract and retain qualified personnel;
    the cyclical nature of the airline industry;
    competitive practices in the airline industry;
    the impact of changes in fuel prices; and
    relations with unionized employees generally and the impact and outcome of labor negotiations. For additional discussion of these factors and other risks, see Business  Risk Factors
Relating to the Company and Industry Related Risks discussed below. In light of these risks,
uncertainties and assumptions, the forward-looking events described in this quarterly report on
Form 10-Q might not occur. Any forward-looking statements speak only as of the date of this
report. 31




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 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 impact
our business. We have sustained, and may continue to sustain significant operating losses. For the year ended December 31, 2004, we incurred an operating loss of $43.8 million. In
addition, we incurred operating losses for the years ended December 31, 2001 and 2002 resulting
primarily from the decrease in revenue and passenger demand and the increase in operating costs
after the terrorist attacks of September 11, 2001. Recently, the operating losses resulted
primarily from a substantial increase in the cost of jet fuel and excess domestic industry capacity
resulting in lower revenue per available seat mile. We expect the threat of further terrorist
attacks and continued instability in oil producing regions to continue to negatively impact our
revenues and costs in the near-term. We may not be able to effectively counteract increasing costs
through our cost reduction initiatives, customer service initiatives and revised pricing
structures. Moreover, our liquidity and borrowing options are limited and we may not be able to
survive a prolonged economic downturn, decreases in demand for air travel or further increases in
jet fuel costs. The inability to sustain profitability may impair our ability to satisfy our
obligations as they become due, obtain future equity or debt financing, respond to competitive
developments and otherwise sustain or expand our business. Global instability, caused by events such as terrorism, has had and may in the future have a
material impact on the airline industry and, as a result, our financial condition, operations and
prospects. Over the past several years, global instability, caused by military action, terrorism, disease
outbreaks and natural disasters, has had a profound impact on the airline industry. The terrorist
attacks of September 11, 2001 resulted in a severe strain on our and the other airlines liquidity
as the government temporarily suspended all flights, passenger demand dropped precipitously and
financial institutions tried to reduce their exposure by restricting the industrys access to
capital. In addition, the terrorist attacks led to a decrease in the value of aircraft and
aircraft-related equipment and facilities and cost increases for enhanced security measures,
aviation insurance, airport rents and landing fees. Subsequent to the terrorist attacks, other
events, such as military action in Iraq and Afghanistan, general political and economic instability
in oil producing regions, and the Severe Acute Respiratory Syndrome (SARS) outbreak in Asia,
continued to adversely impact passenger demand and operating costs, especially jet fuel costs.
These kinds of events (including natural disasters such as the recent tsunamis in the Indian Ocean)
are likely to continue to impact the airline industry. Depending on the severity and geographical
impact of such events, they may have a substantial adverse impact on our passenger demand, our
costs, the value of our assets and our access to, and cost of capital. We cannot predict whether
we will have sufficient liquidity or access to capital to withstand the adverse impact of a
prolonged decrease in passenger demand or a substantial increase in costs caused by such global
events. Increases in insurance costs or reductions in insurance coverage may adversely impact our
operations and financial results. The terrorist attacks of September 11, 2001 led to a significant increase in insurance
premiums and a decrease in the insurance coverage available to commercial airline carriers.
Accordingly, our insurance costs increased significantly and our ability to continue to obtain
insurance even at current prices remains uncertain. In addition, AWA and other airlines have been
unable to obtain third party war risk (terrorism)  insurance at reasonable rates from the commercial
insurance market and have been obtaining this insurance through a special program administered by
the FAA. If the Federal insurance program terminates, we would likely face a material increase in
the cost of war risk insurance. Because of competitive pressures in our industry, our ability to
pass additional insurance costs to passengers is limited. As a result, further increases in
insurance costs or reductions in available insurance coverage could harm our earnings. 32




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Our high level of fixed obligations limits our ability to fund general corporate requirements
and obtain additional financing, limits our flexibility in responding to competitive developments
and increases our vulnerability to adverse economic and industry conditions. We have a significant amount of fixed obligations, including debt, aircraft leases and
financings, aircraft purchase commitments, leases of airport and other facilities and other cash
obligations. As of March 31, 2005, we had approximately $703.3 million of outstanding debt, of
which $182.4 million was secured. In addition, we had $11.2 million of payments to satisfy capital
lease obligations and $3.2 billion of operating lease obligations through lease expiration dates
incurred primarily in connection with off-balance sheet aircraft financings. See Managements
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 and commitments to purchase aircraft from Airbus. As a result of the
substantial fixed costs associated with these obligations:  
    A decrease in revenues results in a disproportionately greater percentage
decrease in earnings.
    We may not have sufficient liquidity to fund all of these fixed costs if our
revenues decline or costs increase.
    We may have to use our working capital to fund these fixed costs instead of
funding general corporate requirements, including capital expenditures.
    We may not have sufficient liquidity to respond to competitive developments and
adverse economic conditions. Our obligations also impair our ability to obtain additional financing, if needed, and our
flexibility in the conduct of our business. Our existing indebtedness is secured by substantially
all of our assets, leaving us with limited collateral for additional financing. Moreover, the
terms of the government guaranteed loan restrict our ability to incur additional indebtedness or
issue equity unless we use the proceeds of those transactions to repay the loan, require prepayment
if our employee compensation costs exceed a certain threshold, require us to maintain a minimum
cash balance of $100 million, and restrict our ability to take certain other actions, including
mergers and acquisitions, investments and asset sales. Our ability to pay the fixed costs associated with our contractual obligations depends on our
operating performance and cash flow, which in turn depend on general economic and political
conditions. A failure to pay our fixed costs or breach of the contractual obligations could result
in a variety of adverse consequences, including the acceleration of our indebtedness, the
withholding of credit card proceeds by the credit card servicers and the exercise of remedies by
our creditors and lessors. In such a situation, it is unlikely that we would be able to fulfill
our obligations under or repay the accelerated indebtedness, make required lease payments or
otherwise cover our fixed costs. Fluctuations in jet fuel costs could adversely affect our operating expenses and results. The price and supply of jet fuel are unpredictable and fluctuate based on events outside our
control, including geopolitical developments, supply interruptions, regional production patterns
and environmental concerns. Since jet fuel is the principal raw material consumed by our business,
accounting for 23% of our total operating expenses in the first quarter of 2005 and 18% of our
total operating expenses in 2004, price escalations or reductions in the supply of jet fuel will
increase our operating expenses and cause our operating results and net income to decline. For
example, based on our current level of fuel consumption which includes our Mesa alliance, we
estimate that a one-cent per gallon increase in jet fuel prices will cause our annual operating
expense to increase by $5.7 million. We have implemented a fuel-hedging program to manage the risk and effect of fluctuating jet
fuel prices on our business. Our hedging program is intended to offset increases in jet fuel costs
by using fuel hedging instruments keyed to the future price of heating oil, which is highly
correlated to the price of jet fuel delivered on the East Coast of the United States. Our hedging
program does not fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected jet fuel volumes for 2005. Hedging transactions are in place
with respect to approximately 47% and 4% of remaining projected 2005 and 2006 jet fuel requirements,
respectively. 33




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Furthermore, our ability to effectively hedge jet fuel prices is limited because we
purchase a substantially larger portion of our jet fuel requirements on the West Coast of the
United States compared to our large competitors and West Coast fuel prices are less correlated to
heating oil prices and other viable fuel hedging instruments than East Coast fuel prices and,
therefore, more difficult to hedge. The effectiveness of our fuel-hedging program also may be
negatively impacted by continued instability in oil producing regions such as the Middle East,
Nigeria, Russia and Venezuela. Because of our relatively low credit ratings, our borrowing costs may be high and our ability
to incur additional debt may be impaired. Our credit ratings are relatively low, with Moodys assessment of AWAs senior implied rating
and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poors assessment of
AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC, and
Fitch Ratings assessment of AWAs long-term and senior unsecured debt rating at CCC. In addition,
Standard & Poors recently placed AWAs aircraft debt on CreditWatch with negative implications as
part of a broader review of aircraft-backed debt. Low credit ratings could cause our future
borrowing costs to increase, which would increase our interest expense and could affect our
earnings and our credit ratings could adversely affect our ability to obtain additional financing.
The rating agencies base their ratings on our financial performance and operations, our cash flow
and liquidity, the level of our indebtedness and industry conditions in general. If our financial
performance or industry conditions do not improve, we may face future downgrades, which could
further negatively impact our borrowing costs and the prices of our equity or debt securities. In
addition, any downgrade of our credit ratings may indicate a decline in our business and in our
ability to satisfy our obligations under our indebtedness. Negotiations with labor unions could divert management attention and disrupt operations and
new collective bargaining agreements or amendments to existing collective bargaining agreements
could increase our labor costs and operating expenses. Some of our employees are represented by unions and other groups of our employees may seek
union representation in the future. Negotiations with the IBT for a second collective bargaining
agreement covering the Airlines mechanics and related employees commenced on October 9, 2003 and
are ongoing. Negotiations with the AFA on a second contract covering the Companys flight
attendants commenced on February 4, 2004 and are ongoing. Negotiations with the IBT for an initial
contract covering the Airlines passenger service employees commenced on April 5, 2005 and are
ongoing. Negotiations with the TWU for a second contract covering AWAs fleet service employees
are scheduled to commence on June 15, 2005. We cannot predict the outcome of the negotiations with the IBT or AFA or any future
negotiations relating to union representation or collective bargaining agreements. Agreements
reached in collective bargaining may increase operating expenses and lower operating results and
net income. This is particularly significant because our current employee costs contribute
substantially to the low cost structure that we believe is one of our competitive strengths and
because we are required to repay a portion of the government guaranteed loan if our labor costs
exceed a certain threshold. In addition, negotiations with unions could divert management
attention and disrupt operations, which may result in increased operating expenses and lower net
income. If we are unable to negotiate acceptable collective bargaining agreements, we might have
to address the threat of, or wait through, cooling off periods, which could be followed by
union-initiated work actions, including strikes. Depending on the nature of the threat or the type
and duration of any work action, these actions could disrupt our operations and, as a result, have
a significant adverse affect on our operating results. Fluctuations in interest rates could adversely affect our liquidity, operating expenses and
results. A substantial portion of our indebtedness bears interest at fluctuating interest rates based
on the London interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to
fluctuate based on general economic conditions, general interest rates, including the prime rate,
and the supply of and demand for credit in the London interbank market. We have not hedged our
interest rate exposure and, accordingly, our interest expense for any particular period may
fluctuate based on LIBOR. To the extent LIBOR increases, our interest expense will increase, in
which event, we may have difficulties making interest payments and funding our other fixed costs
and our available cash flow for general corporate requirements may be adversely affected. 34




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Our operating costs could increase as a result of past, current or new regulations that impose
additional requirements and restrictions on airline operations. The airline industry is heavily regulated. Both federal and state governments from time to
time propose new laws and regulations that impose additional requirements and restrictions on
airline operations. Implementing these measures, such as aviation ticket taxes and passenger
safety measures, has increased operating costs for us and the airline industry as a whole. In
addition, new security measures imposed by the ATSA, or otherwise by Congress, the Department of
Homeland Security or the FAA as a result of concern over continuing terrorist threats are expected
to continue to increase costs for us and the airline industry as a whole. Furthermore, certain
governmental agencies, such as the DOT and the FAA, have the authority to impose mandatory orders,
such as Airworthiness Directives in connection with our aircraft and civil penalties for violations
of applicable laws and regulations, each of which can result in material costs and adverse
publicity. For example, the FAA from time to time may require us to retrofit our aircraft to meet
enhanced safety standards. Depending on the implementation of these laws, regulations and other
measures, our operating costs could increase significantly. We cannot predict which laws,
regulations and other measures will be adopted or what other action regulators might take.
Accordingly, we cannot guarantee that future legislative and regulatory acts will not have a
material impact on our operating results. Interruptions or disruptions in service at one our hub airports could have a material adverse
impact on our operations. We operate primarily through our hubs in Phoenix and Las Vegas. A majority of our flights
either originate or fly into one of these hubs. A significant interruption or disruption in
service at one of our hubs could result in the cancellation or delay of a significant portion of
our flights and, as a result, could have a severe impact on our business, operations and financial
performance. The airline industry and the markets we serve are highly competitive and we may be unable to
compete effectively against carriers with substantially greater resources or lower cost structures. The airline industry and most of the markets we serve are highly competitive. We compete with
other airlines on the basis of pricing, scheduling (frequency and flight times), on-time
performance, type of equipment, cabin configuration, amenities provided to passengers, frequent
flyer programs, the automation of travel agent reservation systems, on-board products and other
services. We compete with other low cost carriers primarily on the basis of pricing. Price
competition occurs on a market-by-market basis through price discounts, changes in pricing
structures, fare matching, target promotions and frequent flyer initiatives. Most airlines will
quickly match price reductions in a particular market and certain airlines have in the past engaged
in retaliatory activities, including steep pricing discounts in certain markets and termination of
alliance agreements, in response to changes in our pricing structure. Our ability to compete on
the basis of price is limited by our fixed costs and depends on our ability to maintain low
operating costs. Our principal competitor, Southwest Airlines, and certain other low cost carriers
have lower operating cost structures than we do. We also compete against the legacy carriers, many
of which offer more extensive routes, frequencies and customer loyalty, marketing and advertising
programs and have substantially greater resources than we do. We may be unable to compete
effectively against carriers with substantially greater resources or lower cost structures. Recent airline restructurings and bankruptcies could alter the competitive environment of the
airline industry to our detriment. The terrorist attacks of September 11, 2001, the continued military presence in Iraq and
Afghanistan, increased competition from low cost carriers and soft economic conditions have led to
the airline industrys significant losses since 2001. Largely as a result of these losses, ATA
Airlines, U.S. Airways, Aloha Airlines, Hawaiian Airlines and United Airlines filed for bankruptcy
protection. Because bankruptcy protection may allow for greater flexibility in reducing costs by
voiding contracts and renegotiating existing business obligations, current and future airline
bankruptcies could have a substantial impact on industry competition. Continued weakness in the
airline industry also may result in additional industry consolidation, greater reliance on industry
alliances and increased price competition among the existing airlines, each of which could
dramatically alter competitive environments in the markets we serve. 35




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 Our business is sensitive to general economic conditions, unforeseen events and seasonal
fluctuations. As a result, our prior performance is not necessarily indicative of our future results. The air travel business historically fluctuates on a seasonal basis and in response to general
economic conditions. Due to the greater demand for air and leisure travel during the summer
months, revenues in the airline industry in the second and third quarters of the year tend to be
greater than revenues in the first and fourth quarters of the year. In addition, the airline
industry is highly susceptible to unforeseen events that result in declines in revenues or
increased costs, such as political instability, regional hostilities, terrorist attacks, recession,
fuel price escalation, inflation, infectious disease outbreaks, adverse weather conditions,
consumer preferences, labor instability or regulatory oversight. Also, our results of operations
for interim periods are not necessarily indicative of those for an entire year and our prior
results are not necessarily indicative of our future results. We depend on the expertise of our management team. If key individuals leave unexpectedly, our
business and operations could suffer. Many of our executive officers are key to the management of our business and operations. Our
future success depends on our ability to retain these officers and other capable managers.
Although we believe we could replace key personnel given adequate prior notice, the unexpected
departure of key executive officers could cause substantial disruption to our business and
operations. In addition, we may not be able to retain and recruit talented personnel without
incurring substantial costs. Moreover, we must repay a portion of the government guaranteed loan
if our labor costs exceed a certain threshold. As a result, our ability to spend additional
amounts to retain and recruit talented personnel is limited. The stockholders who effectively control the voting power of Holdings could take actions that
would favor their own personal interests to the detriment of our interests. Currently, two stockholders collectively control more than 50% of the total voting power of
Holdings. These stockholders, TPG Partners, L.P. and TPG Parallel I, L.P, or collectively, the TPG
Stockholders, are controlled by the same company, TPG Advisors, Inc. Since TPG Advisors, Inc. is
an investment firm, its strategic objectives may be different than both the short-term or long-term
objectives of our board of directors and management. We cannot guarantee that the TPG Stockholders
will not try to influence Holdings business in a way that would favor their own personal interests
to the detriment of our interests and those of our other stockholders. We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft. If one of our aircraft were to crash or be involved in an accident, we could be exposed to
significant tort liability. There can be no assurance that the insurance we carry to cover damages
arising from any future accidents will be adequate. In the event that our insurance is not
adequate, we may be forced to bear substantial losses from an accident. Claims resulting from an
accident in excess of our insurance coverage would harm our business and results of operations.
Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any
accident involving an aircraft that we operate could create a public perception that our aircraft
are not safe or reliable, which could harm our reputation, result in air travelers being reluctant
to fly on our aircraft and harm our business. Our operations are often affected by factors beyond our control, including traffic congestion
at airports, weather conditions and increased security measures, any of which could harm our
financial condition and results of operations. Like other airlines, our operations are subject to delays caused by factors beyond our
control, including air traffic congestion at airports, adverse weather conditions and increased
security measures, such as those required to be implemented under the ATSA. During periods of fog,
snow, rain, storms or other adverse weather conditions, flights may be cancelled or significantly
delayed. Cancellations and delays frustrate passengers, reduce aircraft utilization and increase
costs, all of which in turn affect profitability. As a result, cancellations or delays could harm
our financial condition and results of operations. 36




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 We rely heavily on automated systems to operate our business and any failure of these systems
could harm our business. We depend on automated systems to operate our business, including our computerized airline
reservation system, our telecommunication systems and our website. In 2004, approximately 96% of
our tickets were issued electronically. Our website and reservation system must be able to
accommodate a high volume of traffic and deliver important flight information. Substantial or
repeated website, reservations system or telecommunication systems failures could reduce the
attractiveness of our services and could cause our customers to purchase tickets from another
airline. Any disruption in these systems could result in the loss of important data, increase our
expenses and generally harm our business. Shares of our Class B common stock issuable upon exercise or conversion of outstanding
securities could adversely affect our stock price and dilute the ownership interests of existing
stockholders. Sales and potential sales of substantial amounts of our Class B common stock or securities
exercisable for or into our Class B common stock in the public market, or the perception that these
sales could occur, could adversely affect the market price of our Class B common stock. A
substantial number of additional shares of our Class B common stock are issuable upon the
conversion or exercise of outstanding securities. As of April 25, 2005, the outstanding shares of
our Class B common stock were subject to dilution by:  
    19,692,000 shares of Class B common stock that are issuable upon the exercise,
at a price of $3.00 per share, of certain warrants issued in connection with the government
guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise
of a warrant issued to the Air Transportation Stabilization Board, or ATSB; and
    10,924,364 shares of our Class B common stock that are issuable upon the
exercise of outstanding options. In addition, 859,117 shares of Class B common stock are issuable upon conversion of the
outstanding shares of Holdings Class A common stock held by the TPG Stockholders (but subject to
certain contractual restrictions on transfer), up to 8,095,842 shares of Holdings Class B common
stock are issuable upon the exchange of AWAs 7.25% senior exchangeable notes due 2023 (which
exchange may not occur until the trading price of Holdings Class B common stock reaches certain
thresholds, or other triggering events occur) and up to approximately 9,400,000 shares of Holdings
Class B common stock are issuable upon conversion of Holdings 7.5% convertible senior notes due
2009. Holdings has registered either the issuance or resale of all of these shares, meaning that
upon exercise, exchange or conversion, as applicable, such shares could be sold in the public
market at any time. The conversion or exercise of some or all of these notes, warrants and options will dilute the
ownership interests of existing stockholders and any sales in the public market of our Class B
common stock issuable upon such conversion or exercise could adversely affect prevailing market
prices of our Class B common stock. In addition, the existence of the notes, warrants and options
may encourage short selling by market participants because conversion or exercise of the notes or
warrants could depress the price of our Class B common stock. Provisions in our charter documents might deter acquisition bids for us. Holdings Certificate of Incorporation and Bylaws contain provisions that, among other things:  
    authorize Holdings board of directors to issue preferred stock ranking senior
to our Class B common stock without any action on the part of the stockholders;
    establish advance notice procedures for stockholder proposals, including
nominations of directors, to be considered at stockholders meetings;
    authorize Holdings board of directors to fill vacancies on the board resulting
from an increase in the authorized number of directors or any other cause; and
    restrict the ability of stockholders to call special meetings of stockholders. 37




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 These provisions might make it more difficult for a third party to acquire us, even if doing
so would benefit the stockholders. Our stock price may continue to be volatile and could decline substantially. The stock market has, from time to time, experienced extreme price and volume fluctuations.
Many factors may cause the market price for the Class B common stock to decline including, 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 March 31, 2005, the Company had entered into costless collar transactions, which
establish an upper and lower limit on heating oil futures prices. These transactions are in place
with respect to approximately 47% and 4% of remaining projected 2005 and 2006 fuel requirements,
respectively, including 58% related to the second quarter of 2005, 46% related to the third quarter
of 2005 and 38% related to the fourth quarter of 2005. 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 March 31, 2004,
the Company estimates that a 10% increase in heating oil futures prices would increase the fair
value of the costless collar transactions by approximately $29.7 million. The Company estimates
that a 10% decrease in heating oil futures prices would decrease the fair value of the costless
collar transactions by approximately $26.3 million. As of April 25, 2005, approximately 47% and 5% of AWAs remaining 2005 and 2006 projected fuel
requirements, respectively, 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 March 31, 2005, the Companys variable-rate long-term debt obligations of
approximately $500.9 million represented approximately 71% of its total long-term debt. If
interest rates increased 10% in 2005, the impact on the Companys results of operations would not
be material. 38




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 
 ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure 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 Exchange Act) as of March 31, 2005.
Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure
controls and procedures were effective as of March 31, 2005. (b) Changes in internal control over financial reporting. In connection with the preparation of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, our management, in consultation with the Audit Committee of Holdings Board of
Directors, identified a material weakness in our disclosure controls and procedures associated with
the accounting for AWAs fuel hedging program that resulted in a need to restate our financial
statements for prior periods, as described below. In February 2005, management undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that AWAs fuel hedging
transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles and that the Companys financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance sheets and statements of
stockholders equity and comprehensive income of Holdings and AWA. The Company concluded that these
accounting errors were the result of deficiencies in its internal control over financial reporting,
from the lack of effective reviews of hedge transaction documentation and of quarterly
mark-to-market accounting entries on open fuel hedging contracts by personnel at an appropriate
level. To correct this material weakness, we have implemented a review process that verifies the
quarterly mark-to-market adjustment on open fuel hedging positions. In addition, the Company will
utilize the mark-to-market method of accounting for its fuel hedging instruments going forward
until such time it is able to implement processes and controls necessary to ensure that appropriate
hedge documentation is obtained at hedge inception. At that time, the Company will evaluate
whether it will re-apply hedge accounting. Other than the actions mentioned above, there has been no change to the Companys internal
control over financial reporting that occurred during the quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting. (c) Limitation on the effectiveness of controls. We believe that a controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and, following the changes in our internal
controls implemented prior to the filing of this report, the CEO and CFO believe that our
disclosure controls and procedures were effective at the reasonable assurance level as of March
31, 2005. 39




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
March 31, 2005 
 PART II  OTHER INFORMATION 
 ITEM 2.  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES 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, of our Class B
common stock during each month within the first quarter of 2005. 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 Yet(a) Total Number of
    
    
    
    Part of Publicly
    
    be Purchased UnderShares Purchased
    
    (b) Average Price
    
    Announced Plans or
    
    the Plans orPeriod
    
    (1)
    
    Paid per Share
    
    Programs
    
    ProgramsJanuary 1, 2005  January 31, 2005
    
    65,400
    
    4.81
    
    
    
    February 1, 2005  February 28, 2005
    
    18,800
    
    5.15
    
    
    
    March 1, 2005  March 31, 2005
    
    12,000
    
    4.61
    
    
    
    
   (1)
    Amounts consist of shares of our Class B common stock purchased on the open market by the
America West Holdings Corporation Future Care 401(k) Plan. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 
 ITEM 6. EXHIBITS EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING10.1+
    
    Annual Incentive Bonus Plan.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.
   (+)
 40




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AMERICA WEST HOLDINGS CORPORATION
March 31, 2005 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST HOLDINGS CORPORATIONBy
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 25, 2005 41




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AMERICA WEST AIRLINES, INC.
March 31, 2005 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST AIRLINES, INC.By
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 25, 2005 42




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Exhibit Index EXHIBITNUMBER
    
    DESCRIPTION AND METHOD OF FILING10.1+
    
    Annual Incentive Bonus Plan.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.
   (+)