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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q/A  (Mark One)þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2004oro
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period
fromtoCommission file
number 1-12649
 AMERICA WEST HOLDINGS CORPORATION (Exact name of registrant as specified in its charter)
 DELAWARE
    
    86-0847214(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 111 WEST RIO SALADO PARKWAY, TEMPE, ARIZONA
    
    85281(Address of principal executive offices)
    
    (Zip Code)
 (480) 693-0800 
 (Registrants telephone number, including area code)
 N/A 
 (Former name, former address and former fiscal year, if changed since last report)
 Commission file number 0-12337 AMERICA WEST AIRLINES, INC. (Exact name of registrant as specified in its charter)
 DELAWARE
    
    86-0418245(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 4000 EAST SKY HARBOR BLVD, PHOENIX, ARIZONA
    
    85034(Address of principal executive offices)
    
    (Zip Code)
 (480) 693-0800 
 (Registrants telephone number, including area code)
 N/A 
 (Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether each registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ Noo Indicate by check mark whether the Registrants are accelerated filers (as defined in Exchange
Act Rule 12b-2). America West Holdings Corporation
    
    Yesþ
    
    NooAmerica West Airlines, Inc.
    
    Yeso
    
    Noþ
 As of July 21, 2004, America West Holdings Corporation has 859,117 shares of Class A common stock
and 35,252,800 shares of Class B common stock outstanding. As of July 21, 2004, America West
Airlines, Inc. has 1,000 shares of Class B common stock outstanding, all of which are held by
America West Holdings Corporation.




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TABLE OF CONTENTS  Explanatory NotePART I  FINANCIAL INFORMATIONITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  AMERICA WEST HOLDINGS CORPORATIONITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INC.ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATUREExhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 32.1Exhibit 32.2    Table of Contents  
 Explanatory Note In February 2005, management undertook a review of America West Airlines, Inc.s (AWA or the
Airline) accounting for its fuel hedging transactions. As a result of this review, management
concluded that AWAs fuel hedging transactions did not qualify for hedge accounting under U.S.
generally accepted accounting principles and that the financial statements of America West Holdings
Corporation (Holdings or the Company), AWAs parent corporation, and AWA for prior periods
required restatement to reflect the fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of Holdings and AWA. In addition, the
accompanying unaudited Condensed Consolidated Statements of Operations of Holdings and the
unaudited Condensed Statements of Operations of AWA for the three and six months ended June 30,
2004 and 2003 have also been restated to reflect the aforementioned accounting errors. The Company
has also reclassified all gains and losses from settled fuel hedges and the mark-to-market
adjustments on open fuel hedges from Aircraft Fuelto Realized and Unrealized Losses (Gains) on
Fuel Hedging Instruments, Neton the consolidated statements of operations for both Holdings and
AWA. See Note 2, Restatement of Previously Reported Amountsin the accompanying condensed
consolidated financial statements of Holdings (including the notes thereto), Note 2, Restatement
of Previously Reported Amountsin the accompanying condensed financial statements of AWA
(including the notes thereto) and Managements Discussion and Analysis of Financial Condition and
Results of Operations for the impact of the restatements and reclassifications. This amended
Quarterly Report on Form 10-Q/A amends and restates those items of the previously filed Form 10-Q
for the three and six months ended June 30, 2004 which have been affected by the revisions. This amended Quarterly Report on Form 10-Q/A has not been updated except as required to
reflect the effects of the foregoing restatement. In order to preserve the nature and character of
the disclosures set forth in such items as previously filed, no attempt has been made in this
amendment to modify or update the disclosures in the original Quarterly Report on Form 10-Q except
for the foregoing restatement. As a result, this amended Quarterly Report on Form 10-Q/A contains
forward-looking information which has not been updated for events subsequent to the date of the
original filing, and all information contained in this amended Quarterly Report on Form 10-Q/A and
the original Quarterly Report on Form 10-Q is subject to updating and supplementing as provided in
the periodic reports that we have filed and will file with the Securities and Exchange Commission
after the original filing date of the Quarterly Report on Form 10-Q. 2




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PART I  FINANCIAL INFORMATION The Company is the holding company that owns all of the stock of AWA. AWA, the eighth
largest passenger airline and the second largest low cost carrier in the United States,
accounted for most of Holdings revenues and expenses in 2003. The Leisure Company (TLC),
previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and
continues to operate as the America West Vacations division of AWA. Through its America West
Vacations division, AWA also sells individual and group travel packages. This amended
Quarterly Report on Form 10-Q/A is filed by both Holdings and AWA and includes the financial
statements of each company in Item 1A and Item 1B, respectively. 
 ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  AMERICA WEST HOLDINGS CORPORATION. AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) June 30,
    
    
    December 31,2004
    
    
    2003(as restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    348,049
    
    
    $
    403,082Short-term investments
    
    
    75,053
    
    
    
    72,890Restricted cash
    
    
    42,900
    
    
    
    42,900Accounts receivable, net
    
    
    100,569
    
    
    
    77,235Expendable spare parts and supplies, net
    
    
    51,773
    
    
    
    58,575Prepaid expenses
    
    
    175,375
    
    
    
    129,368Total current assets
    
    
    793,719
    
    
    
    784,050Property and equipment:Flight equipment
    
    
    876,298
    
    
    
    858,395Other property and equipment
    
    
    281,677
    
    
    
    273,284Equipment purchase deposits
    
    
    53,050
    
    
    
    46,0501,211,025
    
    
    
    1,177,729Less accumulated depreciation and amortization
    
    
    587,371
    
    
    
    570,017Net property and equipment
    
    
    623,654
    
    
    
    607,712Other assets:Investments in debt securities
    
    
    55,000
    
    
    
    40,740Restricted cash
    
    
    68,606
    
    
    
    69,876Other assets, net
    
    
    104,038
    
    
    
    112,007Total other assets
    
    
    227,644
    
    
    
    222,623$
    1,645,017
    
    
    $
    1,614,385
 See accompanying notes to condensed consolidated financial statements. 3




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited) June 30,
    
    
    December 31,2004
    
    
    2003(as restated)Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    110,974
    
    
    $
    103,899Current obligations under capital leases
    
    
    6,525
    
    
    
    3,442Accounts payable
    
    
    181,530
    
    
    
    210,288Air traffic liability
    
    
    236,845
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    41,489
    
    
    
    61,045Accrued taxes
    
    
    51,625
    
    
    
    36,846Other accrued liabilities
    
    
    82,838
    
    
    
    59,277Total current liabilities
    
    
    711,826
    
    
    
    649,283Long-term debt, less current maturities
    
    
    647,670
    
    
    
    688,965Capital leases, less current obligations
    
    
    5,141
    
    
    
    8,467Deferred credits and other liabilities
    
    
    146,142
    
    
    
    141,681Stockholders equity:Preferred stock, $.01 par value. Authorized 48,800,000
shares; no shares issued
    
    
    
    
    
    
    Class A common stock, $.01 par value. Authorized
1,200,000 shares; issued and outstanding 859,117 shares at
June 30, 2004 and December 31, 2003
    
    
    8
    
    
    
    8Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 51,488,695 shares at June 30, 2004
and 51,239,200 shares at December 31, 2003
    
    
    515
    
    
    
    512Additional paid-in capital
    
    
    632,117
    
    
    
    631,269Accumulated deficit
    
    
    (190,496
    )
    
    
    (199,594
    )442,144
    
    
    
    432,195Less: Cost of Class B common stock in treasury, 16,437,575
shares at June 30, 2004 and 16,283,895 shares at December 31, 2003
    
    
    (307,906
    )
    
    
    (306,206
    )Total stockholders equity
    
    
    134,238
    
    
    
    125,989$
    1,645,017
    
    
    $
    1,614,385
 See accompanying notes to condensed consolidated financial statements. 4




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(unaudited) Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(as restated)
    
    
    (as restated)Operating revenues:Passenger
    
    $
    569,166
    
    
    $
    538,358
    
    
    $
    1,106,499
    
    
    $
    1,038,932Cargo
    
    
    6,817
    
    
    
    7,844
    
    
    
    13,720
    
    
    
    14,900Other
    
    
    29,091
    
    
    
    29,569
    
    
    
    61,399
    
    
    
    45,172Total operating revenues
    
    
    605,074
    
    
    
    575,771
    
    
    
    1,181,618
    
    
    
    1,099,004Operating expenses:Salaries and related costs
    
    
    161,977
    
    
    
    156,623
    
    
    
    328,252
    
    
    
    319,717Aircraft rents
    
    
    75,346
    
    
    
    72,291
    
    
    
    150,531
    
    
    
    147,445Other rents and landing fees
    
    
    42,011
    
    
    
    37,505
    
    
    
    83,252
    
    
    
    77,265Aircraft fuel
    
    
    132,977
    
    
    
    86,388
    
    
    
    247,189
    
    
    
    189,980Realized and unrealized losses (gains) on fuel
hedging instruments, net
    
    
    (9,485
    )
    
    
    954
    
    
    
    (9,889
    )
    
    
    (7,879
    )Agency commissions
    
    
    6,253
    
    
    
    9,332
    
    
    
    13,003
    
    
    
    18,156Aircraft maintenance materials and repairs
    
    
    52,350
    
    
    
    58,510
    
    
    
    102,404
    
    
    
    122,718Depreciation and amortization
    
    
    12,587
    
    
    
    17,328
    
    
    
    26,378
    
    
    
    34,991Special charges
    
    
    
    
    
    
    14,472
    
    
    
    (600
    )
    
    
    14,370Other
    
    
    105,243
    
    
    
    106,875
    
    
    
    200,194
    
    
    
    214,291Total operating expenses
    
    
    579,259
    
    
    
    560,278
    
    
    
    1,140,714
    
    
    
    1,131,054Operating income (loss)
    
    
    25,815
    
    
    
    15,493
    
    
    
    40,904
    
    
    
    (32,050
    )Nonoperating income (expenses):Interest income
    
    
    1,779
    
    
    
    1,158
    
    
    
    3,297
    
    
    
    2,565Interest expense, net
    
    
    (19,237
    )
    
    
    (19,515
    )
    
    
    (38,989
    )
    
    
    (38,020
    )Federal government assistance
    
    
    
    
    
    
    81,255
    
    
    
    
    
    
    
    81,255Other, net
    
    
    2,304
    
    
    
    481
    
    
    
    3,886
    
    
    
    1,701Total nonoperating income (expenses), net
    
    
    (15,154
    )
    
    
    63,379
    
    
    
    (31,806
    )
    
    
    47,501Income before income taxes
    
    
    10,661
    
    
    
    78,872
    
    
    
    9,098
    
    
    
    15,451Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    10,661
    
    
    $
    78,872
    
    
    $
    9,098
    
    
    $
    15,451Earnings per share:Basic
    
    $
    0.30
    
    
    $
    2.34
    
    
    $
    0.25
    
    
    $
    0.46Diluted
    
    $
    0.20
    
    
    $
    1.71
    
    
    $
    0.17
    
    
    $
    0.42Shares used for computation:Basic
    
    
    36,005
    
    
    
    33,719
    
    
    
    35,928
    
    
    
    33,716Diluted
    
    
    52,020
    
    
    
    47,655
    
    
    
    52,070
    
    
    
    36,605
 See accompanying notes to condensed consolidated financial statements. 5




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AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited) Six Months EndedJune 30,2004
    
    
    2003Net cash provided by operating activities
    
    $
    83,557
    
    
    $
    123,567Cash flows from investing activities:Purchases of property and equipment
    
    
    (77,173
    )
    
    
    (82,219
    )Purchases of short-term investments
    
    
    (38,833
    )
    
    
    (40,804
    )Sales of short-term investments
    
    
    41,435
    
    
    
    24,738Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    Sales of investments in debt securities
    
    
    15,000
    
    
    
    Decrease (increase) in restricted cash
    
    
    1,270
    
    
    
    (32,709
    )Proceeds from disposition of assets
    
    
    1,848
    
    
    
    23,972Net cash used in investing activities
    
    
    (91,453
    )
    
    
    (107,022
    )Cash flows from financing activities:Repayment of debt
    
    
    (47,980
    )
    
    
    (7,622
    )Other
    
    
    843
    
    
    
    233Net cash used in financing activities
    
    
    (47,137
    )
    
    
    (7,389
    )Net increase (decrease) in cash and cash equivalents
    
    
    (55,033
    )
    
    
    9,156Cash and cash equivalents at beginning of period
    
    
    403,082
    
    
    
    335,750Cash and cash equivalents at end of period
    
    $
    348,049
    
    
    $
    344,906Cash, cash equivalents, short-term investments and investments in debt
securities at end of period
    
    $
    478,102
    
    
    $
    385,710Cash paid for:Interest, net of amounts capitalized
    
    $
    10,339
    
    
    $
    8,975Income taxes
    
    $
    1,440
    
    
    $
    119Non-cash investing and financing activities:Payment in kind notes issued
    
    $
    4,672
    
    
    $
    4,426Exercise of warrants
    
    $
    2
    
    
    $
    Acquisition of shares due to loan default
    
    $
    1,700
    
    
    $
    Reclassification of investments in debt securities to

short-term investments
    
    $
    5,730
    
    
    $
    Notes payable issued (cancelled) under the aircraft purchase
agreement
    
    $
    7,000
    
    
    $
    (3,500
    )
 See accompanying notes to condensed consolidated financial statements. 6




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
June 30, 2004 1. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements include the accounts of Holdings and
its wholly owned subsidiary, AWA. TLC, previously a wholly owned subsidiary of Holdings, was
merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division
of AWA. Accordingly, Holdings operates as one operating segment. These statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission and, in
accordance with those rules and regulations, certain information and footnotes required by
generally accepted accounting principles have been omitted. In the opinion of management, the
condensed consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, necessary for a fair presentation. Certain prior year amounts have been
reclassified to conform with current year presentation. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and
related notes thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. 2. RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS Fuel Hedging Instruments In February 2005, management undertook a review of the Companys accounting for its fuel
hedging transactions. As a result of this review, management concluded that the Companys fuel
hedging transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles. Accordingly, management concluded that the financial statements for prior periods
required restatement to reflect the fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of Holdings and AWA. Specifically, (i)
Holdings has restated its balance sheet and statement of stockholders equity and comprehensive
income as of and for the year ended December 31, 2003, and (ii) AWA has restated its balance sheet
and statement of stockholders equity and comprehensive income as of and for the year ended
December 31, 2003. The Company restated its 2003 consolidated balance sheet to reduce the carrying
value of its fuel hedging instruments asset by $12.5 million, which served to record the asset at
fair value of open contracts as of December 31, 2003. The restatement also eliminated $12.5
million in accumulated other comprehensive income, $2.0 million of which was previously recorded in
the 2003 beginning balance of accumulated other comprehensive income. The restated amount of other
assets is $112.0 million in the consolidated balance sheet as of December 31, 2003. The
restatement eliminates the balance in accumulated other comprehensive income in the consolidated
balance sheet as of December 31, 2003 and the consolidated statement of stockholders equity and
comprehensive income for the year ended December 31, 2003. The unaudited Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2004 and 2003 have also been restated to reflect the accounting for fuel hedging
instruments pursuant to managements determination that the Company did not qualify for hedge
accounting under Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities(SFAS No. 133). In addition, the restated amounts also
reflect corrections to properly reflect the fair value of open fuel hedging instruments at each
quarter end. The Company has also reclassified all gains and losses from settled fuel hedges and
the mark-to-market adjustments on open fuel hedges from Aircraft Fuelto Realized and Unrealized
Losses (Gains) on Fuel Hedging Instruments, Neton the Condensed Consolidated Statements of
Operations. The Company restated its June 30, 2004 condensed consolidated balance sheet to reduce
the carrying value of its fuel hedging instruments asset by $12.8 million which served to record
the asset at fair value of open contracts as of June 30, 2004. The following summarizes the
changes related to the restatement and reclassifications as referenced above. 7




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
June 30, 2004 Three Months Ended
    
    
    Three Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands except per share data)Aircraft fuel
    
    $
    128,459
    
    
    $
    132,977
    (1)
    
    $
    86,530
    
    
    $
    86,388
    (3)Realized and unrealized losses (gains) on
fuel
hedging instruments, net
    
    
    
    
    
    
    (9,485
    )(1)(2)
    
    
    
    
    
    
    954
    (3)(4)Total operating expenses
    
    
    584,226
    
    
    
    579,259
    (2)
    
    
    559,466
    
    
    
    560,278
    (4)Operating income
    
    
    20,848
    
    
    
    25,815
    (2)
    
    
    16,305
    
    
    
    15,493
    (4)Net income
    
    $
    5,694
    
    
    $
    10,661
    (2)
    
    $
    79,684
    
    
    $
    78,872
    (4)Net income per share:Basic
    
    $
    0.16
    
    
    $
    0.30
    
    
    $
    2.36
    
    
    $
    2.34Diluted
    
    $
    0.11
    
    
    $
    0.20
    
    
    $
    2.02
    
    
    $
    1.71
 Six Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands except per share data)Aircraft fuel
    
    $
    239,528
    
    
    $
    247,189
    (5)
    
    $
    179,886
    
    
    $
    189,980
    (7)Realized and unrealized gains on fuel
hedging instruments, net
    
    
    
    
    
    
    (9,889
    )(5)(6)
    
    
    
    
    
    
    (7,879
    )(7)(8)Total operating expenses
    
    
    1,142,942
    
    
    
    1,140,714
    (6)
    
    
    1,128,839
    
    
    
    1,131,054
    (8)Operating income (loss)
    
    
    38,676
    
    
    
    40,904
    (6)
    
    
    (29,835
    )
    
    
    (32,050
    )(8)Net income
    
    $
    6,870
    
    
    $
    9,098
    (6)
    
    $
    17,666
    
    
    $
    15,451
    (8)Net income per share:Basic
    
    $
    0.19
    
    
    $
    0.25
    
    
    $
    0.52
    
    
    $
    0.46Diluted
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.48
    
    
    $
    0.42
   (1)
    
    Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(2)
    
    Reflects the restatement of $5.0 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(3)
    
    Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(4)
    
    Reflects the restatement of $0.8 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(5)
    
    Reflects reclassification of $7.7 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(6)
    
    Reflects the restatement of $2.2 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net.(7)
    
    Reflects reclassification of $10.1 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(8)
    
    Reflects the restatement of $2.2 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net. 8




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
June 30, 2004 3. STOCK OPTIONS The Company accounts for its stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,and
related interpretations. As such, compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price. The Company
issues its stock options at a price equal to fair market value on the date of grant. Accordingly,
no compensation cost has been recognized for stock options in the accompanying condensed
consolidated financial statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation,the Companys net income and income
per share would have been reduced to the pro forma amounts indicated below: Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(in thousands except per share data)(as restated)
    
    
    (as restated)Net income, as reported
    
    $
    10,661
    
    
    $
    78,872
    
    
    $
    9,098
    
    
    $
    15,451Stock-based compensation expense
    
    
    (1,650
    )
    
    
    (945
    )
    
    
    (2,916
    )
    
    
    (2,211
    )Pro forma net income
    
    $
    9,011
    
    
    $
    77,927
    
    
    $
    6,182
    
    
    $
    13,240Income per share:Basic  as reported
    
    $
    0.30
    
    
    $
    2.34
    
    
    $
    0.25
    
    
    $
    0.46Basic  pro forma
    
    $
    0.25
    
    
    $
    2.31
    
    
    $
    0.17
    
    
    $
    0.39Diluted  as reported
    
    $
    0.20
    
    
    $
    1.71
    
    
    $
    0.17
    
    
    $
    0.42Diluted  pro forma
    
    $
    0.17
    
    
    $
    1.69
    
    
    $
    0.12
    
    
    $
    0.36
 4. FLIGHT EQUIPMENT In April 2004, the Company sold one Boeing 737-200 aircraft recognizing a gain of
approximately $0.8 million. The Company recorded this amount in Nonoperating Income (Expenses) 
Other, Netin the accompanying condensed consolidated statements of operations. In May 2004, the Company entered into a sale-leaseback transaction for one spare engine
resulting in a $2.8 million gain. This gain was deferred and is being amortized over the
seven-year term of the operating lease as a reduction in rent expense. In May 2004, the Company agreed on a term sheet to amend its 1999 Airbus purchase contract.
The new agreement would call for the Company to acquire 22 Airbus A320 family aircraft (a mix of
A320s and A319s), all powered by V2500 engines from International Aero Engines. Of the 22
aircraft, 17 (ten A320s and seven A319s) would be purchased directly from the manufacturer and five
would be leased from various lessors. In the context of this incremental order, the Company also
secured extensive flexibility from Airbus with respect to its existing A318 order, allowing the
Company to better react to market conditions by enabling it to amend its 15 A318 delivery positions
to A319s and A320s, if it so desires, or to no additional aircraft under certain conditions. As of
June 30, 2004, the Company has negotiated lease agreements for four of these aircraft.
Negotiations continue for the remaining aircraft. The Company plans to take delivery of the five
leased aircraft in early 2005, and the remaining 17 aircraft would be purchased in late 2005 and
2006. The additional 22 aircraft would be used by the Company to meet its growth targets of 8% to
10% in 2005 and 2006. In the first quarter of 2004, the Company revised the estimated useful life for certain
aircraft and related spare parts inventory as a result of changes in AWAs fleet plan and for
capitalized maintenance on certain of its engines as a result of changes in aircraft utilization.
The net impact of this change in estimate was an increase in net income for the three and six
months ended June 30, 2004 of $5.2 million and $9.2 million, respectively. As a result, basic and
diluted income per share increased by $0.14 and $0.10, respectively, for the three months ended June
30, 2004, and increased by $0.26 and $0.18, respectively for the six months ended June 30, 2004. 9




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AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
June 30, 2004 5. SPECIAL CHARGES In the first quarter of 2004, the Company recorded a $0.6 million reduction in special charges
related to the revision of estimated costs associated with the sale and leaseback of certain
aircraft. The following table presents the payments and other settlements made during the six months
ended June 30, 2004 related to the special charge accruals: ContractSale-
    
    
    Fleet
    
    
    Reductions-
    
    
    Termination/Leaseback
    
    
    Restructuring
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2003
    
    $
    605
    
    
    $
    1,389
    
    
    $
    357
    
    
    $
    2,649
    
    
    $
    5,000Revision of estimate
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Payments
    
    
    (5
    )
    
    
    (180
    )
    
    
    (275
    )
    
    
    (515
    )
    
    
    (975
    )Balance at March 31, 2004
    
    $
    
    
    
    $
    1,209
    
    
    $
    82
    
    
    $
    2,134
    
    
    $
    3,425Revision of estimate
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Payments
    
    
    
    
    
    
    (195
    )
    
    
    (17
    )
    
    
    (506
    )
    
    
    (718
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    1,014
    
    
    $
    
    
    
    $
    1,628
    
    
    $
    2,642
 The Company expects to make payments related to these special charges through the fourth
quarter of 2005. 6. EARNINGS PER SHARE (EPS) The following table presents the computation of basic and diluted EPS. Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(in thousands of dollars except per share data)(as restated)
    
    
    (as restated)BASIC EARNINGS PER SHAREIncome applicable to common stock
    
    $
    10,661
    
    
    $
    78,872
    
    
    $
    9,098
    
    
    $
    15,451Weighted average common shares outstanding
    
    
    36,004,896
    
    
    
    33,719,192
    
    
    
    35,927,712
    
    
    
    33,715,972Basic earnings per share
    
    $
    0.30
    
    
    $
    2.34
    
    
    $
    0.25
    
    
    $
    0.46DILUTED EARNINGS PER SHAREIncome applicable to common stock
    
    $
    10,661
    
    
    $
    78,872
    
    
    $
    9,098
    
    
    $
    15,451Interest expense on 7.5% convertible senior notes
    
    
    
    
    
    
    2,631
    
    
    
    
    
    
    
    Income for purposes of computing diluted net income per
share
    
    $
    10,661
    
    
    $
    81,503
    
    
    $
    9,098
    
    
    $
    15,451Share computation:Weighted average common shares outstanding
    
    
    36,004,896
    
    
    
    33,719,192
    
    
    
    35,927,712
    
    
    
    33,715,972Assumed exercise of stock options and warrants
    
    
    16,015,144
    
    
    
    5,778,262
    
    
    
    16,142,057
    
    
    
    2,889,211Assumed conversion of 7.5% convertible senior notes
    
    
    
    
    
    
    8,157,839
    
    
    
    
    
    
    
    Weighted average common shares outstanding for purposes of
computing diluted net income per share
    
    
    52,020,040
    
    
    
    47,655,293
    
    
    
    52,069,769
    
    
    
    36,605,183Diluted income per share
    
    $
    0.20
    
    
    $
    1.71
    
    
    $
    0.17
    
    
    $
    0.42
 10




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
June 30, 2004 For the three and six months ended June 30, 2004, 5,251,892 and 3,981,890 stock options,
respectively, 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. In addition, 8,694,000
incremental shares from assumed conversion of the 7.5% convertible
senior notes are not included in the computation of diluted EPS for the second quarter and the six
month period because of the antidilutive effect on EPS. The shares issuable
upon conversion of the 7.25% Senior Exchangeable Notes due 2023 were not included in the
computation of diluted earnings per share since the conditions for conversion have not been met.
However, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board
(FASB) recently made a tentative decision proposing that issuers of convertible securities with
contingent conversion features use the if-convertedmethod to calculate reported EPS irrespective
of the contingent conversion trigger being met. The EITF is expected to reach a final conclusion
at its meeting in September 2004. If adopted as proposed, the Company does not believe the effect
of including shares issuable upon conversion of 7.25% Senior Exchangeable Notes in the diluted EPS
calculations for prior periods will be significant. For the three months ended June 30, 2003, 17,321,941 warrants issued in conjunction with the
government guaranteed loan and related transactions and 6,379,060 stock options are not included in
the computation of diluted EPS because the option and warrant exercise prices were greater than the
average market price of the Companys
Class B common stock for the period. For the six months ended June 30, 2003, 7,073,763 stock options and 19,929,470 warrants issued
in conjunction with the government guaranteed loan and related transactions are not included in the
computation of diluted EPS because the option and warrant exercise prices were greater than the
average market price of the Companys
Class B common stock for the period. In addition, 8,157,839
incremental shares from assumed conversion of the 7.5% convertible
senior notes are not included in the computation of diluted EPS for
the six month period because of the antidilutive effect on EPS. 7. SUBSEQUENT EVENT 401K Plan Shares Holdings recently became aware that an insufficient number of shares of its Class B common
stock may have been registered for offer and sale through its 401(k) plan, apparently because the
aggregate investments in Company stock by participants through their 401(k) plan accounts
significantly exceeded expectations. If an insufficient number of shares have been registered,
401(k) plan participants may be entitled to remedies under the Securities Act of 1933, as amended,
including rescission or damages. Upon learning of the foregoing, the Company immediately began the
process of filing a new registration statement on Form S-8 to register an additional 4,500,000
shares of Holdings Class B common stock, with the purpose and effect of preventing any such
potential violations in the future. The 401(k) plan then will be able to purchase this number of
shares in the open market for offer and sale to participants through the plan, but will not
purchase any such shares directly from Holdings. Accordingly, the registration of these shares and
their purchase by the 401(k) plan will have no dilutive impact on the outstanding equity of
Holdings. Holdings also is continuing to investigate any curative actions that Holdings and/or the
401(k) plan should or may be required to undertake under applicable securities laws, the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). While Holdings
cannot predict the possible effect of federal or state regulatory action, Holdings does not believe
that any failure to register sufficient shares for offer and sale through the 401(k) plan will have
a material adverse effect on Holdings financial position or results of operations. 11




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##### Table of Contents



ITEM 1B. CONDENSED FINANCIAL STATEMENTS  AMERICA WEST AIRLINES, INC. The unaudited condensed balance sheets of AWA, a wholly-owned subsidiary of Holdings, as of
June 30, 2004 and December 31, 2003, the condensed statements of operations for the three and six
months ended June 30, 2004 and 2003 and the condensed statements of cash flows for the six months
ended June 30, 2004 and 2003, together with the related notes, are set forth on the following
pages. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1,
2004 and continues to operate as the America West Vacations division of AWA. See Note 1, Basis of
Presentationand Note 7, Merger of TLC into AWAin Notes to Condensed Financial Statements. AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited) June 30,
    
    
    December 31,2004
    
    
    2003(as restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    328,639
    
    
    $
    383,875Short-term investments
    
    
    75,053
    
    
    
    72,890Restricted cash
    
    
    42,900
    
    
    
    42,900Accounts receivable, net
    
    
    100,569
    
    
    
    77,235Expendable spare parts and supplies, net
    
    
    51,773
    
    
    
    58,575Prepaid expenses
    
    
    175,337
    
    
    
    129,294Total current assets
    
    
    774,271
    
    
    
    764,769Property and equipment:Flight equipment
    
    
    876,298
    
    
    
    858,395Other property and equipment
    
    
    279,986
    
    
    
    271,592Equipment purchase deposits
    
    
    53,050
    
    
    
    46,0501,209,334
    
    
    
    1,176,037Less accumulated depreciation and amortization
    
    
    586,822
    
    
    
    569,468Net property and equipment
    
    
    622,512
    
    
    
    606,569Other assets:Investments in debt securities
    
    
    55,000
    
    
    
    40,740Restricted cash
    
    
    68,606
    
    
    
    69,876Advances to parent company, net
    
    
    257,069
    
    
    
    254,792Other assets, net
    
    
    102,335
    
    
    
    110,198Total other assets
    
    
    483,010
    
    
    
    475,606$
    1,879,793
    
    
    $
    1,846,944
 See accompanying notes to condensed financial statements. 12




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited) June 30,
    
    
    December 31,2004
    
    
    2003(as restated)Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    110,974
    
    
    $
    103,899Current obligations under capital leases
    
    
    6,525
    
    
    
    3,442Accounts payable
    
    
    181,245
    
    
    
    209,372Payable to affiliate, net
    
    
    
    
    
    
    1,927Air traffic liability
    
    
    236,845
    
    
    
    174,486Accrued compensation and vacation benefits
    
    
    41,489
    
    
    
    61,045Accrued taxes
    
    
    39,929
    
    
    
    24,117Other accrued liabilities
    
    
    82,838
    
    
    
    59,277Total current liabilities
    
    
    699,845
    
    
    
    637,565Long-term debt, less current maturities
    
    
    647,670
    
    
    
    688,965Capital leases, less current maturities
    
    
    5,141
    
    
    
    8,468Deferred credits and other liabilities
    
    
    144,334
    
    
    
    139,873Stockholders equity:Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    555,114
    
    
    
    555,115Accumulated deficit
    
    
    (172,311
    )
    
    
    (183,042
    )Total stockholders equity
    
    
    382,803
    
    
    
    372,073$
    1,879,793
    
    
    $
    1,846,944
 See accompanying notes to condensed financial statements. 13




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands)
(unaudited) Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(as restated)
    
    
    (as restated)Operating revenues:Passenger
    
    $
    569,166
    
    
    $
    538,358
    
    
    $
    1,106,499
    
    
    $
    1,038,932Cargo
    
    
    6,817
    
    
    
    7,844
    
    
    
    13,720
    
    
    
    14,900Other
    
    
    28,921
    
    
    
    29,399
    
    
    
    61,059
    
    
    
    44,832Total operating revenues
    
    
    604,904
    
    
    
    575,601
    
    
    
    1,181,278
    
    
    
    1,098,664Operating expenses:Salaries and related costs
    
    
    161,617
    
    
    
    156,051
    
    
    
    327,546
    
    
    
    318,508Aircraft rents
    
    
    75,346
    
    
    
    72,291
    
    
    
    150,531
    
    
    
    147,445Other rents and landing fees
    
    
    42,011
    
    
    
    37,505
    
    
    
    83,252
    
    
    
    77,265Aircraft fuel
    
    
    132,977
    
    
    
    86,388
    
    
    
    247,189
    
    
    
    189,980Realized and unrealized losses (gains) on fuel
hedging instruments, net
    
    
    (9,485
    )
    
    
    954
    
    
    
    (9,889
    )
    
    
    (7,879
    )Agency commissions
    
    
    6,253
    
    
    
    9,332
    
    
    
    13,003
    
    
    
    18,156Aircraft maintenance materials and repairs
    
    
    52,350
    
    
    
    58,510
    
    
    
    102,404
    
    
    
    122,718Depreciation and amortization
    
    
    12,587
    
    
    
    17,328
    
    
    
    26,378
    
    
    
    34,991Special charges, net
    
    
    
    
    
    
    14,472
    
    
    
    (600
    )
    
    
    14,370Other
    
    
    104,497
    
    
    
    106,267
    
    
    
    198,828
    
    
    
    213,130Total operating expenses
    
    
    578,153
    
    
    
    559,098
    
    
    
    1,138,642
    
    
    
    1,128,684Operating income (loss)
    
    
    26,751
    
    
    
    16,503
    
    
    
    42,636
    
    
    
    (30,020
    )Nonoperating income (expenses):Interest income
    
    
    3,418
    
    
    
    2,909
    
    
    
    6,619
    
    
    
    6,031Interest expense, net
    
    
    (20,948
    )
    
    
    (21,288
    )
    
    
    (42,410
    )
    
    
    (41,529
    )Federal government assistance
    
    
    
    
    
    
    81,255
    
    
    
    
    
    
    
    81,255Other, net
    
    
    2,304
    
    
    
    481
    
    
    
    3,886
    
    
    
    1,701Total nonoperating income (expenses), net
    
    
    (15,226
    )
    
    
    63,357
    
    
    
    (31,905
    )
    
    
    47,458Income before income taxes
    
    
    11,525
    
    
    
    79,860
    
    
    
    10,731
    
    
    
    17,438Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    11,525
    
    
    $
    79,860
    
    
    $
    10,731
    
    
    $
    17,438
 See accompanying notes to condensed financial statements. 14




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Condensed Statements of Cash Flows
(in thousands)
(unaudited) Six Months EndedJune 30,2004
    
    
    2003Net cash provided by operating activities
    
    $
    84,205
    
    
    $
    123,600Cash flows from investing activities:Purchases of property and equipment
    
    
    (77,173
    )
    
    
    (82,219
    )Purchases of short-term investments
    
    
    (38,833
    )
    
    
    (40,804
    )Sales of short-term investments
    
    
    41,435
    
    
    
    24,738Purchases of investments in debt securities
    
    
    (35,000
    )
    
    
    Sales of investments in debt securities
    
    
    15,000
    
    
    
    Decrease (increase) in restricted cash
    
    
    1,270
    
    
    
    (32,709
    )Proceeds from disposition of assets
    
    
    1,848
    
    
    
    23,972Net cash used in investing activities
    
    
    (91,453
    )
    
    
    (107,022
    )Cash flows from financing activities:Repayment of debt
    
    
    (47,980
    )
    
    
    (7,622
    )Other
    
    
    (8
    )
    
    
    Net cash used in financing activities
    
    
    (47,988
    )
    
    
    (7,622
    )Net increase (decrease) in cash and cash equivalents
    
    
    (55,236
    )
    
    
    8,956Cash and cash equivalents at beginning of period
    
    
    383,875
    
    
    
    334,679Cash and cash equivalents at end of period
    
    $
    328,639
    
    
    $
    343,635Cash, cash equivalents, short-term investments and investments in
debt securities at end of period
    
    $
    458,692
    
    
    $
    384,439Cash paid for:Interest, net of amounts capitalized
    
    $
    10,339
    
    
    $
    8,975Income taxes
    
    $
    325
    
    
    $
    29Non-cash investing and financing activities:Payment in kind notes issued
    
    $
    4,672
    
    
    $
    4,426Reclassification of investments in debt securities to
short-term investments
    
    $
    5,730
    
    
    $
    Notes payable issued (cancelled) under the aircraft purchase
agreement
    
    $
    7,000
    
    
    $
    (3,500
    )
 See accompanying notes to condensed financial statements. 15




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 1. BASIS OF PRESENTATION The unaudited condensed financial statements included herein have been prepared by AWA, a
wholly owned subsidiary of Holdings, pursuant to the rules and regulations of the Securities and
Exchange Commission and, in accordance with those rules and regulations, certain information and
footnotes required by generally accepted accounting principles have been omitted. TLC, previously
a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to
operate as the America West Vacations division of AWA. Accordingly, prior period amounts have been
adjusted to give effect to the merger as if it had occurred on January 1, 2003 and all intercompany
transactions between AWA and TLC have been eliminated. See Note 7, Merger of TLC into AWA.In
the opinion of management, the condensed financial statements reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation. Certain prior year amounts have been
reclassified to conform with current year presentation. The accompanying condensed financial
statements should be read in conjunction with the financial statements and related notes thereto
included in AWAs Annual Report on Form 10-K for the year ended December 31, 2003. 2. RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS Fuel Hedging Instruments In February 2005, management undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that AWAs hedging transactions did
not qualify for hedge accounting under U.S. generally accepted accounting principles. Accordingly,
management concluded that the financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance sheets and statements of
stockholders equity and comprehensive income of Holdings and AWA. Specifically, AWA has restated
its balance sheet and statement of stockholders equity and comprehensive income as of and for the
year ended December 31, 2003, and AWA restated its 2003 balance sheet to reduce the carrying value
of its fuel hedging instruments asset by $12.5 million, which served to record the asset at fair
value of open contracts as of December 31, 2003. The restatement also eliminated $12.5 million in
accumulated other comprehensive income, $2.0 million of which was previously recorded in the 2003
beginning balance of accumulated other comprehensive income. The restated amount of other assets
is $110.2 million in the balance sheet as of December 31, 2003. The restatement eliminates the
balance in accumulated other comprehensive income in the balance sheet as of December 31, 2003 and
the statement of stockholders equity and comprehensive income for the year ended December 31,
2003. The unaudited Condensed Statements of Operations for the three and six months ended June 30,
2004 and 2003 have also been restated to reflect the accounting for fuel hedging instruments
pursuant to managements determination that AWA did not qualify for hedge accounting under
Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities(SFAS No. 133). In addition, the restated amounts also reflect corrections
to properly reflect the fair value of open fuel hedging instruments at each quarter end. AWA has
also reclassified all gains and losses from settled fuel hedges and the mark-to-market adjustments
on open fuel hedges from Aircraft Fuelto Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Neton the Condensed Statements of Operations. AWA restated its June 30, 2004
condensed balance sheet to reduce the carrying value of its fuel hedging instruments asset by $12.8
million which served to record the asset at fair value of open contracts as of June 30, 2004. The
following summarizes the changes related to the restatement and reclassifications as referenced
above. 16




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 Three Months Ended
    
    
    Three Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands)Aircraft fuel
    
    $
    128,459
    
    
    $
    132,977
    (1)
    
    $
    86,530
    
    
    $
    86,388
    (3)Realized and unrealized losses (gains) on
fuel hedging instruments, net
    
    
    
    
    
    
    (9,485
    )(1)(2)
    
    
    
    
    
    
    954
    (3) (4)Total operating expenses
    
    
    583,120
    
    
    
    578,153
    (2)
    
    
    558,286
    
    
    
    559,098
    (4)Operating income
    
    
    21,784
    
    
    
    26,751
    (2)
    
    
    17,315
    
    
    
    16,503
    (4)Net income
    
    $
    6,558
    
    
    $
    11,525
    (2)
    
    $
    80,672
    
    
    $
    79,860
    (4)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)(in thousands)Aircraft fuel
    
    $
    239,528
    
    
    $
    247,189
    (5)
    
    $
    179,886
    
    
    $
    189,980
    (7)Realized and unrealized
gains on fuel hedging
instruments, net
    
    
    
    
    
    
    (9,889
    )(5) (6)
    
    
    
    
    
    
    (7,879
    )(7)(8)Total operating expenses
    
    
    1,140,870
    
    
    
    1,138,642
    (6)
    
    
    1,126,469
    
    
    
    1,128,684
    (8)Operating
income (loss)
    
    
    40,408
    
    
    
    42,636
    (6)
    
    
    (27,805
    )
    
    
    (30,020
    )(8)Net income
    
    $
    8,503
    
    
    $
    10,731
    (6)
    
    $
    19,653
    
    
    $
    17,438
    (8)
   (1)
    
    Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(2)
    
    Reflects the restatement of $5.0 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(3)
    
    Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(4)
    
    Reflects the restatement of $0.8 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(5)
    
    Reflects reclassification of $7.7 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(6)
    
    Reflects the restatement of $2.2 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net.(7)
    
    Reflects reclassification of $10.1 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(8)
    
    Reflects the restatement of $2.2 million net expense to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net. 3. ADVANCES TO PARENT COMPANY AND AFFILIATE As of June 30, 2004, AWA had net advances to Holdings of $257.1 million, which were classified
in Other Assetson AWAs condensed balance sheet due to certain restrictions related to the
timing of repayment under the government guaranteed loan, of which $386.1 million remains
outstanding, and the term loan, of which $75.5 million remains outstanding. AWA settled all
intercompany amounts due to TLC upon the completion of the merger of TLC on January 1, 2004. 17




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 4. STOCK OPTIONS Certain of AWAs employees are eligible to participate in the stock option plans of Holdings.
Holdings accounts for its stock option plans in accordance with the provisions of APB Opinion No.
25, Accounting for Stock Issued to Employees,and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. Holdings issues its stock options at a price equal to the fair
market value on the date of grant. Accordingly, no compensation cost has been recognized for stock
options in Holdings condensed consolidated financial statements. Had Holdings determined
compensation cost based on the fair value at the grant date for its stock options under SFAS No.
123, Accounting for Stock-Based Compensation,and allocated compensation expense to AWA for its
employees participating in the stock option plans, AWAs net income would have been reduced to the
pro forma amounts indicated below: Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(as restated)
    
    
    (as restated)(in thousands)Net income, as reported
    
    $
    11,525
    
    
    $
    79,860
    
    
    $
    10,731
    
    
    $
    17,438Stock-based compensation expense
    
    
    (1,650
    )
    
    
    (945
    )
    
    
    (2,916
    )
    
    
    (2,211
    )Pro forma net income
    
    $
    9,875
    
    
    $
    78,915
    
    
    $
    7,815
    
    
    $
    15,227
 5. FLIGHT EQUIPMENT In April 2004, AWA sold one Boeing 737-200 aircraft recognizing a gain of approximately $0.8
million. The Company recorded this amount in Nonoperating Income (Expenses)  Other, Netin the
accompanying condensed statements of operations. In May 2004, AWA entered into a sale-leaseback transaction for one spare engine resulting in a
$2.8 million gain. This gain was deferred and is being amortized over the seven-year term of the
operating lease as a reduction in rent expense. In May 2004, AWA agreed on a term sheet to amend its 1999 Airbus purchase contract. The new
agreement would call for AWA to acquire 22 Airbus A320 family aircraft (a mix of A320s and A319s),
all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, 17 (ten A320s
and seven A319s) would be purchased directly from the manufacturer and five would be leased from
various lessors. In the context of this incremental order, AWA also secured extensive flexibility
from Airbus with respect to its existing A318 order, allowing AWA to better react to market
conditions by enabling it to amend its 15 A318 delivery positions to A319s and A320s, if it so
desires, or to no additional aircraft under certain conditions. As of June 30, 2004, AWA has
negotiated lease agreements for four of these aircraft. Negotiations continue for the remaining
aircraft. AWA plans to take delivery of the five leased aircraft in early 2005, and the remaining
17 aircraft would be purchased in late 2005 and 2006. The additional 22 aircraft would be used by
the Airline to meet its growth targets of 8% to 10% in 2005 and 2006. In the first quarter of 2004, AWA revised the estimated useful life for certain aircraft and
related spare parts inventory as a result of changes in its fleet plan and for capitalized
maintenance on certain of its engines as a result of changes in aircraft utilization. The net
impact of this change in estimate was an increase in net income for the three and six months ended
June 30, 2004 by $5.2 million and $9.2 million, respectively. 18




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 6. SPECIAL CHARGES In the first quarter of 2004, AWA recorded a $0.6 million reduction in special charges related
to the revision of estimated costs associated with the sale and leaseback of certain aircraft. The following table presents the payments and other settlements made during the six months
ended June 30, 2004 related to the special charge accruals: ContractSale-
    
    
    Fleet
    
    
    Reductions-
    
    
    Termination/Leaseback
    
    
    Restructuring
    
    
    in-force
    
    
    Other Costs
    
    
    Total(in thousands)Balance at December 31, 2003
    
    $
    605
    
    
    $
    1,389
    
    
    $
    307
    
    
    $
    2,649
    
    
    $
    4,950Revision of estimate
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Increase due to TLC merger at 01/01/04
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Payments
    
    
    (5
    )
    
    
    (180
    )
    
    
    (275
    )
    
    
    (515
    )
    
    
    (975
    )Balance at March 31, 2004
    
    $
    
    
    
    $
    1,209
    
    
    $
    82
    
    
    $
    2,134
    
    
    $
    3,425Revision of estimate
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )Payments
    
    
    
    
    
    
    (195
    )
    
    
    (17
    )
    
    
    (506
    )
    
    
    (718
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    1,014
    
    
    $
    
    
    
    $
    1,628
    
    
    $
    2,642
 AWA expects to make payments related to these special charges through the fourth quarter
of 2005. 19




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 7. MERGER OF TLC INTO AWA On January 1, 2004, TLC was merged into AWA. As a result of the merger, TLC, which is one of
the nations largest tour operators, ceased to exist as a separate legal entity and instead became
a division of AWA. This merger was intended to save costs and streamline operations for the
Company and did not change any operating procedures. The assets and liabilities of TLC have been
recorded at historical cost. The Condensed Statement of Operations for the three and six months ended June 30, 2003, after
giving effect to the merger, are set forth below. America West Airlines, Inc.
Condensed Statement of Operations
For the Three Months Ended June 30, 2003
(unaudited)
(as restated) AWA
    
    
    
    
    
    
    Eliminations/As Reported
    
    
    TLC
    
    
    Adjustments
    
    
    Combined(in thousands)Operating revenues:Passenger
    
    $
    538,358
    
    
    $
    
    
    
    $
    
    
    
    $
    538,358Cargo
    
    
    7,844
    
    
    
    
    
    
    
    
    
    
    
    7,844Other
    
    
    18,854
    
    
    
    10,688
    
    
    
    (143
    )(a)
    
    
    29,399Total operating revenues
    
    
    565,056
    
    
    
    10,688
    
    
    
    (143
    )
    
    
    575,601Operating expenses:Salaries and related costs
    
    
    154,437
    
    
    
    1,614
    
    
    
    
    
    
    
    156,051Aircraft rents
    
    
    72,291
    
    
    
    
    
    
    
    
    
    
    
    72,291Other rents and landing fees
    
    
    37,505
    
    
    
    143
    
    
    
    (143
    )(a)
    
    
    37,505Aircraft fuel
    
    
    86,388
    
    
    
    
    
    
    
    
    
    
    
    86,388Realized and unrealized losses on fuel
hedging instruments, net
    
    
    954
    
    
    
    
    
    
    
    
    
    
    
    954Agency commissions
    
    
    6,291
    
    
    
    3,041
    
    
    
    
    
    
    
    9,332Aircraft maintenance materials and repairs
    
    
    58,510
    
    
    
    
    
    
    
    
    
    
    
    58,510Depreciation and amortization
    
    
    17,155
    
    
    
    173
    
    
    
    
    
    
    
    17,328Special charges, net
    
    
    14,081
    
    
    
    391
    
    
    
    
    
    
    
    14,472Other
    
    
    104,225
    
    
    
    2,042
    
    
    
    
    
    
    
    106,267Total operating expenses
    
    
    551,837
    
    
    
    7,404
    
    
    
    (143
    )
    
    
    559,098Operating income
    
    
    13,219
    
    
    
    3,284
    
    
    
    
    
    
    
    16,503Nonoperating income (expenses):Interest income
    
    
    2,829
    
    
    
    80
    
    
    
    
    
    
    
    2,909Interest expense, net
    
    
    (21,288
    )
    
    
    
    
    
    
    
    
    
    
    (21,288
    )Federal government assistance
    
    
    81,255
    
    
    
    
    
    
    
    
    
    
    
    81,255Other, net
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    481Total nonoperating income, net
    
    
    63,277
    
    
    
    80
    
    
    
    
    
    
    
    63,357Income before income taxes
    
    
    76,496
    
    
    
    3,364
    
    
    
    
    
    
    
    79,860Income taxes
    
    
    
    
    
    
    1,307
    
    
    
    (1,307
    )(b)
    
    
    Net income
    
    $
    76,496
    
    
    $
    2,057
    
    
    $
    1,307
    
    
    $
    79,860
   (a)
    
    TLC paid rent in the amount of $143,000 to AWA for space it occupied in certain AWA
facilities. This rent was reflected in other revenues by AWA and in operating expenses by
TLC. This adjustment eliminates those amounts.(b)
    
    TLC reported income tax expense of $1.3 million on a stand alone basis. On a pro forma
basis, AWAs tax benefits were utilized by TLC, which eliminated income tax expense and
resulted in a corresponding decrease in AWAs tax valuation allowance. 20




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##### Table of Contents



AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 America West Airlines, Inc.
Condensed Statement of Operations
For the Six Months Ended June 30, 2003
(unaudited)
(as restated) AWA
    
    
    
    
    
    
    Eliminations/As Reported
    
    
    TLC
    
    
    Adjustments
    
    
    Combined(in thousands)Operating revenues:Passenger
    
    $
    1,038,932
    
    
    $
    
    
    
    $
    
    
    
    $
    1,038,932Cargo
    
    
    14,900
    
    
    
    
    
    
    
    
    
    
    
    14,900Other
    
    
    25,629
    
    
    
    19,489
    
    
    
    (286
    )(a)
    
    
    44,832Total operating revenues
    
    
    1,079,461
    
    
    
    19,489
    
    
    
    (286
    )

    
    
    1,098,664Operating expenses:Salaries and related costs
    
    
    314,933
    
    
    
    3,575
    
    
    
    
    
    
    
    318,508Aircraft rents
    
    
    147,445
    
    
    
    
    
    
    
    
    
    
    
    147,445Other rents and landing fees
    
    
    77,265
    
    
    
    286
    
    
    
    (286
    )(a)
    
    
    77,265Aircraft fuel
    
    
    189,980
    
    
    
    
    
    
    
    
    
    
    
    189,980Realized and unrealized gains on fuel hedging
instruments, net
    
    
    (7,879
    )
    
    
    
    
    
    
    
    
    
    
    (7,879
    )Agency commissions
    
    
    12,483
    
    
    
    5,673
    
    
    
    
    
    
    
    18,156Aircraft maintenance materials and repairs
    
    
    122,718
    
    
    
    
    
    
    
    
    
    
    
    122,718Depreciation and amortization
    
    
    34,629
    
    
    
    362
    
    
    
    
    
    
    
    34,991Special charges, net
    
    
    13,979
    
    
    
    391
    
    
    
    
    
    
    
    14,370Other
    
    
    208,839
    
    
    
    4,291
    
    
    
    
    
    
    
    213,130Total operating expenses
    
    
    1,114,392
    
    
    
    14,578
    
    
    
    (286
    )
    
    
    1,128,684Operating income (loss)
    
    
    (34,931
    )
    
    
    4,911
    
    
    
    
    
    
    
    (30,020
    )Nonoperating income (expenses):Interest income
    
    
    5,886
    
    
    
    145
    
    
    
    
    
    
    
    6,031Interest expense, net
    
    
    (41,529
    )
    
    
    
    
    
    
    
    
    
    
    (41,529
    )Federal government assistance
    
    
    81,255
    
    
    
    
    
    
    
    
    
    
    
    81,255Other, net
    
    
    1,701
    
    
    
    
    
    
    
    
    
    
    
    1,701Total nonoperating income, net
    
    
    47,313
    
    
    
    145
    
    
    
    
    
    
    
    47,458Income before income taxes
    
    
    12,382
    
    
    
    5,056
    
    
    
    
    
    
    
    17,438Income taxes
    
    
    
    
    
    
    1,965
    
    
    
    (1,965
    )(b)
    
    
    Net income
    
    $
    12,382
    
    
    $
    3,091
    
    
    $
    1,965
    
    
    $
    17,438
   (a)
    
    TLC paid rent in the amount of $286,000 to AWA for space it occupied in certain AWA
facilities. This rent was reflected in other revenues by AWA and in operating expenses by
TLC. This adjustment eliminates those amounts.(b)
    
    TLC reported income tax expense of $2.0 million on a stand alone basis. On a pro forma
basis, AWAs tax benefits were utilized by TLC, which eliminated income tax expense and
resulted in a corresponding decrease in AWAs tax valuation allowance. 21




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AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
June 30, 2004 8. SUBSEQUENT EVENT 401-K Plan Shares Holdings recently became aware that an insufficient number of shares of its Class B common
stock may have been registered for offer and sale through its 401(k) plan, apparently because the
aggregate investments in Company stock by participants through their 401(k) plan accounts
significantly exceeded expectations. If an insufficient number of shares have been registered,
401(k) plan participants may be entitled to remedies under the Securities Act of 1933, as amended,
including rescission or damages. Upon learning of the foregoing, the Company immediately began the
process of filing a new registration statement on Form S-8 to register an additional 4,500,000
shares of Holdings Class B common stock, with the purpose and effect of preventing any such
potential violations in the future. The 401(k) plan then will be able to purchase this number of
shares in the open market for offer and sale to participants through the plan, but will not
purchase any such shares directly from Holdings. Accordingly, the registration of these shares and
their purchase by the 401(k) plan will have no dilutive impact on the outstanding equity of
Holdings. Holdings also is continuing to investigate any curative actions that Holdings and/or the
401(k) plan should or may be required to undertake under applicable securities laws, the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). While Holdings
cannot predict the possible effect of federal or state regulatory action, Holdings does not believe
that any failure to register sufficient shares for offer and sale through the 401(k) plan will have
a material adverse effect on Holdings financial position or results of operations. 22




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Holdings is the parent company of AWA. AWA is the eighth largest passenger airline and the
second largest low cost carrier in the United States operating through its hubs located in Phoenix,
Arizona and Las Vegas, Nevada. As of June 30, 2004, AWA served 63 destinations in North America,
including eight destinations in Mexico, two in Canada and one in Costa Rica. TLC, previously a
wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to
operate as the America West Vacations (AWV) division of AWA. See Note 7, Merger of TLC into
AWAin Notes to Condensed Financial Statements of AWA. AWV arranges and sells vacation packages
primarily to Las Vegas, Nevada that may include airfare, hotel accommodations and ground
transportation. Holdings primary business activity is ownership of all the capital stock of AWA. Restatement of Previously Reported Amounts In February 2005, management undertook a review of the Companys accounting for its fuel
hedging transactions. As a result of this review, management concluded that the Companys fuel
hedging transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles. Accordingly, management concluded that the financial statements for prior periods
required restatement to reflect the fair value of fuel hedging contracts in the balance sheets and
statements of stockholders equity and comprehensive income of Holdings and AWA. The 2004 and 2003 unaudited quarterly financial data has been restated to reflect the
accounting for fuel hedging instruments pursuant to managements determination that the Company did
not qualify for hedge accounting under Statement of Financial Accounting Standards (SFAS) No.
133. In addition, the restated amounts also reflect corrections to properly reflect the fair value
of open fuel hedging instruments at each quarter end. The Company has also reclassified all gains
and losses from settled fuel hedges and the mark-to-market adjustments on open fuel hedges from
Aircraft Fuelto Realized and Unrealized Losses (Gains) on Fuel Hedging Instruments, Neton
the Condensed Consolidated Statements of Operations. See Note 2, Restatement of Previously
Reported Amounts.The Company restated its June 30, 2004 consolidated balance sheet to reduce the
carrying value of its fuel hedging instruments asset by $12.8 million which served to record the
asset at fair value of open contracts as of June 30, 2004. The following summarizes the changes
related to the restatement as referenced above. Three Months Ended
    
    
    Three Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)America West Holdings Corporation
    
    (in thousands except per share data)Aircraft fuel
    
    $
    128,459
    
    
    $
    132,977
    (1)
    
    $
    86,530
    
    
    $
    86,388
    (3)Realized and unrealized losses (gains) on
fuel hedging instruments, net
    
    
    
    
    
    
    (9,485
    )(1)(2)
    
    
    
    
    
    
    954
    (3)(4)Total operating expenses
    
    
    584,226
    
    
    
    579,259
    (2)
    
    
    559,466
    
    
    
    560,278
    (4)Operating income
    
    
    20,848
    
    
    
    25,815
    (2)
    
    
    16,305
    
    
    
    15,493
    (4)Net income
    
    $
    5,694
    
    
    $
    10,661
    (2)
    
    $
    79,684
    
    
    $
    78,872
    (4)Net income per share:Basic
    
    $
    0.16
    
    
    $
    0.30
    
    
    $
    2.36
    
    
    $
    2.34Diluted
    
    $
    0.11
    
    
    $
    0.20
    
    
    $
    2.02
    
    
    $
    1.71
 23




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Six Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)America West Holdings Corporation
    
    (in thousands except per share data)Aircraft fuel
    
    $
    239,528
    
    
    $
    247,189
    (5)
    
    $
    179,886
    
    
    $
    189,980
    (7)Realized and unrealized gains
on fuel hedging
instruments, net
    
    
    
    
    
    
    (9,889
    )(5)(6)
    
    
    
    
    
    
    (7,879
    )(7)(8)Total operating expenses
    
    
    1,142,942
    
    
    
    1,140,714
    (6)
    
    
    1,128,839
    
    
    
    1,131,054
    (8)Operating income (loss)
    
    
    38,676
    
    
    
    40,904
    (6)
    
    
    (29,835
    )
    
    
    (32,050
    )(8)Net income
    
    $
    6,870
    
    
    $
    9,098
    (6)
    
    $
    17,666
    
    
    $
    15,451
    (8)Net income per share:Basic
    
    $
    0.19
    
    
    $
    0.25
    
    
    $

    0.52
    
    
    $
    0.46Diluted
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.48
    
    
    $
    0.42
   (1)
    
    Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(2)
    
    Reflects the restatement of $5.0 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(3)
    
    Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(4)
    
    Reflects the restatement of $0.8 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(5)
    
    Reflects reclassification of $7.7 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(6)
    
    Reflects the restatement of $2.2 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net.(7)
    
    Reflects reclassification of $10.1 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(8)
    
    Reflects the restatement of $2.2 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net. Three Months Ended
    
    
    Three Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)America West Airlines, Inc.
    
    (in thousands except CASM and fuel price)Aircraft fuel
    
    $
    128,459
    
    
    $
    132,977
    (1)
    
    $
    86,530
    
    
    $
    86,388
    (3)Realized and unrealized losses (gains) on
fuel hedging instruments, net
    
    
    
    
    
    
    (9,485
    )(1)(2)
    
    
    
    
    
    
    954
    (3)(4)Total operating expenses
    

    
    583,120
    
    
    
    578,153
    (2)
    
    
    558,286
    
    
    
    559,098
    (4)Operating income
    
    
    21,784
    
    
    
    26,751
    (2)
    
    
    17,315
    
    
    
    16,503
    (4)Net income
    
    $
    6,558
    
    
    $
    11,525
    (2)
    
    $
    80,672
    
    
    $
    79,860
    (4)Operating CASM (cents)
    
    
    7.72
    
    
    
    7.66
    
    
    
    8.01
    
    
    
    8.02Average fuel price (cents per gallon)
    
    
    115.6
    
    
    
    116.7
    
    
    
    81.7
    
    
    
    81.6
 24




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Six Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2003(as previously
    
    
    
    
    
    
    (as previouslyreported)
    
    
    (as restated)
    
    
    reported)
    
    
    (as restated)America West Airlines, Inc.
    
    (in thousands except CASM and fuel price)Aircraft fuel
    
    $
    239,528
    
    
    $
    247,189
    (5)
    
    $
    179,886
    
    
    $
    189,980
    (7)Realized and unrealized gains on
fuel hedging
instruments, net
    
    
    
    
    
    
    (9,889
    )(5)(6)
    
    
    
    
    
    
    (7,879
    )(7)(8)Total operating expenses
    
    
    1,140,870
    
    
    1,138,642(6)
    
    
    1,126,469
    
    
    
    1,128,684
    (8)Operating income (loss)
    
    
    40,408
    
    
    
    42,636
    (6)
    
    
    (27,805
    )
    
    
    (30,020
    )(8)Net income
    
    $
    8,503
    
    
    $
    10,731
    (6)
    
    $
    19,653
    
    
    $
    17,438
    (8)Operating CASM (cents)
    
    
    7.66
    
    
    
    7.64
    
    
    
    7.64
    
    
    
    8.16Average fuel price (cents per gallon)
    
    
    109.1
    
    
    
    111.2
    
    
    
    85.8
    
    
    
    90.6
   (1)
    
    Reflects reclassification of $4.5 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(2)
    
    Reflects the restatement of $5.0 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(3)
    
    Reflects reclassification of $0.1 million net expense from Aircraft
Fuelexpense to Realized and Unrealized Losses (Gains) on Fuel Hedging
Instruments, Net.(4)
    
    Reflects the restatement of $0.8 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Losses (Gains) on Fuel Hedging Instruments, Net.(5)
    
    Reflects reclassification of $7.7 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(6)
    
    Reflects the restatement of $2.2 million net credit to eliminate hedge
accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net.(7)
    
    Reflects reclassification of $10.1 million net credit from Aircraft
Fuelexpense to Realized and Unrealized Gains on Fuel Hedging Instruments,
Net.(8)
    
    Reflects the restatement of $2.2 million net expense to eliminate
hedge accounting for the period presented which is reflected in Realized and
Unrealized Gains on Fuel Hedging Instruments, Net. Overview In the second quarter of 2004, Holdings realized an operating profit of $25.8 million and
pretax and net income of $10.7 million, or $0.20 per diluted share. During the second quarter:  
    Passenger revenue per available seat mile (RASM) decreased 2.3% to 7.54 cents versus the
2003 second quarter primarily due to an increase in industry capacity and AWAs 8.9%
increase in aircraft utilization and 6.7% increase in average stage length.
    Operating cost per available seat mile (CASM) decreased 4.5% to 7.66 cents, despite an
increase in the average fuel price per gallon of 43.1% from 81.6 cents in the second
quarter of 2003 to 116.7 cents per gallon in the second quarter of 2004. The primary
drivers of AWAs CASM improvement during the second quarter of 2004 were continued cost
control and the increases in aircraft utilization and average stage length. As of June 30, 2004, Holdings unrestricted and restricted cash, cash equivalents, short-term
investments and investments in debt securities totaled $589.6 million, the highest June 30 cash
balance in the Companys history. 25




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Airline Operations Update The increase in aircraft utilization has helped to lower the Companys unit cost and has been
a significant contributor to AWAs profitable first six months of 2004. Higher utilization does,
though, put pressure on operations and AWAs operating performance and completion factor were worse
than the second quarter of 2003. The Company has recently taken action to improve operating
performance including a modest reduction in planned growth and an increase in maintenance stations.
The operating performance for the first half of July was much improved (on-time performance
(79.0%), completion factor (98.7%) and the Company expects third quarter 2004 operating results
will be improved versus the second quarter. AWA reported the following operating statistics to the U.S. Department of Transportation
(DOT) for the second quarters of 2004 and 2003: Percent Change2004
    
    
    2003
    
    
    2004  2003Apr
    
    
    May
    
    
    Jun
    
    
    Apr
    
    
    May
    
    
    Jun
    
    
    Apr
    
    
    May
    
    
    JunOn-time performance(a)
    
    
    76.9
    
    
    
    80.3
    
    
    
    73.0
    
    
    
    88.2
    
    
    
    85.9
    
    
    
    85.2
    
    
    
    (11.4
    )
    
    
    (5.6
    )
    
    
    (12.3
    )Completion factor(b)
    
    
    98.2
    
    
    
    98.7
    
    
    
    98.4
    
    
    
    99.7
    
    
    
    99.6
    
    
    
    99.8
    
    
    
    (1.5
    )
    
    
    (0.9
    )
    
    
    (1.3
    )Mishandled baggage(c)
    
    
    3.07
    
    
    
    2.94
    
    
    
    4.24
    
    
    
    2.53
    
    
    
    2.68
    
    
    
    3.12
    
    
    
    21.4
    
    
    
    9.8
    
    
    
    35.9Customer complaints(d)
    
    
    1.21
    
    
    
    0.86
    
    
    
    1.51
    
    
    
    0.84
    
    
    
    1.04
    
    
    
    0.61
    
    
    
    43.8
    
    
    
    (17.4
    )
    
    
    
   (a)
    
    Percentage of reported flight operations arriving on time.(b)
    
    Percentage of scheduled flight operations completed.(c)
    
    Rate of mishandled baggage reports per 1,000 passengers.(d)
    
    Rate of customer complaints filed with the DOT per 100,000 passengers. Summary of Holdings Financial Results Holdings recorded consolidated net income of $10.7 million in the second quarter of 2004, or
$0.20 per diluted share. This compares to consolidated net income of
$78.9 million, or $1.71 per
diluted share, in the second quarter of 2003.
The
2004 results include $9.5 million of net gains associated with the Companys fuel
hedging transactions.
This amount includes
$7.2 million of gains resulting from mark-to-market accounting for
changes in the fair value of the Companys fuel hedging
instruments and $2.3 million of net realized gains on settled hedge
transactions. The second quarter 2003 results include a
nonoperating gain of $81.3 million related to the federal government assistance received under the
Emergency Wartime Supplemental Appropriations Actand special charges of $14.5 million resulting
from the elimination of AWAs hub operations in Columbus, Ohio ($9.6 million), the
reduction-in-force of certain management, professional and administrative employees ($2.3 million)
and the impairment of certain owned Boeing 737-200 aircraft grounded in 2003 ($2.6 million). Holdings recorded consolidated net income of $9.1 million in the first six months of 2004, or
$0.17 per diluted share. This compares to consolidated net income of $15.5 million, or $0.42 per
diluted share, in the first six months of 2003. The 2003 results include the $81.3 million of
federal government assistance discussed above, an operating gain of $4.4 million related to the
purchase and subsequent exchange of an A320 airframe in the first quarter of 2003 and an operating
gain of $1.1 million due to a revision of the estimated costs related to the early termination of
certain aircraft leases. These gains were offset in part by special charges of $15.5 million
resulting from the elimination of AWAs hub operations in Columbus, Ohio ($10.6 million), the
reduction-in-force of certain management, professional and administrative employees ($2.3 million)
and the impairment of certain owned Boeing 737-200 aircraft grounded in 2003 ($2.6 million). 26




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 The Company did not record income tax expense in the second quarter or for the first six
months of 2004 as it currently expects to continue to record a full valuation allowance on any
future tax benefits until we have achieved several quarters of consecutive profitable results
coupled with an expectation of continued profitability. RESULTS OF OPERATIONS The following discussion provides an analysis of AWAs results of operations for the three and
six months ended June 30, 2004 and material changes compared to the three and six months ended June
30, 2003. The table below sets forth selected operating data for AWA. Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2004
    
    
    2003
    
    
    2004-2003
    
    
    2004
    
    
    2003
    
    
    2004-2003Aircraft (end of period)
    
    
    140
    
    
    
    140
    
    
    
    
    
    
    
    140
    
    
    
    140
    
    
    
    Average daily aircraft utilization (hours)(a)
    
    
    11.0
    
    
    
    10.1
    
    
    
    8.9
    
    
    
    10.9
    
    
    
    10.1
    
    
    
    7.9Available seat miles (in millions)(b)
    
    
    7,552
    
    
    
    6,974
    
    
    
    8.3
    
    
    
    14,904
    
    
    
    13,826
    
    
    
    7.8Block hours(c)
    
    
    139,202
    
    
    
    129,576
    
    
    
    7.4
    
    
    
    275,880
    
    
    
    259,680
    
    
    
    6.2Average stage length (miles)(d)
    
    
    1,058
    
    
    
    992
    
    
    
    6.7
    
    
    
    1,047
    
    
    
    989
    
    
    
    5.9Average passenger journey (miles)(e)
    
    
    1,692
    
    
    
    1,586
    
    
    
    6.7
    
    
    
    1,644
    
    
    
    1,510
    
    
    
    8.9Revenue passenger miles (in millions)(f)
    
    
    5,915
    
    
    
    5,502
    
    
    
    7.5
    
    
    
    11,222
    
    
    
    10,374
    
    
    
    8.2Load factor (percent)(g)
    
    
    78.3
    
    
    
    78.9
    
    
    
    (0.6
    ) pts
    

    
    75.3
    
    
    
    75.0
    
    
    
    0.3
    ptsPassenger enplanements (in thousands)(h)
    
    
    5,343
    
    
    
    5,185
    
    
    
    3.0
    
    
    
    10,241
    
    
    
    9,840
    
    
    
    4.1Yield per revenue passenger mile (cents)(i)
    
    
    9.62
    
    
    
    9.79
    
    
    
    (1.7
    )
    
    
    9.86
    
    
    
    10.01
    
    
    
    (1.5
    )Revenue per available seat mile:Passenger (cents)(j)
    
    
    7.54
    
    
    
    7.72
    
    
    
    (2.3
    )
    
    
    7.42
    
    
    
    7.51
    
    
    
    (1.2
    )Total (cents)(k)
    
    
    8.01
    
    
    
    8.25
    
    
    
    (2.9
    )
    
    
    7.93
    
    
    
    7.95
    
    
    
    (0.3
    )Fuel consumption (gallons in millions)
    
    
    113.9
    
    
    
    105.9
    
    
    
    7.6
    
    
    
    222.4
    
    
    
    209.7
    
    
    
    6.1Average fuel price (cents per gallon)*
    
    
    116.7
    
    
    
    81.6
    
    
    
    43.1
    
    
    
    111.2
    
    
    
    90.6
    
    
    
    22.7Average number of full-time equivalent employees
    
    
    11,936
    
    
    
    11,492
    
    
    
    3.9
    
    
    
    11,881
    
    
    
    11,898
    
    
    
    (0.1
    )
   *
    
    As restated(a)
    
    Average daily aircraft utilization  The average number of block hours per day
for all aircraft in service.(b)
    
    Available seat mile (ASM)  A basic measure of production. It is one seat
flown one mile.(c)
    
    Block hours  The hours measured from the moment an aircraft first moves under
its own power, including taxi time, for the purposes of flight until the aircraft is
docked at the next point of landing and its power is shut down.(d)
    
    Average stage length  The average of the distances flown on each segment of
every route.(e)
    
    Average passenger journey  The average one-way trip measured in miles for one
passenger origination.(f)
    
    Revenue passenger mile (RPM)  A basic measure of sales volume. It is one
passenger flown one mile.(g)
    
    Load factor  The percentage of available seats that are filled with revenue
passengers.(h)
    
    Passenger enplanements  The number of passengers on board an aircraft including
local, connecting and through passengers.(i)
    
    Yield  A measure of airline revenue derived by dividing passenger revenue by
revenue passenger miles and expressed in cents per mile.(j)
    
    Passenger revenue per available seat mile (RASM)  Total passenger revenues
divided by total available seat miles.  (k)
    Total revenue per available seat mile  Total operating revenues divided by total
available seat miles. 27




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 The table below sets forth the major components of CASM for AWA. Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
      
    Change2004
    
    
    2003
    
    
    2004-2003
    
    
    2004
    
    
    2003
    
    
    2004-2003(in cents)
    
    (as restated)
    
    
    
    
    
    
    (as restated)Salaries and related costs
    
    
    2.14
    
    
    
    2.24
    
    
    
    (4.4
    )
    
    
    2.20
    
    
    
    2.30
    
    
    
    (4.6
    )Aircraft rents
    
    
    1.00
    
    
    
    1.04
    
    
    
    (3.8
    )
    
    
    1.00
    
    
    
    1.07
    
    
    
    (5.3
    )Other rents and landing fees
    
    
    0.56
    
    
    
    0.54
    
    
    
    3.4
    
    
    
    0.56
    
    
    
    0.56
    
    
    
    Aircraft fuel
    
    
    1.76
    
    
    
    1.24
    
    
    
    42.2
    
    
    
    1.67
    
    
    
    1.37
    
    
    
    20.7Realized and unrealized losses (gains) on fuel
hedging instruments, net
    
    
    (0.12
    )
    
    
    0.01
    
    
    
    
    
    
    
    (0.07
    )
    
    
    (0.06
    )
    
    
    16.4Agency commissions
    
    
    0.08
    
    
    
    0.13
    
    
    
    (38.1
    )
    
    
    0.09
    
    
    
    0.13
    
    
    
    (33.6
    )Aircraft maintenance materials and repairs
    
    
    0.69
    
    
    
    0.84
    
    
    
    (17.4
    )
    
    
    0.69
    
    
    
    0.89
    
    
    
    (22.6
    )Depreciation and amortization
    
    
    0.17
    
    
    
    0.25
    
    
    
    (32.9
    )
    
    
    0.17
    
    
    
    0.26
    
    
    
    (30.1
    )Special charges, net
    
    
    
    
    
    
    0.21
    
    
    
    (100.0
    )
    
    
    
    
    
    
    0.10
    
    
    
    (100.0
    )Other
    
    
    1.38
    
    
    
    1.52
    
    
    
    (9.2
    )
    
    
    1.33
    
    
    
    1.54
    
    
    
    (13.5
    )7.66
    
    
    
    8.02
    
    
    
    (4.5
    )
    
    
    7.64
    
    
    
    8.16
    
    
    
    (6.4
    )
 Three Months Ended June 30, 2004 and 2003 For the second quarter of 2004, AWA realized operating income of $26.8 million compared to
$16.5 million in last years second quarter. The 2004
period includes $9.5 million of net
gains associated with the Companys fuel hedging transactions.
This amount includes $7.2 million
of gains resulting from mark-to-market accounting for changes in the fair value of the Companys fuel hedging
instruments and $2.3 million of net realized gains on settled hedge transactions. Income before
income taxes for the second quarter of 2004 was $11.5 million compared to income before income
taxes of $79.9 million for the comparable 2003 period. Total operating revenues for the second quarter of 2004 were $604.9 million. Passenger
revenues were $569.2 million, an increase of $30.8 million or 5.7% from the comparable 2003
quarter. RPMs increased 7.5% on an 8.3% increase in ASMs resulting in a 0.6 point decline in load
factor. Yield fell 1.7% and RASM decreased 2.3% to 7.54 cents in 2004 from 7.72 cents in 2003.
The decline in RASM was driven by increased industry capacity as well as AWAs 6.7% increase in
average stage length and an 8.9% increase in average daily aircraft utilization. Cargo revenues
decreased 13.1% to $6.8 million while other revenues were relatively flat quarter-over-quarter. Operating expenses in the second quarter of 2004 increased $19.0 million or 3.4% as compared
to the second quarter of 2003 while ASMs increased 8.3% primarily due to increases in average stage
length (6.7%) and aircraft utilization (8.9%). As a result, CASM decreased 4.5% to 7.66 cents in
the second quarter of 2004 from 8.02 cents for the second quarter of 2003. Significant changes in

the components of CASM are explained as follows:  
    Salaries and related costs per ASM decreased 4.4% due to increased productivity. While
ASMs increased 8.3%, average full-time equivalent employees (FTEs) increased only 3.9%.
    Aircraft rent expense per ASM decreased 3.8% due to the increase in aircraft utilization.
    Other rents and landing fees expense per ASM increased 3.4% mainly driven by a 17.3%
increase in landing fees and a 15.3% increase in airport rents.
    Aircraft fuel expense per ASM increased 42.2% primarily due to a 43.1% increase in the
average price per gallon of fuel to 116.7 cents in the second quarter of 2004 from 81.6
cents in the comparable 2003 quarter.
    Agency commissions expense per ASM decreased 38.1% due to reductions in various travel
agency incentive
programs and lower override commissions. 28




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004  
    Aircraft maintenance materials and repairs expense per ASM decreased 17.4% primarily due
to the decrease in capitalized maintenance amortization expense ($7.6 million). A change in
the estimated useful life on certain engines, effective January 1, 2004, as a result of
changes in aircraft utilization ($1.9 million) contributed to that decrease. The Company
also retired fully depreciated assets related to the return of certain leased aircraft and
engines which reduced capitalized maintenance amortization expense by $1.0 million during
the period.
    Depreciation and amortization expense per ASM decreased 32.9% primarily due to lower
computer hardware and software amortization ($1.8 million), lower amortization expense
related to aircraft leasehold improvements ($0.6 million) and reduced capital expenditures
as a result of the Companys cash conservation program. A change in the estimated useful
life as a result of changes in AWAs fleet plan contributed to the decrease for rotable and
repairable spare parts ($0.9 million), and for improvements on AWAs owned aircraft ($1.2
million).
    Other operating expenses per ASM decreased 9.2% due primarily to the 8.3% increase in
ASMs. A $3.5 million gain resulting from the settlement of a claim in bankruptcy for
amounts earned under an executory contract and a $1.0 million volume incentive earned due to
certain Affinity Card sales levels meeting certain contract thresholds also contributed to
the decrease. AWA had net nonoperating expenses of $15.2 million in the second quarter of 2004 compared to
$63.4 million of net nonoperating income in the second quarter of 2003. The 2003 period benefited
from $81.3 million of federal government assistance received under the Emergency Wartime
Supplemental Appropriation Act.A gain on the disposition of property and equipment of $1.4
million was recorded in the second quarter of 2004, due principally to the sale of one Boeing
737-200 aircraft. Interest income increased $0.5 million or 17.5% due to higher cash balances
while interest expense decreased 1.6% due to lower outstanding debt. Six Months Ended June 30, 2004 and 2003 For the six months ended June 30, 2004, AWA realized operating income of $42.6 million
compared to an operating loss of $30.0 million in the first six
months of 2003. The 2004 period  includes $9.9
million of net gains associated with the Companys fuel hedging
transactions. This amount includes $5.2 million of net realized gains
on settled hedge transactions and $4.7 million in gains resulting
from mark-to-market accounting for changes in the fair value of
the Companys fuel hedging instruments. The
2003 period includes a $7.9 million net gain associated with the Companys fuel hedging
transactions. This amount includes $9.2 million of net realized gains
on settled hedge transactions offset by a $1.3 million loss 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 six month period in 2004 was $10.7
million compared to income of $17.4 million in 2003. Total operating revenues for the six months ended June 30, 2004 were $1.2 billion. Passenger
revenues were $1.1 billion, an increase of $67.6 million or 6.5% from the 2003 six-month period.
An 8.2% increase in RPMs exceeded a 7.8% increase in ASMs, resulting in a 0.3 point increase in
load factor, while yield decreased 1.5%. As a result, RASM decreased 1.2% to 7.42 cents in 2004
from 7.51 cents in 2003 due to the overall increase in industry capacity and competition. Cargo
revenues decreased 7.9% to $13.7 million, while other revenues increased 36.2% to $61.1 million due
primarily to increased flying for AWA by its codeshare partner Mesa Airlines (Mesa) and a $2.5
million credit related to the reduction of certain obligations based upon a settlement with Mesa.
These increases were offset in part by lower net revenues from the sale of America West Vacations
packages due primarily to a decrease in volume. Operating expenses in the first six months of 2004 increased $10.0 million or 0.9% as compared
to the 2003 six-month period, while ASMs increased 7.8% due to increases in average stage length
(5.9%) and aircraft utilization (7.9%). CASM decreased 6.4% to 7.64 cents in 2004 from 8.16 cents for the six-month period in
2003 despite a 22.7% increase in average fuel price per gallon. Operating expenses in the first
six months of 2004 included a $0.6 million reduction in special charges related to the revision of
estimated costs associated with the sale and leaseback of certain aircraft. The 2003 period
included special charges of $14.4 million. Significant changes in the components of CASM are
explained as follows: 29




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##### Table of Contents



AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004  
    Salaries and related costs per ASM decreased 4.6% due to increased productivity. While
ASMs increased 7.8%, average full-time equivalent employees (FTEs) decreased 0.1%.
    Aircraft rent expense per ASM decreased 5.3% due to the increase in aircraft utilization.
    Aircraft fuel expense per ASM increased 20.7% due to a 22.7% increase in the average
price per gallon of fuel to 111.2 cents in the first six months of 2004 from 90.6 cents in
2003.
    Agency commissions expense per ASM decreased 33.6% primarily due to the reductions in
various travel agency incentive programs and lower override commissions.
    Aircraft maintenance materials and repairs expense per ASM decreased 22.6% primarily due
to decreases in aircraft C-Check ($5.0 million) and capitalized maintenance amortization
expense ($17.7 million). The decrease in capitalized maintenance amortization expense is
driven by changes in the estimated useful life on certain engines, effective January 1,
2004, as a result of changes in aircraft utilization ($4.3 million), and on certain aircraft
engine overhaul costs, effective April 1, 2003, driven by a new maintenance agreement that
guarantees minimum cycles on engine overhauls ($2.3 million). The Company also retired
fully depreciated assets related to the return of certain leased aircraft and engines which
reduced capitalized maintenance amortization expense by $3.8 million.
    Depreciation and amortization expense per ASM decreased 30.1% due primarily to lower
computer hardware and software amortization ($2.7 million), lower amortization expense
related to aircraft leasehold improvements ($2.1) million, and reduced capital expenditures
as a result of the Companys cash conservation program. A change in the estimated useful
life as a result of changes in AWAs fleet plan contributed to the decrease for rotable and
repairable spare parts ($1.8 million), and for improvements on AWAs owned aircraft ($1.2
million).
    Other operating expenses per ASM decreased 13.5% due primarily to decreases in catering
costs ($3.8 million), bad debt expense ($3.1 million), property taxes ($3.0 million),
airport guard services ($1.3 million), ground handling services ($0.9 million), offset by
increases in credit card discount fees ($2.5 million) and aircraft fuel taxes ($1.6
million). A $3.5 million gain resulting from the settlement of a claim in bankruptcy for
amounts earned under an executory contract, a $2.0 million gain resulting from the
settlement of a lawsuit related to certain computer hardware and software that had
previously been written off and a $1.0 million volume incentive earned due to certain
Affinity Card sales levels meeting certain contract thresholds, also contributed to the
decrease. AWA had net nonoperating expenses of $31.9 million in the first six months of 2004 compared to
$47.5 million of net nonoperating income in the first six months of 2003. The 2003 period
benefited from $81.3 million of federal government assistance received under the Emergency Wartime
Supplemental Appropriations Act.A gain on the disposition of property and equipment of $2.1
million was recorded year-to-date in 2004, due principally to the sale of one Boeing 737-200
aircraft. Interest income increased $0.6 million or 9.7% due to higher cash balances and interest
expense increased $0.9 million or 2.1% due to higher outstanding debt. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash At June 30, 2004, Holdings and AWAs total cash, cash equivalents, short-term investments,
investments in debt securities and restricted cash was $589.6 million and $570.2 million,
respectively. Net cash provided by operating activities for Holdings and AWA was $83.6 million and
$84.2 million, respectively, in the first six months of 2004 compared to $123.6 million for both
Holdings and AWA in the first six months of 2003. The year-over-year decrease in net cash provided
by operating activities of $40.0 million and $39.4 million for Holdings and AWA, respectively, was
primarily due to receiving $81.3 million of refunded security fees from the federal government in
the second quarter of 2003. 30




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 In the first six months of 2004, net cash used in investing activities was $91.5 million for
Holdings and AWA. This compares to net cash used in investing activities of $107.0 million for
Holdings and AWA in the first six months of 2003. Principal investing activities during the first
six months of 2004 included purchases of property and equipment totaling $77.2 million and net
purchases of short-term investments and investments in debt securities totaling $17.4 million. The
first six months of 2003 included purchases of property and equipment totaling $82.2 million,
including $12.0 million related to the purchase of an A320 airframe that was used to replace an
airframe that was damaged in an accident in August 2002, and net purchases of short-term
investments totaling $16.1 million. The 2003 period also included proceeds from the disposition of
assets totaling $24.0 million, including $12.6 million of insurance proceeds and $3.6 million of
scrap proceeds both associated with the replaced A320 airframe discussed above, and $6.9 million
related to the sale and leaseback of 29 jet bridges at Phoenix Sky Harbor International Airport. In the first six months of 2004, net cash used in financing activities by both Holdings and
AWA was $48.0 million, consisting primarily of debt repayments, including the first principal
payment of $42.9 million for the government guaranteed loan. This compares to $7.6 million of debt
repayments during the comparable 2003 period. Capital expenditures for the first six months of 2004 were approximately $77.2 million for
both Holdings and AWA as compared to capital expenditures of approximately $82.2 million for both
Holdings and AWA for the first six months of 2003. Included in these amounts are capital
expenditures for capitalized maintenance of approximately $58.4 million and $57.1 million for both
Holdings and AWA for the first six months of 2004 and 2003, respectively. Off-Balance Sheet Arrangements The Pass Through Trusts Since AWAs restructuring in 1994, AWA has set up 19 pass through trusts, which have issued
over $1.4 billion of pass through trust certificates (also known as Enhanced Equipment Trust
Certificates or EETC) covering the financing of 54 aircraft, all of which have been delivered.
These trusts are off-balance sheet entities, the primary purpose of which is to finance the
acquisition of aircraft. Rather than finance each aircraft separately when such aircraft is
purchased or delivered, these trusts 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 obligations of, nor guaranteed by, Holdings or AWA. However, in
the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of
AWA and in the case of leveraged lease financings, the leases are direct obligations of AWA. In
addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the
leased aircraft. All aircraft financed by these trusts are currently structured as leveraged lease
financings, which are not reflected as debt on the balance sheets of either AWA or Holdings in
accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of
Variable Interest Entities(Fin 46). In the second quarter and the first six months of 2004,
AWA made $25.3 million and $101.4 million, respectively, in lease payments in respect of the
leveraged lease financings under the pass through trusts. Other Operating Leases In addition to the aircraft financed by the pass through trust certificates, AWA has
noncancelable operating leases covering 82 aircraft, as well as leases for certain terminal space,
ground facilities and computer and other equipment. In the second quarter and first six months of
2004, AWA made $44.8 million and $97.3 million, respectively, in lease payments related to these
operating leases. AWA is currently evaluating the economic viability to continue to operate its
leased Boeing 737-200 fleet, particularly given the age of the aircraft and the associated
maintenance cost. 31




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Special Facility Revenue Bonds In June 1999, Series 1999 special facility revenue bonds (new bonds) were issued by the
Industrial Development Authority (IDA) of the City of Phoenix to fund the retirement of the
Series 1994A bonds (old bonds) and the construction of a new concourse with 14 gates at Terminal
4 in Phoenix Sky Harbor International Airport in support of AWAs strategic growth plan. The new
bonds are due June 2019 with interest accruing at 6.25% per annum payable semiannually on June 1
and December 1, commencing on December 1, 1999. The new bonds are subject to optional redemption
prior to the maturity date on or after June 1, 2009 in whole or in part, on any interest payment
date at the following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June 1 or
December 1, 2010; and 100% on June 1, 2011 and thereafter. In connection with these bonds, AWA entered into an Amended and Restated Airport Use
Agreement, pursuant to which AWA agreed to make sufficient payments to the IDA to cover the
principal and interest of the bonds and to indemnify the IDA for any claims arising out of the
issuance and sale of the bonds and the use and occupancy of the concourses financed by these bonds
and the old bonds. At June 30, 2004, the outstanding principal amount of the bonds was $21.8
million. The Company estimates its remaining payments to cover the principal and interest of these
bonds will be approximately $42.2 million. In accordance with Emerging Issues Task Force (EITF)
Issue No. 97-10, The Effect of Lessee Involvement in Asset Construction,the Company accounts for
this as an operating lease. Commitments As of June 30, 2004, AWA had $758.6 million of long-term debt (including current maturities).
This amount consisted primarily of the government guaranteed loan, of which $386.1 million remains
outstanding, a secured term loan with a group of financial institutions, of which $75.5 million
remains outstanding (including interest through June 30, 2004 as a deemed loan added to the
principal thereof), $39.5 million principal amount of 103/4% senior unsecured notes, $108.2 million
principal amount of 7.5% convertible senior notes (including interest through June 30, 2004 as a
deemed loan added to the principal thereof) and $86.8 million issue price of 7.25% senior
exchangeable notes. Government Guaranteed Loan In January 2002, AWA closed a $429 million loan supported by a $380 million guarantee provided
by the Air Transportation Stabilization Board (the ATSB). Certain third-party counter-guarantors
have fully and unconditionally guaranteed the payment of an aggregate of $45 million of the
outstanding principal amount under the government guaranteed loan plus accrued and unpaid interest
thereon. In addition, Holdings has fully and unconditionally guaranteed the payment of all
principal, premium, interest and other obligations outstanding under the government guaranteed loan
and has pledged the stock of AWA to secure its obligations under such guarantee. Principal amounts
under this loan become due in ten installments of $42.9 million on each March 31 and September 30,
commencing on March 31, 2004 and ending on September 30, 2008. AWA made the first principal
payment of $42.9 million on March 31, 2004. In connection with the issuance of the 7.25% Senior
Exchangeable Notes in the third quarter of 2003, AWA placed $42.9 million of the net proceeds in a
cash collateral account to secure the second principal payment due on September 30, 2004. This
amount has been recorded as restricted cash in the accompanying condensed consolidated balance
sheet. See 7.25% Senior Exchangeable Notes Due 2023below. Principal amounts outstanding under the government guaranteed loan bear interest at a rate per
annum equal to LIBOR plus 40 basis points. Subject to certain exceptions, we are required to prepay the government guaranteed loan with:  
    the net proceeds of all issuances of debt or equity by either Holdings or AWA after
January 2002;
    proceeds from asset sales in excess of $20 million in any fiscal year to the extent
such proceeds are not applied to redeem AWAs 103/4% senior notes due 2005; and
    insurance proceeds in excess of $2 million to the extent such proceeds are not used to
restore or replace the assets from which such proceeds are derived. 32




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 In addition, we are required to prepay the government guaranteed loan upon a change in control
and we may be required to prepay portions of the loan if our employee compensation costs exceed a
certain threshold. We may, at our option, prepay the government guaranteed loan without premium or
penalty, subject to reimbursement of the lenders breakage costs in the case of prepayment of LIBOR
loans. The government guaranteed loan requires that AWA maintain a minimum cash balance of $100
million. In addition, the government loan contains customary affirmative covenants and the
following negative covenants: restrictions on liens, investments, restricted payments, changes in
our fundamental business, asset sales and acquisitions, the creation of new subsidiaries,
sale-leaseback transactions, transactions with affiliates, continued existence, mergers or
consolidations, issuances and dispositions of capital stock of subsidiaries, and amendments to
other indebtedness. The government guaranteed loan contains customary events of default, including
payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and
judgment defaults. Term Loan In connection with the closing of the government guaranteed loan and the related transactions,
AWA converted its existing revolving credit facility into a term loan with the Mizuho Corporate
Bank, Ltd., as successor by merger to the Industrial Bank of Japan, Limited, and certain other
lenders. As of June 30, 2004, $75.5 million remains outstanding under the term loan (including
interest paid through June 30, 2004 as a deemed loan added to the initial principal thereof.)
Principal amounts under the term loan become due in two installments of $30 million on December 31,
2005 and December 31, 2006 with the remaining amounts becoming due and payable in full on December
31, 2007. Principal amounts outstanding under the term loan bear interest at a rate per annum
equal to, at our option, either the Base Rate or the Eurodollar Rate (which is based on LIBOR), in
each case plus an applicable margin. The applicable margin adjusts based on the length of time the
term loan has been outstanding. The term Base Rate has a meaning customary and appropriate for
financings of this type. In addition, principal amounts outstanding under the term loan bear
interest in kind at a rate of 2% through December 31, 2004. The prepayment requirements and covenants of the term loan are substantially similar to those
of the government guaranteed loan. We may, at our option, prepay the term loan without premium or
penalty, subject to reimbursement of the lenders breakage costs in the case of prepayment of loans
bearing the Eurodollar Rate. The term loan is secured by a first priority perfected security
interest in certain of our spare engines, rotable aircraft parts inventory and a maintenance
facility. We may be required to prepay portions of the loan if the fair market value of the
collateral, as determined by independent appraisers, decreases. The term loan contains customary
events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and
insolvency defaults and judgment defaults. 10 3/4% Senior Notes due 2005 In August 1995, AWA issued $75.0 million principal amount of 10 3/4% senior notes due 2005 of
which $39.5 million remained outstanding at June 30, 2004. Interest on the 10 3/4% senior notes is
payable semiannually in arrears on March 1 and September 1 of each year. We may redeem the 10 3/4% senior notes, in whole or in part, at a redemption price of 100%. If
AWA undergoes a change of control, it may be required to repurchase the 10 3/4% senior notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. If AWA sells certain assets, it may be required to use the net cash proceeds to
repurchase the 10 3/4% senior notes at 100% of the principal amount, plus accrued and unpaid interest,
to the date of purchase. The indenture governing the 10 3/4% senior notes contains certain covenants that, among other
things, limit our ability to pay dividends or make distributions to our stockholders, repurchase or
redeem capital stock, make investments or other restricted payments, enter into transactions with
our stockholders and affiliates, sell assets (including the stock of our subsidiaries) and merge or
consolidate with other companies. The indenture governing the 10 3/4% senior notes also contains
customary events of default, including payment defaults, cross-defaults, breach of covenants,
bankruptcy and insolvency defaults and judgment defaults. 33




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 7.5% Convertible Senior Notes due 2009 In connection with the closing of the government guaranteed loan and the related transactions,
Holdings issued $104.5 million of 7.5% convertible senior notes due 2009, of which approximately
$108.2 remained outstanding at June 30, 2004 (including interest paid through June 30, 2004 as a
deemed loan added to the principal thereof). Beginning January 18, 2005, these notes are
convertible into shares of Class B common stock, at the option of the holders, at an initial
conversion price of $12.00 per share or a conversion ratio of approximately 83.333 shares per
$1,000 principal amount of such notes, subject to standard anti-dilution adjustments. Interest on
the 7.5% convertible senior notes is payable semiannually in arrears on June 1 and December 1 of
each year. At Holdings option, the first six interest payments may be paid in the form of a
deemed loan added to the principal amount of these notes. The 7.5% convertible senior notes will
mature on January 18, 2009 unless earlier converted or redeemed. The payment of principal, premium
and interest on the 7.5% convertible senior notes is fully and unconditionally guaranteed by AWA. Holdings may redeem some or all of the 7.5% convertible senior notes at any time before
January 18, 2005, at a redemption price equal to $1,000 per note to be redeemed if (A) the closing
price of the Class B common stock has exceeded 120% of the conversion price then in effect for at
least 20 trading days within a period of 30 consecutive trading days ending on the trading day
before the date of the mailing of the redemption notice, and (B) a shelf registration statement
covering resales of the notes and the Class B common stock issuable upon conversion thereof is
effective and available for use and is expected to remain effective and available for use for the
30 days following the redemption date, unless registration is no longer required. Holdings may
redeem the 7.5% convertible senior notes, in whole or in part, on or after January 18, 2005 at the
following redemption prices (expressed as percentages of the principal amount thereof), if redeemed
during the twelve-month period commencing on January 18 of the years set forth below, plus, in each
case, accrued and unpaid interest, if any, to the date of redemption: Year
    
    Redemption Price2005
    
    
    103.75
    %2006
    
    
    102.50
    %2007
    
    
    101.25
    %2008 and thereafter
    
    
    100.00
    %
 7.25% Senior Exchangeable Notes due 2023 In July and August of 2003, AWA completed a private placement of approximately $86.8 million
issue price of 7.25% Senior Exchangeable Notes due 2023. The notes bear cash interest until July
30, 2008. Thereafter, the notes will cease bearing cash interest and begin accruing original issue
discount daily at a rate of 7.25% per year until maturity. Each note was issued at a price of
$343.61 and is exchangeable for Class B common stock of Holdings at an exchange ratio of 32.038
shares per $1,000 principal amount at maturity of the notes (subject to adjustment in certain
circumstances). This represents an equivalent conversion price of approximately $10.73 per share.
The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008,
will be $252,695,000. The notes are unconditionally guaranteed on a senior unsecured basis by
Holdings. Holders may exchange their notes for the shares of Class B common stock of Holdings at any
time, if, as of the last day of the preceding fiscal quarter, the closing sale price of the Class B
common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the
last trading day of such preceding fiscal quarter is more than 110% of the accreted exchange price
per share of Class B common stock on the last day of such preceding fiscal quarter. If the
foregoing condition is satisfied, then the notes will be exchangeable at any time at the option of
the holder through maturity. The accreted exchange price per share as of any day will equal the
issue price of a note plus accrued original issue discount to that day divided by 32.038, subject
to any adjustments to the exchange rate through that day. On or before July 30, 2018, a holder also may exchange its notes for shares of the Class B
common stock at any time after a 10 consecutive trading-day period in which the average of the
trading prices for the notes for that 10 trading-day period was less than 103% of the average
exchange value for the notes during that period. Exchange value is equal to the product of the
closing sale price for the shares of Class B common stock on a given day multiplied by the then
current exchange rate, which is the number of shares of Class B common stock for which each note is
then exchangeable. 34




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 In addition, the holders may exchange the notes if the notes have been called for
redemption or if certain specified corporate transactions have occurred. Holders of the notes may require AWA to repurchase the notes at a price equal to the original
issue price plus accrued cash interest and original issue discount, if any, on July 30, 2008, 2013
and 2018. The purchase price of such notes may be paid in cash or Class B common stock of
Holdings, subject to certain restrictions. In addition, each holder may require AWA to purchase
all or a portion of such holders notes upon the occurrence of certain change of control events
concerning AWA or Holdings. AWA may redeem the notes, in whole or in part, on or after July 30,
2008 at a price equal to the original issue price plus accrued cash interest and original
issue discount, if any. In connection with the offering AWA placed $42.9 million of the net proceeds in a cash
collateral account to secure the scheduled principal and interest payments on certain of its
indebtedness through September 30, 2004. This amount has been recorded as restricted cash in the
accompanying condensed consolidated balance sheet. Other Indebtedness and Obligations In addition to the above described indebtedness, we had $43.6 million of secured equipment
notes and $43.0 million of other unsecured indebtedness, including $29.3 million of industrial
revenue bonds. The following table sets forth our cash obligations as of June 30, 2004. Beyond2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    Total(In thousands)Long-term debt:Equipment notes  non-EETC (1)
    
    $
    4,152
    
    
    $
    8,305
    
    
    $
    8,305
    
    
    $
    7,772
    
    
    $
    15,083
    
    
    $
    
    
    
    $
    43,617Term loan (2)
    
    
    3,869
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    11,665
    
    
    
    
    
    
    
    
    
    
    
    75,5347.5% convertible senior notes due
2009(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,240
    
    
    
    108,2407.25% senior exchangeable notes
due 2023 (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,695
    
    
    
    252,695Government guaranteed loan (5)
    
    
    42,900
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    85,800
    
    
    
    
    
    
    
    386,100State loan (6)
    
    
    750
    
    
    
    250
    
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    1,500103/4% senior unsecured notes due 2005
    
    
    
    
    
    
    39,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,548Industrial development bonds (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,300
    
    
    
    29,300AVSA promissory notes (8)
    
    
    5,250
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,25056,921
    
    
    
    170,903
    
    
    
    124,355
    
    
    
    105,487
    
    
    
    100,883
    
    
    
    390,235
    
    
    
    948,784Cash aircraft rental payments (9)
    
    
    147,697
    
    
    
    320,037
    
    
    
    294,740
    
    
    
    276,679
    
    
    
    228,825
    
    
    
    1,839,262
    
    
    
    3,107,240Lease payments on equipment and
facility operating leases (10)
    
    
    10,925
    
    
    
    19,480
    
    
    
    17,546
    
    
    
    15,512
    
    
    
    15,735
    
    
    
    63,249
    
    
    
    142,447Capital lease obligations
    
    
    4,315
    
    
    
    4,744
    
    
    
    4,988
    
    
    
    1,773
    
    
    
    
    
    
    
    
    
    
    
    15,820Special facility revenue bonds (11)
    
    
    681
    
    
    
    1,363
    
    
    
    1,363
    
    
    
    1,362
    
    
    
    1,362
    
    
    
    36,106
    
    
    
    42,237Aircraft purchase commitments (12)
    
    
    79,739
    
    
    
    91,738
    
    
    
    223,362
    
    
    
    263,941
    
    
    
    
    
    
    
    
    
    
    
    658,780Engine maintenance commitments (13)
    
    
    12,000
    
    
    
    24,000
    
    
    
    8,000
    
    
    
    4,000
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    56,000Total
    
    $
    312,278
    
    
    $
    632,265
    
    
    $
    674,354
    
    
    $
    668,754
    
    
    $
    352,805
    
    
    $
    2,330,852
    
    
    $
    4,971,308
   (1)
    
    Includes approximately $43.6 million of equipment notes with variable interest rates
of 2.19% to 2.40%, averaging 2.22%, installments due 2004 through 2008.(2)
    
    Includes a $71.7 million secured term loan maturing at year-end 2007 with a variable
interest rate of 3.37% and $3.8 million of interest paid in kind through June 30, 2004 at a
fixed rate of 2%. Excludes $0.8 million of interest payable in kind through December 2004.(3)
    
    Includes $90.7 million principal amount of 7.5% convertible senior notes, due 2009,
and $17.5 million of interest paid in kind through June 30, 2004. For financial reporting
purposes, we recorded the convertible senior notes at their fair market value on the date of
issuance. As of June 30, 2004, the balance of the convertible senior notes in the
accompanying condensed consolidated balance sheet is approximately $66.6 million. 35




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004  (4)
    
    Includes $252.7 million principal amount of 7.25% senior exchangeable notes due July
2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal amount
at maturity. Thereafter, the notes will cease bearing cash interest and begin accruing
original issue discount at a rate of 7.25% until maturity. The aggregate amount due at
maturity, including accrued original issue discount from July 31, 2008, will be $252.7
million.(5)
    
    Government guaranteed loan includes $386.1 million with a variable interest rate of
1.5% at June 30, 2004 and ratable principal payments due 2004 through 2008. Guarantee fees of
approximately 8.0% of the outstanding guaranteed principal balance in 2004 through 2008 are
payable to the U.S. Treasury Department and other loan participants.(6)
    
    Includes Arizona State loan of $1.5 million due December 2007 with a variable
interest rate of 4.93% at June 30, 2004.(7)
    
    Includes $29.3 million of 6.3% industrial development bonds due April 2023.(8)
    
    Includes AVSA promissory notes of $12.2 million due 2004 with a variable interest
rate of 2.43% at June 30, 2004.(9)
    
    Includes non-cancelable operating leases for 136 aircraft with remaining terms
ranging from five months to approximately 20 years. Management estimates the debt equivalent
value of these operating leases approximates $1.8 billion using an interest rate of 10%. AWA
is currently evaluating the economic viability to continue to operate its leased Boeing
737-200 fleet, particularly given the age of the aircraft and the associated maintenance cost.(10)
    
    Includes leases for terminal space, ground facilities, the flight training center
and computer and other equipment under non-cancelable operating leases.(11)
    
    Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.(12)
    
    Includes commitments to purchase a total of 19 Airbus aircraft and three spare
engines for delivery in 2004 through 2007. AWA agreed on a term sheet to amend its 1999
Airbus purchase contract. The new agreement would decrease our commitments by $0.5 million
and $250.4 million in 2004 and 2007, respectively, offset by increases of $179.4 million in
2005 and $235.5 million in 2006.(13)
    
    Includes minimum commitments under AWAs rate per engine hour agreement with
General Electric Engine Services for overhaul maintenance services on V2500-A1 and CFM56-3B
engines through April 2008. Minimum monthly commitment amounts: for the period through and
including July 2004 through and including April 2006  $2.0 million, for the period May 2006
through and including April 2008  $500,000. We expect to fund these cash obligations from funds provided by operations and future
financings, if necessary. The cash available to us from these sources, however, may not be
sufficient to cover these cash obligations because economic factors outside our control may reduce
the amount of cash generated by operations or increase our costs. For instance, a further economic
downturn or other events, including future hostilities and terrorist attacks or infectious disease
outbreaks could reduce the demand for air travel, which would reduce the amount of cash generated
by operations. An increase in our costs, either due to an increase in borrowing costs caused by a
reduction in our credit rating or a general increase in interest rates or due to an increase in the
cost of fuel, maintenance, aircraft and aircraft engines and parts, could decrease the amount of
cash available to cover the cash obligations. In addition, we may be required to prepay portions
of the government guaranteed loan if our employee compensation costs exceed a certain threshold and
we may be required to prepay portions of the term loan to the extent the value of the collateral
securing the term loan decreases. In any of these cases, our liquidity may be adversely affected
and we may not have sufficient cash to prepay the government loan and meet our other obligations.
Moreover, certain of our long-term debt agreements contain a $100 million minimum cash balance
requirement. As a result, we cannot use all of our available cash to fund operations, capital
expenditures and cash obligations without violating this requirement. Although there can be no assurances, we believe that cash flow from operating activities
coupled with existing cash balances, will be adequate to fund our operating and capital needs as
well as enable us to maintain compliance with our various debt agreements through at least December
31, 2004. 36




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Financial Covenants and Credit Rating In addition to the minimum cash balance requirements, our long-term debt agreements contain
various negative covenants that restrict our actions, including our ability to pay dividends,
together with any other restricted payments. Moreover, under the terms of the government
guaranteed loan, we are prohibited from paying cash dividends prior to repayment of the loan in
full. Finally, our long-term debt agreements contain cross-default provisions, which may be
triggered by defaults by us under other agreements relating to indebtedness. See Risk Factors
Relating to America West and Industry Related Risks  Our high level of indebtedness and fixed
costs limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in responding
to competitive developments and increases our vulnerability to adverse economic and industry
conditions.As of June 30, 2004, Holdings and AWA were in compliance with the covenants in their
long-term debt agreements. In March 2004, Moodys raised its credit ratings on AWA to B3 from Caa1 for its senior implied
rating and to Caa2 from Caa3 for its senior unsecured debt rating. Standard & Poors currently
rates AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC
and Fitch Ratings rates AWAs long-term and senior unsecured debt rating at CCC. Our relatively
low credit ratings may impair our ability to incur additional indebtedness. The rating agencies
base their ratings on our financial performance and operations, our cash flow and liquidity, the
level of our debt and industry conditions in general. Any downgrade of our credit ratings may
indicate a decline in our business and in our ability to satisfy our obligations under our
indebtedness. See Risk Factors Relating to America West and Industry Related Risks  Because of
our relatively low credit ratings, our borrowing costs may be high and our ability to incur
additional debt may be impaired. Other Information Labor Relations On January 13, 2003, negotiations commenced with the Transport Workers Union (TWU) on a
second contract covering the Companys dispatchers. On September 17, 2003, TWU filed a petition
for mediation with the National Mediation Board (NMB). Mediated discussions began on October 15,
2003 and a tentative agreement for a new four-year contract was announced on February 20, 2004. On
March 26, 2004, TWU informed the Company that a majority of dispatchers voted against ratification
of the tentative agreement. Mediated negotiations with TWU will resume in August 2004. Negotiations with the International Brotherhood of Teamsters  Airline Division (IBT) on a
second contract covering the Companys mechanics and related employees commenced on October 9, 2003
and are ongoing. Negotiations with the Association of Flight Attendants  Communications Workers of America
(AFA) on a second contract covering the Companys flight attendants commenced on February 4, 2004
and are ongoing. On July 7, 2004, the NMB authorized an election among the Companys passenger service
employees in response to an application filed by the IBT. Telephone electronic voting will take
place from July 27 through August 17, 2004. Related Party Transactions As part of our reorganization in 1994, Continental Airlines and AWA entered into an alliance
agreement which included code sharing arrangements, reciprocal frequent flyer programs and ground
handling operations. Continental terminated the code sharing and frequent flyer agreements between
the two airlines, effective April 26, 2002. In the second quarter of 2004, AWA paid Continental
approximately $4.3 million and also received approximately $1.4 million from Continental pursuant
to these agreements. In the second quarter of 2003, the amount paid to and received from
Continental pursuant to these agreements was $4.5 million and $1.2 million, respectively. 37




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 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 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. 38




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004  
    Deferred Tax Asset Valuation Allowance  The Company initially recorded a full
valuation allowance relating to its net deferred tax assets at December 31, 2001 and to tax
benefits generated in 2002. In recording that valuation allowance, we considered whether it
was more likely than not that all or a portion of the deferred tax assets will not be
realized, in accordance with SFAS No. 109, Accounting for Income Taxes.The Company was
in a cumulative loss position for the three years ended December 31, 2002, which weighed
heavily in the overall determination that a valuation allowance was needed. As of June 30,
2004, the Company had recorded a valuation allowance of $61.5 million against its net
deferred tax assets. The Company expects to continue to record a full valuation allowance
on any future tax benefits until we have achieved several quarters of consecutive profitable
results coupled with an expectation of continued profitability. Forward-Looking Information This
quarterly report on Form 10-Q/A contains various forward-looking statements within the
meaning of Section 21E of the Exchange Act. These statements are based on managements beliefs as
well as assumptions made by and information currently available to management. When used in this
document, the words anticipate, estimate, expect, project and similar expressions are
intended to identify forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. Among the key factors that may have a direct
bearing on AWAs or Holdings results are:  
    economic conditions;
    the impact of global instability, including the continuing impact of the continued
military presence in Iraq and Afghanistan and the terrorist attacks of September 11, 2001,
and the potential impact of any future hostilities, terrorist attacks, infectious disease
outbreaks and government responses thereto, or other global events;
    limitations on the Companys or AWAs ability to obtain additional financing due to high
levels of debt and the financial and other covenants in its debt instruments;
    changes in federal and state laws and regulations;
    changes in prevailing interest rates and the availability and terms of financing to fund our business;
    the ability to attract and retain qualified personnel;
    the cyclical nature of the airline industry;
    competitive practices in the airline industry;
    the impact of changes in fuel prices; and
    relations with unionized employees generally and the impact and outcome of labor negotiations. For additional discussion of such risks see Business  Risk Factors Relating to America West
and Industry Related Risksdiscussed below. Any forward-looking statements speak only as of the
date of this report. 39




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Risk Factors Relating to America West and Industry Related Risks We caution the reader that these risk factors may not be exhaustive. We operate in a
continually changing business environment and new risk factors emerge from time to time.
Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new
risk factors on our business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those projected in any forward-looking statement. In
light of these risks, uncertainties and assumptions, the forward-looking events described in this
quarterly report on Form 10-Q/A might not occur. In the recent past, we sustained significant operating losses and we may sustain significant
losses in the future. For the years ended December 31, 2002 and 2001, we incurred operating losses of $160.1 million
and $417.9 million, respectively. Although we reported net income of $57.4 million for the year
ended December 31, 2003, there can be no assurance that we will be able to maintain or grow this
level of net income. Since the terrorist attacks of September 11, 2001, we have experienced an
increase in costs related to enhanced security measures, aviation insurance and airport rents and
landing fees. We expect the threat of further terrorist attacks and continued instability in the
Middle East to continue to negatively impact our revenues and costs in the near-term. In addition,
we have recently experienced a substantial increase in the cost of fuel. We may not be able to
effectively counteract increasing costs through our cost reduction initiatives, customer service
initiatives and revised pricing structures. Moreover, our liquidity and borrowing options are
limited and we may not be able to survive a prolonged economic downturn, further decreases in
demand for air travel or further increases in fuel costs. The inability to sustain profitability
may hinder our ability to satisfy our obligations as they become due, obtain future equity or debt
financing or to do so on economical terms or to sustain or expand our business. The terrorist attacks of September 11, 2001 and government responses have had, and continue to
have, a material adverse effect on our financial condition, operations and prospects. The terrorist attacks of September 11, 2001 have had, and continue to have, a wide-ranging
impact on our financial condition, operations and prospects. The immediate impact of the terrorist
attacks included a severe strain on our liquidity as the government temporarily suspended all
flights, passenger demand dropped precipitously after the attacks and as our credit ratings were
downgraded by both Moodys and Standard & Poors. Since then, although passenger demand has
recovered, we continue to experience reduced demand compared to prior years, especially in
discretionary business travel, and our costs relating to enhanced security measures, aviation
insurance, airport rents and landing fees have increased, in some cases significantly. The
continued impact of the terrorist attacks on our operations, and the sufficiency of our financial
resources to absorb this impact, will depend on certain factors, including, among others, the
following:  
    our ability to maintain our low cost structure and adequate cash balances;
    general economic conditions and the extent to which the current soft economic conditions improve;
    competition in the airline industry;
    our ability to manage fuel and labor costs; and
    the other risks discussed in this report. Moreover, continued global instability (including fuel price fluctuations), soft economic
conditions, future terrorist attacks and infectious disease outbreaks could further reduce demand
for air travel, increase our fuel, insurance and other costs and generally impact our liquidity or
financial condition. Our ability to obtain additional financing to absorb the impact of these type
of events is limited by the constraints imposed by our existing indebtedness, reductions in the
value of our aircraft (as a result of the terrorist attacks) and our relatively low credit ratings. 40




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Increased insurance costs due to the terrorist attacks of September 11, 2001 may adversely
impact our operations and financial results. The terrorist attacks of September 11, 2001 resulted in staggering losses to the insurance
industry. These losses led to a significant increase in our insurance premiums and could lead to
future increases in our insurance premiums. These increases have and could continue to negatively
impact our financial results. In addition, the resulting general instability in the insurance
industry could adversely affect some of our existing insurance carriers or our ability to obtain
future insurance coverage. To the extent that our existing insurance carriers are unable or
unwilling to provide us with insurance coverage, our insurance costs could further increase. Moreover, since September 11, 2001, AWA and other airlines have been unable to obtain third
party war risk (terrorism) insurance at reasonable rates from the commercial insurance market and
have been obtaining this insurance through a special program administered by the Federal Aviation
Administration, or FAA. This program has been extended by Vision 100 to a new termination date of
March 30, 2008. If the Federal insurance program terminates, we would likely face a material
increase in the cost of terrorism insurance, but because of competitive pressures in our industry,
our ability to pass this additional cost to passengers would be limited. Our high level of indebtedness and fixed costs limits our ability to fund general corporate
requirements and obtain additional financing, limits our flexibility in responding to competitive
developments and increases our vulnerability to adverse economic and industry conditions. We have a significant amount of indebtedness. In addition, we have incurred significant
capitalized and operating lease obligations in connection with the financing of aircraft and the
lease of airport and other facilities. As of June 30, 2004, we had approximately $758.6 million of
indebtedness outstanding, of which $119.1 million was secured by certain aircraft, substantially
all of our spare engines and rotable aircraft parts inventory, and a maintenance facility. In
addition, we had $15.8 million of capital lease obligations and $3.2 billion of operating lease
obligations through the lease expiration dates incurred primarily in connection with off-balance
sheet aircraft financings. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources  Off-Balance Sheet Arrangements.We also
have guaranteed costs associated with our regional alliance with Mesa Airlines. Due to our high
fixed costs, including aircraft lease obligations and debt service, a decrease in revenues results
in a disproportionately greater percentage decrease in earnings. In addition, as a result of our
significant indebtedness and fixed costs:  
    our ability to satisfy our debt and lease obligations may be impaired;
    we have only a limited ability to obtain additional financing, if needed. Our existing
indebtedness is secured by a substantial portion of our assets, leaving us with limited
assets to use to obtain additional financing. In addition, the terms of both the
government guaranteed loan and the term loan restrict our and AWAs ability to incur
additional indebtedness or issue equity unless we use the proceeds of those transactions to
prepay or redeem certain of our existing indebtedness;
    our ability to fund general corporate requirements, including capital expenditures, may
be impaired. We have substantial obligations to pay principal and interest on our
indebtedness and other recurring fixed costs. Further, we may be required to prepay
portions of the government guaranteed loan if our employee compensation costs exceed a
certain threshold. Accordingly, we may have to use our working capital to fund such
payments and costs instead of funding general corporate requirements. In addition, because
the terms of certain of AWAs indebtedness require it to maintain a minimum cash balance of
$100 million, we cannot use all of our available cash to fund operations, capital
expenditures and cash obligations without violating this minimum cash balance requirement;
and
    our ability to respond to competitive developments and adverse economic conditions may
be limited. Without the ability to obtain additional financing and with substantial fixed
costs, we may not be able to fund the capital expenditures, including the purchase of new
aircraft, required to keep us competitive or to withstand prolonged adverse economic
conditions. 41




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Moreover, our flexibility is limited because many of the agreements governing our
indebtedness, including the indenture governing the 103/4% senior notes due 2005 and the agreements
governing the government guaranteed loan and the term loan, contain negative covenants that restrict our ability to take certain
actions. As a result of these restrictive covenants and the minimum cash balance requirement
discussed above, we may be limited in how we conduct our business and may be unable to raise
additional capital through debt or equity financings to operate during general economic or business
downturns, to compete effectively or to take advantage of new business opportunities. This may
affect our ability to generate revenues and make profits. Without sufficient revenues, we may not
be able to pay interest and principal on outstanding indebtedness. A breach of these covenants or
a failure to make any required payments under our indebtedness or certain of our aircraft leases
could result in the acceleration of a substantial portion of our indebtedness. In the event of a breach of these covenants, a failure to make
required payments or an acceleration of our indebtedness, it is likely that credit card companies
would begin to withhold proceeds due to us from the sale of our tickets and our lessors may attempt
to exercise remedies under their respective leases. In such a situation, it is unlikely we would
be able to fulfill our obligations under or otherwise repay the accelerated indebtedness or make
required lease payments. Fluctuations in fuel costs could adversely affect our operating expenses and results. The price and supply of jet fuel are unpredictable and fluctuate based on events outside our
control, including geopolitical developments, regional production patterns and environmental
concerns. Since fuel is the principal raw material consumed by our business, accounting for 21.7%
of our total operating expenses in the first six months of 2004 and 16.8% of our total operating
expenses for the same period of 2003, price escalations or reductions in the supply of jet fuel
will increase our operating expenses and cause our operating results and net income to decline.
For example, based on our current level of fuel consumption, we estimate that a one-cent per gallon
increase in jet fuel prices will cause our annual operating expense to increase by $4.4 million. We have implemented a fuel-hedging program to manage the risk and effect of fluctuating jet
fuel prices on our business. Our hedging program is intended to offset increases in jet fuel costs
by using fuel hedging instruments keyed to the future price of heating oil, which is highly
correlated to the price of jet fuel delivered on the East Coast of the United States. Our hedging
program does not fully protect us against increasing jet fuel costs because our hedging program
does not cover all of our projected fuel volumes for 2004. Hedging transactions are in place with
respect to approximately 48% and 8% of remaining projected 2004 and 2005 fuel requirements,
respectively. Furthermore, our ability to effectively hedge fuel prices is limited because we
purchase a substantially larger portion of our jet fuel requirements on the West Coast of the
United States compared to our large competitors and West Coast fuel prices are less correlated to
heating oil prices and other viable petroleum derivatives than East Coast fuel prices and,
therefore, more difficult to hedge. The effectiveness of our fuel-hedging program may also be
negatively impacted by continued instability in the Middle East and terrorist activity. Because of our relatively low credit ratings, our borrowing costs may be high and our ability
to incur additional debt may be impaired. Our credit ratings are relatively low, with Moodys assessment of AWAs senior implied rating
and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poors assessment of
AWAs and Holdings corporate credit ratings at B- and AWAs senior unsecured rating at CCC, and
Fitch Ratings assessment of AWAs long-term and senior unsecured debt rating at CCC. Low credit
ratings could cause our future borrowing costs to increase, which would increase our interest
expense and could affect our net income. In addition, our credit ratings could adversely affect
our ability to obtain additional financing. The rating agencies base their ratings on our
financial performance and operations, our cash flow and liquidity, the level of our indebtedness
and industry conditions in general. If our financial performance or industry conditions do not
improve, we may face future downgrades, which could further negatively impact our borrowing costs
and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings
may indicate a decline in our business and in our ability to satisfy our obligations under our
indebtedness. 42




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Negotiations with labor unions could divert management attention and disrupt operations and
new collective bargaining agreements or amendments to existing collective bargaining agreements
could increase our labor costs and operating expenses. Some of our employees are represented by unions and other groups of our employees may seek
union representation in the future. On January 13, 2003, negotiations commenced with the TWU on a
second contract covering the Companys dispatchers. On September 17, 2003, the TWU filed a
petition for mediation with the NMB. Mediated discussions began on October 15, 2003 and a
tentative agreement for a new four-year contract was announced on February 20, 2004. On March 26,
2004, the TWU informed the Company that a majority of dispatchers
voted against ratification of the tentative agreement. Mediated negotiations with the TWU
will resume in August 2004. Negotiations with the IBT for a second collective bargaining agreement
covering the Airlines mechanics and related employees commenced on October 9, 2003 and are
ongoing. Additionally, negotiations with the AFA on a second contract covering the Companys
flight attendants commenced on February 4, 2004 and are ongoing. On July 7, 2004, the NMB
authorized an election among the Companys passenger service employees in response to an
application filed by the IBT. Telephone electronic voting will take place from July 27 through
August 17, 2004. We cannot predict the outcome of the passenger service employees election or the negotiations
with the TWU, IBT or AFA or any future negotiations relating to union representation or collective
bargaining agreements. Agreements reached in collective bargaining may increase operating expenses
and lower operating results and net income. This is particularly significant because our current
employee costs contribute substantially to the low cost structure that we believe is one of our
competitive strengths and because we are required to repay a portion of the government guaranteed
loan if our labor costs exceed a certain threshold. In addition, negotiations with unions could
divert management attention and disrupt operations, which may result in increased operating
expenses and lower net income. If we are unable to negotiate acceptable collective bargaining
agreements, we might have to address the threat of, or wait through cooling off periods, which
could be followed by union-initiated work actions, including strikes. Depending on the nature of
the threat or the type and duration of any work action, these actions could disrupt our operations
and, as a result, have a significant adverse affect on our operating results. Fluctuations in interest rates could adversely affect our liquidity, operating expenses and
results. Our indebtedness under both the government guaranteed loan and the term loan bears interest at
fluctuating interest rates based on the London interbank offered rate for deposits of U.S. dollars,
or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates,
including the prime rate, and the supply of and demand for credit in the London interbank market.
We have not hedged our interest rate exposure and, accordingly, our interest expense for any
particular period may fluctuate based on LIBOR. To the extent LIBOR increases, our interest
expense will increase, in which event, we may have difficulties making interest payments and
funding our other fixed costs and our available cash flow for general corporate requirements may be
adversely affected. Our operating costs could increase as a result of past, current or new regulations that impose
additional requirements and restrictions on airline operations. The airline industry is heavily regulated. Both federal and state governments from time to
time propose new laws and regulations that impose additional requirements and restrictions on
airline operations. Implementing these measures, such as aviation ticket taxes and passenger
safety measures, has increased operating costs for us and the airline industry as a whole. In
addition, new security measures imposed by the Aviation and Transportation Security Act, or ATSA,
or otherwise by Congress, the Department of Homeland Security or the FAA as a result of concern
over continuing terrorist threats are expected to continue to increase costs for us and the airline
industry as a whole. Depending on the implementation of these laws and other measures, our
operating costs could increase significantly. Certain governmental agencies, such as the DOT and
the FAA, have the authority to impose mandatory orders, such as Airworthiness Directives in
connection with our aircraft and civil penalties for violations of applicable laws and regulations,
each of which can result in material costs and adverse publicity. We cannot predict which laws and
regulations will be adopted or what other action regulators might take. Accordingly, we cannot
guarantee that future legislative and regulatory acts will not have a material impact on our
operating results. 43




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 The airline industry and the markets we serve are highly competitive and we may be unable to
compete effectively against carriers with substantially greater resources or lower cost structures. The airline industry and most of the markets we serve are highly competitive. We compete with
other airlines on the basis of pricing, scheduling (frequency and flight times), on-time performance, type of
equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the
automation of travel agent reservation systems, on-board products and other services. Certain
airlines have in the past engaged in retaliatory activities, including steep pricing discounts in
certain markets and termination of alliance agreements, in response to changes in our pricing
structure. In addition, the elimination of federal regulations that are intended to diminish the
use of preferential scheduling displays and other CRS practices may place us at a competitive
disadvantage to airlines controlling the CRS systems. Our principal competitor is Southwest
Airlines, which has a lower operating cost structure than we do. We also compete against other
existing carriers, many of which offer more extensive routes, frequencies and customer loyalty,
marketing and advertising programs than we do and with new carriers which typically have low
operating cost structures. We may be unable to compete effectively against carriers with
substantially greater resources or lower cost structures. The entry of additional new carriers in
our markets, the consolidation of existing carriers or increased competition from existing
carriers, could adversely affect our operating results. The terrorist attacks of September 11, 2001, the continued military presence in Iraq and
Afghanistan, and the current soft economic conditions have led to the airline industrys
significant losses since 2001. Largely as a result of these losses, both U.S. Airways and United
Airlines filed for bankruptcy protection. Because bankruptcy protection may allow for greater
flexibility in reducing costs by voiding contracts and renegotiating existing business obligations,
current and future airline bankruptcies could have a substantial impact on industry competition.
Continued weakness in the airline industry may also result in additional industry consolidation,
greater reliance on industry alliances and increased price competition among the existing airlines,
each of which could dramatically alter competitive environments in the markets we serve. Our business is sensitive to general economic conditions, unforeseen events and seasonal
fluctuations. As a result, our prior performance is not necessarily indicative of our future
results. The air travel business historically fluctuates on a seasonal basis and in response to general
economic conditions. Due to the greater demand for air and leisure travel during the summer
months, revenues in the airline industry in the second and third quarters of the year tend to be
greater than revenues in the first and fourth quarters of the year. In addition, the airline
industry is highly susceptible to unforeseen events that result in declines in revenues or
increased costs, such as political instability, regional hostilities, terrorist attacks, recession,
fuel price escalation, inflation, infectious disease outbreaks, adverse weather conditions,
consumer preferences, labor instability or regulatory oversight. Also, our results of operations
for interim periods are not necessarily indicative of those for an entire year and our prior
results are not necessarily indicative of our future results. 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. 44




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 The stockholders who effectively control the voting power of Holdings could take actions that
would favor their own personal interests to the detriment of our interests. Currently, two stockholders collectively control more than 50% of the total voting power of
Holdings. These stockholders, TPG Partners, L.P. and TPG Parallel I, L.P (collectively, the TPG
Stockholders) are controlled by the same company, TPG Advisors, Inc. Since TPG Advisors, Inc. is an investment firm, its
strategic objectives may be different than both the short-term or long-term objectives of our board
of directors and management. We cannot guarantee that the TPG Stockholders will not try to
influence Holdings business in a way that would favor their own personal interests to the
detriment of our interests and those of our other stockholders. We are at risk of losses and adverse publicity stemming from any accident involving any of our
aircraft. If one of our aircraft were to crash or be involved in an accident, we could be exposed to
significant tort liability. There can be no assurance that the insurance we carry to cover damages
arising from any future accidents will be adequate. In the event that our insurance is not
adequate, we may be forced to bear substantial losses from an accident. Claims resulting from an
accident in excess of our insurance coverage would harm our business and results of operations.
Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any
accident involving an aircraft that we operate could create a public perception that our aircraft
are not safe or reliable, which could harm our reputation, result in air travelers being reluctant
to fly on our aircraft and harm our business. Our operations are often affected by factors beyond our control, including traffic congestion
at airports, weather conditions and increased security measures, any of which could harm our
financial condition and results of operations. Like other airlines, our operations are subject to delays caused by factors beyond our
control, including air traffic congestion at airports, adverse weather conditions and increased
security measures, such as those required to be implemented under the ATSA. During periods of fog,
snow, rain, storms or other adverse weather conditions, flights may be cancelled or significantly
delayed. Cancellations and delays frustrate passengers, reduce aircraft utilization and increase
costs, all of which in turn affect profitability. As a result, cancellations or delays could harm
our financial condition and results of operations. We rely heavily on automated systems to operate our business and any failure of these systems
could harm our business. We depend on automated systems to operate our business, including our computerized airline
reservation system, our telecommunication systems and our website. For the first six months of
2003, 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 July 21, 2004, the outstanding shares of
our Class B common stock were subject to dilution by:  
    19,692,000 shares of Class B common stock that are issuable upon the exercise, at a
price of $3.00 per share, of certain warrants issued in connection with the government
guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise
of a warrant issued to the ATSB; and
    10,107,742 shares of our Class B common stock that are issuable upon the exercise of
outstanding options. 45




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 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 8,095,891 shares of Holdings Class B common
stock will be issuable upon the exchange of AWAs 7.25% senior exchangeable notes due 2023 (which
exchange may not occur until the trading price of Holdings Class B common stock reaches certain
thresholds, or other triggering events occur) and up to approximately 9,400,000 shares of Holdings
Class B common stock will be issuable after January 18, 2005 upon conversion of Holdings 7.5%
convertible senior notes due 2009. Holdings has registered either the issuance or resale of
all of these shares, meaning that upon exercise, exchange or conversion, as applicable, such shares
could be sold in the public market at any time. The conversion or exercise of some or all of these notes, warrants and options will dilute the
ownership interests of existing stockholders and any sales in the public market of our Class B
common stock issuable upon such conversion or exercise could adversely affect prevailing market
prices of our Class B common stock. In addition, the existence of the notes, warrants and options
may encourage short selling by market participants because conversion or exercise of the notes or
warrants could depress the price of our Class B common stock. Provisions in our charter documents might deter acquisition bids for us. Holdings Certificate of Incorporation and Restated Bylaws contain provisions that, among
other things:  
    authorize Holdings board of directors to issue preferred stock ranking senior to our
Class B common stock without any action on the part of the stockholders;
    establish advance notice procedures for stockholder proposals, including nominations of
directors, to be considered at stockholders meetings;
    authorize Holdings board of directors to fill vacancies on the board resulting from an
increase in the authorized number of directors or any other cause; and
    restrict the ability of stockholders to call special meetings of stockholders. These provisions might make it more difficult for a third party to acquire us, even if doing
so would benefit the stockholders. 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 4. CONTROLS AND PROCEDURES. The following has been amended to reflect the restatement of our financial statements for
current and prior periods as discussed further in the Explanatory Note, Note 2, Restatement of
Previously Reported Amountsof Holdings 46




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 Notes to Condensed Consolidated Financial Statements
appearing in Item 1A and Note 2, Restatement of Previously Reported Amountsof AWAs Notes to
Condensed Financial Statements appearing in Item 1B. (a) Evaluation of disclosure controls and procedures. In connection with the preparation of the previously filed Quarterly Report on Form 10-Q for
the three and six months ended June 30, 2004, an evaluation was performed under the supervision and
with the participation of Holdings and AWAs management, including the Chief Executive Officer
(the CEO) and Chief Financial Officer (the CFO), of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in the rules promulgated under the Exchange Act) as of June 30, 2004. Based
on that evaluation at that time, our management, including the CEO and CFO, concluded that our disclosure controls and procedures
were effective as of June 30, 2004. However, in connection with the preparation of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004, our management, in consultation with the Audit Committee of Holdings
Board of Directors, identified a material weakness in our disclosure controls and procedures
associated with the accounting for AWAs fuel hedging program that resulted in a need to restate
our financial statements for interim and prior periods, as described below. In February 2005, management undertook a review of AWAs accounting for its fuel hedging
transactions. As a result of this review, management concluded that AWAs fuel hedging
transactions did not qualify for hedge accounting under U.S. generally accepted accounting
principles and that the Companys financial statements for prior periods required restatement to
reflect the fair value of fuel hedging contracts in the balance sheets and statements of
stockholders equity and comprehensive income of Holdings and AWA. The Company concluded that these
accounting errors were the result of deficiencies in its internal control over financial reporting,
from the lack of effective reviews of hedge transaction documentation and of quarterly
mark-to-market accounting entries on open fuel hedging contracts by personnel at an appropriate
level. In light of the material weakness described above, our management, including the CEO and CFO,
now believe that our disclosure controls and procedures were not effective as of June 30, 2004
since they resulted in a need to restate our financial statements, as described above. (b) Changes in internal control over financial reporting. There were no significant changes in our internal control over financial reporting during the
three month period ended June 30, 2004 that materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting. However, prior to the filing of
this report, we have implemented changes to our internal controls to correct the material weakness
identified, as described above. Specifically, we have corrected this material weakness by
implementing a review process that verifies the quarterly mark-to-market adjustment on open fuel
hedging positions. In addition, the Company will utilize the mark-to-market method of accounting
for its fuel hedging instruments going forward until such time it is able to implement processes
and controls necessary to ensure that appropriate hedge documentation is obtained at hedge
inception. At that time, the Company will evaluate whether it will re-apply hedge accounting. (c) Limitation on the effectiveness of controls. We believe that a controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and the CEO and CFO now believe that our
disclosure controls and procedures were not effective at the reasonable assurance level as of
June 30, 2004 since they resulted in a need to restate our financial statements for prior periods,
as described above. However, with the changes in our internal controls implemented prior to the
filing of this report, the CEO and CFO now believe that these controls and procedures are effective
at the reasonable assurance level. 47




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 
 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 (the Exchange
Act), of our Class B common stock during each month within the second quarter of 2004. No
purchases were made pursuant to a publicly announced repurchase plan or program. (d) Maximum Number(c) Total Number of
    
    
    (or ApproximateShares Purchased as
    
    
    Dollar Value) of(a) Total Number of
    
    
    
    
    
    
    Part of Publicly
    
    
    Shares that May YetShares Purchased
    
    
    (b) Average Price
    
    
    Announced Plans or
    
    
    be Purchased UnderPeriod
    
    (1)
    
    
    Paid per Share
    
    
    Programs
    
    
    the Plans or ProgramsApril 1, 2004  April 30, 2004
    
    
    23,300
    
    
    
    10.11
    
    
    
    
    
    
    
    May 1, 2004  May 31, 2004
    
    
    96,200
    
    
    
    10.31
    
    
    
    
    
    
    
    June 1, 2004  June 30, 2004
    
    
    26,900
    
    
    
    9.50
    
    
    
    
    
    
    
    
   (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 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits EXHIBITNUMBER
    
    DESCRIPTION3.1*
    
    Certificate of Amendment to Certificate of Incorporation of America
West Holdings Corporation, as amended May 24, 2004.10.1*
    
    Amendment No. 2 to Amended and Restated Term Loan Agreement, dated
as of June 28, 2004, among AWA, the lenders from time to time party
thereto, Mizuho Corporate Bank, Ltd., Mizuho Global, Ltd., Citicorp
USA, Inc. and Deutsch Bank Trust Company Americas.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.
   *
    
    Previously filed. 48




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AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
June 30, 2004 b. Reports on Form 8-K Holdings and AWA filed a report on Form 8-K, dated June 4, 2004, furnishing under Item 12
a press release dated June 3, 2004 announcing certain traffic statistics for May 2004. Holdings and AWA filed a report on Form 8-K, dated May 5, 2004, furnishing under Item 12 a
press release dated May 4, 2004 announcing certain traffic statistics for April 2004. Holdings and AWA filed a report on Form 8-K, dated April 20, 2004, furnishing under Item
12 a press release dated April 20, 2004 announcing the Companys results for three months
ended March 31, 2004. Holdings and AWA filed a report on Form 8-K, dated April 6, 2004, furnishing under Item 12
a press release dated April 5, 2005 announcing certain traffic statistics for March 2004. 49




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AMERICA WEST HOLDINGS CORPORATION
June 30, 2004 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST HOLDINGS CORPORATIONBy
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 26, 2005 50




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AMERICA WEST HOLDINGS CORPORATION
June 30, 2004 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA WEST AIRLINES, INC.By
    
    /s/ Derek J. KerrDerek J. KerrSenior Vice President and Chief Financial Officer
 DATED: April 26, 2005 51