Opinion ID: 781005
Heading Depth: 3
Heading Rank: 3

Heading: Beginning of Class Period

Text: 21 The low performance of America West's stock obviously affected both its shareholders and officers who held stock options. In response, TPG and Continental allegedly decided to raise the stock price by May 20, 1998, the date on which they could freely sell their publicly-traded stock under the Stockholder's Agreement. To accomplish this goal, TPG and Continental allegedly joined forces to exert undue influence on America West officers, taking advantage of their position as majority owners who controlled the Board of Directors and related committees. 22 In particular, Plaintiffs allege that, under the influence of TPG and Continental, America West redoubled its efforts to push the stock price higher by peppering the market with false statements about the company's outlook, launching a campaign to secure favorable recommendations from analysts by misinforming them that operational problems had been fixed, and representing that the improved financial returns were due to exceptionally efficient management, rather than unsafe maintenance practices. Plaintiffs also allege that, in its statements and financial documents, America West overstated its operating income by under-reporting maintenance and repairs expenses. 23 Some examples of the statements made by America West during this time period include: 24 &#x2022;On November 18, 1997, senior management represented to Donaldson, Lufkin & Jenrette (DLJ) that bright revenue prospects were ahead and that the maintenance issues caused by outsourcing were behind the company. DLJ issued a report the following day. 25 &#x2022;On January 20, 1998, America West issued a report, headlined America West Holdings Corporation Reports Best Financial Results in Company History. 26 &#x2022;On January 20, 1998, America West held a conference call with analysts, portfolio managers, and other investors. Franke and Parker, the Chief Financial Officer, discussed the 112% increase in fourth quarter pre-tax income [of 1997] and indicated that America West's maintenance expenses would not increase in 1998. Following this conference call, Morgan Stanley Dean Witter raised its rating on America West to out perform. 27 Contrary to America West's representations, its maintenance problems, as well as the FAA's resulting enforcement actions and warnings, continued to occur. Examples include: 28 &#x2022;A January 20, 1998 FAA letter to Goodmanson and related case report, stating that America West's failure to ensure the effectiveness of the two-way radio communication system on airplanes is indicative of the systemic problems that are deeply integrated within the airline's procedures and/or lack thereof; and 29 &#x2022;A February 9, 1998 FAA letter to Goodmanson and related case report, stating that America West's lack of methods and procedures regarding dispatch releases perpetuates the attitude of this carrier's management that safety and regulatory requirements are secondary to the continued movement of aircraft within the carrier's route system. 30 By failing to perform the required inspections and routine maintenance, America West allegedly achieved artificially high utilization rates (i.e., the number of hours flown by an aircraft per day), which in turn increased their revenues. Plaintiffs allege that America West, TPG, and Continental all knew that America West would eventually bear the brunt of these deferred costs. 31 Plaintiffs also allege that TPG and Continental caused America West to repurchase its own stock as a manipulative device designed to further inflate its price. During the second and third quarters of 1998, America West spent $87 million repurchasing 4.2 million shares on the open market. In total, America West spent nearly $100 million repurchasing 4.9 million shares. 32 Plaintiffs assert that the scheme to raise the stock price succeeded by overstating the company's operating income, ignoring maintenance and operational problems, failing to inform investors and the public of its ongoing structural problems, and repurchasing publicly-traded stock. By December 30, 1997, the stock hit $18-7/8, its highest price in 17 months. By March 10, 1998, America West stock reached $27-1/4, the highest price since its bankruptcy reorganization. By April 21, 1998, America West's stock soared to an all-time high of $31-5/16. In the 1997 Annual Report released on May 4, 1998, Franke and Goodmanson stated that America West had produced the best financial results in its history and realized substantial improvements in its operational performance. The report also emphasized that safety will continue to be a foremost priority. 33 From April 23, 1998, to May 6, 1998, several high-ranking America West insiders, including outside directors Bollenbach, Fraser, and Ryan, sold 101,000 shares at as high as $30-9/16 per stock, netting $3 million in proceeds. As noted earlier, under the Stockholder's Agreement, TPG and Continental could begin selling their publicly-traded Class B stock, without selling any of their supervoting Class A stock, beginning on May 20, 1998. On May 28, 1998, TPG sold approximately 99% of its Class B stock (1,613,586 shares) at approximately $27-3/4 per share, totaling over $44 million. On June 22, 1998, Continental sold all of its Class B stock (317,140 shares) at $28-1/8 per share, totaling over $8.9 million. By the end of July 1998, insiders had sold 2.4 million shares for over $67 million.