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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10140
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (480) 693-0800
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE 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 XX NO
INDICATE BY CHECKMARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGES ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT.
YES XX NO
THE COMPANY HAS 1,000 SHARES OF CLASS B COMMON STOCK AND WARRANTS TO ACQUIRE
2,924,647 SHARES OF AMERICA WEST HOLDINGS CORPORATION CLASS B COMMON STOCK
OUTSTANDING AS OF JULY 31, 1999.
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF AMERICA WEST HOLDINGS CORPORATION,
MEETS THE CONDITION SET FORTH IN GENERAL INSTRUCTION H(1) (a) AND (b) OF FORM
10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT
TO GENERAL INSTRUCTION H (2).
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 177,837 $ 107,234
Short-term investments ................................. -- 27,485
Accounts receivable, net ............................... 89,204 87,048
Advances to parent company and affiliate, net .......... 179,615 116,128
Expendable spare parts and supplies, net ............... 37,586 31,147
Prepaid expenses ....................................... 46,252 33,516
---------- ----------
Total current assets ............................... 530,494 402,558
---------- ----------
Property and equipment:
Flight equipment ....................................... 900,987 931,134
Other property and equipment ........................... 168,957 152,298
Equipment purchase deposits ............................ 87,149 83,649
---------- ----------
1,157,093 1,167,081
Less accumulated depreciation and amortization ......... 382,190 408,065
---------- ----------
Net property and equipment ......................... 774,903 759,016
---------- ----------
Other assets:
Restricted cash ........................................ 30,503 32,512
Reorganization value in excess of amounts allocable to
identifiable assets, net ........................... 301,749 311,697
Deferred income taxes .................................. 27,440 27,440
Other assets, net ...................................... 63,684 61,421
---------- ----------
Total other assets ................................. 423,376 433,070
---------- ----------
$1,728,773 $1,594,644
========== ==========
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt ................. $ 78,641 $ 80,439
Accounts payable ..................................... 115,946 102,105
Air traffic liability ................................ 227,767 196,013
Accrued compensation and vacation benefits ........... 41,431 47,081
Accrued taxes ........................................ 77,300 40,809
Other accrued liabilities ............................ 49,574 40,467
---------- ----------
Total current liabilities ........................ 590,659 506,914
---------- ----------
Long-term debt, less current maturities .................. 198,003 207,906
Deferred credits and other liabilities ................... 107,812 110,599
Commitments and contingencies
Stockholder's equity:
Common stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares ........................ -- --
Additional paid-in capital ........................... 519,750 523,126
Retained earnings .................................... 312,549 246,099
---------- ----------
Total stockholder's equity ....................... 832,299 769,225
---------- ----------
$1,728,773 $1,594,644
========== ==========
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Operating revenues:
Passenger ..................................... $ 524,246 $ 491,042 $ 1,002,868 $ 934,834
Cargo ......................................... 10,670 11,887 21,398 24,492
Other ......................................... 19,277 16,560 36,389 31,116
----------- ----------- ----------- -----------
Total operating revenues .................. 554,193 519,489 1,060,655 990,442
----------- ----------- ----------- -----------
Operating expenses:
Salaries and related costs .................... 119,962 112,262 237,517 217,846
Aircraft rents ................................ 65,577 60,195 131,102 118,940
Other rents and landing fees .................. 31,589 28,794 60,850 58,252
Aircraft fuel ................................. 53,070 47,798 97,433 98,082
Agency commissions ............................ 30,750 34,900 60,442 66,517
Aircraft maintenance materials and repairs .... 51,938 44,041 100,624 86,469
Depreciation and amortization ................. 12,322 12,765 23,997 25,063
Amortization of excess reorganization value ... 4,974 4,974 9,948 9,948
Other ......................................... 109,952 99,968 215,794 187,710
----------- ----------- ----------- -----------
Total operating expenses .................. 480,134 445,697 937,707 868,827
----------- ----------- ----------- -----------
Operating income .................................. 74,059 73,792 122,948 121,615
----------- ----------- ----------- -----------
Nonoperating income (expenses):
Interest income ............................... 4,402 6,041 8,915 11,086
Interest expense, net ......................... (7,804) (8,263) (15,824) (17,935)
Other, net .................................... 3,238 -- 2,647 (264)
----------- ----------- ----------- -----------
Total nonoperating expenses, net .......... (164) (2,222) (4,262) (7,113)
----------- ----------- ----------- -----------
Income before income taxes ........................ 73,895 71,570 118,686 114,502
----------- ----------- ----------- -----------
Income taxes ...................................... 32,351 31,381 52,236 49,921
----------- ----------- ----------- -----------
Net income ........................................ $ 41,544 $ 40,189 $ 66,450 $ 64,581
=========== =========== =========== ===========
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
--------- ---------
Net cash provided by operating activities ................ $ 151,189 $ 187,220
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment .................. (98,061) (67,215)
Sales (purchases) of short-term investments .......... 27,485 (64,423)
Equipment purchase deposits and other ................ 8,699 (10,456)
--------- ---------
Net cash used in investing activities ............ (61,877) (142,094)
--------- ---------
Cash flows from financing activities:
Repayment of debt .................................... (109,606) (45,634)
Proceeds from issuance of debt ....................... 94,274 --
Repurchase of warrants ............................... (3,377) (5,651)
Other ................................................ -- (400)
--------- ---------
Net cash used in financing activities ............. (18,709) (51,685)
--------- ---------
Net increase (decrease) in cash and cash equivalents ..... 70,603 (6,559)
--------- ---------
Cash and cash equivalents at beginning of period ......... 107,234 171,638
--------- ---------
Cash and cash equivalents at end of period ............... $ 177,837 $ 165,079
========= =========
Cash, cash equivalents, and short-term investments at
end of period ........................................ $ 177,837 $ 229,502
========= =========
Cash paid for:
Interest, net of amounts capitalized ................. $ 11,269 $ 11,898
========= =========
Income taxes paid .................................... $ 2,353 $ 4,211
========= =========
Non-cash financing activities:
Notes payable issued for equipment purchase deposits . $ 10,500 $ 3,500
========= =========
Notes payable canceled under the aircraft
purchase agreement ............................... $ (7,000) $ (10,309)
========= =========
Equipment acquired through manufacturer credits ...... $ 500 $ --
========= =========
Equipment acquired through capital leases ............ $ -- $ 230
========= =========
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by America West Airlines, Inc., ("AWA" or the "Company"), a wholly
owned subsidiary of America West Holdings Corporation ("Holdings"), pursuant to
the rules and regulations of the Securities and Exchange Commission and in
accordance with those rules and regulations, certain information and footnotes
required by generally accepted accounting principles have been omitted. In the
opinion of management, the condensed 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 the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. STOCK REPURCHASE PROGRAM
In May 1999, Holdings' Board of Directors approved the extension of
Holdings' stock repurchase program to provide for the repurchase of all of AWA's
publicly traded warrants by August 25, 1999. Pursuant to this program, in the
second quarter of 1999 AWA repurchased 199,500 of its publicly traded warrants
to purchase common stock of Holdings for approximately $2.0 million.
3. ADVANCES TO PARENT COMPANY AND AFFILIATE
As of June 30, 1999, AWA has advances to Holdings of $162.9 million and
advances of $16.7 million to The Leisure Company ("TLC"), a wholly owned
subsidiary of Holdings.
4. PROPERTY AND EQUIPMENT
In the second quarter of 1999, AWA reduced the balance of its flight
equipment accounts by $96.4 million to remove capitalized maintenance which was
fully amortized. This reduction was fully offset by a corresponding decrease in
accumulated depreciation and amortization. Consequently, this transaction had no
net effect on the Company's property and equipment accounts.
5. BORROWING UNDER CREDIT FACILITY
On February 19, 1999 AWA borrowed $94.3 million, the total amount then
available under its senior secured revolving credit facility, to provide
additional liquidity in the event of service disruptions related to the
Company's contract negotiations with its flight attendants. The Company repaid
the $94.3 million on April 19, 1999 in accordance with the terms of the credit
facility. (See Note 7, "Labor Contract".)
6. BOND FINANCING
In June 1999, Series 1999 special facility revenue bonds ("new bonds")
were issued by a municipality to fund the retirement of the Series 1994A bonds
("old bonds") and the construction of a new concourse with 14 gates at Terminal
4 in Phoenix Sky Harbor International Airport in support of AWA's strategic
growth plan. Under the operating agreements with the airport, AWA is required to
make payments sufficient to pay principal and interest when due on the bonds.
The new bonds are due June 2019 with interest at 6.25% 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
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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.
7. LABOR CONTRACT
On May 4, 1999 AWA and the Association of Flight Attendants ("AFA")
entered into a five-year collective bargaining agreement covering the airline's
2,400 flight attendants. The five-year agreement resolves issues regarding pay
rates, benefits and working conditions and is the flight attendants' first
contract with AWA.
8. SEGMENT DISCLOSURES
AWA is one reportable segment. Accordingly, the segment reporting
financial data required by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" is
included in the accompanying balance sheets and statements of income.
9. SUBSEQUENT EVENT
FEDERAL AVIATION ADMINISTRATION ("FAA") SETTLEMENT
In July 1998, AWA and the FAA entered into an agreement to settle
disputes over alleged maintenance violations. Under the agreement, AWA has
implemented certain changes in maintenance oversight and paid a civil penalty
of $2.5 million. In July 1999, the FAA determined that AWA has complied with
the terms of the settlement agreement and has forgiven an additional civil
penalty of $2.5 million which could have been assessed under the agreement.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion provides an analysis of AWA's results of
operations for the second quarter and six months ended June 30, 1999 and
material changes compared to the second quarter and six months ended June 30,
1998.
The table below sets forth selected operating data for AWA.
Three Months Ended Percent Six Months Ended Percent
June 30, Change June 30, Change
1999 1998 1999-1998 1999 1998 1999-1998
--------- --------- --------- --------- --------- ---------
Aircraft (end of period) .................... 113 104 8.7 113 104 8.7
Average daily aircraft utilization (hours) .. 11.9 12.2 (2.5) 11.9 12.3 (3.3)
Available seat miles (in millions) .......... 6,491 6,082 6.7 12,789 11,928 7.2
Block hours ................................. 122,693 115,050 6.6 242,326 228,252 6.2
Average stage length (miles) ................ 858 819 4.8 857 811 5.7
Average passenger journey (miles) ........... 1,274 1,227 3.8 1,278 1,170 9.2
Revenue passenger miles (in millions) ....... 4,477 4,287 4.4 8,507 7,923 7.4
Load factor (percent) ....................... 69.0 70.5 (1.5)pts 66.5 66.4 0.1 pts
Passenger enplanements (in thousands) ....... 4,724 4,643 1.7 8,987 8,792 2.2
Yield per revenue passenger mile (cents) .... 11.71 11.46 2.2 11.79 11.80 (0.1)
Revenue per available seat mile:
Passenger (cents) ........................ 8.08 8.07 0.1 7.84 7.84 --
Total (cents) ............................ 8.54 8.54 -- 8.29 8.30 (0.1)
Fuel consumption (gallons in millions) ...... 103.9 97.1 7.0 203.4 190.2 6.9
Fuel price (cents per gallon) ............... 51.1 49.2 3.9 47.9 51.6 (7.2)
Average number of full-time equivalent
employees ................................ 11,051 10,320 7.1 11,072 10,271 7.8
The table below sets forth the major components of operating cost per
available seat mile ("CASM") for AWA.
Three Months Ended Percent Six Months Ended Percent
June 30, Change June 30, Change
(in cents) 1999 1998 1999-1998 1999 1998 1999-1998
--------- --------- --------- --------- --------- ---------
Salaries and related costs ................ 1.85 1.85 -- 1.86 1.83 1.6
Aircraft rents ............................ 1.01 .99 2.0 1.02 1.00 2.0
Other rents and landing fees .............. .49 .47 4.3 .47 .49 (4.1)
Aircraft fuel ............................. .82 .79 3.8 .76 .82 (7.3)
Agency commissions ........................ .47 .57 (17.5) .47 .56 (16.1)
Aircraft maintenance materials and repairs .80 .72 11.1 .79 .72 9.7
Depreciation and amortization ............. .19 .21 (9.5) .19 .21 (9.5)
Amortization of excess reorganization value .08 .08 -- .08 .08 --
Other ..................................... 1.69 1.65 2.4 1.69 1.57 7.6
----- ----- ----- ----- ----- -----
7.40 7.33 1.0 7.33 7.28 0.7
===== ===== ===== ===== ===== =====
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
Three Months Ended June 30, 1999 and 1998
For the three months ended June 30, 1999, AWA realized record operating
income of $74.1 million, which was a 0.4% increase over the previous record
$73.8 million operating income in last year's second quarter. Income before
income taxes for the three month period in 1999 was $73.9 million compared to
$71.6 million in 1998.
Total operating revenues for the 1999 second quarter were a record
$554.2 million. Passenger revenues were a record $524.2 million for the three
months ended June 30, 1999, an increase of $33.2 million or 6.8% from the 1998
quarter. A 4.4% increase in revenue passenger miles ("RPM") was more than offset
by a 6.7% increase in capacity as measured by available seat miles ("ASM"),
resulting in a 1.5 point decrease in load factor (the percentage of available
seats that are filled with revenue passengers). The decline in load factor was
more than offset by an increase in revenue per passenger mile ("yield") which
increased 2.2% to 11.71 cents. The increase in yield reflects the continued
benefits of AWA's improved product and revenue management capabilities.
Passenger revenue per available seat mile ("RASM") for the quarter increased
0.1% to 8.08 cents despite a 4.8% increase in aircraft stage length due to
increased flying to long-haul business markets. Cargo revenues decreased 10.2%
to $10.7 million due to lower freight and mail volumes. Other revenues increased
16.4% to $19.3 million for the second quarter of 1999 due primarily to expansion
and increased profitability of AWA's code sharing agreement with Mesa Airlines.
Operating expenses increased $34.4 million in the second quarter of
1999 or 7.7% as compared to the 1998 second quarter, while ASMs increased 6.7%.
As a result, CASM increased 1.0% to 7.40 cents in the second quarter of 1999
from 7.33 cents for the comparable 1998 period. Significant changes in the
components of CASM are explained as follows:
- Aircraft rent expense per ASM increased 2.0% due to the net
addition of nine leased aircraft to the fleet during the 1999
quarter as compared to 1998.
- Other rents and landing fees expense per ASM increased 4.3% in
the second quarter of 1999 primarily due to higher landing
fees resulting from increased rates and operations.
- Aircraft fuel expense per ASM increased 3.8% due to a 3.9%
increase in the average price per gallon of fuel to 51.1 cents
in the 1999 quarter from 49.2 cents in 1998.
- Agency commissions expense per ASM decreased 17.5% as the cost
reductions associated with the institution of the $50
commission cap implemented on May 1, 1998 and an increase in
the percentage of non-commissionable revenue in the second
quarter of 1999 more than offset the increase in commissions
resulting from higher passenger revenues in the 1999 second
quarter.
- Aircraft maintenance materials and repairs expense per ASM
increased 11.1% primarily due to an increase in capitalized
maintenance amortization expense of $7.7 million for the
second quarter of 1999 when compared to the 1998 second
quarter.
- Depreciation and amortization expense per ASM decreased 9.5%
due to an increase in the average depreciable life of certain
Boeing 737-200 aircraft that have been or will be modified to
meet the Federal Aviation Administration's Stage III noise
reduction requirements, which reduced depreciation expense in
the 1999 second quarter by $2.0 million.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
- Other operating expenses per ASM increased 2.4% to 1.69 cents
from 1.65 cents primarily due to the effect of non-salary
related Year 2000 ("Y2K") readiness costs which increased by
$7.6 million from $1.2 million in the second quarter of 1998
to $8.8 million in the second quarter of 1999.
Net nonoperating expenses decreased $2.0 million to $0.2 million in the
second quarter of 1999 from $2.2 million in 1998. The 1999 second quarter
benefited from a one-time, $2.7 million gain on sale of the Company's investment
in 30,000 shares of Priceline.com common stock.
Six Months Ended June 30, 1999 and 1998
For the six months ended June 30, 1999, AWA realized record operating
income of $122.9 million, a 1.1% increase over the previous record $121.6
million operating income in the six months ended June 30, 1998. Income before
income taxes for the six month period in 1999 was $118.7 million compared to
$114.5 million in 1998.
Total operating revenues for the six months ended June 30, 1999 were a
record $1.1 billion. Passenger revenues were a record $1.0 billion for the six
months ended June 30, 1999, an increase of $68.0 million or 7.3% from the 1998
period. RPMs increased 7.4% versus a 7.2% increase in capacity as measured by
ASMs, resulting in a 0.1 point increase in load factor. RASM and yield were 7.84
cents and 11.79 cents, respectively, for the six months ended June 30, 1999, or
relatively unchanged when compared to the 1998 period. This RASM and yield
performance was achieved despite a 5.7% increase in average stage length due to
increased flying to long-haul business markets. Cargo revenues decreased 12.6%
to $21.4 million due to lower freight and mail volumes. Other revenues increased
16.9% to $36.4 million for the six months ended June 30, 1999 due primarily to
expansion and increased profitability of AWA's code sharing agreement with Mesa
Airlines.
Operating expenses increased $68.9 million for the six months ended
June 30, 1999 or 7.9% as compared to the 1998 period, while ASMs increased 7.2%.
As a result, CASM increased 0.7% to 7.33 cents in the six months ended June 30,
1999 from 7.28 cents for the comparable 1998 period. Significant changes in the
components of CASM are explained as follows:
- Salaries and related costs per ASM increased 1.6% primarily
due to a higher number of employees in the 1999 period to
support anticipated growth. Also, the contracts with
International Brotherhood of Teamsters (signed October 1998)
and the Association of Flight Attendants (signed May 1999),
covering the airline's mechanics and flight attendants,
respectively, included higher wage rates, and the contract
with the Airline Pilots Association (signed May 1995) required
longevity-related salary level increases which contributed to
higher salary expense in 1999.
- Aircraft rent expense per ASM increased 2.0% due primarily to
the net addition of nine leased aircraft to the fleet during
the 1999 period as compared to 1998.
- Other rents and landing fees expense per ASM decreased 4.1% in
the six months ended June 30, 1999 primarily due to a
decreased level of part borrowing from other airlines and the
7.2% increase in ASMs.
- Aircraft fuel expense per ASM decreased 7.3% due to a 7.2%
decrease in the average price per gallon of fuel to 47.9 cents
in the 1999 period from 51.6 cents in 1998.
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- Agency commissions expense per ASM decreased 16.1% as the cost
reductions associated with the institution of the $50
commission cap implemented on May 1, 1998 and an increase in
the percentage of non-commissionable revenue in the 1999 six
month period more than offset the increase in commissions
resulting from higher revenue for the six months ended June
30, 1999.
- Aircraft maintenance materials and repairs expense per ASM
increased 9.7% primarily due to a $14.9 million increase in
capitalized maintenance amortization expense for the 1999
period when compared to the comparable period in 1998.
- Depreciation and amortization expense per ASM decreased 9.5%
due primarily to the increase in the average depreciable life
of certain Boeing 737-200 aircraft that have been or will be
modified to meet the FAA's Stage III noise reduction
requirements, which reduced depreciation expense for the first
six months of 1999 by approximately $4.0 million.
- Other operating expenses per ASM increased 7.6% to 1.69 cents
from 1.57 cents primarily due to non-salary related Y2K costs
which increased $14.5 million from $1.2 million in the first
half of 1998 to $15.7 million in the 1999 period.
Net nonoperating expenses decreased $2.8 million to $4.3 million in the
six months ended June 30, 1999 from $7.1 million in 1998. The period-over-period
change was primarily due to a $2.7 million gain on sale of the Company's
investment in 30,000 shares of Priceline.com common stock in the second quarter
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents and short-term investments
increased to $177.8 million at June 30, 1999 from $134.7 million at December 31,
1998. Net cash provided by operating activities decreased to $151.2 million for
the six months ended June 30, 1999 from $187.2 million in 1998 as $29.9 million
of restricted cash was released and became available for general corporate
purposes during the 1998 period as a result of the refinancing of AWA's variable
rate industrial development revenue bonds in April 1998. Net cash used in
investing activities decreased to $61.9 million for the 1999 period from $142.1
million for the 1998 period. This decrease was primarily due to the sales of
short-term investments totaling $27.5 million in the 1999 period as compared to
purchases of $64.4 million of short-term investments in 1998. Net cash used in
financing activities was $18.7 million for the six months ended June 30, 1999
compared to $51.7 million in the 1998 period primarily due to long-term debt
repayments of $15.3 million and purchases of AWA warrants totaling $3.4 million
in 1999. In the first six months of 1998, AWA repaid $30 million of revolving
credit facility debt and the Company repurchased $5.7 million of warrants. The
1999 period also included $94.3 million borrowed in February 1999 under AWA's
revolving credit facility which was repaid in full in April 1999.
Operating with a working capital deficiency is common in the airline
industry as tickets sold for transportation which have not yet been provided are
classified as a current liability while the related income-producing assets, the
aircraft, are classified as non-current. The Company's working capital
deficiency at June 30, 1999 was $60.2 million.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
Long-term debt maturities through 2001 consist primarily of principal
amortization of notes payable secured by certain of AWA's aircraft. Such
maturities are $65.1 million, $19.9 million and $19.8 million, respectively, for
the remainder of 1999, 2000 and 2001. Management expects to fund the remaining
long-term debt maturities with cash from operations or by refinancing the
underlying obligations, subject to availability and market conditions.
In June 1999, Series 1999 special facility revenue bonds ("new bonds")
were issued by a municipality to fund the retirement of the Series 1994A bonds
("old bonds") and the construction of a new concourse with 14 gates at Terminal
4 in Phoenix Sky Harbor International Airport in support of AWA's strategic
growth plan. The new bonds are due June 2019 with interest at 6.25% 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.
At June 30, 1999, AWA had firm commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), to purchase a total of 27 Airbus
aircraft, with 11 remaining to be delivered in 1999. AWA also has an option to
purchase 46 more Airbus aircraft of which six are subject to reconfirmation by
AWA. The aggregate net cost of firm commitments remaining under the aircraft
order is approximately $1.0 billion based on a 3.5% annual price escalation. AWA
has arranged for financing from AVSA for approximately two-thirds of such
commitment. AWA intends to seek additional financing (which may include public
debt financing or private financing) in the future when and as appropriate.
There can be no assurance that sufficient funding will be obtained for all
aircraft. A default by AWA under the AVSA purchase commitment could have a
material adverse effect on AWA.
In October 1998, America West Airlines 1998-1 Pass Through Trusts
issued $190.5 million in Pass Through Trust Certificates in connection with the
financing of six Airbus A319 aircraft and two Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of or guaranteed by Holdings and AWA. The combined effective
interest rate on the financing is 6.99%. Three Airbus A319 aircraft that are the
subject of this financing were delivered in 1998. One Airbus A320 aircraft was
delivered in the first quarter of 1999 and one Airbus A320 was delivered in the
second quarter of 1999. The remaining three aircraft were delivered in July
1999.
Capital expenditures for the six months ended June 30, 1999 and 1998
were approximately $98.1 million and $67.2 million, respectively. Included in
these amounts are capital expenditures for capitalized maintenance of
approximately $52.2 million for the six months ended June 30, 1999 and $55.3
million for the six months ended June 30, 1998.
Certain of AWA's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios and other financial covenants
with which AWA was in compliance at June 30, 1999.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
OTHER INFORMATION
LABOR RELATIONS
The Company is in the process of negotiating an agreement with the
Transport Workers Union ("TWU") as the bargaining representative for AWA's
approximately 2,000 fleet service workers. The Company cannot predict the form
of this future collective bargaining agreement and therefore the effect, if any,
on AWA's operations or financial performance.
YEAR 2000 COMPLIANCE PROGRAM AND RISKS
The Year 2000 issue results from computer programs being written using
two digits rather than four to define the applicable year. As a consequence,
time-sensitive computer equipment and software may recognize a date using "00"
as the year 1900 rather than the year 2000. Many of the Company's systems,
including information and computer systems and automated equipment, will be
affected by the Year 2000 issue. The Company is also heavily reliant on the
FAA's management of the nation's air traffic control system, local authorities'
management of the airports at which AWA operates, and vendors to provide goods
(fuel, catering, etc.), services (telecommunications, data networks, satellites,
etc.) and data (frequent flyer partnerships, alliances, etc.)
The Company has underway a Year 2000 Project (the "Project" or "Year
2000 Project") to identify the programs and infrastructure that could be
affected by the Year 2000 issue and is implementing a plan to resolve the
problems identified on a timely basis. The Project requires the Company to
devote a considerable amount of internal resources and hire substantial external
resources to assist with the implementation and monitoring of the Project, and
will require the replacement of certain equipment and modification of certain
software.
The Company believes that its Year 2000 Project will be completed prior
to any currently anticipated significant impact on the Company arising from the
Year 2000 issue. The Project is divided into three main sections, including
information technology ("IT") systems, embedded systems and third party
compliance. IT and embedded systems are substantially complete with minor
activity extending into the third quarter of 1999. Monitoring and corrective
actions, if required, will continue through the first quarter of 2000. An
initial assessment of third party suppliers is complete. Ongoing assessment will
continue through the year based on the supplier's Year 2000 readiness and their
importance to America West.
The Company currently estimates that the total cost of its Year 2000
Project will be approximately $48 million, which will be funded from operating
cash flows. These costs exclude approximately $8 million of normal system
software and equipment upgrades and replacements which the Company anticipated
incurring in the ordinary course of business regardless of the Year 2000 issue.
As of June 30, 1999 the Company had incurred approximately $31 million of
non-capital expenditures in connection with the Year 2000 Project. The Company
expects that approximately $39 million of the costs have been or will be
expensed as incurred and the Company has had or will have approximately $9
million of capital expenditures.
The costs and expected completion date of the Company's Year 2000
Project are based on management's best estimates, and reflect assumptions
regarding the availability and cost of personnel trained in this area, the
compliance plans of third parties and similar uncertainties. However, due to the
complexity and pervasiveness of the Year 2000 issue and in particular the
uncertainty regarding the compliance programs of third parties, no assurance can
be given that these estimates will be achieved, and actual results could differ
materially from those anticipated. If the Company's plan to address the Year
2000 issue is not successfully or timely implemented, the
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
Company may need to devote more resources to the process and additional costs
may be incurred, which could have an adverse effect on the Company's financial
condition and results of operations.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. While difficult to predict, we speculate that the most reasonably
likely worst case Year 2000 scenario will result from the failure of third
parties, including operators of airports and air traffic control systems, to
resolve their Year 2000 compliance issue. The Company has completed evaluations
of such parties and significant suppliers and vendors with which the Company's
systems interface and upon which the Company's business depends in an effort to
reduce any adverse impact of the Year 2000 issue. There can be no assurance,
however, that the systems of such third parties will be modified on a timely
basis and any such failure may have a material adverse effect on the Company's
financial condition and results of operations.
As a component of its Year 2000 Project, the Company is developing a
comprehensive analysis of the operational problems and costs (including loss of
revenues) that would be reasonably likely to result from the failure by the
Company and certain third parties to complete efforts necessary to achieve Year
2000 compliance on a timely basis. The Company is developing contingency plans
designed to enable it to continue operations, consistent with the highest
standards of safety, in the event of any such third party failures.
ADDITIONAL INFORMATION
The air travel business historically fluctuates in response to general
economic conditions. The airline industry is sensitive to changes in economic
conditions that affect business and leisure travel and is highly susceptible to
unforeseen events that result in declines in air travel, such as political
instability, regional hostilities, recession, fuel price escalation, inflation,
adverse weather conditions, labor instability or regulatory oversight. The
Company's results of operations for interim periods are not necessarily
indicative of those for an entire year, because the travel business is subject
to seasonal fluctuations. Due to the greater demand for air and leisure travel
during the summer months, revenues in the airline and leisure travel industries
in the second and third quarters of the year tend to be greater than revenues in
the first and fourth quarters of the year.
This discussion contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "anticipate", "estimate", "project", "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key factors that may have a direct
bearing on the Company's results are competitive practices in the airline and
travel industries generally and particularly in the Company's principal markets,
the ability of the Company to meet existing financial obligations in the event
of adverse industry or economic conditions or to obtain additional capital to
fund future commitments and expansion, the Company's relationship with employees
and the terms of future collective bargaining agreements and the impact of
current and future laws and governmental regulations affecting the airline and
travel industries and the Company's operations. For additional discussion of
such risks see "Business - Risk Factors," included in Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 which is on file
with the Securities and Exchange Commission. Any forward-looking statements
speak only as of the date such statements are made.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
(a) Commodity Price Risk
As of June 30, 1999 the Company had entered into fixed price swap
transactions hedging approximately 50% of its projected 1999 fuel requirements
including 50% related to the third quarter and 50% related to the fourth
quarter. The use of such swap transactions in the Company's fuel hedging program
could result in the Company not fully benefiting from certain declines in jet
fuel prices. At June 30, 1999 the Company estimates that a 10% change in the
price per gallon of jet fuel would have changed the fair value of the existing
swap contracts by $7.5 million.
As of July 31, 1999 approximately 50% of AWA's 1999 fuel requirements
are hedged.
(b) Interest Rate Risk
The Company's exposure to interest rate risk relates primarily to its
variable rate long-term debt obligations. At June 30, 1999 the Company's
variable-rate long-term debt obligations represented approximately 14.7% of its
total long-term debt. If interest rates increased 10% in 1999, the impact on the
Company's results of operations would not be material.
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
*10.35 Indenture of Trust dated as of June 1, 1999
from the Industrial Development Authority of
the City of Phoenix, Arizona to Bank One,
Arizona, N.A.
*27.1 Financial Data Schedule.
* Filed herewith.
b. Reports on Form 8-K
None
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
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/ W. Douglas Parker
------------------------
W. Douglas Parker
Executive Vice President
DATED: August 16, 1999
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AMERICA WEST AIRLINES, INC.
JUNE 30, 1999
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
*10.35 Indenture of Trust dated as of June 1, 1999
from the Industrial Development Authority of
the City of Phoenix, Arizona to Bank One,
Arizona, N.A.
*27.1 Financial Data Schedule.
* Filed herewith.
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