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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 SEPTEMBER 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
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AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0418245
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) 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
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THE COMPANY HAS 1,000 SHARES OF CLASS B COMMON STOCK AS OF OCTOBER 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)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $ 239,928 $ 107,234
Short-term investments.............................................. 5,704 27,485
Accounts receivable, net............................................ 121,740 87,048
Advances to parent company and affiliate, net....................... 209,813 116,128
Expendable spare parts and supplies, net............................ 42,086 31,147
Prepaid expenses.................................................... 51,933 33,516
------------ ------------
Total current assets............................................ 671,204 402,558
------------ ------------
Property and equipment:
Flight equipment.................................................... 773,242 931,134
Other property and equipment........................................ 184,622 152,298
Equipment purchase deposits......................................... 74,649 83,649
------------ ------------
1,032,513 1,167,081
Less accumulated depreciation and amortization...................... 361,325 408,065
------------ ------------
Net property and equipment...................................... 671,188 759,016
------------ ------------
Other assets:
Restricted cash..................................................... 33,645 32,512
Reorganization value in excess of amounts allocable to
identifiable assets, net........................................ 296,775 311,697
Deferred income taxes............................................... 27,440 27,440
Other assets, net................................................... 75,839 61,421
------------ ------------
Total other assets.............................................. 433,699 433,070
------------ ------------
$ 1,776,091 $ 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)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt.................................. $ 109,616 $ 80,439
Accounts payable...................................................... 102,318 102,105
Air traffic liability................................................. 261,120 196,013
Accrued compensation and vacation benefits............................ 44,631 47,081
Accrued taxes......................................................... 86,295 40,809
Other accrued liabilities............................................. 44,613 40,467
------------ ------------
Total current liabilities......................................... 648,593 506,914
------------ ------------
Long-term debt, less current maturities................................... 155,659 207,906
Deferred credits and other liabilities.................................... 118,226 110,599
Commitments and contingencies
Stockholder's equity:
Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares........................................ -- --
Additional paid-in capital............................................ 519,749 523,126
Retained earnings..................................................... 333,864 246,099
------------ ------------
Total stockholder's equity........................................ 853,613 769,225
------------ ------------
$ 1,776,091 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Operating revenues:
Passenger...................................... $ 504,793 $ 459,421 $ 1,507,661 $ 1,394,255
Cargo.......................................... 9,877 10,011 31,275 34,503
Other.......................................... 19,224 15,992 55,613 47,108
------------ ------------ ------------ ------------
Total operating revenues................... 533,894 485,424 1,594,549 1,475,866
------------ ------------ ------------ ------------
Operating expenses:
Salaries and related costs..................... 124,990 111,686 362,507 329,532
Aircraft rents................................. 69,655 60,846 200,757 179,786
Other rents and landing fees................... 32,089 30,504 92,939 88,756
Aircraft fuel.................................. 60,171 47,300 157,604 145,382
Agency commissions............................. 29,461 24,586 89,903 91,103
Aircraft maintenance materials and repairs..... 55,613 48,291 156,237 134,760
Depreciation and amortization.................. 13,339 12,659 37,336 37,722
Amortization of excess reorganization value.... 4,974 4,974 14,922 14,922
Other.......................................... 104,754 103,131 320,548 290,841
------------ ------------ ------------ ------------
Total operating expenses................... 495,046 443,977 1,432,753 1,312,804
------------ ------------ ------------ ------------
Operating income................................... 38,848 41,447 161,796 163,062
------------ ------------ ------------ ------------
Nonoperating income (expenses):
Interest income................................ 5,101 5,835 14,016 16,921
Interest expense, net.......................... (7,419) (8,059) (23,243) (25,994)
Other, net..................................... (384) 148 2,263 (116)
------------ ------------ ------------ ------------
Total nonoperating expenses, net........... (2,702) (2,076) (6,964) (9,189)
------------ ------------ ------------ ------------
Income before income taxes......................... 36,146 39,371 154,832 153,873
------------ ------------ ------------ ------------
Income taxes....................................... 14,831 20,078 67,067 69,999
------------ ------------ ------------ ------------
Net income......................................... $ 21,315 $ 19,293 $ 87,765 $ 83,874
============ ============ ============ ============
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
------------ ---------
Net cash provided by operating activities.............................. $ 169,527 $ 185,114
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment................................ (225,792) (112,927)
Sales (purchases) of short-term investments........................ 21,781 (52,104)
Proceeds from sales of property and equipment...................... 184,822 109
Equipment purchase deposits and other.............................. (5,000) (16,000)
----------- -----------
Net cash used in investing activities.......................... (24,189) (180,922)
----------- -----------
Cash flows from financing activities:
Repayment of debt.................................................. (171,341) (52,138)
Proceeds from issuance of debt..................................... 162,074 --
Repurchase of warrants............................................. (3,377) (12,584)
Other.............................................................. -- (400)
----------- -----------
Net cash used in financing activities........................... (12,644) (65,122)
----------- -----------
Net increase (decrease) in cash and cash equivalents................... 132,694 (60,930)
----------- -----------
Cash and cash equivalents at beginning of period....................... 107,234 171,638
----------- -----------
Cash and cash equivalents at end of period............................. $ 239,928 $ 110,708
=========== ===========
Cash, cash equivalents, and short-term investments at
end of period...................................................... $ 245,632 $ 162,812
=========== ===========
Cash paid for:
Interest, net of amounts capitalized............................... $ 19,294 $ 19,397
=========== ===========
Income taxes paid.................................................. $ 3,496 $ 6,274
=========== ===========
Non-cash financing activities:
Notes payable issued for equipment purchase deposits............... $ 17,500 $ 24,500
=========== ===========
Notes payable canceled under the aircraft
purchase agreement............................................. $ (31,500) $ (12,596)
=========== ===========
Equipment acquired through capital leases.......................... $ 500 $ --
=========== ===========
Equipment acquired through manufacturer credits.................... $ -- $ 230
=========== ===========
See accompanying notes to condensed financial statements.
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AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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. WARRANTS TO PURCHASE COMMON STOCK
In August 1994, AWA issued approximately 10.4 million warrants to
purchase Holdings' Class B Common Stock with an exercise price of $12.74 per
share. The warrants were exercisable by the holders anytime before August 25,
1999. As of August 24, 1999, approximately 7.4 million warrants had been
repurchased by AWA. Of the warrants that remained outstanding, 2.6 million were
exercised at $12.74 per share in August 1999. The balance of unexercised
warrants expired and were cancelled on August 25, 1999. AWA received $32.7
million of proceeds from the warrant exercises which were used to reduce
outstanding advances to Holdings.
3. FLIGHT EQUIPMENT
In the third quarter of 1999, AWA entered into aircraft lease
arrangements for five new A319 and two new A320 aircraft, each with a lease term
of 21 years.
4. SALE/LEASEBACK TRANSACTION
In August 1999, AWA entered into a sale/leaseback transaction whereby
the Company sold five Boeing 737-300 aircraft and one Boeing 757-200 aircraft
for approximately $114 million. To complete this transaction, the Company paid
approximately $49.3 million to retire mortgage debt outstanding on the aircraft.
The aircraft are being leased back from the purchaser for approximately six
years. The sale resulted in a $9.2 million gain for AWA, which was deferred and
is being amortized over the lease term as a reduction in rent expense. The
related lease is being accounted for as an operating lease. The average annual
lease payments, over the life of the leases, are $15.5 million.
5. FINANCING TRANSACTION
In September 1999, America West Airlines 1999-1 Pass Through Trusts
issued $253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft. The
combined effective interest rate on the financing is 8.22%. Two A319 and two
A320 aircraft that are the subject of this financing were delivered in the third
quarter of 1999 and one A319 and two A320 aircraft were delivered in October
1999. The remaining three aircraft will be delivered between November 1999 and
February 2000.
The Pass Through Trust Certificates were issued by separate pass
through trusts which will hold equipment notes issued upon delivery of the
financed aircraft which will be secured by a security interest in such aircraft.
The equipment notes will be issued in respect of a leveraged lease financing. A
major third party finance company has agreed to provide equity for the leveraged
lease transactions. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by AWA.
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AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
6. BORROWING UNDER CREDIT FACILITY
In August 1999, AWA borrowed $67.8 million under its senior secured
revolving credit facility to provide bridge financing for the acquisition of one
Airbus A319 and one Airbus A320 aircraft. These aircraft were subsequently
refinanced in September 1999 when the sale of Series 1999-1 Pass Through Trust
Certificates discussed in Note 5, "Financing Transaction" above was completed.
The Company repaid the $67.8 million in October 1999 in accordance with the
terms of the credit facility.
7. 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 waived an additional civil penalty of $2.5
million which could have been assessed under the agreement.
8. ADVANCES TO PARENT COMPANY AND AFFILIATE
As of September 30, 1999, AWA had advances to Holdings of $204.6
million. In addition, AWA had net advances of $5.2 million to The Leisure
Company ("TLC"), a wholly owned subsidiary of Holdings.
9. 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.
10. SUBSEQUENT EVENTS
Flight Equipment
In October 1999, America West entered into an agreement with AVSA
S.A.R.L., an affiliate of Airbus Industrie ("AVSA"), to purchase 15 Airbus
A318-100 and 12 Airbus A320-200 aircraft. The aircraft will be used to replace
AWA's fleet of 14 737-200 aircraft beginning in 2003 and fund the continued
strategic growth of the airline. Deliveries for the A320 aircraft will begin
August 2000 and continue through 2003. The A318s are scheduled to be delivered
in 2003 and 2004. The Company also received 25 options and 25 purchase rights to
purchase aircraft in the "A320 family" of aircraft (A318s, A319s, A320s and
A321s) for delivery in 2004 through 2008. As part of this agreement, all options
outstanding under the 1997 Airbus agreement were cancelled.
The following table illustrates the Company's committed orders and
purchase options over 2000-2004 as of October 31, 1999:
2004 AND
2000 2001 2002 2003 BEYOND
---- ---- ---- ---- ------
FIRM ORDERS
A318-100 / A319-100 / A320-200 12 8 5 10 10
OPTIONS/PURCHASE RIGHTS
A318 / A319 / A320 / A321 0 0 0 0 50
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AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Passenger Commissions
Effective October 18, 1999, AWA revised its travel agency commission
rate structure for all domestic and international travel ticketed in the United
States and Canada. Tickets purchased in the United States for travel to and from
destinations in the United States will earn a five percent base commission rate
with a maximum payment of $50 for each round trip flight and $25 for each
one-way flight. Tickets purchased in Canada for all flights between Canada and
the United States, and within the United States, will earn a five percent base
commission rate with a maximum payment of $70 (CAD) for roundtrip flights and
$35 (CAD) for one-way flights. AWA estimates the cost savings from the change to
be approximately $30 million per year.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 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 third quarter and nine months ended September 30, 1999 and
material changes compared to the third quarter and nine months ended September
30, 1998.
The table below sets forth selected operating data for AWA.
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
1999 1998 1999-1998 1999 1998 1999-1998
--------- --------- --------- --------- --------- ---------
Aircraft (end of period)....................... 121 105 15.2 121 105 15.2
Average daily aircraft utilization (hours)..... 11.6 11.9 (2.5) 11.8 12.1 (2.5)
Available seat miles (in millions)............. 6,540 6,142 6.5 19,329 18,070 7.0
Block hours.................................... 124,878 114,785 8.8 367,204 343,037 7.0
Average stage length (miles)................... 865 827 4.6 860 816 5.4
Average passenger journey (miles).............. 1,339 1,281 4.5 1,299 1,207 7.6
Revenue passenger miles (in millions).......... 4,663 4,417 5.6 13,170 12,340 6.7
Load factor (percent).......................... 71.3 71.9 (0.6) pts 68.1 68.3 (0.2) pts
Passenger enplanements (in thousands).......... 4,895 4,665 4.9 13,882 13,457 3.2
Yield per revenue passenger mile (cents)....... 10.83 10.40 4.1 11.45 11.30 1.3
Revenue per available seat mile:
Passenger (cents)........................... 7.72 7.48 3.2 7.80 7.72 1.0
Total (cents)............................... 8.16 7.90 3.3 8.25 8.17 1.0
Fuel consumption (gallons in millions)......... 105.6 98.2 7.5 309.0 288.4 7.1
Average fuel price (cents per gallon).......... 57.0 48.2 18.3 51.0 50.4 1.2
Average number of full-time equivalent
employees................................... 11,475 10,534 8.9 11,208 10,360 8.2
The table below sets forth the major components of operating cost per
available seat mile ("CASM") for AWA.
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
1999 1998 1999-1998 1999 1998 1999-1998
--------- --------- --------- --------- --------- ---------
(in cents)
Salaries and related costs..................... 1.91 1.82 5.0 1.88 1.82 3.3
Aircraft rents................................. 1.07 .99 8.1 1.04 1.00 4.0
Other rents and landing fees................... .49 .50 (2.0) .48 .49 (2.0)
Aircraft fuel.................................. .92 .77 19.5 .81 .81 --
Agency commissions............................. .45 .40 12.5 .46 .50 (8.0)
Aircraft maintenance materials and repairs..... .85 .79 7.6 .81 .75 8.0
Depreciation and amortization.................. .20 .20 -- .19 .21 (9.5)
Amortization of excess reorganization value.... .08 .08 -- .08 .08 --
Other.......................................... 1.60 1.68 (4.8) 1.66 1.61 3.1
---- ---- ---- ---- ---- ----
7.57 7.23 4.7 7.41 7.27 1.9
==== ==== ==== ==== ==== ====
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
Three Months Ended September 30, 1999 and 1998
For the three months ended September 30, 1999, AWA realized operating
income of $38.8 million, which was a 6.3% decrease from the $41.4 million
operating income in last year's third quarter. Income before income taxes for
the three month period in 1999 was $36.1 million compared to $39.4 million in
1998.
Total operating revenues for the 1999 third quarter were a record
$533.9 million. Passenger revenues were $504.8 million for the three months
ended September 30, 1999, an increase of $45.4 million or 9.9% from the 1998
quarter. A 5.6% increase in revenue passenger miles ("RPM") was more than offset
by a 6.5% increase in capacity as measured by available seat miles ("ASM"),
resulting in a 0.6 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 4.1% to 10.83 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
3.2% to 7.72 cents despite a 4.6% increase in average stage length due to
increased flying to long haul business markets and the positive effect on AWA's
1998 unit revenues resulting from the Northwest Airlines' pilots' strike. Cargo
revenues decreased 1.3% to $9.9 million due to lower freight and mail volumes.
Other revenues increased 20.2% to $19.2 million for the third quarter of 1999
due primarily to expansion and increased profitability of AWA's code sharing
agreement with Mesa Airlines.
Operating expenses increased $51.1 million in the third quarter of 1999
or 11.5% as compared to the 1998 third quarter, while ASMs increased 6.5%. As a
result, CASM increased 4.7% to 7.57 cents in the third quarter of 1999 from 7.23
cents for the comparable 1998 period. Significant changes in the components of
CASM are explained as follows:
- Salaries and related costs per ASM increased 5.0% 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) included longevity-related salary level
increases which contributed to higher salary expense in 1999.
- Aircraft rent expense per ASM increased 8.1% due to the net
addition of 16 leased aircraft to the fleet during the 1999
quarter as compared to 1998 and the effect of the sale/leaseback
transaction in August 1999 involving six previously owned aircraft
(See Note 4, "Sale/Leaseback Transaction" in Notes to Condensed
Financial Statements.)
- Other rents and landing fees expense per ASM decreased 2.0% in the
third quarter of 1999 primarily due to the 6.5% increase in ASMs.
- Aircraft fuel expense per ASM increased 19.5% primarily due to an
18.3% increase in the average price per gallon of fuel to 57.0
cents in the 1999 quarter from 48.2 cents in 1998.
- Agency commissions expense per ASM increased 12.5% due to the
increase in commissions resulting from higher passenger revenues
in the 1999 third quarter.
- Aircraft maintenance materials and repairs expense per ASM
increased 7.6% primarily due to an increase in capitalized
maintenance amortization expense of $5.9 million for the third
quarter of 1999 when compared to the 1998 third quarter.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
- Other operating expenses per ASM decreased 4.8% to 1.60 cents from
1.68 cents primarily due to a decrease in expense associated with
AWA's frequent flyer program resulting from a reduction in the
estimated liability for travel awards, non-salary related Year
2000 ("Y2K") readiness costs and lower traffic liability insurance
expense.
Net nonoperating expenses of $2.7 million for the third quarter of 1999
were relatively unchanged from 1998.
Nine Months Ended September 30, 1999 and 1998
For the nine months ended September 30, 1999, AWA realized operating
income of $161.8 million, a 0.8% decrease from the previous $163.1 million
operating income in the nine months ended September 30, 1998. Income before
income taxes for the nine month period in 1999 was $154.8 million compared to
$153.9 million in 1998.
Total operating revenues for the nine months ended September 30, 1999
were a record $1.6 billion. Passenger revenues were a record $1.5 billion for
the nine months ended September 30, 1999, an increase of $113.4 million or 8.1%
from the 1998 period. RPMs increased 6.7% while capacity as measured by ASMs
increased 7.0%, resulting in a 0.2 point decrease in load factor. The decline in
load factor was more than offset by a 1.3% increase in yield, which increased to
11.45 cents in 1999 from 11.30 cents in 1998. RASM increased 1.0% to 7.80 cents
for the nine months ended September 30, 1999 compared to 7.72 cents for the
comparable 1998 period. This yield and RASM performance was achieved despite a
5.4% increase in average stage length due to increased flying to long-haul
business markets. Cargo revenues decreased 9.4% to $31.3 million due to lower
freight and mail volumes. Other revenues increased 18.1% to $55.6 million for
the nine months ended September 30, 1999 due primarily to expansion and
increased profitability of AWA's code sharing agreement with Mesa Airlines.
Operating expenses increased $119.9 million for the nine months ended
September 30, 1999 or 9.1% as compared to the 1998 period, while ASMs increased
7.0%. As a result, CASM increased 1.9% to 7.41 cents in the nine months ended
September 30, 1999 from 7.27 cents for the comparable 1998 period. Significant
changes in the components of CASM are explained as follows:
- Salaries and related costs per ASM increased 3.3% 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) included longevity-related salary level
increases which contributed to higher salary expense in 1999.
- Aircraft rent expense per ASM increased 4.0% due primarily to the
net addition of 16 leased aircraft to the fleet during the 1999
period as compared to 1998 and the effect of the sale/leaseback
transaction in August 1999 involving six previously owned
aircraft. (See Note 4, "Sale/Leaseback Transaction" in Notes to
Condensed Financial Statements.)
- Other rents and landing fees expense per ASM decreased 2.0% in the
nine months ended September 30, 1999 primarily due to a decreased
level of part borrowing from other airlines and the 7.0% increase
in ASMs.
- Agency commissions expense per ASM decreased 8.0% 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 nine month period more
than offset the increase in commissions resulting from higher
revenue for the nine months ended September 30, 1999.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
- Aircraft maintenance materials and repairs expense per ASM
increased 8.0% primarily due to a $20.8 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 modified to meet
the FAA's Stage III noise reduction requirements, which reduced
depreciation expense for the first nine months of 1999 by
approximately $6.0 million.
- Other operating expenses per ASM increased 3.1% to 1.66 cents from
1.61 cents primarily due to non-salary related Y2K costs which
increased $12.7 million from $6.0 million in the first nine months
of 1998 to $18.7 million in the 1999 period. This was offset in
part by a $5.8 million decrease in expense associated with AWA's
frequent flyer program resulting from a reduction in the estimated
liability for travel awards.
Net nonoperating expenses decreased $2.2 million to $7.0 million in the
nine months ended September 30, 1999 from $9.2 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 at
September 30, 1999 totaled $245.6 million. This amount includes $67.8 million
AWA had drawn under its revolving credit facility, which was invested in cash
equivalents at September 30, 1999. (See Note 6, "Borrowing Under Credit
Facility" in Notes to Condensed Financial Statements.) Excluding the $67.8
million, unrestricted cash and cash equivalents and short-term investments
increased to $177.8 million at September 30, 1999 from $134.7 million at
December 31, 1998. Net cash provided by operating activities decreased to $169.5
million for the nine months ended September 30, 1999 from $185.1 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 bonds in April 1998. Net cash used
in investing activities decreased to $24.2 million for the nine months ended
September 30, 1999 period from $180.9 million for the 1998 period primarily due
to the sale in August 1999 of six aircraft for $114.1 million as part of a
sale/leaseback transaction. (See Note 4, "Sale/Leaseback Transaction".) Also, in
September 1999, AWA refinanced one A320 and one A319 Airbus aircraft, which were
purchased in August 1999 with bridge loan financing, when the sale of Series
1999-1 Pass Through Trust Certificates was completed. (See Note 5, "Financing
Transaction" and Note 6, "Borrowing Under Credit Facility".) The 1999 period
also included sales of short-term investments totaling $21.8 million compared to
purchases of $52.1 million of short-term investments in 1998. Net cash used in
financing activities was $12.6 million for the nine months ended September 30,
1999 compared to $65.1 million in the 1998 period. The 1999 period included
$162.1 million borrowed under AWA's revolving credit facility, of which $94.3
million was repaid in April 1999. The remaining $67.8 million was repaid in
October 1999. The 1999 period also included purchases of AWA warrants totaling
$3.4 million. In the first nine months of 1998, AWA repaid $30 million of
revolving credit facility debt and repurchased $12.6 million of AWA warrants.
Long-term debt maturities through 2001 consist primarily of principal
amortization of notes payable secured by certain of AWA's aircraft and, in 1999,
the $67.8 million borrowing under the revolving credit facility. Such maturities
are $71.2 million, $19.9 million and $19.8 million, respectively, for the
remainder of 1999, 2000 and 2001. In October 1999, AWA repaid the $67.8 million
in accordance with the terms of the credit facility. 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.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
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 September 30, 1999, AWA had firm commitments to AVSA to purchase a
total of 19 Airbus aircraft, with four remaining to be delivered in 1999. AWA
also had an option to purchase 46 more Airbus aircraft. The aggregate net cost
of these firm commitments is approximately $800 million based on a 3.5% annual
price escalation.
In October 1999, AWA entered into an agreement with AVSA to purchase 15
Airbus A318-100 and 12 Airbus A320-200 aircraft. Deliveries for the A320
aircraft will begin August 2000 and continue through 2003. The A318s are
scheduled to be delivered in 2003 and 2004. The Company also received 25 options
and 25 purchase rights to purchase aircraft in the "A320 family" of aircraft
(A318s, A319s, A320s and A321s) for delivery in 2004 through 2008. As part of
this agreement, all options outstanding under the previous agreement were
cancelled. (See Note 10, Subsequent Events - "Flight Equipment".) The aggregate
net cost of firm commitments under this aircraft order is approximately $1.1
billion based on a 3.5% annual price escalation.
AWA has arranged for financing from AVSA for approximately 75% of the
remaining aircraft to be delivered under the purchase commitment existing at
September 30, 1999. AWA intends to seek additional financing (which may include
public debt financing or private financing) in the future when and as
appropriate to support these aircraft orders. 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 the Company.
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. The Pass
Through Trust Certificates are not direct obligations of, nor guaranteed by AWA.
The combined effective interest rate on the financing is 6.99%. The last three
aircraft that were the subject of this financing were delivered in July 1999.
In September 1999, America West Airlines 1999-1 Pass Through Trusts
issued $253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by AWA. The combined effective interest rate on
the financing is 8.22%. Two A319 and two A320 aircraft that are the subject of
this financing were delivered in the third quarter of 1999 and one A319 and two
A320 aircraft were delivered in October 1999. The remaining three aircraft will
be delivered between November 1999 and February 2000.
Capital expenditures for the nine months ended September 30, 1999 and
1998 were approximately $225.8 million and $112.9 million, respectively.
Included in these amounts are capital expenditures for capitalized maintenance
of approximately $83.3 million for the nine months ended September 30, 1999 and
$94.6 million for the nine months ended September 30, 1998.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
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 September 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.
In September 1999, AWA's stock clerks voted in favor of being
represented by the International Brotherhood of Teamsters ("IBT"). Of the 41
employees eligible to vote, 25 voted for IBT representation.
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 has implemented 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
has required 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. Mission critical IT and embedded systems are complete. 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 the Company.
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 include 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 September 30, 1999 the Company had incurred approximately $35 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.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
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 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.
FACILITIES
On November 1, 1999, a new $54 million concourse was opened at AWA's
principal hub at Phoenix Sky Harbor International Airport's Barry M. Goldwater
Terminal 4. The new concourse provides AWA with 12 new gates and an additional
80,000 square feet of space with another 40,000 square feet and two more gates
scheduled for future expansion in 2001. With the completion of the new
concourse, AWA now operates 42 gates and occupies 335,000 square feet of space
as Sky Harbor's largest tenant.
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.
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
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.
SEPTEMBER 30, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
(a) Commodity Price Risk
As of September 30, 1999 the Company had entered into fixed price swap
transactions hedging approximately 50% of its projected remaining 1999 fuel
requirements. 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 September 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 $5.8 million.
As of October 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 September 30, 1999 the Company's
variable-rate long-term debt obligations represented approximately 39.8% 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.
SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
*4.14 Pass Through Trust Agreements, dated as of September 21,
1999 between AWA and Wilmington Trust Company, as
Trustee, made with respect to the formation of America
West Airlines Pass Through Trusts, Series 1999-1G-S,
1999-1G-0, 1999-1C-S and 1999-1C-O and the issuance of
7.93% Initial Pass Through Certificates, Series 1999-1G-S
and 1999-1G-0, and 8.54% Initial Pass Through
Certificates, Series 1999-1C-S and 1999-1C-O, and 7.93%
Exchange Pass Through Certificates, Series 1999-1G-S and
1999-1G-O, and 8.54% Exchange Pass Through Certificates,
Series 1999-1C-S and 1999-1C-O.
*27.1 Financial Data Schedule.
-----
* Filed herewith.
b. Reports on Form 8-K
None
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 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: November 15, 1999
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AMERICA WEST AIRLINES, INC.
SEPTEMBER 30, 1999
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
*4.14 Pass Through Trust Agreements, dated as of September 21,
1999 between AWA and Wilmington Trust Company, as
Trustee, made with respect to the formation of America
West Airlines Pass Through Trusts, Series 1999-1G-S,
1999-1G-0, 1999-1C-S and 1999-1C-O and the issuance of
7.93% Initial Pass Through Certificates, Series 1999-1G-S
and 1999-1G-0, and 8.54% Initial Pass Through
Certificates, Series 1999-1C-S and 1999-1C-O, and 7.93%
Exchange Pass Through Certificates, Series 1999-1G-S and
1999-1G-O, and 8.54% Exchange Pass Through Certificates,
Series 1999-1C-S and 1999-1C-O.
*27.1 Financial Data Schedule.
-----
* Filed herewith.
20