AMERICA WEST HOLDINGS CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 1-12649

AMERICA WEST HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		86-0847214

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


111 WEST RIO SALADO PARKWAY, TEMPE, ARIZONA		85281

(Address of principal executive offices)		(Zip Code)

(480) 693-0800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Commission file number 0-12337

AMERICA WEST AIRLINES, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		86-0418245

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


4000 EAST SKY HARBOR BLVD, PHOENIX, ARIZONA		85034

(Address of principal executive offices)		(Zip Code)

(480) 693-0800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrants are accelerated filers (as defined in Exchange Act Rule 12b-2).


America West Holdings Corporation	Yes þ	No o
America West Airlines, Inc.	Yes o	No þ

As of October 27, 2004, America West Holdings Corporation has 859,117 shares of Class A common stock and 35,120,622 shares of Class B common stock outstanding. As of October 27, 2004, America West Airlines, Inc. has 1,000 shares of Class B common stock outstanding, all of which are held by America West Holdings Corporation.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - AMERICA WEST HOLDINGS CORPORATION
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Notes To Condensed Consolidated Financial Statements
	ITEM 1B. CONDENSED FINANCIAL STATEMENTS — AMERICA WEST AIRLINES, INC.
		Condensed Balance Sheets
		Condensed Statements of Operations
		Condensed Statements of Cash Flows
		Notes To Condensed Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 6. EXHIBITS
SIGNATURE
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 10.11
Exhibit 10.12
Exhibit 10.13
Exhibit 10.14
Exhibit 10.15
Exhibit 10.16
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2

PART I - FINANCIAL INFORMATION

America West Holdings Corporation (“Holdings” or the “Company”) is the holding company that owns all of the stock of America West Airlines, Inc. (“AWA” or the “Airline”). AWA, the eighth largest passenger airline and the second largest low cost carrier in the United States, accounted for most of Holdings’ revenues and expenses in 2003. The Leisure Company (“TLC”), previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. Through its America West Vacations division, AWA also sells individual and group travel packages. This combined Form 10-Q is filed by both Holdings and AWA and includes the financial statements of each company in Item 1A and Item 1B, respectively.

ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - AMERICA WEST HOLDINGS CORPORATION.

AMERICA WEST HOLDINGS CORPORATION

Condensed Consolidated Balance Sheets

(in thousands except share data)

(unaudited)


	September 30,		December 31,
	2004		2003
Assets
Current assets:
Cash and cash equivalents	$	303,694	$	403,082
Short-term investments		68,141		72,890
Restricted cash		—		42,900
Accounts receivable, net		92,407		77,235
Expendable spare parts and supplies, net		63,030		58,575
Prepaid expenses		170,863		129,368

Total current assets		698,135		784,050

Property and equipment:
Flight equipment		898,747		858,395
Other property and equipment		285,293		273,284
Equipment purchase deposits		53,050		46,050

		1,237,090		1,177,729
Less accumulated depreciation and amortization		601,539		570,017

Net property and equipment		635,551		607,712

Other assets:
Investments in debt securities		45,000		40,740
Restricted cash		71,312		69,876
Other assets, net		127,599		124,534

Total other assets		243,911		235,150

	$	1,577,597	$	1,626,912

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION

Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited)


	September 30,			December 31,
	2004			2003
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	146,653		$	103,899
Current obligations under capital leases		3,552			3,442
Accounts payable		177,996			210,288
Air traffic liability		229,534			174,486
Accrued compensation and vacation benefits		41,666			61,045
Accrued taxes		41,020			36,846
Other accrued liabilities		74,252			59,277

Total current liabilities		714,673			649,283

Long-term debt, less current maturities		601,470			688,965
Capital leases, less current obligations		5,061			8,467
Deferred credits and other liabilities		143,642			141,681
Stockholders’ equity:
Preferred stock, $.01 par value, Authorized 48,800,000 shares; no shares issued		—			—
Class A common stock, $.01 par value, Authorized 1,200,000 shares; issued and outstanding 859,117 shares at September 30, 2004 and December 31, 2003		8			8
Class B common stock, $.01 par value, Authorized 100,000,000 shares; issued and outstanding 51,558,197 shares at September 30, 2004 and 51,239,200 shares at December 31, 2003		516			512
Additional paid-in capital		632,423			631,269
Accumulated deficit		(239,791	)		(199,594	)
Accumulated other comprehensive income		27,501			12,527

		420,657			444,722
Less: Cost of Class B common stock in treasury, 16,437,575 shares at September 30, 2004 and 16,283,895 shares at December 31, 2003		(307,906	)		(306,206	)

Total stockholders’ equity		112,751			138,516

	$	1,577,597		$	1,626,912

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION

Condensed Consolidated Statements of Operations

(in thousands except per share data)

(unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Operating revenues:
Passenger	$	542,167		$	552,564		$	1,648,666		$	1,591,496
Cargo		6,290			6,201			20,010			21,101
Other		30,166			33,537			91,565			78,709

Total operating revenues		578,623			592,302			1,760,241			1,691,306

Operating expenses:
Salaries and related costs		165,164			158,167			493,416			477,884
Aircraft rents		76,400			74,417			226,931			221,862
Other rents and landing fees		43,322			38,210			126,574			115,475
Aircraft fuel		136,297			91,595			375,825			271,481
Agency commissions		6,302			8,408			19,305			26,564
Aircraft maintenance materials and repairs		54,437			50,854			156,841			173,572
Depreciation and amortization		13,296			16,572			39,674			51,563
Special charges		1,629			—			1,029			14,370
Other		110,013			103,944			310,207			318,235

Total operating expenses		606,860			542,167			1,749,802			1,671,006

Operating income (loss)		(28,237	)		50,135			10,439			20,300

Nonoperating income (expenses):
Interest income		2,053			1,666			5,350			4,231
Interest expense, net		(19,931	)		(19,484	)		(58,920	)		(57,504	)
Federal government assistance		—			—			—			81,255
Other, net		(952	)		625			2,934			2,326

Total nonoperating income (expenses), net		(18,830	)		(17,193	)		(50,636	)		30,308

Income (loss) before income taxes		(47,067	)		32,942			(40,197	)		50,608

Income taxes		—			—			—			—

Net income (loss)	$	(47,067	)	$	32,942		$	(40,197	)	$	50,608

Earnings (loss) per share:
Basic	$	(1.30	)	$	0.94		$	(1.12	)	$	1.48

Diluted	$	(1.30	)	$	0.60		$	(1.12	)	$	1.18

Shares used for computation:
Basic		36,111			35,037			35,989			34,161

Diluted		36,111			59,285			35,989			49,507

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2004			2003
Net cash provided by operating activities	$	89,912		$	159,350

Cash flows from investing activities:
Purchases of property and equipment		(125,938	)		(119,196	)
Purchases of short-term investments		(58,165	)		(51,186	)
Sales of short-term investments		77,409			35,739
Purchases of investments in debt securities		(35,000	)		(46,189	)
Sales of investments in debt securities		15,000			1,501
Increase in restricted cash		(1,436	)		(23,465	)
Proceeds from disposition of assets		2,544			24,283

Net cash used in investing activities		(125,586	)		(178,513	)

Cash flows from financing activities:
Repayment of debt		(174,280	)		(14,719	)
Proceeds from issuance of debt		110,564			86,828
Payments of debt issue costs		(1,156	)		(3,105	)
Other		1,158			725

Net cash provided by (used in) financing activities		(63,714	)		69,729

Net increase (decrease) in cash and cash equivalents		(99,388	)		50,566
Cash and cash equivalents at beginning of period		403,082			335,750

Cash and cash equivalents at end of period	$	303,694		$	386,316

Cash, cash equivalents, short-term investments and investments in debt securities at end of period	$	416,835		$	471,189

Cash paid for:
Interest, net of amounts capitalized	$	18,001		$	14,304

Income taxes paid (refunded)	$	1,441		$	(438	)

Non-cash investing and financing activities:
Payment in kind notes issued	$	4,974		$	4,813

Exercise of warrants	$	(2	)	$	(17	)

Acquisition of shares due to loan default	$	1,700		$	—

Reclassification of investments in debt securities to short-term investments	$	15,730		$	—

Notes payable issued (cancelled) under the aircraft purchase agreement	$	7,000		$	(7,000	)

Cancellation of convertible notes	$	—		$	(660	)

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION

Notes To Condensed Consolidated Financial Statements

September 30, 2004

1. BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiary, AWA. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. Accordingly, Holdings operates as one operating segment. These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and, in accordance with those rules and regulations, certain information and footnotes required by generally accepted accounting principles have been omitted. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation. Certain prior year amounts have been reclassified to conform with current year presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2003.

2. STOCK OPTIONS

The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company issues its stock options at a price equal to fair market value on the date of grant. Accordingly, no compensation cost has been recognized for stock options in the accompanying condensed consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income (loss) and income (loss) per share would have been reduced (increased) to the pro forma amounts indicated below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(in thousands except per share data)
Net income (loss), as reported	$	(47,067	)	$	32,942		$	(40,197	)	$	50,608
Stock-based compensation expense		(1,824	)		(1,063	)		(4,740	)		(3,274	)

Pro forma net income (loss)	$	(48,891	)	$	31,879		$	(44,937	)	$	47,334

Income (loss) per share:
Basic - as reported	$	(1.30	)	$	0.94		$	(1.12	)	$	1.48

Basic - pro forma	$	(1.35	)	$	0.91		$	(1.25	)	$	1.39

Diluted - as reported	$	(1.30	)	$	0.60		$	(1.12	)	$	1.18

Diluted - pro forma	$	(1.35	)	$	0.54		$	(1.25	)	$	0.96

3. FLIGHT EQUIPMENT

During the quarter, the Company entered into agreements with two aircraft lessors for the return of six Boeing 737-200 aircraft. Three aircraft were returned during the quarter and three are expected to be returned in the fourth quarter. Negotiations continue for the return of the remaining two Boeing 737-200 aircraft. See Note 6 “Special Charges.”

In August 2004, the Company amended its 1999 Airbus purchase contract. As amended, the new agreement calls for the Company to acquire 22 Airbus A320 family aircraft (a mix of A320s and A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, it is anticipated that 18 will be purchased directly from the manufacturer and four will be leased from various lessors. The Company has negotiated lease agreements for the four leased aircraft. In addition, the Company is exploring the possibility of leasing one additional aircraft in lieu of purchasing such aircraft from the manufacturer. In the context of this incremental order, the Company also secured extensive flexibility from Airbus with respect to its existing A318 order, allowing the Company to better react to market conditions by enabling it to amend its 15 A318 delivery positions to A319s and A320s, if it so desires, or to no additional aircraft under certain conditions.

AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004

In the first quarter of 2004, the Company revised the estimated useful life for certain aircraft and related spare parts inventory as a result of changes in AWA’s fleet plan and for capitalized maintenance on certain of its engines as a result of changes in aircraft utilization. The net impact of this change in estimate was an increase in net income for the three and nine months ended September 30, 2004 of $4.6 million and $13.8 million, respectively. As a result, basic and diluted loss per share decreased by $0.13 and $0.13, respectively, for the three months ended September 30, 2004, and increased by $0.38 and $0.38, respectively, for the nine months ended September 30, 2004.

4. TERM LOAN REFINANCING

On September 10, 2004, AWA entered into a term loan financing with GECC providing for loans in an aggregate amount of $110.6 million. AWA used approximately $77.0 million of the proceeds from this financing to repay in full its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to pay certain costs associated with this transaction. AWA intends to use the remaining proceeds for general corporate purposes. The new term loan financing consists of two secured term loan facilities: a $75.6 million term loan facility secured primarily by spare parts, rotables and appliances (the “Spare Parts Facility”); and a $35.0 million term loan facility secured primarily by aircraft engines and parts installed in such engines (the “Engine Facility”).

The loans under the Spare Parts Facility are payable in full at maturity on September 10, 2010. The loans under the Engine Facility are payable in equal quarterly installments of $1.3 million beginning on March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8 million payable at maturity on September 10, 2010. The loans under each facility may be prepaid in an amount not less than $5 million at any time after the 30th monthly anniversary of the funding date under such facility. If AWA fails to maintain a certain ratio of rotables to loans under the Spare Parts Facility, it may be required to pledge additional rotables or cash as collateral, provide a letter of credit or prepay some or all of the loans under the Spare Parts Facility. In addition, the loans under the Engine Facility are subject to mandatory prepayment upon the occurrence of certain events of loss applicable to, or certain dispositions of, aircraft engines securing the facility.

Principal amounts outstanding under the loans bear interest at a rate per annum based on three-month LIBOR plus margin. Both facilities contain customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

5. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes changes in the fair value of derivative financial instruments that qualify as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” For the three and nine months ended September 30, 2004, the Company recorded total comprehensive loss of $34.6 million and $25.2 million, respectively. For the three and nine months ended September 30, 2003, the Company recorded total comprehensive income of $32.2 million and $58.6 million, respectively. The difference between net income (loss) and comprehensive income (loss) for the three and nine months ended September 30, 2004 and 2003 is detailed in the following table:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(in thousands)
Net income (loss)	$	(47,067	)	$	32,942		$	(40,197	)	$	50,608

Unrealized gains (losses) on derivative instruments		18,402			(793	)		26,102			17,097
Reclassification adjustment to net income (loss) of previously reported unrealized gains (losses) on derivative instruments		(5,931	)		84			(11,128	)		(9,126	)

Total other comprehensive income (loss)		12,471			(709	)		14,974			7,971

Comprehensive income (loss)	$	(34,596	)	$	32,233		$	(25,223	)	$	58,579

AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004

6. SPECIAL CHARGES

In the first quarter of 2004, the Company recorded a $0.6 million reduction in special charges related to the revision of estimated costs associated with the sale and leaseback of certain aircraft.

In August 2004, the Company entered into definitive agreements with two lessors to return six Boeing 737-200 aircraft. Three of these aircraft were returned to the lessors in the third quarter, with the other aircraft expected to be returned in the fourth quarter. In addition, the Company is also negotiating with one lessor on the return of its remaining two Boeing 737-200 aircraft, one of which was parked in March 2002. The other aircraft is expected to be removed from service in January 2005. In connection with the return of the three aircraft in the third quarter, the Company recorded $1.6 million of special charges which include lease termination payments of $2.1 million, the write-down of leasehold improvements and aircraft rent balances of $1.7 million, offset by the reversal of maintenance reserves of $2.2 million. The Company also expects to record special charges of approximately $2.2 million for the remaining aircraft.

The following table presents the payments and other settlements made during the nine months ended September 30, 2004 related to the special charge accruals:


				Fleet						Contract
	Sale-			Restructuring			Reductions-			Termination/
	Leaseback			/Retirement			in-force			Other Costs			Total
	(in thousands)
Balance at December 31, 2003	$	605		$	1,389		$	357		$	2,649		$	5,000

Revision of estimate		(600	)		—			—			—			(600	)
Payments		(5	)		(180	)		(275	)		(515	)		(975	)

Balance at March 31, 2004	$	—		$	1,209		$	82		$	2,134		$	3,425

Revision of estimate		—			—			(65	)		—			(65	)
Payments		—			(195	)		(17	)		(506	)		(718	)

Balance at June 30, 2004	$	—		$	1,014		$	—		$	1,628		$	2,642

Special charges		—			1,629			—			—			1,629
Payments		—			(2,247	)		—			(506	)		(2,753	)
Reversal of maintenance reserves		—			2,175			—			—			2,175
Write-down of leasehold improvements and aircraft rent balances		—			(1,739	)		—			—			(1,739	)

Balance at September 30, 2004	$	—		$	832		$	—		$	1,122		$	1,954

The Company expects to make payments related to these special charges through the fourth quarter of 2005.

AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004

7. EARNINGS (LOSS) PER SHARE (“EPS”)

The following table presents the computation of basic and diluted EPS.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004			2003		2004			2003
	(in thousands of dollars except share data)
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) applicable to common stock	$	(47,067	)	$	32,942	$	(40,197	)	$	50,608
Weighted average common shares outstanding		36,111,372			35,036,616		35,989,379			34,161,024

Basic earnings (loss) per share	$	(1.30	)	$	0.94	$	(1.12	)	$	1.48

DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) applicable to common stock	$	(47,067	)	$	35,622	$	(40,197	)	$	58,487
Interest expense on 7.5% convertible notes		—			2,680		—			7,879

Income (loss) for purposes of computing diluted net income (loss) per share	$	(47,067	)	$	35,622	$	(40,197	)	$	58,487

Share computation:
Weighted average common shares outstanding		36,111,375			35,036,616		35,989,379			34,161,024
Assumed exercise of stock options and warrants		—			15,784,790		—			7,187,737
Assumed conversion of 7.5% convertible senior notes		—			8,463,758		—			8,157,839

Weighted average common shares outstanding for purposes of computing diluted net income (loss) per share		36,111,375			59,285,164		35,989,379			49,506,600

Diluted income (loss) per share	$	(1.30	)	$	0.60	$	(1.12	)	$	1.18

For the three months ended September 30, 2004, 7,318,166 incremental shares from assumed exercise of stock options and 10,540,875 warrants issued in conjunction with the government guaranteed loan and related transactions are not included in the computation of diluted earnings (loss) per share (“EPS”) because of the antidilutive effect on EPS. Incremental shares of 9,020,000 from the assumed conversion of the 7.5% convertible senior notes are not included in the computation of diluted EPS because of the antidilutive effect on EPS.

For the nine months ended September 30, 2004, 6,721,430 incremental shares from the assumed exercise of stock options and 12,880,721 warrants issued in conjunction with the government guaranteed loan and related transactions are not included in the computation of diluted earnings (loss) per share (“EPS”) because of the antidilutive effect on EPS. Incremental shares of 8,694,000 from the assumed conversion of the 7.5% convertibles notes are not included in the computation of diluted EPS because of the antidilutive effect on EPS.

The shares issuable upon conversion of the 7.25% Senior Exchangeable Notes due 2023 were not included in the computation of diluted EPS for the three and nine months ended September 30, 2004, since the conditions for conversion have not been met. However, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) recently reached a consensus on Issue 04-08, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share” that requires issuers of convertible securities with contingent conversion features use the “if-converted” method to calculate reported EPS irrespective of the contingent conversion trigger being met. The consensus has been ratified by the FASB and will be effective in the same period as the FASB’s proposed amendment to SFAS No. 128 or periods ending after December 15, 2004. The Company does not believe the effect of including shares issuable upon the assumed conversion of the 7.25% Senior Exchangeable Notes in the diluted EPS calculations for prior periods will be significant.

For the three months ended September 30, 2003, 4,453,537 stock options are not included in the computation of diluted EPS because the option exercise prices were greater than the average market price of common stock for the period.

AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004

For the nine months ended September 30, 2003, 6,200,354 stock options are not included in the computation of diluted EPS because the option exercise prices were greater than the average market price of common stock for the period.

8. 401(k) PLAN SHARES

During the third quarter of 2004, Holdings became aware that an insufficient number of shares of its Class B common stock were registered for offer and sale through its 401(k) plan. In response to this registration shortfall, Holdings promptly filed a new registration statement on Form S-8 on August 13, 2004, which registered an additional 4,500,000 shares of Holdings’ Class B common stock to permit the continued offer and sale of such shares to participants through the 401(k) plan. Because the 401(k) plan in the past has purchased and in the future expects to continue to purchase shares of Holdings’ Class B common stock needed for allocation to participant accounts only in the open market and not directly from Holdings, the registration of these additional shares and their purchase by the 401(k) plan will have no dilutive impact on the outstanding equity of Holdings. As a result of the registration shortfall, however, participants who acquired unregistered shares through their 401(k) plan accounts after June 30, 2003, and prior to August 13, 2004, may be entitled to rescission rights or other remedies under the Securities Act of 1933, as amended. Holdings is notifying affected existing and former plan participants of their potential rescission rights, but cannot predict the extent to which any such rescission rights may be exercised or the impact of any possible federal or state regulatory action pertaining to the registration shortfall. Holdings does not believe, however, that any consequences arising from the registration shortfall will have a material adverse effect on Holdings’ financial position or results of operations.

ITEM 1B. CONDENSED FINANCIAL STATEMENTS — AMERICA WEST AIRLINES, INC.

The unaudited condensed balance sheets of AWA, a wholly-owned subsidiary of Holdings, as of September 30, 2004 and December 31, 2003, the condensed statements of operations for the three and nine months ended September 30, 2004 and 2003 and the condensed statements of cash flows for the nine months ended September 30, 2004 and 2003, together with the related notes, are set forth on the following pages. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. See Note 1, “Basis of Presentation” and Note 8, “Merger of TLC into AWA” in Notes to Condensed Financial Statements.

AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited)


	September 30,		December 31,
	2004		2003
Assets
Current assets:
Cash and cash equivalents	$	283,330	$	383,875
Short-term investments		68,141		72,890
Restricted cash		—		42,900
Accounts receivable, net		92,333		77,235
Expendable spare parts and supplies, net		63,030		58,575
Prepaid expenses		170,848		129,291

Total current assets		677,682		764,766

Property and equipment:
Flight equipment		898,747		858,395
Other property and equipment		283,602		271,593
Equipment purchase deposits		53,050		46,050

		1,235,399		1,176,038
Less accumulated depreciation and amortization		600,990		569,468

Net property and equipment		634,409		606,570

Other assets:
Investments in debt securities		45,000		40,740
Restricted cash		71,312		69,876
Advances to parent company, net		257,945		254,792
Other assets, net		126,104		122,725

Total other assets		500,361		488,133

	$	1,812,452	$	1,859,469

See accompanying notes to condensed financial statements.

AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited)


	September 30,			December 31,
	2004			2003
Liabilities and Stockholder’s Equity
Current liabilities:
Current maturities of long-term debt	$	146,653		$	103,899
Current obligations under capital leases		3,552			3,442
Accounts payable		177,278			209,373
Payable to affiliate, net		—			1,926
Air traffic liability		229,534			174,486
Accrued compensation and vacation benefits		41,666			61,045
Accrued taxes		29,241			24,117
Other accrued liabilities		74,252			59,277

Total current liabilities		702,176			637,565

Long-term debt, less current maturities		601,470			688,965
Capital leases, less current maturities		5,061			8,467
Deferred credits and other liabilities		141,834			139,873
Stockholder’s equity:
Common Stock $.01 par value. Authorized, issued and outstanding; 1,000 shares		—			—
Additional paid-in capital		555,114			555,115
Accumulated deficit		(220,704	)		(183,043	)
Accumulated other comprehensive income		27,501			12,527

Total stockholder’s equity		361,911			384,599

	$	1,812,452		$	1,859,469

See accompanying notes to condensed financial statements.

AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands)
(unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Operating revenues:
Passenger	$	542,167		$	552,564		$	1,648,666		$	1,591,496
Cargo		6,290			6,201			20,010			21,101
Other		29,996			33,367			91,055			78,199

Total operating revenues		578,453			592,132			1,759,731			1,690,796

Operating expenses:
Salaries and related costs		164,861			157,603			492,407			476,111
Aircraft rents		76,400			74,417			226,931			221,862
Other rents and landing fees		43,322			38,210			126,574			115,475
Aircraft fuel		136,297			91,595			375,825			271,481
Agency commissions		6,302			8,408			19,305			26,564
Aircraft maintenance materials and repairs		54,437			50,854			156,841			173,572
Depreciation and amortization		13,296			16,572			39,674			51,563
Special charges, net		1,629			—			1,029			14,370
Other		109,177			103,436			308,005			316,566

Total operating expenses		605,721			541,095			1,746,591			1,667,564

Operating income (loss)		(27,268	)		51,037			13,140			23,232

Nonoperating income (expenses):
Interest income		3,717			3,434			10,336			9,465
Interest expense, net		(21,661	)		(21,276	)		(64,071	)		(62,805	)
Federal government assistance		—			—			—			81,255
Other, net		(952	)		625			2,934			2,326

Total nonoperating income (expenses), net		(18,896	)		(17,217	)		(50,801	)		30,241

Income (loss) before income taxes		(46,164	)		33,820			(37,661	)		53,473
Income taxes		—			—			—			—

Net income (loss)	$	(46,164	)	$	33,820		$	(37,661	)	$	53,473

See accompanying notes to condensed financial statements.

AMERICA WEST AIRLINES, INC.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)


	Nine Months Ended
	September 30,
	2004			2003
Net cash provided by operating activities	$	89,913		$	159,068

Cash flows from investing activities:
Purchases of property and equipment		(125,938	)		(119,196	)
Purchases of short-term investments		(58,165	)		(51,186	)
Sales of short-term investments		77,409			35,739
Purchases of investments in debt securities		(35,000	)		(46,189	)
Sales of investments in debt securities		15,000			1,501
Increase in restricted cash		(1,436	)		(23,465	)
Proceeds from disposition of assets		2,544			24,283

Net cash used in investing activities		(125,586	)		(178,513	)

Cash flows from financing activities:
Repayment of debt		(174,280	)		(14,719	)
Proceeds from issuance of debt		110,564			86,828
Payments of debt issue costs		(1,156	)		(3,105	)

Net cash provided by (used in) financing activities		(64,872	)		69,004

Net increase (decrease) in cash and cash equivalents		(100,545	)		49,559
Cash and cash equivalents at beginning of period		383,875			334,679

Cash and cash equivalents at end of period	$	283,330		$	384,238

Cash, cash equivalents, short-term investments and investments in debt securities at end of period	$	396,471		$	469,111

Cash paid for:
Interest, net of amounts capitalized	$	18,001		$	14,304

Income taxes paid (refunded)	$	326		$	(558	)

Non-cash investing and financing activities:
Payment in kind notes issued	$	4,974		$	4,813

Reclassification of investments in debt securities to short-term investments	$	15,730		$	—

Notes payable issued (cancelled) under the aircraft purchase agreement	$	7,000		$	(7,000	)

Exercise of warrants	$	(2	)	$	(17	)

Cancellation of convertible notes	$	—		$	(660	)

See accompanying notes to condensed financial statements.

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

1. BASIS OF PRESENTATION

The unaudited condensed financial statements included herein have been prepared by AWA, a wholly owned subsidiary of Holdings, pursuant to the rules and regulations of the Securities and Exchange Commission and, in accordance with those rules and regulations, certain information and footnotes required by generally accepted accounting principles have been omitted. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. Accordingly, prior period amounts have been adjusted to give effect to the merger as if it had occurred on January 1, 2003 and all intercompany transactions between AWA and TLC have been eliminated. See Note 8, “Merger of TLC into AWA.” In the opinion of management, the condensed financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation. Certain prior year amounts have been reclassified to conform with current year presentation. The accompanying condensed financial statements should be read in conjunction with the financial statements and related notes thereto included in AWA’s current report on Form 8-K dated August 12, 2004.

2. ADVANCES TO PARENT COMPANY AND AFFILIATE

As of September 30, 2004, AWA had net advances to Holdings of $257.9 million, which were classified in “Other Assets” on AWA’s condensed balance sheet due to certain restrictions related to the timing of repayment under the government guaranteed loan, of which $343.2 million remains outstanding. AWA settled all intercompany amounts due to TLC upon the completion of the merger of TLC on January 1, 2004.

3. STOCK OPTIONS

Certain of AWA’s employees are eligible to participate in the stock option plans of Holdings. Holdings accounts for its stock option plans in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Holdings issues its stock options at a price equal to the fair market value on the date of grant. Accordingly, no compensation cost has been recognized for stock options in Holdings’ condensed consolidated financial statements. Had Holdings determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, “Accounting for Stock-Based Compensation,” and allocated compensation expense to AWA for its employees participating in the stock option plans, AWA’s net income (loss) would have been reduced (increased) to the pro forma amounts indicated below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(in thousands)
Net income (loss), as reported	$	(46,164	)	$	33,820		$	(37,661	)	$	53,473
Stock-based compensation expense		(1,824	)		(1,051	)		(4,740	)		(3,214	)

Pro forma net income (loss)	$	(47,988	)	$	32,769		$	(42,401	)	$	50,259

4. FLIGHT EQUIPMENT

During the quarter, AWA entered into agreements with two aircraft lessors for the return of six Boeing 737-200 aircraft. Three aircraft were returned during the quarter and three are expected to be returned in the fourth quarter. Negotiations continue for the return of the remaining two Boeing 737-200 aircraft. See Note 7 “Special Charges.”

In August 2004, AWA amended its 1999 Airbus purchase contract. As amended, the new agreement calls for AWA to acquire 22 Airbus A320 family aircraft (a mix of A320s and A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, it is anticipated that 18 will be purchased directly from the manufacturer and four will be leased from various lessors. AWA has negotiated lease agreements for the four leased aircraft. In addition, AWA is exploring the possibility of leasing one additional aircraft in lieu of purchasing such aircraft from the manufacturer. In the context of this incremental order, AWA also secured extensive flexibility from Airbus with respect to its existing A318 order, allowing AWA to better react to market conditions by enabling it to amend its 15 A318 delivery positions to A319s and A320s, if it so desires, or to no additional aircraft under certain conditions.

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

In the first quarter of 2004, AWA revised the estimated useful life for certain aircraft and related spare parts inventory as a result of changes in its fleet plan and for capitalized maintenance on certain of its engines as a result of changes in aircraft utilization. The net impact of this change in estimate was an increase in net income for the three and nine months ended September 30, 2004 by $4.6 million and $13.8 million, respectively.

5. TERM LOAN REFINANCING

6. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes changes in the fair value of derivative financial instruments that qualify for hedge accounting. For the three and nine months ended September 30, 2004, AWA recorded total comprehensive loss of $33.7 million and $22.7 million, respectively. For the three and nine months ended September 30, 2003, AWA recorded total comprehensive income of $33.1 million and $61.4 million, respectively. The difference between net income (loss) and comprehensive income (loss) for the three and nine months ended September 30, 2004 and 2003 is detailed in the following table:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(in thousands)
Net income (loss)	$	(46,164	)	$	33,820		$	(37,661	)	$	53,473

Unrealized gains (losses) on derivative instruments		18,402			(793	)		26,102			17,097
Reclassification adjustment to net income (loss) of previously reported unrealized gains (losses) on derivative instruments		(5,931	)		84			(11,128	)		(9,126	)

Total other comprehensive income (loss)		12,471			(709	)		14,974			7,971

Comprehensive income (loss)	$	(33,693	)	$	33,111		$	(22,687	)	$	61,444

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

7. SPECIAL CHARGES

In the first quarter of 2004, AWA recorded a $0.6 million reduction in special charges related to the revision of estimated costs associated with the sale and leaseback of certain aircraft.

In August 2004, AWA entered into definitive agreements with two lessors to return six Boeing 737-200 aircraft. Three of these aircraft were returned to the lessors in the third quarter, with the other aircraft expected to be returned in the fourth quarter. In addition, AWA is also negotiating with one lessor on the return of its remaining two Boeing 737-200 aircraft, one of which was parked in March 2002. The other aircraft is expected to be removed from service in January 2005. In connection with the return of the three aircraft in the third quarter, AWA recorded $1.6 million of special charges which include lease termination payments of $2.1 million, the write-down of leasehold improvements and aircraft rent balances of $1.7 million, offset by the reversal of maintenance reserves of $2.2 million. AWA also expects to record special charges of approximately $2.2 million for the remaining aircraft.

The following table presents the payments and other settlements made during the nine months ended September 30, 2004 related to the special charge accruals:


				Fleet						Contract
	Sale-			Restructuring			Reductions-			Termination/
	Leaseback			/Retirement			in-force			Other Costs			Total
	(in thousands)
Balance at December 31, 2003	$	605		$	1,389		$	307		$	2,649		$	4,950

Revision of estimate		(600	)		—			—			—			(600	)
Increase due to TLC merger at 01/01/04		—			—			50			—			50
Payments		(5	)		(180	)		(275	)		(515	)		(975	)

Balance at March 31, 2004	$	—		$	1,209		$	82		$	2,134		$	3,425

Revision of estimate		—			—			(65	)		—			(65	)
Payments		—			(195	)		(17	)		(506	)		(718	)

Balance at June 30, 2004	$	—		$	1,014		$	—		$	1,628		$	2,642

Special charges		—			1,629			—			—			1,629
Payments		—			(2,247	)		—			(506	)		(2,753	)
Reversal of maintenance reserves		—			2,175			—			—			2,175
Write-down of leasehold improvements and aircraft rent balances		—			(1,739	)		—			—			(1,739	)

Balance at September 30, 2004	$	—		$	832		$	—		$	1,122		$	1,954

AWA expects to make payments related to these special charges through the fourth quarter of 2005.

8. MERGER OF TLC INTO AWA

On January 1, 2004, TLC was merged into AWA. As a result of the merger, TLC, which is one of the nation’s largest tour operators, ceased to exist as a separate legal entity and instead became a division of AWA. This merger was intended to save costs and streamline operations for AWA and did not change any operating procedures. The assets and liabilities of TLC have been recorded at historical cost.

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

The condensed statement of operations for the three and nine months ended September 30, 2003, after giving effect to the merger, are set forth below.

America West Airlines, Inc.

Condensed Statement of Operations

For the Three months ended September 30, 2003

(unaudited)


	AWA					Eliminations/
	As Reported			TLC		Adjustments			Combined
	(in thousands)
Operating revenues:
Passenger	$	552,564		$	—	$	—		$	552,564
Cargo		6,201			—		—			6,201
Other		22,847			10,663		(143	)^(a)		33,367

Total operating revenues		581,612			10,663		(143	)		592,132

Operating expenses:
Salaries and related costs		156,059			1,544		—			157,603
Aircraft rents		74,417			—		—			74,417
Other rents and landing fees		38,210			143		(143	)^(a)		38,210
Aircraft fuel		91,595			—		—			91,595
Agency commissions		5,589			2,819		—			8,408
Aircraft maintenance materials and repairs		50,854			—		—			50,854
Depreciation and amortization		16,407			165		—			16,572
Special charges, net		—			—		—			—
Other		101,541			1,895		—			103,436

Total operating expenses		534,672			6,566		(143	)		541,095

Operating income		46,940			4,097		—			51,037

Nonoperating income (expenses):
Interest income		3,361			73		—			3,434
Interest expense, net		(21,276	)		—		—			(21,276	)
Federal government assistance		—			—		—			—
Other, net		625			—		—			625

Total nonoperating income (expenses), net		(17,290	)		73		—			(17,217	)

Income before income taxes		29,650			4,170		—			33,820

Income taxes		—			1,620		(1,620	)^(b)		—

Net income	$	29,650		$	2,550	$	1,620		$	33,820

(a) TLC paid rent in the amount of $143,000 to AWA for space it occupied in certain AWA facilities. This rent was reflected in other revenues by AWA and in operating expenses by TLC. This adjustment eliminates those amounts.

(b) TLC reported income tax expense of $1.6 million on a stand-alone basis. On a pro forma basis, AWA’s tax benefits were utilized by TLC, which eliminated income tax expense and resulted in a corresponding decrease in AWA’s tax valuation allowance.

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

America West Airlines, Inc.
Condensed Statement of Operations
For the Nine months ended September 30, 2003
(unaudited)


	AWA					Eliminations/
	As Reported			TLC		Adjustments			Combined
	(in thousands)
Operating revenues:
Passenger	$	1,591,496		$	—	$	—		$	1,591,496
Cargo		21,101			—		—			21,101
Other		48,476			30,152		(429	)^(a)		78,199

Total operating revenues		1,661,073			30,152		(429	)		1,690,796

Operating expenses:
Salaries and related costs		470,992			5,119		—			476,111
Aircraft rents		221,862			—		—			221,862
Other rents and landing fees		115,475			429		(429	)^(a)		115,475
Aircraft fuel		271,481			—		—			271,481
Agency commissions		18,072			8,492		—			26,564
Aircraft maintenance materials and repairs		173,572			—		—			173,572
Depreciation and amortization		51,036			527		—			51,563
Special charges, net		13,979			391		—			14,370
Other		310,380			6,186		—			316,566

Total operating expenses		1,646,849			21,144		(429	)		1,667,564

Operating income		14,224			9,008		—			23,232

Nonoperating income (expenses):
Interest income		9,247			218		—			9,465
Interest expense, net		(62,805	)		—		—			(62,805	)
Federal government assistance		81,255			—		—			81,255
Other, net		2,326			—		—			2,326

Total nonoperating income, net		30,023			218		—			30,241

Income before income taxes		44,247			9,226		—			53,473

Income taxes		—			3,585		(3,585	)^(b)		—

Net income	$	44,247		$	5,641	$	3,585		$	53,473

(a) TLC paid rent in the amount of $429,000 to AWA for space it occupied in certain AWA facilities. This rent was reflected in other revenues by AWA and in operating expenses by TLC. This adjustment eliminates those amounts.

(b) TLC reported income tax expense of $3.6 million on a stand-alone basis. On a pro forma basis, AWA’s tax benefits were utilized by TLC, which eliminated income tax expense and resulted in a corresponding decrease in AWA’s tax valuation allowance.

AMERICA WEST AIRLINES, INC.
Notes To Condensed Financial Statements
September 30, 2004

9. 401(k) PLAN SHARES

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Holdings is the parent company of AWA. AWA is the eighth largest passenger airline and the second largest low cost carrier in the United States operating through its hubs located in Phoenix, Arizona and Las Vegas, Nevada. As of September 30, 2004, AWA served 62 destinations in North America, including eight destinations in Mexico, two in Canada and one in Costa Rica. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations (“AWV”) division of AWA. See Note 8, “Merger of TLC into AWA” in Notes to Condensed Financial Statements of AWA. AWV arranges and sells vacation packages primarily to Las Vegas, Nevada that may include airfare, hotel accommodations and ground transportation. Holdings’ primary business activity is ownership of all the capital stock of AWA.

Overview

During the third quarter of 2004, the airline industry and AWA incurred and continues to face an increase in costs resulting from record high jet fuel prices. At the same time, AWA’s passenger revenues were negatively impacted by a weak revenue environment. Weak domestic yields are an industry wide problem due to excess domestic capacity, limited pricing power and continued growth of low cost carriers.

For the third quarter, Holdings recorded an operating loss of $28.2 million and pretax and net loss of $47.1 million, or $1.30 per diluted share. During the quarter:

• Capacity as measured by available seat miles (ASMs), was up 8.3% as compared to the 2003 third quarter, while passenger revenues were down $10.4 million or 1.9% to $542.2 million. Passenger revenue per available seat mile (RASM) decreased 9.3% to 7.09 cents versus the 2003 third quarter primarily due to an 11.2% decline in yield, a 7.9% increase in aircraft utilization and a 6.1% increase in average stage length.

• Total operating expenses were $606.9 million, an increase of $64.7 million from the third quarter of 2003. The average fuel price per gallon increased 39.5% from 84.6 cents in the third quarter of 2003 to 118.0 cents per gallon in the third quarter of 2004. As a result, aircraft fuel expense for the quarter was $136.3 million, which accounted for $44.7 million (69.1%) of the period-over-period increase in operating expenses. Other operating expenses increased by only 4.4%, while the airline grew by 8.3%, driven by the Company’s stringent cost controls.

We believe near term revenues will continue to be negatively impacted by this weak yield environment and fuel prices will remain at record levels. Given these conditions, Holdings anticipates it will report significant losses for the fourth quarter and full year 2004.

As of September 30, 2004, Holdings’ unrestricted and restricted cash, cash equivalents, short-term investments and investments in debt securities totaled $488.1 million. Although there can be no assurances, we believe that these high cash balances, coupled with our financing commitments and cash flows from operating activities will be adequate to fund our operating and capital needs as well as enable us to maintain compliance with our various debt agreements through at least December 31, 2005.

Airline Operations Update

During the third quarter of 2004, average daily aircraft utilization increased by 7.9% to 10.9 hours as the Company continued to grow the airline, principally through lower cost utilization flying. This increase occurred during the time when domestic air traffic volume increased 6.6% year-over-year and the national air traffic system was already constrained. In addition, AWA had three consecutive months of record passenger load factors, averaging 81.3% during the same period. The increase in aircraft utilization, constrained air space and carrying record load factors put pressure on our operations. As a result, AWA’s operating performance and completion factor were worse than the third quarter of 2003.

The Company’s recent action to improve operating performance, which included a modest reduction in planned growth and an increase in maintenance stations, has had a positive impact on third quarter operating results.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Operating performance for the third quarter improved over the 2004 second quarter as average on-time performance increased to 77.8% from 76.7% and average completion factor increased to 98.7% from 98.4%. The Company expects its fourth quarter 2004 operating results will continue to improve versus the third quarter.

AWA reported the following operating statistics to the U.S. Department of Transportation (“DOT”) for the third quarters of 2004 and 2003:


														Percent Change
	2004							2003						2004 - 2003
	Jul		Aug		Sep			Jul		Aug		Sep		Jul			Aug			Sep
On-time performance ^(a)		76.4		74.9		82.2			82.0		80.8		86.4		(5.6	)		(5.9	)		(4.2	)
Completion factor ^(b)		98.5		98.8		97.9	(e)		99.2		99.3		99.4		(0.7	)		(0.5	)		(1.5	)
Mishandled baggage ^(c)		4.46		4.76		3.24			3.44		3.59		2.40		29.7			32.6			35.0
Customer complaints ^(d)		0.82		1.41		1.30			0.63		0.75		0.71		30.2			88.0			83.1

(a) Percentage of reported flight operations arriving on time.

(b) Percentage of scheduled flight operations completed.

(d) Rate of customer complaints filed with the DOT per 100,000 passengers.

(e) Excluding the effects of the Los Angeles-area Federal Aviation Administration radio outage that impacted operations on September 14 and 15 and the effects of hurricanes that affected operations for several days during the month, completion factor would have been 98.8%.

Summary of Holdings’ Financial Results

Holdings recorded a consolidated net loss of $47.1 million, or $1.30 per diluted share, in the third quarter of 2004. This compares to consolidated net income of $32.9 million, or $0.60 per diluted share, in the third quarter of 2003. The 2004 period includes $1.6 million of special charges related to the return of three Boeing 737-200 aircraft. This amount includes termination payments of $2.1 million, the write-down of leasehold improvements and aircraft rent balances of $1.7 million, offset by the reversal of maintenance reserves of $2.2 million. See Note 6, “Special Charges” in Notes to Condensed Financial Statements.

Holdings recorded a consolidated net loss of $40.2 million in the first nine months of 2004, or $1.12 per diluted share. This compares to consolidated net income of $50.6 million, or $1.18 per diluted share, in the first nine months of 2003. The 2004 period includes $1.6 million of special charges as discussed above. The 2003 period included the $81.3 million of federal government assistance received under the Emergency Wartime Supplemental Appropriations Act, an operating gain of $4.4 million related to the purchase and subsequent exchange of an A320 airframe in the first quarter of 2003 and an operating gain of $1.1 million due to a revision of the estimated costs related to the early termination of certain aircraft leases. These gains were offset in part by special charges of $15.5 million resulting from the elimination of AWA’s hub operations in Columbus, Ohio ($11.1 million), the reduction-in-force of certain management, professional and administrative employees ($2.3 million) the impairment of certain owned Boeing 737-200 aircraft grounded in 2003 ($2.6 million) and a $0.5 million reduction related to the revision of estimated costs associated with the sale and leaseback of certain aircraft.

The Company did not record an income tax benefit in the third quarter or income tax expense for the first six months of 2004 as it currently expects to continue to record a full valuation allowance on any future tax benefits until it has achieved several quarters of consecutive profitable results coupled with an expectation of continued profitability.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

RESULTS OF OPERATIONS

The following discussion provides an analysis of AWA’s results of operations for the three and nine months ended September 30, 2004 and material changes compared to the three and nine months ended September 30, 2003.

The table below sets forth selected operating data for AWA.


	Three Months Ended				Percent			Nine Months Ended				Percent
	September 30,				Change			September 30,				Change
	2004		2003		2004-2003			2004		2003		2004-2003
Aircraft (end of period)		139		140		(0.7	)		139		140		(0.7	)
Average daily aircraft utilization (hours) ^(a)		10.9		10.1		7.9			10.9		10.1		7.9
Available seat miles (in millions) ^(b)		7,646		7,062		8.3			22,550		20,887		8.0
Block hours ^(c)		140,076		129,830		7.9			415,956		389,509		6.8
Average stage length (miles) ^(d)		1,067		1,006		6.1			1,054		995		5.9
Average passenger journey (miles) ^(e)		1,771		1,593		11.2			1,688		1,539		9.7
Revenue passenger miles (in millions) ^(f)		6,227		5,635		10.5			17,448		16,009		9.0
Load factor (percent) ^(g)		81.4		79.8		1.6	pts		77.4		76.6		0.8	pts
Passenger enplanements (in thousands) ^(h)		5,556		5,322		4.4			15,796		15,162		4.2
Yield per revenue passenger mile (cents) ⁽ⁱ⁾		8.71		9.81		(11.2	)		9.45		9.94		(4.9	)
Revenue per available seat mile:
Passenger (cents) ^(j)		7.09		7.82		(9.3	)		7.31		7.62		(4.1	)
Total (cents) ^(k)		7.57		8.39		(9.8	)		7.80		8.09		(3.6	)
Fuel consumption (gallons in millions)		115.5		108.3		6.7			337.9		317.9		6.3
Average fuel price (cents per gallon)		118.0		84.6		39.5			111.2		85.4		30.3
Average number of full-time equivalent employees		11,936		11,347		5.2			11,924		11,712		1.8

(a) Average daily aircraft utilization - The average number of block hours per day for all aircraft in service.

(b) Available seat mile (“ASM”) - A basic measure of production. It is one seat flown one mile.

(c) Block hours - The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

(d) Average stage length - The average of the distances flown on each segment of every route.

(e) Average passenger journey - The average one-way trip measured in miles for one passenger origination.

(f) Revenue passenger mile (“RPM”) - A basic measure of sales volume. It is one passenger flown one mile.

(g) Load factor - The percentage of available seats that are filled with revenue passengers.

(h) Passenger enplanements - The number of passengers on board an aircraft including local, connecting and through passengers.

(i) Yield - A measure of airline revenue derived by dividing passenger revenue by revenue passenger miles and expressed in cents per mile.

(j) Passenger revenue per available seat mile (“RASM”) - Total passenger revenues divided by total available seat miles.

(k) Total revenue per available seat mile - Total operating revenues divided by total available seat miles.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

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
	2004		2003		2004-2003			2004		2003		2004-2003
(in cents)
Salaries and related costs		2.16		2.23		(3.4	)		2.18		2.28		(4.2	)
Aircraft rents		1.00		1.05		(5.2	)		1.01		1.06		(5.3	)
Other rents and landing fees		0.57		0.54		4.7			0.56		0.55		1.5
Aircraft fuel		1.78		1.30		37.4			1.67		1.30		28.2
Agency commissions		0.08		0.12		(30.8	)		0.09		0.13		(32.7	)
Aircraft maintenance materials and repairs		0.71		0.72		(1.1	)		0.69		0.83		(16.3	)
Depreciation and amortization		0.17		0.24		(25.9	)		0.17		0.25		(28.7	)
Special charges, net		0.02		—		—			0.01		0.06		(93.4	)
Other		1.43		1.46		(2.5	)		1.37		1.52		(9.9	)

		7.92		7.66		3.4			7.75		7.98		(3.0	)

Three months ended September 30, 2004 and 2003

For the third quarter of 2004, AWA realized an operating loss of $27.3 million compared to operating income of $51.0 million for the comparable 2003 quarter. Loss before income taxes for the third quarter of 2004 was $46.2 million compared to income before income taxes of $33.8 million for the comparable 2003 period.

Total operating revenues for the third quarter of 2004 were $578.5 million. Passenger revenues were $542.2 million, a decrease of $10.4 million or 1.9% from the comparable 2003 quarter. A 10.5% increase in RPMs exceeded an 8.3% increase in ASMs, resulting in a 1.6 point increase in load factor, while yield decreased 11.2%. As a result, RASM decreased 9.3% to 7.09 cents in the third quarter 2004 compared to 7.82 cents in the 2003 quarter due to a weak revenue environment. Weak domestic yields are an industry wide problem due to excess domestic capacity, limited pricing power and continued growth of low cost carriers. Cargo revenues ($6.3 million) were relatively flat period-over-period. Other revenues decreased 10.1% from $33.4 million in the third quarter of 2003 to $30.0 million in the third quarter of 2004 due principally to lower net revenues from the sale of America West Vacations packages as a result of lower volume. Net revenues from AWA’s code sharing arrangement with Mesa Airlines were flat when compared to the 2003 third quarter as the increase in revenues associated with Mesa’s capacity growth was substantially offset by higher fuel and aircraft operating costs.

Operating expenses in the third quarter of 2004 increased $64.6 million or 11.9% compared to the 2003 quarter while ASMs increased 8.3% primarily due to increases in average stage length of 6.1% and aircraft utilization of 7.9%. CASM increased 3.4% to 7.92 cents in the third quarter of 2004 from 7.66 cents for the comparable 2003 quarter despite a 39.5% increase in average fuel price per gallon. Operating expenses in the third quarter of 2004 include special charges of $1.6 million related to the return of three Boeing 737-200 aircraft. Significant changes in the components of CASM are explained as follows:

• Salaries and related costs per ASM decreased 3.4 % due to increased productivity. ASMs increased 8.3% and average full-time equivalent employees (“FTEs”) increased 5.2%. This increase in productivity was offset in part by an $8.1 million increase in pilot payroll expense, principally as a result of the new labor agreement with the Air Line Pilots Association (“ALPA”) effective December 30, 2003.

• Aircraft rent expense per ASM decreased 5.2% due to the increase in aircraft utilization.

• Other rents and landing fees expense per ASM increased 4.7% primarily due to increases in airport rents ($2.9 million), landing fees ($1.2 million) and other space rentals ($0.6 million), which more than offset the 8.3% increase in ASMs.

• Aircraft fuel expense per ASM increased 37.4% primarily due to a 39.5% increase in the average price per gallon of fuel to 118.0 cents in the third quarter of 2004 from 84.6 cents in the comparable 2003 quarter. Fuel expense was reduced by $7.8 million in the third quarter of 2004 as a result of fuel hedging transactions in the quarter of which $1.9 million was due to hedge ineffectiveness. No gains on fuel hedging transactions were recognized for the comparable 2003 quarter.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

• Agency commissions expense per ASM decreased 30.8% due to reductions in various travel agency incentive programs and lower override commissions.

• Aircraft maintenance materials and repairs expense per ASM decreased 1.1% primarily due to a decrease in capitalized maintenance amortization expense ($4.0 million), driven primarily by a change in the estimated useful life on certain engines, effective January 1, 2004, as a result of changes in aircraft utilization, and the 8.3% increase in ASMs. This was partially offset by increases in aircraft C-check ($3.5 million) and airframe maintenance ($3.3 million) expenses.

• Depreciation and amortization expense per ASM decreased 25.9% primarily due to lower computer hardware and software amortization ($2.5 million) as a result of the AWA’s cash conservation program, which reduced capital expenditures. The change in the estimated useful life as a result of changes in AWA’s fleet plan, effective January 1, 2004, driven by changes in aircraft utilization contributed to the decrease in depreciation expense for improvements on AWA’s owned aircraft ($0.8 million) and for rotable and repairable spare parts ($0.5 million).

• Other operating expenses per ASM decreased 2.5% primarily due to the 8.3% increase in ASMs, as a decrease in property taxes ($2.8 million) was more than offset by increases in guard services ($2.6 million), litigation fees ($1.9 million), aircraft fuel tax ($1.3 million), ground handling ($1.2 million) and computer reservation system booking fees ($0.6 million).

Net nonoperating expenses increased year over year by $1.7 million as debt issue costs totaling $1.3 million were written off in connection with the refinancing of the term loan in September 2004. See Note 4, “Term Loan Refinancing.”

Nine months ended September 30, 2004 and 2003

For the nine months ended September 30, 2004, AWA realized operating income of $13.1 million compared to operating income of $23.2 million for the comparable 2003 period. Loss before income taxes for the nine-month period in 2004 was $37.7 million compared to income before income taxes of $53.5 million in 2003.

Total operating revenues for the first nine months of 2004 were $1.8 billion. Passenger revenues were $1.6 billion, an increase of $57.2 million or 3.6% from the comparable 2003 period. A 9.0% increase in RPMs exceeded an 8.0% increase in ASMs, resulting in a 0.8 point increase in load factor, while yield decreased 4.9%. As a result, RASM decreased 4.1% to 7.31 cents in the first nine months of 2004 from 7.62 cents in the comparable 2003 period due to the overall increase in industry domestic capacity and competition. Cargo revenues decreased 5.2% to $20.0 million due to lower mail rates and volumes. Other revenues increased 16.4% to $91.1 million primarily due to increased flying for AWA by its codeshare partner Mesa Airlines (“Mesa”) and a $2.5 million credit related to the reduction of certain obligations based upon a settlement with Mesa. These increases were offset in part by lower net revenues from the sale of America West Vacations packages due primarily to a decrease in volume.

Operating expenses for the first nine months of 2004 increased $79.0 million or 4.7% compared to the comparable 2003 period, while ASMs increased 8.0% due to increases in average stage length of 5.9% and aircraft utilization of 7.9%. CASM decreased 3.0% to 7.75 cents for the first nine months of 2004 from 7.98 cents for the comparable 2003 period despite a 30.3% increase in average fuel price per gallon. Operating expenses in the first nine months of 2004 included a $0.6 million reduction in special charges related to the revision of estimated costs associated with the sale and leaseback of certain aircraft and a $1.6 million charge related to the return of three Boeing 737-200 aircraft. The comparable 2003 period included special charges of $14.4 million. Significant changes in the components of CASM are explained as follows:

• Salaries and related costs per ASM decreased 4.2% due to increased productivity. ASMs increased 8.0% and average FTEs increased 1.8%. This increase in productivity was offset in part by a $20.6 million increase in pilot payroll expense principally as a result of the new labor agreement with ALPA effective December 30, 2003.

• Aircraft rent expense per ASM decreased 5.3% due to the increase in aircraft utilization.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

• Other rents and landing fees expense per ASM increased 1.5% primarily due to increases in airport rents ($6.6 million) and landing fees ($3.9 million), which more than offset the 8.0% increase in ASMs.

• Aircraft fuel expense per ASM increased 28.2% due to a 30.3% increase in the average price per gallon of fuel to 111.2 cents in the first nine months of 2004 from 85.4 cents in the comparable 2003 period. Fuel expense was reduced by $15.5 million in 2004 as a result of fuel hedging transactions of which $4.4 million was due to hedge ineffectiveness. Gains on fuel hedging transactions for the comparable 2003 period were $10.0 million.

• Agency commissions expense per ASM decreased 32.7% primarily due to the reductions in various travel agency incentive programs and lower override commissions.

• Aircraft maintenance materials and repairs expense per ASM decreased 16.3% primarily due to decreases in capitalized maintenance amortization expense ($21.8 million) and aircraft C-Check expense ($1.4 million). The decrease in capitalized maintenance amortization expense is driven by changes in the estimated useful life on certain engines, effective January 1, 2004, as a result of changes in aircraft utilization ($6.3 million), and on certain aircraft engine overhaul costs, effective April 1, 2003, driven by a new maintenance agreement that guarantees minimum cycles on engine overhauls ($2.3 million). During 2004, AWA also retired fully depreciated assets related to the return of certain leased aircraft and engines which reduced period-over-period capitalized maintenance amortization expense ($3.3 million). These decreases were partially offset by increases in airframe maintenance ($4.4 million) and engine overhaul ($1.8 million) expenses.

• Depreciation and amortization expense per ASM decreased 28.7% primarily due to lower computer hardware and software amortization ($5.3 million) as a result of AWA’s cash conservation program, which reduced capital expenditures and lower amortization expense related to aircraft leasehold improvements ($1.8 million). The change in the estimated useful life as a result of changes in AWA’s fleet plan discussed above contributed to the decrease in depreciation for improvements on AWA’s owned aircraft ($2.7 million), and for rotable and repairable spare parts ($2.4 million).

• Other operating expenses per ASM decreased 9.9% primarily due to decreases in Flight Fund expenses ($6.7 million), property taxes ($5.7 million), catering costs ($5.1 million), bad debt expense ($2.8 million), offset by increases in aircraft fuel tax ($2.9 million), credit card discount fees ($2.7 million), computer reservation system booking fees ($2.5 million), litigation fees ($1.9 million), and airport guard services ($1.4 million). Contributing to the decrease in the 2004 period were a $3.5 million gain resulting from the settlement of a claim in bankruptcy for amounts earned under an executory contract, a $2.0 million gain resulting from the settlement of a lawsuit related to certain computer hardware and software that had previously been written off and a $1.0 million volume incentive earned due to certain Affinity Card sales levels meeting certain contract thresholds. The comparable 2003 period includes a $4.4 million gain related to the purchase and subsequent exchange of an A320 airframe.

AWA had net nonoperating expenses of $50.8 million in the first nine months of 2004 compared to $30.2 million of net nonoperating income in the 2003 period, which benefited from $81.3 million of federal government assistance received under the “Emergency Wartime Supplemental Appropriations Act.” In the first nine months of 2004, debt issue costs totaling $1.3 million were written off in connection with the refinancing of the term loan. This was more than offset by a gain on the disposition of property and equipment ($2.1 million) primarily due to the sale of one Boeing 737-200 aircraft. Interest income increased $0.9 million or 9.2% due to higher average cash balances in the 2004 period. Interest expense increased $1.3 million or 2.0% due to higher average interest rates on outstanding debt.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

At September 30, 2004, Holdings’ and AWA’s total cash, cash equivalents, short-term investments, investments in debt securities and restricted cash were $488.1 million and $467.8 million, respectively. Net cash provided by operating activities for Holdings and AWA was $89.9 million in the first nine months of 2004 compared to $159.3 million and $159.1 million for Holdings and AWA, respectively, in the first nine months of 2003. The year-over-year decrease in net cash provided by operating activities of $69.4 million and $69.2 million for Holdings and AWA, respectively, was primarily due to receiving $81.3 million of refunded security fees from the federal government in the third quarter of 2003.

In the first nine months of 2004, net cash used in investing activities was $125.6 million for Holdings and AWA. This compares to net cash used in investing activities of $178.5 million for Holdings and AWA in the first nine months of 2003. Principal investing activities during the first nine months of 2004 included purchases of property and equipment totaling $125.9 million and net purchases of short-term investments and investments in debt securities totaling $0.8 million. The first nine months of 2003 included purchases of property and equipment totaling $119.2 million, including $12.0 million related to the purchase of an A320 airframe that was used to replace an airframe that was damaged in an accident in August 2002, and net purchases of short-term investments totaling $60.1 million. The 2003 period also included proceeds from the disposition of assets totaling $24.0 million, including $12.6 million of insurance proceeds and $3.6 million of scrap proceeds both associated with the replaced A320 airframe discussed above, and $6.9 million related to the sale and leaseback of 29 jet bridges at Phoenix Sky Harbor International Airport.

In the first nine months of 2004, net cash used in financing activities by Holdings and AWA was $63.7 million and $64.9 million, respectively, consisting primarily of debt repayments, including principal payments of $85.8 million for the government guaranteed loan. In addition, AWA refinanced the term loan resulting in proceeds of $110.6 million, a portion of which was used to pay off the balance of the term loan for approximately $77.0 million and to pay for debt issue costs of $1.2 million. See Note 4, “Term Loan Refinancing” in Notes to Condensed Consolidated Financial Statements and “Commitments -GECC Term Loan Financing” below. The comparable 2003 period includes $86.8 million of proceeds from the issuance of the Senior Exchangeable Notes, debt repayments of $14.7 million and payments of debt issue costs totaling $3.1 million for both Holdings and AWA.

Capital expenditures for the first nine months of 2004 were approximately $125.9 million for both Holdings and AWA as compared to capital expenditures of approximately $119.2 million for both Holdings and AWA for the first nine months of 2003. Included in these amounts are expenditures for capitalized maintenance of approximately $96.0 million and $91.8 million for both Holdings and AWA for the first nine months of 2004 and 2003, respectively.

Off-Balance Sheet Arrangements

The Pass Through Trusts

Since AWA’s restructuring in 1994, AWA has set up 19 pass through trusts, which have issued over $1.4 billion of pass through trust certificates (also known as “Enhanced Equipment Trust Certificates” or “EETC”) covering the financing of 54 aircraft, all of which have been delivered. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of aircraft. Rather than finance each aircraft separately when such aircraft is purchased or delivered, these trusts allowed AWA to raise the financing for several aircraft at one time and place such funds in escrow pending the purchase or delivery of the relevant aircraft. The trusts also are structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to AWA.

Each trust covered a set amount of aircraft scheduled to be delivered within a specific period of time. At the time of each covered aircraft financing, the relevant trust used the funds in escrow to purchase equipment notes relating to the financed aircraft. The equipment notes were issued, at AWA’s election, either by AWA in connection with a mortgage financing of the aircraft or by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leased the aircraft to AWA. In both cases, the

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

equipment notes are secured by a security interest in the aircraft. The pass through trust certificates are not direct obligations of, nor guaranteed by, Holdings or AWA. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of AWA and in the case of leveraged lease financings, the leases are direct obligations of AWA. In addition, neither Holdings nor AWA guarantee or participate in any way in the residual value of the leased aircraft. All aircraft financed by these trusts are currently structured as leveraged lease financings, which are not reflected as debt on the balance sheets of either AWA or Holdings in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Fin 46”). In the third quarter and the first nine months of 2004, AWA made $52.8 million and $154.2 million, respectively, in lease payments in respect of the leveraged lease financings under the pass through trusts.

Other Operating Leases

In addition to the aircraft financed by the pass through trust certificates, AWA has noncancelable operating leases covering 82 aircraft, as well as leases for certain terminal space, ground facilities and computer and other equipment. In the third quarter and first nine months of 2004, AWA made $47.4 million and $146.1 million, respectively, in lease payments related to these operating leases. During the quarter, the Company entered into agreements with two aircraft lessors for the return of three Boeing 737-200 aircraft. Three aircraft were returned during the quarter and three are committed to being returned in the fourth quarter. Negotiations continue for the return of the remaining two Boeing 737-200 aircraft.

Special Facility Revenue Bonds

In June 1999, Series 1999 special facility revenue bonds (“new bonds”) were issued by the Industrial Development Authority (“IDA”) of the City of Phoenix to fund the retirement of the Series 1994A bonds (“old bonds”) and the construction of a new concourse with 14 gates at Terminal 4 in Phoenix Sky Harbor International Airport in support of AWA’s strategic growth plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum payable semiannually on June 1 and December 1, commencing on December 1, 1999. The new bonds are subject to optional redemption prior to the maturity date on or after June 1, 2009 in whole or in part, on any interest payment date at the following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June 1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.

In connection with these bonds, AWA entered into an Amended and Restated Airport Use Agreement, pursuant to which AWA agreed to make sufficient payments to the IDA to cover the principal and interest of the bonds and to indemnify the IDA for any claims arising out of the issuance and sale of the bonds and the use and occupancy of the concourses financed by these bonds and the old bonds. At September 30, 2004, the outstanding principal amount of the bonds was $21.8 million. The Company estimates its remaining payments to cover the principal and interest of these bonds will be approximately $42.2 million. In accordance with Emerging Issues Task Force (“EITF”) Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction,” the Company accounts for this as an operating lease.

Commitments

As of September 30, 2004, AWA had $748.1 million of long-term debt (including current maturities). This amount consisted primarily of the government guaranteed loan, of which $343.2 million remains outstanding, a secured term loan financing with General Electric Capital Corporation (“GECC”), of which $110.6 million remains outstanding, $39.5 million principal amount of 10¾% senior unsecured notes, $108.2 million principal amount of 7.5% convertible senior notes (including interest through September 30, 2004 as a deemed loan added to the principal thereof) and $86.8 million issue price of 7.25% senior exchangeable notes.

Government Guaranteed Loan

In January 2002, AWA closed a $429 million loan supported by a $380 million guarantee provided by the Air Transportation Stabilization Board (the “ATSB”). Certain third-party counter-guarantors have fully and unconditionally guaranteed the payment of an aggregate of $45 million of the outstanding principal amount under the government guaranteed loan plus accrued and unpaid interest thereon. In addition, Holdings has fully and unconditionally guaranteed the payment of all principal, premium, interest and other obligations outstanding under the

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

government guaranteed loan and has pledged the stock of AWA to secure its obligations under such guarantee. Principal amounts under this loan become due in ten installments of $42.9 million on each March 31 and September 30, commencing on March 31, 2004 and ending on September 30, 2008. AWA made the first two principal payments of $42.9 million each on March 31, 2004 and September 30, 2004. In connection with the issuance of the 7.25% Senior Exchangeable Notes in the third quarter of 2003, AWA placed $42.9 million of the net proceeds in a cash collateral account to secure the second principal payment due on September 30, 2004. This amount was previously recorded as restricted cash in AWA’s and Holdings’ consolidated balance sheets. Principal amounts outstanding under the government guaranteed loan bear interest at a rate per annum equal to LIBOR plus 40 basis points.

Subject to certain exceptions, we are required to prepay the government guaranteed loan with:

• the net proceeds of all issuances of debt or equity by either Holdings or AWA after January 2002;

• proceeds from asset sales in excess of $20 million in any fiscal year to the extent such proceeds are not applied to redeem AWA’s 10¾% senior notes due 2005; and

• insurance proceeds in excess of $2 million to the extent such proceeds are not used to restore or replace the assets from which such proceeds are derived.

In addition, we are required to prepay the government guaranteed loan upon a change in control and we may be required to prepay portions of the loan if our employee compensation costs exceed a certain threshold. We may, at our option, prepay the government guaranteed loan without premium or penalty, subject to reimbursement of the lenders’ breakage costs in the case of prepayment of LIBOR loans.

The government guaranteed loan requires that AWA maintain a minimum cash balance of $100 million. In addition, the government loan contains customary affirmative covenants and the following negative covenants: restrictions on liens, investments, restricted payments, changes in our fundamental business, asset sales and acquisitions, the creation of new subsidiaries, sale-leaseback transactions, transactions with affiliates, continued existence, mergers or consolidations, issuances and dispositions of capital stock of subsidiaries, and amendments to other indebtedness. The government guaranteed loan contains customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

GECC Term Loan Financing

The collateral securing the facilities is substantially the same collateral that secured the Mizuho term loan, except that AWA’s maintenance hanger in Phoenix does not secure the facilities. The facilities are cross-collateralized on a subordinated basis and the collateral securing the facilities also secures on a subordinated basis certain of AWA’s other existing debt and lease obligations to GECC and its affiliates.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Principal amounts outstanding under the loans bear interest at a rate per annum based on three-month LIBOR plus a margin. Both facilities contain customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

10¾% Senior Notes due 2005

In August 1995, AWA issued $75.0 million principal amount of 10¾% senior notes due 2005 of which $39.5 million remained outstanding at September 30, 2004. Interest on the 10¾% senior notes is payable semiannually in arrears on March 1 and September 1 of each year.

We may redeem the 10¾% senior notes, in whole or in part, at a redemption price of 100%. If AWA undergoes a change of control, it may be required to repurchase the 10¾% senior notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. If AWA sells certain assets, it may be required to use the net cash proceeds to repurchase the 10¾% senior notes at 100% of the principal amount, plus accrued and unpaid interest, to the date of purchase.

The indenture governing the 10¾% senior notes contains certain covenants that, among other things, limit our ability to pay dividends or make distributions to our stockholders, repurchase or redeem capital stock, make investments or other restricted payments, enter into transactions with our stockholders and affiliates, sell assets (including the stock of our subsidiaries) and merge or consolidate with other companies. The indenture governing the 10¾% senior notes also contains customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.

7.5% Convertible Senior Notes due 2009

In connection with the closing of the government guaranteed loan and the related transactions, Holdings issued $104.5 million of 7.5% convertible senior notes due 2009, of which approximately $108.2 remained outstanding at September 30, 2004 (including interest paid through September 30, 2004 as a deemed loan added to the principal thereof). Beginning January 18, 2005, these notes are convertible into shares of Class B common stock, at the option of the holders, at an initial conversion price of $12.00 per share or a conversion ratio of approximately 83.333 shares per $1,000 principal amount of such notes, subject to standard anti-dilution adjustments. Interest on the 7.5% convertible senior notes is payable semiannually in arrears on June 1 and December 1 of each year. At Holdings’ option, the first six interest payments may be paid in the form of a deemed loan added to the principal amount of these notes. The 7.5% convertible senior notes will mature on January 18, 2009 unless earlier converted or redeemed. The payment of principal, premium and interest on the 7.5% convertible senior notes is fully and unconditionally guaranteed by AWA.

Holdings may redeem some or all of the 7.5% convertible senior notes at any time before January 18, 2005, at a redemption price equal to $1,000 per note to be redeemed if (A) the closing price of the Class B common stock has exceeded 120% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of the mailing of the redemption notice, and (B) a shelf registration statement covering resales of the notes and the Class B common stock issuable upon conversion thereof is effective and available for use and is expected to remain effective and available for use for the 30 days following the redemption date, unless registration is no longer required. Holdings may redeem the 7.5% convertible senior notes, in whole or in part, on or after January 18, 2005 at the following redemption prices (expressed as percentages of the principal amount thereof), if redeemed during the twelve-month period commencing on January 18 of the years set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption:


Year	Redemption Price
2005		103.75	%
2006		102.50	%
2007		101.25	%
2008 and thereafter		100.00	%

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

7.25% Senior Exchangeable Notes due 2023

In July and August of 2003, AWA completed a private placement of approximately $86.8 million issue price of 7.25% Senior Exchangeable Notes due 2023. The notes bear cash interest until July 30, 2008. Thereafter, the notes will cease bearing cash interest and begin accruing original issue discount daily at a rate of 7.25% per year until maturity. Each note was issued at a price of $343.61 and is exchangeable for Class B common stock of Holdings at an exchange ratio of 32.038 shares per $1,000 principal amount at maturity of the notes (subject to adjustment in certain circumstances). This represents an equivalent conversion price of approximately $10.73 per share. The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008, will be $252,695,000. The notes are unconditionally guaranteed on a senior unsecured basis by Holdings.

Holders may exchange their notes for the shares of Class B common stock of Holdings at any time, if, as of the last day of the preceding fiscal quarter, the closing sale price of the Class B common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such preceding fiscal quarter is more than 110% of the accreted exchange price per share of Class B common stock on the last day of such preceding fiscal quarter. If the foregoing condition is satisfied, then the notes will be exchangeable at any time at the option of the holder through maturity. The accreted exchange price per share as of any day will equal the issue price of a note plus accrued original issue discount to that day divided by 32.038, subject to any adjustments to the exchange rate through that day.

On or before July 30, 2018, a holder also may exchange its notes for shares of the Class B common stock at any time after a 10 consecutive trading-day period in which the average of the trading prices for the notes for that 10 trading-day period was less than 103% of the average exchange value for the notes during that period. Exchange value is equal to the product of the closing sale price for the shares of Class B common stock on a given day multiplied by the then current exchange rate, which is the number of shares of Class B common stock for which each note is then exchangeable.

In addition, the holders may exchange the notes if the notes have been called for redemption or if certain specified corporate transactions have occurred.

Holders of the notes may require AWA to repurchase the notes at a price equal to the original issue price plus accrued cash interest and original issue discount, if any, on July 30, 2008, 2013 and 2018. The purchase price of such notes may be paid in cash or Class B common stock of Holdings, subject to certain restrictions. In addition, each holder may require AWA to purchase all or a portion of such holder’s notes upon the occurrence of certain change of control events concerning AWA or Holdings. AWA may redeem the notes, in whole or in part, on or after July 30, 2008 at a price equal to the original issue price plus accrued cash interest and original issue discount, if any.

Other Indebtedness and Obligations

In addition to the above described indebtedness, we had $40.0 million of secured equipment notes and $43.0 million of other unsecured indebtedness, including $29.3 million of industrial revenue bonds.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

The following table sets forth our cash obligations as of September 30, 2004.


											Beyond
	2004		2005		2006		2007		2008		2008		Total
	(in thousands)
Long-term debt:
Equipment notes - non-EETC ⁽¹⁾	$	533	$	8,305	$	8,305	$	7,772	$	15,083	$	—	$	39,998
GECC Term loan ⁽²⁾		—		—		5,158		5,158		5,158		95,090		110,564
7.5% convertible senior notes due 2009⁽³⁾		—		—		—		—		—		108,240		108,240
7.25% senior exchangeable notes due 2023 ⁽⁴⁾		—		—		—		—		—		252,695		252,695
Government guaranteed loan ⁽⁵⁾		—		85,800		85,800		85,800		85,800		—		343,200
State loan ⁽⁶⁾		750		250		250		250		—		—		1,500
10¾% senior unsecured notes due 2005		—		39,548		—		—		—		—		39,548
Industrial development bonds ⁽⁷⁾		—		—		—		—		—		29,300		29,300
AVSA promissory notes ⁽⁸⁾		5,250		7,000		—		—		—		—		12,250

		6,533		140,903		99,513		98,980		106,041		485,325		937,295
Cash aircraft rental payments ⁽⁹⁾		51,217		331,599		310,448		292,312		243,645		1,858,444		3,087,665
Lease payments on equipment and facility operating leases ⁽¹⁰⁾		4,859		20,023		18,166		16,083		16,279		64,609		140,019
Capital lease obligations		110		4,659		4,988		1,773		—		—		11,530
Special facility revenue bonds ⁽¹¹⁾		681		1,363		1,363		1,362		1,362		36,106		42,237
Aircraft purchase commitments ⁽¹²⁾		74,983		274,203		461,191		13,636		—		—		824,013
Engine maintenance commitments ⁽¹³⁾		6,000		24,000		12,000		6,000		2,000		—		50,000

Total	$	144,383	$	796,750	$	907,669	$	430,146	$	369,327	$	2,444,484	$	5,092,759

⁽¹⁾ Includes approximately $40.0 million of equipment notes with variable interest rates of 2.88% to 2.40%, averaging 2.80%, installments due 2004 through 2008.

⁽²⁾ The amount consists of two secured loan facilities with an interest rate of 5.81% at September 30, 2004. A $75.6 million term loan facility secured primarily by spare parts, rotables and appliances payable in full at maturity on September 10, 2010. A $35.0 million term loan facility secured primarily by aircraft engines and parts installed on such engines payable in quarterly installments of $1.3 million beginning March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8 million payable at maturity on September 10, 2010.

⁽³⁾ Includes $90.7 million principal amount of 7.5% convertible senior notes, due 2009, and $17.5 million of interest paid in kind through September 30, 2004. For financial reporting purposes, we recorded the convertible senior notes at their fair market value on the date of issuance. As of September 30, 2004, the balance of the convertible senior notes in the accompanying condensed consolidated balance sheet is approximately $67.6 million.

⁽⁴⁾ Includes $252.7 million principal amount of 7.25% senior exchangeable notes due July 2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal amount at maturity. Thereafter, the notes will cease bearing cash interest and begin accruing original issue discount at a rate of 7.25% until maturity. The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008, will be $252.7 million.

⁽⁵⁾ Government guaranteed loan includes $343.2 million with a variable interest rate of 2.38% at September 30, 2004 and ratable principal payments due 2004 through 2008. Guarantee fees of approximately 8.0% of the outstanding guaranteed principal balance in 2004 through 2008 are payable to the U.S. Treasury Department and other loan participants.

⁽⁶⁾ Includes Arizona State loan of $1.5 million due December 2007 with a variable interest rate of 5.38% at September 30, 2004.

⁽⁷⁾ Includes $29.3 million of 6.3% industrial development bonds due April 2023.

⁽⁸⁾ Includes AVSA promissory notes of $12.2 million due through 2005 with a variable interest rate of 2.97% at September 30, 2004.

⁽⁹⁾ Includes non-cancelable operating leases for 136 aircraft with remaining terms ranging from five months to approximately 20 years. Management estimates the debt equivalent value of these operating leases approximates $1.9 billion using an interest rate of 10%.

⁽¹⁰⁾ Includes leases for terminal space, ground facilities, the flight training center and computer and other equipment under non-cancelable operating leases.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

⁽¹¹⁾ Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.

⁽¹²⁾ Includes commitments to purchase a total of 21 Airbus aircraft and seven spare engines for delivery in 2004 through 2007.

⁽¹³⁾ Includes minimum commitments under AWA’s rate per engine hour agreement with General Electric Engine Services for overhaul maintenance services on V2500-A1 and CFM56-3B engines through April 2008. Minimum monthly commitment amounts: for the period through and including October 2004 through and including April 2006 - $2.0 million, for the period May 2006 through and including April 2008 - $500,000.

We expect to fund these cash obligations from funds provided by operations and future financings, if necessary. The cash available to us from these sources, however, may not be sufficient to cover these cash obligations because economic factors outside our control may reduce the amount of cash generated by operations or increase our costs. For instance, a further economic downturn or other events, including future hostilities and terrorist attacks or infectious disease outbreaks could reduce the demand for air travel, which would reduce the amount of cash generated by operations. An increase in our costs, either due to an increase in borrowing costs caused by a reduction in our credit rating or a general increase in interest rates or due to an increase in the cost of fuel, maintenance, aircraft and aircraft engines and parts, could decrease the amount of cash available to cover the cash obligations. In addition, we may be required to prepay portions of the government guaranteed loan if our employee compensation costs exceed a certain threshold and we may be required to prepay portions of the term loan to the extent the value of the collateral securing the term loan decreases. In any of these cases, our liquidity may be adversely affected and we may not have sufficient cash to prepay the government loan and meet our other obligations. Moreover, certain of our long-term debt agreements contain a $100 million minimum cash balance requirement. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating this requirement.

Although there can be no assurances, we believe that cash flow from operating activities coupled with existing cash balances, will be adequate to fund our operating and capital needs as well as enable us to maintain compliance with our various debt agreements through at least December 31, 2005.

Financial Covenants and Credit Rating

In addition to the minimum cash balance requirements, our long-term debt agreements contain various negative covenants that restrict our actions, including our ability to pay dividends, together with any other restricted payments. Moreover, under the terms of the government guaranteed loan, we are prohibited from paying cash dividends prior to repayment of the loan in full. Finally, our long-term debt agreements contain cross-default provisions, which may be triggered by defaults by us under other agreements relating to indebtedness. See -“Risk Factors Relating to America West and Industry Related Risks - Our high level of indebtedness and fixed costs limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.” As of September 30, 2004, Holdings and AWA were in compliance with the covenants in their long-term debt agreements.

In March 2004, Moody’s raised its credit ratings on AWA to B3 from Caa1 for its senior implied rating and to Caa2 from Caa3 for its senior unsecured debt rating. Standard & Poor’s currently rates AWA’s and Holdings’ corporate credit ratings at B- and AWA’s senior unsecured rating at CCC and Fitch Ratings’ rates AWA’s long-term and senior unsecured debt rating at CCC. Our relatively low credit ratings may impair our ability to incur additional indebtedness. The rating agencies base their ratings on our financial performance and operations, our cash flow and liquidity, the level of our debt and industry conditions in general. Any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness. See “Risk Factors Relating to America West and Industry Related Risks - Because of our relatively low credit ratings, our borrowing costs may be high and our ability to incur additional debt may be impaired.”

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Other Information

Labor Relations

On September 10, 2004, the Company’s dispatchers, represented by the Transport Workers Union (“TWU”), voted to ratify a second contract ending April 1, 2008.

Negotiations with the International Brotherhood of Teamsters - Airline Division (“IBT”) on a second contract covering the Company’s mechanics and related employees commenced on October 9, 2003 and are ongoing.

Negotiations with the Association of Flight Attendants - Communications Workers of America (“AFA”) on a second contract covering the Company’s flight attendants commenced on February 4, 2004 and are ongoing.

On August 18, 2004, the National Mediation Board (“NMB”) certified the IBT as the collective bargaining representative for the Company’s passenger service employees.

Related Party Transactions

As part of our reorganization in 1994, Continental Airlines and AWA entered into an alliance agreement which included code sharing arrangements, reciprocal frequent flyer programs and ground handling operations. Continental terminated the code sharing and frequent flyer agreements between the two airlines, effective April 26, 2002. Until March 12, 2004, two managing partners of Texas Pacific Group, which, through TPG Advisors, Inc., effectively controls the voting power of Holdings, were members of Continental’s board of directors. In the third quarter of 2004, AWA paid Continental approximately $3.8 million and received approximately $1.1 million from Continental pursuant to these agreements. In the third quarter of 2003, the amount paid to and received from Continental pursuant to these agreements was $4.2 million and $1.1 million, respectively.

Application of Critical Accounting Policies

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires that we make certain estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of our financial statements. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates. We have identified the following critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.

• Passenger Revenue - Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are recorded as air traffic liability. Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions and related fees not yet recognized are included as a prepaid expense. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the statistical analysis of our historical data. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations during the period in which the evaluations are completed.

• Accounting For Long-Lived Assets - Owned property and equipment are recorded at cost and depreciated to residual values over the estimated useful lives using the straight-line method. Leasehold improvements relating to flight equipment and other property on operating leases are amortized over the life of the lease, or the life of the asset, whichever is shorter. Interest on advance payments for aircraft acquisitions and on expenditures for aircraft improvements is capitalized and added to the cost of the asset. The estimated useful lives of our owned aircraft, jet engines, flight equipment and rotable parts range from five to 25 years. The estimated useful lives of our technical support facility and flight training center in Phoenix,

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Arizona are 22 years and 30 years, respectively. The estimated useful lives of our ground property and equipment range from three to 12 years. We test for impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired as defined by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An impairment loss is recognized if the carrying amount of the asset is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value of the asset.

• Frequent Flyer Accounting - We maintain a frequent travel award program known as “FlightFund” that provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing the free travel is recognized as a liability and charged to operations as program members accumulate mileage. Travel awards are valued at the incremental cost of carrying one passenger, based on expected redemptions. Incremental costs are based on expectations of expenses to be incurred on a per passenger basis and include fuel, liability insurance, food, beverages, supplies and ticketing costs. We also sell mileage credits to companies participating in our FlightFund program, such as hotels, car rental agencies and credit card companies. Transportation-related revenue from the sale of mileage credits is deferred and recognized when transportation is provided. A change to the estimated cost per mile, minimum award level, percentage of revenue to be deferred or deferred recognition period could have a significant impact on our revenues or mileage liability accrual in the year of the change as well as future years.

• Long-Term Maintenance Reserve - We record an accrual for the estimated cost of scheduled airframe and engine overhauls required to be performed on leased aircraft upon their return to the lessors. These estimates are based on historical costs and our assumptions regarding the renewal of aircraft leases. A significant change to AWA’s fleet plan could have a material impact on our reserve requirements.

• Deferred Tax Asset Valuation Allowance - The Company initially recorded a full valuation allowance relating to its net deferred tax assets at December 31, 2001 and to tax benefits generated in 2002. In recording that valuation allowance, we considered whether it was more likely than not that all or a portion of the deferred tax assets will not be realized, in accordance with SFAS No. 109, “Accounting for Income Taxes.” The Company was in a cumulative loss position for the three years ended December 31, 2002, which weighed heavily in the overall determination that a valuation allowance was needed. As of September 30, 2004, the Company had recorded a valuation allowance of $61.5 million against its net deferred tax assets. The Company expects to continue to record a full valuation allowance on any future tax benefits until we have achieved several quarters of consecutive profitable results coupled with an expectation of continued profitability.

Forward-Looking Information

This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. These statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used in this document, the words “anticipate,” “estimate,” “expect”, “project” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. Among the key factors that may have a direct bearing on AWA’s or Holdings’ results are:

• economic conditions;

• the impact of global instability, including the continuing threat of terrorism, the continued military presence in Iraq and Afghanistan and the current instability in Nigeria, Russia, Venezuela and other oil producing countries or regions, and the potential impact of any future hostilities, terrorist attacks, infectious disease outbreaks, and government responses thereto, or other global events;

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

• limitations on the Company’s or AWA’s ability to obtain additional financing due to high levels of debt and the financial and other covenants in its debt instruments;

• changes in federal and state laws and regulations;

• changes in prevailing interest rates and the availability and terms of financing to fund our business;

• the ability to attract and retain qualified personnel;

• the cyclical nature of the airline industry;

• competitive practices in the airline industry;

• the impact of changes in fuel prices; and

• relations with unionized employees generally and the impact and outcome of labor negotiations.

For additional discussion of such risks see “Business — Risk Factors Relating to America West and Industry Related Risks” discussed below. Any forward-looking statements speak only as of the date of this report.

Risk Factors Relating to America West and Industry Related Risks

We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events described in this quarterly report on Form 10-Q might not occur.

In the recent past, we sustained significant operating losses and we may sustain significant losses in the future.

For the years ended December 31, 2002 and 2001, we incurred operating losses of $160.1 million and $417.9 million, respectively. Although we reported net income of $57.4 million for the year ended December 31, 2003, there can be no assurance that we will be able to maintain or grow this level of net income. Since the terrorist attacks of September 11, 2001, we have experienced an increase in costs related to enhanced security measures, aviation insurance and airport rents and landing fees. In addition, we recently have experienced a substantial increase in the cost of fuel. We expect the threat of further terrorist attacks and continued instability in the Middle East, Nigeria, Russia, Venezuela and in other oil producing countries or regions, including Russia and Nigeria, to continue to negatively impact our revenues and costs in the near-term. We may not be able to effectively counteract increasing costs through our cost reduction initiatives, customer service initiatives and revised pricing structures. Moreover, our liquidity and borrowing options are limited and we may not be able to survive a prolonged economic downturn, decreases in demand for air travel or further increases in fuel costs. The inability to sustain profitability may hinder our ability to satisfy our obligations as they become due, obtain future equity or debt financing or to do so on economical terms or to sustain or expand our business.

The terrorist attacks of September 11, 2001 and government responses have had, and continue to have, a material adverse effect on our financial condition, operations and prospects.

The terrorist attacks of September 11, 2001 have had, and continue to have, a wide-ranging impact on our financial condition, operations and prospects. The immediate impact of the terrorist attacks included a severe strain on our liquidity as the government temporarily suspended all flights, passenger demand dropped precipitously after the attacks and our credit ratings were downgraded by both Moody’s and Standard & Poor’s. Since then, although passenger demand has recovered, we continue to experience reduced demand compared to prior years, especially in discretionary business travel, and our costs relating to enhanced security measures, aviation insurance, airport rents and landing fees have increased, in some cases significantly. The continued impact of the terrorist attacks on our

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

operations, and the sufficiency of our financial resources to absorb this impact, will depend on certain factors, including, among others, the following:

• our ability to maintain our low cost structure and adequate cash balances;

• general economic conditions and the extent to which the current soft economic conditions improve;

• competition in the airline industry;

• our ability to manage fuel and labor costs; and

• the other risks discussed in this report.

Moreover, continued global instability (including fuel price fluctuations), soft economic conditions, future terrorist attacks and infectious disease outbreaks could further reduce demand for air travel, increase our fuel, insurance and other costs and generally impact our liquidity or financial condition. Our ability to obtain additional financing to absorb the impact of these type of events is limited by the constraints imposed by our existing indebtedness, reductions in the value of our aircraft (as a result of the terrorist attacks) and our relatively low credit ratings.

Increased insurance costs due to the terrorist attacks of September 11, 2001 may adversely impact our operations and financial results.

The terrorist attacks of September 11, 2001 resulted in staggering losses to the insurance industry. These losses led to a significant increase in our insurance premiums and could lead to future increases in our insurance premiums. These increases have and could continue to negatively impact our financial results. In addition, the resulting general instability in the insurance industry could adversely affect some of our existing insurance carriers or our ability to obtain future insurance coverage. To the extent that our existing insurance carriers are unable or unwilling to provide us with insurance coverage, our insurance costs could further increase.

Moreover, since September 11, 2001, AWA and other airlines have been unable to obtain third party war risk (terrorism) insurance at reasonable rates from the commercial insurance market and have been obtaining this insurance through a special program administered by the Federal Aviation Administration, or FAA. This program has been extended to a new termination date of March 30, 2008. If the Federal insurance program terminates, we would likely face a material increase in the cost of terrorism insurance, but because of competitive pressures in our industry, our ability to pass this additional cost to passengers would be limited.

Our high level of indebtedness and fixed costs limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.

We have a significant amount of indebtedness. In addition, we have incurred significant capitalized and operating lease obligations in connection with the financing of aircraft and the lease of airport and other facilities. As of September 30, 2004, we had approximately $748.1 million of indebtedness outstanding, of which $150.6 million was secured by certain aircraft and substantially all of our spare engines and rotable aircraft parts inventory. In addition, we had $11.5 million of capital lease obligations and $3.2 billion of operating lease obligations through the lease expiration dates incurred primarily in connection with off-balance sheet aircraft financings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Off-Balance Sheet Arrangements.” We also have guaranteed costs associated with our regional alliance with Mesa Airlines. Due to our high fixed costs, including aircraft lease obligations and debt service, a decrease in revenues results in a disproportionately greater percentage decrease in earnings. In addition, as a result of our significant indebtedness and fixed costs:

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

• our ability to satisfy our debt and lease obligations may be impaired;

• we have only a limited ability to obtain additional financing, if needed. Our existing indebtedness is secured by a substantial portion of our assets, leaving us with limited assets to use to obtain additional financing. In addition, the terms of the government guaranteed loan restricts our and AWA’s ability to incur additional indebtedness or issue equity unless we use the proceeds of those transactions to prepay or redeem certain of our existing indebtedness;

• our ability to fund general corporate requirements, including capital expenditures, may be impaired. We have substantial obligations to pay principal and interest on our indebtedness and other recurring fixed costs. Further, we may be required to prepay portions of the government guaranteed loan if our employee compensation costs exceed a certain threshold. Accordingly, we may have to use our working capital to fund such payments and costs instead of funding general corporate requirements. In addition, because the terms of certain of AWA’s indebtedness require it to maintain a minimum cash balance of $100 million, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating this minimum cash balance requirement; and

• our ability to respond to competitive developments and adverse economic conditions may be limited. Without the ability to obtain additional financing and with substantial fixed costs, we may not be able to fund the capital expenditures, including the purchase of new aircraft, required to keep us competitive or to withstand prolonged adverse economic conditions.

Moreover, our flexibility is limited because many of the agreements governing our indebtedness, including the indenture governing the 10¾% senior notes due 2005 and the agreements governing the government guaranteed loan, contain negative covenants that restrict our ability to take certain actions. As a result of these restrictive covenants and the minimum cash balance requirement discussed above, we may be limited in how we conduct our business and may be unable to raise additional capital through debt or equity financings to operate during general economic or business downturns, to compete effectively or to take advantage of new business opportunities. This may affect our ability to generate revenues and make profits. Without sufficient revenues, we may not be able to pay interest and principal on outstanding indebtedness. A breach of these covenants or a failure to make any required payments under our indebtedness or certain of our aircraft leases could result in the acceleration of a substantial portion of our indebtedness. In the event of a breach of these covenants, a failure to make required payments or an acceleration of our indebtedness, it is likely that credit card companies would begin to withhold proceeds due to us from the sale of our tickets and our lessors may attempt to exercise remedies under their respective leases. In such a situation, it is unlikely we would be able to fulfill our obligations under or otherwise repay the accelerated indebtedness or make required lease payments.

Fluctuations in fuel costs could adversely affect our operating expenses and results.

The price and supply of jet fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, regional production patterns and environmental concerns. Since fuel is the principal raw material consumed by our business, accounting for 21% of our total operating expenses in the first nine months of 2004 and 16% of our total operating expenses for the same period of 2003, price escalations or reductions in the supply of jet fuel will increase our operating expenses and cause our operating results and net income to decline. For example, based on our current level of fuel consumption, we estimate that a one-cent per gallon increase in jet fuel prices will cause our annual operating expense to increase by $4.4 million.

We have implemented a fuel-hedging program to manage the risk and effect of fluctuating jet fuel prices on our business. Our hedging program is intended to offset increases in jet fuel costs by using derivative instruments keyed to the future price of heating oil, which is highly correlated to the price of jet fuel delivered on the East Coast of the United States. Our hedging program does not fully protect us against increasing jet fuel costs because our hedging program does not cover all of our projected fuel volumes for 2004. Hedging transactions are in place with respect to approximately 65% and 26% of remaining projected 2004 and 2005 fuel requirements, respectively. Furthermore, our ability to effectively hedge fuel prices is limited because we purchase a substantially larger portion of our jet fuel requirements on the West Coast of the United States compared to our large competitors and West Coast fuel prices are less correlated to heating oil prices and other viable petroleum derivatives than East Coast fuel prices and, therefore,

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

more difficult to hedge. The effectiveness of our fuel-hedging program may also be negatively impacted by continued instability in the Middle East, Nigeria, Russia, Venezuela and other oil producing countries or regions and terrorist activity.

Because of our relatively low credit ratings, our borrowing costs may be high and our ability to incur additional debt may be impaired.

Our credit ratings are relatively low, with Moody’s assessment of AWA’s senior implied rating and senior unsecured debt rating at B3 and Caa2, respectively, Standard & Poor’s assessment of AWA’s and Holdings’ corporate credit ratings at B- and AWA’s senior unsecured rating at CCC, and Fitch Ratings’ assessment of AWA’s long-term and senior unsecured debt rating at CCC. Low credit ratings could cause our future borrowing costs to increase, which would increase our interest expense and could affect our net income. In addition, our credit ratings could adversely affect our ability to obtain additional financing. The rating agencies base their ratings on our financial performance and operations, our cash flow and liquidity, the level of our indebtedness and industry conditions in general. If our financial performance or industry conditions do not improve, we may face future downgrades, which could further negatively impact our borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness.

Negotiations with labor unions could divert management attention and disrupt operations and new collective bargaining agreements or amendments to existing collective bargaining agreements could increase our labor costs and operating expenses.

Some of our employees are represented by unions and other groups of our employees may seek union representation in the future. Negotiations with the IBT for a second collective bargaining agreement covering the Airline’s mechanics and related employees commenced on October 9, 2003 and are ongoing. Additionally, negotiations with the AFA on a second contract covering the Company’s flight attendants commenced on February 4, 2004 and are ongoing. On August 18, 2004, the National Mediation Board certified the IBT as the collective bargaining representative for the Company’s passenger service employees.

We cannot predict the outcome of the negotiations with the IBT or AFA or any future negotiations relating to union representation or collective bargaining agreements. Agreements reached in collective bargaining may increase operating expenses and lower operating results and net income. This is particularly significant because our current employee costs contribute substantially to the low cost structure that we believe is one of our competitive strengths and because we are required to repay a portion of the government guaranteed loan if our labor costs exceed a certain threshold. In addition, negotiations with unions could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, we might have to address the threat of, or wait through “cooling off” periods, which could be followed by union-initiated work actions, including strikes. Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt our operations and, as a result, have a significant adverse affect on our operating results.

Fluctuations in interest rates could adversely affect our liquidity, operating expenses and results.

Our indebtedness under the government guaranteed loan and the GECC term loans bears interest at fluctuating interest rates based on the London interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR. To the extent LIBOR increases, our interest expense will increase, in which event, we may have difficulties making interest payments and funding our other fixed costs and our available cash flow for general corporate requirements may be adversely affected.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Our operating costs could increase as a result of past, current or new regulations that impose additional requirements and restrictions on airline operations.

The airline industry is heavily regulated. Both federal and state governments from time to time propose new laws and regulations that impose additional requirements and restrictions on airline operations. Implementing these measures, such as aviation ticket taxes and passenger safety measures, has increased operating costs for us and the airline industry as a whole. In addition, new security measures imposed by the Aviation and Transportation Security Act, or ATSA, or otherwise by Congress, the Department of Homeland Security or the FAA as a result of concern over continuing terrorist threats are expected to continue to increase costs for us and the airline industry as a whole. Furthermore, certain governmental agencies, such as the DOT and the FAA, have the authority to impose mandatory orders, such as Airworthiness Directives in connection with our aircraft and civil penalties for violations of applicable laws and regulations, each of which can result in material costs and adverse publicity. For example, the FAA from time to time may require us to retrofit our aircraft to meet enhanced safety standards. Depending on the implementation of these laws, regulations and other measures, our operating costs could increase significantly. We cannot predict which laws, regulations and other measures will be adopted or what other action regulators might take. Accordingly, we cannot guarantee that future legislative and regulatory acts will not have a material impact on our operating results.

The airline industry and the markets we serve are highly competitive and we may be unable to compete effectively against carriers with substantially greater resources or lower cost structures.

The airline industry and most of the markets we serve are highly competitive. We compete with other airlines on the basis of pricing, scheduling (frequency and flight times), on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the automation of travel agent reservation systems, on-board products and other services. Certain airlines have in the past engaged in retaliatory activities, including steep pricing discounts in certain markets and termination of alliance agreements, in response to changes in our pricing structure. In addition, the elimination of federal regulations that are intended to diminish the use of preferential scheduling displays and other computer reservation systems (“CRS”) practices may place us at a competitive disadvantage to airlines controlling the CRS systems. Our principal competitor is Southwest Airlines, which has a lower operating cost structure than we do. We also compete against other existing carriers, many of which offer more extensive routes, frequencies and customer loyalty, marketing and advertising programs than we do and with new carriers which typically have low operating cost structures. We may be unable to compete effectively against carriers with substantially greater resources or lower cost structures. The entry of additional new carriers in our markets, the consolidation of existing carriers or increased competition from existing carriers, could adversely affect our operating results.

The terrorist attacks of September 11, 2001, the continued military presence in Iraq and Afghanistan, increased competition from low cost carriers and soft economic conditions have led to the airline industry’s significant losses since 2001. Largely as a result of these losses, both U.S. Airways and United Airlines filed for bankruptcy protection. Because bankruptcy protection may allow for greater flexibility in reducing costs by voiding contracts and renegotiating existing business obligations, current and future airline bankruptcies could have a substantial impact on industry competition. Continued weakness in the airline industry may also result in additional industry consolidation, greater reliance on industry alliances and increased price competition among the existing airlines, each of which could dramatically alter competitive environments in the markets we serve.

Our business is sensitive to general economic conditions, unforeseen events and seasonal fluctuations. As a result, our prior performance is not necessarily indicative of our future results.

The air travel business historically fluctuates on a seasonal basis and in response to general economic conditions. Due to the greater demand for air and leisure travel during the summer months, revenues in the airline industry in the second and third quarters of the year tend to be greater than revenues in the first and fourth quarters of the year. In addition, the airline industry is highly susceptible to unforeseen events that result in declines in revenues or increased costs, such as political instability, regional hostilities, terrorist attacks, recession, fuel price escalation, inflation, infectious disease outbreaks, adverse weather conditions, consumer preferences, labor instability or regulatory oversight. Also, our results of operations for interim periods are not necessarily indicative of those for an entire year

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

and our prior results are not necessarily indicative of our future results.

We depend on the expertise of our management team. If key individuals leave unexpectedly, our business and operations could suffer.

Many of our executive officers are key to the management of our business and operations. Our future success depends on our ability to retain these officers and other capable managers. Although we believe we could replace key personnel given adequate prior notice, the unexpected departure of key executive officers could cause substantial disruption to our business and operations. In addition, we may not be able to retain and recruit talented personnel without incurring substantial costs. Moreover, we must repay a portion of the government guaranteed loan if our labor costs exceed a certain threshold. As a result, our ability to spend additional amounts to retain and recruit talented personnel is limited.

The stockholders who effectively control the voting power of Holdings could take actions that would favor their own personal interests to the detriment of our interests.

Currently, two stockholders collectively control more than 50% of the total voting power of Holdings. These stockholders, TPG Partners, L.P. and TPG Parallel I, L.P (collectively, the “TPG Stockholders”) are controlled by the same company, TPG Advisors, Inc. Since TPG Advisors, Inc. is an investment firm, its strategic objectives may be different than both the short-term or long-term objectives of our board of directors and management. We cannot guarantee that the TPG Stockholders will not try to influence Holdings’ business in a way that would favor their own personal interests to the detriment of our interests and those of our other stockholders.

We are at risk of losses and adverse publicity stemming from any accident involving any of our aircraft.

If one of our aircraft were to crash or be involved in an accident, we could be exposed to significant tort liability. There can be no assurance that the insurance we carry to cover damages arising from any future accidents will be adequate. In the event that our insurance is not adequate, we may be forced to bear substantial losses from an accident. Claims resulting from an accident in excess of our insurance coverage would harm our business and results of operations. Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any accident involving an aircraft that we operate could create a public perception that our aircraft are not safe or reliable, which could harm our reputation, result in air travelers being reluctant to fly on our aircraft and harm our business.

Our operations are often affected by factors beyond our control, including traffic congestion at airports, weather conditions and increased security measures, any of which could harm our financial condition and results of operations.

Like other airlines, our operations are subject to delays caused by factors beyond our control, including air traffic congestion at airports, adverse weather conditions and increased security measures, such as those required to be implemented under the ATSA. During periods of fog, snow, rain, storms or other adverse weather conditions, flights may be cancelled or significantly delayed. Cancellations and delays frustrate passengers, reduce aircraft utilization and increase costs, all of which in turn affect profitability. As a result, cancellations or delays could harm our financial condition and results of operations.

We rely heavily on automated systems to operate our business and any failure of these systems could harm our business.

We depend on automated systems to operate our business, including our computerized airline reservation system, our telecommunication systems and our website. For the first nine months of 2004, approximately 96% of our tickets were issued electronically. Our website and reservation system must be able to accommodate a high volume of traffic and deliver important flight information. Substantial or repeated website, reservations system or telecommunication systems failures could reduce the attractiveness of our services and could cause our customers to purchase tickets from another airline. Any disruption in these systems could result in the loss of important data, increase our expenses and generally harm our business.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Shares of our Class B common stock issuable upon exercise or conversion of outstanding securities could adversely affect our stock price and dilute the ownership interests of existing stockholders.

Sales and potential sales of substantial amounts of our Class B common stock or securities exercisable for or into our Class B common stock in the public market, or the perception that these sales could occur, could adversely affect the market price of our Class B common stock. A substantial number of additional shares of our Class B common stock are issuable upon the conversion or exercise of outstanding securities. As of October 27, 2004, the outstanding shares of our Class B common stock were subject to dilution by:

• 19,692,000 shares of Class B common stock that are issuable upon the exercise, at a price of $3.00 per share, of certain warrants issued in connection with the government guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise of a warrant issued to the ATSB; and

• 8,662,293 shares of our Class B common stock that are issuable upon the exercise of outstanding options.

In addition, 859,117 shares of Class B common stock are issuable upon conversion of the outstanding shares of Holdings’ Class A common stock held by the TPG Stockholders (but subject to certain contractual restrictions on transfer), up to 8,095,842 shares of Holdings’ Class B common stock will be issuable upon the exchange of AWA’s 7.25% senior exchangeable notes due 2023 (which exchange may not occur until the trading price of Holdings’ Class B common stock reaches certain thresholds, or other triggering events occur) and up to approximately 9,400,000 shares of Holdings’ Class B common stock will be issuable after January 18, 2005 upon conversion of Holdings’ 7.5% convertible senior notes due 2009. Holdings has registered either the issuance or resale of all of these shares, meaning that upon exercise, exchange or conversion, as applicable, such shares could be sold in the public market at any time.

The conversion or exercise of some or all of these notes, warrants and options will dilute the ownership interests of existing stockholders and any sales in the public market of our Class B common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our Class B common stock. In addition, the existence of the notes, warrants and options may encourage short selling by market participants because conversion or exercise of the notes or warrants could depress the price of our Class B common stock.

Provisions in our charter documents might deter acquisition bids for us.

Holdings’ Certificate of Incorporation and Restated Bylaws contain provisions that, among other things:

• authorize Holdings’ board of directors to issue preferred stock ranking senior to our Class B common stock without any action on the part of the stockholders;

• establish advance notice procedures for stockholder proposals, including nominations of directors, to be considered at stockholders’ meetings;

• authorize Holdings’ board of directors to fill vacancies on the board resulting from an increase in the authorized number of directors or any other cause; and

• restrict the ability of stockholders to call special meetings of stockholders.

These provisions might make it more difficult for a third party to acquire us, even if doing so would benefit the stockholders.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

Our stock price may continue to be volatile and could decline substantially.

The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for the Class B common stock to decline including, among others, the following:

• our operating results failing to meet the expectations of securities analysts or investors in any quarter;

• downward revisions in securities analysts’ estimates;

• material announcements by us or our competitors;

• public sales of a substantial number of shares of our Class B common stock;

• governmental regulatory action; and

• adverse changes in general market conditions or economic trends.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk Sensitive Instruments

(a) Commodity Price Risk

As of September 30, 2004, the Company had entered into basis swaps, the price spread between Los Angeles spot jet fuel prices and NYMEX heating oil futures, and costless collar transactions, which establish an upper and lower limit on heating oil futures prices. These transactions are in place with respect to approximately 62% of remaining projected 2004 fuel requirements. Transactions are in place with respect to approximately 20% of the projected requirements for 2005, including 51% related to the first quarter of 2005, 20% related to the second quarter and approximately 10% for the third quarter. See “Risk Factors Relating to America West and Industry Related Risks - Fluctuations in fuel costs could adversely affect our operating expenses and results.”

The use of such hedging transactions in the Company’s fuel hedging program could result in the Company not fully benefiting from certain declines in heating oil futures prices or certain declines in the differential between jet fuel and heating oil futures prices. At September 30, 2004, the Company estimates that a 10% increase in heating oil futures prices would increase the fair value of the costless collar transactions by approximately $8.0 million and $8.3 million for our 2004 and 2005 requirements, respectively. The Company estimates that a 10% decrease in heating oil futures prices would decrease the fair value of the costless collar transactions by approximately $7.9 million and $6.5 million for our 2004 and 2005 requirements, respectively.

As of October 27, 2004, approximately 65% and 26% of AWA’s 2004 and 2005, respectively, projected 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, 2004, the Company’s variable-rate long-term debt obligations of approximately $507.5 million represented approximately 68% of its total long-term debt. If interest rates increased 10% in 2004, the impact on the Company’s results of operations would not be material.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

ITEM 4. CONTROLS AND PROCEDURES.

An evaluation was performed under the supervision and with the participation of Holdings’ and AWA’s management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the rules promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2004. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2004. There were no significant changes in our internal control over financial reporting during the period covered by this report reasonably likely to materially affect our internal control over financial reporting.

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth all purchases made by us or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of Holdings’ Class B common stock during each month within the third quarter of 2004. No purchases were made pursuant to a publicly announced repurchase plan or program.

(d) Maximum Number

(or Approximate

(c) Total Number of

Dollar Value) of

Shares Purchased as

Shares that May Yet

Part of Publicly

be Purchased Under

(a) Total Number of

(b) Average Price

Announced Plans or

the Plans or

Period

Shares Purchased (1)

Paid per Share

Programs

July 1, 2004 - July 31, 2004

49,000

5.99

—

August 1, 2004 - August 31, 2004

119,900

6.30

—

September 1, 2004 - September 30, 2004

102,100

5.91

—

(1) Amounts consist of shares of Holdings’ Class B common stock purchased on the open market by the America West Holdings Corporation Future Care 401(k) Plan.

ITEM 6. EXHIBITS.

a. Exhibits


EXHIBIT
NUMBER		DESCRIPTION AND METHOD OF FILING
10.1		Loan Agreement [Engines], dated as of September 3, 2004, among AWA, GECC, as administrative agent, original Series A lender and original Series B lender, Wells Fargo Bank Northwest, National Association (“Wells Fargo”), as security trustee and the lenders from time to time party thereto.

10.2		Engine Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and Wells Fargo.

10.3		Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of AWA.

10.4		Subordinated Engine Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and Wells Fargo.

10.5		Subordinated Mortgage and Security Agreement Supplement No. 1, dated September 10, 2004, of AWA.

10.6		Security Trustee Agreement [Engines], dated as of September 3, 2004, among Wells Fargo, as security trustee and the beneficiaries named therein.

10.7		Payment and Indemnity Agreement [Engines], dated as of September 3, 2004, among AWA, certain beneficiaries listed on Schedule 1 and Wells Fargo.

10.8		Restructure Letter Agreement [Engines], dated as of September 3, 2004, among AWA and GECC.

10.9		Loan Agreement [Spare Parts], dated as of September 3, 2004, among AWA, GECC, as administrative agent, original Series A lender and original Series B lender, Wells Fargo, as security trustee and the lenders from time to time party thereto.

10.10		Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and Wells Fargo.

AMERICA WEST HOLDINGS CORPORATION AND
AMERICA WEST AIRLINES, INC.
September 30, 2004


EXHIBIT
NUMBER		DESCRIPTION AND METHOD OF FILING
10.11		Subordinated Spare Parts Mortgage and Security Agreement, dated as of September 3, 2004, between AWA and Wells Fargo.

10.12		Security Trustee Agreement [Spare Parts], dated as of September 3, 2004, among Wells Fargo, as security trustee and the beneficiaries named therein.

10.13		Payment and Indemnity Agreement [Spare Parts], dated as of September 3, 2004, among AWA, certain beneficiaries listed on Schedule 1 and Wells Fargo.

10.14		Restructure Letter Agreement [Spare Parts], dated as of September 3, 2004, among AWA and GECC.

10.15(1)		Amendment No. 7, dated July 30, 2004, to the A319/A320 Purchase Agreement dated September 12, 1997, between AVSA, S.A.R.L. and AWA and Letter Agreement Nos. 2 — 8.

10.16(1)		Side Letter No. 15, dated May 26, 2004, to the Amended and Restated V2500 Support Contract, dated October 7, 1998, between AWA and IAE International Aero Engines AG.

31.1		Certification of Holdings’ Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification of Holdings’ Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.3		Certification of AWA’s Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.4		Certification of AWA’s Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1		Certification of Holdings’ Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of AWA’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

⁽¹⁾ The Company has sought confidential treatment for portions of the referenced exhibit.


		AMERICA WEST HOLDINGS CORPORATION

		By		/s/ Derek J. Kerr

				Derek J. Kerr
				Senior Vice President and Chief Financial Officer


		AMERICA WEST AIRLINES, INC.

		By		/s/ Derek J. Kerr

				Derek J. Kerr
				Senior Vice President and Chief Financial Officer


ITEM 1A.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - AMERICA WEST HOLDINGS CORPORATION.

(a)		TLC paid rent in the amount of $143,000 to AWA for space it occupied in certain AWA facilities. This rent was reflected in other revenues by AWA and in operating expenses by TLC. This adjustment eliminates those amounts.

(b)		TLC reported income tax expense of $1.6 million on a stand-alone basis. On a pro forma basis, AWA’s tax benefits were utilized by TLC, which eliminated income tax expense and resulted in a corresponding decrease in AWA’s tax valuation allowance.

(a)		TLC paid rent in the amount of $429,000 to AWA for space it occupied in certain AWA facilities. This rent was reflected in other revenues by AWA and in operating expenses by TLC. This adjustment eliminates those amounts.

(b)		TLC reported income tax expense of $3.6 million on a stand-alone basis. On a pro forma basis, AWA’s tax benefits were utilized by TLC, which eliminated income tax expense and resulted in a corresponding decrease in AWA’s tax valuation allowance.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(a)		Average daily aircraft utilization - The average number of block hours per day for all aircraft in service.

(b)		Available seat mile (“ASM”) - A basic measure of production. It is one seat flown one mile.

(c)		Block hours - The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

(d)		Average stage length - The average of the distances flown on each segment of every route.

(e)		Average passenger journey - The average one-way trip measured in miles for one passenger origination.

(f)		Revenue passenger mile (“RPM”) - A basic measure of sales volume. It is one passenger flown one mile.

(g)		Load factor - The percentage of available seats that are filled with revenue passengers.

(h)		Passenger enplanements - The number of passengers on board an aircraft including local, connecting and through passengers.

(i)		Yield - A measure of airline revenue derived by dividing passenger revenue by revenue passenger miles and expressed in cents per mile.

(j)		Passenger revenue per available seat mile (“RASM”) - Total passenger revenues divided by total available seat miles.

(k)		Total revenue per available seat mile - Total operating revenues divided by total available seat miles.

⁽¹⁾		Includes approximately $40.0 million of equipment notes with variable interest rates of 2.88% to 2.40%, averaging 2.80%, installments due 2004 through 2008.

⁽²⁾		The amount consists of two secured loan facilities with an interest rate of 5.81% at September 30, 2004. A $75.6 million term loan facility secured primarily by spare parts, rotables and appliances payable in full at maturity on September 10, 2010. A $35.0 million term loan facility secured primarily by aircraft engines and parts installed on such engines payable in quarterly installments of $1.3 million beginning March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8 million payable at maturity on September 10, 2010.

⁽³⁾		Includes $90.7 million principal amount of 7.5% convertible senior notes, due 2009, and $17.5 million of interest paid in kind through September 30, 2004. For financial reporting purposes, we recorded the convertible senior notes at their fair market value on the date of issuance. As of September 30, 2004, the balance of the convertible senior notes in the accompanying condensed consolidated balance sheet is approximately $67.6 million.

⁽⁴⁾		Includes $252.7 million principal amount of 7.25% senior exchangeable notes due July 2023 with cash interest payable through July 2008 at a rate of 2.49% on the principal amount at maturity. Thereafter, the notes will cease bearing cash interest and begin accruing original issue discount at a rate of 7.25% until maturity. The aggregate amount due at maturity, including accrued original issue discount from July 31, 2008, will be $252.7 million.

⁽⁵⁾		Government guaranteed loan includes $343.2 million with a variable interest rate of 2.38% at September 30, 2004 and ratable principal payments due 2004 through 2008. Guarantee fees of approximately 8.0% of the outstanding guaranteed principal balance in 2004 through 2008 are payable to the U.S. Treasury Department and other loan participants.

⁽⁶⁾		Includes Arizona State loan of $1.5 million due December 2007 with a variable interest rate of 5.38% at September 30, 2004.

⁽⁷⁾		Includes $29.3 million of 6.3% industrial development bonds due April 2023.

⁽⁸⁾		Includes AVSA promissory notes of $12.2 million due through 2005 with a variable interest rate of 2.97% at September 30, 2004.

⁽⁹⁾		Includes non-cancelable operating leases for 136 aircraft with remaining terms ranging from five months to approximately 20 years. Management estimates the debt equivalent value of these operating leases approximates $1.9 billion using an interest rate of 10%.

⁽¹⁰⁾		Includes leases for terminal space, ground facilities, the flight training center and computer and other equipment under non-cancelable operating leases.

⁽¹¹⁾		Includes Series 1999 Terminal 4 Improvements Bonds, due 2019.

⁽¹²⁾		Includes commitments to purchase a total of 21 Airbus aircraft and seven spare engines for delivery in 2004 through 2007.

⁽¹³⁾		Includes minimum commitments under AWA’s rate per engine hour agreement with General Electric Engine Services for overhaul maintenance services on V2500-A1 and CFM56-3B engines through April 2008. Minimum monthly commitment amounts: for the period through and including October 2004 through and including April 2006 - $2.0 million, for the period May 2006 through and including April 2008 - $500,000.

		Arizona are 22 years and 30 years, respectively. The estimated useful lives of our ground property and equipment range from three to 12 years. We test for impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired as defined by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An impairment loss is recognized if the carrying amount of the asset is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value of the asset.

•		Frequent Flyer Accounting - We maintain a frequent travel award program known as “FlightFund” that provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing the free travel is recognized as a liability and charged to operations as program members accumulate mileage. Travel awards are valued at the incremental cost of carrying one passenger, based on expected redemptions. Incremental costs are based on expectations of expenses to be incurred on a per passenger basis and include fuel, liability insurance, food, beverages, supplies and ticketing costs. We also sell mileage credits to companies participating in our FlightFund program, such as hotels, car rental agencies and credit card companies. Transportation-related revenue from the sale of mileage credits is deferred and recognized when transportation is provided. A change to the estimated cost per mile, minimum award level, percentage of revenue to be deferred or deferred recognition period could have a significant impact on our revenues or mileage liability accrual in the year of the change as well as future years.

•		competitive practices in the airline industry;

•		the impact of changes in fuel prices; and

•		19,692,000 shares of Class B common stock that are issuable upon the exercise, at a price of $3.00 per share, of certain warrants issued in connection with the government guaranteed loan, including 18,754,000 shares of Class B common stock issuable upon exercise of a warrant issued to the ATSB; and

•		8,662,293 shares of our Class B common stock that are issuable upon the exercise of outstanding options.