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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

OR

COMMISSION FILE NUMBER 1-12649

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

COMMISSION FILE NUMBER 0-12337

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SENIOR UNSECURED NOTES DUE 2005
(TITLE OF CLASS)

     Indicate by check mark whether each of the registrants (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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 under the Securities Exchange Act of 1934) is not contained herein, and will not be contained, to the best of each of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes þ                      No

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     As of June 30, 2002, there were 32,781,851 shares of America West Holdings Corporation Class B common stock, $.01 par value issued and outstanding. As of such date, based on the closing sales price as quoted by the New York Stock Exchange, 32,556,201 shares of Class B common stock, having an aggregate market value of approximately $89,203,991 were held by non-affiliates. For purposes of the above statement only, all directors and executive officers of the registrants are assumed to be affiliates. As of June 30, 2002, all outstanding equity securities of America West Airlines, Inc. were owned by America West Holdings Corporation.

     As of March 31, 2003, there were 941,431 shares of America West Holdings Corporation Class A common stock and 32,771,285 shares of America West Holdings Corporation Class B common stock outstanding. As of March 31, 2003, all outstanding equity securities of America West Airlines, Inc. were owned by America West Holdings Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement related to America West Holdings Corporation’s 2003 annual meeting of stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of America West Holdings Corporation’s fiscal year ended December 31, 2002, are incorporated by reference into Part III of this Form 10-K.

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     This combined Form 10-K is filed by both America West Holdings Corporation (“Holdings” or the “Company”) and its wholly owned subsidiary, America West Airlines, Inc. (“AWA” or the “Airline”).

Note Concerning Forward-Looking Information

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

	•		the continuing impact of the terrorist attacks of September 11, 2001, the potential impact of any future terrorist attacks and government responses thereto, and the potential impact of the war against Iraq and other hostilities;
	•		the duration and extent of the current soft economic conditions;
	•		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;
	•		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” included in Item 1 of this report. Any forward-looking statements speak only as of the date of this report.

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PART I

ITEM 1. BUSINESS

     Holdings is a holding company that owns all of the stock of AWA. AWA accounted for most of the Company’s revenues and expenses in 2002. Based on 2002 revenues and operations, AWA is the eighth largest passenger airline in the United States with the lowest cost structure of the eight major hub-and-spoke airlines in the United States. At the end of 2002, AWA operated a fleet of 143 aircraft with an average fleet age of 10.1 years and served 65 destinations in North America, including seven in Mexico and three in Canada. Through regional alliance and code share arrangements with other airlines, AWA served an additional 49 destinations in North America as of December 31, 2002. In 2002, AWA flew approximately 19.5 million passengers and generated revenues of approximately $2 billion. In addition, Holdings owns all of the outstanding stock of The Leisure Company (“TLC”), which sells individual and group travel packages, including air transportation on AWA and Hawaiian Airlines, hotel accommodations, car rentals, cruise packages and other travel products, directly to consumers as well as through retail travel agencies in the United States, Canada and Mexico.

     General information about us can be found at www.americawest.com/aboutawa under the public/investor relations link. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments or exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.

Overview

     Since September 11, 2001, the U.S. domestic airline industry has experienced an unprecedented financial crisis caused by the combination of the terrorist attacks of September 11, 2001 and soft economic conditions. In 2002, the nine largest U.S. airlines reported net losses of approximately $7.0 billion, of which approximately $1.8 billion was in the fourth quarter of 2002. Two airlines, United Airlines and U.S. Airways, have filed for bankruptcy and most other airlines have implemented cost reduction plans in order to preserve liquidity and weather the current economic conditions. Passenger revenues continue to be adversely affected by a decline in high-yield business traffic and a general decline in the demand for air travel after the terrorist attacks. The airline industry also incurred, and continues to face, an increase in costs resulting from enhanced security measures, aviation-related insurance and higher jet fuel prices.

     In response to these difficult industry conditions, we completed a financial restructuring, introduced a business-friendly pricing structure and lowered our cost structure during 2002. Most significantly, during the first quarter of 2002, as part of our financial restructuring, we closed a $429 million loan supported by a $380 million government loan guarantee. This loan triggered expense reductions and additional financing (primarily aircraft rent reductions and future financing commitments), resulting in a restructuring of our indebtedness and lease commitments. See Note 4, “Government Guaranteed Loan” in the Notes to the Consolidated Financial Statements. In 2002, we also eliminated base commissions on tickets issued by travel agencies in the United States effective March 21, 2002 and introduced a new pricing structure offering business travelers lower and more flexible fares on March 24, 2002. See “– Revised Pricing Structure” below. As a result of these initiatives, we believe our cash balance as of December 31, 2002 remains relatively high as compared to the average for the major U.S. domestic hub-and-spoke airlines, our year-over-year domestic unit revenue and unit cost performance was better than the industry average and our year-over-year improvement in pre-tax margin was the highest of all major U. S. airlines.

     Despite this progress, we expect to continue to post significant losses in 2003. We believe near-term revenues will continue to be negatively impacted by the soft economic conditions and the decline in business traffic. In addition, fuel prices have remained and may continue to remain well above historical norms due to the threat of and the commencement of military action against Iraq and continued political tension in Venezuela. Although there can be no assurances, we believe that cash flow from operating activities coupled with existing cash balances and financing commitments 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, 2003. See “Risk Factors Relating to America West and Industry Related Risks” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

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Recent Events

Restatement of Previously Reported Amounts

     Holdings and AWA have restated their audited financial statements for the fiscal year ended December 31, 2001 and their unaudited financial statements for the first, second and third quarters of fiscal year ended December 31, 2002. The changes include:

			— a change in the timing from the first quarter of 2002 back to the fourth quarter of 2001 of the non-cash impairment charge of approximately $39.2 million recorded to adjust the carrying value of owned aircraft to market value and the related non-cash impairment charge of approximately $64.1 million recorded to write off reorganization value in excess of amounts allocable to identifiable assets (“ERV”) that arose in connection with the Company’s plan of reorganization from bankruptcy in 1994, both of which charges were previously recorded in the first quarter of 2002; and
			— the recognition of full valuations allowances relating to Holdings’ and AWA’s net deferred tax assets.

See Note 2, “Restatement of Previously Reported Amounts” in both Notes to Consolidated Financial Statements of Holdings and Notes to Financial Statements of AWA.

Impairment Charges

     Statement of Financial Accounting Standards (“SFAS”) No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” requires than an impairment analysis be performed whenever circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable.

     As a result of the adverse impacts on Holdings and AWA and the airline industry as a whole resulting from the terrorist events of September 11, 2001 and their aftermath, AWA performed an assessment of impairment of its owned aircraft during 2001 and again in connection with the preparation of the interim financial statements for the first quarter of 2002.

     As a result of AWA’s assessments, no impairment adjustment was recorded in the financial statements previously issued for 2001. The Company and AWA recorded an impairment charge of approximately $39.2 million in the first quarter of 2002 to adjust the carrying value of AWA’s owned aircraft to reflect market values at that time. Such accounting treatment was considered appropriate at the time of the issuance of the applicable financial statements. In connection with the preparation of the financial statements and the related audit for the fiscal year ended December 31, 2002, the Company and AWA determined that the more appropriate recognition of the impairment charge of approximately $39.2 million is in the fourth quarter of 2001 rather than in the first quarter of 2002.

     In addition, SFAS No. 121 requires that goodwill that arose in a purchase business combination be allocated, and included as part of the asset base, in determining recoverability and measuring impairment. The Company and AWA did not have goodwill at December 31, 2001, but did have a significant amount of unamortized ERV. The Company and AWA have determined that a portion of the unamortized ERV balance should have been allocated to AWA’s owned aircraft in the impairment analysis performed for the year ended December 31, 2001.

     As more fully described in Note 3, “Adoption of New Accounting Standard” in both Notes to Consolidated Financial Statements of Holdings and Notes to Financial Statements of AWA, the remaining unamortized balance of ERV was written-off in the first quarter of 2002 as a cumulative effect of a change in accounting principle, upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

     The impact of the above described matters is to change the period of recognition for these non-cash costs between late 2001 and early 2002. See Note 19, “Quarterly Financial Data (Unaudited)” in Notes to Consolidated Financial Statements of Holdings and Note 18, “Quarterly Financial Data (Unaudited)” in Notes to Financial Statements of AWA.

Deferred Income Taxes

     SFAS No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, forecasts of future profitability, the utilization of past tax credits, length of carryforward periods and similar factors. SFAS No. 109 further states that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment.

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     Holdings and AWA had originally reported net deferred tax liabilities at December 31, 2001. After consideration of the restatement discussed above, Holdings and AWA each had net deferred tax assets and were in a cumulative loss position for the three years ended December 31, 2001. Full valuation allowances have been established relating to Holdings’ and AWA’s net deferred tax assets at December 31, 2001, and relating to net deferred tax assets generated by losses in 2002. We expect to continue to record a full valuation allowance on future tax benefits until we return to profitability. See Note 9, “Income Taxes” and Note 19, “Quarterly Financial Data (Unaudited)” in Notes to Consolidated Financial Statements of Holdings and Note 10, “Income Taxes” and Note 18, “Quarterly Financial Data (unaudited)” in Notes to Financial Statements of AWA.

Elimination of Hub Operations in Columbus, Ohio

     On February 10, 2003, we announced that we will eliminate hub operations in Columbus, Ohio. We expect to commence downsizing our Columbus operations in early April with completion scheduled in mid-June. During that period, we expect to:

	•		Gradually downsize the hub from 49 daily departures to 15 destinations to a planned four mainline flights per day to Phoenix and Las Vegas;
	•		Phase 12 Columbus-based regional jets, all of which are currently operated by Chautauqua Airlines (“Chautauqua”) under the America West Express banner, out of our fleet; and
	•		Reduce the number of employees in Columbus from approximately 400 to 65.

     In connection with the downsizing, we expect to terminate our regional alliance with Chautauqua and to offer affected employees the opportunity to transfer to other positions within AWA. Those who choose not to relocate will receive severance packages. In addition, due to the downsizing of Columbus, we expect to eliminate service to New York City LaGuardia Airport because perimeter rules at that airport prohibit flights beyond 1,500 miles, which precludes service from our hubs in Phoenix and Las Vegas. However, the Airline will continue to serve the New York metropolitan area through both John F. Kennedy and Newark International Airports. With the exception of LaGuardia, we do not expect to close any other year-round AWA destination as a result of the elimination of the Columbus hub.

     In the first, second and third quarters of 2003, we expect to record pre-tax special charges totaling approximately $10 to $15 million resulting from the elimination of our Columbus hub operations. The charge is related to the costs to terminate certain contracts, the write-off of leasehold improvements and employee transfer and severance expenses. See Note 21, “Subsequent Event – Elimination of Hub Operations in Columbus, Ohio” in Notes to Consolidated Financial Statements.

Airline Operations

     Our operations and business strategy have traditionally been focused around our Phoenix, Arizona and Las Vegas, Nevada based route-network (supplemented by regional airline alliances and strategic relationships with other carriers), our low cost structure and our emphasis on customer service. During 2002, in response to the adverse industry conditions, we shifted our emphasis to maximize revenues generated by our existing route-network and minimize our costs and expenses. In addition, we significantly reformed our pricing structure in an effort to increase our share of key business markets.

     Our Route Network

     We operate our route system through a hub-and-spoke network centered around our principal hubs in Phoenix, Arizona and Las Vegas, Nevada and a mini-hub in Columbus, Ohio. As of December 31, 2002, we were the leading airline serving Phoenix based on available seat miles, or ASMs, and takeoffs and landings and ranked second in Las Vegas based on the same measures. Our operations have focused on the Phoenix and Las Vegas markets and expanding our reach beyond those markets through strategic relationships with other carriers, including regional alliances with Chautauqua and Mesa Airlines (“Mesa”) and code-sharing arrangements with other carriers. See “– Regional Airline Alliances” and “– Alliances with Other Airlines” below. As discussed above, as part of our emphasis on revenue maximization and cost reduction, we intend to eliminate our Columbus hub operations, and in connection therewith, terminate our regional alliance with Chautauqua during the first half of 2003. Although recent industry conditions have resulted in a reduction of ASMs in 2002, we expect to be in a position to continue the prudent growth of the Airline and its Phoenix and Las Vegas centered networks as the economic environment improves.

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     Cost Control

     We are committed to maintaining a low cost structure, which we believe offers a significant competitive advantage over other major hub-and-spoke airlines in the United States. In 2002, we continued to maintain our position as having the lowest operating cost per available seat mile, or CASM, of all the other major hub-and-spoke airlines in the United States and remained competitive with the major point-to-point airline, Southwest Airlines. Our CASM was 8.05 cents in 2002, which included approximately $19.0 million, or 0.07 cents per available seat mile, of charges associated with our financial restructuring. Excluding these restructuring charges, we believe our CASM of 7.98 cents was approximately 24% less than the average CASM (excluding similar restructuring charges) of the other major hub-and-spoke airlines in the United States.

     In 2002, we reduced our CASM, excluding restructuring charges, by 8.1%, which we believe represented the most improvement amongst the major U.S. airlines. This reduction was driven by a reduction in aircraft rents obtained in connection with our financial restructuring, which reduced rent payments by approximately $50 million per year for 2003 and each of the next six years, the elimination of base commissions on tickets issued by travel agencies in the United States and continued management focus on cost control.

     In the current industry environment, our low cost focus has been extended to capital spending and cash conservation. We intend to minimize capital expenditures and defer discretionary expenditures.

     Revised Pricing Structure

     In an effort to maximize revenue and increase business traffic, we eliminated our historic pricing structure in March 2002 and replaced it with a simplified structure, the primary components of which include reduced business fares (typically 40-75% below the walkup prices on other major network carriers), elimination of Saturday night stay requirements and more fares available on a one-way basis. At the same time, we significantly reduced the number and level of highly discounted fares available through off-tariff channels. Immediately following the introduction of the new fare structure, higher-cost competitors placed extremely low prices in our non-stop markets and Continental Airlines cancelled its long standing code share and frequent flyer agreements with us. Despite these actions, we believe our year-over-year domestic unit revenue performance has been better than the industry average each month since the new structure was introduced and the net effect of our revised pricing structure has been significantly positive to revenue.

     Customer Service

     We believe that the emphasis on customer service is essential to rebuilding our business and leisure traffic. Therefore, we are committed to building a successful airline by taking care of our customers. During 2002, we continued to build on the customer service and reliability initiatives that we first implemented in 2000. Largely as a result of our continued focus on customer service, in 2002, we continued to make significant improvements in a number of key areas as reported to the Department of Transportation (“DOT”):

	•		On-time performance improved to 82.9% in 2002 compared to 74.8% in 2001. In January, February and May 2002, AWA ranked first in the industry in on-time performance;
	•		Completion factor for the year was 99.0%, higher than any other year in our history;
	•		AWA posted a 16% improvement in mishandled baggage in 2002 compared to 2001;
	•		Customer complaints to the DOT in 2002 decreased 56% compared to 2001and are at the lowest levels since 1996.

     In January 2003, in response to customer requests, we began testing our “Buy on Board” meal program. Initial customer feedback has been positive and, based on the results of the test program, we are evaluating the extent to which the program will be implemented.

     Regional Airline Alliances

     AWA has a regional alliance agreement with Mesa Airlines. Mesa, operating as America West Express, provides regional feeder service to and from our Phoenix and Las Vegas hubs to destinations in the western United States and northern Mexico flying, principally, regional jets and large turboprop aircraft. Through this arrangement with Mesa, we offered America West Express service to an additional 22 destinations as of December 31, 2002.

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     Under this agreement, the America West Express regional fleet will increase to 56 jet aircraft by 2005 with options for further expansion to as many as 93 aircraft. The new regional jets will be used to grow AWA’s service from its hubs in Phoenix and Las Vegas. The alliance arrangement with Mesa provides for the Airline’s management of coordinated flight schedules and all America West Express marketing and sales. All reservations are booked under AWA’s flight designator code. America West Express passengers connecting to or from an AWA flight can purchase one airfare for their entire trip.

     AWA also has a regional alliance agreement with Chautauqua Airlines. Chautauqua operates the America West regional jet service to and from our mini-hub in Columbus, Ohio to midwest and eastern United States business markets. As discussed above, in February 2003, we announced that we will eliminate hub operations in Columbus, Ohio. In connection with the downsizing of the Columbus operation, we expect to terminate our relationship with Chautauqua and the 12 Columbus-based regional jets, all of which are currently operated by Chautauqua, will be phased out of AWA’s fleet. See “–Recent Events,” above and Note 21, “Subsequent Event – Elimination of Hub Operations in Columbus, Ohio” in Notes to Consolidated Financial Statements.

     Alliances with Other Airlines

     AWA maintains alliance agreements with several leading domestic and international carriers to give customers a greater choice of destinations. Airline alliance agreements provide an array of benefits that vary by partner. By code sharing, each airline is able to offer additional destinations to its customers under its flight designator code without materially increasing operating expenses and capital expenditures. These agreements enable passengers to fly seamlessly across a more extensive network than any one airline can offer, while providing one-stop check-in, baggage transfers and a better level of support and service. Frequent flyer arrangements provide members with extended networks for earning and redeeming credits on partner carriers. Lounge arrangements provide lounge members with access to partner carriers’ lounges.

     AWA’s alliance agreement with British Airways allows British Airways to code share on flights operated by AWA connecting to and from British Airways’ Phoenix, San Francisco and Los Angeles services. The agreement also allows AWA FlightFund members to earn credit for travel on British Airways and for frequent flyer benefits earned by AWA customers to be redeemed for travel on British Airways’ system.

     Relationships with Northwest Airlines (“Northwest”) and EVA Airways provide connecting service on AWA from those airlines’ pacific routes to Las Vegas and Phoenix. The frequent flyer agreement with Northwest also provides for FlightFund members to earn and redeem credit on Northwest’s transpacific flights. In addition, lounge members have access to Northwest’s WorldClubs lounges in the United States.

     AWA’s alliance agreement with Hawaiian Airlines (“Hawaiian”) and Big Sky Airlines (“Big Sky”) allows AWA to code share on flights operated by those carriers. AWA’s agreement with Hawaiian offers connecting service to and from Hawaiian’s non-stop Phoenix to Honolulu service and beyond to the other islands of Hawaii. AWA FlightFund members can earn and redeem credit for travel on Hawaiian. AWA’s alliance with Big Sky offers connecting service in Denver, Colorado; Spokane, Washington; Boise, Idaho and Billings, Montana to Big Sky’s destinations in Montana and Washington state. AWA FlightFund members can earn and redeem credit for travel on Big Sky.

     Airline Competition and Marketing

     The airline industry is highly competitive. Airlines compete on the basis of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs, on-board products and other services. We compete with all of the major airlines on medium and long haul routes to, from and through our hubs and with a number of carriers for short haul flights at our Phoenix and Las Vegas hubs. We compete with other major full service airlines based on price and, due to our low cost structure, we are able to compete with other low cost carriers in both short and long haul markets. The consolidation of existing carriers and the entry of additional carriers in many of our markets (as well as increased services by established carriers) could negatively impact our results of operations. In addition, as discussed above under “– Revised Pricing Structure,” certain airlines have in the past engaged in retaliatory activities, including deep pricing discounts in certain markets and termination of alliance agreements, in response to changes in our pricing structure. For additional discussion of industry competition and related government regulation, see “Risk Factors Relating to America West and Industry Related Risks — 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” and, generally, “– Government Regulations.”

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     Most tickets for travel on AWA are sold by travel agents. Airlines often pay override commissions in connection with special revenue programs, competing not only with respect to the price of tickets sold but also with respect to the amount of commissions paid. In March 2002, we announced the elimination of base commissions for all travel agency issued tickets in the United States (including Puerto Rico and the U.S. Virgin Islands) and Canada. We also announced the introduction of the Agency AWArds commission program for travel agents, which offers agencies the opportunity to earn commission payments in exchange for booking more of their business on AWA. We believe that this commission structure is competitive with the commission programs of the other major airlines in the United States.

     Most tickets sold by travel agents are sold through computer reservations systems (“CRS”). Travel agents’ reliance on those CRSs have, from time to time, significantly increased the cost of making reservations, which costs are born by airlines that subscribe to the CRSs, including AWA. We have sought to reduce these costs through several initiatives. First, AWA’s electronic or paperless ticketing program responds to customer needs and reduces distribution costs for tickets booked directly through the Airline’s reservation system and through travel agencies. During 2002, approximately 86% of the Airline’s tickets were processed electronically, up from 78% during 2001. Second, AWA provides the ability for its customers to book tickets directly through the Internet using the Airline’s web site located at www.americawest.com, thus avoiding the more expensive CRSs. Bookings through americawest.com were approximately 15% of total 2002 bookings, up from 10% in 2001.

     Federal regulations have been promulgated that are intended to diminish preferential scheduling displays and other practices with respect to CRSs that place AWA and other similarly situated users at a competitive disadvantage to airlines controlling the systems. Those regulations are presently under review by the DOT. The DOT has announced a Notice of Proposed Rulemaking that could change the existing CRS rules. Most significant, are the proposed elimination of the mandatory participation rule, under which an airline that owns or controls a CRS is required to purchase the same level of service from other CRSs that it purchases from the CRS it owns or controls, and the elimination of the rule against discriminatory booking fees, which requires that all carriers pay the same fee for the same level of service. The Airline is participating in the federal rule making process related to CRSs.

     Frequent Flyer Program

     All major United States airlines offer frequent flyer programs to encourage travel on their respective airlines and customer loyalty. AWA offers the FlightFund program, which allows members to earn mileage credits by flying AWA and America West Express, by flying on certain partner airlines and by using the services of a wide variety of other program participants such as hotels, rental car agencies and other specialty services. AWA also sells mileage credits to credit card companies, telephone companies, hotels, car rental agencies and others that participate in the FlightFund program.

     Through the FlightFund program, accumulated mileage credits can be redeemed for free travel on AWA, America West Express and certain partner airlines and for first class upgrades on AWA. Use of mileage credits is subject to industry standard restrictions including availability and blackout dates. The Airline must purchase space on other airlines to accommodate FlightFund redemption travel on those airlines.

     We account for the FlightFund program under the incremental cost method whereby travel awards are valued at the incremental cost of carrying one passenger based on expected redemptions. Those 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 that are accrued as FlightFund members accumulate mileage credits. No profit or overhead margin is included in the accrual for those incremental costs. Revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Non-revenue FlightFund travel accounted for 2.7%, 2.6% and 2.6% of total revenue passenger miles for the years ended December 31, 2002, 2001 and 2000, respectively. We do not believe that non-revenue FlightFund travel results in any significant displacement of revenue passengers.

     The Airline’s Fleet

     At December 31, 2002, AWA operated a fleet of 143 aircraft having an average age of 10.1 years. In January 2002, AWA closed a $429 million loan supported by a $380 million government loan guarantee that resulted in a restructuring of its aircraft lease and purchase commitments. As a result, 17 new Airbus aircraft previously scheduled for delivery in 2003 and 2004 were deferred by a total of 505 aircraft-months to 2004 through 2007. In addition, AWA grounded two B737-200 aircraft in 2002 and, through negotiations with aircraft lessors, retired five aircraft in 2002 to better size its fleet to the current industry environment.

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     In 2003, we plan to take delivery of two new A320 aircraft, retire two A320 and two B737-300 aircraft and expect to operate a fleet of 141 aircraft at the end of 2003 having an average age of 10.9 years.

     AWA’s fleet at the end of 2002 and as expected at the end of 2003 is described in the table below:

     As of March 31, 2003, AWA had firm commitments to purchase or acquire by operating lease a total of 15 Airbus A318-100, one Airbus A319-100 and five Airbus A320-200 aircraft for delivery in 2003 through 2007. AWA also has 17 options and 25 purchase rights to acquire aircraft in the “A320 family” of aircraft (A318s, A319s, A320s and A321s) for delivery in 2005 through 2008.

     We expect that expirations of aircraft operating leases scheduled to occur over the next several years will allow AWA the flexibility to manage the growth of its fleet size and related financial obligations in response to unfavorable economic conditions. Certain of these leases contain put options pursuant to which the lessors could require AWA to renew the leases for periods ranging from eight months to 8.7 years or call options pursuant to which the lessors could require AWA to return the aircraft to the lessors upon receipt of four to nine months written notice. In 2002, AWA was required to renew the leases for eight aircraft as a result of the exercise of put options by the aircraft lessors. No call options were exercised in 2002. Assuming the exercise of the put options, as of March 31, 2003, leases for 51 of AWA’s aircraft were scheduled to terminate through the end of 2007.

     The following table illustrates AWA’s committed orders, scheduled lease expirations, and lessor put and call options for the years 2003-2007:

     For further details on AWA’s commitments to acquire aircraft, financing strategies and capital requirements for aircraft, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “Risk Factors Relating to America West and Industry Related Risks — Our high level of debt and fixed costs limits our ability to fund general corporate requirements, limits our flexibility in responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.”

The Leisure Company

     TLC sells individual and group travel packages including air transportation on AWA and Hawaiian Airlines, hotel accommodations, car rentals and other travel products directly to consumers and through retail travel agencies in the United States, Canada and Mexico. TLC’s travel packages are sold under its America West Vacations brand. TLC is one of the largest tour packagers to Las Vegas in the United States, contracting for volume blocks of rooms with 33 Las Vegas hotels and resorts.

     TLC launched sales of vacation packages to Hawaii during the fourth quarter of 2002 as a result of the new code share agreement between AWA and Hawaiian Airlines which became effective on October 11, 2002. This alliance gives TLC nonstop service to Hawaii from nine cities, including Phoenix and Las Vegas. Using the AWA network, customers can connect to Hawaii from more than 50 cities nationwide. TLC has partnered with approximately 60 hotels

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and resorts on all islands of Hawaii for vacation packages in all price ranges.

     TLC remains focused on high-volume leisure travel products which have traditionally provided high profit margins. TLC has negotiated several strategic partnerships with hotels, Internet travel sites and media companies to capitalize on the continued growth in online travel sales. TLC sells vacation packages and hotel rooms through its call center, via the Internet and its websites AmericaWestVacations.com, AWVTravelAgents.com and AWVCruise.com, through global distribution systems Sabre TourGuide and WorldSpan Tour Source and through third-party websites on a co-branded or private-label basis. In 2002, approximately 49% of total bookings were made electronically compared to 28% in 2001.

     TLC competes in a fragmented travel industry, which is highly competitive, price sensitive and has relatively low barriers to entry. TLC competes for customers with other wholesale travel companies, consolidators and E-travel companies through national mass media, preferred supplier agreements and Internet distribution agreements.

Employees and Labor Relations

     The Company’s businesses are labor intensive with wages, salaries and benefits representing approximately 27% of the Company’s operating expenses during 2002.

     As of December 31, 2002, the Company employed 11,050 full-time and 2,705 part-time employees, for a full-time equivalent of 12,111 employees. As of December 31, 2002, AWA employed 10,825 full-time and 2,689 part-time employees, for a full-time equivalent of 11,908 employees.

     The Company’s non-union employees are compensated on a pay-for-performance basis under which salaries and wages are determined, in part, by performance evaluations by an employee’s superiors and peers. The Company awards a bonus, referred to as AWArd Pay, to eligible, non-executive, non-union employees provided the Company achieves certain annually established targets. AWArd Pay bonuses could range from 5% of base pay if those targets are met to 25% of base pay if those targets are significantly exceeded. No bonuses were paid to Company employees in 2002 as the Company did not meet the minimum operating income threshold for a payout.

     A large majority of the employees of the major airlines in the United States are represented by labor unions. There have been numerous attempts by unions to organize AWA’s employees and we expect these organization efforts to continue in the future. As illustrated by the table below, several groups of AWA’s employees have selected union representation and negotiated collective bargaining agreements with the Airline. We cannot predict the outcome of any continuing or future efforts to organize the Airline’s employees or the terms of any future labor agreements or the effect, if any, on the Company’s or AWA’s operations or financial performance. For more discussion, see “Risk Factors Relating to America West and Industry Related Risks — 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.”

     •     In contract negotiations.

     On December 23, 2002, the Company announced that it had reached a tentative agreement with the Air Line Pilots Association (“ALPA”) on a new contract for AWA’s pilots. The tentative agreement was subject to a membership ratification vote in March 2003. On March 18, 2003, ALPA informed the Company that a majority of AWA’s pilots voted against ratification of the tentative agreement. The Company will resume mediated discussions with ALPA at a date to be determined by the National Mediation Board (“NMB”). The Company cannot predict the outcome of those discussions.

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     In addition, the Company is in negotiations with the International Brotherhood of Teamsters (“IBT”) on a first contract covering the Company’s stock clerks, a work group of approximately 50 employees. The parties are currently in mediation under the auspices of the NMB. The Company cannot predict the form of this future collective bargaining agreement and therefore the effect, if any, on AWA’s operations or financial performance.

     On August 19, 2002, the IBT filed an Application for Investigation of Representation Dispute with the NMB, seeking to represent approximately 4,000 passenger service representatives and reservations agents. An election was conducted and on November 12, 2002, the NMB dismissed the case, finding that the majority of employees (2,051 of 3,619) chose not to be represented by a union. Thereafter, the IBT appealed the election results claiming the Company improperly interfered with the employees’ voting rights. The Company vigorously denied any wrongdoing and the matter is currently being investigated by the NMB. The Company cannot predict the outcome of the investigation.

The Company’s Facilities

     Our Company’s principal facilities include administrative office space located in Tempe and Phoenix, Arizona; reservations centers and other call centers located in Tempe and Reno, Nevada; and airport and airport related facilities associated with the Airline’s hubs in Phoenix and Las Vegas and its mini-hub in Columbus, Ohio. The following table describes Holdings’ and AWA’s principal properties:

     In addition, we have leased an aggregate of 230,000 square feet of office space in Tempe and Phoenix, Arizona. Space for ticket counters, gates and back offices has been obtained at each of the other airports operated by AWA personnel, either by lease from the airport operator or by sublease from another airline. Space and facilities at certain airports where AWA’s operation is managed by Mesa Airlines is provided by Mesa as part of AWA’s ground handling arrangement.

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Government Regulations

     The airline industry is highly regulated as more fully described below.

     DOT Oversight

     AWA operates under a certificate of public convenience and necessity issued by the DOT. Although the Airline Deregulation Act of 1978 abolished regulation of domestic routes and fares, the DOT retains the authority to alter or amend AWA’s certificate or to revoke that certificate for intentional failure to comply with the terms and conditions of the certificate. In addition, the DOT has jurisdiction over international tariffs and pricing, international routes, computer reservation systems, domestic code share agreements, and economic and consumer protection matters such as advertising, denied boarding compensation and smoking and has the authority to impose civil penalties for violation of the United States Transportation Code or DOT regulations.

     FAA Funding

     In 1997, new aviation taxes were imposed through September 30, 2007 to provide funding for the Federal Aviation Administration (“FAA”). Included in the new law is a phase-in of a modified federal air transportation excise tax structure with a system that includes: a domestic excise tax which started at 9% and declined to 7.5% in 1999; a domestic segment tax that started at $1.00 and increases to $3.00 by 2003; and an increase in taxes imposed on international travel from $6.00 per international departure to an arrival and departure tax of $12.00 (each way). Both the domestic segment tax and the international arrival and departure tax are indexed for inflation. The legislation also included a 7.5% excise tax on certain amounts paid to an air carrier for the right to provide mileage and similar awards (e.g., purchase of frequent flyer miles by a credit card company). As a result of competitive pressures, AWA and other airlines have been limited in their ability to pass on the cost of these taxes to passengers through fare increases.

     Congress will be reviewing FAA funding in 2003 and that may result in changes to the current funding mechanisms. AWA cannot currently estimate the effect any new combination of ticket and segment taxes, or any change in those taxes will have on its operating results. There can be no assurance that any changes will not have a material adverse effect on AWA’s financial condition and results of operations.

     Passenger Facility Charges

     During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the DOT, to impose passenger facility charges (“PFCs”) as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers, are limited to $4.50 per enplanement, and to no more than $18.00 per round trip. As a result of competitive pressure, AWA and other airlines have been limited in their ability to pass on the cost of the PFCs to passengers through fare increases.

     Additional Security and Safety Measures

     On November 19, 2001, the President signed into law the Aviation and Transportation Security Act (the “ATSA”). This law enhances aviation security measures and federalizes many aspects of civil aviation security. ATSA established a new Transportation Security Administration within the DOT. Under the ATSA, all security screeners at airports are federal employees and a significant number of other airport security functions are overseen and performed by federal employees, including federal security managers, federal law enforcement officers and federal air marshals. The ATSA mandated that beginning on January 18, 2002, all checked baggage at United States airports be screened using explosive detection systems, or, where such systems are not yet available, using other screening techniques such as positively matching baggage to a passenger who has boarded an aircraft. The ATSA requires all checked baggage to be screened by explosive detection systems by December 31, 2003. Other requirements in the ATSA that directly affect airline operations include: the strengthening of cockpit doors; deploying federal air marshals on board certain flights; improving airline crew security training; and expanding use of criminal background checks of employees. Implementation of these and other requirements of the ATSA will result in increased costs for air carriers and may result in delays and disruptions to air travel. Under the ATSA, funding for the new federal security system is to be provided by a $2.50 per enplanement ticket tax, not to exceed $5.00 per one-way trip, and by imposing additional direct fees on air carriers. Pursuant to the ATSA, air carriers began collecting the new ticket tax from passengers on February 1, 2002 and have been required to make additional payments to the Transportation Security Administration. The total estimated cost to the Company of compliance with the security requirements of the ATSA for 2003 is approximately $16.6 million. As a result of competitive pressure, AWA and other airlines may be unable to recover all of these additional security costs from passengers

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through increased fares. In addition, we cannot forecast what new security and safety requirements may be imposed in the future or the costs or financial impact of complying with any such requirements.

     War Risk Insurance

     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 FAA. Under the terms of the Homeland Security Act of 2002, this insurance will expire on August 31, 2003 unless extended by the Secretary of Transportation until December 31, 2003. Should the federal insurance program terminate, as a result of competitive pressures AWA and other airlines would be limited in their ability to pass these additional costs to passengers and the increase in costs could be material to AWA’s financial condition and results of operations.

     Slot Restrictions

     At New York City’s John F. Kennedy International Airport and LaGuardia Airport, and Washington D.C.’s Ronald Reagan National Airport, which have been designated “High Density Airports” by the FAA, there are restrictions on the number of aircraft that may land and take-off during peak hours. At the New York airports, slot restrictions are abolished after January 1, 2007. In the future, these takeoff and landing time slot restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including AWA, particularly in light of the increase in the number of airlines operating at such airports. In general, the FAA rules relating to allocated slots at the High Density Airports contain provisions requiring the relinquishment of slots for non-use and permit carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. All slots must be used on 80% of the dates during each two-month reporting period. Failure to satisfy the 80% use rate will result in loss of the slot which would revert to the FAA and be reassigned through a lottery arrangement.

     AWA currently utilizes five slots at Kennedy Airport, nine slots at LaGuardia Airport and 12 slots at National Airport during the restricted periods. AWA utilizes these slots more than the requisite 80% use rate. Three of the slots at National Airport are subject to expiration in December 2003, and AWA intends to file a timely application for renewal. Approval of such application is discretionary by the FAA. In connection with the downsizing of its Columbus operations, AWA expects to eliminate service to LaGuardia Airport because perimeter rules at that airport prohibit flights beyond 1,500 miles, which precludes service from AWA’s hubs in Phoenix and Las Vegas. See Note 21, “Subsequent Event – Elimination of Hub Operations in Columbus, Ohio” in Notes to Consolidated Financial Statements.

     Perimeter Rule at Washington D.C.’s Ronald Reagan National Airport

     There is a federal prohibition on flights exceeding 1,250 miles operating from or to National Airport. This “perimeter rule” generally prevents AWA from flying non-stop to and from National Airport and its principal hubs of Phoenix and Las Vegas. In 2000, Congress passed legislation which authorized the DOT to grant exceptions to the 1,250 mile perimeter rule for up to 12 slots per day. AWA was authorized six of these slots to operate two daily Phoenix - National Airport round trips and one daily Las Vegas — National Airport round trip. AWA will seek additional slots should they become available.

     Noise Abatement and Other Restrictions

     Numerous airports served by AWA, including those in Boston, Burbank, Denver, Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange County, San Diego, San Francisco, San Jose and Washington, D.C., have imposed restrictions such as curfews, limits on aircraft noise levels, mandatory flight paths, runway restrictions and limits on the number of average daily departures, which limit the ability of air carriers to provide service to, or increase service at, such airports. AWA’s Boeing 757-200s, Boeing 737-300s, Boeing 737-200s and Airbus A319s and A320s all comply with the current noise abatement requirements of the airports listed above.

     Aircraft Maintenance and Operations

     AWA is subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations and to impose civil penalties for violations of the United States Transportation Code or FAA regulations. To ensure compliance with its regulations, the FAA conducts regular safety audits and requires AWA to obtain operating, airworthiness and other certificates, which are subject to

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suspension or revocation for cause. In addition, a combination of FAA and Occupational Safety and Health Administration (“OSHA”) regulations on both federal and state levels apply to all of AWA’s ground-based operations and to in-flight cabin attendants.

     AWA is also subject to the jurisdiction of the Department of Defense with respect to its voluntary participation in their Commercial Passenger Airlift program administered by the Air Force’s Air Mobility Command.

     Aging Aircraft Maintenance

     The FAA issued several Airworthiness Directives (“ADs”) in 1990 mandating changes to the older aircraft maintenance programs. These ADs were issued to ensure that the oldest portion of the nation’s aircraft fleet remains airworthy and require structural modifications to or inspections of those aircraft. All of AWA’s currently affected aircraft are in compliance with the aging aircraft mandates. AWA constantly monitors its fleet of aircraft to ensure safety levels that meet or exceed those mandated by the FAA and the DOT.

     Environmental Matters

     The Company is subject to regulation under major environmental laws administered by federal, state and local agencies, including laws governing air, water and waste discharge activities. While the Company strives to comply with environmental laws and regulations, the Company has incurred and may continue to incur costs to comply with applicable environmental laws, including soil and groundwater cleanup and other related response costs. We believe, however, that under current environmental laws and regulations these costs will not have a material adverse effect on the Company’s financial condition or results of operations.

     The Comprehensive Environmental Response Compensation and Liability Act of 1980, also known as Superfund, and comparable state laws impose liability without regard to fault on certain classes of persons that may have contributed to the release or threatened release of a “hazardous substance” into the environment. These persons include the owner or operator of a facility and persons that disposed or arranged for the disposal of hazardous substances. Many airports in the United States, including Phoenix Sky Harbor International Airport, are the subject of Superfund investigations or state implemented groundwater investigations. AWA occupies facilities at some of these affected airports and is a member of a fuel handling consortium which has experienced a fuel leak into ground water at Phoenix Sky Harbor International Airport. AWA does not believe that its operations have been included within the ambit of any of these investigations and does not believe that its expenses associated with the fuel leak at Phoenix Sky Harbor International Airport will be material.

     The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and we expect that the costs of compliance will continue to increase.

Risk Factors Relating to America West and Industry Related Risks

     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, as passenger demand dropped precipitously after the attacks and as our credit ratings were downgraded by both Moody’s and Standard and Poor’s. Since then, although passenger demand has recovered, we continue to experience reduced demand compared to prior years and our costs relating to enhanced security measures, aviation insurance, airport rents and landing fees have increased, in some cases significantly. The continued impact of the terrorist attacks on our operations, and the sufficiency of our financial resources to absorb this impact, will depend on a number of factors, including:

•		The adverse impact that terrorist attacks, and the resulting government responses, and the potential impact of the war against Iraq and other hostilities will have on the travel industry and the economy in general;
•		The potential increase in fuel costs and decrease in availability of fuel if oil-producing countries are affected by the aftermath of the terrorist attacks, including the government’s responses, and the ability of our fuel-hedging program to manage this risk;

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•		Our ability to reduce our operating costs, conserve financial resources and to continue implementing our restructuring plan, taking into account the cost increases (including significant increases in the cost of aviation insurance) expected to result from the aftermath of the terrorist attacks and the government’s responses;
•		Any resulting decline in the value of the aircraft in our fleet;
•		The number of crew members who may be called for duty in the reserve forces of the armed services and the resulting impact on our ability to operate as planned; and

     Future terrorist attacks and government responses to terrorist activity, including war or other hostilities, could further reduce demand for air travel, increase our costs and generally impact our liquidity or financial condition. Our ability to obtain additional financing to absorb the impact of the terrorist attacks, any government response to terrorist activity and any future terrorist attacks, is limited by the constraints imposed by our existing debt, reductions in the value of our aircraft 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 resulted in a significant increase in our insurance premiums, which has negatively impacted our financial results. In addition, these losses caused a general instability in that industry that could affect some of our existing insurance carriers or our ability to obtain future insurance coverage and resulted in a significant increase in insurance premiums. To the extent that our existing insurance carriers are unable to provide the insurance coverage contracted for, our insurance costs may 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 FAA. Under the terms of the Homeland Security Act of 2002, this insurance will expire on August 31, 2003 unless extend by the Secretary of Transportation until December 31, 2003. Should the Federal insurance program terminate, as a result of competitive pressures AWA and other airlines would be limited in their ability to pass these additional costs to passengers and the increase in costs could be material to AWA’s financial condition.

     We have sustained significant operating losses and expect to continue to sustain significant losses in the near-term.

     The soft economic conditions coupled with the terrorist attacks of September 11, 2001 and the potential impact of the war against Iraq have had a substantial negative impact on our revenues and costs. Our revenues for 2002 have declined 1% as compared to 2001 and 13% compared to 2000. In addition, we have experienced an increase in costs related to enhanced security measures, aviation insurance and airport rents and landing fees. We do not expect our revenues to increase significantly until general economic conditions improve. In addition, we expect the threat of further terrorist attacks to continue to negatively impact our revenues and costs in the near-term and we expect a further decline in the demand for air travel and a potentially substantial increase in fuel costs to occur as a result of the war against Iraq. We may not be able to effectively counter act decreasing revenues and increasing costs through our cost reduction initiatives, customer service initiatives and revised pricing structures. Moreover, our liquidity and borrowing options are limited and we may not be able to survive a prolonged economic downturn, further decreases in demand for air travel or substantial increases in fuel costs.

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

     As of December 31, 2002, we owed approximately $720.1 million of debt. 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. We also have fixed costs associated with our regional alliances with Mesa Airlines and Chautauqua Airlines. As a result of our high leverage:

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	•		We have only a limited ability to obtain additional financing, if needed. Our existing debt is secured by a substantial portion of our assets, leaving us with limited assets to use to obtain additional financing. In addition, the terms of both the government-guaranteed loan and the credit facility restrict our or AWA’s ability to incur additional indebtedness or issue equity unless we use the proceeds of those transactions to prepay the government guaranteed loan and the credit facility.
	•		Our ability to fund general corporate requirements, including capital expenditures, may be impaired. We have substantial obligations to pay principal and interest on our debt 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 under the terms of certain of AWA’s indebtedness, AWA must 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.
	•		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 contain negative covenants that restrict our ability to take certain actions as well as the minimum cash balance requirements discussed above. 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 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 used in our business, accounting for 14% of our total operating expenses in 2002, 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, with our current level of fuel consumption, 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. 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 2003. Hedging transactions are in place with respect to approximately 40% of projected 2003 fuel requirements, including 63% related to the first quarter of 2003. In order to execute additional hedging transactions, we anticipate that we will have to provide cash collateral or other credit support, which we may not be able to provide in a cost-effective manner. 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 than our large competitors and West Coast fuel prices are less correlated to heating oil prices and other viable petroleum derivatives than East Coast fuel prices and, therefore, more difficult to hedge. The effectiveness of our fuel-hedging program may also be negatively impacted by the war against Iraq and terrorist activity, including the aftermath of the terrorist attacks of September 11, 2001 and the resulting government responses. See “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.”

     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 Caa3 and Ca, respectively, and Standard & Poor’s ratings at B- for Holdings and CCC for AWA’s senior unsecured debt. Low credit ratings could cause our borrowing costs to increase, which would increase our interest expense and could affect our net income. In addition, our credit ratings could adversely affect

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

     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. We currently are negotiating collective bargaining agreements with ALPA, which represents all of our approximately 1,600 pilots, and IBT, which represents all of our approximately 60 stock clerks. We had reached a tentative agreement with ALPA in December 2002 on a new contract for AWA’s pilots. However, in March 2003, ALPA informed us that a majority of AWA’s pilots had voted against ratification of the tentative agreement. We will resume mediated discussions with ALPA at a date to be determined by the NMB. We are also currently in mediation with the IBT under the auspices of the NMB. In addition, the IBT is seeking to represent approximately 4,000 passenger service representatives and reservation agents and has appealed the result of an election conducted concerning union representation. We cannot predict the outcome of the federal mediation with IBT, the current negotiations with IBT and ALPA, IBT’s appeal of election results 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 the terms of the government guaranteed loan restricts the amount we can spend on employee compensation. In addition, negotiations with unions could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, we might have to address the threat of, or wait through “cooling off” periods, which could be followed by union-initiated work actions, including strikes. Depending on the nature of the threat or the type and duration of any work action, these actions could disrupt our operations and, as a result, have a significant adverse affect on our operating results.

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

     Our indebtedness under both the government-guaranteed loan and our existing $73.2 million term loan bears interest at fluctuating interest rates based on the London interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR. To the extent LIBOR increases, our interest expense will increase, in which event, we may have difficulties making interest payments and funding our other fixed costs and our available cash flow for general corporate requirements may be adversely affected.

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

     The airline industry is heavily regulated. Both federal and state governments from time to time propose 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 otherwise by the FAA as a result of the recent terrorist attacks are expected to continue to increase costs for us and the airline industry as a whole. Depending on the implementation of these and other laws, our operating costs could increase significantly. Certain governmental agencies, such as the DOT and the FAA, have the authority to impose mandatory orders, such as Airworthiness Directives in connection with our aircraft, and civil penalties for violations of applicable laws and regulations, each of which can result in material costs and adverse publicity. We cannot predict which laws and regulations will be adopted or what other action regulators might take. Accordingly, we cannot guarantee that future legislative and regulatory acts will not have a material impact on our operating results.

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     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, frequent flyer programs 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. 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. From time to time, we also compete with new carriers that enter the airline industry, 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.

     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, adverse weather conditions, consumer preferences, labor instability or regulatory oversight. Also, our results of operations for interim periods are not necessarily indicative of those for an entire year and our prior results are not necessarily indicative of our future results.

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

     Many of our executive officers are key to the management of our business and operations. Our future success depends on our ability to retain these officers and other capable managers. Although we believe we could replace key personnel given adequate prior notice, the unexpected departure of key executive officers could cause substantial disruption to our business and operations. In addition, we may not be able to retain and recruit talented personnel without incurring substantial costs. Moreover, in connection with the government guaranteed loan, we agreed to limit the amount of compensation we provide to our executives. 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, three stockholders collectively control more than 50% of the total voting power of Holdings. These stockholders, TPG Partners, L.P., TPG Parallel I, L.P. and Air Partners II, L.P. are all 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 controlling stockholders identified above will not try to influence Holdings’ business in a way that would favor their own personal interests to the detriment of our interests.

     Conversion of the notes or exercise of the warrants issued in connection with the government-guaranteed loan and related transactions will dilute the ownership interests of existing stockholders.

     The conversion or exercise of some or all of the notes or warrants issued in connection with the government-guaranteed loan and related transactions will dilute the ownership interests of existing stockholders and any sales in the public market of the 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 or warrants 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.

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ITEM 2. PROPERTIES

     For a description of the Company’s properties, see Item 1 of Part I of this Report on Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

     Holdings, AWA and certain of Holdings’ stockholders, executive officers and directors have been named as defendants in lawsuits filed in March and April of 1999, and subsequently consolidated in the Federal District Court of Arizona, alleging violations of the Securities Exchange Act of 1934, as amended, in connection with Holdings’ public disclosures regarding its business and prospects during 1997 and 1998. The defendants deny and are vigorously defending the claims set forth in these lawsuits. While the outcome of these lawsuits cannot be predicted with certainty, we currently expect that any liability arising from such matters, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the Company’s or AWA’s business, financial condition and results of operation.

     In addition, Holdings and its subsidiaries are parties to various legal proceedings, including some purporting to be class action suits, and some which demand large monetary damages or other relief, which, if granted, would require significant expenditures. See Note 8, “Commitments and Contingencies – (e) Contingent Legal Obligations,” in Notes to Consolidated Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

Executive Officers of the Registrant

     Set forth below is information with respect to the names, ages, positions and offices with Holdings and AWA of the executive officers of Holdings and AWA as of March 31, 2003.

     W. Douglas Parker, Age 41. Chairman of the Board, President and Chief Executive Officer of Holdings and AWA. Mr. Parker joined the Company as Senior Vice President and Chief Financial Officer in June 1995. He was elected Executive Vice President of the Company and Executive Vice President - Corporate Group of AWA in April 1999. He was elected President of AWA in May 2000 and Chief Operating Officer of AWA in December 2000. He was elected to his current positions in September 2001.

     J. Scott Kirby, Age 35. Executive Vice President – Sales and Marketing of Holdings and AWA. Mr. Kirby joined AWA as Senior Director – Schedules and Planning in October 1995. In October 1997, Mr. Kirby was elected to the position of Vice President – Planning and in May 1998, he was elected to the position of Vice President – Revenue Management. In January 2000, he was elected to the positions of Senior Vice President — E-Business and Technology of Holdings and AWA. He was elected to his current positions in September 2001.

     Jeffrey D. McClelland, Age 44. Executive Vice President and Chief Operating Officer of AWA. Mr. McClelland joined AWA as Senior Vice President – Operations in August 1999. He was elected Executive Vice President – Operations in September 2001 and named Chief Operating Officer in November 2002. From 1991 until 1999, Mr. McClelland worked at Northwest Airlines, most recently as Senior Vice President – Finance and Controller.

     Lonnie D. Bane, Age 44. Senior Vice President – Human Resources of AWA. Mr. Bane joined AWA in August 2000. From 1998 until 2000, Mr. Bane worked for Corporate Express Delivery Systems, Inc., most recently as Senior Vice President of Business Development and E-Commerce. From 1996 until 1998, Mr. Bane served as Senior Vice President of Human Resources for CEMEX USA. From 1994 until 1996, Mr. Bane served as Vice President of Human Resources for the Braking Systems Division of AlliedSignal.

     Joseph C. Beery, Age 40. Senior Vice President and Chief Information Officer of AWA. Mr. Beery joined AWA in 1999 as Senior Director – Business Technology Delivery. In July 2000, Mr. Beery was elected to the position of Vice President – Business Technology Delivery. He was elected to his current position in December 2002. From 1989 until he joined AWA, Mr. Beery held a variety of positions in the computer integrated manufacturing group of Motorola Semi-Conductor.

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     Hal M. Heule, Age 54. Senior Vice President – Technical Operations of AWA. Mr. Heule joined AWA in January 2001. From 1994 until the time he joined AWA, Mr. Heule served as Executive Vice President for Strand Associates, Inc., an aviation consulting firm.

     C.A. Howlett, Age 59. Senior Vice President – Public Affairs of AWA and Holdings. Mr. Howlett joined AWA as Vice President – Public Affairs in January 1995. On January 1, 1997, he was appointed Vice President – Public Affairs of Holdings. He was elected to his current positions in February 1999.

     Derek J. Kerr, Age 38. Senior Vice President and Chief Financial Officer of AWA and Holdings. Mr. Kerr joined AWA as Senior Director — Financial Planning in April 1996. He was elected to the position of Vice President – Financial Planning and Analysis in May 1998. In February 2002, Mr. Kerr was promoted to Senior Vice President – Financial Planning and Analysis. He was elected to his current position in September 2002.

     Anthony Mulé, Age 59. Senior Vice President – Customer Service of AWA. Mr. Mulé joined AWA as Vice President – In-Flight Services in 1996. He was elected to his current position in October 2000.

     Jack Richards, Age 49. President and Chief Executive Officer of TLC. Mr. Richards joined the Company as Chief Operating Officer of TLC in March 1999. From 1992 until 1999, Mr. Richards served as President and Chief Operating Officer of Adventure Tours USA. He was elected to his current position in September 2001.

     Michael R. Carreon, Age 49. Vice President and Controller of AWA. Mr. Carreon joined AWA as Senior Director – Corporate Audit in December 1994. He was elected to his current position in January 1996.

     Linda M. Mitchell, Age 44. Vice President and General Counsel of AWA and Assistant Secretary of AWA and TLC. Ms. Mitchell joined AWA as Senior Director – Legal Affairs in January 1996. She was elected to her current positions in February 2000.

     Thomas T. Weir, Age 47. Vice President and Treasurer of AWA. Mr. Weir joined AWA in February 2000. From 1988 until 2000, Mr. Weir held various sales finance positions at Airbus Industrie of North America, Inc., most recently as Sales Finance Director.

     John R. Wilson, Age 38. Vice President – Financial Planning and Analysis. Mr. Wilson joined AWA in June 1997 as Senior Director – Financial Analysis. In October 2000, he was elected to the position of Vice President – Operations Finance and became Vice President – Operations Planning and Analysis in November 2001. He was elected to his current position in November 2002.

PART II

ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Class A common stock of Holdings, par value $.01 per share is not publicly traded. The Class B common stock, par value $.01 per share, has been traded on the New York Stock Exchange under the symbol “AWA” since August 26, 1994.

     The following table sets forth, for the periods indicated, the high and low sales prices of the Class B common stock as reported on the New York Stock Exchange.

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     As of December 31, 2002, there were three record holders of Class A common stock and approximately 2,892 record holders of Class B common stock.

     Holdings has not paid cash dividends in any of the last three fiscal years and does not anticipate paying cash dividends in the foreseeable future. Under the terms of the government guaranteed loan, the Company is prohibited from paying cash dividends prior to repayment of the loan in full.

     In September 1995, the Company adopted a stock repurchase program. The program was amended in December 1995, August 1997, August 1998, May 1999 and February 2000. During 1995 through 2000, the Company repurchased approximately 16.5 million shares of Class B common stock and 7.4 million warrants to purchase Class B common stock. The Company did not repurchase any Class B common stock in 2001 or 2002. The Company’s stock repurchase program expired on December 31, 2002. Under the terms of the government guaranteed loan, the Company is prohibited from purchasing any additional shares of its stock prior to repayment of the loan in full.

     AWA has 1,000 shares of common stock outstanding, all of which are owned by Holdings. There is no established public trading market for AWA’s common stock. Except for limited ability to fund operating expenses of Holdings, AWA’s ability to pay cash dividends on its common stock is restricted by the debt instruments and in the manner described above.

     TLC has 1,000 shares of preferred stock outstanding, which are owned by AWA, and 1,000 shares of common stock outstanding, which are owned by Holdings. There is no established public trading market for TLC’s preferred or common stock.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Selected Consolidated Financial Data of Holdings

     The selected consolidated data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 are derived from the audited consolidated financial statements of Holdings. The selected consolidated data should be read in conjunction with the consolidated financial statements for the respective periods, the related notes and the related reports of independent accountants.

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(c)		Includes federal government assistance of $8.5 million and $108.2 million recognized in 2002 and 2001, respectively, as nonoperating income under the Air Transportation Safety and System Stabilization Act to offset direct and incremental losses incurred as a result of the September 11, 2001 terrorist attacks. See Note 15, “Nonoperating Income (Expense) — Other, Net” in Notes to Consolidated Financial Statements.
(d)		Includes a $429 million loan supported by a $380 million government loan guarantee that was closed in January 2002 as part of the Company’s financial restructuring.

Selected Financial Data of AWA

     The selected data presented below under the captions “Statements of Operations Data” and “Balance Sheet Data” as of and for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 are derived from the audited financial statements of AWA. The selected data should be read in conjunction with the financial statements for the respective periods, the related notes and the related reports of independent accountants.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Holdings’ primary business activity is ownership of all the capital stock of AWA and TLC. Management’s Discussion and Analysis of Financial Condition and Results of Operations presented below relates to the consolidated financial statements of Holdings presented in Item 8A and the financial statements for AWA presented in Item 8B.

Restatement of Previously Reported Amounts

     Holdings and AWA have restated their financial statements for the fiscal year ended December 31, 2001 and their unaudited financial statements for the first, second and third quarters of fiscal year ended December 31, 2002. The changes include:

—a change in the timing from the first quarter of 2002 back to the fourth quarter of 2001 of the non-cash impairment charge of approximately $39.2 million recorded to adjust the carrying value of owned aircraft to market value and the related non-cash impairment charge of approximately $64.1 million recorded to write off reorganization value in excess of amounts allocable to identifiable assets (“ERV”) that arose in connection with the Company’s plan of reorganization from bankruptcy in 1994, both of which charges were previously recorded in the first quarter of 2002; and

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— the recognition of full valuation allowances relating to Holdings’ and AWA’s net deferred tax assets.

     See Note 2, “Restatement of Previously Reported Amounts” in both Notes to Consolidated Financial Statements of Holdings and Notes to Financial Statements of AWA.

Impairment Charges

     Statement of Financial Accounting Standards (“SFAS”) No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” requires that an impairment analysis be performed whenever circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable.

     As a result of the adverse impacts on Holdings and AWA and the airline industry as a whole resulting from the terrorist events of September 11, 2001 and their aftermath, AWA performed an assessment of impairment of its owned aircraft during 2001 and again in connection with the preparation of the interim financial statements for the first quarter of 2002.

     As a result of AWA’s assessments, no impairment adjustment was recorded in the financial statements previously issued for 2001. The Company and AWA recorded an impairment charge of approximately $39.2 million in the first quarter of 2002 to adjust the carrying value of AWA's owned aircraft to reflect market values at that time. Such accounting treatment was considered appropriate at the time of the issuance of the applicable financial statements. In connection with the preparation of the financial statements and the related audit for the fiscal year ended December 31, 2002, the Company and AWA determined that the more appropriate recognition of the impairment charge of approximately $39.2 million is in the fourth quarter of 2001 rather than in the first quarter of 2002.

     In addition, SFAS No. 121 requires that goodwill that arose in a purchase business combination be allocated, and included as part of the asset base, in determining recoverability and measuring impairment. The Company and AWA did not have goodwill at December 31, 2001, but did have a significant amount of unamortized ERV. The Company and AWA have determined that a portion of the unamortized ERV balance should have been allocated to AWA’s owned aircraft in the impairment analysis performed for the year ended December 31, 2001.

     As more fully described in Note 3, “Adoption of New Accounting Standard” in both Notes to Consolidated Financial Statements of Holdings and Notes to Financial Statements of AWA, the remaining unamortized balance of ERV was written-off in the first quarter of 2002 as a cumulative effect of a change in accounting principle, upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

     The impact of the above described matters is to change the period of recognition for these non-cash costs between late 2001 and early 2002. See Note 19, “Quarterly Financial Data (Unaudited)” in Notes to Consolidated Financial Statements of Holdings and Note 18, “Quarterly Financial Data (Unaudited)” in Notes to Financial Statements of AWA.

Deferred Income Taxes

     SFAS No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, forecasts of future profitability, the utilization of past tax credits, length of carryforward periods and similar factors. SFAS No. 109 further states that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment.

     Holdings and AWA had originally reported net deferred tax liabilities at December 31, 2001. After consideration of the restatement discussed above, Holdings and AWA each had net deferred tax assets and were in a cumulative loss position for the three years ended December 31, 2001. Full valuation allowances have been established relating to Holdings’ and AWA’s net deferred tax assets at December 31, 2001, and relating to net deferred tax assets generated by losses in 2002. We expect to continue to record a full valuation allowance on future tax benefits until we return to profitability. See Note 9, “Income Taxes” and Note 19, “Quarterly Financial Data (Unaudited)” in Notes to Consolidated Financial Statements of Holdings and Note 10, “Income Taxes” and Note 18, “Quarterly Financial Data (Unaudited)” in Notes to Financial Statements of AWA.

2002 in Review

Overview

     Since September 11, 2001, the U.S. domestic airline industry has experienced an unprecedented financial crisis caused by the combination of the terrorist attacks of September 11, 2001 and soft economic conditions. In 2002, the nine largest U.S. airlines reported net losses of approximately $7.0 billion, of which approximately $1.8 billion was in the fourth quarter of 2002. Two airlines, United Airlines and U.S. Airways, have filed for bankruptcy and most other airlines have implemented cost reduction plans in order to preserve liquidity and weather the current economic conditions. Passenger revenues continue to be adversely affected by a decline in high-yield business traffic and a general decline in the demand for air travel after the terrorist attacks. The airline industry also incurred, and

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continues to face, an increase in costs resulting from enhanced security measures, aviation-related insurance and higher jet fuel prices.

     In response to these difficult industry conditions, we completed a financial restructuring, introduced a business-friendly pricing structure and lowered our cost structure during 2002. Most significantly, during the first quarter of 2002, as part of our financial restructuring, we closed a $429 million loan supported by a $380 million government loan guarantee. This loan triggered expense reductions and additional financing (primarily aircraft rent reductions and future financing commitments), resulting in a restructuring of our indebtedness and lease commitments. See Note 4, “Government Guaranteed Loan” in the Notes to the Consolidated Financial Statements. In 2002, we also eliminated base commissions on tickets issued by travel agencies in the United States effective March 21, 2002 and introduced a new pricing structure offering business travelers lower and more flexible fares on March 24, 2002. See “– Revised Pricing Structure” below. As a result of these initiatives, we believe our cash balance as of December 31, 2002 remains relatively high as compared to the average for the major U.S. domestic hub-and-spoke airlines, our year-over-year domestic unit revenue and unit cost performance was better than the industry average and our year-over-year improvement in pre-tax margin was the highest of all major U. S. airlines.

     Cost Control

     We are committed to maintaining a low cost structure, which we believe offers a significant competitive advantage over other major hub-and-spoke airlines in the United States. In 2002, we continued to maintain our position as having the lowest operating cost per available seat mile, or CASM, of all the other major hub-and-spoke airlines in the United States and remained competitive with the major point-to-point airline, Southwest Airlines. Our CASM was 8.05 cents in 2002, which included approximately $19.0 million, or 0.07 cents per available seat mile, of charges associated with our financial restructuring. Excluding these restructuring charges, we believe our CASM of 7.98 cents was approximately 24% less than the average CASM (excluding similar restructuring charges) of the other major hub-and-spoke airlines in the United States.

     In 2002, we reduced CASM, excluding restructuring charges, by 8.1%, which we believe represented the most improvement amongst the major U. S. airlines. This reduction was driven by a reduction in aircraft rents obtained in connection with our financial restructuring, which reduced rent payments by approximately $50 million per year for 2003 and each of the next six years, the elimination of base commissions on tickets issued by travel agencies in the United States and continued management focus on cost control.

     In the current industry environment, our low cost focus has been extended to capital spending and cash conservation. We intend to minimize capital expenditures and defer discretionary expenditures.

     Revised Pricing Structure

     In an effort to maximize revenue and increase business traffic, we eliminated our historic pricing structure in March 2002 and replaced it with a simplified structure, the primary components of which include reduced business fares (typically 40-75% below the walkup prices on other major network carriers), elimination of Saturday night stay requirements and more fares available on a one-way basis. At the same time, we significantly reduced the number and level of highly discounted fares available through off-tariff channels. Immediately following the introduction of the new fare structure, higher-cost competitors placed extremely low prices in our non-stop markets and Continental Airlines cancelled its long standing code share and frequent flyer agreements with us. Despite these actions, we believe our year-over-year domestic unit revenue performance has been better than the industry average each month since the new structure was introduced and the net effect of our revised pricing structure has been significantly positive to revenue.

     Customer Service

     We believe that the emphasis on customer service is essential to rebuilding our business and leisure traffic. Therefore, we are committed to building a successful airline by taking care of our customers. During 2002, we continued to build on the customer service and reliability initiatives that we first implemented in 2000. Largely as a result of our continued focus of customer service, in 2002, AWA continued to make significant improvements in a number of key areas as reported to the Department of Transportation (“DOT”):

	•		On-time performance improved to 82.9% in 2002 compared to 74.8% in 2001. In January, February and May 2002, AWA ranked first in the industry in on-time performance;
	•		Completion factor for the year was 99.0%, higher than any other year in our history;

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	•		AWA posted a 16% improvement in mishandled baggage in 2002 compared to 2001;
	•		Customer complaints to the DOT in 2002 decreased 56% compared to 2001 and are at the lowest levels since 1996.

2003 Outlook

     Despite the progress made in 2002, as a result of the continued economic environment for the airline industry, we expect to incur a significant loss in the first quarter and for the full year 2003. We believe near-term revenues will continue to be negatively impacted by the soft economic conditions and the decline in business traffic. In addition, fuel prices have remained and may continue to remain well above historical norms due to the threat of and the commencement of military action against Iraq and continued political tension in Venezuela. Although there can be no assurances, we believe that cash flow from operating activities coupled with existing cash balances and financing commitments 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, 2003. See “Business – Risk Factors Relating to America West and Industry Related Risks,” above and “Liquidity and Capital Resources,” below.

Results of Operations

     Summary of Holdings’ Financial Results

     Holdings recorded a consolidated loss before the cumulative effect of a change in accounting principle of $179.7 million in 2002, a diluted loss per share of $5.33. This compares to a consolidated net loss of $249.9 million or $7.42 per diluted share, in 2001. Including the cumulative effect of a change in accounting principle related to the Company’s adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002, Holdings’ net loss for 2002 was $387.9 million, or $11.50 per diluted share. See Note 3, “Adoption of New Accounting Standard” in Notes to Consolidated Financial Statements. The 2002 results include special charges of $19.0 million primarily related to the restructuring completed on January 18, 2002, (see Note 14, “Special Charges” in Notes to Consolidated Financial Statement) and a gain of $4.9 million related to a change in the Company’s vacation policy for certain administrative employees. The Company also recognized a nonoperating charge of $2.8 million related to the write-off of the Company’s investment in an e-commerce entity and a nonoperating gain of $8.5 million related to the federal government assistance received under the Air Transportation Safety and system Stabilization Act. See Note 15, “Nonoperating Income (Expense) — Other, Net” in Notes to Consolidated Financial Statements. The 2001 results include a nonoperating gain of $108.2 million related to the federal government assistance, an $11.0 million gain resulting from the settlement in March 2001 of a lawsuit related to an air-to-ground telecommunication system that was previously written off and an $8.8 million gain from an insurance settlement in the fourth quarter of 2001. These gains were offset by $141.6 million of special charges resulting from the impairment of ERV and owned aircraft and engines, as well as the early termination of aircraft leases and severance expenses following the reduction-in-force in 2001. The Company also recognized a $2.1 million loss related to the write down to realizable value of the Company’s investment in Book4golf.com in the third quarter of 2001. The Company recorded a consolidated income tax benefit for financial reporting purposes of $35.1 million for the 2002 period on a loss before income tax benefit and cumulative effect of a change in accounting principle of $214.8 million. The benefit is primarily due to additional carryback losses made available in 2002 as a result of the enactment of new tax legislation allowing an extended carryback period under the Job Creation and Workers Assistance Act of 2002. This compares to an income tax benefit of $74.5 million in the 2001 period on a pretax loss of $324.4 million.

     In 2000, the Company recognized net income of $7.7 million and income tax expense of $17.1 million. Diluted earnings per share for 2000 were $0.22.

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AWA

     The following discussion provides an analysis of AWA’s results of operations and reasons for material changes therein for the years ended December 31, 2002, 2001 and 2000.

AMERICA WEST AIRLINES, INC.

Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)

     The table below sets forth selected operating data for AWA.

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(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 statute 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.

     The table below sets forth the major components of CASM for AWA for the applicable years.

     2002 Compared with 2001

     AWA recorded an operating loss of $164.2 million in 2002 compared to an operating loss of $423.4 million in 2001. Loss before income tax benefit and the cumulative effect of a change in accounting principle was $219.6 million in 2002 compared to a pretax loss of $326.2 million in 2001.

     Total operating revenues for 2002 were $2.0 billion. Passenger revenues were $1.9 billion in 2002, which was relatively flat when compared to 2001. A 4.2% increase in RPMs exceeded a 1.8% increase in capacity, as measured by ASMs, resulting in a 1.7 point increase in load factor to 73.6%. The increase in load factor was offset by a 4.6% decrease in yield driven by a significant decline in business travel and the introduction of security fees paid by passengers. As a result, RASM decreased 2.5% to 7.14 cents in 2002 from 7.32 cents in 2001. Cargo revenues for 2002 decreased $6.3 million (18.5%) due to lower freight and mail volumes following the September 11, 2001 terrorist attacks. Other revenues, which consist primarily of alcoholic beverage sales, contract service sales, service charges and Mesa Airlines’ net revenues, increased $9.0 million (19.9%) due primarily to higher ticket refund and reissue penalty fees for ticketing changes.

     Excluding special charges of $19.0 million and $141.6 million recognized in 2002 and 2001, respectively, (see Note 14, “Special Charges” in Notes to Financial Statements) operating expenses decreased $146.3 million or 6.3%, while ASMs increased 1.8% in 2002 as compared to 2001. As a result, CASM excluding special charges decreased 8.1% to 7.98 cents in 2002 from 8.68 cents in 2001. Significant changes in the components of operating expense per ASM are explained as follows:

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	•		Salaries and related costs per ASM decreased 2.9% due primarily to lower average full-time equivalent headcount in 2002 as compared to 2001 despite a 1.8% increase in ASMs. A 3.9% decrease in the average number of full-time equivalent employees (“FTE”) was offset in part by a 2.9% increase in average salaries and related costs per FTE as a result of higher medical, disability and workers’ compensation insurance costs ($16.9 million).
	•		Aircraft rent expense per ASM decreased 18.5% due primarily to the reduction of rental rates negotiated with AWA’s aircraft lessors as part of the financial restructuring that was completed in January 2002.
	•		Other rents and landing fees expense per ASM increased 10.8% due primarily to higher airport rents ($7.9 million), landing fees ($5.2 million) and costs for borrowed parts ($3.6 million). A $2.5 million increase in flight simulator rents, primarily as a result of the sale and leaseback of three previously owned flight simulators in the third quarter of 2001, also contributed to the increase. These increases were offset in part by a decrease in aircraft engine rents ($1.5 million).
	•		Aircraft fuel expense per ASM decreased 14.1% due primarily to an 11.9% decrease in the average price per gallon of fuel to 73.1 cents in 2002 from 83.0 cents in 2001.
	•		Agency commissions expense per ASM decreased 49.1% due primarily to the elimination of base commissions for travel agency tickets issued in the United States, effective March 21, 2002.
	•		Aircraft maintenance materials and repair expense per ASM decreased 3.7% due primarily to lower aircraft C-Check ($12.7 million), engine overhaul ($4.1 million), airframe maintenance ($3.0 million) and engineering order ($1.3 million) expenses. These decreases were offset in part by a $12.8 million increase in the accrual for the estimated costs of maintenance required to be performed upon the return of leased aircraft and a $3.4 million increase in capitalized maintenance amortization expense.
	•		Depreciation and amortization expense per ASM increased 14.9% due primarily to higher amortization expense related to computer hardware, software and facility improvements ($8.5 million) and aircraft leasehold improvements ($2.3 million). An increase in depreciation expense related to rotable aircraft parts ($1.7 million) also contributed to the increase. These increases were offset in part by a decrease in airframe depreciation expense ($2.3 million).
	•		Upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company wrote off its balance of reorganization value in excess of amounts allocable to identifiable assets, effective January 1, 2002, resulting in a $19.9 million decrease in amortization expense in 2002 when compared to 2001. The impairment loss of $187.9 million was recorded as the cumulative effect of a change in accounting principle. See Note 3, “Adoption of New Accounting Standard” in Notes to Financial Statements.
	•		Other operating expenses per ASM decreased 2.3% to 1.64 cents from 1.68 cents primarily due to decreases in interrupted trip and baggage claim expenses ($12.0 million), professional, technical and legal fees ($10.7 million), catering ($13.3 million), advertising ($5.4 million), overnight and on-call maintenance expenses ($3.6 million), computer reservations system book fees ($3.0 million) and furnished accommodations ($2.4 million). These decreases were offset in part by higher traffic liability insurance expense ($31.2 million), the settlement in 2001 of a lawsuit related to an air-to-ground telecommunication system that was previously written off ($11.0 million) and an insurance claim ($8.8 million).