America West conserving cash; analyst optimistic

Thursday, Nov. 8, 2001 | 10:56 a.m.

America West Airlines, the No. 2 air carrier serving Las Vegas' McCarran International Airport, has stopped making lease payments on some of its jets as part of a plan to avert bankruptcy.

The Tempe, Ariz.-based carrier, which now has 78 daily operations at McCarran after cutting flights in September, said in documents filed with the Securities and Exchange Commission that some of its lessors have sent default notices to the company. That, the SEC filing says, could lead to other defaults and foreclosures against the company's collateral.

"In the event of any such acceleration (of debt) or foreclosure or if we cannot obtain sufficient financing, we may be forced to file for bankruptcy protection," the filing says.

Separately, America West's chief executive officer, Doug Parker, told a transportation conference in New York on Tuesday that he doesn't expect revenues to rebound to pre-Sept. 11 levels anytime soon.

Reuters reported that Parker said the airline was losing $1 million to $2 million a day but that the company hopes to increase capacity by 10 percent in 2002. Following the terrorist attacks of Sept. 11, America West cut schedules by about 20 percent, although the reductions were not as severe for Las Vegas, where 10 flights were eliminated.

Credit rating agency Standard and Poors last month identified America West and US Airways as the two airlines facing the biggest threat of failure because of the slowdown in air travel after the terrorist attacks.

But another airline expert says he expects America West will be able to negotiate agreements with lessors that will keep it out of bankruptcy court.

Mike Boyd of the Boyd Group, Evergreen, Colo., said the company is in a position to bargain with the lessors, since there isn't an active market to acquire the kind of planes America West would be willing to lose.

"For these leasing companies, any airplane they have today they want to keep flying," Boyd said. "So they're going to be willing to (negotiate) some reductions."

Boyd said there aren't many airlines in the market to acquire aircraft and those that are probably aren't interested in the Boeing 737-200 jet, one of the least fuel-efficient aircraft in the America West fleet. The company has 14 737-200 jets in its fleet.

Southwest, United and Frontier Airlines are removing that jet type from their respective fleets.

America West has not identified which lessors it has not paid or which planes they lease.

Boyd said he doesn't think America West is a likely takeover target at present because none of the likely suitors is in a financial position to pull off a deal.

"Mergers are mentioned frequently in cases like this," Boyd said, "but it's an expensive proposition. It's not just a matter of buying somebody out, but all the other expenses that go with a merger.

"Northwest Airlines, for example, might be a good fit in terms of the route structure, but the cost of putting employees and equipment together is obscene," he said.

Still, some experts say the airline industry could be in for a major shakeout.

The Wall Street Journal reported this week that most of the biggest industry players are suffering losses that won't be cured by Washington's $5 billion bailout and that the only way out could be for some of the nine major companies either to file for bankruptcy protection or merge operations.

But Boyd said: "The name of the game for airlines today is to conserve cash. I think America West will probably be able to get through this."

He added that any reductions by the airline would hurt Las Vegas because "it would be very difficult (for another airline) to replace that capacity."

America West lists other risks to its business in its SEC filing. The company warns that competition with low-fare carriers like Southwest, upcoming tough negotiations with labor unions, fluctuations in fuel costs, the downgrading of its credit rating and the overall condition of the economy could hurt the company.

Last week, America West reported a $31.7 million loss, 94 cents a share, for the quarter ending Sept. 30, despite receiving $60.3 million in a federal airline aid package, a performance that disappointed analysts.

But the airline did have some good news Tuesday.

The company reported improvements in Department of Transportation operating and customer service statistics over last year, including the categories of on-time performance, flight cancellations and baggage handling.

The company also has reported that customers are gradually coming back after the downturn produced by the Sept. 11 attacks. While capacity is down and customers are taking advantage of cut-rate fares, the percentage of filled seats is climbing back toward pre-Sept. 11 levels.

In the last week of October, America West's loads were at about 71 percent, up from 53 percent immediately after the attacks. Between July 1 and Sept. 10, planes were about 78 percent full.