America West Airlines emerged from a three-year stay in Bankruptcy Court on Thursday, marking the first time this decade when all of the nation's major carriers are flying free of federal bankruptcy proceedings and protections.
America West Chairman William Franke announced that the 11-year-old carrier had emerged from its Chapter 11 reorganization with the closing of a $244.9-million cash-and-loan investment from AmWest Partners, which includes Ft. Worth attorney David Bonderman, Continental Airlines, Mesa Airlines and mutual fund giant Fidelity Investments.
Principals from the Phoenix-based airline and Dallas-based AmWest Partners signed closing documents to complete America West's reorganization, which had been approved Aug. 10 by U.S. Bankruptcy Judge Robert Mooreman.
"This marks the end of a three-year journey through Bankruptcy Court that was sometimes tumultuous," Franke said.
However, America West must still compete against the likes of low-fare carriers such as Southwest Airlines and Reno Air. In addition, United Airlines' plan to launch low-fare service along the West Coast in October could also put more pressure on America West fares and profits, industry analysts say.
"America West has shrunk to a level where it's not bleeding red ink, and its near-term outlook is OK," analyst David Hoppin said. But the beginning of a costly West Coast fare war "would be bad news."
The victim of a costly overexpansion and a deep industry depression, America West was one of six major airlines that flew under Chapter 11 protection this decade. Three of those carriers--Pan American World Airways, Eastern Air Lines and Midway--failed in 1991. Continental and Trans World Airlines emerged from bankruptcy protection last year.
AmWest Partners' investment includes $114.9 million in stock purchases and up to $130 million in loans.
The deal gives the group 33.5% of the common stock and 71% of the voting shares. The reorganized company's Class B shares will begin trading on the New York Stock Exchange today. Continental will own 4.1% of America West under the deal, but both airlines will remain independent. However, both airlines plan to market each other's flights, beginning with 29 destinations Oct. 1.
The reorganization has raised the ire of many America West employees, who have endured a 10% wage cut, layoffs and substantial losses in the value of their old company shares. Most of the airline's employees were required to purchase stock under the terms of employment.
Judge Mooreman said he had received about 671 letters from employees protesting what they saw as the inequity in proposed bonuses. America West wants to hand out an estimated $2.7 million in cash and stock bonuses to 30 executives and managers. Non-management employees will split $9.5 million in bonuses, with the maximum $1,000 bonuses going to those who have worked full-time since before the airline filed for Chapter 11 protection on June 27, 1991.
Lawyers for America West, its creditors and AmWest Partners argued that employees will be given competitive wages after America West leaves Bankruptcy Court.