America West to Suspend Payments on Its Plane Leases

In another attempt to stop the drain on its cash reserves, America West Airlines said Thursday that it planned to defer lease payments on its fleet.

Although some analysts contend that the move is an effort to stave off bankruptcy, the airline denies that it is on the verge of such action and emphasized that there would be no disruption of its flight schedule. Neither passengers nor travel agents would be affected, the carrier said.

“We are not near bankruptcy,” said Edward R. Beauvais, chairman and founder of the Phoenix-based carrier, which is one of the last remaining airlines created after the industry’s deregulation a little over a decade ago. “This is a strategic move to build adequate cash (reserves) so we can be in a sound financial condition in the last half of 1991.”

Nevertheless, Edmund S. Greenslet, managing director of Airline Capital Associates Inc. of Ponte Vedra Beach, Fla., said Beauvais might be somewhat overconfident.

“I don’t find this action surprising. America West has been under financial pressure,” Greenslet said. “It has been widely rumored that bankruptcy is in the wind, and they are trying to restructure their debt without going into Chapter 11. This a financial alternative to bankruptcy.”

America West, which flies 115 aircraft and employs 15,000 workers, has been making efforts to conserve its cash and improve its cash flow for some time.

Last month, it reduced unrestricted coach fares by up to 40% in what it hoped would increase the number of its passengers by 5% to 15%. Earlier this year, it conducted a three-day promotion cutting fares in half. It also began selling books of discount tickets for travel in California to raise cash, and it cut executive salaries by 10% to 25% earlier this year.

The fear that America West might be on the verge of bankruptcy is hardly surprising in light of industry conditions. The major dip in business resulting from the Gulf War, higher fuel prices and the economic downturn finds some other airlines already in major difficulties. Eastern Airlines was liquidated earlier this year; Pan American World Airways, Continental Airlines and Midway Airlines have filed for bankruptcy protection. Trans World Airlines, though not bankrupt, has stopped paying most of its creditors.

But the nation’s two largest carriers--American Airlines and United Airlines--Thursday reported healthy increases in traffic in May, signaling that the slump may be over for some.

Since the Aug. 2 invasion of Kuwait by Iraq, America West had suffered a gap of $200 million between projected profits and the actual losses, said Beauvais, who founded the airline in 1983 with three aircraft.

Under its proposal to suspend leasing payments, Beauvais said that only aircraft leasing companies were involved and that all payments to America West’s vendors would continue. The accord would entail a three-month deferral beginning in June, and the payments would resume with interest no later than next January.

Beauvais said that if the payments are deferred the entire three months, $75 million in payments would be delayed.

Beauvais said the action was necessary because negotiations with other aircraft leasing companies, though under way, had not been completed. These leasing companies, he said, would provide new planes, paying cash rebates to the airline for the business.

During the first quarter of this year, America West, which is 20% owned by Ansett Airlines of Australia, suffered a loss of $49.9 million, compared to a loss of $2.6 million in the year-ago period.

In hopes of gaining a foothold in the Eastern market in 1989, America West tried to buy Eastern Airlines’ shuttle from the bankrupt carrier. The shuttle flies the busy corridor between New York and Washington and New York and Boston. But it could not raise sufficient cash and was outbid by financier Donald J. Trump.

Times staff writer Denise Gellene in Los Angeles contributed to this story.

America West at a Glance

* Headquarters: Phoenix

* Chairman: Edward R. Beauvais

* Employees: 15,000

* Established: Aug. 1, 1983

* Fleet: 115 planes

* Destinations: 51 cities in United States, two in Canada and one in Japan

* 1990 financial performance: $74.7-million loss on $1.32 billion in revenue

Source: America West Airlines