America West's Forecast: Hope Amid the Clouds : Low Labor Costs and Enviable Routes May Help Airline Survive

By ROBERT E. DALLOS

June 29, 1991 12 AM PT

TIMES STAFF WRITER

Despite growing signs of deep financial trouble, America West Airlines Chairman Edward Beauvais spent most of June vehemently denying that his once fast-growing carrier was about to land in bankruptcy court.

But late Thursday in Phoenix, where the airline is based, there were no more denials, only a brief statement that America West had filed for Chapter 11 bankruptcy protection.

The airline will continue to operate under bankruptcy protection, but a high level of debt and a shortage of cash mean America West faces a tough fight to survive in the long run, according to industry observers.

However, some analysts say America West has many things working it its favor. “They have a decent route structure and a motivated work force,” says Edward Starkman, airline analyst with Paine Webber. “If they can get some fresh money, they have a good shot at emerging from Chapter 11.”

Paul Turk, airline analyst with Avmark Inc., an Arlington, Va., consulting firm, said America West’s high quality service and the fact that its labor costs are the second lowest in the industry will also give it a fighting chance.

Such optimistic views will soothe a long line of jittery creditors, including New York ad agency Rosenfeld, Sirowitz, Humphrey & Strauss, which concocted the airline’s Gen. Norman Schwarzkopf look-alike promotional campaign. The agency is owed $2.2 million, making it the airline’s largest unsecured creditor.

The airline’s emergence from bankruptcy court will be of particular concern to its 15,000 employees, who collectively own 30% of the company. America West policy requires newly hired workers to buy company stock, which has fallen from nearly $8 a share earlier this year to $2.50 Friday in over-the-counter trading.

America West, the nation’s ninth-largest carrier and one of the last surviving airlines founded since deregulation of the industry, blamed high fuel costs touched off by the Gulf conflict and reduced business resulting from the U.S. recession for pushing it over the brink.

Beauvais has also charged that Dallas-based Southwest Airlines used predatory pricing to put America West out of business. Southwest has continually denied the charges.

But industry analysts point out that the airline was struggling under $815 million in debt. Last year, America West shelled out $60.7 million in interest payments--one of the highest debt burdens in the industry.

Furthermore, the airline was burning up its badly needed cash reserves. According to its bankruptcy filing, America West saw its cash on hand fall from $155.5 million on March 1 to $19.7 million three months later.

Scott Hamilton, editor of Commercial Aviation Report, a Dallas-based newsletter, noted that the airline had only about $15 million in unrestricted cash on hand as of Thursday when it filed for bankruptcy. He said that cash flow becomes ever so much more important now because suppliers, such as fuel and catering vendors, require cash on delivery. Under a Chapter 11 bankruptcy proceeding, airlines may continue operations so long as they pay their current debts.

“If they have a positive cash flow,” said Hamilton, “they can survive for a while. If their cash flow is still negative, I can’t see how they can survive for very long at all.”

The cash-strapped carrier said several weeks ago that it would suspend $25 million in payments on monthly leases to the owners of its aircraft. Later, the airline suspended payments on some bonds and reportedly was prepared to ask the states of Arizona and Nevada for financial assistance. Most of the airline’s workers are located in both states.

About two weeks ago, Chairman Beauvais said negotiations were under way to obtain a massive loan. But it was learned that an attempt to get $120 million in financing collapsed and so did negotiations with creditors. Late Thursday about 100 creditors met in Phoenix with America West and precipitated the filing.

Even the carrier’s last-minute attempts to salvage its image failed.

On Friday, the carriers’ best attempts to put on a good face turned sour. Consumers Union, publishers of Consumer Reports magazine, said that America West appeared to violate the group’s “no commercialization” policy by issuing press releases on Thursday and Friday touting a favorable review in the publication.

“They are not supposed to do that,” said spokeswoman Rana Arons. “We are investigating.”

Staff writer Denise Gellene in Los Angeles contributed to this story.

Public Airline Bankruptcies

Airlines filing bankruptcy petitions:

America West Airlines: 6/27/91

Midway Airlines: 3/25/91

Pan Am Corp.: 1/8/91

Continental Airlines: 12/3/90

CCAIR Inc.: 7/5/90

Presidential Airways: 10/26/90

Braniff Inc.: 9/28/89

Eastern Air Lines: 3/9/89