GO FOR BROKE
For well over a year, ailing America West Airlines has been scrambling to put together deals with lenders and investors worldwide. The implication is always that if America West can only get another $50 or $100 million, it will be rescued from this self-imposed disaster.
One recent proposed deal involved a $100 million infusion from Banc One, the Columbus, Ohio, giant that recently bought Valley National Bank. A deal announced Sunday promises at least $45 million from other sources. Whatever the source, America West needs the money. The airline is $1.1 billion in debt, and its money problems could have a huge impact on Phoenix and Tempe.
Some scenarios are disturbing: America West could have to scale back drastically. It could have to relocate either its Phoenix airport hub or its Tempe corporate offices to another state in order to get investment money. The airline could even go out of business.
Tempe officials say the city currently nets about $50 million a year from America West's corporate headquarters in the middle of town. That money comes from taxes and 2,500 jobs, as well as from income to shops, restaurants and hotels.
Tempe officials say they have no contingency plan in case America West pulls out or goes broke. City Councilmember Joseph Lewis points out that Chase BankCard Services Corporation is moving into town soon, which will at least cushion the blow in the event of America West's exit. Chase is expected to inject $25 million into the city's economy. But Lewis hastens to add that he's optimistic that America West will stick around.
Phoenix also has a huge stake in America West. The city is desperate to save the airline because the city assumed a $234 million debt to build Terminal Four of Phoenix Sky International Harbor Airport, mostly because America West demanded a larger facility.
This, of course, may explain why Mayor Paul Johnson recently begged industries such as Motorola to kick in millions to help salvage America West. (Like so many other deals to save the airline, this one hasn't gone through yet.)
What would happen if America West pulled out of Terminal Four, or at the very least flew a much smaller fleet of planes in and out of Phoenix?
First off, says Phoenix finance director Kevin Keogh, the airport's other income would cover bond payments. But the city would probably have to close Terminal Two and move all other airlines into Terminals Three and Four, he says. The city would have to at least try to lease the space in Terminal Four that America West would vacate, and, although no one will say to whom, the likely occupant for at least some of the space is Southwest Airlines, America West's profitable rival.
Some people paint a gloomier picture. If America West were to scale down or go out of business completely, the airport would suffer a serious and long-term reduction in traffic, says Michael Roach, a former America West executive who now is an advocate for shareholders critical of the airline's management. A reduction in traffic, says Roach, is a reduction in revenue for the city. Phoenix airport officials would not be able to scale down their operations proportionately to the size of the loss of the rent and fees America West has been paying in--about $23.7 million last year.
Both Phoenix and Tempe have "fared poorly" by putting their faith in America West back in the 1980s, according to a 1992 report prepared for the Employee Owners Corporation of America West, the employee group bitterly complaining about the airline's management. The report says the cities have been misled in believing that America West would be a thriving enterprise.
Airline analysts have long said that America West's problems stem from an ego-driven management that allowed the company to expand too quickly. Ed Beauvais and Mike Conway founded the airline in 1983 and expanded it ninefold from 1984 to 1990. By 1991, the airline had filed for Chapter 11 protection in U.S. Bankruptcy Court in Phoenix.
The year before America West plunged into bankruptcy, Beauvais earned $1 million in salary and benefits--more than twice what most other airline CEOs earned that year. At the same time, rank-and-file America West employees were among the lowest-paid in the industry. (Beauvais was forced out last month.) Employees were told that their low pay would be compensated by their mandatory ownership of shares of America West stock. Now that stock is barely worth the paper it's printed on.
The notion that Banc One might pour cash into America West leads some to speculate whether the airline will move its corporate offices or its flight hub, or both, to Columbus, Ohio.
The airline management refuses to comment on a possible Banc One deal, but it does say that it is committed to staying in Phoenix.
America West spokesman Mike Mitchell does say America West is building a smaller hub in Columbus and hopes one day to have a hub the size of Terminal Four in the Ohio city.
Could the airline, with its myriad financial woes, maintain two huge hubs in two different cities?
This would be a few years down the line, says Mitchell.
"We've heard those rumors [about moving to Columbus], but we've stated very strongly that we have no intention of moving our hub," says Mitchell. "We don't have any intention of moving out of Phoenix."
Of course, just two weeks before the company filed for Chapter 11 protection, it publicly announced that it was not in danger of filing for bankruptcy.
NO OFFENSE AND THAT'S THE PROBLEM. AMERI... v8-05-92
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