An old college textbook seemed inconsequential when Doug Combs happened upon it about two years ago. Nonetheless, he thumbed through the book on economics before throwing it away.

By chance the veteran America West pilot's eye alighted upon one sentence that gave him pause. Buying stock in a company, it said, is effectively the same as casting a vote of confidence in that company's management.

Well put, Combs thought. He promptly went out and sold his shares of America West Airlines. Within months, Combs' employer confirmed his prescience by filing for bankruptcy protection.

More than 15 months later, the confidence of many like Combs, who still flies for America West, remains tepid as the battle to salvage Phoenix's largest hometown carrier continues.

Last month Governor J. Fife Symington III--who had initially offered the airline a cold shoulder when it hit the skids--marshaled some of the state's most prominent businessmen and announced that the Phoenix financial community was willing to cast an $8 million vote of confidence in the beleaguered company.

Ten businesses--including three banks, the local daily newspapers, the Phoenix Cardinals, the Phoenix Suns, an America West landlord and three corporations--joined with the state Commerce and Economic Development Commission to lend the $8 million to America West as part of a $53 million cash bailout.

Their help was secured by William Franke, the man Symington asked to lead the money-raising drive. In return for his help, Franke was installed as chairman of the America West board of directors at an undisclosed salary.

A rash of news stories, gentle on the hometown airline, hailed the new financing as a "fresh start" for America West. Symington called it "a financial package which assures the airline a strong chance of emerging from Chapter 11 and a return to profitability."

Franke was cast as a late-arriving savior, skilled in nursing distressed companies through troubled times.

But for tens of thousands of employees, stockholders, investors and creditors who have money and jobs on the line, the questions that have outlived the hoopla remain grim.

Does the latest deal truly breathe new life into the company, or does it merely prop up the carcass a little longer?

With 10,000 jobs and a billion-dollar annual economic impact at stake, they are reasonable questions. The answers leave little room for solace. The company's fate remains as murky now as it did when it filed Chapter 11.

Franke hopes the financing will buy the airline enough time to fight its way back to profitability, attract new investors and emerge from bankruptcy-court protection.

But some observers and analysts doubt that. They wonder what the airline has been doing for the past 15 months if it still needs to be propped up while devising a plan to make money.

Few dispute that the financing package saved America West for the moment. The airline was within days of shutting down when the deal closed, one company official told the bankruptcy court.

But how much time has it managed to buy?
Behind the public veneer of confidence crafted by Symington, the airline and its boosters, lie some troubling realities that have been scarcely reported.

More than half of the $53 million in new cash lent to America West immediately turned around and went straight back out the door, much of it to the very companies that had lent the money in the first place. Only about $20 million of it stayed in the airline's bank account to help the company pay its other bills.

Franke's luster as an old hand skilled at turning around troubled companies fades under scrutiny. He has served on the boards of companies embroiled in financial disaster. But in the most prominent instances, he was on those boards as the decisions were being made that led to the disasters, and he did not necessarily play a large role in fixing the problems that came to pass. The last large company Franke actually ran, Southwest Forest Industries, lost $100 million in ten years before it was sold.

However much time Franke and the new financing manage to buy the airline, after 15 months in bankruptcy, America West has yet to make fundamental decisions about what size and type of airline it will be, decisions that all parties agree are crucial if the company is to attract new investors.

Despite Symington's public optimism--and willingness to share the spotlight in announcing the latest round of financing--the state has actually done little of substance to help the airline. It has chipped in $1 million from the Commerce and Economic Development Commission and cut aviation fuel taxes enough to save America West about $880,000 in the next year. Those efforts pale in comparison to what other states, most notably Minnesota, have done to save their local airlines, pouring in hundreds of millions of dollars to bring them back to health.

Doug Combs is not yet ready to cast a vote of confidence in his employer's future. "I don't know anyone who isn't keeping their options open," he says.

@body:Businesses run on cash, and airlines require a lot of it, every day. Wages, fuel, rentals on planes, repairs and so on require airline companies to stay current on myriad obligations if they want to keep their planes in the air.

Presumably, the latest round of emergency financing will help America West by giving it cash in hand to keep daily operations going.

But more than half of the heralded $53 million of new financing barely settled in America West's checkbook before it was headed out again, much of it back to where it came from.

Of the $53 million, $45 million came from Ansett Worldwide Aviation of Australia and GPA Group Ltd. of Ireland, which together lease 27 airplanes to America West.

Altruism was not the compelling motive for the two companies to open their wallets, analysts note. If America West goes under, each company will get its airplanes back. The odds of finding someone else to lease or buy them are slim in a reeling industry.

In the past few years, Pan American, Eastern, Midway, People's Express and Braniff have gone under. America West, Continental and Trans World Airlines are in bankruptcy.

At a time when even new aircraft are ending up in desert storage lots for lack of buyers, the two companies have tremendous incentives to keep America West alive.

"If the leasing companies get the aircraft back, they're going to have to put them in the desert," says Seymour Licht, an engineer who has invested roughly $90,000 in America West bonds. "They're going to have to pay insurance. They're going to have to pay maintenance. Aren't they better off having America West fly them? Aren't they better off having America West pay the insurance? . . . They will do anything and everything to keep [America West] from going under."
Besides, Ansett and GPA each immediately got back a chunk of the money they lent. America West paid approximately $17 million of it to the two companies to catch up on overdue lease payments.

Scott Hamilton, an airline analyst with Dallas-based Commercial Aviation Report, says he estimates that GPA received between $10 million and $12 million and Ansett somewhere in the neighborhood of $5 million.

Another $10 million of the financing was used to pay a loan due to Northwest Airlines from an earlier emergency financing deal.

And another 1 percent of the money, or $530,000, went back to all lenders as a "facility fee" for making the loans available, according to court records.

Finally, undisclosed amounts were paid to the legion of lawyers involved in putting the deal together, although the totals are not detailed in the court records.

One firm that was paid an unknown amount was Snell & Wilmer. The firm's Dick Mallery, one of Symington's closest informal advisers, represented the Phoenix lenders putting up the $8 million.

According to one attorney directly involved in the financing deal, Snell & Wilmer's fees were so substantial that they caused "friction" in the closing days of the negotiations.

But Mallery and Franke denied that Snell & Wilmer's fees were out of line, although neither would say how much the firm was paid.

"Concerns were raised about several of the fees, and I wouldn't want to pick on one or the other," Franke says.

Mallery, while he would not disclose numbers, dismissed any wonder about how much his firm was paid as meaningless "rumor."

Whatever the case, by the time everyone took his money, the $53 million that America West appeared to receive shrank substantially.

"By the time you get through with it, there's very little money that goes to America West for operating purposes. Almost all of it simply pays off existing debt, so you take the debt out of pocket A and put it in pocket B," says one Phoenix attorney familiar with airline financing. "They're sort of flying on funny money in that sense, because the money's not there. This is not new money that can be used for payroll or office expenses or aviation fuel or whatever."
All told, in terms of actual cash to put in the bank, America West only received "in the $20 million range," Franke confirms. But skeptics, Franke says, overlook the fact that the airline also received $140 million in concessions from creditors who agreed to do things like lower rents or interest rates, effectively chopping away at the airline's fixed costs.

Another $8.2 million, he points out, came into the company's bank accounts from advance ticket purchases that area companies have agreed to make.

"That's a significant amount of money," Franke says. "[And] if you take the $140 million of future benefits that began immediately, that produces more cash each month the airline stays in existence over what it would have been but for this financing. I think it's important to keep all of this hinged."
Some analysts, however, question the significance of the cash inflow.
"The cash coming in, that doesn't change the company one bit, other than it allows them to keep operating," says Glenn Engel, an analyst with Goldman Sachs in New York. "I guess what America West is hoping for is to hang on long enough for fundamentals to improve."
Skeptics point out that the company needed the newest round of cash because it had already sucked up $78 million in cash and more than $100 million in concessions from a previous financing package, and still wasn't showing a profit.

Effectively, what the company did last month was take out a second round of mortgages on the few assets it has left. Much more, however, will be needed to bring the airline back into the black, analysts and observers say, and there is little left to mortgage.

"When America West went into bankruptcy, there was $200 million of unencumbered assets on the balance sheet that I, as a bondholder, could look to for recovery," says investor Licht. "Now there's nothing. They're wiped out. They don't have a single asset that they look to, they own, that they can sell. Everything is mortgaged up to the hilt."
As a result of the two rounds of emergency financing, the airline has already acknowledged that bondholders like Licht and stockholders--many of them airline employees who were required to buy shares in the company--are almost certain to receive nothing for their investments if the airline successfully reorganizes.

Instead, the companies that have lent America West money since it went into bankruptcy are now first in line to be paid if the company becomes profitable, or to pick the carcass if it dies.

Hopes that the latter will not come to pass have now largely--and quite publicly--been placed in the hands of Symington's money raiser, William Franke.

@body:For the moment, the silver-haired Franke enjoys a general reputation as the wizard who could save America West. His standing is unique in a state where countless would-be business magicians sawed their own companies in half during the past decade.

Franke has emerged from the economic carnage with his reputation relatively unscathed. In fact, of the "Ten Most Powerful Individuals in the State" named by the Arizona Republic in 1981, only Franke made the list again in 1991. Most of the others had by then presided over some of the state's largest financial disasters.

Attorneys and officials for many of America West's creditors say they only know about Franke what they have read in the paper. (Franke sits on the board of directors of Central Newspapers Inc., owners of the Arizona Republic and Phoenix Gazette, which pitched $550,000 into the financing package.)

But that hasn't stopped some from being effusive in their praise.
"Bill Franke's got a reputation for saving companies that are in dire straits," says Richard Delafield, chairman of the equity creditor's commitee for the bankruptcy. "He's Symington's man and that's good enough for me."
Unmentioned in the celebration of his ascension at America West has been Franke's service in various capacities at four of the state's largest companies--Southwest Forest Industries, Circle K, Phelps Dodge and Valley National Bank--as they spiraled into the financial problems from which they ultimately had to be saved. Southwest Forest was sold, Circle K remains in bankruptcy attempting to reorganize and Phelps Dodge and Valley National Bank pulled out of their financial tailspins.

Depending on the definition, Franke's touch has not always been golden.
From 1975 to 1987, Franke presided over Phoenix-based Southwest Forest Industries, first as president and then as chairman and chief executive officer of what was once the state's only Fortune 500 company.

The biography on Franke handed out by America West Airlines after he was named board chairman notes--and the Arizona Republic dutifully reported--that the company's revenues tripled during Franke's tenure.

But the company also suffered $100 million in losses during Franke's years there, according to press accounts from the time. After profitable years in the late 1970s, the company undertook an expensive expansion just as the housing and paper markets--the company's twin pillars--took a dive.

By 1986 one analyst called Southwest "one of the most inefficient paper companies in its industry." The troubled company rebounded some after that assessment, but ultimately was sold to Stone Container Corporation after losing money for four of the last five years of its existence. Franke's "golden parachute" at sale was worth up to $792,000, according to news reports at the time.

In context Franke says his years at Southwest Forest were a success. The company always had a positive cash flow, he says, and sold for a good price at the end. Events beyond his control--recession, paper markets and the like--hurt Southwest Forest, he says.

Others at the time, however, cited overambitious expansion and too much debt for Southwest's woes--the very same problems that have landed America West in its current state.

Even Franke, describing Southwest now, offers a characterization that fits America West Airlines today as much as it did Southwest Forest Industries in the mid-1980s.

"[Southwest] was fairly confused, had trouble identifying its mission," he says now. "It went through some extremely difficult times. We had to do a lot of surgery on that company and redefine its mission."
However history judges his tenure at Southwest Forest Industries, Franke went on to a career as a sort of corporate circuit rider, serving on the boards of many of the state's largest companies. He also formed his own financial consulting firm, Franke and Company.

The 55-year-old has developed a reputation as a corporate troubleshooter, and prides himself on it.

"I don't really view myself as one of those hired gun, turnaround guys," Franke says. "I view myself as someone who has a pretty good practical sense, and I have over the years developed reasonably good people evaluation skills and planning skills."
Franke himself cites Circle K, Valley National Bank and Phelps Dodge as evidence of his turnaround acumen. Despite the general impression of recent news reports that Franke was called in to help each of the troubled companies, however, in all three cases he was on the scene as the troubles developed, and did not necessarily have a major hand in repairing them.

Franke joined the board of directors of mining monolith Phelps Dodge in 1980. In the next few years, saddled with high production costs and low worldwide copper prices, the company reached the point where it was losing $25 million a quarter.

In 1984 the company was forced to remake itself to survive, slashing costs and diversifying. Franke did not help draw up the restructuring plan, according to Phelps Dodge spokesman Tom Foster, although he did sit on the board of directors that approved it.

Similarly, Franke joined the board of Circle K in 1984, six years before the company filed for bankruptcy protection, and sat while the convenience-store chain undertook a highly leveraged rapid expansion that ultimately brought it down.

After the company filed for Chapter 11 protection, from which it has yet to emerge, Franke was named to head the special committee charged with reorganizing the company.

At Valley National Bank, Franke was instrumental in helping the bank hire a new president in late 1987 and early 1988. But the process was merely a change of leadership, not a restructuring as some press accounts have reported.

The bank did later hit financial troubles, its worst year coming in 1989, and Franke sat on the board as managers tried to turn the bank around. He left the Valley National Bank board in 1991.

Through his web of directorships, and as president of his own company, Franke naturally has helped himself while helping others. According to a 1990 statement of his income, Franke was earning more than $9,000 a month at the time in director's fees, in addition to a salary of more than $40,000 a month from his company, and investment income from $1.2 million in stock holdings.

Now Franke finds himself tapped by Symington to preside over another troubled company, America West. His greatest accomplishment to date has been using the personal contacts he built during the years to drum up the $8 million from Phoenix investors.

The benefit of the money Franke raised is slight given the enormity of America West's financial problems, parties to the bankruptcy agree, although the psychological payoff is helpful.

"Obviously, in terms of the dollar impact on the operations of the airline, you wouldn't call it major," says Mark Nadeau, an attorney for equity holders in the bankruptcy. "But in terms of what it signifies to other potential investors . . . it is a significant contribution."
Only with substantial investment, perhaps as much as $100 million in new money, will the airline make it out of bankruptcy, analysts say, and a show of hometown support shouldn't hurt.

(That same thinking is partially responsible for a recently launched Phoenix Chamber of Commerce campaign encouraging local businesses to book their travel on America West.)

But boosterism aside, Franke and America West president Mike Conway need to find real cash, lots of it, if the airline is to survive, and that task will not be accomplished on hoopla alone.

@body:Hanging in a frame in the reception area outside Franke's new office is a tee shirt from happier times at America West, when the company was aiming to serve places like Japan, Mexico, New York and many others. It proclaims, "We're in the Majors Now."

But they're in bankruptcy now, and have no apparent plan for getting out.
Inevitably, America West's woes lead to comparisons with Dallas-based Southwest Airlines, which piled up record profits, serving many of the same markets, while America West careened into bankruptcy.

Southwest, in fact, can even claim to have taken over America West's home base, since it now carries more passengers in and out of Phoenix Sky Harbor International Airport than America West does.

What Southwest did, analysts and observers agree, was expand intelligently. America West, meanwhile, stacked debt atop debt in the 1980s trying to become an instant mega-airline like American or Delta by continually stretching itself farther and farther across the country.

Southwest was content to stay small, when viewed in the context of national airlines, but to become dominant in the markets it did serve.

Even after filing bankruptcy, America West opened a hub in Columbus, Ohio, which has yet to make money, to some an unthinkable example of the airline's grandiose, but flawed, vision.

"Southwest is small but critical in the markets they serve," says Goldman Sacks analyst Glenn Engel. "America West seemed focused on getting bigger everywhere rather than focusing its resources on a few places and being important. It seems more like they were building an empire than a system."
Southwest, in short, had a solid business plan. America West didn't. It still doesn't.

Remarkably, critics say, even after more than a year in bankruptcy, the airline has yet to define the new mission that virtually everyone agrees is crucial to its success. Will it be a no-frills airline like Southwest, banking on profits from lots of flights with low fares? Or will it be a full-service carrier serving longer routes and offering more amenities than Southwest?

"The thing we need to put our focus on is what is the mission of this airline," Franke says. "It's grown so rapidly, and it's done so at the expense of its balance sheet. I'm not sure management and the marketplace know what we are. If you were to walk out here and ask several people what is this airline, what is its objective and its mission, I suspect you'd find some difficulty getting an answer to that question."
Now the airline is a mishmash of national and regional service, analysts say. Since entering bankruptcy it has cut some service--including the Japan junket--but added other routes. It has lowered its operating costs, including freezing and cutting salaries. It is now in the process of cutting its airline fleet from 102 planes to 86.

While those moves have helped, Franke says, the airline has spent its time jumping from crisis to crisis and has yet to devise a master scheme for survival.

"My impression here is that it's like a fire brigade," Franke says. "Every day, everybody comes down here . . . and they load up the water buckets and assign people to the nearest fire."
Much of the blame for the airline's problems has been assigned to co-founder Ed Beauvais, who resigned as chairman of the board in July. Mike Conway, the other architect of America West's ill-fated growth spree, remains as the airline's president and chief executive officer.

Several critics have called for Conway's head, saying the airline needs a clean sweep of top management if it is to shed the flawed mission that led it into trouble.

"[Conway] and Beauvais saw eye to eye for so many years. They were interchangeable in my view," says analyst Engel.

But Franke says Conway's continued presence is necessary for the airline.
"I need Mike Conway, and the airline needs Mike Conway. He has tremendous background in this company, was one of the founders, knows intimately the details and the people," Franke says. "Having said that, any management, and that includes me, is subject to performance. . . . Nobody down here has an insurance policy."
Until it can devise a master plan, the airline will have trouble attracting the up to $100 million in cash it will need to emerge from bankruptcy, most everyone agrees.

Scarier still, lacking a plan and new investment, America West remains vulnerable, riding the unpredictable currents of bankruptcy. Hikes in fuel prices, renewed fare wars or untold other outside forces could snag America West and drag it under for good.

"How much time will this buy them?" asks Scott Hamilton of Commercial Aviation Report. "That is something that can't really be predicted. America West's future has to lie in new equity investment coming in. [Its] near-term survival is dependent on events that are largely out of their control."
Other governments have gone further than Arizona in their eagerness to save or attract the payrolls and economic benefits of airlines. Minnesota came up with $800 million to boost its hometown carrier, Northwest Airlines. Denver offered $600 million in aid for a United Airlines maintenance facility that was eventually built in Indiana, and Texas extended millions in tax breaks for American Airlines to build a new maintenance facility in that state.

Absent genuine state aid, what Symington's administration has offered America West is the $1 million in economic development money, a cut in aviation fuel taxes, a lot of cheerleading and William Franke.


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