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Rating Action:

MOODY'S DOWNGRADES DEBT RATINGS OF AMERICA WEST AIRLINES INC. (SR. IMPLIED TO B2)

19 Apr 2001
MOODY'S DOWNGRADES DEBT RATINGS OF AMERICA WEST AIRLINES INC. (SR. IMPLIED TO B2)

Approximately $772.4 Million of Debt Securities Affected.

New York, April 19, 2001 -- Moody's Investors Service downgraded its senior implied rating of America West Airlines, Inc. (AWA) to B2 from B1 and its unsecured debt rating to B3 from B1. All classes of unsupported Equipment Trust Certificates were downgraded by one notch. The rating actions consider that despite recent improvement in its operating performance, AWA continues to face business challenges and the potential exists for continued earnings and cash flow pressures due to declining yields and a cost structure under pressure from operations and fuel expenses. The rating outlook is negative. The negative outlook anticipates that debt protection measurements are likely to remain constrained due to operating cash flow pressures from the weakening economic environment.

In its rating action, Moody's recognized that AWA has been an effective low cost carrier well positioned in Phoenix and Las Vegas. Moody's also recognizes that AWA has been somewhat successful in its efforts to rebuild customer satisfaction and that operations and customer service have improved since service problems of mid-2000. Despite a $12.8 million loss in the first quarter where cost per available seat mile excluding fuel and tax increased modestly, operating revenues were up 4.4% to record levels, and operating performance generally improved. The losses in the first quarter reflect the impact of high fuel prices and a decline in yields related to business travel slowdown rather than weakening airline operations. Additionally, the company's cost saving initiatives, including a $75 million reduction in the company's annualized expense budget over the next year and the deferral of approximately $25 million in capital projects in 2001 should help AWA in its efforts to improve cash flow over the near term.

Nonetheless, Moody's believes that in a weaker economic environment, it will be difficult for AWA to return to historical levels of profitability. Despite the announced cost reduction plan, Moody's is concerned with AWA's ability to sufficiently reduce costs to match its current revenue stream. AWA has traditionally had one of the lowest operating cost structures in the industry. This position eroded as a result of mandated maintenance procedures, the compliance of which significantly increased maintenance costs. Should a weaker economic environment persist, cash flow generation will likely be impaired, and with large aircraft lease payments anticipated in the third quarter, the company's cash balance is likely to weaken. The company 's cash position is considered sufficient for current circumstances and is anticipated to be adequate to meet its needs in the immediate future. The company does have a line of credit in place, but because its aircraft fleet and substantially all of its other assets are pledged to support existing debt, the company has limited financial flexibility beyond that. Moody's will continue to monitor current and future operations of the company as well as its ability to meet terms and conditions of its financial arrangements to ensure that debt protection measures are still supportive of the current ratings.

Moody's downgrade of AWA eliminates the historical rating parity between the senior implied rating and the unsecured debt rating of the company. The company has pledged substantially all of its assets to its secured debt holders, which effectively subordinates the unsecured debt. Moody's believes that the effective subordination of unsecured debt holders warrants an additional notch downgrade of the unsecured debt rating.

The ratings downgraded are:

America West Airlines, Inc.

Senior Implied to B2 from B1

Senior Unsecured Issuer Rating to B3 from B1

Senior Unsecured to B3 from B1

Senior Bank Facility to B1 from Ba3

Enhanced Equipment Trust Certificates, Series 1996-1, Class A to A3 from A2

Enhanced Equipment Trust Certificates, Series 1996-1, Class B to Baa3 from Baa2

Enhanced Equipment Trust Certificates, Series 1996-1, Class C to Ba2 from Ba1

Enhanced Equipment Trust Certificates, Series 1996-1, Class D to B1 from Ba3

Enhanced Equipment Trust Certificates, Series 1996-1, Class E to B2 from B1

Enhanced Equipment Trust Certificates, Series 1997-1, Class A to A3 from A2

Enhanced Equipment Trust Certificates, Series 1997-1, Class B to Baa3 from Baa2

Enhanced Equipment Trust Certificates, Series 1997-1, Class C to Ba2 from Ba1

Enhanced Equipment Trust Certificates, Series 1997-1, Class D to B1 from Ba3

Enhanced Equipment Trust Certificates, Series 1998-1, Class A to A3 from A2

Enhanced Equipment Trust Certificates, Series 1998-1, Class B to Baa2 from Baa1

Enhanced Equipment Trust Certificates, Series 1998-1, Class C to Ba1 from Baa3

Enhanced Equipment Trust Certificates, Series 1999-1, Class C to Ba1 from Baa3

Enhanced Equipment Trust Certificates, Series 2000-1, Class C to Ba1 from Baa3

Enhanced Equipment Trust Certificates supported by a wrap party are unaffected.

Industrial Revenue Bonds to B3 from B1

America West Airlines, Inc., headquartered in Phoenix, Arizona, is a passenger airline.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Richard Bittenbender
VP - Senior Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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