This Bird Is No Longer An Ugly Duckling

It's a catchy tune: In TV commercials, the employees of America West Airlines Inc. belt out their version of the Aretha Franklin oldie, Respect. For years, though, the carrier got none at all: The butt of industry scorn, it was held up as a classic case of overambitious expansion in the giddy 1980s. Few expected the heavily leveraged line to survive after filing for bankruptcy in June, 1991.

The doubters had it wrong. In 1993, a revitalized America West earned $37 million, second only to industry star Southwest Airlines Co. Now poised to emerge from Chapter 11, America West has suitors lined up to bid for a controlling interest. On Feb. 24, the America West board will select the best offer before submitting it to creditors and a bankruptcy judge. In the few days before that deadline, there is likely to be plenty of fireworks.

"AN INSTANT WAY." The latest suitor: a group led by Texas financier David Bonderman. It was Bonderman's Air Partners LP that teamed up with Air Canada to bring Continental Airlines Inc. out of bankruptcy last year. A spokesman says Bonderman now wants to link Phoenix-based America West to Houston-based Continental's network, including the rapidly expanding low-cost, short-haul Cal Lite, which copies Southwest.

Bonderman won't comment, and the details of his offer, made in early February, remain sketchy. But Continental says it is also considering taking a minority position in America West, in conjunction with Air Partners' bid. Analysts say such a marriage makes sense. Both airlines have lower costs and more flexible work rules than their larger competitors. And as Continental scales back service at its Denver hub, it needs to bolster its position elsewhere in the West. With America West, says Gregory P. Kaldahl, marketing director at airline consulting firm Avitas Inc., "there's an instant way to do that."

The problem: America West's unsecured creditors' committee, which ultimately must sign off on the plan, may balk at the Bonderman proposal. For starters, Bonderman will have to top an earlier bid from investor Michael Steinhardt for $250 million. So far, say sources close to the committee, Steinhardt appears to have the edge--largely because his plan goes further toward paying off creditors, which include such suppliers as Airbus Industrie and Aviall Inc., an engine-repair company. Moreover, the cash infusion would leave America West in a stronger position to compete against Southwest.

Complicating matters is those creditors' turbulent relationship with Chief Executive Officer William Franke. Franke, who made a name for himself in Phoenix by restructuring Circle K Corp. and Southwest Forest Industries, joined the airline's board in September, 1992, after rallying a group of local businessmen to invest $15 million in the company. A year later, he led a bitter board coup that ousted Chief Executive and co-founder Michael J. Conway.

BOARDROOM BOND. Franke has the backing of GPA Group, the plane lessor that is the airline's biggest secured creditor and currently is heavily represented on the America West board. But some unsecured creditors privately fault Franke for installing himself as chief executive. Many retain close ties to Conway, and some of them say that Conway has been talking to Steinhardt about playing a role at a reorganized airline. The Bonderman group, in the meantime, says it would retain Franke as CEO. According to Franke, "the focus of the board is to find a plan everyone can agree upon. But that may be wishful thinking."

Conway will say only: "I still feel a close bond to America West." It was under Conway that America West finally came out of its long nosedive. He sharply scaled back operations, cutting out unprofitable routes to such far-flung places as Japan and Hawaii, and reduced the number of aircraft from 123 to 85. Conway also slashed the work force from 14,000 to 11,000. The airline's capacity utilization and operating margins improved dramatically.

Will Conway return? Franke wants to keep his job, and he may have one more card to play: his own group of investors. One of the possible participants, Franke says, is Carl R. Pohlad of Minneapolis, who owns the Minnesota Twins baseball team and was once a director of Texas Air Corp. Such a bid, though, would also have to get past America West's creditors. And it would have to top some deep-pocketed competition. America West suddenly has all the respect it could want.

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