LOS ANGELES -- A U.S. bankruptcy court judge last week approved a cash infusion for ailing America West Airlines, but it remains unclear how the agreement might affect defaulted tax-exempt bonds sold for the airline by the Phoenix Industrial Development Authority.
Judge Robert Mooreman of Phoenix approved an agreement that provides America West with $20 million in loans from Northwest Airlines and $35 million from GPA Group Ltd., a jet-leasing company in Shannon, Ireland.
The financing arrangement is expected to give America West some breathing from following its decision in June to file for bankruptcy court protection from creditors. The company now requires court approval for its major business decisions.
America West' bankruptcy filing also cast a cloud over its ability to repay bonds sold by the Phoenix development authority. Bond proceeds financed certain improvements at Sky Harbor International Airport.
One bond issue -- sold in 1986 to finance a technical support center for America West -- involved variable rate revenue bonds that gave investors the option to put the debt back to a marketing agent.
All $29 million of those bonds that were outstanding this summer were put back, according to First Interstate Bank of Arizona, the bond trustee. Since new buyers could not be found, First Interstate paid bondholders by tapping a letter of credit from Industrial Bank of Japan that secured the debt.
But two other bond issued did not feature such security.
The development authority sold about $34.6 million of tax-exempt revenue bonds in 1989 and $9.8 million in 1990 to finance certain capital improvements at Sky Harbor's Terminal 4. Lease payments from America West were designated to pay debt service on the bonds.
On July 1, however, America West failed to make a scheduled lease payment, triggering a default.
Gary Hull, a lawyer for the Phoenix development authority, said Friday that "I'm not in a position to say" how the bond might be affected by America West's attempts to solve its financial problems. Mr. Hull noted that lawyers for the airline and the bond trustee are working on various issues tied to the default.
Tom Ellis, an assistant vice president and media representative at First Interstate, said he either did not know the answers to certain questions or declined to comment altogether.
Mr. Ellis, for example, would not even confirm that the bond issue was in default, saying such information was "confidential."
A spokesman for America West said he would research the status of the default, but he did not return a telephone call by press time.
Mr. Hull said he believed the bankruptcy court still is studying whether First Interstate can use a bond reserve fund to cover America West's missed payment in July.
America West has argued that the reserve fund is frozen because of an automatic stay imposed by the court in the bankruptcy filing.
But First Interstate has countered that bond proceeds provided the reserve fund, rather than money from America West. Accordingly, the bond trustee argues that the reserve fund is not subject to bankruptcy restrictions on America West's property or property interests.
It was unclear when the bankruptcy court might decide the issue. Mr. Ellis of First Interstate declined comment on the matter and would not permit a reporter to talk to the bank's outside lawyer.
One source said a large institutional investor holds the Terminal 4 bonds. General Electric Capital Fleet Services, a subsidiary of General Electric Capital Corp., reportedly is the bondholder. An official at the Minnesota-based fleet services company could not be reached for comment on Friday.
America West reported a loss of $80.8 million in the first half of 1991 and has projected a deficit of at least $100 million for the entire year. America West attributed its severe cash squeeze to a slowdown in air travel, higher fuel prices, and the Persian Gulf War. Some stock analysts, however, said the airline's rapid expansion strategy caused many of its problems.
