Rising in the West?

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Author: Atlas, RivaJaffe, Thomas

AMERICA WEST AIRLINES, INC. (estimated 1994 sales, $1.4 billion) emerged from bankruptcy last August with one of its industry's lowest cost structures. Even so, the Phoenix-based carrier's 45 million NYSE-listed shares have since fallen from 16 3/8 to a recent 6 5/8. At that price, it is being valued at four times the $1.55 a share that Bankers Trust high-yield bond analyst Brett Levy expects it to earn this year. A screaming buy, says Levy.

Why's the stock so low? Because, Levy replies, stocks of reorganized companies are highly volatile at first, as creditors often dump shares they receive in any recapitalization. In America West's reorganization, creditors got 60% of its new equity.

Raymond Neidl, an airline analyst at Furman Selz, agrees America West is cheap. He says it has been unjustly punished because of the fare war on the West Coast between Southwest Airlines and United Airlines' new shuttle. Only about 5% of America West's capacity, he notes, overlaps with the United shuttle. And America West is a fierce competitor with Southwest in its Phoenix and Las Vegas hubs.

Thanks to sharp cost-cutting begun during the Chapter 11 stay, America West's costs per available seat mile were only about 7 cents through the third quarter of last year -- around the same as no-frills Southwest and less than an estimated 7.5 cents or so per mile for the United shuttle. Out of bankruptcy, it has one of its industry's cleanest balance sheets, with $5.20 a share of cash in the till. Layoffs and further cutting announced in January should slash another $40 million a year from operating expenses starting in 1996.

Bankers Trust's Levy expects America West stock to more than double over the next year, to 15.

PHOTO: America West jet: Will former creditors regret dumping its shares?

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By RIVA ATLAS

EDITED BY THOMAS JAFFE